High Fashion New Media Corporation Ltd (Suing on behalf of Itself and Also in Its Capacity As the Sole Shareholder of Longford Information and Technology Co Ltd) v. Leong Ma Li

CACV 341/2022, [2023] HKCA 1028

on appeal from [2022] HKCFI 2234

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 341 OF 2022

(ON APPEAL FROM HCMP 932/2020)

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D E C I S I O N

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Hon Barma JA (giving the Decision of the Court):

1.This is an application by the plaintiff, High Fashion New Media Corporation Limited, seeking security for the costs of an appeal by the defendant, Ms Leong Ma Li. The appeal by Ms Leong is against the judgment of DHCJ H. Au-Yeung dated 26 July 2022, by which he found the defendant guilty of contempt of court.

2.Having considered the papers and the parties’ respective written submissions, we formed the view that the application could be dealt with on paper without a hearing.  This is our decision in relation to the application.

3.The background to the application can be briefly summarized as follows:

(1)  The underlying proceedings (HCA 1953/2014) giving rise to the proceedings for contempt (HCMP 932/2020) with which the appeal is concerned related to the affairs of a company called Longford Information and Technology Company Limited (“Longford”).

(2)  Longford is the wholly owned subsidiary of the plaintiff, which is itself a joint venture company owned as to 65% by High Fashion Apparel Limited (“HFA”) and as to 35% by Hansen International Limited (“Hansen”).  Hansen is wholly owned by the defendant.

(3)  HFA, Hansen and the plaintiff are all companies incorporated in Hong Kong, while Longford is incorporated in the PRC.

(4)  The defendant is the legal representative and chairman of the board of directors of Longford.

(5)  HCA 1953/2014 concerned alleged breaches by the defendant of a protocol (“the Longford Account Protocol”) agreed between her and HFA as to how funds in Longford’s bank account should be dealt with.  In the course of HCA 1953/2014, on 5 December 2014 Chow J (as Chow JA then was) granted an interlocutory injunction on the application of the plaintiff, in effect compelling the defendant to comply with the Longford Account Protocol.

(6)  After the grant of the injunction, the plaintiff commenced committal proceedings (not the present committal proceedings) alleging breaches of the injunction by the defendant.  On 8 August 2017, Chow J found that the defendant had deliberately, intentionally and voluntarily acted in breach of the injunction, thereby committing a contempt of court.

(7)  Thereafter, the plaintiff complained of numerous further alleged breaches of the injunction by the defendant, arising out of the further operation of Longford’s bank account, resulting in the bringing of the contempt proceedings now under appeal.  The defendant denied the allegations, saying that she had ceased to deal with Longford’s affairs after being found guilty of contempt by Chow J, and further contended that there had been unreasonable delay in the bringing of the further contempt proceedings, to her prejudice. 

(8)  These contempt proceedings were heard by DHCJ Au-Yeung, who found the defendant guilty of contempt by the judgment under appeal.

(9)  No hearing date for the appeal has yet been fixed.  A hearing to determine the sanction for the defendant’s contempt found by DHCJ Au-Yeung is fixed to be heard on 9 October 2023.

(10)   On 23 August 2022, the defendant lodged a Notice of Appeal against DHCJ Au-Yeung’s judgment.

(11)   On 1 December 2022, the plaintiff filed the present summons seeking security for costs in the sum of HK$1,274,700. This comprised HK$539,000 in respect of the costs of the application for security and HK$735,700 in respect of the costs of the appeal proper.

4.The application was supported by the 1^st affirmation of Lam Foo Wah dated 1 December 2022.  The defendant filed her 1^st affirmation to oppose the appeal on 26 January 2023.  Thereafter, on 2 February 2023, the plaintiff filed the 2^nd affirmation of Lam Foo Wah in reply.  The parties then lodged their written submissions, with the plaintiff lodging its submissions (by Ms Rachel Lam SC and Ms Eva Leung) on 16 February 2023, the defendant lodging her submissions (by Mr Jeffrey Chau) on 2 March 2023 and the plaintiff lodging reply submissions on 9 March 2023.

5.The principles applicable to the court’s consideration of whether or not to make an order for security for costs of an appeal were summarized by Ma CJHC (as he then was) in Chung Kau v Hong Kong Housing Authority & Others [2004] 2 HKLRD 650 at [14]:

“The power of the Court of Appeal to order security for costs in an appeal derives from RHC Order 59 rule 10(5). This Rule reads:

‘The Court of Appeal may, in special circumstances, order that such security shall be given for the costs of an appeal as may be just.’

The relevant principles, in particular the treatment of impecuniosity as a special circumstance are summarized in Hong Kong Civil Procedure 2004 Volume 1 at paragraphs 59/10/28 - 59/10/29. In this context, however, I would emphasize the following:-

(1) The fact that an appellant is impecunious does not lead automatically to an order that security for costs must be provided. The court is entitled to consider other relevant factors such as the strength of the appeal to determine whether or not it would be just to order that security for costs be provided.

(2) That said, as a matter of practice, once an applicant for security can demonstrate that impecuniosity (or some other factor such as difficulty or expense in enforcing a costs order) exists, while the court retains an overall discretion whether or not to make the order, it would then generally be up to the party resisting the application for security to demonstrate countervailing factors which would militate against such an order being made. A common countervailing factor to resist applications for security are the merits of an appeal.

(3) On a consideration of the merits of the appeal, while a detailed examination is not required (or desirable, even if possible on the materials before the court at this stage), the court should form some sort of preliminary, even instinctive, view. Where the merits appear to go strongly one way or the other, this may by itself be a decisive factor. Thus, an appeal which is very strong would often be a very good reason not to order security. The converse of course also applies. A hopeless appeal may even by itself justify an order for security. However, if the court takes the view that the appeal could really go either way, then generally it will look to the existence of any other factors to tilt the balance, in the absence of which security will be ordered. This is of course on the assumption that a factor such as impecuniosity has already been demonstrated.

(4)  As I have said above, the overriding consideration for the court is to consider, as the rule requires, whether ‘special’ (not exceptional) circumstances exist making it ‘just’ to order security.”

6.While impecuniosity of an appellant is perhaps the most common form of special circumstances that may justify an order for security, as was recognized in [14(2)] of Chung Kau, there are other forms of special circumstances, including the likelihood that a successful respondent would be likely to face undue delay or undue expense in enforcing any order for costs that might be made in his favour.  This will commonly be the case where, for example, an appellant is resident out of the jurisdiction. But even in such a case, it is open to the appellant to demonstrate that there would in truth be no real difficulty in enforcement, as was recognized by Kwan JA (as she then was) in Hung Fung Enterprises Holdings Limited v The Agricultural Bank of China (unrep., CACV 235/2010, 28 September 2011) at [14], where she stated:

“The rationale for the practice of ordering security where the appellant is resident abroad is the presumption that it is difficult to enforce the costs order abroad. Where this presumption is disproved by the appellant, security will not be ordered.”

7.The plaintiff contended that the defendant was both impecunious and resident out of the jurisdiction, and hence it would be difficult or costly for the plaintiff to have to enforce any cost order that might be made in its favour.

8.However, in the defendant’s 1^st affirmation made in opposition to this application, the defendant exhibited a bank statement in respect of her personal account with HSBC in Hong Kong, showing that she has a total of some HK$8.6 million in that account, made up of a fixed deposit of about HK$5 million and cash of over HK$3 million.  In the light of this evidence, the plaintiff now accepts that the defendant is not impecunious, and no longer relies on impecuniosity as a ground for making an order for security against the defendant.

9.However, the plaintiff continues to contend that security should be ordered, on the grounds that it is likely to be difficult for the plaintiff to enforce any costs order that may be made in its favour. In support of this contention, the plaintiff relies on its assertion that the defendant is resident out of the jurisdiction, and also suggests that the nature of the defendant’s assets, being cash in a bank account, is such as to be capable of being easily removed out of the plaintiff’s reach.  In response, the defendant has indicated that she intended to renew the fixed deposit upon maturity.  The plaintiff also suggests that the appeal has no prospects of success and that this in itself justifies an order for security.

10.The defendant resists an order for security, contending that:

(1)  Security should not be granted where, as here, the appeal concerns the defendant’s liberty.

(2)  There is no difficulty in enforcing any costs order that may be made in the plaintiff’s favour, as she is resident within the jurisdiction and in any event has ample funds within the jurisdiction. She says that she has also promptly paid a previous costs order made against her, and caused a company controlled by her promptly to pay a costs order made against it.

(3)  The appeal has merits.

(4)  In any event, the amount of security sought is excessive, and that even if security were to be ordered it should only be in respect of the costs of the appeal proper (as the costs of this application can be dealt with by an immediate costs order) and these should be reduced by at least 50%, so that a maximum amount of security of HK$367,850 should be ordered.

11.In our view, the key point is whether or not special circumstances that would justify an order for security being made can be said to exist, having regard to the fact that the defendant has demonstrated the existence of available funds totalling some HK$8.6 million in a bank account in her name.  We are satisfied that in the light of this, the plaintiff has clearly failed to demonstrate the existence of the required special circumstances.

12.It is not necessary to come to a firm view as to whether or not the defendant is resident in Hong Kong.  Given the existence of the substantial funds standing to the credit of her bank account (which are some seven times the amount of security sought by the plaintiff, and more than twenty times the amount suggested by the defendant – and in this regard, we are bound to say that the amount of security sought appears to us to be excessive), even if the defendant were not resident in Hong Kong, there would be no difficulty for the plaintiff to enforce any order for costs that it might obtain against assets in Hong Kong.

13.We do not think that the plaintiff’s point as to the liquid nature of the assets takes the plaintiff any further.  Absent evidence of a likelihood of dissipation similar to that which would be required for the purposes of obtaining a Mareva injunction (and there is no such evidence here), there is no basis for suggesting that the funds would in fact be transferred away out of the reach of the plaintiff.

14.As to the plaintiff’s suggestion that the appeal is wholly lacking in merit, it is well established that the court should only make a very broad brush assessment of the merits of the appeal in the context of an application for security for costs, and in any event, merits will only be a factor where they are very clear one way or another.  Having considered the arguments put forward by the parties in their written submissions, we do not think that the appeal is so clearly unmeritorious that security should be ordered, notwithstanding the existence of ample funds within the jurisdiction against which any costs order can be readily enforced.

15.In the light of the views we have expressed above, it is not necessary to deal with the defendant’s argument that security should not be ordered because the appeal concerns her liberty.  Regardless of this factor, given the absence of special circumstances, this is not a case in which security should be ordered.

16.For all of the foregoing reasons, we dismiss the application for security.  We shall make an order nisi that the plaintiff is to pay the defendant’s costs of this application, and that such costs should be assessed on a gross sum basis in the amount of HK$250,000.00.