Re Chu Jiaru

CACV 95/2023, [2024] HKCA 756

On appeal from [2023] HKCFI 721

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 95 OF 2023

(ON APPEAL FROM HCB NO 8394 OF 2020)

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J U D G M E N T

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Hon Kwan VP (giving the Judgment of the Court):

1.This is an application for security for costs of an appeal. After the summons was issued, both parties have proceeded on the premise that liability for providing security would not be contested, leaving the court to determine the quantum of the security and the costs of this summons.

2.The proceedings below are concerned with an application to annul a bankruptcy order. The matter arose in this way.

3.A syndicate of lenders entered into a facility agreement (“2019 Facility Agreement”) with Fortune Legend Limited (“FLL”) as borrower and the petitioner as security agent. The loan advanced under the 2019 Facility Agreement was secured by various forms of security, including a personal guarantee given by the debtor. FLL was subsequently in default under the 2019 Facility Agreement. The petitioner took steps to enforce its security.

4.The petitioner filed a bankruptcy petition against the debtor as she failed to satisfy a statutory demand for €77 million odd. The petition was served pursuant to an order for substituted service. The debtor was absent at the hearing of the petition and the master made a bankruptcy order against her on 26 May 2021.

5.The debtor issued a summons for annulment of the bankruptcy order on 13 September 2021, on the ground that the bankruptcy order ought not to have been made, and/or the provable debts and expenses have all been paid or secured since the making of the bankruptcy order.

6.The application for annulment was dismissed by Recorder Jin Pao, SC on 10 March 2023[1]. The judge held in favour of the debtor she has demonstrated a bona fide dispute on substantial grounds of the debt in the petition, but was not satisfied that he should exercise his discretion in favour of granting an annulment of the bankruptcy order.

7.On 27 March 2023, the debtor filed a notice of appeal against the dismissal of her application for annulment.

8.On 25 May 2023, the petitioner filed the present summons seeking security for costs of the appeal in the sum of $1,200,000.

The quantum of security

9.Pursuant to Order 59 rule 10(5) of the Rules of the High Court, 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”.

10.The debtor only disputes the quantum of security. In the evidence in opposition of her solicitors, comments were provided to the skeleton bill of the petitioner and reasonable costs for the appeal were assessed at $860,780[2].

11.The petitioner indicated on 30 June 2023 it is prepared to accept the sum of $860,780 as security for costs and has maintained that position.

12.The debtor’s position is that $650,000 should be sufficient as security and it would be just and proper to order this amount be provided, for the following reasons:

(1)  reasonable costs of this appeal should be at most $860,780;

(2)  even if the court assesses $860,780 as reasonable costs of the appeal, it can order a lower amount as security, taking into account these matters: this appeal is fixed for one day only and will be argued on the existing evidence; the same team of legal representatives for the petitioner were involved below and should be familiar with the evidence and arguments; the appeal consists largely of crisp issues of legal principles or matters that were already explored before the judge;

(3)  if the court considers the payment of $650,000 insufficient, the payment could be coupled with an undertaking from the debtor’s husband Mr Zhen Sun (also known as Jack Sun) to cover the remaining $210,780, and the combination of payment and undertaking would sufficiently secure the petitioner’s position.

13.In assessing the proper amount of security for costs, the court normally takes a broad brush approach and does not conduct a taxation of the respondent’s costs in fixing the quantum of security. The exercise on which it is engaged is to arrive at an appropriate estimation of the likely amount of costs which would be ordered to be paid by the appellant to the respondent on a party and party taxation (Allied Ever Holdings Ltd v Li Shu Chung & Ors [2019] HKCA 752 at §8(1)).

14.The debtor cited two cases (Willwin Development (Asia) Co Ltd & Anr v Wei Xing & Ors, CACV 76/2016 and CACV 90/2016, 21 February 2017; and Macau First Universal International Ltd v Ding Xiao Hong & Ors, CACV 190/2014, 11 December 2014) as examples to demonstrate that the court may award an amount of security which is lower than the reasonable costs of the appeal. The circumstances in those two cases are different and do not assist the debtor. In Willwin, two separate sets of security were ordered as there were different appellants bringing two appeals which arose out of the same trial. That was given as the reason that the court does not have to order the full amount which it assesses as reasonable costs of the appeal (at §16). In Macau First at §8, Chu JA (as she then was) quoted Hunter JA in Re Cirtex Co Ltd, Civ App 133/1987 at §8, which mentioned that “if there is a lurking doubt about oppression the security should be perhaps reduced to a point at the lower end of such estimate”. There is only one appellant and one set of security in this appeal, and no suggestion of oppression.

15.Furthermore, the debtor’s grounds for contending that the court should order a lower amount of security in this case (short duration of hearing, same evidence, same legal team, crisp legal arguments, complexity of issues) have already been canvassed in her solicitor’s affirmation when she discounted the petitioner’s bill of costs by 55% in arriving at $860,780 as reasonable costs of the appeal. There is no good reason why these factors should be taken into account a second time to further reduce the reasonable costs estimated by the debtor.

16.As for the undertaking to be offered by the debtor’s husband Mr Sun, he appears to reside outside Hong Kong. There is no evidence of Mr Sun having any assets in Hong Kong. His known assets being bank balances of RMB 18 million are deposited in a bank in Mainland China. Assuming that the balances shown in the bank statements in June 2023 have not been reduced, the actual financial status of Mr Sun, including his liabilities, remains unknown. We agree with the petitioner that an undertaking from Mr Sun would be difficult to enforce and do not think this would be an adequate substitute for payment into court. We reject also the contention that the court should take a less stringent view on the adequacy of his undertaking just because it would be coupled with a payment into court of $650,000.

17.For the above reasons, the debtor’s contention that the court should order security at an amount lower than $860,780 is untenable. It is just and proper to order the debtor to pay into court $860,780 as security.

Costs of this application

18.The debtor submitted there should be a meaningful reduction in any costs order in favour of the petitioner, to reflect the fact that the quantum of security later accepted by the petitioner is substantially lower than the $1,200,000 sought in the summons. It was submitted that the petitioner should have 30% of its costs up to 3 July 2023, after which there should be no order as to costs.

19.The petitioner proposed to accept $860,780 as security for costs on 30 June 2023, but the debtor declined its offer on 3 July 2023, indicating that she was only prepared to pay $650,000 as security and the remaining $210,780 would be covered by Mr Sun’s undertaking.

20.As the petitioner has successfully obtained an order for security for costs in a sum more than $650,000, there is no reason why the debtor should not pay the entire sum of reasonable costs of the petitioner in this application.

21.The costs claimed in the statement of costs for summary assessment are $744,334.50, which we regard as excessive. The debtor sought to reduce costs to $209,899. We agree there should be reductions, in light of the excessive hourly rates of the fee earners, the excessive time spent for some items and possible duplication of work. We do not think it necessary to engage Senior Counsel for this application and that the junior counsel, who had appeared with the Senior Counsel in the proceedings below, should be capable of handling the application effectively.

22.Taking a broad brush approach, we assess reasonable costs of the petitioner for this application at $250,000.

Orders

23.We make an order in the following terms:

(1)  the debtor do give security within 28 days from the date of this order by making payment into court of $860,780 for the costs of and occasioned by her appeal filed on 27 March 2023;

(2)  until compliance with paragraph (1) hereof, all proceedings in the appeal be stayed;

(3)  in default of security being given within the time as ordered in paragraph (1) hereof, the appeal do stand dismissed without further order, with costs to be taxed and paid by the debtor to the petitioner; and

(4)  costs of this application be to the petitioner, assessed summarily at $250,000.

Written submissions by Mr José Maurellet SC and Mr Cyrus Chua, instructed by Linklaters, for the Petitioner (Respondent)

Written submissions by Mr Danny Tang and Mr Keith Chan, instructed by Anthony Siu & Co, for the Debtor (Appellant)