Excel Courage Holdings Ltd v. Seto Ming Wai and Another

CACV 181/2024, [2025] HKCA 91

An appeal from [2024] HKCFI 984

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 181 OF 2024

(ON APPEAL FROM HCA NO. 1976 OF 2016)

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D E C I S I O N

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

1.This is the 2^nd defendant’s application for an order that the plaintiff do pay into court $1,806,300 as security for costs in respect of the appeal (‘Appeal’) against the judgment of Harris J dated 9 April 2024 (‘the Judgment’).

2.Having considered the papers, we are of the view that it is appropriate to deal with this application on paper, without an oral hearing, pursuant to Order 59, rule 14A(1) of the Rules of the High Court (Cap. 4A) (‘RHC’).

I.  Background facts

3.For the purpose of disposing of the present application, the following brief summary of the basic facts of this case, taken from the Judgment, should suffice.

4.The plaintiff is a company incorporated in the British Virgin Islands (‘BVI’). Mr Wong Sin Lai Derek (‘Mr Wong’) was the plaintiff’s sole shareholder and sole director between 21 February 2011 and 25 September 2013.

5.On 24 September 2013, Mr Wong, on behalf of the plaintiff, opened a securities account with the 2^nd defendant (‘Plaintiff’s Account’). The 1^st defendant, an account executive at the 2^nd defendant, dealt with Mr Wong.

6.On 25 September 2013, Mr Wong caused certain shares (‘Shares’) to be transferred from Fulbright Securities Limited, where they had been held, to the Plaintiff’s Account.

7.On the same day, Mr Wong produced the duly executed bought and sold notes and instructed the 1^st defendant to transfer the Shares to four recipients (‘Transfers’). The Shares were subsequently transferred to the said recipients who then sold or transferred most of the Shares. The plaintiff did not receive any consideration for the Transfers.

8.It is the plaintiff’s case that the Transfers were not properly authorised by the plaintiff and they took place as a result of the negligence and the breach of Quincecare duty on the part of the 1^st and 2^nd defendants.

9.By the Judgment, the Judge dismissed the plaintiff’s claims after trial.

10.On 7 May 2024, the plaintiff filed a notice of appeal (‘Notice of Appeal’) to appeal against the Judgment. The broad grounds of the Appeal are summarised as follows :

1)  The Judge erred in law in finding that Mr Wong acted within his authority in opening the Plaintiff’s Account.

2)  The Judge erred in not holding that the 2^nd defendant had breached its Quincecare duty.

3)  The Judge erred in law in holding that the 2^nd defendant’s breaches of duties did not cause any loss to the plaintiff, or that the loss was too remote.

11.On 14 May 2024, the 2^nd defendant filed a summons (‘14 May Summons’) seeking, inter alia, leave to appeal against the Judge’s order dated 9 April 2024 to grant leave to the plaintiff to amend its Re-Amended Statement of Claim. On 21 May 2024, the 2^nd defendant took out another summons seeking leave to amend the 14 May Summons (collectively, ‘the 2^nd defendant’s Summonses’). The 2^nd defendant’s Summonses have yet been heard.

12.On 27 May 2024, the 2^nd defendant filed its Respondent’s Notice.

II.  Security for costs of the Appeal

13.On 28 June 2024, the 2^nd defendant took out the present summons with an affirmation in support, applying for an order, inter alia, that the plaintiff do, within 21 days from the order to be made, provide security for the 2^nd defendant’s costs of the Appeal in the sum of $1,806,300.

14.According to the affirmation filed on behalf of the 2^nd defendant, the application is made on the following grounds :

1)  The plaintiff is a company ordinarily resident out of the jurisdiction;

2)  The plaintiff does not have any assets or any connection with Hong Kong to satisfy the 2^nd defendant’s costs in the event that the plaintiff is unsuccessful in the Appeal; and

3)  There is no reciprocal enforcement for enforcing judgments between Hong Kong and the BVI. The 2^nd defendant will have to incur additional time and costs in enforcing the costs order of the Appeal against the plaintiff.

15.The plaintiff opposes the application on the following grounds :

1)  The plaintiff is not impecunious, as security for costs in the sum of $4,479,500 had been paid into court by the plaintiff in respect of the proceedings below.

2)  There is no evidence that the 2^nd defendant will encounter any undue delay or be put to undue expenses in enforcing any order for costs in respect of the Appeal.

3)  The plaintiff has a high chance of succeeding in this Appeal.

4)  The 2^nd defendant has ceased its business as a security firm from 23 April 2024. The 2^nd defendant has insufficient assets to cover the plaintiff’s claim in the event that the plaintiff succeeds in this Appeal.

III.  Principles

16.Under Order 59, rule 10(5) of RHC, the Court of Appeal may, in special circumstances, order security to be given for the costs of an appeal as may be just. For this purpose, ‘special circumstances’ include, inter alia, cases where if the appellant fails in the appeal, the respondent may encounter difficulty in terms of delay or expenses in enforcing the costs order against the appellant. The burden is on the respondent to demonstrate that there will be delay or expenses in enforcing an adverse costs order against the appellant (see Hong Kong Civil Procedure 2025, Vol 1, at [59/10/27]).

17.The Court, however, has a discretion and 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 security for costs to be provided. But once a special circumstance is shown, it is generally up to the appellant to demonstrate countervailing factors militating against an order being made (see Chung Kau v Hong Kong Housing Authority [2004] 2 HKLRD 650, at [14(2)]).

IV.  Our view

1)  Difficulty or expenses in enforcement of costs order

18.In the present case, there is no dispute that the plaintiff, a company incorporated in the BVI, is resident abroad.

19.Mr Tai for the 2^nd defendant, citing Myers Management Consulting Ltd v Topmix (International) Co Ltd (unrep., CACV 194, 195, 196 & 197/2015, 6 January 2016), submitted that it has been the practice of the Court to require security when the appellant is resident abroad. The presumption is that enforcement is difficult and security should be ordered unless the appellant can demonstrate that this is not the case.

20.On the other hand, Mr Yau for the plaintiff asked this Court to depart from Myers Management Consulting Ltd v Topmix (International) Co Ltd and contended that there is no proper justification for this presumption to be made. Mr Yau submitted that the 2^nd defendant has failed to discharge its burden to show that there is such difficulty in enforcing the costs order of the Appeal.

21.With respect, the plaintiff’s submissions should be rejected. The rationale for the practice of ordering security where the appellant is resident abroad is the deemed expectation of undue delay or expenses in enforcing the costs order abroad. The presumption that it is difficult to enforce the costs order abroad may be disproved by the appellant (see High Fashion New Media Corporation v Leong Ma Li [2023] 4 HKLRD 603, at [6]).

22.On the materials before this Court, we are satisfied that the 2^nd defendant will be put to undue difficulty and expenses in enforcing costs order against the plaintiff :

1)  It is common ground that the plaintiff is a company incorporated in the BVI and that it has no assets in Hong Kong.

2)  There is no reciprocal enforcement arrangement for enforcing judgments between Hong Kong and the BVI. The 2^nd defendant would have to incur more time and costs in order to enforce any costs order of this Appeal in the BVI.

3)  The plaintiff is unable to displace the presumption of the difficulty or expenses in enforcing the costs order against it. The fact that the BVI is a common law jurisdiction does not mean that the delay and expenses in enforcing a costs order are in any way lessened.

2)  Other countervailing factors

23.Although we find that the 2^nd defendant will encounter difficulty and expenses in recovering the costs of the Appeal from the plaintiff if the Appeal were to be dismissed, we have to now consider whether there are sufficient countervailing factors which would militate against an order for security for costs being made against the plaintiff.

24.The plaintiff has put forward the following factors :

1)  Security for costs in the sum of $4,479,500 was paid into court by the plaintiff in respect of the proceedings below by consent.

2)  The plaintiff has a high chance of succeeding in this Appeal.

3)  The 2^nd defendant has ceased its business as a security firm.

25.In our view, none of the factors is so strong as to militate against ordering security :

1)  The fact that the plaintiff has paid security for the proceedings below is irrelevant. The sole consideration of this application is whether the 2^nd defendant would be able to recover its costs from the plaintiff in respect of this Appeal.

2)  It is not necessary to go into the details of the contentions which have been canvassed in the Notice of Appeal in the present application. All that we need to say is that the Appeal is not so meritorious that it will cause us to exercise the discretion against the granting of security.

3)  The fact that the 2^nd defendant has ceased its business as a security firm does not bar it from seeking security for costs in respect of this Appeal which is lodged by the plaintiff.

26.Overall, we consider that there are special circumstances which justify the making of the order requiring the plaintiff to give security for the 2^nd defendant’s costs of the Appeal.

3)  Quantum

27.As to the amount of security, according to the 2^nd defendant’s statement of estimated costs, the estimated costs of the appeal (including the present application) are $1,806,300, comprising $281,300 as solicitors’ fees and $1,525,000 as fees for two counsel.

28.According to the 2^nd defendant’s Statement of Costs for Summary Assessment dated 29 October 2024, the costs of the present application are at $171,139 which includes counsel fee of $84,000.  

29.Although the 2^nd defendant was represented by one senior counsel and one junior counsel in the trial below, this Appeal is not a particularly difficult one. Further, the 2^nd defendant’s costs to be incurred in the 2^nd defendant’s Summonses should be excluded. We are of the view that the appropriate amount of security in respect of the Appeal on a party to party basis excluding the present application is $700,000.

V.  Conclusion

30.Accordingly, we will make the following orders :

1)  The plaintiff is to pay into court within 28 days from the date of this order the sum of $700,000 as security for the costs of the Appeal;

2)  The Appeal is stayed until the sum is paid;

3)  In default of payment and upon the solicitors for the 2^nd defendant certifying such default to the Registrar of Civil Appeal, the Appeal is dismissed without further order together with costs of the Appeal to the 2^nd defendant; and

4)  The 2^nd defendant is to have the costs of this application, summarily assessed at $100,000.

Mr Jeff Yau, instructed by ONC Lawyers, for the plaintiff

Mr Terrence Tai, instructed by So Lung & Associates, for the 2^nd defendant