Re Dragon Seafoods Ltd

CACV 375/2023, [2025] HKCA 177

On appeal from [2023] HKCFI 2624

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 375 OF 2023

(ON APPEAL FROM HCCW NO 265 OF 2021)

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D E C I S I O N

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

The Summons

1.This is an application to extend time for providing security for costs on appeal.

2.On 21 October 2024, upon the respondent’s application, we ordered the petitioner to provide security for the respondent’s costs in the appeal in the following terms ([2024] HKCA 966) (“Security for Costs Order”):

“(1) The petitioner do provide security for the respondent’s costs of this appeal by making payment into court in the sum of HK$600,000 within 28 days from the date of this decision.

(2) All further proceedings in the appeal be stayed until such security is provided and notice of payment is given to the Registrar of Civil Appeals and the solicitors for the respondent.

(3) In default of security being given within the time set out in (1) above, the appeal do stand dismissed without further order, with costs to be paid by the petitioner to the respondent, to be taxed if not agreed.”

3.The petitioner did not provide the security for costs within the stipulated 28-day period, which expired on 18 November 2024. Pursuant to the sanction imposed in paragraph (3) of the Security for Costs Order, the appeal has been dismissed with costs to the respondent.

4.On 19 December 2024, 31 days after the stipulated period as mentioned and 17 days after the 14-day period under Order 2 rule 4[1], the petitioner issued the present summons (“Summons”) for an order that:

“(1) Time for the Petitioner to apply for relief from sanction be extended for 7 days from the date of the order to be made herein;

(2) Relief from sanction of paragraph 1 of the [Security for Costs Order] be granted to the Petitioner and thereby the Petitioner’s appeal be reinstated;

(3) Further to paragraph (2) hereinabove, the time for the Petitioner to provide security in the sum of HK$600,000 for the Respondent be extended for 7 days from the date of the order to be made herein; and

(4) Costs of this application be to the Respondent in any event.”

5.We would approach the Summons as the petitioner’s application for an extension of time to apply for relief from sanction from the 14-day period stipulated under Order 2, rule 4 to the date that the Summons was issued.

6.The Summons is supported by the 2^nd Affirmation of Leung King Wai William (“P’s 2^nd”), the principal of the petitioner’s solicitors. It is trite that an affirmation should contain evidence and not submissions. With due respect to Mr Leung, the submissions in §§29 to 33 of P’s 2^nd should be made in his written submissions and should not be included in an affirmation.

7.On 20 December 2024, this court gave directions for the filing of affidavit evidence and written submissions, and that the Summons would be dealt with on paper (“Directions”). By letter dated 10 January 2025, Messrs Kwok, Yih & Chan, solicitors for the respondent, indicated that to save costs they would not file any affirmation or written submissions in opposition. They merely stated that the petitioner has failed to obtain relief from sanction within 14 days of the failure to comply with the Security for Costs Order and any bank restrictions with Russian entities referred to by the petitioner would have existed at the time of the respondent’s application for security for costs filed on 15 December 2023. Hence, the petitioner has had ample time to overcome the alleged hurdles and make appropriate arrangement to transfer funds for the security for costs.

8.The petitioner lodged its “Reply Submission” on 24 January 2025 in response to the above observations in the letter of the respondent’s solicitors.

The petitioner’s 3^rd Affirmation filed without leave

9.The Directions specifically directed that no further document shall be filed without leave. Contrary to the Directions, the petitioner filed the 3^rd Affirmation of Mr Leung (“P’s 3^rd”) on 3 February 2025, without any application for leave of the court or consent from the respondent.

10.P’s 3^rd exhibited a copy (the original was being couriered to Hong Kong) of the Affirmation of Mr Smirnov Konstantin Vladimirovich (“Smirnov” and “Smirnov’s Affirmation”), the managing director of the petitioner, which was signed, notarized, and authenticated by an apostille, along with a Russian-to-English translated copy.

11.Leaving aside the absence of leave, it is not clear why Smirnov’s Affirmation was not mentioned in the petitioner’s Reply Submission dated 24 January 2025, as Mr Leung had sight of the Russian-to-English translated copy of Smirnov’s Affirmation which was couriered to Hong Kong on 21 January 2025 although the original was not yet received when he made P’s 3^rd on 3 February 2025.

12.There is no indication from the respondent of its stance regarding P’s 3^rd and Smirnov’s Affirmation. But for the fact that there seems to be no new substantive matters deposed to in P’s 3^rd or Smirnov’s Affirmation, we would have excluded these affirmations from our consideration as evidence adduced without leave contrary to the Directions.

Legal principles

13.The legal principles for (i) an application for relief from sanction imposed by an unless order, and (ii) an extension of time for non-compliance of Order 2, rule 4, are well-established. They are set out by Au JA in Mututal Brilliant Limited v Shin Ho Cable (Holdings) Company Limited & Anr [2024] HKCA 519, at §§62 to 66. In the weighing exercise to be undertaken by the court in the exercise of its discretion to grant relief from sanction, a weighty factor is proportionality of the sanction in the circumstances of the case[2].

14.The legal principles governing the extension of time to provide security are summarised by Lok J in Two-Way Media Ltd v PCCW Ltd & Ors [2022] 4 HKC 373, at §5:

“(i) It is the norm for the applicant to provide adequate explanation for making the application for extension of time. Without evidence explaining why the applicant has not paid the security as ordered, why it needs more time, its financial circumstances, and why no application for extension of time has been made earlier, there is simply no basis for the court to exercise the discretion to grant an extension of time.

(ii) Litigants should be disabused of the notion that court orders do not mean what they say. A party seeking an extension of time does not have the luxury of proceedings at a pace that is to its liking. Rather, it has to proceed with all due dispatch and approach the matter with a sense of urgency.

(iii) The lack of prejudice to the other party is not itself a ground for granting an extension which is otherwise unjustified.”

The petitioner’s case

15.The petitioner’s case, as deposed to by Mr Leung, is that the delay in providing security was due to the difficulty in wiring funds to Hong Kong, which is beyond the petitioner’s control. We do not propose to set out in detail all the evidence on these matters, save as follows:

(1)  The petitioner made an attempt to transfer funds as early as 12 March 2024 (on Mr Leung’s advice in December 2023, not long after the respondent’s application for security for costs was taken out), by transferring the funds to the account of the petitioner’s solicitors at the Bank of China (Hong Kong) Limited (“BOC”). A transaction record (Exhibit LKWW-2) and “a copy of the WhatsApp correspondence between the Petitioner’s solicitor and [Smirnov’s son]” (ie, Exhibit SKV-1) were exhibited. However, due to “tightening regulations relating to transactions with Russia entity”, the funds had “probably” gone through the process of approval by the intermediate bank’s compliance department. It was also alleged that BOC was “very unlikely” to process transaction related to Russian entities. The transfer of funds was unsuccessful in the end, and Mr Leung was informed by the petitioner on 13 May 2024 that the funds were returned to the petitioner’s account.

(2)  Mr Leung stated that he had explored alternative transaction methods through the “subsidiaries of small Chinese banks” during the period from March to June 2024. However, these subsidiaries informed the petitioner’s solicitors that they had halted all transactions with Russian entities since February/March 2024 since the USA authorised secondary sanctions in December 2023 targeting financial institutions.

(3)  After the Security for Costs Order (ie 21 October 2024), the petitioner’s solicitors enquired again with BOC and China CITIC Bank International Limited regarding receiving funds from Russian entities to comply with the Security for Costs Order.

(4)  On 6 December 2024, the petitioner’s solicitors finally received the funds from the petitioner and the petitioner is now able to comply with the Security for Costs Order. There were other communications with the respondent’s solicitors afterwards. As the respondent’s solicitors refused to consent to the application for relief from sanction, the Summons was eventually issued on 19 December 2024.

(5)  As to the reason why the Summons was issued belatedly, Mr Leung explained that until the petitioner’s solicitors have received the funds from the petitioner on 6 December 2024, they were “unable to provide the Court with a definite timeline for when the Petitioner will be able to comply with the Security for Costs Order.” (P’s 2^nd, at §§15 and 22)

16.Mr Leung also submits that the length of the delay in issuing the Summons is short, and the reasons for the delay were neither deliberate nor contumacious, but due to circumstances beyond their control. He further submits that the respondent would not suffer any real prejudice as no hearing date has been fixed yet. He asserts that any prejudice suffered by the respondent could be remedied by an order for costs and the prejudice the petitioner would suffer if the appeal remains dismissed would be very serious.

Discussion

17.We do not think the delay in issuing the Summons can be regarded as short. It is 31 days after the stipulated 28-day period under the Security for Costs Order and 17 days after the 14-day period under Order 2 rule 4.

18.We do not accept that the petitioner has made a good explanation for failure to comply with the Security for Costs Order for the following reasons.

19.It is evident that the underlying proceedings have been ongoing since 2021 and the appeal since 2023. The petitioner should proceed with all due dispatch and approach the matter with a sense of urgency. As Mr Leung has deposed, he advised the petitioner shortly after the application for security was issued in December 2023 that the plaintiff should wire sufficient funds for making the security for costs payment if the respondent’s application should be granted by the court. The petitioner only attempted to do so in March 2024.

20.Regarding the attempted transfer in March 2024, we note from the transaction record (Exhibit LKWW-2) that the purpose of the purported transfer of RMB 1,392,725 was stated as: “Payment of the legal services Agreement dated 16.02.2023, inv. 23047 dd 14.02.2024, contracts No. 23051601/00 77/0000/4/1 of 04.05.2023”. This does not appear to be for the purpose “to ensure compliance of court order”, as asserted by Mr Leung in §5 of P’s 2^nd.

21.No reason was proffered as to why the transferred funds were returned to the petitioner’s account. Mr Leung merely stated that he was informed of this on 13 May 2024. Nor were we told of the steps taken by the petitioner to effect the transfer again, which was alleged to have been made successfully on 6 December 2024.

22.Mr Leung deposed that his firm explored alternative methods, such as wiring through subsidiaries of small Chinese banks from March to June 2024. There was no follow-up action. Put simply, the petitioner seems to have done nothing further after June 2024, at least not until after the Security for Costs Order.

23.There is no documentary evidence to show that the petitioner’s solicitors had received the funds, or the actual amount received, or any attempt to deposit the funds in court as security. Instead, the petitioner asks for another 7 days in the Summons to provide the security.

24.Notwithstanding the above unsatisfactory features, we have decided to exercise our discretion to grant relief from sanction, in the overall interests of justice. The petitioner’s solicitor deposed that since 6 December 2024, his firm “ultimately and at long last received the funds from the Petitioner”, so the petitioner is now able to comply with the order to pay into court HK$600,000 as security for costs. Weighing the prejudice suffered by the respondent in granting relief from sanction, and the prejudice to the petitioner in refusing relief from sanction, we do not think it would be a proportionate exercise of discretion to refuse relief in this situation.

Orders

25.We order that the time for the petitioner to apply for relief from sanction imposed by paragraph 3 of the Security for Costs Order be extended to the date of the issuance of the Summons on 19 December 2024. We grant relief from the sanction imposed and order that the petitioner’s appeal be reinstated on condition that it complies with paragraph 1 of the Security for Costs Order by paying HK$600,000 into court as security for the costs of the respondent in this appeal, within 3 days from the date hereof.

26.We would have ordered the petitioner to pay the respondent’s costs of the Summons, as the petitioner is seeking an indulgence from the court. It is not apparent to us whether any meaningful costs have been incurred by the respondent in this regard, as it has only written a letter by its solicitors on 10 January 2025 and did not file any affirmation and submissions to save costs. We therefore make an order nisi there be no order as to the costs of the Summons.

William K W Leung & Co, for the Petitioner (Appellant)

Kwok, Yih & Chan, for the Respondent (Respondent)