Target Insurance Company Ltd (in Compulsory Liquidation) v. Nerico Brothers Ltd

CACV 223/2022

[2025] HKCA 1024

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 223 OF 2022

(ON APPEAL FROM HCCW NO 47 OF 2022)

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REASONS FOR JUDGMENT

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Hon Au JA (giving the Reasons for Judgment of the Court):

A.  INTRODUCTION

1.Nerico Brother Ltd (“the Company”) was wound up by the court under an order dated 3 May 2022 (“the Winding Up Order”) made by Linda Chan J (“the Judge”) based on the winding-up petition presented by the Petitioner, which in turn was based on an unsatisfied statutory demand dated 18 January 2022 (“the SD”) issued by the Petitioner to the Company in respect of a debt of US$154,177,206.74 (“the Debt”)[1].

2.Thereafter, the Company filed a Notice of Appeal dated 30 May 2022 to appeal against the Winding Up Order. By then, Mr Lee Cheuk Fung Jerff (“Mr Lee”) was the sole director of the Company.

3.On 15 July 2022, by way of a summons (“the Striking-Out Summons”), the Petitioner applied to strike out the Notice of Appeal on the basis that the appeal disclosed no reasonable ground of appeal, and/or was an abuse of process as it was frivolous or vexatious.

4.By way of a judgment dated 13 April 2023 (“the CA Judgment”)[2], this court (Yuen, Barma and Au JJA) struck out the Notice of Appeal as it disclosed no reasonable ground of appeal or was an abuse of process.

5.Upon the Petitioner’s application by summons dated 27 April 2023 (“the Non-Party Costs Summons”), by another judgment dated 28 December 2023, this court (Yuen, Barma and Au JJA) ordered that Mr Lee be joined as a party for the purposes of costs only, and directed that a further hearing should be fixed to finally determine the incidence of costs liability on the part of Mr Lee. The further hearing as directed is conveniently referred to as “Stage 2” of the non-party costs application, which is the present application.

6.At the end of the hearing of this Stage 2 of the application, we ordered that the 1^st interested party (ie, Mr Lee) be personally liable for the Petitioner’s costs of the appeal, including the costs of the Striking-Out Summons, and the costs of the Non-Party Costs Summons, both sets of costs to be taxed if not agreed. We indicated that reasons for the judgment would be handed down. This is what we do now.

B.  BRIEF BACKGROUND

7.The underlying facts leading to the dispute and relevant various litigations between the Petitioner and the Company have been set out in the CA Judgment and another judgment of this court (Au and Chow JJA) in CACV 64/2023[3]. It is unnecessary for us to repeat them. For the present purpose, we only need to highlight the following (which are undisputed and largely taken from the Petitioner’s skeleton submissions).

8.The Petitioner is an authorised insurer regulated by the Insurance Authority (“the IA”) and covered around 60% of the taxi insurance market in Hong Kong in 2021, with more than 10,000 taxi insurance policies in its business portfolio.

9.The Company is incorporated in Hong Kong and is a licensed corporation regulated by the Securities and Futures Commission.

10.Since June 2020, the Petitioner has maintained a securities account (“the Account”) with the Company. By October 2021, the Petitioner had transferred an aggregate amount of HK$1.4 billion to the Account. Since the end of October 2021, at the IA’s request, the Petitioner has been repeatedly demanding the Company to return all the funds held in the Account, but to no avail.

11.According to the investor statement issued by the Company, as at 17 January 2022, the amount standing to the credit of the Account was US$154,177,206.74 (“the Sum”). Despite repeatedly acknowledging the Petitioner’s entitlement to the Sum, the Company failed to pay the same to the Petitioner other than a sum of some US$7,035.74.

12.As mentioned above, the Petitioner thereafter issued the SD and, when unsatisfied, the Petition to the Company in relation to the Debt. The Debt represented the balance of the outstanding sum in the Account.

13.In this respect, it is the Petitioner’s position that up to the making of the Winding Up Order, the Company through its directors and legal representatives had always indicated to the Petitioner and the court that it did not dispute that the Debt was due and owing. It only asked for indulgence on time for repayment for the purported principal reason that it needed time to recover the Sum from one Four Dimensions Global Strategy Fund (“Four Dimensions”), which recovery was delayed because of the various regulatory requirements in the Cayman Islands[4].

14.When the Petition came before the Judge on 3 May 2022, the Judge made a Winding Up Order against the Company on the basis that the Debt was due and payable was not disputed by the Company and it had failed to satisfy the court that its management would be able to obtain the return of the Sum even if a short adjournment as asked for were to be given to the Company[5].

15.Soon after the Winding Up Order, on 30 May 2022, the Company filed a 11-page Notice of Appeal, putting forward six grounds of appeal, against the Winding Up Order. Specifically, the Company contended that there was a bona fide dispute of the Debt on substantial grounds, by reference to 30 sub-paragraphs. It was also contended that it was the Petitioner who allegedly was in repudiatory breach of the securities agreement. These grounds have been summarized by this court at [27] of the CA Judgment as follows:

“27. The Company submitted 6 grounds of appeal. They may be summarized as follows:

(1) The Judge failed to consider that there was no express provision in the Agreement that time is of the essence upon the Petitioner’s request to withdraw the Sum, and reasonable time should be given to the Company to comply with the request. The same applies to the formal withdrawal notice from the Petitioner to the Company, the redemption notice from the Company to Four Dimensions, and the statutory demand. (grounds 1, 3 and 4)

(2) In making the Winding up Order, the Judge erred in failing to consider that the IA’s appointment of Managers for the Petitioner on 7 January 2022 triggered a ‘red flag’ within the system of Four Dimensions, and therefore the withdrawal of the Sum deposited with Four Dimensions must be approved by CIMA and the Caribbean Financial Action Task Force (‘the Cayman Authorities’). It was the failure on the part of the Petitioner to provide an independent audited report and fulfill the compliance requirements of the Cayman Authorities that stalled the remittance of the Outstanding Sum and thus, as the Petitioner was in repudiatory breach of the Agreement, and/or under the common law prevention principle, the Petitioner is not entitled to immediate repayment of it. (grounds 2, 5 and 6)”

16.As mentioned above, upon the Petitioner’s application, this court struck out the Notice of Appeal finding that the appeal was frivolous and/or an abuse of process. Yuen JA (giving the judgment of the court) explained this at [31] ‑ [36] of the CA Judgment as follows:

“31. Instead, faced with the SD and then the Petition, the Company, not once but twice, unconditionally admitted in the affirmations of Mr Lee and Mr Wan that the Outstanding Sum was owed and payable. There was no allegation that its liability to the Petitioner was only contingent or prospective (cf written submissions of the Company opposing the Summons [6(3)]).

32. More importantly, at the hearing before the judge, the Company only sought an adjournment of the hearing of the petition. The Company said in its written submissions: ‘It is the Company’s stance that it does not dispute the Outstanding Sum is owing and payable’ [5]. It did not argue that there was a condition precedent to the recoverability of the Outstanding Sum, or that it was not presently payable due to any fault of the Petitioner, and that the Petition should therefore be dismissed. The Company was merely asking the court to exercise its discretion to adjourn the hearing of the Petition ‘for a reasonable time’, it did not deny that there was a ground for winding-up at all.

33. That being the Company’s position before the judge, it should not be the judge’s task to trawl through the evidence to see if it disclosed a defence of condition precedent or fault on the part of the Petitioner. All that the judge was asked for was a ‘reasonable time’ to repay, an indulgence which the judge declined to give in the exercise of her discretion, a decision which this court as an appellate court would not overturn in the absence of error of law, or misapprehension of material facts, or a failure to take a relevant matter into account, or having taken an irrelevant matter into account, or a decision that is ‘plainly wrong’.

34. As the judge was never asked to determine the issue whether the ground for winding-up was established, it is an abuse of process for the Company now to not only argue a point which it should have raised below, but which seeks to contradict common ground before the judge. We note that in a letter to the Company’s then solicitors dated 30 March 2022, the Petitioner’s solicitors specifically asked if the Company would continue, at the winding-up hearing on 13 April 2022, to take the position the Company took before the deputy judge. The reply from the Company’s then solicitors dated 6 April 2022 was to ‘confirm that Our Client does not dispute the debt claimed by the Petitioner. We are instructed that Our Client is a solvent company but is only unable to repay the debt at the current stage… Our Client … seeks for time extension for repayment …’. This supports the Petitioner’s evidence [Lai 1st, 15.07.2022, para 8] that in light of the Company’s position, it (the Petitioner) had not filed any evidence in reply in the Petition, and it would thus be prejudiced if the Company were now allowed to assert that it was not liable to repay the Outstanding Sum because the Petitioner had been ‘stalling’ the remittance of that sum due to its purported failure to supply its audited report. This is particularly important to the repudiatory breach and/or prevention principle issues that the Company is now seeking to raise in the grounds of appeal.

35. In any event, out of an abundance of caution, we have considered the exhibits to Mr Wan’s affirmation (which were not included in the Application Bundle) and we note that there is no evidence from the Cayman Authorities (whether directly or by way of attachment) that expressly required the Petitioner to provide its audited report for the Company’s redemption of units in the fund. The only evidence purporting to be from CIMA (‘WKLP-6’) is an email of 13 April 2022 from one Sharon from the Financial Reporting Authority to Four Dimensions which is said to attach an SAR (Suspicious Activity Report) Reporting form, asking it to complete the form ‘with as much information as possible’. Interestingly, this was in reply to an email of 8 April 2022 from Four Dimensions saying that ‘we would like to reject its [the client’s] investment or deposit and return the asset to them …’ (emphasis added), which is inconsistent with a redemption of units by the Company.

36. In all the circumstances, the grounds of appeal are unarguable and the present case falls within the category of ‘very clear and obvious cases’ where the court would exercise its power to strike out the Notice of Appeal.”

17.Thereafter, the Petitioner by the Non-Party Costs Summons applied and joined Mr Lee as the 1^st interested party for the purpose of seeking costs against him personally in relation to the appeal and the successful striking out application.

C.  THE PRESENT 2^ND STAGE APPLICATION

C1.  Relevant principles

18.This court has jurisdiction and the discretion to order costs against a non-party under section 52A(1)-(2) of the High Court Ordinance (Cap 4). See also Order 62, rule 6A of the Rules of the High Court (Cap 4A).

19.There is no dispute between the parties that, in the context of non-party costs order being sought against a director of a company, the relevant principles for the court’s exercise of the said discretion have been set out in Dymocks Franchise Systems (NSW) Pty Ltd v Todd [2004] 1 WLR 2807, which have been summarized by Coulson LJ in Goknur v Aytacli [2021] 4 WLR 101 at [40] ‑ [41] as follows:

“40 Without in any way suggesting that these authorities give rise to a sort of mandatory checklist applicable to a company director or shareholder against whom a section 51 order is sought, I consider that the relevant guidance can usefully be summarised in this way:

(a) An order against a non-party is exceptional and it will only be made if it is just to do so in all the circumstances of the case (Gardiner, Dymocks, Threlfall).

(b) The touchstone is whether, despite not being a party to the litigation, the director can fairly be described as ‘the real party to the litigation’ (Dymocks, Goodwood, Threlfall).

(c) In the case of an insolvent company involved in litigation which has resulted in a costs liability that the company cannot pay, a director of that company may be made the subject of such an order. Although such instances will necessarily be rare (Taylor v Pace), section 51 orders may be made to avoid the injustice of an individual director hiding behind a corporate identity, so as to engage in risk-free litigation for his own purposes (North West Holdings). Such an order does not impinge on the principle of limited liability (Dymocks, Goodwood, Threlfall).

(d) In order to assess whether the director was the real party to the litigation, the court may look to see if the director controlled or funded the company’s pursuit or defence of the litigation. But what will probably matter most in such a situation is whether it can be said that the individual director was seeking to benefit personally from the litigation. If the proceedings were pursued for the benefit of the company, then usually the company is the real party (Metalloy). But if the company’s stance was dictated by the real or perceived benefit to the individual director (whether financial, reputational or otherwise), then it might be said that the director, not the company, was the ‘real party’, and could justly be made the subject of a section 51 order (North West Holdings, Dymocks, Goodwood).

(e) In this way, matters such as the control and/or funding of the litigation, and particularly the alleged personal benefit to the director of so doing, are helpful indicia as to whether or not a section 51 order would be just. But they remain merely elements of the guidance given by the authorities, not a checklist that needs to be completed in every case (SystemCare).

(f) If the litigation was pursued or maintained for the benefit of the company, then common sense dictates that a party seeking a non-party costs order against the director will need to show some other reason why it is just to make such an order. That will commonly be some form of impropriety or bad faith on the part of the director in connection with the litigation (Symphony, Gardiner, Goodwood, Threlfall).

(g) Such impropriety or bad faith will need to be of a serious nature (Gardiner, Threlfall) and, I would suggest, would ordinarily have to be causatively linked to the applicant unnecessarily incurring costs in the litigation.

41 Therefore, without being in any way prescriptive, the reality in practice is that, in order to persuade a court to make a non-party costs order against a controlling/funding director, the applicant will usually need to establish, either that the director was seeking to benefit personally from the company’s pursuit of or stance in the litigation, or that he or she was guilty of impropriety or bad faith. Without one or the other in a case involving a director, it will be very difficult to persuade the court that a section 51 order is just. Mr Benson identified no authority in which a section 51 order was made against the director of a company in the absence of either personal benefit or bad faith/impropriety. Conversely, there is no practice or principle that requires both individual benefit and bad faith/impropriety on the part of the director in order to justify a non-party costs order. Depending on the facts, as the authorities show, one or the other will often suffice.” (emphasis added)

20.Moreover, there is also no dispute that where a company is insolvent or nearing insolvency, the directors are under a duty to consider the interests of the company’s creditors and take their interests into account when exercising their powers. This is so as when the company is insolvent (or nearing insolvency), the interests of the company are in reality the interests of the creditors as it is the creditor’s money which is at risk. In the context of considering whether to make a non-party costs order, this is a pertinent factor that the court should take into account in considering the question of whether the relevant director had acted in good faith or improperly in causing the company to pursue a hopeless or frivolous defence or appeal[6].

21.From the above principles, Mr Pun SC for Mr Lee has emphasized the following few points for the purpose of this appeal:

(1)  First, a director (even a sole, controlling director) should not be made the subject of a non-party costs purely because of his directorship. Given the underlying principle of corporate limited liability, something additional is normally warranted as a matter of discretion. In this respect, it has been repeatedly emphasized by the court, although not as an exhaustive list, that a non-party costs order will only be made against a director if the applicant can establish that the director is seeking to benefit personally from the litigation or that he was guilty of impropriety or bad faith[7]. Impropriety or bad faith could for example include deliberately pursuing a concocted claim knowing it to be false, or swearing false evidence to support the claim[8].

(2)  Second, non-party costs proceedings are necessarily summary in procedure and are “appropriate only for plain and straightforward cases”[9].

(3)  Third, in assessing whether a director has acted improperly, it is a key consideration that, in causing the company to proceed with the legal proceedings, the director had legal advice and had bona fide belief that the company’s position is arguable. Where the director has done so, generally he would not be found to have acted improperly or in bad faith[10]. In this respect, there is no requirement that the director should disclose privileged advice or that the court should consider the details of the advice before the fact of obtaining advice can be given weight[11].

(4)  Fourth, in relation to a director’s duty to consider creditor’s interests, it is part and parcel of the duty to act in the interests of the company, and that duty does not dictate that the director considers the interests of any particular creditor, but that of the general body of creditors[12]. In this respect, the test is a subjective one where there is evidence of how the directors actually considered matters. The key question is “whether they genuinely believed their chosen course of action was in the best interests of the company, or where relevant its creditors.”[13]

(5)  Fifth, it is incumbent on an applicant for non-party costs proceedings, at the minimum, to warn the non-party of its intention to make such an application at the earliest opportunity. The lack of early notice is one of the factors (and sometimes determinative one) that the court should take into account in deciding whether to accede to a non-party costs application[14].

22.Bearing these principles in mind, we now turn to the merits of this application against Mr Lee.

C2.  Discussion

23.In support of the application, Mr Ho for the Petitioner submitted that a non-party costs order should be made against Mr Lee as he had acted in bad faith and/or improperly in causing the Company to bring and pursue the appeal, as the appeal was plainly unarguable and not in the best interests of the Company as the Petitioner’s interests (as the Company’s major creditor) had not been taken into account.

24.On the other hand, Mr Pun for Mr Lee contended that Mr Lee has filed evidence in this application to show that he had decided to pursue the appeal only after (a) he had considered the legal advice which showed that there were merits in the intended appeal, and (b) consulting the Company’s shareholder and creditors and considering that it was in the Company’s best interests to lodge the appeal. In the premises, Mr Pun submitted that Mr Lee should not be visited with a non-party costs order as sought.

25.In such a context, as observed by Aldous LJ in Re North West Holding Plc at [34] and [35], the crucial questions that this court should consider are whether:

(1)  Mr Lee held a bona fide belief that the Company had an arguable appeal, and

(2)  Mr Lee held a bona fide belief that it was in the best interests of the Company for it to advance the appeal.

26.Before considering these questions and to put them in proper context, it is necessary to set out Mr Lee’s evidence in this respect as deposed to at paragraphs 12, 16 ‑ 23 of his 3^rd Affirmation as follows:

“12. However, as deposed in my affirmation dated 8 August 2022 filed in HCA 305/2022 (Exhibit LCFJ-5) at paragraphs 46 to 48, I was of the view that at the hearing of the application for the appointment of provisional liquidators over the Company in the lower court on 17 February 2022, counsel for the Company misinterpreted clause 3(b) of the Institutional Services Client Agreement, and wrongly submitted that the units in Four Dimensions were purchased by the Company on its own behalf but using the Petitioner’s funds; and the Company’s subscription in the units in Four Dimensions was for the purpose of ‘hedging’ the risk of its carrying out forex transactions on behalf of the Petitioner.

...

16. I should point out that the inaccurate submissions made by counsel for the Company during the hearing on 17 February 2022 as referred to in paragraph 12 above triggered me to contemplate the possibility of initiating an appeal. While I acknowledge that this matter does not make its way into any of the grounds of appeal in the Notice of Appeal dated 30 May 2022, it is indeed an important matter which prompted me to seek separate and independent legal advice in order to evaluate the prospect of the intended appeal.

17. As the appointed representative to deal with the aftermath of the Winding-Up Judgment, I decided that the Company should seek legal advice as to whether there were grounds to appeal against the Order.

18. In order to have a fresh and independent view on the matter, I went so far as to engage a completely new legal team by instructing another solicitors’ firm Messrs Yung, Yu, Yuen & Co. (‘YYY’) on the Company’s behalf and agreed to engage another team of counsel Mr Frederick H F Chan (‘Mr Chan’) and Mr Clement Au (‘Mr Au’) to advise on the merits of a prospective appeal.

19. YYY, Mr Chan and Mr Au spent considerable time to study the merits of the prospective appeal. As the authorised representative to deal with the Company’s prospective appeal, I attended the following conferences:

(1) Conference with YYY and Mr Au on 16 May 2022, lasting for 1 hour;

(2) Conference with YYY, Mr Au and Mr Chan on 20 May 2022, lasting for 2 hours;

(3) Tele-conference with YYY and Mr Au on or around 20 May 2022;

(4) Conference with YYY, Mr Au and Mr Chan on 27 June 2022;

(5) Conference with YYY, Mr Au and Mr Chan on 18 July 2022; and

(6) Conference with YYY, Mr Au and Mr Chan on 22 August 2022.

20. During these conferences, advice was given as to the merits of a prospective appeal against the Order. I have been advised by my legal representatives and verily believe that the contents of the discussion and advice given in the conferences were legally privileged. For avoidance of doubt, the legal professional privilege of the Company has not been waived at any stage of these proceedings and is not hereby waived.

21. After the conferences with the Company’s legal representatives, I relayed the legal advice obtained to the management of Newbit Group, the sole shareholder of the company. We then further discussed whether the Company should lodge an appeal against the Order with Mr Wan and the management of Newbit Group. It was subsequently decided that the Company would appeal against the Order and I gave instructions to YYY accordingly on behalf of the Company. This decision was supported by the management of Newbit Group.

22. In agreeing that the Company should pursue the present appeal, I had considered:

(1) The legal advice given to the Company as to the merits of the intended appeal;

(2) That it is my genuine belief that there was merits in the intended appeal against the Order;

(3) That provided the Company’s position with Four Dimensions (which was more than the Outstanding Sum owed to the Petitioner), the Company was in fact solvent at the time;

(4) That steps were being taken to withdraw funds fi-om Four Dimensions and comply with the Cayman Islands regulatory requirements. Therefore, the Company would be able to repay the Outstanding Sum to the Petitioner if given a reasonable time;

(5) That there were other clients who maintained management accounts with the Company and their deposits may have also been held in overseas third party funds. It was in the best interest of these, clients and of the Company and a matter of commercial practice that the Company should be allowed, upon being served a notice of withdrawal from a client, reasonable time to retrieve the funds;

(6) That it was in the best interest of the Company and its clients (who are the Company’s other creditors) that the Company should be preserved and should continue to trade and maintain its positions with third party funds, allowing the Company to continue to preserve its liquidity and provide liquidity to its clients; and

(7) That the pursuit of the appeal was in the bests interest of and supported by the management of Newbit Group, the sole shareholder of the Company.

23. I wish to emphasise that:

(1) I had not received any professional legal training and there is therefore a real need for me to obtain legal advice for the Company in order to carefully assess and determine the most appropriate course of action for the Company’s best interests;

(2) I had sought legal advice on behalf of the Company honestly, ensuring complete honesty in providing the lawyers with all relevant information regarding the Company’s status and conditions. I acted in good faith in entrusting part of the decision-making process to the legal team who possessed the expertise and knowledge in the field to interpret the Winding-Up Judgment and to apply the law in good faith;

(3) I had no reason to question that the legal advice that there was a reasonable prospect of success, that the appeal was not frivolous, vexatious or an abuse of the process of the court, was not honestly given by YYY, Mr Chan and Mr Au. It is my genuine belief that the legal advice was given in good faith;

(4) relying on the legal advice given by YYY, Mr Chan and Mr Au, it was my honest belief that there was a reasonable prospect of success in the intended appeal. I therefore gave instructions to YYY accordingly on behalf of the Company to appeal against the Order; and

(5) my decision that the Company should pursue the present appeal is not out of any personal interests but entirely in discharge of my duty to promote the best interests of the Company as its director. I have no interest, legal or beneficial, in the Company. Other than being able to retain my directorship, I did not, and do not, stand to personally benefit from the Company’s appeal.” (emphasis added)

27.In relation to the first question, it is Mr Ho’s contention that Mr Lee could not have any bona fide belief that the appeal had any arguable merits despite the assertion that he had obtained legal advice before pursuing it. This is so given the Company’s repeated position advanced before the court below that the Debt was due and owing, which position was advanced and confirmed by Mr Lee himself in his own affirmation dated 15 February 2022 (see the CA Judgment at [12] and [13]). In the premises, it is simply incredible that Mr Lee would have a “genuine belief” that the appeal had a reasonable prospect of success.

28.On the other hand, Mr Pun contended that the evidence is that Mr Lee had obtained legal advice and had relied on it before deciding to lodge the appeal. It must also be noted that Mr Lee was a layman and was right and entitled to rely on professional advice. In these circumstances, and in light of the principles summarized at [21] above, the Petitioner simply cannot establish (and the burden is on it) that Mr Lee could not have a genuine belief that the appeal had merits.

29.For the following reasons, we are of the plain view that Mr Lee could not have formed a bona fide belief that the appeal had merit.

30.First, it is Mr Lee’s evidence that he was “triggered” to “contemplate the possibility of initiating an appeal” given he realised that counsel for the Company had wrongly submitted to the court that the units in Four Dimensions were purchased by the Company on its own but not using the Petitioner’s funds (when in fact it was) as counsel had “misinterpreted clause 3(b) of the Institutional Services Client Agreement”. See Mr Lee’s 3^rd Affirmation at paragraphs 12 and 16.

31.However, it is plain that the legal advice that Mr Lee had obtained for the Company did not regard this as a meritorious ground of appeal as it did not constitute any of the grounds of appeal in the Notice of Appeal. See the CA Judgment at [26] and [27]. In the premises, Mr Lee himself could not have a bona fide belief in the merits of the appeal based on this allegation.

32.Second, in Mr Lee’s 3^rd Affirmation, he has not disputed (nor is it disputable) that he and the Company had repeatedly indicated to the court below that the Company did not dispute that the Debt was due and owing. He had also not explained in his 3^rd Affirmation any basis as to why this position was not contradictory to the grounds of appeal which sought to contend that there was a bona fide dispute on the Debt as it was not yet payable (contractually and thus legally).

33.In this respect, it is also noteworthy that apparently the Company’s counsel also had not provided any justification to contend that those grounds of appeal were not inconsistent with the Company’s said position before the court below[15]. The only basis counsel for the Company argued was that the “concessions” made by the Company’s counsel that the Debt was owed and payable in the court below was without instructions and the Company should be allowed to withdraw them in the appeal[16]. This allegation of concessions made without authority was apparently supported by Mr Lee’s 2^nd Affirmation filed in opposing the Striking‑Out Summons at paragraphs 12 ‑ 13[17].

34.However, in our view, Mr Lee could not have bona fide believed that this explanation that counsel’s concessions were made without authority was of any arguable merit in light of the indisputable evidence that (a) the Company’s solicitors had repeatedly stated and accepted in their various letters that the Debt was due and payable and the Company only asked for time to pay by way of an indulgence, and (b) Mr Lee and Mr Wan (the other director of the Company at the material time) had similarly stated and accepted in their respective affirmations that the Debt was due and payable and the Company only asked for time to pay by way of an indulgence on the part of the Petitioner and the court[18].

35.In the premises, we are of the clear view that Mr Lee could not have formed a bona fide belief that the appeal had an arguable merits as alleged.

36.We now turn to consider the second question.

37.Mr Pun did not dispute that Mr Lee was required to consider the interests of the Company’s creditors in considering whether it is in the best interests of the Company to lodge and pursue the appeal. Mr Pun however submitted that the interests of the creditors included the interests of the entire pool of creditors[19], and Mr Lee had already considered the creditors’ said interests. In support, counsel referred us to paragraphs 22(5) ‑ (7) of Mr Lee’s 3^rd Affirmation (see quoted above). Hence, counsel further said, Mr Lee had bona fide subjective belief that the appeal was brought in the best interests of the Company.

38.With respect, there is nothing in this.

39.The evidence relied on by Mr Pun only shows that Mr Lee had considered the interests of the shareholder Newbit Group and the Company’s “clients (who are the Company’s other creditors)”. Leaving aside the fact that Mr Lee had not identified those “clients”, he had also singularly failed to say whether and how he had considered the interests of the Petitioner, which is the most substantial creditor of the Company (holding 99.58% of its debt value) when considering why it would also be in its best interests to pursue the appeal. In this respect, it is pertinent to note that when the Company is wound up, the liquidators would no doubt diligently seek to recover the Company’s assets and funds from its debtors including Four Dimensions to repay its creditors.

40.We therefore also do not accept that there is sufficient evidence to support that Mr Lee could have a bona fide belief that it was in the best interests of the Company to pursue the appeal.

41.Finally, Mr Pun argued that non-party costs order should not be made against Mr Lee as the Petitioner had failed to give any early/timely warning to Mr Lee that it might consider making such an application against him if the Company was to pursue the appeal. This failure is a material relevant factor that this court should take into account in the exercise of our discretion. See [21(3)] above.

42.This can be disposed of briefly.

43.In the context of natural justice and fairness, the rationale for requiring an applicant for non-party costs order to give prior and timely warning to the non-party before taking out the application is to provide that non-party a reasonable opportunity for him to consider pursuing other possible alternatives instead of causing the company to pursue a hopeless course in the relevant legal proceeding[20].

44.In the present case, there is no evidence from Mr Lee to suggest that he would not have proceeded with the appeal or would have pursued other alternatives if he had been warned of the Petitioner’s intention to apply for a non-party costs order against him if the appeal was struck out or failed. In the premises, we are clearly of the view that the failure to give a timely warning to Mr Lee does not render it unjust in all the circumstances of this case to make a non-party costs order against Mr Lee in light of the reasons as explained above[21].

D.  CONCLUSION

45.For all the above reasons, we allowed the Petitioner’s application for a non-party costs order against Mr Lee with costs.

Mr Martin Ho, instructed by DLA Piper Hong Kong, for the petitioner

Mr Hectar Pun SC, Ms Ferrida Chan, Mr Donald Ting, instructed by Chan & Chan, for the 1^st interested party