Emagist Entertainment Ltd v. Nether Games (Hong Kong) Ltd and Others

CACV 160/2022, [2026] HKCA 1615

On Appeal From [2022] HKCFI 899

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 160 OF 2022

(ON APPEAL FROM HCA NO 1659 OF 2012)

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AND BETWEEN

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AND BETWEEN

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J U D G M E N T

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Hon G Lam JA (giving the Judgment of the Court):

1.This is the Respondents’[1] application for security for costs in respect of the Appellants’[2] appeal against the judgment of Lok J dated 28 March 2022 (“Judgment”), in which he gave judgment in favour of the Plaintiff, Emagist Entertainment Ltd (“Emagist”) against Alvin Law, Ryan Ip, Terry Man (the 2^nd, 3^rd and 5^th Defendants by original action, collectively “ART”, following the nomenclature used in the Judgment) in the sum of US$455,928.39 and dismissed the two counterclaims raised against the Respondents.  ART and Mr Lo Kwong Man Simon (collectively, “ARTS”) were co-plaintiffs in one counterclaim and Mr Cheng Eric Tak Kwong (“Eric”) was the plaintiff by counterclaim in the other.

2.Having considered the written materials, we take the view that this application can appropriately be dealt with on paper pursuant to Order 59 rule 14A(1) of the Rules of the High Court (Cap. 4A).

3.The background can be briefly stated.  The plaintiff, Emagist, ran a business of developing and publishing online games, social games on the web and mobile platforms.  Mr Boniface Lee Shiu Yin (“Boniface”) and ART were the four persons involved in conceiving, creating and developing an online role playing game called Ninja Saga (“Game”) which was run on Facebook.

4.In August 2012, the 3 defendant creators, ART, together with Eric, removed the source code of the Game from the workstations in Emagist’s office and migrated it to the office of the 1^st defendant, Nether Games (Hong Kong) Limited (“Nether”), which was incorporated at their behest a short time before on 10 August 2012.  As a result of the interruption caused by the migration, the Game lost its popularity amongst its users.  Emagist estimated its loss of revenue to be about $3.8 million in the period between 15 August 2012 and 9 January 2013.

5.Emagist commenced an action (HCA 1659/2012) against Nether, ARTS and Eric, claiming to own the copyright in the Game, and claiming relief for, inter alia, infringement of copyright, trespass to chattels, conversion, detinue, breach of employment contracts, breach of confidentiality, breach of fiduciary duty and acts injurious to Emagist.

6.In January 2013, DHCJ Woo granted an interlocutory injunction sought by Emagist and ordered Ryan Ip to pay US$455,928.39 into court.

7.On 7 January 2020, Lok J ordered Emagist to pay US$3,232,677.28 into court as fortification for the cross-undertaking it gave in obtaining the interlocutory injunction.

8.After an 8-day trial in 2020, on 28 March 2022 Lok J issued the Judgment, finding in favour of Emagist against the Defendants.  The judge’s principal conclusions included that there was no partnership between the parties as alleged by the Defendants, rejecting the claim that there was a partnership agreement made orally between the parties in February 2009 at a restaurant.  He found that ART were employees of Emagist at the time when they wrote the codes and databases, and that Emagist therefore owned the copyright pursuant to section 14 of the Copyright Ordinance (Cap. 528).  The judge also dismissed the counterclaims brought by ARTS and Eric.  In coming to his conclusions the judge was not without sympathy for ARTS, but the problem was that these young men out of inexperience were content for Boniface to decide the legal structures (see §§77 and 126 of the Judgment).  By way of relief, the judge ordered ART to pay damages to Emagist in the same amount as the sum ART previously paid into court, namely US$455,928.39 (or its HKD equivalent), together with interest.

9.On 25 April 2022, ARTS and Nether filed a 23-page notice of appeal.  The grounds of appeal put forward are largely directed against the factual findings of the judge.  The appeal is now fixed to be heard on 10 November 2026.

10.By a decision dated 24 February 2023, the judge rejected ARTS’ application for stay of execution and granted Emagist’s application for the release of the fortification monies.

11.By a decision dated 25 September 2023, this Court (Kwan VP and Yuen JA) also rejected ARTS’ renewed application for stay of execution: [2023] HKCA 1111.

12.By summons dated 10 March 2026, the Respondents made the present application for security for costs, seeking security in the amount of HK$2,000,000 from the Appellants.

13.Under Order 59 rule 10(5) of the Rules of the High Court, the Court of Appeal may, in special circumstances, order that such security be given for the costs of an appeal as may be just.

14.The principles regarding the Court’s exercise of the discretion to order security for costs of an appeal are not in dispute.  They were recently summarized by Anthony Chan JA in First Laser Limited v Fujian Enterprises (Holdings) Company Limited [2026] HKCA 564 at §8 and need not be repeated here.  The specific ground on which the Respondents make the present application is that the Appellants are impecunious and that it will be difficult and expensive to enforce a costs order against them if their appeal is unsuccessful.  If established, there is no dispute that these are capable of amounting to special circumstances that justify an order for security.  The overriding consideration for the court is to consider whether “special” (not exceptional) circumstances exist making it “just” to order security: Chung Kau v Hong Kong Housing Authority [2004] 2 HKLRD 650 at 656A-H.

15.In their evidence, the Respondents have referred to the fact that despite repeated demands, ARTS had failed to pay any part of the taxed costs of the proceedings below in the amount of $5,334,740.03 (with ART being liable for $4,668,784.78 and ARTS being liable for $675,955.25, based on two allocaturs dated 26 November 2025 and 12 January 2026 respectively).  There is also evidence that the Respondents issued statutory demands on 4 March 2026 against ARTS for the taxed costs but, as at the date of the Respondents’ affirmation (9 March 2026), had not been able to serve them on ARTS.  The Respondents have also adduced evidence of their inquiries and searches that tend to show that the Appellants have no substantial assets (whether landed properties or shares in companies of substantial value) to meet any adverse costs order.  Nether has been dormant for almost 13 years since September 2013.  Against all this the Appellants have chosen not to file any evidence in opposition.

16.It is not appropriate for the Respondents to insert into their application bundle affirmations they filed on 21 April 2026 in intended bankruptcy proceedings against ARTS, when they had not given prior notice of their intention to do so and the time for ARTS to file evidence in opposition in the present application had expired.  Practice Direction 10.1 §4(c), relied on by the Respondents, merely means that those affirmations should not be exhibited, not that they could be sprung on the other side.  We have not therefore made reference to those affirmations.

17.It is unnecessary for there to be conclusive evidence of the Appellants’ lack of means.  Even without the objectionable affirmations, there is in our view sufficient uncontradicted evidence tending to show that the Respondents will encounter difficulties or delay in recovering their costs if the appeal fails.  In his written submissions for the Appellants, Mr Ian Chau does not in any way seek to undermine the Respondents’ submissions on the Appellants’ impecuniosity; on the contrary, he submits that, on the Respondents’ own case, an order for security would stifle the Appellants’ appeal, and that the Appellants’ financial predicament arose from the wrongful acts of the Respondents.

18.It is for the Appellants to satisfy us that an order for security would stifle the appeal.  There is no direct evidence for this assertion.  There are no doubt cases in which the probability that a claim will be stifled may be inferred without direct evidence: Wing Hing Provision, Wine & Spirits Trading Co Ltd v Hanjin Shipping Co Ltd (CACV 245/1998, 7 October 1998), but in the present case, in the absence of any evidence whatsoever from the Appellants about their finances and their ability to raise funds, we are not prepared to rule that security in the reduced amount we are minded to order should be refused on the stifling ground.

19.Mr Chau’s submission that the Appellants’ impecuniosity arose from what he says to be the wrongful act of the Respondents is bound up with his submission that there are good merits in the appeal such that security should not be ordered.

20.The grounds of appeal mainly challenge the findings of the judge in arriving at his decision that there was no partnership agreement between ARTS, Eric and Boniface.  In gist, the Appellants argue that the judge failed to have adequate regard to the evidence supporting a partnership relationship; that the judge misunderstood the evidence of the parties’ relationship and placed undue weight on ARTS’ lack of communication regarding partnership shares or failure to press for distribution of profits when construing them as indicative of an employee relationship.

21.This Court has already conducted a preliminary review of the merits of the appeal in refusing the Appellants’ application for stay of execution.  We refer to the discussion at §§20.1-23.3 of the judgment given by Yuen JA for this Court dated 25 September 2023 and will not repeat them here.  The Court there “[did] not consider the grounds of appeal to be strong”.  Suffice it to say that without examining the merits in detail, which it is generally not desirable for the court to do at this stage, we are not persuaded by Mr Chau’s submissions that the grounds of appeal are so strong as to be a factor against ordering security for costs.

22.Whilst the appeal was lodged in 2022 and the present application was not issued until March 2026, we attach no blame to the Respondents for the lateness.  It was not until November 2025 and January 2026 that the taxation of the trial costs was completed and the Respondents encountered difficulties in recovering them.  Nor has Mr Chau raised any opposition on the ground of delay.

23.It is inherent that an order of security for costs made against an impecunious appellant may operate to prevent the appellant from pursuing an appeal.  The question is whether awarding security would amount to a denial of justice to the appellant: Gurdas Sabhagchand Choithramani v The Hongkong and Shanghai Banking Corporation Ltd [2025] HKCA 921 at §18 per Chow JA.  In the balance the court must also place the potential injustice to the respondent in being unable to recover his costs should the appeal fail.  In the present case, taking all relevant circumstances into account, we consider it just to exercise our discretion to order security.

24.In their skeleton bill dated 7 March 2026, the Respondents estimate their appeal costs in the sum of $3,745,286, comprising $1,948,386 in solicitors’ costs and $1,310,000 in senior and junior counsel’s fees, and $462,500 as the costs of the present application.  The Respondents seek an order for security in the amount of $2,000,000.

25.Mr Chau submits that the amount sought is unreasonable.  He complains that it was unreasonable for the Respondents to change their entire legal team from the trial team with no explanation provided, and that the new team is charging large sums for catching up.  He also relies on the fact that the judge refused a certificate for two counsel for the trial.  He submits that if security is ordered, it should be in a sum of no more than $100,000.

26.We consider that the Respondents’ estimate of $3.7 million excessive.  The wholesale change of solicitors (twice)[3] and counsel team[4] has no doubt increased the costs but this remains to be justified.  Taking a broad-brush approach, we consider the appropriate amount of security for costs to be $700,000.

27.Accordingly, we make the following orders:

(1)  The Appellants do within 28 days from the date of the order herein (or such further time as may be agreed in writing between the parties or permitted by the court) pay into court the sum of $700,000 as security for the Respondents’ costs of the appeal.

(2)  Until such payment into court is made and notice thereof given by the Appellants to the Registrar of Civil Appeals and to the solicitors for the Respondents, all further proceedings in the appeal be stayed.

(3)  In default of such payment into court within the time aforesaid, and upon the solicitors for the Respondents certifying such default to the Registrar of Civil Appeals, the appeal do stand dismissed without further order of the court, with costs to be paid by the Appellants to the Respondents, to be taxed if not agreed.

28.We further order the Appellants to pay the Respondents’ costs of the present application, summarily assessed at $150,000.

Written submissions by Mr Ian Chau, instructed by Messrs. Wong, Hui & Co, for the 1st to 3rd, 5th and 6th Defendants (by Original Action) and the 1st to 4th Plaintiffs (by Re-Amended Counterclaim dated 24 December 2018)

Written submissions by Mr Michael Ng, instructed by Messrs. So, Lung & Associates, for the Plaintiff (by Original Action), the 1st and 2nd Defendants (by Counterclaim dated 3 May 2013 as amended on 14 July 2015) and the 1st, 3rd and 4th Defendants (by Re-amended Counterclaim dated 24 December 2018)

[1]  Namely, the Plaintiff by Original Action, the 1^st and 2^nd Defendants by counterclaim dated 3 May 2013 as amended on 14 July 2015, and the 1^st, 3^rd and 4^th Defendants by Re-Amended Counterclaim dated 24 December 2018.

[2]  Namely, the 1^st, 2^nd, 3^rd, 5^th and 6^th Defendants (by Original Action) and the 1^st to 4^th Plaintiffs (by Re-Amended Counterclaim dated 24 December 2018)).

[3]  From Messrs Or & Lau to Messrs Edwin Yun & Co to Messrs So, Lung & Associates.

[4]  From Mr Jimmy Ma, Mr Jacky Lam and Mr Owen Kun to Mr Michael Ng and a Senior Counsel.