Macau First Universal International Ltd v. Ding Xiao Hong and Others

CACV190/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 190 OF 2014

(ON APPEAL FROM HCA 992/2010)

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REASONS FOR DECISION

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1.This is the application by the plaintiff by original action and the defendants by counterclaim (“the Plaintiffs”) against the 1^st and 2^nd defendants by original action and the plaintiff by counterclaim (“the Defendants”) for security of the Plaintiffs’ costs in the appeal brought by the Defendants on the ground that the Defendants are impecunious and/or that the plaintiffs will be unable to enforce a costs order against them.   After hearing counsel, I ordered the Defendants to provide security for the Plaintiffs’ costs of the appeal in the sum of HK$ 7 million.  My reasons appear below.

The appeal

2.The appeal in question is from the judgment given by Au Yeung J on 20 August 2014 after a trial that took 45 days.  The dispute relates to the beneficial ownership of the shares in Macau First Universal International Limited and Hong Kong First Mainland Company Limited, which in turn holds the equity in Shanghai Bading Property Development Co Ltd, a PRC company that holds a valuable piece of built land in Shanghai. Both Ding Yu (“DY”), the 2^nd defendant by original action and plaintiff by counterclaim, and Ding Gong (“DG”), the 1^st defendant by counterclaim, claimed to be the owner of the beneficial interest in the shares and sought declaratory and other reliefs.  The Judge found for DG and entered judgment on the claim and dismissed DY’s counterclaim.

3.On 16 September 2014, the Defendants serve a notice of appeal against the judgment that challenges the Judge’s holdings on the overall burden of proof, application of the reflective loss principle and some of the factual findings on the basis that they were not the Plaintiffs’ pleaded case nor had been argued or that they were wrong having regard to the undisputed contemporaneous documents.

4.On 6 October 2014, the Plaintiffs filed a Respondents’ Notice to support the judgment on grounds that challenge the Judge’s finding of credibility against DG, rejection of the Plaintiffs’ case and findings on a number of factual issues. 

The application for security for costs

5.On 8 October 2014, the Plaintiffs issued the present summons seeking security for costs against the Defendants, after the request by letter was rejected.

6.Initially, the Defendants dispute both liability to provide security and also the amount of security. About two weeks before the hearing, the Defendants indicated they will not contest liability to provided security, but will only dispute the quantum of security.  The Plaintiffs had in the summons requested security in the sum of HK$17,331,750^[1]. This was

revised on 4 December 2014 to HK$16,131,750.^[2] The Defendants contend that the amount is inflated and excessive and offer to provide security in the sum of HK$4.2 million.

Relevant legal principles

7.Under Order 59 rule 10(5) of The Rules of the High Court, Cap. 4A, 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.

8.It is within the court’s discretion to determine the amount of security to be ordered. As Hunter JA observed in Re Cirtex Co Ltd (unreported) Civ App 133/1987 at §8,     

“What the Court should be doing is to have regard to the closing words of the rule which are “as may be just”, and to seek to exercise its discretion in a way which will not be oppressive to the actual appellants and may have the result of precluding them from continuing with the appeal. The only way that can do that is to look rather carefully at the figures put before the Court in support of the application for security and to have regard to the fact that the principle to be applied is that the security should not exceed a reasonable estimate of the tax costs on the appeal. If there is a lurking doubt about oppression the security should be perhaps reduced to a point at the lower end of such estimate.”

The arguments

9.In support of the amount of security sought, Mr Tong SC (together with Mr Cheung) for the Plaintiffs referred to the following matters:

(1) The trial below was fixed for 60 days and took 45 days in the end.

(2) There were more than 65 box files of papers.

(3) At the trial, there were 25 and 10 witnesses from the Plaintiffs and the defendants respectively.

(4) The opening and closing submissions from each side comprised of several bundles.

(5) At the trial below, the Plaintiffs were represented by four counsel and the Defendants were represented by three.

(6) The grounds of appeal challenge extensively nearly all the factual findings that would involve detailed examination and submission on most of the documentary evidence below.

(7) The appeal is estimated to last for 6 days (on the Defendants’ estimate) to 10 days (on the Plaintiffs’ estimate).

10.In opposing the amount sought, Mr Law for the Defendants argued the following:

(1) The amount in the skeleton bill is either deliberately over-stated with a view to stifle the Defendants’ appeal or of doubtful reliability, having regard to: (a) The unjustifiably excessive time spent by the solicitors (34 hours) in the 5 days in September before the summons was taken out, which was the initial stage of the appeal; (b) The amount of time estimated for the appeal hearing (250 hours), which is clearly erroneously.  This is accepted by the Plaintiffs and the time is reduced to 50 hours in the Re-revised skeleton bill; and (c) The amount of time claimed for the hearing of the security for costs application (3 hours) is longer than the time reserved for the hearing (2 hours).

(2) The counsel fee (totalling $14,520,000 and $500,000 for the respective hearings of the appeal and the security for costs application) is inflated and excessive in that (a) It is not justified to claim the fees of four counsel; and (b) The amount of brief and refresher fees is unjustifiable high, especially on party and party basis.

(3) The substantial challenges of the Defendants’ appeal consist of legal arguments whereas the Respondents’ Notice is challenging almost all the primary facts found against them and no security for costs should be given in that respect.

(4) The complexities of the appeal have been exaggerated when the focus should be on the issues involved in the appeal.  For instance, most of the 65 box files of documents were banking documents, the authenticity of which is no longer disputed by the Plaintiffs. Also, the bulk of the closing submissions consist of annexures of documents for the trial judge’s ease of reference.

(5) The estimate of 10 days is inclusive of the hearing of the Respondents’ Notice, in respect of which security for costs should not be provided.        

Discussions

11.In determining the quantum of security to be provided by the Defendants, the following matters of principle are relevant:

(1) The amount of security should represent a reasonable estimate of the costs of the appeal on party and party basis. On a taxation of such a basis there shall be allowed all such costs as are necessary or proper to conduct the litigation, and no more.  Any charges merely for conducting litigation more conveniently may be called luxuries, and must be paid by the party incurring them: Hong Kong Civil Procedure 2015 Vol.1 §62/App/6. 

(2) Under party and party taxation, generally only one fee earner is allowed for the same piece of work and counsel’s brief should include all preparatory work and conference before the hearing.

(3) Solicitor and counsel who had been involved in the trial below are expected to be familiar with the evidence and arguments in the case.  This should be taken into account in assessing what is a reasonable amount of time for the preparation of the appeal, such as drafting and perusal of documents, duration of conferences as well as counsel fee.

(4) The complexity or otherwise of an appeal should be viewed by reference to the issues raised in the appeal.  An appeal is not a re-trial of the case.  The issues in an appeal are expected to be clearly identified and more focused.   The manner in which the trial was conducted and the quantum of costs incurred for the case at first instance cannot be taken automatically as a yardstick for assessing the costs of the appeal.

(5) It follows that factors such as the trial below was lengthy and involved voluminous documents and parties had engaged multiple counsel do not per se provide justifications for solicitors spending very lengthy time and counsel being paid significantly high amount of brief or refresher fees.    

12.In the present case, in addition to the above principles, it is also relevant to bear in mind the following matters:

(1) The grounds of appeal in the Notice of Appeal will involve looking into a number of factual issues canvassed in the trial and in turn the examination of the witnesses’ evidence and also documentary evidence.

(2) At the same time, the Respondents’ Notice, although filed for the purpose of supporting the judgment, has mounted substantial challenges to the Judge’s findings including findings on credibility of witnesses and issues of fact.  It effectively seeks to overturn nearly all the Judge’s findings that are adverse to DG and the Plaintiffs.  As such, the issues raised in the Respondents’ Notice will materially widen the scope of the appeal and lengthen the hearing.  If the Plaintiffs do not succeed in arguing the Respondents’ Notice, it is, to say the least, arguable whether the Plaintiffs should be given the costs of and in connection with the Respondents’ Notice even if the Defendants’ appeal did not succeed.  As is well known, it is only in very exceptional circumstances that an appellate court will interfere with findings of credibility and primary facts.  Thus viewed, the security to be provided by the Defendants should not extend to the costs associated with the Respondents’ Notice.  This will lead to a significant reduction in the amount of the costs estimate for the appeal hearing, the time spent on communicating and conferencing as well as counsel fees.    

(3) The Judge had only granted a certificate for three counsel when awarding costs to the Plaintiffs. There is no basis to expect the court, on a party and party taxation, to certify the appeal fit for attendance by four counsel. 

(4) While accepting that the trial involves complex issues of facts and some of them have to be gone into on appeal, and even on the basis of a 10-day appeal, the amount of leading and junior counsel brief fee ($12 million in total) and refresher is far beyond the range expected on a party and party taxation.  It must not be forgotten that all the counsel on appeal are trial counsel and will be familiar with the case.  It should also be remembered that the proper measure for counsel’s fee is the fee demanded by a hypothetical counsel having regard to the difficulty or complexity of the appeal.   

(5) Having regard to (2) to (4) above, on a preliminary view, counsel fee for the appeal is likely to attract a substantial reduction on party and party taxation.

(6) Moreover, irrespective of the complexities of the appeal, the security for costs application is not complex, even if liability were disputed.  It should be noted that the court would not on such an application undertake detailed examination of the issues in the appeal.  The application does not justify attendance by two counsel, particularly having regard to the experience and expertise of leading counsel. The costs of the security for costs hearing will also have to be reduced.    

13.Having regard to the above considerations and adopting a broad-brush approach, I will fix the security for the costs of this appeal at HK$7 million.  In view of the large amount involved, I will, despite the Plaintiffs’ objection, accede to the Defendants’ request of 56 days to provide the security.

Disposition

14.The orders I made are as follows:

(1) The 1^st and 2^nd defendants by original action and the plaintiff by counterclaim do within 56 days from the date of the order give security for the costs of the plaintiff by original action and the defendants by counterclaim of this appeal in the sum of HK$7,000,000 by making lodgement in court of the said sum by cash or bankers draft, or by provision of a bank guarantee of like amount, which guarantee shall have been approved by the Registrar of High Court; and until such lodgement be made and notice thereof given to the Registrar and to the solicitors for the plaintiff by original action and the defendants by counterclaim (such notice to be given on the same day as the lodgement is made) all proceedings in the said appeal are to be stayed;

(2) In default of the 1^st and 2^nd defendants by original action and the plaintiff making such lodgement as aforesaid within the time specified, or within such further time as the court may for special reasons allow, the said appeal do (upon the solicitors for the defendant certifying such default to the Registrar of High Court) stand dismissed out of this court without further order;

(3) In the event that the appeal is dismissed in the circumstances provided for above, the 1^st and 2^nd defendants by original action and the plaintiff do pay to the plaintiff by original action and the defendants by counterclaim their costs occasioned by the said appeal, such costs to be taxed if not agreed; and

(4) The costs of this application be costs in the appeal.

Mr Ronny Tong, SC and Mr Lawrence Cheung, instructed by LCP, for the plaintiff by original action and the defendants by counterclaim.

Mr MC Law, instructed by Dexter Lam & Co, for the 1^st and 2^nd defendants by original action and the plaintiff by counterclaim.

[1] The first request by letter was for the sum of HK$17,694,750.

[2] The plaintiffs applied by summons on 4 December 2014 for leave to adduce further affirmation exhibiting, inter alia, a Re-revised skeleton bill in the reduced amount.  Leave was granted save in relation to paragraph 6 of the affirmation and exhibits CH-14 and CH-15, with costs of the summons to the Defendants.