Re Days International Ltd

HCCW 299/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 299 OF 2011

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D E C I S I O N

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1.This is the Liquidators’ application by Summons dated 29 August 2014 (“Summons”) for an order that Global Empire Ltd (“Global Empire”) do within 14 days provide security in the sum of HK$883,500 for the Liquidators’ costs in respect of Global Empire’s Summons dated 18 June 2014 appealing against the Liquidators’ decision in rejecting Global Empire’s proof of debt (“Appeal”).

Background

2.Days International Ltd (“Company”) was wound up by the Order of Mr Justice Harris made on 12 December 2011.  The Liquidators were appointed on 22 August 2012.

3.On 9 November 2012, the Liquidators issued a summons for directions (the “Directions Summons”) as to whether or not they should convene a further creditors’ meeting to consider afresh its composition.  The application was made because dispute arose between the Liquidators and Global Empire as to the valuation of Global Empire’s proof of debt for voting purposes – the proof was for the sum of HK$419,645,000 which the Liquidators valued at $1.  The Directions Summons was heard in July 2013 by Mr Justice Harris.

4.By a decision handed down on 11 November 2013 (“Decision”), the court ordered that there should not be a further meeting of the Company’s creditors.

5.On 13 March 2014, the Liquidators applied by summons (“Third Party Costs Application”) to join Mr Kirplani, who was and is a director and shareholder of Global Empire, as a respondent in these proceedings for the purposes of costs only, and that Mr Kirplani shall bear the Liquidators’ costs of the Directions Summons to an extent equal to that borne by Global Empire.

6.On 19 March 2014, Mr Kirplani consented to being joined as a respondent herein for the purposes of costs only.

7.By Notice of Adjudication of Proof of Debt dated 28 May 2014, the Liquidators rejected Global Empire’s proof of debt in its entirety.

8.On 18 June 2014, Global Empire issued a summons for the Appeal pursuant to rule 95 of the Companies (Winding-up) Rules, Cap 32H.  The application is supported by the 7^th affirmation of Mr Kirplani.

9.On 29 August 2014, the Liquidators issued the Summons.  By a letter dated 7 October 2014, Mr Kirplani has confirmed that he is willing to give an undertaking to pay any costs which may be ordered against Global Empire by the court in these proceedings (“Undertaking”).  This has been confirmed in the 8^th affirmation of Mr Kirplani filed in opposition to this Summons.  However, the Liquidators have refused to withdraw the Summons.

10.The Third Party Costs Application was heard on 16 October 2014 by Mr Justice Harris, who accepted Mr Kirplani’s undertaking to pay the Liquidators’ costs of the Direction Summons for which Global Empire is liable.

Security for costs

11.The Liquidators rely upon s 905 of the Companies Ordinance, Cap 622 (“Ordinance”) which empowers the court to make an order requiring security be given for a defendant’s costs where :

(a) the plaintiff in the action or legal proceedings is a company; and

(b) it appears by credible testimony that there is reason to believe the company will be unable to pay the defendant’s costs if the defendant succeeds in the defence.

12.The arguments in this application are fairly narrow.  There is no dispute that the Global Empire itself will not have the means to pay the Liquidators’ costs in the event that the Appeal is dismissed.  However, Global Empire says that in light of the Undertaking, the Liquidators have failed to demonstrate that it will be unable to pay the costs ordered against it.

13.Secondly, Global Empire argues that the skeleton bill of costs produced by the Liquidators in support of the Summons is over generalised and excessively ambitious.  It is open to the court to either dismiss the Summons outright or reduce the quantum of security to a reasonable amount.

Global Empire’s ability to meet a costs order

14.I accept the submission of Mr Lam, who appeared for Global Empire, that in order to establish jurisdiction for ordering security under s 905 of the Ordinance, the Liquidators are required to show that Global Empire will be unable, and not may be unable, to meet its debts when a costs order is made against it : KJM Industries Ltd v JPM Resources (HK) Ltd [2005] 4 HKC 100, §11. 

15.Mr Lam further submitted that in ascertaining whether a company will be unable to pay the costs, the court will inquire as to whether any other individual or entity would fund the payment of those costs and have the means to do so.  Reliance was placed on 2 authorities : (a) Wheelock Marden v Aktieselskabet Dansk Skibfinasiering [1991] 1 HKC 194 at 197 and (b) Jade Plan Assets Ltd v Lau Kim Hung, unrep, HCA 910/2007, 9 January 2008 at §41.

16.On the other hand, Mr Chen, who appeared for the Liquidators, argued that as a matter of statutory construction of s 905 the court is only concerned with the ability of the plaintiff company to meet an adverse costs order.  The Undertaking is irrelevant for the present purpose. 

17.I agree with Mr Chen on the construction point. It appears to me quite plain that if Global Empire has to rely upon Mr Kirplani to meet an adverse costs order, it must follow that the jurisdictional basis of this application (Global Empire will be unable to pay the Liquidators’ costs in the event that the Appeal failed) has been established. 

18.In respect of the 2 authorities relied upon by Mr Lam, it should be said that neither Wheelock Marden nor Jade Plan Assets was concerned with an application under s 905 of the Ordinance (previously s 357).  The courts were not concerned with the effect of a third party undertaking on the plaintiff company’s ability to pay the defendant’s costs as a jurisdictional threshold under s 905 of the Ordinance. 

19.Further, Wheelock Marden is an exceptional case.  The Court of Appeal (at 196G-197G) endorsed the judge’s view that the plaintiff foreign company was effectively backed by the Danish government, which would no doubt discharge or cause to be discharged an adverse costs order against the plaintiff.  The application under O 23, r 1 was therefore dismissed.

20.In Jade Plan Assets, the 1^st defendant sought security for costs against the 2^nd plaintiff (being a company resident out of Hong Kong) under O 23, r 1.  The court dismissed the application on the basis that a co-plaintiff was resident in Hong Kong whose case would likely stand or fall together with the 2^nd plaintiff’s and who would be able to pay off any costs order against the 2^nd plaintiff (see paras 38 to 42).  This was thus an application of a well-settled rule that order for security for costs will not be made against a foreign plaintiff if there are one or more co-plaintiffs resident in the jurisdiction who rely upon the same cause of action (see Hong Kong Civil Procedure 2015, rubic 23/3/5).

21.However, I am unable to agree with Mr Chen that the Undertaking is irrelevant for the present purpose.  In my view, it goes to the exercise of the unfettered discretion of the court in this application (see E-Global Ltd v Trenda Ltd [2012] 2 HKLRD 1211, §9).  Hence, the issue becomes whether it is demonstrated that Mr Kirplani will be in the position to meet a costs order made against Global Empire in the Appeal. 

22.In the circumstances of this case, it would not be right to require the Liquidators to show that Mr Kirplani will not be in such a position.  This will be a highly difficult task and one which sits uncomfortably with what should be relatively straightforward interlocutory application.  The burden must rest on Global Empire to persuade the court that Mr Kirplani will be in such a position.  After all, this is the foundation of Global Empire’s resistance to this application.  

23.I regret to say that the evidence of Mr Kirplani in respect of his means consists of nothing more than bare assertions that he is a man of substantial means.  No bank statement or financial document has been adduced by Mr Kirpalani as evidence.  It is incorrect for Mr Kirplani to say that the Liquidators have accepted that he is a man of substantial means (para 6(b) of his 8^th affirmation).

24.I have not overlooked the fact that the Decision referred to Mr Kirplani’s evidence to the effect that he was a wealthy businessman.  However, I must be guided by the evidence adduced in this application. 

25.In the premises, I am unable to see any reason why this court should exercise its discretion against the Liquidators. 

Quantum of security

26.I have been asked by Mr Lam to have regard to the dicta of the court in Hero Rich International Ltd v Benefun International Holdings Ltd,unrep, HCA 1433/2009, 7 October 2009 at §38:

“To facilitate the court's decision on the appropriate amount of security, the applicant's legal representatives must provide a realistic estimate of the time and costs likely to be incurred in each stage of the proceedings which must bear some logical correlation to the complexity of the case and the issues involved. Otherwise, the court is deprived of the assistance that it rightly expects. As has been remarked before, if the skeleton bill is unhelpful and the court in doing its best orders an amount which is on the low side, the applicant only has itself to blame : see Sunchase at §11 per Rogers VP, approving Suffiad J’s judgment at first instance.”

27.Further, when faced with an unhelpful and especially overly ambitious skeleton bill, the court is entitled in an appropriate case to dismiss the application on this ground alone : Hero Rich, at §39.

28.There is in support of this application a skeleton bill of costs (“Bill”) adduced by the Liquidators.  There is substance in Mr Lam’s criticisms of the Bill for being uninformative.   For example, there is no indication of the seniority of the counsel intended to be instructed for the Appeal or any breakdown for the counsel fees of HK$250,000 attributed to the hearing in terms of brief fee and refresher rate.  I should mention that the Bill was criticised as being inadequate during the directions hearing of this Summons back in October 2014.  However, the Liquidators have decided not to improve the same. 

29.Mr Chen sought to defend the adequacy of the Bill by referring to the complexity of the matters to be ventilated in the Appeal.  It is the Liquidators’ case that the loans to the Company, which made up the debt in question, were in fact circular payments made to facilitate an import loan fraud.  It was said that the work involved in the Appeal is laborious and complicated.  The Directions Summons took no less than 3 days to resolve with cross-examination.  There is, however, no agreement on the length of the Appeal or whether it will involve any cross-examination. 

30.It was submitted by Mr Chen that in Hero Rich, the defence had not yet been filed and the court therefore did not have a clear idea about the issues of the case.  In the present case, the court has a better appraisal of the issues involved in a discrete appeal. 

31.I am inclined to agree with Mr Lam that the fact that the parties are familiar with the issues in the Appeal (the Directions Summons canvassed largely the same issues as in the Appeal) means that (a) more details and/or breakdowns can be provided in the Bill and (b) the court should be provided with evidence on the costs so far incurred as guidance. 

32.I have also been reminded by Mr Lam that the Liquidators are only entitled to sufficient, but not complete, security in respect of their costs in the Appeal. 

33.The court normally takes a broad brush approach on the quantum of security.  Whilst the court would not encourage any unnecessary inflation of legal costs with the provision of lengthy skeleton bill of costs, the court must be given adequate assistance.  Although I have no difficulty accepting that the issues in the Appeal are complex, the Liquidators should have heeded the criticisms on the inadequacy of the Bill.

34.Doing the best I can in the circumstances, I reduce the amount of security to HK$500,000. 

Conclusions

35.I make an order in terms of para 1 of the Summons with an amendment over the amount of security.  In addition, I make the ancillary order sought in para 30 of Mr Chen’s skeleton argument, which is not disputed by Mr Lam.  Further, I make an order nisi that the costs of this Summons be to the Liquidators, to be taxed if not agreed.

36.Last but not least, I am grateful to counsel for their assistance in these matters.

Mr Justin Lam, instructed by CWL Partners, for Global Empire Limited

Mr David Chen, instructed by Allen & Overy, for the Joint and Several Liquidators of Days International Limited