YAT TUNG INVESTMENT CO LTD AND ANOTHER v. DAO HENG BANK LTD

IN THE SUPREME COURT OF HONG KONG

APPELLATE JURISDICTION

CIVIL APPEAL NO. 23 OF 1971

(On appeal from O.J. Action No. 969 of 1969)

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JUDGMENT

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Blair-Kerr, S.P.J.:

1.  We do not think that it is necessary to go into the matters raised in this appeal in any detail. No point of law arose thereon. The appeal was entirely against the learned judge’s findings of fact.

2.  Clearly it was in the interests of the respondent bank that the building should be completed; and, having regard to their experience with the former owners (who had disappeared) I can well understand how they felt that it would be to their advantage if they were to deal in future with a developer and contractor who were one and the same person.

3.  Be that as it may, the 1st appellant company became the legal owner of the property by virtue of the assignment dated 23rd May 1968, and this company mortgaged the property to the respondent bank under the building mortgage dated 27th May 1968. It is common ground that the money for the purchase of the property came from the bank.

4.  The basis of the plaintiff’s claim was the alleged oral agreement between their managing director (Lai) and an officer of the bank named AU Wai-choi, to the effect that Lai should bid for the property in the auction but only as nominee of the respondent bank; and that in consideration of his doing so, the bank would pay Lai all outstanding construction costs then due as well as future construction costs. Lai’s evidence in regard to this alleged agreement was disbelieved by the trial judge who accepted the evidence of Au and the managing director of the bank, TANG Pang-yuen.

5.  Counsel for the appellants referred to a number of documents which were before the trial judge, documents which were the subject matter of a great deal of cross-examination by counsel for the plaintiffs in the court below. True, they reveal one or two odd features as regards banking practice; but no court could possibly deduce from these documents an agreement between the parties that the plaintiffs should purchase the property as nominees of the bank.

6.  As regards the evidence of Mr. Brassett, if Au had in fact said words to this effect: “The bank are owners of the property”, one wonders how Brassett or his colleague could possibly have used the expression “part-owners”. Au gave evidence that Brassett did ask what the bank had to do with the property and that he (Au) had told him that they were mortgagees.

7.  When the bank received the proceeds of sale of the ground and 14th floors, the sums involved were applied in partial discharge of the plaintiffs’ mortgage debt and the floors were then released from the mortgage.

8.  In his letter of 9th January 1969 addressed to the bank, Lai said:–

“Also, with regard to the 2nd, 3rd and 4th floors for our company’s own use we wish your bank would allow us to pay by instalments over ten years ......”

The appellants laid great stress on this letter. Their argument ran thus: How could Lai have suggested that the appellants “pay by instalments” for the three floors if they in fact owned the entire building?

9.  Au said that this letter was never received by the bank, although he agreed that Lai had told him that he (Lai) intended to use the three floors for his own use as offices; and in evidence Au said:–

“He requested the bank to release the three floors ......”

10.  The bank were mortgagees. They would not have released the floors without a partial discharge of the mortgage debt. To Lai’s lay mind, this would have meant that he had somehow to “purchase back” the three floors before the bank would release them from the mortgage.

11.  Be that as it may, this was merely one of many matters which were carefully considered by the learned judge before coming to his conclusion.

12.  On the whole of the evidence acceptable to him, the trial judge was of the opinion that the plaintiffs never really began to put their case on its feet, and in particular that they failed to show that the assignment and mortgage were sham transactions. We saw no reason to differ from these conclusions; and on 4th February we dismissed the appeal without calling upon counsel for the respondents.

Samuel Leung (D’Almada Remedios & Co.) for 1st and 2nd appellants.

Gittins, Q.C. and Charles Ching (Patrick Poon & Co.) for respondent.

IN THE SUPREME COURT OF HONG KONG

(APPELLATE JURISDICTION)

CIVIL APPEAL NO. 23 OF 1971

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JUDGMENT

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Huggins, J.:

1.  The first contention on behalf of the Appellants is “that the learned judge ought to have held on the evidence before him that in reality the 1st Appellant did not pay the purchase price or any part thereof but acted as the Respondent’s trustee in the purchase of the said property”. The substance of the argument is that the judge made two findings of fact which, it is said, led to the inevitable conclusion that the 1st Appellants were trustees. One finding was that on 9th January, 1969 Mr. Lai wrote on behalf of the 1st Appellants to the Bank indicating a desire to purchase three flats in the property from the Bank. That suggestion was, of course, inconsistent with the 1st Appellants’ being the absolute owners of the property, but it is common ground that they were not the absolute owners: the Bank were the owners by reason of the assignment to them by the 1st Appellants by way of legal mortgage. The proposal was not inconsistent with that position and the letter certainly does not point to the 1st Appellants’ having purchased the property as trustees. The second finding relied upon was that the voucher, Exh. HH³, was not satisfactorily explained. That was an internal document of the Bank supporting a debit in favour of Mr. Au for the purpose of paying a deposit on the property. The learned judge did not say what sort of further explanation he would expect. I would agree that a debit in favour of their own officer was in the circumstances something which the officer might justifiably be called upon to explain to the Bank, but the document shows clearly a transfer of funds to Mr. Au in his personal capacity for a particular purpose. It was signed by two persons purporting to be officers of the Bank, although they were never identified. There is nothing whatever in it to indicate that the eventual recipient of the money was to be a trustee of the property purchased. The general contention that the judge should have analysed the evidence more fully does not come within the scope of this ground of appeal, but nothing pointed out to us persuades me that such an analysis would have led to a different conclusion.

2.  Next it is said that the judge failed to decide whether the letter of 9th January 1969 was written by Mr. Lai. In fact he expressly said that Mr. Lai did write it and went on to say that “coming as it did from the registered owner of the property [the request that the 1st Appellants be allowed to purchase three floors] can only be regarded as extraordinary”. This passage may, indeed, have been unduly favourable to the Appellants because at least in one sense it is not entirely accurate to say that the letter came from the “registered owner”: as I have already mentioned, the property had been mortgaged to the Bank by assignment and, the mortgage having been registered, the Bank were the registered owners of the property, while the 1st Appellants had nothing more than an equity of redemption.

3.  It is complained that the judge did not give sufficient consideration to the evidence concerning the reference in the letter dated 24th July, 1968 from the Hong Kong Electric Company to the Bank’s being “part owner” of the property. He set out the letter in full, although he did not indicate what conclusion he drew from it. For my part I think the letter could have been of no assistance to him: the phrase used was as consistent (or, perhaps, inconsistent) with the case for the Respondents as with that for the Appellants.

4.  Much emphasis was placed on the fact that the Bank, over a period of several months, rendered to the 1st Appellants inaccurate debit notes in respect of interest on the money advanced to the 1st Appellants by the Bank under the new building mortgage. The error was that the sum claimed each month was $1,034 instead of $10,340. This was apparently noticed at the end of the year and a corrective debit note submitted before the 1st Appellants first made their allegation of trusteeship. I cannot agree that such an error supports the contention that the transaction at the auction was a sham.

5.  The final complaint appears to be that the learned judge said “there is no evidence that the Bank was made aware of the amount of the outstanding construction costs which it is alleged it was undertaking to pay”. I think it is clear that the judge was drawing a distinction between the Bank and Mr. Au, who, although an officer of the Bank, claims to have been acting in his personal capacity. There was no evidence that the construction costs were discussed with anyone other than Mr. Au: indeed, Mr. Lai agreed that he did not discuss that matter with Mr. Tang, the Managing Director of the Bank, despite the fact that he claimed to have had confirmation from Mr. Tang that the 1st Appellants were to purchase as trustees for the Bank.

6.  As Blair-Kerr, J. has said, the case really turned upon the evidence of Mr. Lai and he was disbelieved. I see no reason to think that the learned judge came to a wrong conclusion and I agree that the appeal must be dismissed.

IN THE SUPREME COURT OF HONG KONG

APPEALLATE JURISDICTION

CIVIL APPEAL NO. 23 OF 1971

(On appeal from O.J. Action No. 969 of 1969)

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JUDGMENT

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1.  This appeal has been fixed for hearing on 3^rd, 4^th, 7^th 8^th, and 9^th February. This morning counsel for the appellants applied for an order that the hearing dates be vacated and that new dates be fixed in consultation with counsel for the parties.

2.  The grounds for the application were (1) that counsel for the respondent had been consulted by the Clerk of Court as to the suitability of these dates whereas counsel for the appellants had not; and (2) that the appellants had indicated to their solicitors that they wished counsel, as at present briefed, to conduct the appeal on their behalf.

3.  As I understood counsel for the appellants, the submission was, in effect, that every endeavour should be made to fix dates for hearing in such a way that a litigant would be able to have the services of counsel of his choice. As to that, I would say that no litigant is entitled to insist on a particular counsel appearing on his behalf. What he is entitled to is counsel of his choice from among those counsel available on the day fixed for hearing by the Court. If a litigant wishes to have the services of a particular counsel, there should really be an application to court so that the judge may direct the Registrar to fix dates either in consultation with counsel or, in very exceptional circumstances, in agreement with counsel. (vide Practice Direction of 29^th July 1963)

4.  In the present case, the Court was not aware that the appellants wished any particular counsel. Indeed, in October on the hearing of the respondent’s application for security for costs, a different counsel appeared on behalf of the appellants; and I was informed today by counsel for the respondent that the appellants have changed their solicitors on a number of occasions.

5.  Be that as it may, in this case the Registrar was simply directed to fix dates; and much and all as I would welcome having before me the very able and experienced counsel now briefed by the appellants, as the hearing of the appeal has been fixed on dates convenient to the court, I do not feel disposed to vacate those dates on the ground that the appellants have now indicated that they wish a particular counsel to argue the appeal.

6.  As regards the other points, I have spoken to the Clerk of Court. According to him he decided that these particular dates were suitable to the court (as indeed they are) and he spoke first to counsel for the respondent. The dates were suitable to him. The Clerk then spoke with counsel for the appellants who indicated that the dates were not suitable to him because he had been briefed in an original jurisdiction action.

7.  In Court today counsel for the appellants made reference to some changes in dates because certain magisterial appeals had been fixed for hearing. But I do not think I should be asked to adjudicate on matters of this sort. The point is simply this: In this case, no direction was given that counsel should be consulted before dates were fixed. Dates have been fixed which certainly are convenient to the court and it would be highly inconvenient to have to change them now. Therefore, I do not think that I would be justified in acceding to this application; and it is therefore dismissed with costs.

Jackson-Lipkin (D’Almada Remedios & co.) for 1^st and 2^nd Appellants.

Charles Ching (Patrick Poon & Co.) for Respondent.

IN THE SUPREME COURT OF HONG KONG

(APPELLATE JURISDICTION)

CIVIL APPEAL NO. 23 OF 1971

(On appeal from O.J. 969 of 1969)

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JUDGMENT

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Blair-Kerr, S.P.J.:

1. The trial of O.J. action 969 of 1969 lasted 13 days. Judgment was given by Mr. Justice Pickering in favour of the defendant bank which was represented by 2 counsel - Mr. Gittins, Q.C. and Mr. Ching. On 4th June 1971 the defendant's costs were taxed at $52,225.50, the fees in respect of the 2 counsel being allowed by the taxing master.

2. On 3rd June 1971, the plaintiffs filed notice of appeal; but they have not yet filed any other papers. On 16th September the defendant (respondent) applied to this Court under s.357 of the Companies Ordinance for an order for security for the costs of the appeal, for a stay until such security be given, and, in default of such security being given, for an order that the appeal stand dismissed without further order. We made an order in terms of the application, the sum fixed being $18,000. We now record the reasons for our decision.

3. There was uncontradicted affidavit evidence to the effect that the appellants had not paid the respondent's costs in the court below, that they were not carrying on business at their registered addresses, and that they had no means of paying the costs of the appeal in the event of their being unsuccessful.

4. As regards the application for security, the dispute between the parties was as to quantum only. The respondent's solicitors had requested the appellants to pay $25,000 by way of security for the costs of the appeal. The appellants' solicitors had offered to pay $6,000.

5. From a perusal of the judgment in the court below and the grounds of appeal, clearly the appeal will be mainly against the learned judge's findings of fact. This will necessarily involve a careful examination of what, we were told, is a rather voluminous record. Counsel for the respondent estimated that the appeal would last at least 5 days, and his estimate was not questioned by counsel for the appellants. As the taxing master had allowed the fees paid to the two counsel in the court below, we had no reason to think that he would not adopt a similar approach if and when he was called upon to tax the respondent's bill of costs in respect of the appeal.

6. Under 0.23 a plaintiff may, in certain circumstances, be ordered to give security for a defendant's costs. In regard to this, the learned editors of the 1970 Supreme Court Practice have this to say (p.365):-

"The amount of security awarded is in the discretion of the Court, Which will fix such sum as it thinks just, having regard to all the circumstances of the case. It is not the practice to order security on a full indemnity basis. The more conventional approach is to fix the sum at about two-thirds of the estimated party and party costs up to the stage of the proceedings for which security is ordered, but there is no hard and fast rule."

7. Under O.59 r.10(5) the Full Court may "in special circumstances order that such security shall be given for the costs of the appeal as may be just"; and, as the learned editors of the 1970 Supreme Court Practice say (p.796/7), "the grounds upon which security for costs of an appeal may be ordered are those upon which security for the costs below might be ordered (see 0.23 nn.)."

8. The notes to O.23 in the Supreme Court Practice make reference to s.447 of the Companies Act 1948. That section is in substantially the same terms as s.357 of the Companies Ordinance, Cap. 32. The latter section reads:-

"Where a limited company is plaintiff in any action or other legal proceeding, any judge having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the company will be unable to pay the costs of the defendant if successful in his defence, require sufficient security to be given for those costs, and may stay all proceedings until the security is given."

9. Counsel for the respondent cited The Australian Steamship Company Ltd. v. Fleming⁽¹⁾, Imperial Bank of China, India and Japan v. Bank of Hindustan, China and Japan⁽²⁾, and The Dominion Brewery Ltd. v. Foster⁽³⁾. In The Australian Steamship Co. case⁽¹⁾ the application was made under a section of The Joint Stock Companies Act 1857 which section was in substantially the same terms as s.357 of Cap. 32. Apparently, in those days the usual practice of the court was to order security in the form of a bond for £100. Counsel for the plaintiffs in the Australian Steamship Co. case⁽¹⁾ submitted that his clients should give "the usual security". In regard to this, the Solicitor General's submission is recorded thus (p.170):-

"The Act says nothing about 'usual security' - it says 'sufficient security'; ............... The rule by which £100 was fixed is an arbitrary rule, adapted to the circumstances of times long since past, and differing materially from the present, and never contemplated the existence of companies with limited liability."

10. In the Imperial Bank of China case⁽²⁾, and in the Dominion Brewery case⁽³⁾ the applications for security were made under s.69 of the Companies Act 1862 which section was also in substantially the same form as s.357 of Cap. 32. In the former of these two cases Wood V.C. had ordered the plaintiffs to enter into a bond for £100. This decision was reversed on appeal. Sir J.L. Knight Bruce L.J. said:-

"It appears to me that the word 'sufficient' must have been intended to have a meaning, and that if the practice of the Court was to be followed the Act would have said so. There is nothing to limit the amount of the security."

11. In the Dominion Brewery case⁽³⁾ Lindley M.R. said (p.508):-

"The only principle which, as it appears to me, can be said to apply to a case of the kind is this, that you must have regard, in deciding upon the amount of the security to be ordered, to the probable costs which the defendant will be put to so far as this can be ascertained. It would be absurd, of course, to take the estimate of the managing clerk to the defendant's solicitors and give him just what is asked for. You must look as fairly as you can at the whole case. We think that in the present case the security ordered by Kekewich J. ought to be increased by the sum of £250 which will make it up to the sum of £600 in all. We must take into account the chance of the case collapsing without coming to trial."

And Chitty L.J. said (p.508):-

"Section 69 of the Companies Act 1862 provides for an order for 'sufficient security' for the costs of any action brought by a limited company if the company's assets appear to be insufficient to pay the defendant's costs if he is successful. I really do not see how we can lay down any rule more usual than that, or any rule more precise. There must be some estimate made as to what expenses the defendant will be put to, and the court has to take a reasonable view of all the circumstances, the nature of the suit, or any other matters that may properly be brought in. The court is certainly not bound to give the amount of security which a defendant by his solicitors says he thinks will probably be the amount of his costs."

With respect I entirely agree that a court is not "bound" to do so: Counsel's estimate of the time required for the hearing of a trial or an appeal may be excessive. The court may have had an opportunity of studying the pleadings, or, in the case of an appeal, the grounds of appeal, the judgment, and the record of the evidence; and, in the light of such study, it may itself have formed a preliminary view of the probable number of days required for the trial, or the hearing of the appeal, as the case may be. On the other hand, in Hong Kong counsel frequently under-estimate the length of court time required; and, speaking for myself, I would say that in these courts underestimation by counsel occurs far more frequently than over-estimation.

12. Again, a party's bill of costs may be taxed down by the taxing master. There are many factors to be considered. But, with respect to the Master of the Rolls, I find the greatest difficulty in accepting as a general rule that "the chance of a case collapsing without coming to trial" is a matter for consideration in deciding on quantum of security. In Hong Kong (as in England) actions are frequently settled prior to the dates fixed for hearing. The strength or weakness of the plaintiff's claim may have little bearing on the parties' decision to settle, which may have been prompted by extraneous considerations. No court should be asked to guess what are the chances of an action being settled prior to trial. And, as regards appeals, although it is open to an appellant who does not desire to prosecute his appeal, to present a request for it to be dismissed, it is not open to parties to "settle" an appeal; and no court should be asked to assess the chances of an appeal; and no court should be asked to assess the chances of an appeal being dismissed in this way without a hearing.

13. What is clear from the authorities is that the "two-thirds" yardstick which is the conventional approach in the case of an application for security for costs does not apply where the plaintiff, or appellant, is a limited company and, upon an application under s.357 of Cap. 32, it appears by credible testimony that there is reason to believe that the company will be unable to pay the costs of the defendant, or respondent, if such defendant should obtain judgment or the appeal should be dismissed, as the case may be. In such a case, it is the duty of the Court to make a genuine attempt at estimating what party and party costs are likely to be allowed to a successful defendant, or respondent, upon taxation and the sum fixed by way of security should ordinarily approximate to that figure. Courts of law must assume that by the repeated use, over the years, of the word "sufficient", the legislature intended this word to have its ordinary meaning.

14. But, how is a court to estimate the probable costs? There is a note in the 1970 Supreme Court Practice at the foot of p.346 which reads:-

"It is a great convenience to the Court to be informed what are the estimated costs, and for this purpose a skeleton bill of costs usually affords a ready guide."

During the 12 years I have been on this bench, I have not seen a single case in which an applicant for security for costs has filed a skeleton bill. What happens is that there is a certain amount of vague argument as to the probable length of the hearing and perhaps the number of counsel involved; but no mention is ever made of what fees counsel are likely to be allowed on taxation, or as to solicitors' costs, or fees for conferences, disbursements, and so on. This Court considers that when a party applies for security for costs, he should, in support of his application, file a skeleton bill of costs for the convenience of the Court.

15. In the present case, doing the best we could on the information available, we fixed the security at $18,000. That was on the assumption that the appeal would last "at least 5 days", (as counsel put it) and that the fees of 2 counsel would be allowed by the taxing master in the event of his being called upon to tax the respondent's costs.

16. Since the hearing of this appeal the Registrar, at my request, has supplied me with certain figures relating to other recent taxations. The case which comes closest to this appeal appears to be Civil Appeal No. 34 of 1969. The hearing lasted six days. The costs of the respondent, who was represented by one counsel, were taxed and allowed at $19,876.

17. The following table showing the results of a number of other taxations during the last few years may be of assistance in future cases:-

Civil Appeals

18. The following taxations in certain Original Jurisdiction Actions may also be of interest:-

19. As regards O.J. 539/67, the 1st defendant's costs have not yet been taxed; but a communication from the solicitors concerned indicates that the bill which will be submitted for taxation will be somewhere between $80,000 and $100,000.

20. Of course, there have been some exceptionally long cases tried in these courts during the last few years. In Brentwood Wig Manufactory Ltd. v. Poncher⁽¹⁾, it does not appear from the court file that the successful parties (plaintiffs) taxed their costs; but on an application by the defendants for a stay pending appeal, counsel for the plaintiffs indicated to the court (p.653) that he anticipated that the plaintiffs' costs would be taxed in the region of $250,000.

21. The Assistant Registrar of this court (speaking as taxing master) has informed me that "in the ordinary run-of-the-mill case such as an ordinary running down action," he normally allows a brief fee of $1,500-$2,000, and $600-$300 daily refreshers. Of course, in complicated actions the figures may be higher. In the ordinary case, brief fees allowed for leading counsel vary between $3,000-$4,000 with $1,000 daily refreshers.

22. However, it will be seen from the above figures that the number of counsel involved and the length of the hearing are only 2 of the many factors to be considered when taxing a bill of costs; and it has to be remembered that some judges have never had experience of drawing bills of costs and attending taxations thereof. I therefore repeat what I said earlier that when applying for security for costs, the applicant should support his application by a rough skeleton bill of anticipated costs.

(1) (1966) H.K.L.R. at p.643.