SAFE CASTLE LTD v. CHINA SILVER ASSET MANAGEMENT (HONG KONG) LTD

CACV 69/2020

[2021] HKCA 983

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 69 OF 2020

(ON APPEAL FROM HCCW NO 69 OF 2019)

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________________________

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J U D G M E N T

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Hon Kwan VP (giving the Judgment of the Court):

1.  On 19 March 2021, this court made an order for security for costs of an appeal brought by China Silver Asset Management (Hong Kong) Limited (“the Company”) against an order for its winding up made by Harris J on 11 March 2020. We ordered the Company do procure Mr Patrick Maloney, Mr Frank Dominick and/or China Silver Asset Management Limited (“the parent company”)^[1] within 28 days thereof (by 16 April 2021) to give security by making payment into court of $605,000 for the costs of and occasioned by its appeal. Our order provided for automatic dismissal of the appeal in default of security being given within the time as stipulated.

2.  The Company failed to make payment into court pursuant to our order.  On 19 April 2021, one working day after 16 April, it issued a summons under Order 3 rule 5 of the Rules of the High Court and the inherent jurisdiction of the court, seeking an extension of time to give security for costs to 23 April 2021.

3.  The summons issued by the Company is plainly defective.  By the time of its summons, the appeal has been dismissed in default of security being given as ordered by this court.  The Company could not simply ignore the dismissal of the appeal and just ask for time to give security for costs of an appeal which has been dismissed.  In its summons, the Company should have asked for relief from the sanction imposed by the court order of 19 March 2021 and sought the reinstatement of the appeal pursuant to Order 2 rule 4 of the RHC, in addition to seeking an extension of time to comply with the court order upon the reinstatement of the appeal^[2].

4.  The Company is apparently aware of the need to apply for relief from sanction, as its counsel Mr Leon Ho made submissions on this. At the time his submissions were lodged on 27 April 2021, the Company was still within the 14-day period to make an application for relief from sanction pursuant to Order 2 rule 4.  But nothing was done to rectify the summons to put its application on a proper footing.

5.  The court has power to entertain an application for relief from sanction as the Company has, through its counsel, expressly sought such relief even though there is no proper summons before this court.  The shortcomings in its summons will go to the issue of costs^[3].

6.  The petitioner has opposed the application for relief from sanction.

7.  Order 2 rule 5(1) provides that on an application for relief from sanction, the court shall “consider all the circumstances” including –

“(a) the interests of the administration of justice;

(b) whether the application for relief has been made promptly;

(c) whether the failure to comply was intentional;

(d) whether there is a good explanation for the failure to comply;

(e) the extent to which the party in default has complied with other rules and court orders;

(f) whether the failure to comply was caused by the party in default or his legal representative;

(g) in the case where the party in default is not legally represented, whether he was unaware of the rule or court order, or if he was aware of it, whether he was able to comply with it without legal assistance;

(h) whether the trial date or the likely trial date can still be met if relief is granted;

(i) the effect which the failure to comply had on each party; and

(j) the effect which the granting of relief would have on each party.”

8.  The Company filed the 2^nd affidavit of Mr Maloney to depose to the action that had been taken in an attempt to comply with the order to provide security.  Mr Maloney had discussed with Mr Dominick and their legal advisers on whether security should be provided and they concluded on 16 April 2021 that this should be done so as to proceed with the appeal. Mr Maloney claimed he was only able to communicate the confirmation to pay the security and wire the funds to the Company’s solicitors, K&L Gates, in the evening of 16 April 2021 because he was in a different time zone being Dublin, Ireland.  An email from him confirmed that $605,000 was transferred to the bank account of the solicitors at 8:40 pm of 16 April and he notified the solicitors of the same at 8:59 pm.

9.  Mr Maloney did not explain why they could not have made the decision and payment earlier.  It does not appear to us that the above is good explanation for the failure to comply with the court order.  Even if the delay was not characterised as intentional or a contumelious disregard of the court order leading to the refusal of relief from sanction, the failure to comply with the order could be considered as being caused by “the negligence, incompetence or sheer indolence of the Company”, and the degree of fault may justify the refusal of relief from sanction^[4].

10.  Mr Alexander Tang for the petitioner characterised the Company’s attitude as “cavalier” and submitted that it is unacceptable as the Company was a licensed professional fund manager, controlled by sophisticated businessmen, and had legal advice throughout.

11.  We have taken into account that the delay was for a few hours, that the summons, albeit defective, was issued on the next working day, and that $605,000 was transferred to the Company’s solicitors so the Company should be ready to pay the amount into court at any time.  Mr Ho submitted there is no past history of non-compliance with court orders of the Company.  We noted that a date has not been fixed for the hearing of the appeal.

12.  Mr Tang submitted that the underlying proceedings concerned the winding up of a company and matters concerning a company’s status should be handled expeditiously as it affects third parties and creditors in particular.  Further, in refusing to grant a stay of the winding-up order on 5 June 2020 pending the Company’s appeal, Harris J has considered the prospects of this appeal and was not persuaded that it would have good prospects of success^[5].

13.  The very issues decided by Harris J were considered by Parker J of the Grand Court of the Cayman Islands in Re Altair Asia Investments Ltd (Cause No FSD 200 of 2019) in a judgment delivered on 28 July 2020.

14.  The petitioner invested $200 million into Altair Asia Investments Ltd (“Altair”) and the Company, which was Altair’s investment advisor, gave a guarantee of Altair’s obligation to repurchase the petitioner’s investment.  Harris J ordered the Company to be wound up on 11 March 2020, holding that the Company had no bona fide defence for its repayment obligation under the guarantee.  This is the subject of the present appeal.

15.  The petitioner also brought a petition to wind up Altair in the Cayman Islands based on the debt guaranteed by the Company. Parker J, having considered the judgments of Harris J on 11 March 2020 and 5 June 2020, came to a different view in relation to the only issue upon which Harris J found there was no bona fide dispute based upon substantial grounds.  Parker J acknowledged that the inconsistent outcome is undesirable but as he has concluded there is a bona fide and substantial dispute as to the petition debt, the right course in the exercise of his discretion is to dismiss the winding-up petition against Altair.

16.  The judgment of Parker J is a weighty factor in the exercise of our discretion.

17.  Having regard to all the circumstances mentioned above, we think it is in the interests of justice that relief from sanction should be granted to the Company to pursue its appeal.

18.  We therefore make the following orders:

(1)  time be extended to the Company to comply with the order dated 19 March 2021 to make a payment into court of $605,000 for the costs of and occasioned by this appeal to within five days of the making of this order; and

(2)  upon compliance with (1), the appeal brought under the amended notice of appeal filed on 11 June 2020 be reinstated.

19.  Mr Ho accepted that the costs of and occasioned by the summons should be paid to the petitioner and proposed that such costs be borne by the parent company.  We order the Company to pay the petitioner the costs of this application within seven days of the summary assessment of costs.

20.  To facilitate the summary assessment if costs are not agreed, we direct the petitioner to lodge a statement of costs within seven days hereof and the Company to lodge its grounds of opposition within seven days thereafter.

[1] China Silver Asset Management Ltd is the sole contributory of the Company.  Mr Maloney and Mr Dominick are its directors as well as the former directors of the Company.

[2] Daimler AG v Leiduck [2012] 3 HKLRD 119 at §§49 to 51; Schindler Lifts (Hong Kong) Ltd v Nikko Services Ltd, CACV 250/2010, 3 August 2012, §12

[3] Daimler AG v Leiduck at §§52 to 53; Schindler Lifts (Hong Kong) Ltd v Nikko Services Ltd at §12

[4] Top One International (China) Property Group Co Ltd v Top One Property Group Ltd [2011] 1 HKLRD 606 at §§35 and 41

[5] [2020] HKCFI 1028 at §§15 to 17

CACV 69/2020

[2021] HKCA 376

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 69 OF 2020

(ON APPEAL FROM HCCW NO 69 OF 2019)

________________________

________________________

________________________

J U D G M E N T

________________________

Hon Kwan VP (giving the Judgment of the Court):

1.  On 11 March 2020, Harris J made a winding-up order against China Silver Asset Management (Hong Kong) Limited (“the Company”) on insolvency grounds. Acting by its former directors in their residual capacity, the Company filed a notice of appeal against the winding-up order on 19 March 2020. The notice of appeal was amended on 11 June 2020.

2.  By a summons issued on 3 July 2020, the petitioner, Safe Castle Limited, seeks security for costs of and occasioned by the appeal in the total sum of $1,093,810.  The petitioner seeks an order that the Company do procure its former directors and/or its parent company incorporated in the Cayman Islands, China Silver Asset Management Limited, to provide security by making a payment into court.

3.  Having considered the evidence filed by the parties and the submissions they have lodged, we will deal with this application on paper.

4.  We do not propose to mention the background facts leading to the presentation of the petition, the Company’s grounds of opposition to the petition, the reasons for the making of the winding-up order and the grounds of appeal advanced in the amended notice of appeal.

5.  Although the Company filed an affidavit by one of its former directors on 17 July 2020 opposing the application for security for costs on the grounds that the parent company has sufficient financial resources to assist the Company to pay any adverse costs order and that the appeal has strong merits, when the Company came to serve the submission of its counsel Mr M C Law on 21 August 2020, it would appear that the liability to provide security for costs is no longer in contention. Mr Law’s submission only addressed the proper amount of security that should be ordered by the court.

6.  For the avoidance of doubt, we should say that this is a clear case for security to be ordered. The Company has been adjudged insolvent. The appeal is pursued on its behalf by former directors and/or the parent company, who are not parties in the appeal.  There is a real risk that should the appeal fail and an adverse costs order is made, the Company will be laden with an additional debt which prejudices not only the petitioner but its creditors as a whole.  It is established that a limited company which appeals alone from a winding-up order, without joining any one personally responsible for costs, will be ordered to give security. (Hong Kong Civil Procedure 2021, vol 1, §59/10/30; cited with approval in Re Wah Nam Group Limited, CACV 310/2000, 1 November 2000, at §§5 to 13)

7.  The letter of support from the parent company is of no assistance.  Nor is it necessary to consider the merits of the appeal.  This has been argued before Harris J in the application of the parent company (as the opposing contributory) to stay the winding-up order pending appeal and the judge has dismissed the application on 5 June 2020^[1] as he is not persuaded that the appeal would have good prospects of success.

8.  We turn to the amount of security that should be ordered to be provided by those who are behind the prosecution of this appeal.

9.  The amount sought by the petitioner is to cover (1) the anticipated application by the parent company for a stay of the winding-up order pending appeal before the Court of Appeal; (2) the present application for security for costs; and (3) the substantive appeal.  As Mr Law has stated in his submission that the anticipated application in (1) will not be pursued by the parent company, we are looking at the costs of (2) and (3) in the total sum of $806,140 ($298,720 + $507,420).

10.  In this particular situation, the amount would be estimated on the indemnity scale, as indemnity costs are appropriate where a company unsuccessfully appeals from a winding-up order.  The reason is that it is not just that any costs occasioned by an unsuccessful appeal from a winding-up order should be thrown upon the assets to the prejudice of the creditors. (Re SY Engineering Co Ltd, CACV 1896/2001, 20 February 2002, §§19 to 21)

11.  We do not understand Mr Law to have argued to the contrary.

12.  In assessing estimated costs on the indemnity basis, the statutory formula is provided in Order 62 rule 28(4A), namely, that all costs shall be allowed except insofar as they are of an unreasonable amount or have been unreasonably incurred.  This does not mean giving a blank cheque to the receiving party to recover all his costs incurred without proper scrutiny by the court.  The unreasonable items or unreasonable amounts should be readily identifiable; it is only where there is a doubt as to whether it is unreasonable that the benefit of the doubt should be given to the receiving party. (Re Wing Fai Construction Co Ltd (Costs: Taxation) (2012) 15 HKCFAR 657 at §§21 to 25)

13.  The court normally takes a broad brush approach in assessing the proper amount for security for costs, and does not conduct a taxation of the respondent’s costs in fixing the quantum of security. (Allied Ever Holdings Ltd v Li Shu Chung & Ors[2019] HKCA 752 at §8(1)).

14.  The Company has objected to the hourly rates of the fee earners of the petitioner’s solicitors in that they are above the rates in the Law Society circular of December 2017.  Mr Law also submitted there should be a reduction for the excessive time spent for certain items of work and the engagement of Senior Counsel in the present application which is disposed of on paper.

15.  As this is not a taxation exercise, we do not propose to go into specific items or amounts.  We will adjust the amount claimed by reducing the estimated costs for the substantive appeal to $445,000 and the estimated costs for the present application to $160,000.  We will order security to be provided in the total amount of $605,000.

16.  We make an order in the following terms:

(1)  the respondent do procure Mr Patrick Maloney, Mr Frank Dominick and/or China Silver Asset Management Limited to give security within 28 days from the date of this order by making payment into court of $605,000 for the costs of and occasioned by its appeal under the amended notice of appeal filed on 11 June 2020;

(2)  until compliance with paragraph (1) hereof, all proceedings in the appeal be stayed;

(3)  in default of security being given within the time as ordered in paragraph (1) hereof, the appeal do stand dismissed without further order, with costs to be taxed and paid by the respondent to the petitioner; and

(4)  costs of this application be to the petitioner in any event, to be taxed if not agreed.