FIRST LASER LTD v. FUJIAN ENTERPRISES (HOLDINGS) CO LTD AND ANOTHER

CACV 97/2020, [2023] HKCA 961

On appeal from [2020] HKCFI 495

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 97 OF 2020

(ON APPEAL FROM HCA NO 4414 OF 2001)

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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.  Both sides in this action have applied for leave to appeal to the Court of Final Appeal (“CFA”) against the judgment of this court handed down on 31 March 2023 (“CA Remitter Judgment”)[1]. The applications arose in this way.

2.  Very briefly, on 6 July 2012 the CFA[2] ordered the issue of restitution to be remitted to the Court of First Instance for determination under PRC law, having dismissed the appeal of the plaintiff (“First Laser”) and upheld the ruling of the Court of Appeal that the “First Laser Agreement” (an agreement for the sale and purchase of 51% of the shares in FCL and FCO, under which First Laser had paid the purchase price in the equivalent of HK$24,640,000) was governed by PRC law and was held to be invalid by the Supreme People’s Court, as the necessary approval for the transfer of shares in FCL and FCO had not been obtained from the PRC authorities.

3.  The trial of the remitted issue took place before Deputy High Court Judge To who gave a judgment on 8 April 2020 (“RemitterJudgment”)[3].

4.  On 31 March 2023, we handed down the CA Remitter Judgment allowing the defendants’ appeal from the Remitter Judgment. We set aside the judge’s order that the defendants do pay First Laser HK$250,168,048 with interest and substituted that with an order that the defendants do pay First Laser the sum of HK$5,288,716.61 with interest.

5.  The big difference in the two sums awarded is primarily because the judge proceeded on the basis that to restore the parties to their pre-contractual position, First Laser is entitled to be returned “the value of the actual investment sum, interests, dividends, and a reasonable distribution of the benefits arising from the investment represented by the enhancement in value of the equity based on the actual value of the enterprise invested at the material valuation date”[4]. We proceeded on the basis that the judge’s finding of a separate “nominee investment contract” is not supported by the evidence and that the legal principles in PRC law invoked by the judge would not apply. We held that as the contract found to be void was the First Laser Agreement, what is required for the parties to be restored to their pre-contractual position is merely the return of the investment sum of HK$24,640,000[5] to First Laser.

6.  On 28 April 2023, both sides applied for leave to appeal to the CFA against the CA Remitter Judgment.

The plaintiff’s leave application

7.  Two questions said to be of great general or public importance (“GPI”) are raised in the notice of motion of First Laser:

Question 1

8.  What is the scope of a remitter when the CFA (or an appellate court) remits an issue for trial but in the course of that decision made obiter comments or findings on issues that did not arise for determination? In particular, whether the obiter comments or findings give rise to any issue estoppel or are otherwise binding on the trial judge in the trial of the remitter, such that the trial judge is not permitted to consider evidence overlooked or not considered by the appellate court or make any factual findings on the remitted issue which may be inconsistent with such obiter comments or findings?

Question 2

9.  Whether the answer to Question 1 depends on the identity of the issue remitted to the trial judge for determination and the issue for which the obiter comments or findings were made by the appellate court?

10.  First Laser also seeks leave to appeal on the “or otherwise” basis, contending the following.

11.  First, the Court of Appeal fundamentally erred in setting aside the judge’s finding on First Laser’s “alternative claim”[6] based on Article 58 of the Contract Law, Article 61 of the GPCL, the “improper profits regime” under Article 92 of the GPCL as interpreted by Article 131 of the GPCL Opinion, and the “principle of fairness” 公平原則 under PRC law, and substituting its own finding that the scope of restitution is confined to the purchase price with interest.

12.  Second, the Court of Appeal erred in rejecting the plaintiff’s “primary claim”[7] under Article 18 Provisions I.

13.  It is contended that leave to appeal ought to be granted given the highly unusual circumstances, including (but not limited to) the complex factual history of the case, that it is the first case in which the Hong Kong courts have considered the issue of restitution under PRC law, the remitter of that issue by the CFA, the factual findings of the judge in the two trials, and the questions of law involved.

The defendants’ leave application

14.  The questions of GPI in the defendants’ notice of motion are as follows.

15.  In making an award of interest under section 48 of the High Court Ordinance, Cap 4:

(a)  whether the Court should take into account the conduct of a party in unreasonably refusing to settle, especially when a plaintiff fails to do better than the offer made by the defendants (even when the offer is not a sanctioned offer within the meaning of Order 22 of the Rules of the High Court); and

(b)  whether the Court is then entitled to disallow the interest or part of it in light of the conduct of that party?

16.  The defendants also seek leave to appeal on the “or otherwise” basis, contending the following.

17.  First, the Court of Appeal was wrong in law or in principle or was plainly wrong or made ‘self-evident’ errors in holding that the 1^st defendant (“FEHC”) was not entitled from First Laser, by way of counter-restitution, the dividends distributed from FCO (RMB 23,802,718.60) and the accumulated profits (RMB 27,380,435.80)[8].

18.  Second, in awarding interest to First Laser, the Court of Appeal erred in law or in principle or was plainly wrong or made ‘self-evident’ errors in failing to take into account an open offer made by the defendants to First Laser in June 2010 (“Open Offer”), namely, that FEHC will return HK$20,000,000 (being the amount paid by First Laser to FEHC) with interest and will forego the return of the FCO shares and dividends declared or paid by FCO[9]. Had the Court of Appeal taken the Open Offer into account, it would not have made any order for interest in favour of First Laser after June 2010.

Discussion

19.  The questions of GPI raised by both sides are all within very narrow confines. It would appear that what both parties really seek to do is to challenge the respective rulings in the CA Remitter Judgment that are against them, contending that the rulings are fundamentally or plainly wrong or are ‘self-evident’ errors so that leave should be granted under the “or otherwise” limb. Whether the CFA would wish to consider all those issues which have been canvassed before us and rejected is a matter for the CFA. We ought not depart from the usual practice of deferring the consideration of the “or otherwise” ground to the Appeal Committee of the CFA. We decline to grant leave to appeal to First Laser and to the defendants on the “or otherwise” grounds in their respective applications.

20.  On the questions of GPI raised by First Laser, we are not satisfied it would be appropriate to grant leave to appeal.

21.  The questions are concerned with the holding that the defendants’ ground of appeal that the judge’s finding of a “new relationship and contract” between First Laser and FEHC is inconsistent with the findings in the CFA Judgment is established[10]. First Laser contended that the holding is incorrect in that the CFA’s findings of fact are not germane to the determinations of the CFA and are obiter and issue estoppel does not arise, and that the comments of the CFA were based on un-pleaded matters which did not arise in the appeal before the CFA.

22.  The questions are fact-sensitive and do not appear to meet the requirement of GPI. Nor do we think it reasonably arguable that the trial judge should have “free rein to contradict or undermine facts upon which the CFA had adjudicated”[11] in the same action. Further, we think it would be futile to grant leave to appeal on those questions in light of the holdings against First Laser in the other grounds of appeal (the finding of a nominee investment contract is not supported by the evidence; Article 18 Provisions I is not engaged in any event as there has been no determination under PRC law of the invalidity of a nominee investment contract[12]).

23.  The questions of GPI raised by the defendants regarding the discretion to deprive First Laser of interest under section 48 of the High Court Ordinance for refusing to accept the Open Offer when First Laser fails to do better than the Open Offer by the award in the CA Remitter Judgment have not been argued before the judge or on appeal. We decline to grant leave to appeal on the questions for these reasons.

24.  The defendants raised for the first time on appeal an argument that First Laser should be deprived of interest for a period of time on account of its substantial delay in pursuing the remitter proceedings. We permitted them to do so and deprived First Laser of interest for part of the period[13]. The defendants had also made express reference to the Open Offer at the trial and on appeal. However, they did not advance any argument that First Laser should be denied interest altogether for rejecting the Open Offer. The questions in their notice of motion raise an entirely new point. We were not informed why they did not raise the issue earlier. It is well-established that the CFA would be very reluctant to consider an issue not duly raised and considered in the Court of Appeal and it must only be under very exceptional circumstances when it would entertain a new point (Flywin Co Ltd v Strong & Associates Ltd (2002) 5 HKCFAR §39). We could discern no exceptional circumstances in this instance. The questions are also one of the two grounds on which the defendants seek leave to appeal on the “or otherwise” limb. We would leave it to the Appeal Committee to decide whether a new point not argued before the Court of Appeal should be heard by the CFA (Leung Ping Chiu Roy v Wai Wai Chen & Anr[2022] HKCA 1730 §65).

25.  Further, we do not agree with the defendants there is no reasonable possibility that the state of the evidence relevant to the point could have been materially more favourable to First Laser if the point had been raised, in that there would be no factual controversy as the only relevant fact is that First Laser failed to do better than the Open Offer.

26.  There was divergence of opinion in the English Court of Appeal in Benedetti v Sawiris [2010] EWCA Civ 1427 on the exercise of discretion to disallow interest where a party has refused to accept an offer of not less than the amount which he has succeeded in recovering. Etherton LJ considered that a party’s conduct in respect of offers and negotiations relating to settlement should not be taken into account at all, and most particularly where the claim is for restitution of the defendant’s unjust enrichment (at §§164 to 165). Rimer LJ took the view that it would be rare and exceptional for the refusal of an offer to be relevant to the exercise of discretion as to interest and, in declining to penalise a claimant for turning down an offer to pursue a greater claim, the court may consider whether the pursuit of the claim was improper, or whether it was pursued with no genuine belief or other than in good faith (at §§177, 179). Arden LJ disagreed with both Etherton LJ and Rimer LJ and held that where there is an acceptable offer, the claimant should bear the risk and cost of failure (at §130).

27.  If the approach of Rimer LJ in taking the middle road is followed, the reasonableness of the conduct of First Laser in turning down the Open Offer would be looked into. It could not be said there is no need to look beyond the fact that First Laser did not do better than the Open Offer. The questions are not merely one of law that can be decided without any need to make factual findings.

28.  For the above reasons, we decline to give leave to appeal on the questions raised by First Laser and the questions raised by the defendants. Both applications are dismissed.

29.  We order First Laser to pay the defendants’ costs of resisting First Laser’s application for leave to appeal, which we assess summarily at HK$450,000.

30.  We order the defendants to pay First Laser’s costs in opposing their application for leave to appeal, assessed summarily at HK$600,000. We decline to grant a certificate for three counsel. The costs in settling the statement of costs for summary assessment are disallowed, see Practice Direction 14.3 para 13.

Mr Jat Sew Tong SC, Mr Chan Chi Hung SC and Mr Derek J Y Chan, instructed by Mayer Brown, for the Plaintiff (Respondent)

Mr Benjamin Yu SC and Mr Law Man-Chung SC, instructed by Kwok Yih & Chan, for the 1^st and 2^nd Defendants (Appellants)

CACV 97/2020, [2023] HKCA 857

On appeal from [2020] HKCFI 495

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 97 OF 2020

(ON APPEAL FROM HCA NO 4414 OF 2001)

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DECISION ON COSTS

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Hon Kwan VP (giving the Decision on Costs of the court):

1.  On 31 March 2023, this court handed down a judgment (“CA Remitter Judgment”)[1] allowing the defendants’ appeal from the Remitter Judgment. We set aside the judge’s order that the defendants do pay the plaintiff (or “First Laser”) HK$250,168,048 with interest and substituted that with an order that the defendants do pay the plaintiff the sum of HK$5,288,716.61 with interest. We directed the parties to file written submissions on the costs of the appeal and of the trial of the remitter proceedings before the judge.

The defendants’ proposed costs order

2.  The defendants proposed an order in these terms:

(1)  the costs of and occasioned by this appeal and the respondent’s notice (including all costs previously reserved) be to the defendants, to be taxed on an indemnity basis if not agreed, with a certificate for two senior counsel; and

(2)  the costs of and occasioned by the remitter proceedings in the court below (including all costs previously reserved) be to the defendants, to be taxed on an indemnity basis if not agreed, with a certificate for two counsel.

3.  In support of the proposed order, they advanced these arguments.

4.  First, the defendants are successful in overturning the Remitter Judgment, so costs should follow the event. Even though the CA Remitter Judgment awarded the plaintiff the sum of HK$5,288,716.61 with interest, this was not on the basis of the plaintiff’s submissions on counter-restitution. In the premises, the defendants should be entitled to costs of the appeal and of the remitter proceedings.

5.  Second and more importantly, the plaintiff ought to have accepted an open offer (“Open Offer”) made by the defendants back in June 2010 as stated in §61 of the CA Judgment[2]:

“Restitution

61. In respect of restitution the defendants have indicated both in the Court below and in this Court that they are prepared to make restitution. In this Court, the defendants openly stated that it will return HK$20 million being the amount paid by the plaintiff to the 1^st defendant with interest and will forego the return of FCO shares, and dividends declared or paid by FCO. The plaintiff has not responded to the open offer. If this offer is accepted, then there will be a judgment on such terms for the plaintiff. If not, the issue of restitution must be remitted to the Court of First Instance for determination under Mainland Law.”

6.  The Open Offer was repeated in the CFA Judgment at §59:

“FEHC has made an offer of restitution, namely that it will return HK$20 million being the amount paid by First Laser to FEHC with interest and will forego the return of FCO shares and dividends declared or paid by FCO. First Laser has rejected the offer.”

7.  The court could consider an open offer in determining the appropriate costs award. An open offer will place some legitimate pressure on the offeree, in the form of possible adverse costs consequences, to accept a reasonable offer of settlement. This is consistent with one of the principal aims of the Civil Justice Reform, to facilitate and promote fair and reasonable settlement as early as possible[3].

8.  In this instance, the Open Offer of HK$20 million is far better than the judgment sum of HK$5,288,716.61 awarded to the plaintiff by the CA Remitter Judgment. It is submitted that the plaintiff’s conduct is wholly unjustified. Had the plaintiff accepted the Open Offer, it would not have been necessary to litigate the remitter proceedings and this appeal. It should be penalised by indemnity costs to mark the court’s strong disapproval.

9.  In respect of the certificate for two senior counsel for the defendants’ costs on appeal, Mr M C Law, who was appointed senior counsel in 2021, has been retained in this protracted litigation since its commencement in October 2001. Further, the plaintiff has been represented by two senior counsel and one junior throughout the remitter proceedings.

The plaintiff’s proposed costs order

10.  The plaintiff proposed an order in these terms:

(1)  the defendants be awarded 50% of the costs of the appeal with a certificate for two counsel; and

(2)  the plaintiff be awarded 50% of the costs of the remitter proceedings with a certificate for three counsel.

11.  For depriving the defendants of 50% of the costs of the appeal, these arguments were advanced by the plaintiff:

(1)  The defendants may be regarded as only partially successful in overturning the Remitter Judgment. The Court of Appeal rejected the plaintiff’s primary claim for restitution based on Article 18 of Provisions I and the alternative claim based on Article 58 of the Contract Law, Article 61 of the GPCL, Article 92 of the GPCL, the ‘improper profits regime’ (不當得利請求權) and the ‘principle of fairness’ (公平原則), and held that the plaintiff is only entitled to the return of the total purchase price of HK$24,640,000 with interest. Further, the defendants’ contention that the claim of the 1^st defendant (or “FEHC”) for counter-restitution should include the dividends declared by FCO and the accumulated profits to the extent that it would extinguish the plaintiff’s claim in entirety was rejected and the amount that should be returned to FEHC was limited to the net asset value of FCO in the sum of HK$19,351,283.39. The net result is that the plaintiff is entitled to judgment of HK$5,288,716.61 with interest.

(2)  The defendants should be deprived of a substantial portion of their costs in light of the way they conducted this appeal. They sought to re-argue virtually every point decided against them in an amended notice of appeal of 57 pages with 80 paragraphs[4], which caused the appeal to be set down for three days although ultimately only one day was used. It was only in their skeleton argument that the grounds of appeal were refined to six broad grounds[5]. No submissions were made in the skeleton argument on a number of discrete grounds of appeal in the notice of appeal[6], which were only abandoned at the hearing, and has led to significant increase in time and costs in the plaintiff’s preparation.

(3)  The defendants did not succeed on four discrete issues they pursued on appeal: the scope of the Remitter Order (ground (1)); the nominee investment contract found by the judge was not pleaded (part of ground (2)); the omission to plead Article 92 in respect of the alternative claim (part of ground (6)); and the claim for dividends and profits in FEHC’s counter-restitution. Further, the first two issues were unreasonably raised both at trial and on appeal, as the defendants had chosen and were able to adduce extensive expert and factual evidence to address Article 18 of Provisions I. These discrete issues led unnecessarily to the increase in time and costs of the appeal.

12.  For awarding the plaintiff 50% of the costs of the remitter proceedings with a certificate for three counsel, the plaintiff made these arguments:

(1)  The plaintiff ultimately obtained judgment in its favour of HK$5,288,716.61 with interest and is the overall successful party, albeit to a limited extent. The CA Remitter Judgment rejected the defendants’ contention that the plaintiff’s claim should be extinguished and dismissed in its entirety.

(2)  The plaintiff accepts that it was unsuccessful on the two main planks of its claim based on Article 18 of Provisions I and the alternative claim, so the costs order in its favour should reflect this outcome.

(3)  The defendants had pursued unmeritorious arguments at the remitter proceedings which unnecessarily lengthened the trial and generated costs. These are the issues they advanced in the notice of appeal but were abandoned or rejected by the court on appeal.

(4)  The defendants filed an additional witness statement of Zheng Kaiyuan with extensive documentary evidence. The judge struck out Zheng’s attempt to adopt the evidence of Wan Hing Kin who had served witness statements for the original trial but was never called as a witness[7] and found Zheng’s evidence unimpressive[8]. Zheng’s evidence on various issues was roundly rejected by the judge[9].

(5)  Although the Court of Appeal ultimately found in favour of the defendants on the application of Mainland law, the court indicated that it did not derive much assistance from the experts and did not adopt the reasoning of the defendants’ expert Mr Bai[10].

(6)  As for the Open Offer, this must be considered in the context of what transpired at the time and the eventual outcome. The defendants’ offer was to return HK$20 million with interest, excluding the amount of HK$4,646,000. In the Remitter Judgment, the judge found the amount of HK$4,646,000 constituted part of the purchase price despite the defendants’ attempt to re-open this issue[11], and this finding was upheld in the CA Remitter Judgment[12].

(7)  Although in the Open Offer the defendants had offered to “forego the return of FCO shares, and dividends declared or paid by FCO”, the FCO shares were transferred to and held by COM, not the plaintiff, and it was commented in the CFA Judgment that the transfer of 100% of the shares in FCO to COM bore little relationship to the First Laser Agreement[13]. The defendants have never made any counterclaim against the plaintiff or applied to join COM as an additional party by counterclaim for the return of FCO shares or dividends. At the time of the offer, the defendants did not even raise any defence of set-off or counter-restitution and they only pleaded counter-restitution for the first time in July 2016, long after the CFA Judgment. In any case, the CA Remitter Judgment rejected the argument that the dividends of FCO should be returned[14].

(8)  Whilst it is accepted that a certificate for three counsel is exceptional, the extensive examination of Mainland law and the factual issues involved justify such a certificate.

Discussion and disposition

13.  The plaintiff seeks to downplay the Open Offer.

14.  It is correct that the Open Offer was to return only HK$20,000,000, not HK$24,640,000 as claimed by the plaintiff. The purchase price for 51% interest in FCO and FCL was HK$24,640,000. The defendants contended in the remitter proceedings that only HK$20,000,000 was paid by cheque (which amount FEHC was prepared to return) and the balance of HK$4,640,000 had not been paid as it was just an accounting entry and could be reversed[15]. The judge rejected the defendants’ contention and held that the total price paid by the plaintiff was HK$24,640,000.

15.  However, the amount of money to be returned was just part of the Open Offer. Apart from returning HK$20,000,000, the defendants offered to forego the return of FCO shares and the dividends declared or paid by FCO so the plaintiff would keep the FCO shares and the dividends. In contrast, the CA Remitter Judgment held that the plaintiff is entitled to the return of the purchase price paid of HK$24,640,000, that FEHC is entitled to the entire equity value of FCO in the amount of HK$19,351,283.39 (as the shares in FCO have been sold and cannot be returned), and that FEHC is not entitled to be returned the dividends declared by FCO and distributed to COM. The net outcome is that the plaintiff is entitled to judgment in the sum of HK$5,288,716.61.

16.  The plaintiff would be far better off had it accepted the Open Offer. Had it done so, there would be no remitter proceedings and no appeal. It is not correct to say that ultimately the plaintiff should be regarded as the overall successful party in obtaining the judgment sum of HK$5,288,716.61.

17.  The transfer of the FCO shares to COM and not to the plaintiff is irrelevant. Although that was not in accordance with the First Laser Agreement, it was held in the Remitter Judgment that the transfer of the FCO shares to COM was in accordance with the spirit of that agreement[16]. The fact that the defendants did not make any counterclaim or counter-restitution when they made the Open Offer is likewise irrelevant. The offer to forego the return of the FCO shares and dividends must have been on the premise that FEHC was entitled to the shares and dividends.

18.  The plaintiff contended that it had not acted unreasonably in rejecting the Open Offer as it had succeeded before the judge in the remitter proceedings and at most, with the benefit of hindsight, it was unwise not to accept the offer. We do not agree with this, in light of our rejection of the main planks of the plaintiff’s case on its primary claim and alternative claim in the CA Remitter Judgment. The plaintiff should bear the costs of the remitter proceedings and the appeal which could have been avoided.

19.  It does not necessarily follow that the costs awarded to the defendants should be on an indemnity basis. The court still has a discretion to exercise whether it is just and appropriate to order costs in this kind of situation on a higher basis. An example was cited in which the court declined to order costs against a party on an indemnity or common fund basis[17].

20.  In the particular circumstances of this case, we do not think the plaintiff’s conduct in pursuing the remitter proceedings was so improper to warrant indemnity costs in order to mark the court’s strong disapproval. The restitution relief that the plaintiff was entitled to pursue was determined in accordance with Mainland law. The relevant areas of Mainland law are far from straightforward. Difficult issues are involved in the remitter proceedings. If the plaintiff had succeeded in its primary claim in restitution or its alternative claim, the sum to be returned would be very substantial. We decline to exercise our discretion to order indemnity costs. We think justice would be served by awarding costs on a party and party basis.

21.  There is still the matter whether the defendants should be deprived of part of their costs in light of the unsuccessful issues contested by them in the remitter proceedings and on appeal. Even though the costs of the two sets of proceedings could have been avoided had the Open Offer been accepted, insofar as the unsuccessful issues raised by the defendants had caused significant increase in the length and costs of the proceedings, there is no good reason not to deprive them of part of their costs. But we decline to reduce their costs to the extent of 50% as proposed by the plaintiff. On a broad brush basis, we would reduce the defendants’ costs by 20%.

22.  We make the following orders on costs:

(1)  the defendants be awarded 80% of the costs of and occasioned by this appeal and the respondent’s notice (including all costs previously reserved), to be taxed on a party and party basis if not agreed, with a certificate for two senior counsel; and

(2)  the defendants be awarded 80% of the costs of and occasioned by the remitter proceedings in the court below (including all costs previously reserved), to be taxed on a party and party basis if not agreed, with a certificate for two counsel.

23.  For the costs of the present application, as the defendants are not entirely successful, we make an order nisi that they be awarded 80% of the costs, with a certificate for two senior counsel.

Mr Chan Chi Hung SC and Mr Derek J Y Chan, instructed by Mayer Brown, for the Plaintiff (Respondent)

Mr Benjamin Yu SC and Mr Law Man-Chung SC, instructed by Kwok Yih & Chan, for the 1^st and 2^nd Defendants (Appellants)

CACV 97/2020

[2021] HKCA 864

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 97 OF 2020

(ON APPEAL FROM HCA 4414/2001)

__________________________

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JUDGMENT

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

1.  This is an application by the Defendants for stay of execution pending appeal. The appeal was brought by the Defendants against the judgment of Deputy High Court Judge To of 8 April 2020 (“the Remitter Judgment”) on the trial of the Remitter as ordered by the Court of Final Appeal in FACV 6/2011 (“the CFA Remitter Order”). By the Remitter Judgment, the judge adjudged that the Defendants do pay the Plaintiff the sum of $250,168,048 with interest.

2.  Previously, the Defendants had made the same application before the judge.  On 30 September 2020, DHCJ To granted a stay on condition that the Defendants paid into court the full judgment sum with interest (deducting the amounts already paid into court).  According to the judge’s calculation, the actual amount was $518 million less US$9,428,218.28 and its accumulated interest paid into court pursuant to his order dated 28 April 2008. 

3.  The Defendants did not comply with such condition.  Hence, at the moment, there is no stay.

4.  We shall process the summons of the Defendants of 29 October 2020 as a renewed application for stay.

5.  The principles governing this kind of application is well-established, see Star Play Development Ltd v Bess Fashion Management Co Ltd [2007] 5 HKC 84; Astro Nusantara International BV c PT Ayunda Prima Mitra (No 2) [2016] 1 HKLRD 591.

6.  It is an exercise of discretion and the Court should pay regard to the principle that an appeal does not per se operate as a stay and, absent good reason otherwise, a successful litigant is entitled to enforce the judgment as the fruit of his success.

7.  In Hammond Suddard Solicitors v Agrichem International Holdings Ltd [2002] C.P. Rep 21 at [22], Clarke LJ succinctly summarized the essence of the discretion as follows:

“ Whether the court should exercise its discretion to grant a stay will depend upon all the circumstances of the case, but the essential question is whether there is a risk of injustice to one or other or both parties if it grants or refuses a stay. In particular, if a stay is refused what are the risks of the appeal being stifled? If a stay is granted and the appeal fails, what are the risks that the respondent will be unable to enforce the judgment? On the other hand, if stay is refused and the appeal succeeds, and the judgment is enforced in the meantime, what are the risks of the appellant being able to recover any monies paid from the respondent?”

8.  In the present appeal, in light of the agreement of the Plaintiff to have the judgment sum being paid into court instead of being paid outright to the Plaintiff, we do not see any valid objection in terms of the non-recovery of the same should the Defendants ultimately succeed in the appeal.

9.  As regards the stifling of the appeal, we do not agree with the submission of Defendants that the resources of their shareholders or funders are irrelevant.  Whilst the stifling of an appeal (if no stay is granted) can, in an appropriate case, be a ground for granting a stay, all the circumstances of the case have to be taken into account.  In a case where the Defendants are clearly funded by someone with means (say by incurring substantial costs with the instruction of leading and junior counsel in interlocutory applications), this must be a relevant circumstance in assessing whether the appeal would be stifled if a discretion is exercised in one manner or another.

10.  In Hammond Suddard, the English Court of Appeal did take into account the resources of those backing the appeal in deciding if a stay should be granted: see [19], [21] and [23].  See also Sunico v Commissioners for Her Majesty’s Revenue and Customs [2014] EWCA Civ 1108 at [26].  We reject Mr Yu SC’s submission that such an approach is only applicable when the court is considering if leave to appeal is to be granted.

11.  In the present context, DHCJ To explained the relevance of such financial backers at [18] to [35] of the Decision on stay of 30 September 2020. We respectfully agree with his analysis.  It is noteworthy that the present financial position of the 1^st Defendant was occasioned by the unaccounted disposal of the proceeds of sale of the FCL shares after the service of a summons seeking injunctive relief: see [33] of that Decision. 

12.  We do not accept there is a good reason for granting an unconditional stay on the ground of the stifling of the appeal.

13.  The remaining reason relied upon by the Defendants is the existence of strong ground(s) of appeal.  As held by Ma J (as he then was) in Star Play Development, the Court should not delve too deeply into the merit of the grounds of appeal in the context of an application for stay, see also Ming Hsieh v Xu Zhe[2018] HKCA 390 at [9]; Bright Gold Ltd v Mega Well Development Ltd[2019] HKCA 1440 at [13]; Ng Yuk Pui Kelly v Estate of Dung Wai Man (deceased) [2021] 1 HKLRD 1037 at [8].

14.  After hearing counsel, we come to the view that the Defendants’ appeal does have a strong prospect of success which warrants the grant of an unconditional stay.

15.  We find it sufficient for present purposes to focus on two grounds of appeal:

(a)  That the scope of the Remitter does not permit the Plaintiff to reconstitute its case on restitution to rely on an “actual and nominee investor” relationship under Article 18 of a Mainland judicial interpretation called Provision I of “Provisions of the Supreme People’s Court on Several Issues concerning the trial of disputes involving Foreign-Owned Enterprises”, which formed the primary basis on which the judge gave judgment in favour of the Plaintiff; and

(b)  That the finding of actual-nominee investor relationship is inconsistent with the conclusion of the Court of Final Appeal, in particular at [115] of its judgment.  

16.  We agree with Mr Yu that though the sealed CFA Remitter Order was expressed in general terms, the precise scope of the remitter should be determined by reference to the judgment of the Court of Final Appeal and the pleadings then before the court: see Sans Souci Ltd v VRL Services Ltd [2012] UKPC 6 at [13].

17.  In light of [70] of the judgment of the Court of Final Appeal, the Remitter plainly did not include any fault-based claim even if such a claim is viable as a matter of Mainland law.

18.  Moreover, the restitution claim which was remitted had to be the one the nature of which had been set out in the then Statement of Claim.  There was no plea of any nominee relationship between the Plaintiff and the 1^st Defendant.  The factual basis of the Plaintiff’s claim then was the First Laser Agreement for the sale and purchase of 51% of the FCL shares, full payment of the purchase price, the participation by the Plaintiff in control and management of FCL and FCO, and the remittance of funds to Casix Inc for investment in a project of FCL “on account of the Plaintiff’s beneficial interest and shareholding in FCL”.  It was also averred that the 1^st Defendant held the 51% shareholding on trust for the Plaintiff.

19.  The CFA Remitter Order was not intended to be a warrant for having a trial afresh without regard to what had previously been decided.  It has also to be remembered that by the time the CFA Remitter Order was made:

(a)  The agreements, including the First Laser Agreement, were held to be invalid under Mainland law (which the Court of Appeal held to be the governing law, as upheld by the Court of Final Appeal);

(b)  The Court of Appeal also held that the issue of compensation would not be remitted because the only compensation which the Plaintiff had claimed was disgorgement of profits and it was not entitled to the same.  This was also upheld by the Court of Final Appeal, see [70] of the judgment of the Court of Final Appeal; and

(c)  The Court of Appeal further held that there was no trust in favour of a purchaser under Mainland law.  There was no appeal against that decision.  Hence, as the Court of Final Appeal agreed with the Court of Appeal that Mainland law governed the transaction, no claim based on trust or beneficial interests could be advanced.

20.  In the judgment of the Court of Final Appeal, Lord Collins summarized the case of the Defendants against the plea of estoppel by convention at [107] as follows:

“ … FEHC has put before the Court in its Case dated 11 December 2011 a comprehensive argument designed to show that (1) there was no common assumption of validity; (2) there is no evidence that, notwithstanding the failure to obtain approval for the transfer of shares in FCL, First Laser was treated as being the owner of the shares; (3) on the contrary, First Laser did not participate in several capital contributions in FCL; (4) First Laser did not receive dividend payments from FCL; (5) much of what the parties did was inconsistent with the First Laser Agreement.”

21.  The Court of Final Appeal found these contentions to be so compelling that it refused to remit the issue of estoppel by convention to the Court of First Instance.  It would be self-contradictory if the Remitter could be seized upon as re-opening any of the conclusions reached in this regard.  The following paragraphs in the judgment of Lord Collins are relevant for the purpose of considering the scope of the Remitter:

“ 110.  The judge found ([108]) that Mr Ngan was aware of the requirement for governmental approval for the transfer of the FCL shares.  The First Laser Agreement provided that both parties were to form a working group and instruct lawyers in the Mainland to handle the transfer of shares.  Both parties knew that approval had not been obtained, by contrast with the transfer of the FCO shares to COM.  There was therefore no common assumption that notwithstanding the absence of approval for the transfer of FCL shares, the agreement was valid under Mainland law and that First Laser had a 51% shareholding notwithstanding the lack of approval.

…

115.  Nor does the evidence support the thesis that the FCL shares were treated as owned as to 51% by First Laser:

(1)  First Laser did not participate in the capital contributions which took place after December 1996. According to the capital examination reports for FCL in the years 1997, 1999 and 2000, about US$4 million was contributed by FEHC, and this is inconsistent with First Laser owning 51% in accordance with the First Laser Agreement.

(2)  The memorandum of March 1998 made it clear that ownership in the FCL shares had not been transferred and that FEHC was still holding them (and in context this does not mean holding them for First Laser).

(3)  Only FEHC received dividend payments from FCL, and First Laser did not receive any dividend from FCL.  At a board meeting of FCL in September 1998 it was resolved that the undistributed profits of RMB 10.986 million be distributed to FEHC.”

22.  Against such background, we have great difficulties in accepting that the Court of Final Appeal had remitted to the Court of First Instance a case of restitution based on nominee relationship.

23.  Mr Chan Chi Hung SC submitted that as the Mainland law on restitution was not before the Court of Final Appeal, it was natural that the question of nominee relationship (which was alluded to only in amendments the Plaintiff made to its Statement of Claim after the CFA Remitter Order) was not anticipated.

24.  DHCJ To considered the scope of the remitter in similar light, see [93] to [96] of the Remitter Judgment.  At [94], the judge referred to the decision of another division of this Court (Lam V-P and Kwan JA) in an application for leave to appeal, reported at [2016] 4 HKLRD 360 at [18].  Having read the paragraph in that judgment, we do not find anything which sheds any light on the scope of remitter. 

25.  All in all, we are of the view that there is a strong argument that the judge had gone astray in entertaining a claim of restitution based on nominee relationship which had not previously been advanced in the first round of the litigation and which was inconsistent with the conclusions drawn by the Court of Final Appeal (as explained further below).

26.  Turning next to the inconsistency between the finding of nominee relationship with the judgment of the Court of Final Appeal, in essence Mr Yu’s argument rested on the premise that the finding of nominee relationship between the Plaintiff and the Defendants is inconsistent with the CFA’s findings that (1) the terms of the joint venture had never been agreed and (2) the Defendants were not estopped by convention from denying that the Plaintiff owned 51% of FCL.

27.  Counsel referred us specifically to [17] to [18], [80] to [83] and [107] to [116] of the judgment of Lord Collins NPJ in the Court of Final Appeal which should be applicable to all causes of action instead of being confined to estoppel by convention.  Counsel submitted that the judge was not entitled to ignore these findings in the Remitter trial.

28.  At [147] to [173] of the Remitter Judgment, the judge analysed these findings one by one and set out the context in which such findings were made.  He also tried to explain the difference in context when the matter was considered in relation to “nominee investment contract” and how some evidence which had not been referred to in the Court of Final Appeal assumed greater relevance in the Remitter trial.

29.  At [186], the judge reached these conclusions:

“ 186.  In my view, Professor Yin’s opinion is very logical.  All the factual circumstances and the parties’ conduct I have mentioned above are legal facts which create a legal relationship with legal consequence.  Legal facts need not be the result of the parties’ intentional or conscious conduct.  They may arise from factual circumstances independent of the parties’ intention and may create legal consequences, including contractual consequence.  I accept Professor Yin’s opinion.  This nominee investment contract arose from the factual background including the Agreement, the three agreements, the 1998 Memorandum and the parties’ conduct.  The parties conducted themselves in accordance with the spirit of the First Laser Agreement as if they were partners in the joint venture and shareholders of FCO and FCO.  The fact that the FEHC permitted First Laser to participate as de facto partner in the joint venture and de facto shareholder in FCL and FCO is its recognition that its rights as shareholder of FCL and FCO is somehow and in some way subject to the rights of First Laser.  These legal facts enable this court to draw as the only irresistible inference that FEHC and First Laser were engaged in a relationship of nominee shareholder and actual investor under a nominee investment contract.  This contract is collateral to the Agreement, the three agreements, individually or collectively, which have been held to be void.  Under this nominee investment contract, which I conveniently call “collateral contract” using the common law term, FEHC was to hold 51% of the shares in FCL as nominee shareholder for First Laser and the balance of 49% in its own right as shareholder and actual investor until the shareholdings in FCO and FCL were regularized.  Similarly, COM was holding 49% of the shares in FCO as nominee shareholder for FEHC and the balance of 51% in its own right as shareholder and actual investor.”

30.  Quite apart from the difficulty of a finding of a collateral contract (and/or the “spirit” of the First Laser Agreement) when it had not been pleaded and its apparent inconsistency with the conclusion of the Court of Final Appeal at [116] of its judgment that there had not been any agreed terms of the joint venture, the finding that the Plaintiff actually had rights as a shareholder of FCL appears to us to be contradictory to the conclusion of the Court of Final Appeal at [110] and [115].  If the Plaintiff could not be an actual shareholder (as it was aware that it could not become a shareholder without obtaining the requisite approval), how could there be any nominee relationship?   

31.  The judge summarized his position in this regard at [16] and [17] of his judgment refusing to grant unconditional stay:

“ 16. … That the terms of the joint venture agreement were never agreed does not mean that there was no agreement in principle reached or that the spirit of the First Laser Agreement could not exist. The fact that decisions were made along the lines of the First Laser Agreement on ad hoc basis is evidence of the existence of the spirit of the First Laser Agreement. … From the paragraphs I quoted above, it can be seen that the parties conducted their affairs in accordance with the spirit of the First Laser Agreement.

17.  In my view, the [grounds of appeal] are no more than repetitions of arguments already considered and rejected by this court after careful deliberation.  I am not satisfied that there is any substance in these grounds of appeal. … I am prepared to proceed on the basis that the Defendants have an arguable appeal.  But, in my view, no palpable errors have been identified by the Defendants.  I am unable to come to any view that there is such a strong likelihood of success in this appeal that upon sight of the grounds of appeal the Defendant (sic) is entitled to an unconditional stay.  The appeal is not one for which the successful Plaintiff should be delayed of its fruits of the litigation.  The Defendants are at best only entitled to a conditional stay of execution.”

32.  Having given careful consideration to the submissions of counsel and the judgments of the judge, we agree with Mr Yu that there is a strong ground of appeal in this respect.

33.  As regards the alternative basis under Article 58 of《The Contract Law of the People’s Republic of China》and Article 61 of《General Principles of the Civil Law of the People’s Republic of China》(“GPCL”) under Mainland law, in recognition that the Court of Final Appeal had clearly excluded from the Remitter any claims of a fault-based nature at [70] of its judgment, Mr Chan confirmed before us that the Plaintiff is not advancing a case based on assessment of compensation under Article 58 on the ground that the 1^st Defendant was at fault in not causing FCL to obtain approval.

34.  However, Mr Chan submitted that the Plaintiff is entitled to include in the property to be restored (“因該合同取得的財產”) under Article 58 the improper profits (不當利益)under Article 92 of GPCL《民法通則》as construed by Article 131 of the GPCL Opinion.

35.  Article 92 of GPCL reads:

“ 沒有合法根據，取得不當利益，造成他人損失的，應當將取得的不當利益返還受損失的人。”

36.  Article 131 of the GPCL Opinion is a judicial interpretation of Article 92:

“ 返還的不當利益，應當包括原物和原物所生的孳息。利用不當得利所取得的其他利益，扣除勞務管理費用後，應當予以收繳。”

37.  It is thus plain from these primary materials that they apply in cases where there is 不當利益 which is a fault-based concept.

38.  In light of the exclusion of any fault-based claim from the scope of the Remitter (and this is a question on which expert evidence plays no part), we agree with Mr Yu that there is a strong argument that the judge erred in entertaining the same in the Remitter trial.  

39.  We come to the conclusion that the Defendants have strong grounds of appeal and an unconditional stay of execution should be granted in the circumstances.

40.  We therefore make an order in terms of the summons of 29 October 2020 with a costs order that the Plaintiff shall pay the costs of the Defendants in the summons with certificate for 2 counsel.

CACV 97/2020

[2021] HKCA 122

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 97 OF 2020

(ON APPEAL FROM HCA 4414/2001)

________________________

________________________

________________________

J U D G M E N T

________________________

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

Introduction

1.  This is the plaintiff’s application for security for its costs in the appeal lodged by the defendants in the sum of HK$5,146,150.  The defendants oppose the application.

2.  Both parties have filed their affirmation evidence and lodged written submissions.  The defendants make it clear that they do not contest liability to pay security, but they disagree on the quantum.

3.  Having considered the papers, we are of the view that it is appropriate to deal with the application based on the written submissions only without an oral hearing, pursuant to Order 59 rule 14A(1) of the Rules of the High Court, Cap 4A.

Background

4.  By a judgment dated 5 February 2008, Deputy High Court Judge To entered judgment in favour of the plaintiff.

5.  The defendants appealed to the Court of Appeal (“2010 Appeal”).  By judgment dated 4 January 2011, the appeal was allowed on the ground that PRC law rather than Hong Kong law applied to the dispute in question.

6.  By a judgment dated 6 July 2012, the Court of Final Appeal dismissed the plaintiff’s appeal and upheld the Court of Appeal’s conclusion (“CFA Judgment”).  The plaintiff’s claim for restitution under PRC law was, as a result, remitted for determination by the Court of First Instance (“Remitted Issue”): see paragraph 74 of the CFA Judgment.

7.  The Remitted Issue was tried in a 10-day trial in September and December 2019 before Deputy High Court Judge To.  By a judgment dated 8 April 2020 (“Remitter Judgment”), the learned Deputy Judge found in favour of the plaintiff and awarded a sum of HK$250,168,048 with interest under the plaintiff’s claim for restitution under PRC law.

8.  The defendants appealed against the Remitter Judgment to the Court of Appeal.  The Notice of Appeal was filed on 7 May 2020.  The plaintiff filed the Respondent’s Notice on 27 May 2020.

9.  By a letter dated 17 July 2020, the plaintiff requested the defendants to provide security for the costs of the appeal, enclosing a skeleton bill of estimated costs.  The defendants did not reply to the plaintiff’s request.

10.  By a summons dated 30 September 2020, the plaintiff issued the present application.

Discussion

11.  Before examining the skeleton bill of costs filed in this application (“Skeleton Bill”), we first deal with various miscellaneous points raised by the parties.

12.  First, it is suggested by the plaintiff that a party is entitled to “complete” security as opposed to “sufficient” security in an appeal.  Order 59 Rule 10(5) refers to “such security … as may be just”.  What is just depends on the circumstances in each case and there is no reason why such discretion should be further fettered by prescribing if such costs should be “complete” or otherwise.  Generally, the amount of security should be premised on the estimated costs that would be allowed on taxation on a party-and-party basis: see Sinoearn International Ltd v Hyundai-CCECC Joint Venture (unrep., CACV 83/2011, 26 August 2011) at [8].

13.  Second, the plaintiff submits that the costs of the 2010 Appeal are a useful indicator of the scale of costs allowable in this appeal.  In the 2010 Appeal, the defendants claimed costs in the sum of HK$8,885,960.57 and were allowed upon party-and-party taxation the sum of HK$3,879,481.51.

14.  With respect, there is nothing to suggest that the scope of the appeal and the issues involved in the present appeal would be similar to those canvassed in the 2010 Appeal.  We do not regard the costs of the 2010 Appeal to be relevant for present purposes.

15.  Third, the defendants point out that for the entire Remitter proceedings, Deputy High Court Judge To only ordered security for costs to be paid by the plaintiff in the sum of HK$2,500,000.  The defendants submit this reflects the excessiveness of the amount claimed by the plaintiff in this application.  On the other hand, the plaintiff submits that the security for costs for proceedings in the Court of First Instance was ordered at an early stage of the Remitter proceedings before the plaintiff’s amendment of pleadings and the exchange of further expert/factual evidence which became the focus of the Remitter proceedings, and before the increase of the allowable solicitors’ hourly rates on party-and-party taxation.  Thus, it is said that the estimate did not take account of the length and complexity of the Remitter proceedings.

16.  There is simply no evidence before us as to when and how the court below assessed the security for costs in the Remitter proceedings and what changes had since been introduced into the proceedings.

17.  In the premises, like the costs of the 2010 Appeal, we do not find it useful for present purposes to refer to the security for costs at the court below.

18.  Finally, the plaintiff invites this Court to take into account that an underestimate in the security ordered would result in significant prejudice to the plaintiff, whilst an overestimate would not cause material prejudice to the defendants.

19.  We agree with the defendants’ submission that the task of this Court is to reach an appropriate amount, being neither excessively generous to the respondent nor unduly lenient to the appellant.  It is unhelpful to refer to the question of prejudice when quantum is the only issue.

20.  We now turn to the Skeleton Bill.  The claim for security for costs by the plaintiff may be summarized as follows:

(1)  Costs for perusing the Notice of Appeal and the Remitter Judgment to give preliminary advice (“Item 1”): HK$319,200;

(2)  Costs incurred in the application for security for costs of appeal (“Items 2 to 13”): HK$975,850; and

(3)  Costs to be incurred for the hearing of the appeal (“Items 14 to 24”): HK$3,851,100.

21.  In assessing the appropriate amount for security for costs, the Court normally takes a broad-brush approach and does not conduct a taxation of the respondent’s costs. Instead, the exercise on which it is engaged is to arrive at an appropriate estimation of the likely amount of costs which would be ordered to be paid by the appellant to the respondent on a party-and-party taxation: see Re Lam Kau Sing Dickie, ex p Lo Hon Kwong[2020] HKCA 459, [20].

22.  On Item 1, the sum claimed by the plaintiff represented a total of 64 hours for “perusal of the Judgment and the Notice of Appeal”, and for “informing client of the appeal and preliminary advice, and taking instructions in relation to appeal”.  Despite the length of the Remitter Judgment (with 189 pages and 322 paragraphs) and the Notice of Appeal (with 47 pages), we agree with the defendants’ submission that the amount claimed is excessive.  Adopting a broad-brush approach, we would allow HK$120,000 for Item 1.

23.  On Items 2 to 13, the plaintiff claims HK$440,850 (91 hours) for solicitors’ fee incurred in this application, and HK$535,000 for instructing both leading counsel and junior counsel for this application.  Given that it is clear that there is no dispute on liability after the defendants filed their affirmation in opposition, in our judgment the sums claimed are excessive.  In particular, we agree with the defendants’ submissions that: (1) it is excessive for the plaintiff’s solicitors to claim a total of 32 hours for reviewing the parties’ respective skeletons; and (2) no costs should be allowed for instructing Leading Counsel in this application, as the proper measure is the fee demanded by a hypothetical counsel having regard to the complexity or otherwise of the application.  This is certainly not a complicated application and the only dispute is on quantum.  On a broad-brush basis, we are of the view that HK$200,000 is the appropriate level of costs for Items 2 to 13.

24.  Further, given the costs order we make for this application (see paragraph 27 below), and as we are going to fix the costs and order separately the same to be payable forthwith, we would not include the same in the amount of security to be provided by the defendants.

25.  Lastly, in respect of Items 14 to 24, we note that the appeal is fixed for a 5-day hearing and we have regard to the complexity of the issues raised in the Notice of Appeal and the Respondent’s Notice:

(1)  The plaintiff claims HK$2,470,000 for instructing 3 counsel for the hearing of the appeal.  At the trial of the Remitter proceedings the plaintiff was only awarded a certificate for two counsel and there was no application to vary the costs order nisi.  We agree with the defendants’ submission that there is no justification for allowing security for 3 counsel though we accept the plaintiff’s argument the appeal will involve complex legal and factual arguments.  Taking a broad-brush approach, we would allow HK$1,800,000 for counsel’s fee.  And

(2)  On top of counsel’s fee, the plaintiff claims HK$1,381,000 (276 hours) for solicitors’ costs.  Although we accept that the solicitors have an independent duty to serve their client even after instructing a barrister, the amount claimed remains excessive.  We would therefore only allow HK$1,000,000 for solicitors’ fee. 

Disposition

26.  The total amount of security we would order is therefore $120,000 + $1,800,000 + $1,000,000 = $2,920,000.

27.  For the above reasons, we make the following orders:

(1)  The defendants shall within 28 days from the date of this order give security for the plaintiff’s costs of this appeal in the sum of HK$2,920,000, by making payment into court of the said sum;

(2)  Until the defendants have given the security ordered in paragraph (1) above and notice thereof is given to the solicitors for the plaintiff (such notice to be given on the same day as the lodgment is made), all proceedings in this appeal be stayed;

(3)  In default of the defendants giving security as ordered in paragraph (1) above, this appeal do (upon the solicitors for the plaintiff certifying such default to the Registrar of High Court) stand dismissed out of this court without further order; and

(4)  In the event that the appeal is dismissed in the circumstances provided for in paragraph (3) above, the defendants shall pay the plaintiff the costs of this appeal, such costs to be tax if not agreed.

28.  As to the costs of this application, we have already commented about the grossly excessive nature of the amounts sought in the plaintiff’s statement of costs.  We also cut down substantially the amounts in the skeleton bill for the costs of the appeal. There have been instances in the past where this Court had disapproved the inflation of costs in skeleton bill put forward in support of an application for security for costs and disallowed the party the costs of the application on that ground. 

29.  In the present case, whilst we find the skeleton bill to be excessive in some respects, we give the benefit of doubt to those advising the plaintiff in view of the complexity of the issues in the appeal.  But we would sound a warning for future cases.  This Court may consider penalizing the party putting forward wholly unrealistic bill to support an application of this nature by ordering the party to pay the costs of the application if the other side has acted reasonably in contesting quantum. 

30.  In the instant case, given that the ultimate figure we arrive at is somewhere between the amount claimed by the plaintiff and the amount suggested by the defendants, we shall make no order as to costs after the defendants made clear in the Affirmation of Zheng Feng filed on 14 October 2020 that they would not contest the liability to pay security.

31.  However, the defendants should bear the plaintiff’s costs prior to that date since they failed to respond to the plaintiff’s letter dated 17 July 2020 requesting for security. Taking account of items 2 to 4 in the skeleton bill, and reducing the excessive amounts claimed under those items, we would fix such costs at $100,000.  That sum shall be payable by the defendants to the plaintiff forthwith.

Mr Chan Chi Hung SC and Mr Derek J Y Chan, instructed by Mayer Brown, for the plaintiff

Mr Law Man Chung, instructed by Kwok Yih & Chan, for the 1^st and 2^nd defendants