LEADER SCREWS MANUFACTURING COMPANY LTD v. HUANG SHUNKUI

CACV 418/2022, [2025] HKCA 276

On Appeal From [2021] HKCFI 141

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 418 OF 2022

(ON APPEAL FROM HCA NO 2067 OF 2019)

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REASONS FOR JUDGMENT
AND
DECISION ON COSTS

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Hon Au JA (giving the Reasons for Judgment and Decision on Costs of the Court):

A.  INTRODUCTION

1.  This is the defendant’s appeal against the order of Queeny Au‑Yeung J (“the Judge”) dated 18 January 2021 (“the Order”), whereby the Judge refused the defendant’s application to file a defence out of time, and granted the plaintiff’s application for default judgment against the defendant in the sum of some HK$9.037 million with compound interest pre- and post‑judgment.  The Judge also granted the plaintiff a post-judgment Mareva injunction (in continuing and varying a pre‑judgment Mareva judgment).

2.  The Judge set out her reasons for making the Order in her written judgment of the same date (“the Written Judgment”).

3.  At the end of the hearing, we allowed the appeal, set aside the Order and gave leave to the defendant on certain conditions to file and serve her defence out of time within 14 days. We indicated that we would hand down later our reasons for judgment and the decision on costs.  This is what we do now.

B.  BACKGROUND

4.  The plaintiff, a Hong Kong Company, has been engaged in the business of manufacturing and distribution of screws, nails and other metalwork products.  It has subsidiaries and factories in the Mainland.  It has three directors, namely in short, Tsoi (“Tsoi”), Chiu (“Chiu”) and Kwong (“Kwong”).

5.  The defendant was the accounting clerk of the plaintiff from 2007 to January 2019.  According to the plaintiff, the defendant was at all material times the senior (and in some periods, the only) accounting staff of the plaintiff, and personally oversaw all accounting matters of the plaintiff and its subsidiaries.

6.  It is the plaintiff’s case that in late 2018 and early 2019, Chiu discovered that the defendant had practised what was referred to in the Written Judgment the “Supplier Fraud” on the plaintiff.  The essential allegations of the defendant’s wrongdoing are these[1]:

(1)  Between September 2018 and mid-January 2019, the defendant had edited at least five invoices (“the Padico Invoices”) issued by one of the plaintiff’s suppliers (“Padico”) in relation to the dates and/or the amounts stated therein, and then presented the relevant respective cheques to Chiu and Kwong for signing purportedly for the settlement of these invoices.

(2)  The editing of the dates of some of these invoices were to make the relevant invoices look current, when in fact they had already been paid before, and the editing of the amounts of some of these invoices was to require the plaintiff to pay more than what was actually due.

(3)  The cheques presented for signature were with the payee name left blank.  The defendant then later filled in her name as the payee and banked them to her own account.

(4)  The net sum misappropriated was HK$458,023.80 (“the Sum”) (as the defendant for unknown reasons later used her own funds to settle one of these invoices in the sum of HK$77,705.40 (“the Padico 5^th Invoice”) in mid-December 2018).

7.  Upon the discovery of the Supplier Fraud, the directors confronted the defendant at a meeting held at the plaintiff’s office on 31 January 2019.  The defendant at the meeting signed a memorandum (“the Memorandum”) which in substance stated (in both English and Chinese) that (a) she admitted having “conducted dishonest and fraudulent conduct” on her accounting work and having embezzled the Sum, (b) she decided to resign immediately, and (c) the plaintiff reserved all its rights (including the right to take legal action) against her.

8.  After her resignation, the new accountant of the plaintiff discovered by chance what was called the “Hidden Cache” (which contained various invoices, receipts and other business documents) in the plaintiff’s new office.  On further investigations based on these documents, the plaintiff discovered the “Customer Fraud” (as referred to in the Written Judgment) under which it says the defendant had misappropriated a total sum of HK$8,579,450.88 over a long period of time.  The Judge summarized the allegations against the defendant regarding the Customer Fraud at [25] of the Written Judgment as follows:

“25. After Huang’s resignation, the new accounting staff discovered a pile of documents (the ‘Hidden Cache’) in August 2019. Investigations discovered that Huang had kept 180 transactions relating to 4 customers off the books of the Company and diverted the amounts due to the Company from its customers to her own accounts. The total sum involved was HK$8,579,450.88. There were 4 categories of transactions:

(1) Category 1 consisted of 23 transactions. The evidence of fraud was direct. The proof consists of copies of the cheques cleared in banks (with Huang as payee) and copies of the corresponding fake cheques (found in the Hidden Cache) ostensibly payable to the Company.

(2) Category 2 consisted of 28 transactions. The proof consists of copies of the doctored cheques (with Huang as payee) but the Company cannot locate any corresponding fake cheques in the Hidden Cache for comparison. These doctored cheques can nonetheless be compared against the underlying invoices and statements of account showing a sale to the relevant customer (‘Sales Documents’).

(3) Category 3 consisted of 22 transactions. The Company has located copies of the fake cheques (found in the Hidden Cache) ostensibly payable to the Company but cannot locate doctored copies. (The cheques would have been issued over 7 years ago). Nonetheless, the Company’s accounting records show that these cheques were never cashed into the Company’s accounts.

(4)  Category 4 consisted of the remaining 107 transactions. The Company relies on comparison of its accounting records with the relevant Sales Documents for the compelling inference (reinforced by the pattern of conduct in Categories 1 to 3) that significant sales as per the Sales Documents (but not reflected in the Company’s books) were misappropriated by Huang.”

9.  With the discovery of the Customer Fraud, on 8 November 2019, the plaintiff issued the writ below and obtained an exparteMareva injunction to freeze the defendant’s assets of about HK$8 million.  Thereafter:

(1)  On 13 November 2019, the defendant, then acting in person, filed an acknowledgment of service indicating no intention to defend;

(2)  On 9 December 2019, the plaintiff filed and served its Statement of Claim;

(3)  On 22 January 2020, after the time for the defendant to file a defence had expired[2], the plaintiff took out a summons to apply for, among others, default judgment in the sum of about HK$9 million against the defendant (“the Default Judgment Summons”)[3]. The Default Judgment Summons was eventually adjourned to be heard in June 2020[4].

(4)  On 17 July 2020 (about some five months after the time for the defendant to file a defence had expired), the defendant took out a summons seeking leave to file a defence out of time (“the Leave Summons”) with her home-made draft Defence (“the Home‑Made Draft Defence”) attached to the summons.

(5)  Thereafter, the plaintiff and defendant respectively filed their affirmations in relation to the Default Judgment and the Leave Summonses.

10.  The Default Judgment Summons and the Leave Summons were heard together before the Judge on 9 October 2020. By way of the Written Judgment and the Order, the Judge dismissed the Leave Summons and granted the plaintiff’s applications under the Default Judgment Summons.

C.  THE WRITTEN JUDGMENT

11.  The Judge first dealt with the Leave Summons as she observed that if leave was given to the defendant to file the defence out of time, the default judgment application shall fall away.

12.  In deciding whether to so grant leave, the Judge first considered the extent and reasons for the delay, and secondly whether the proposed defence is arguable.  See [7] ‑ [8] of the Written Judgment.

13.  In relation to the first, the defendant explained that it was caused by the fact that (a) she could not understand well the meaning and significance of the writ and the Statement of Claim as they are in English, (b) there were various adjournments of the hearing of the Default Judgment Summons, and (c) she had hoped that the plaintiff would feel less upset about the incident over time and the parties could reconcile without litigation eventually.  The Judge did not accept these as good reasons for the delay in light of the procedural history of the matters and the fact that the defendant had indicated repeatedly her intention not to defend in the acknowledgement of service and her subsequent emails to the plaintiff.  See: [9] ‑ [19] of the Written Judgment.

14.  In relation to the second, the judge summarized the defendant’s proposed defences and allegations as borne out by the Home‑Made Draft Defence and her affirmation as follows.

(1)  In relation to the Supplier Fraud[5]:

(a)  She was not aware that the Memorandum contained her admission of responsibility as she signed it in a hurry as she had an appointment with her mother, and under dim lights.  She thought it was a loan receipt or for verifying the Sum.

(b)  Invoices issued by Padico were drafts that could be amended.

(c)  As a matter of operational practice, the plaintiff would sometimes use her personal accounts to pay the suppliers first and the plaintiff would later reimburse her, as evidenced by her paying the Padico 5^th Invoice.

(d)  The Sum was also agreed to be set-off against a loan of RMB500,000 made by the defendant to a customer named Au (who was a nominee of Tsoi).

(2)  In relation to the Customer Fraud, the defendant claimed that the HK$8.57 million odd was converted into RMB, booked, and used as processing fees in the Mainland, and that a sum of HK$1.897  million odd thereof was transferred to her account and wired to Tsoi’s designated account.  As a matter of fact, her accounts were used simultaneously by herself, the plaintiff and Tsoi in his personal capacity[6].

(3)  The plaintiff’s accounting documents previously produced were inaccurate and even sham documents[7].

15.  The Judge rejected all these defences as unarguable:

(1)  For the Supplier Fraud defence, she found them to be assertions that did not make sense, were inconsistent with the defendant’s own emails admitting liability, and/or internally inconsistent and not supported by a single document[8].

(2)  For the Customer Fraud defence, she held that the defence was not supported by “a shred of evidence”, and in relation to those documents[9] that were relied on by the defendant, they were misleading and did not support the allegation that she had transferred to Tsoi HK$1.8 million odd as part of her story that she had sometimes advanced funds to the plaintiff for its Mainland operations, when the plaintiff’s documentary evidence in fact showed otherwise[10].

(3)  The Judge also found that the fraud was “direct”, as clearly cheques had been altered by the defendant so that funds originally meant for the plaintiff’s accounts were diverted by the defendant to her own accounts[11].

16.  The Judge therefore concluded that the defendant’s delay was inexcusable and her defences were just bare assertions and unarguable.  She refused to grant leave to the defendant to file the defence out of time and dismissed the Leave Summons.

17.  The Judge then went on to allow the Default Judgment Summons as she accepted that, in the absence of any defences, the plaintiff has established all its causes of action against the defendant for breach of fiduciary duty, deceit, breach of duty of fidelity and/or unjust enrichment[12].

18.  The Judge granted the plaintiff default judgment against the defendant for HK$9 million odd, with compound interest, and a post‑judgment Mareva injunction to the extent of HK$9 million odd plus HK$5.6 million odd (being the interest accrued so far), with costs (including the costs of the action) to the plaintiff.

19.  Since the Order, by way of various enforcement actions, the plaintiff has (a) obtained a charging order against the defendant’s flat (where she is residing) and carparking space[13], (b) obtained a Garnishee Order Absolute over certain bank accounts held by the defendant[14], and (c) obtained the appointment of Receivers to receive and sell certain units and shares held for the benefit of the defendant.  The Receivers have since recovered a total sum of HK$3,271,889.25 (with HK$300,000 being reserved for the payment of their costs and expenses)[15].

20.  The Judge later also dismissed the defendant’s applications for leave to appeal out of time and stay of execution of the judgment by her written decision dated 6 December 2021[16].

21.  As mentioned, all along up to this point of time, the defendant had been acting in person.

D.  THIS APPEAL

D1.  Grounds of appeal

22.  On 10 October 2022, the defendant, by then legally represented[17], issued a summons under CAMP 553/2021, supported by her 2^nd affirmation of the same date exhibiting a revised draft defence (“the Revised Draft Defence”), effectively re-applied for leave to appeal out of time against the Order.  After a hearing, this court (Au JA and Lisa Wong J) granted leave to the defendant to appeal out of time on 20 October 2022[18].

23.  By way of her Notice of Appeal filed on 24 October 2022 (“the NOA”), the defendant has in gist raised the following grounds of appeal:

(1)  The Judge erred in concluding that the delay was inexcusable as the factors identified by the defendant demonstrate a good explanation[19]. (“Ground 1”)

(2)  The Judge was wrong to find that the defendant’s defences were not arguable as the Revised Draft Defence shows clearly that there are arguable issues, which issues were already largely presented by the defendant (while acting in person) before the Judge but unfortunately in a disorganised manner[20]. (“Ground 2”)

24.  The defendant asks to set aside the Order and for an order that she be given leave to file the defence in the form of the Revised Draft Defence out of time.

D2.  Discussion

D2.1  Relevant principles

25.  As seen from the grounds of appeal, the defendant in this appeal focuses on the challenge against the Judge’s decision in refusing to grant her leave to file a defence out of time.

26.  The following general principles are relevant to the appeal.

27.  First, as the Judge rightly observed[21], it is well established that the court in the exercise of its discretion in deciding whether to extend time should consider the extent and reasons for the delay and whether the defendant has shown that the proposed defence is arguable after taking into account the draft defence and any affirmations filed in support[22].

28.  Further, in an appeal against the first instance judge’s exercise of discretion, the Court of Appeal would only intervene if the judge has erred in law, failed to take into account relevant matters or has taken into irrelevant matters, or is plainly wrong[23].

29.  Bearing these principles in mind, and as further explained below, we are of the view that, in deciding to dismiss the Leave Summons, the Judge had erred in failing to take into account certain relevant evidence and factors.  In the premises, it is open to us to interfere with the judge’s discretion on appeal, and after assessing the evidence afresh, re-exercise the discretion to grant the defendant leave to file the defence out of time on certain conditions.

D2.2  Ground 2

30.  For convenience, we will look at Ground 2 first.  This ground effectively challenges the Judge’s assessment of the evidence in coming to the conclusion that the defences raised by the defendant are unarguable.

31.  Before going into the merits of the defences, we need to first address the contention raised by Mr Suen SC (together with Mr Kevin Lau) for the plaintiff that, despite the general principle as set out above at [27], the defendant could only succeed under this ground if she can show that her defences have a real prospect of success instead of being only arguable[24]. This is so, says Mr Suen, as the defendant’s defences now advanced under the Revised Draft Defence have changed and are “materially different” from those under the Home‑Made Draft Defence.  In the premises, the default judgment was granted by the Judge properly, and the court can only quash it afterwards based on a different defence, which has a real prospect of success.

32.  As pointed out by this court at the hearing, we do not agree with Mr Suen’s contention.  In our view, the court should apply the same threshold of arguability in assessing the defences because:

(1)  The defendant’s application that was dismissed by the Judge is an application to file a defence out of time.  This is the principal subject decision challenged under the grounds of appeal.  As pointed out by the Judge at [6] of the Written Judgment, logically, if leave is granted to the defendant to file the defence out of time, the Default Judgment Summons falls away.  In the premises, as a matter of principle, the same test applying to an application for leave to file defence out of time, including the threshold of arguability of the defence, should also apply in this appeal.

(2)  Further and in any event, as explained in [41] below, we agree with the submission of Mr Jason Wong (together with Mr  Esmond Wong) for the defendant that, properly read, the defences advanced under the Home-Made Draft Defence and the Revised Draft Defence are in substance the same.

33.  We therefore reject Mr Suen’s threshold contention.

34.  We now turn to consider the defences advanced under the Revised Draft Defence.

35.  In relation to the claim for the Sum (ie, HK$458,023.80) based on the Supplier Fraud, the defence is in essence that, at the material time, there was an arrangement authorized by Tsoi that[25]:

(1)  The invoices issued by Padico were subject to change and amendment to reflect credits made for returned or cancelled products.  All the adjusted invoices and relevant documents or records were retained by the plaintiff’s Mainland subsidiaries.

(2)  Tsoi, who was stationed in the Mainland factory, had a practice of pre-signing cheques with the payee left blank when he was in Hong Kong.

(3)  In the event of any of the above-mentioned adjustments, the pre‑signed cheques would be deposited into the personal account of the defendant who would then pay the adjusted amount to Padico.

(4)  The balance amounts retained by the defendant which resulted from the above-mentioned adjustments were:

(a)  applied towards the expenditure of the plaintiff or the Mainland factory as instructed by Tsoi from time to time;

(b)  applied towards repayment of loans advanced by the defendant to the plaintiff from time to time; and

(5)  In any event, as further agreed by Tsoi, the Sum was applied towards a loan of RMB500,000 extended by the defendant to Tsoi.

36.  In relation to the claim for the sum of HK$8,579,450.88 based on the Customer Fraud, this is the defence in essence[26]:

(1)  There was a practice with the subject customers that they would pay the plaintiff’s invoices by cheques drawn in Hong Kong dollars, but with the payee left blank.

(2)  It was also a practice approved by Tsoi that the defendant would deposit:

(a)  some of these Hong Kong dollar cheques into currency exchange shops in the Mainland;

(b)  some of these cheques into her own bank account in Hong Kong (the HSBC account);

and then withdraw the converted RMB amounts from her bank account in the Mainland (the China Account) by way of cash and hand it to Tsoi for the purpose of defraying the operating expenses of the factory in the Mainland (“the Approved China Arrangement”).

(3)  Further, from time to time when the plaintiff did not have sufficient funds for operation purposes, at the request of Tsoi, the defendant would advance personal loans to the plaintiff to meet the expenses of the Mainland factory.  By 2012, the defendant had advanced to the plaintiff loans of a total sum of RMB3 million for that purpose.

(4)  As to the claimed amount of HK$8,579,450.88:

(a)  At the instruction of Tsoi, some of the subject customers cheques in the total sum of HK$1,897,206.04 had been deposited into the defendant’s personal account in the Mainland as repayment of part of the loans; and

(b)  The remaining amount of HK$6,682,244.84 (HK$8,579,450.88 – HK$1,879,206.04) had been converted to RMB and applied to defray the Mainland factory’s operating expenses over the years in accordance with the Approved China Arrangement.

(5)  The plaintiff therefore in fact still owes the defendant the amount of (RMB3 million – HK$1,879,206.4) and the defendant counterclaims the same.

37.  As can be seen, the essential elements that underline these defences are:

(1)  There was a practice that the plaintiff and the customers would issue cheques with the payee left blank for the defendant to fill in later;

(2)  The cheques would from time to time be deposited into the defendant’s personal account for the purposes of making payments for the operation of the Mainland factory in RMB and repaying the defendant’s loans or advancements made to the plaintiff and Tsoi.

(3)  All the above practice and arrangements were carried out with the approval or under the instructions of Tsoi.

38.  In our view, these essential elements of the defences are to a certain extent primafacie supported by or consistent with the following evidence that has been adduced so far:

(1)  It is the plaintiff’s own evidence that it was the usual practice for the defendant to prepare a cheque with the payee left blank for the directors to pre-sign[27].

(2)  As explained at [47] below, it appears from a reading of the evidence of the copies of the cheques relating to the Customer Fraud that there was a practice or agreement between the plaintiff and its customers that the customers would also issue cheques for the payment of the plaintiff’s invoices with the payee left blanks.

(3)  There is a WhatsApp message from Tsoi to the defendant on 21 February 2019 which supports the defendant’s case that the defendant had made a loan of RMB500,000 to Tsoi for a Mr  Au (歐總) which had not been repaid[28].  There are also deposit records and receipts which show that the defendant had transferred to Tsoi RMB500,000 in 2012[29].

39.  Mr Suen in opposing the appeal contends that these present defences are plainly without merit and unarguable.  In support, other than relying on the Judge’s reasons in finding these defences unarguable, counsel also submits that the defences now set out in the Revised Draft Defence are incredible as they are materially different from those advanced by the defendant in the Home‑Made Draft Defence and her affirmation filed in support of the Leave Summons.

40.  For the following reasons, we are not persuaded by Mr Suen’s arguments.

41.  In relation to the nature of the defences, in our view, the defences advanced in the Revised Draft Defence are in substance the same as the defences raised in the Home‑Made Draft Defence.  As pointed out by Mr Wong, with whom we agree, all the essential elements of the defences as identified at [37] above were already set out (albeit in a disorganised manner) in the original draft and the defendant’s affirmation dated 3 August 2020 filed in support of the Leave Summons as listed out in his written submissions[30].

42.  In relation to the Judge’s reasons (as summarized at [15] above), the Judge’s finding that the defences were unarguable was based largely on her view that (a) there was evidence which clearly showed that the defendant had doctored the relevant invoices and altered the cheques, and (b) the defences raised were only bare assertions as they were not supported by any evidence.

43.  However, in coming to that conclusion, the Judge had failed to have regard to the relevant evidence we have summarized at [38] above which lends some support to the defences.  Moreover, we are of the view that the Judge had also failed to take into account the following relevant matters.

44.  First, the defendant has in paragraph 6(b) of her Home‑Made Draft Defence stated that she had been having a very close and harmonious working relationship with all the directors, as well as a close personal relationship with Kwong[31].  It is noted that Kwong has not denied these alleged relationships in his affirmation[32] filed to oppose the Leave Summons.  The arguable existence of such relationships (which is thus at least arguable) as a context is relevant to the assessment of the credibility of the defendant’s case on the various practices or arrangements asserted in the defences.

45.  Second, we also agree with Mr Wong’s submissions[33] that copies of the cheques as identified by the plaintiff under the Customer Fraud to be the “Direct Evidence of Altered Cheques” to show that the defendant had indeed altered them, do not (on closer scrutiny) necessarily support the plaintiff’s allegations.

46.  Taking the example of the two copies of the same cheque[34] at [AB1/108-109] of the appeal bundles:

(1)  The copy at [AB1/108] (“AB1/108 Copy”) bore the name of the defendant as the payee, while the copy at [AB1/109] (“AB1/109 Copy”) bore the handwritten name of the plaintiff as the payee.  However, it is clear that there was no alteration or doctoring of either copy, as on each of them, the payee’s name was written on the cheque without any alteration or crossing out of any underlying payee name.

(2)  However, it is noted that the AB1/108 Copy is a copy of the actual cheque presented to the bank for clearance, as it was remarked on the copy to be a “certified true copy of a digital record of the above cheque obtained from HongKong Interbank Clearing Limited at the time when the cheque was cleared…”.

(3)  It therefore means that the AB1/109 Copy with the plaintiff’s name written on it was not a copy of the actual cheque presented for clearance.

(4)  In the premises, it is at least arguable that a possible explanation for the existence of these copies of the same cheque is this: as contended by the defendant in her defence, there was at the material time an agreed practice that the plaintiff’s customers would issue cheques with the payee left blank to the plaintiff to settle invoices, and the defendant was authorized to put her name there as the payee in accordance with the Approved China Arrangement.  At the same time, photocopies of those cheques would be kept on file with the plaintiff’s accounts department for record[35], and for whatever reasons, the plaintiff’s name was later written by someone on the photocopies of the relevant cheques.

47.  As pointed out by Mr Wong, the same observation applies to the remainder of the various cheques relied on by the plaintiff as exhibits “CMH-9”, “CMH-10”, and “CMH-11” at [AB1/108‑250] [AB2/284-305].  In the premises, what the Judge regarded as “direct” or “clear” evidence of the defendant’s practice of fraud by altering or doctoring the cheques is not so plain and indeed raises triable issues arising from the defences.

48.  Third, as also submitted by Mr Wong, the fact that there is no evidence at this stage to show that any of the customers had been chasing the plaintiff for the large unpaid sum of HK$8,579,450.88 (under the Customer Fraud), and the fact that this alleged blatant and large scale “practice” of the defendant in doctoring and altering cheques under the Customer Fraud had not been discovered by any of the directors for years also lends at least some support to the defendant’s case that those practices or arrangements had been approved by the plaintiff and/or Tsoi.

49.  On the other hand, we of course also note that the Judge’s finding that the defences were unarguable was also premised upon her views that the defences were in direct contradiction with the defendant’s admissions made in the Memorandum and some subsequent emails, and the defendant’s explanations as to why she had signed the Memorandum and sent those emails were incredible[36].

50.  We agree that the defendant’s explanations can justifiably be regarded as very questionable.  However, the Judge in assessing them had also failed to consider them in light of (a) the reference letter issued by Chiu (albeit under another company’s letterhead) on 30 January 2019 (ie, after the Memorandum), recommending her to future employers on the basis of the various qualities of her work, (b) the evidence and matters we have identified above which lend some arguable support to her defences, and (c) the apparently long and close relationship with the directors, and in particular Kwong.  These matters are relevant to the question as to why the defendant had signed the Memorandum and written those emails.  At this stage, when these matters are taken into account and in the absence of a trial, we do not think the Memorandum and those emails by themselves constitute such overwhelming evidence that would render those defences unarguable at all.

51.  Similarly, we are also fully aware of Mr Suen’s arguments set out in his detailed written submissions as to why the defences now advanced by the defendant could be regarded as being inconsistent with or cannot be explained away by reading some of the evidence in a different way[37]. However, we do not think these detailed different readings of certain parts of the evidence could show that the defences are entirely without merits or do not raise any relevant triable issues at this interlocutory stage, especially in light of the other evidence and context we have identified above.

52.  For these reasons, and in light of the state of all the evidence as explained above, although we have come to the view that the defences are shadowy, we do not find them to be unarguable.  There are various issues arising from the defences that need to be tried and with the benefit of full discovery.  The Judge therefore had erred in concluding that those defences were unarguable.

53.  The defendant therefore succeeds under Ground 2.

D2.3  Ground 1

54.  Ground 1 relates to the defendant’s challenge against the Judge’s conclusion that the delay itself in taking out the Leave Summons was inexcusable.

55.  This ground can be disposed of quickly.

56.  The Judge in finding the delay inexcusable has placed significant weight on the defendant’s repeated indications of her intention not to defend through her acknowledgment of the service of the writ and her emails.  In this respect, the Judge found the defendant’s explanation that she had “hoped that the Company would feel less upset about the incident over time, so they would drop the lawsuit and the parties could reconcile without litigation” to be “untenable”.  See [10] ‑ [18] of the Written Judgment.

57.  As explained at [50] above, the Judge in reaching this conclusion had erred in having failed to take into account those relevant matters that we have identified.

58.  In the premises, considering the defendant’s explanations afresh in the context of those matters, we do not find the 5-month delay to be wholly unexplained and inexcusable.

59.  The defendant therefore also succeeds under Ground 1.

E.  DISPOSITION

60.  Given our conclusion above that defences raised in the Revised Draft Defence are arguable though shadowy, and the delay in taking out the Leave Summons is not wholly unexplained and inexcusable, we have therefore allowed the appeal, and made the following orders at the end of the hearing:

(1)  The appeal be allowed;

(2)  The Order be set aside;

(3)  Leave be granted to the defendant to file and serve the defence out of time within 14 days from the date hereof on the condition that the sums realized by the plaintiff from the defendant by the Garnishee Order dated 12 May 2021 and the Receivership Order dated 24 September 2021, less the amount of HK$300,000 reserved for the Receiver’s costs, be paid into court; and

(4)  The above condition is premised on the basis that the Mareva Injunction against the defendant as varied by the Judge on 18  January 2021 is to remain in force until trial of the action or further order.

61.  As to costs, there are two sets of costs that need to be considered.

62.  In relation to the costs of the appeal, Mr Wong submitted that costs should follow the event, while Mr Suen submitted that it should either be the plaintiff’s costs in the cause of the trial or simply costs in the cause of the trial because the defendant only succeeded in this appeal based on a shadowy defence.

63.  We cannot agree with Mr Suen. The defendant has succeeded in this appeal, which in substance relates to her application to file the defence of time.  This has nothing to do with whether at the end of the day she can successfully defend the claim at trial.  There is therefore no good reason to depart from the usual costs follow the event rule. We therefore order that costs of the appeal be to the defendant, to be taxed if not agreed, and the defendant’s own costs be taxed in accordance with legal aid regulations.

64.  In relation to the costs below, Mr Wong indicated at the hearing that the defendant would not contest the costs below, we therefore further order that costs below be to the plaintiff, to be taxed if not agreed.

CACV 418/2022, [2023] HKCA 1193

on appeal from [2021] HKCFI 3664

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 418 OF 2022

(ON APPEAL FROM HCA 2067/2019)

________________________

________________________

________________________

D E C I S I O N

________________________

Hon Barma JA (giving the Decision of the Court):

1.  This is an application for security for costs by the plaintiff against the defendant. Having considered the documents before us, we came to the view that the application could be dealt with on paper without an oral hearing.

Procedural background

2.  By its Writ (“the Writ”) and Statement of Claim (“the SOC”) in HCA 2067/2019, respectively dated 8 November and 9 December 2019, the plaintiff claimed damages of nearly HK$9,000,000.00 against the defendant for losses arising from fraudulent appropriation of company funds by the defendant, who was formerly employed as the plaintiff’s senior accounting clerk.  On the same date as the Writ was issued, Ng J granted the plaintiff a Mareva injunction (subsequently continued by K Yeung J) against the defendant prohibiting her from disposing of her assets up to the amount of about HK$8,500,000.00.  Ng J’s order also required the defendant to disclose (within 3 days of service of the order) all her assets in Hong Kong of an individual value of HK$20,000.00 or more.

3.  On 13 November 2019, the defendant filed an acknowledgment of service indicating that she did not intend to defend the plaintiff’s claims, whereupon the plaintiff applied for default judgment and for an extension of the Mareva injunction post-judgment.  When the application came on for hearing in June 2020, the defendant belatedly indicated an intention to defend the claims made against her.  DHCJ Paul Lam SC, having taken into account the fact that the defendant was unrepresented, allowed her to apply for leave to file a defence. This the defendant did on 17 July 2020, annexing a draft defence to her summons.  The application was heard by Au-Yeung J (“the Judge”) on 9 October 2020 at the same time as the plaintiff’s applications for default judgment and extension of the Mareva injunction.

4.  On 18 January 2021, the Judge handed down a judgment (“the Judgment”) refusing to grant leave to the defendant to file a defence, and entering default judgment in favour of the plaintiff pursuant to which the defendant was ordered to pay to the plaintiff the sum of HK$9,037,474.68 (“the Judgment Sum”) with costs, plus interest at the rate of prime +1% compounded yearly.  Accrued interest as at 9 October 2020 was assessed to be about HK$5.6 million.  The Judge further ordered that the Mareva injunction extended for a further 6 months and varied to increase the sum frozen to about HK$14,600,000.00 odd to include the accrued interest.

5.  Thereafter, on 12 May 2021, DHCJ Maurellet SC made a garnishee order absolute, ordering the garnishee bank to pay the plaintiff the sum of HK$15,005,091.81 (being the Judgment Sum plus interest as at 22 February 2021), and on 9 July 2021, the Judge continued the Mareva injunction for a further 9 months, until 18 April 2022.  On 24 September 2021, the Judge appointed joint and several receivers on 24 September 2021 to receive units and shares held for the benefit of the defendant in her investment accounts maintained with various securities management firms (“the Receivers Appointment Order”).

6.  By summonses filed on 10 August and 27 September 2021, the defendant applied for (i) an extension of time to appeal against the Judgment; (ii) the Mareva injunction to be lifted; and (iii) leave to appeal against the Receivers Appointment Order.  Both summonses were dismissed by the Judge by her decision dated 6 December 2021 (“the Extension of Time Decision”).

7.  On 14 April 2022, DHCJ Winnie Tsui ordered that the Mareva injunction be continued for a further 15 months, until 18 July 2023.

8.  The defendant then applied unsuccessfully to the Judge for a stay of execution of the Judgment pending appeal, the application being dismissed by the Judge’s decision dated 12 August 2022.

9.  Thereafter, on 10 October 2022 the defendant applied to this court (in CAMP 553/2021) for “leave to appeal against [the Extension of Time Decision]” (by which the Judge had dismissed her application for an extension of time to appeal against the Judgment).  On 20 October 2022, after a hearing at which the defendant was represented by counsel, this court (Au JA and Lisa Wong J) made an order (“the CAMP Order”), granting (i) an extension of time to the defendant to appeal against “the Extension of Time Decision” (see further below); and (ii) leave for the defendant to file a Notice of Appeal (as per the draft attached to the defendant’s Summons) within 7 days of the date of the order.  This led to the present appeal.

10.  On 16 June 2023, upon a joint application by the parties by way of consent summons, the Judge ordered that the Mareva injunction be continued to the 42^nd day after the substantive determination of this appeal.

The factual background and the decisions below

11.  The general background to the parties’ disputes and their respective cases are set out in detail at [20] to [42] of the Judgment.  It can be summarised as follows.

12.  The plaintiff manufactures and distributes metalwork products in Hong Kong and Mainland China.  The defendant was an employee of the plaintiff with responsibility for accounting matters relating to the business. The plaintiff alleged that the defendant, both while employed as a senior accounting clerk and after her resignation from the plaintiff, fraudulently misappropriated company funds in excess of HK$9,000,000.00 by, inter alia, doctoring the dates of 5 invoices issued to the plaintiff by its suppliers to create the impression that such invoices were still outstanding (“the Supplier Fraud”) and diversion of funds due to customers of the plaintiff to her personal bank accounts (“the Customer Fraud”).  As regards the Supplier Fraud, the net misappropriated sum (as the defendant apparently used her own funds to settle one of the invoices) was said to be HK$458,023.80 (“the Supplier Fraud Sum”). 

13.  The plaintiff relies on a memorandum dated 31 January 2019 both in English and Chinese, signed by the defendant (“the Memorandum”), by which the defendant admitted dishonest and fraudulent conduct “on [her] accounting work” and that she had embezzled the Supplier Fraud Sum from the plaintiff’s bank account between February and November 2018.  The Memorandum further stated that the plaintiff had suffered a “huge loss”, that what the defendant did was “considered a criminal offence”, and that the defendant “decided that [she] should resign to take the blame for misconduct with immediate effect”.

14.  The defendant’s purported defence (as contained in her first draft defence put before the Judge) in respect of the Supplier Fraud was essentially that she was unaware of the consequence or significance of signing of the Memorandum (i.e. that it amounted to an admission of fraudulent conduct), that the practice of the company was that she first would use her own funds to pay the suppliers after which the company would reimburse her, and (alternatively) that the Supplier Fraud Sum was purportedly used to set off a loan of RMB500,000.00 to a customer named Au (see Judgment at [27]-[32]).  As regards the Customer Fraud, she claimed that the misappropriated total sum of around HK$8,500,000.00 million constituted processing fees in the Mainland, around HK$1,900,000.00 of which was transferred to her personal bank account by customers of the plaintiff and then wired to the bank account of one of the plaintiff’s directors, Tsoi (see Judgment at [37]-[38]).

15.  The Judge found (i) there was evidence showing that the defendant doctored the relevant invoices in relation to the Supplier Fraud, having regard to the defendant’s express acknowledgments in the Memorandum; and (ii) the fraud was “direct”, in that cheques had been doctored and that funds originally meant for the plaintiff’s bank accounts were diverted by the defendant to her own accounts (see Judgment at [25]).

16.  The Judge considered the parties’ respective cases and the evidence in some detail before concluding that the defendant’s purported defence against both the Supplier Fraud and the Customer Fraud was unarguable (see Judgment at [36] & [40]).

The hearing before this court on 20 October 2022 and the CAMP Order

17.  It appears from the recordings of the hearing before this court in CAMP 553/2021 on 20 October 2022 (where both parties were represented by counsel), that this court pointed out that the real issue was whether an extension of time should be given to the defendant to appeal against the Judge’s “main” judgment, namely her refusal of leave to enable the defendant to file her defence out of time, which led to the entering of the Judgment in favour of the plaintiff.

18.  Counsel for the defendant (Mr Jason Wong, and with him Mr Esmond Wong) accepted that the draft defence originally put before the Judge by the defendant (who was at the time unrepresented) was inadequate, but submitted that she should be given an opportunity to file a properly formulated defence, as contained in the draft defence and counterclaim.

19.  Towards the end of the hearing, counsel for the plaintiff confirmed that the market value of the landed property which was (and remains) subject to the Mareva injunction was around HK$7,000,000.00, and that the plaintiff had already received a sum of around HK$2,000,000.00 from shares belonging to the defendant which had been obtained under the Receivers Appointment Order.  The plaintiff contended that as a result of interest accruing on the Judgment, the outstanding judgment sum had increased to about HK$15,000,000.00.

20.  As the plaintiff was protected by the Mareva injunction and the funds recovered by the Receivers to the total extent of about HK$9,000,000.00, the court declined to impose any payment-in condition when granting leave to appeal out of time to the defendant.

The subject of [2] of the CAMP Order

21.  Although [2] of the CAMP Order is expressed as granting an extension of time to the defendant to appeal against the Extension of Time Decision, it is clear that the defendant’s application was in substance been for an extension of time to appeal against the Judgment.  This appears from:

(a)  the 2^nd Affirmation of Huang Shunkui (“D’s CAMP Aff”) filed on 10 October 2022 in support of her application extension of time to appeal, in which the defendant (having stated that she sought an extension of time to appeal against the Extension of Time Decision) clarified at [7] that the “substantive appeal” was “against the default judgment” (i.e. the Judgment);

(b)  the Notice of Appeal (filed on 24 October 2022 pursuant to leave granted by [3] of the CAMP Order) (“the NoA”), in which although the decision sought to be appealed against was stated to be the Extension of Time Decision, the order sought on appeal from the appeal was “an extension of time [to] be granted to [her] to appeal against the [Judgment]” (at p.2);

(c)  Ground 3 of the grounds of appeal advanced in the NoA, by which the defendant contends that the newly drafted defence and counterclaim (which had not been not placed before the Judge in the court below) “shows clearly arguable issues” which were “largely presented by the defendant before the Judge” (when she was at the time unrepresented) but in a “disorganised manner”.

22.  Further, as we have noted, it was clear from the conduct of the hearing and the parties’ submissions on 20 October 2022 that the intended appeal for which an extension of time was being sought by the defendant was the Judgment as opposed to the Extension of Time Decision.  As was explained in Tang Chai On v Tang Sing Ki [2016] 5 HKLRD 104, while it is technically possible to appeal against a decision of the court below in refusing an extension of time (i.e. the Extension of Time Decision), it is generally not appropriate to do so as this is not cost effective, and such applications will normally be treated as being appeals against the substantive decision in the court below.

23.  We are therefore satisfied that the wording of [2] of the CAMP Order was an accidental slip, and that the manifest intention of the court, namely to grant an extension of time to the defendant to appeal against the Judgment (as opposed to the Extension of Time Decision) was not correctly reflected in the CAMP Order.  We would therefore order (pursuant to our inherent jurisdiction) that the [2] of the CAMP Order be amended as follows:

“2. Extension of time be granted to the defendant to appeal against the decision of Au-Yeung J dated 18 January 2021.”

(see e.g. Skink Ltd (in liquidation) & Another v Comtowell Ltd & Another [1998] 1 HKLRD 542; Lo Yuen Chong v IWS Environmental Technologies Limited[2021] HKCA 89.

The application for security for costs

24.  The plaintiff filed its summons (“the Summons”) seeking security for costs of the appeal in the sum of HK$750,000 on 30 December 2022.

25.  The evidence for this application consists of the 2^nd Affirmation of Kwong Tsz Choi dated 30 December 2022 (“Kwong’s 2^nd”) for the plaintiff in support of the Summons, the 2^nd Affirmation of Huang Shunkui dated 31 January 2023 filed by the defendant in opposition to it, and the 3^rd Affirmation of Kwong Tsz Choi dated 7 February 2023 (“Kwong 3^rd”) in reply. 

26.  Prior to that, pursuant to [4] and [5] of the CAMP Order, the plaintiff and the defendant had filed affirmations on 4 November and 23 December 2022 respectively (“Kwong’s 1^st” and “Huang’s 1^st”) setting out their positions on the issue of whether conditions should be imposed on the defendant in filing the Draft D&C in the event that she succeeds in the appeal proper.

27.  Written submissions for the plaintiff were lodged by Mr Tommy Cheung on 21 February 2023 (“P’s Skel”), followed by the written submissions of Mr Jason Wong for the defendant dated 7 March 2023, and reply submissions by Mr Jenkin Suen SC for the plaintiff on 14 March 2023 (“P’s Reply”).

Legal principles

28.  The approach to an application for security for the costs of an appeal is clearly stated in Chung Kau v Hong Kong Housing Authority & Others [2004] 2 HKLRD 650 at [14]:

“The power of the Court of Appeal to order security for costs in an appeal derives from RHC Order 59 rule 10(5). This Rule reads:

‘The Court of Appeal may, in special circumstances, order that such security shall be given for the costs of an appeal as may be just.’

The relevant principles, in particular the treatment of impecuniosity as a special circumstance are summarized in Hong Kong Civil Procedure 2004 Volume 1 at paragraphs 59/10/28 - 59/10/29. In this context, however, I would emphasize the following:-

(1) The fact that an appellant is impecunious does not lead automatically to an order that security for costs must be provided. The court is entitled to consider other relevant factors such as the strength of the appeal to determine whether or not it would be just to order that security for costs be provided.

(2) That said, as a matter of practice, once an applicant for security can demonstrate that impecuniosity (or some other factor such as difficulty or expense in enforcing a costs order) exists, while the court retains an overall discretion whether or not to make the order, it would then generally be up to the party resisting the application for security to demonstrate countervailing factors which would militate against such an order being made. A common countervailing factor to resist applications for security are the merits of an appeal.

(3) On a consideration of the merits of the appeal, while a detailed examination is not required (or desirable, even if possible on the materials before the court at this stage), the court should form some sort of preliminary, even instinctive, view. Where the merits appear to go strongly one way or the other, this may by itself be a decisive factor. Thus, an appeal which is very strong would often be a very good reason not to order security. The converse of course also applies. A hopeless appeal may even by itself justify an order for security. However, if the court takes the view that the appeal could really go either way, then generally it will look to the existence of any other factors to tilt the balance, in the absence of which security will be ordered. This is of course on the assumption that a factor such as impecuniosity has already been demonstrated.

  (4)  As I have said above, the overriding consideration for the court is to consider, as the rule requires, whether ‘special’ (not exceptional) circumstances exist making it ‘just’ to order security.”

Discussion

29.  As can be seen from the principles set out above, it is first for the plaintiff (as the applicant for security) to demonstrate impecuniosity on the part of the defendant, or some other factor or special circumstance to justify the grant of security for costs.  The overriding consideration for this court is whether special circumstances exist which render it just to order security.

30.  The plaintiff’s case, as stated in Kwong’s 2^nd (at [4]) (see also Kwong’s 3^rd at [14]-[15]; Kwong’s 1^st at [10]), is that the defendant is impecunious and by reason of her general uncooperative attitude, and the fact that part of her assets (a landed property registered under her name in the Mainland, “the PRC Property”) are located out of jurisdiction, it would be difficult or expensive for the plaintiff to enforce any costs orders that it might obtain in respect of the appeal.

31.  The main points made in the submissions of Mr Cheung in P’s Skel and Mr Suen SC in P’s Reply are:

(1)  the purpose of the grant of security for costs of an appeal is to provide additional protection to a respondent on appeal, in the event that the appellant is unsuccessful and is liable to the respondent for additional costs (see P’s Skel at [2]);

(2)  the defendant is impecunious because after her known assets, such as her bank balances and landed properties, are taken into account she (as she herself has deposed in Huang’s 1^st at [21]-[23]), was “completely out of funds” and depended on her ex-husband and parents financially for basic living expenses and litigation costs (P’s Skel at [12]);

(3)  the defendant’s ownership of the PRC Property does not militate against the grant of security, as there are considerable difficulties in enforcing a Hong Kong costs order against Mainland assets (P’s Skel at [13]);

(4)  the Judgment Sum (or, as the plaintiff contends, the Judgment Sum plus interest which amounts to around HK$15,000,000.00) remains partly unsatisfied, leading to the inference of impecuniosity (P’s Skel at [14]);

(5)  the defendant does not have strong grounds of appeal (P’s Skel at [17]-[21]), and the mere fact that leave to appeal out of time was granted to the defendant by this court does not mean that the defendant has a strong appeal (P’s Reply at [6]);

(6)  the defendant has disregarded court orders (e.g. by failing to make disclosures as required by the ancillary orders to the Mareva injunction) and had hindered the plaintiff’s enforcement efforts (see P’s Skel at [6]; P’s Reply at [12]).

32.  The defendant’s position according to the matters stated in Huang’s 2^nd and Huang’s 1^st is that the plaintiff, by virtue of the existing measures taken against the defendant’s assets (e.g. the Mareva injunction), is already sufficiently protected against the risk of costs of the appeal.

33.  Mr Wong also submits that the defendant is not impecunious, by reason that she has substantial assets within the jurisdiction, as well as in the Mainland (D’s Skel at [8]-[10]).  He referred us to Ming Hsieh v Xu Zhe & ors, CACV 189/2015 (unrep., 8 December 2015) in support of his submission that notwithstanding that the defendant’s known assets are subject to the Mareva injunction (and partly realised by the plaintiff), if the value of such assets are sufficient to cover the costs of an unsuccessful appeal, no security for costs should be ordered (D’s Skel at [11]).  He submits that in any event, the defendant has a “strongly arguable case” in respect of the appeal proper (D’s Skel at [18]-[20]).

34.  According to the plaintiff’s evidence on the issue of impecuniosity, the total judgment debt amounts to around HK$15,000,000.00 (see [8] of Kwong’s 2^nd), but this has been partially satisfied by the sum obtained from garnishee order(s) and the sum realised by the receivers appointed under the Receivers Appointment Order (respectively HK$224,712.75 and HK$2,971,889.25 - see [19]-[20] of Kwong’s 2^nd).  Thus, the total sum realised and in the hands of the plaintiff amounts to HK$3,196,602.00.

35.  Apart from the above, the plaintiff is in possession of charging orders absolute (obtained following the Mareva injunction) over two Hong Kong landed properties owned by the defendant, which according to valuations conducted in November 2021, had a total “present value for sale” of HK$7,760,000.00 (see Kwong’s 2^nd at [21]-[24]). 

36.  Further, the plaintiff has obtained an asset preservation order over the PRC Property (see Kwong’s 2^nd at [28(d)]), although no valuation was obtained in respect of this property.

37.  The plaintiff’s position is therefore that the total sum realised including the funds frozen by the Mareva injunction and asset preservation order is around HK$11,200,000.00 which still “falls far short” of the sum of HK$15,000,000.00 and outstanding costs orders of about HK$400,000.00 (see [16] and [25] of Kwong’s 2^nd).

38.  Mr Suen also submitted that Ming Hsieh was distinguishable as it related to an interlocutory appeal before judgment had been entered, whereas the plaintiff here had obtained judgment, and already had made a partial recovery through execution (in respect of the sums obtained by the garnishee order(s) and through the receivers) and also had charging orders over the Hong Kong properties, so that there was not likely to be any value remaining in those properties.  However, with respect, we are unable to agree with his attempt to distinguish Ming Hsieh.

39.  Notwithstanding that Ming Hsieh concerned an interlocutory appeal where judgment in respect of the main claim had not yet been entered in favour of the applicant for security for costs, this court (Lam VP, as he then was, and Barma JA) set out the following as a matter of general principle (at [6] of Ming Hsieh):

“A Mareva injunction prevents a defendant from dissipating his assets so as to deprive a plaintiff of the benefit of the judgment he expects to obtain, but does not operate to provide the plaintiff with security over the assets which are subject to the injunction. Those assets remain the property of the defendant until such time as they are taken in execution, whether by the plaintiff or some other claimant, or are otherwise disposed of by the defendant if he is given permission by the court to do so, notwithstanding the injunction – for example, by using some of the assets to fund his defence of the proceedings, or to meet his pre-existing liabilities. Until that happens, the assets remain available to satisfy any order for costs that the plaintiff may obtain, so that it cannot be said that the defendant is unable to meet any such costs order.” (emphasis added)

40.  Notwithstanding that above dicta were given in respect of pre-judgment Mareva injunctions, there is no reason why the principle that the assets of the defendant subject to the injunction remain the property of the defendant until they are taken in execution, so as to remain available to satisfy any costs orders in favour of the plaintiff, is not equally applicable to post-judgment Mareva injunctions.

41.  This is made clear by the court’s further comments at [8]of Ming Hsieh:

“Another way of looking at the matter is this: the situation is similar to that where a plaintiff is respondent to an interlocutory appeal by a defendant, who has assets within the jurisdiction that are less than the amount of the claim against him, which has not yet been determined. Such a plaintiff could not seek security for the costs of the appeal on the basis that his claim exceeded the defendant’s known assets. If those assets were sufficient to cover the costs of an unsuccessful appeal, no security would be ordered. Whether or not there would ultimately be sufficient assets to pay the plaintiff’s claim if it should ultimately be successful would not be a relevant factor. The existence of a Mareva injunction over those assets makes no difference, as it does not affect the [defendant’s] ownership of the assets.” (emphasis added)

42.  As can be seen from these passages, whether the known assets of the defendant are sufficient to satisfy the judgment debt owed to the plaintiff (in the event that the defendant ultimately fails in his defence against the plaintiff’s claim) after the deduction of costs of the appeal (i.e. whether there would ultimately be enough assets to pay the plaintiff’s claim) is not a relevant factor to be considered in the plaintiff’s application for security for costs of the appeal.  The plaintiff will not be able to obtain security for costs if the known assets of the defendant are sufficient to cover the plaintiff’s costs of the appeal.  A Mareva injunction does not affect the defendant’s ownership of the assets, and provides the plaintiff with no security for his claim, as they may still be used to meet debts and other liabilities pending the resolution of the claim. 

43.  In this case, the defendant’s known assets still in her ownership comprise the landed properties in Hong Kong and on the Mainland, which although subject to the Mareva injunction, remain her property until such time as the plaintiff takes them in execution.  Although there is a charging order over those properties, this gives the plaintiff no proprietary interest in them, and they remain the property of the defendant (see Sino Billion Ltd v Lam Chok Wai [2003] 2 HKC 167 at [12]).  On the evidence, the value of the properties is equal to approximately ten times the amount of security for costs currently sought by the plaintiff. Even if that value may have fallen since the valuation was obtained, it is still many times that of the amount of security sought.

44.  Mr Suen SC submits that the default judgment entered by the Judge against the defendant is “valid and fully enforceable” (at [9] of P’s Reply) and no stay of execution of the Judgment has been granted (at [7] of P’s Skel).  He further says that the defendant has taken no steps to satisfy the Judgment (at [10(a)(ii)] of P’s Reply).  While this may be true, as stated above, in determining an application for security for costs pending appeal, the court has firmly in mind the overriding principle of whether it is just in the circumstances to grant such security on the facts of any given case.  Bearing in mind that the proposed appeal, for which an extension of leave has been given, and which must therefore be taken to be at least reasonably arguable concerns whether or not the default judgment should be set aside, it seems to us that the situation is one in which it would not be just to have regard to these matters.

45.  As the defendant had deposed in her affirmations, her known assets in Hong Kong have been realised and frozen by the plaintiff’s enforcement measures, and the plaintiff has adduced no contrary evidence to suggest that the defendant has dissipated or concealed any other assets.  Indeed, the available evidence before this court suggests that the defendant simply has no means to pay the Judgment Sum to the plaintiff, even if she wished to.  In these circumstances, it might also be thought that the making of an order for security would be likely to stifle what is an apparently arguable appeal. 

46.  The plaintiff is also protected in respect of the costs of the appeal as the amount frozen by the Mareva injunction is more than enough to meet the plaintiff’s estimated costs of the appeal and the injunction will remain in force for a reasonable period of time after the determination of the appeal, thus allowing time for the plaintiff to take steps to recover such costs (if the plaintiff is successful in the appeal).

47.  We are therefore of the view that having regard to the known assets of the defendant which remain under her ownership, the plaintiff has failed to demonstrate impecuniosity on the part of the defendant.

48.  The plaintiff also contended that the defendant’s uncooperative conduct in the proceedings in general and her failure to comply with the court’s disclosure orders are relevant factors to be considered in this application.  The plaintiff says that the defendant’s conduct, coupled with the fact that apart from the secured assets, the defendant only holds the PRC Property (which is located in the Mainland), would render it difficult or expensive to enforce any costs order. 

49.  For the following reasons, we do not consider these factors as special circumstances or reasons which would render the grant of security just on the facts of this case:

(1)  the defendant is not impecunious, as we have concluded above – the Hong Kong properties are more than sufficient to cover the plaintiff’s likely costs of the appeal;

(2)  although it appears that the defendant had failed to, inter alia, comply with the court’s disclosure orders (made with the Mareva injunction), the defendant was unrepresented at the time, and although this does not excuse her from non-compliance, her recent conduct (no doubt with the benefit of legal advice) seems to us to show that she is capable of reasonable cooperation (as shown by her consent to the continuation of the Mareva injunction until after the determination of the appeal proper);

(3)  notwithstanding that realisation of the PRC Property may be problematic, the PRC Property is not considered relevant given our conclusion on impecuniosity above.

50.  We are therefore of the view that the plaintiff has failed to establish the special circumstances necessary to render it just for this court to grant security for costs of the appeal.

51.  In the circumstances, it is unnecessary for us to form a preliminary view on the merits of the appeal. 

Disposition and costs

52.  For the above reasons, the plaintiff’s Summons filed on 30 December 2022 is dismissed.

53.  Costs should follow the event.  As the defendant did not lodge a statement of costs with the court, we make an order nisi that the defendant’s costs of this application be paid by the plaintiff, to be taxed if not agreed.

Mr Jenkin Suen SC and Mr Tommy Cheung, instructed by Lau & Co, Solicitors, for the plaintiff

Mr Jason Wong and Mr Esmond Wong, instructed by Eddie Lee & Company, for the defendant