Introduction

When a winding up order has been granted against a company, the appeal against such order is usually funded by third party funders. Many, however, may not appreciate the costs consequence should the appeal be unsuccessful. In a recent decision of Penta Investment Advisers Limited v Allied Weli Development Limited [2017] HKEC 1475 (“Penta”), the Court of Appeal (the “Court”), after dismissing the company’s appeal against its winding up order, held the third party funder liable for the appeal cost taxed on indemnity basis and ordered the identity of such funder be disclosed.

Background

Allied Weli Development Limited (the “Respondent”), a company incorporated in British Virgin Islands, had been held by the Court of First Instance to be liable to pay Penta Investment Advisers Limited (the “Petitioner”) an approximate amount of HK$ 200 million pursuant to a deed they previously entered into. The Petitioner applied to the Court of First Instance for a winding up order against the Respondent who failed to satisfy the statutory demand served by the Petitioner. Such order was accordingly made by the Court of First Instance under s. 327 of the Company (Winding Up and Miscellaneous Provisions) Ordinance (Chapter 32 of the Laws of Hong Kong) (“CWUMPO”) on the basis that the Respondent was not able to pay its debt.

The Respondent then appealed against such winding up order on three grounds, namely (1) the lack of sufficient connection between the case and the jurisdiction of Hong Kong, (2) the existence of alternative forum for winding up the Respondent; and (3) the absence of benefits to other creditors of the Respondent under the winding up order. After dismissing all these appeal grounds and ruling in favour of the Petitioner, the Court moved on to determine the costs issue.

The key issues of costs before the Court were, firstly, whether the appeal costs should be taxed on indemnity basis and secondly, whether the Court has the power to order a non-party to pay the cost as it was argued by the Petitioner that the appeal must have been funded by a third party on behalf of the Respondent.

Decision

Costs on indemnity basis

Citing the cost decision of In the matter of S Y Engineering Company Limited [2002] HKEC 241 (“S Y Engineering”), the Court in Penta ordered the Respondent to pay for the appeal costs taxed on indemnity basis on the ground that the Respondent’s appeal was unsuccessful and it would therefore be unjust that “any costs occasioned by an unsuccessful appeal from a winding up order should be thrown upon the assets to the prejudice of the creditors.”

Holding non-party liable for costs

After determining the taxation basis of the cost order, the Court considered its power to order a non-party to pay costs. In S Y Engineering, it was observed by the Court that where a company launches an appeal against its winding up order, the security for costs must generally be given from an outside funder instead of the assets of the appellant company. Accordingly, where an indemnity costs order is made in favour of the petitioner, it would usually be borne by the outside funder.

In Penta, The Court relied on s. 52A(2) of the High Court Ordinance (Chapter 4 of the Laws of Hong Kong) (the “Section”) to hold non-party liable for the appeal cost. The Section provides that the Court may, in accordance with the rules of court, make an order awarding costs against a person who is not a party to the relevant proceeding if the Court considers that it is in the interests of justice to do so. In Penta, the Court was satisfied that the appeal costs should be borne by the party funding the appeal.

Disclosing funder’s identity

The decision of Penta demonstrates the possibility that the identity of the funder may be disclosed to the Court. Citing the decisions of Abraham v Thompson [1997] 4 All E.R. 362, CA and Raiffeisenzentralbank Osterreich AG v Crossseas Shipping Ltd [2003] EWHC 1381 (Comm), Morrison J, the Court ordered the Respondent’s solicitors to provide the name and address of the appeal funder. After such information had been provided, the funder was joined as a party to the proceedings for the purposes of costs decision only and that funder was at liberty to attend a hearing at which the Court shall consider the matter further.

The reason provided by the Court in Penta in supporting its order of identity disclosure is simple. Where the Court is given the power to impose costs liability on a non-party, the power to make a disclosure order must be inherent with it, otherwise it would mean that the costs decision cannot be enforced effectively. 

 

For enquiries, please contact our Litigation & Dispute Resolution Department:

E: insolvency@onc.hk                                   T: (852) 2810 1212 W: www.onc.hk                                             F: (852) 2804 6311 19th Floor, Three Exchange Square, 8 Connaught Place, Central, Hong Kong

Important: The law and procedure on this subject are very specialised and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.

Published by ONC Lawyers © 2017