CAREWINS DEVELOPMENT (CHINA) LTD v. BRIGHT FORTUNE SHIPPING LTD

HCCL 49/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO.49 & NO.50 OF 2004

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J U D G M E N T

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The applications

1. There are two applications before the court for security for costs in these cases, which were formerly intituled HCA No.’s 3590 and 3591 of 2003, but which now have been transferred to the Commercial List.

2. In each case the relevant summons, dated 26 August 2004, seeks security for costs in the sum of HK$250,000.00, so that a total of HK$500,000 is sought.  The subject matter of each case — involving a claim for loss arising from delivery of goods absent production of the bill of lading — is virtually identical, and there is clearly a necessity that these actions be tried together.  Accordingly, the issue of the quantum of any such security must be considered against this background.

The basis for the applications

3. The plaintiff in each application invokes the provisions of Order 23 rule 3 and section 357 of the Companies Ordinance, which provides :

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

The evidence

4. Each application is supported by the evidence of Mr Yao Fred Woo Ching, respectively the manager of Bright Fortune, the defendant in HCCL 49 of 2004, and a director of Hecny Shipping Limited, the defendant in HCCL 50 of 2004.

5. The applications are resisted in each case by the like affirmations of one Dorothy Tsang Lai Kuen, the manager of the plaintiff.

6. The thrust of Mr Yao’s evidence is that he had instructed his Hong Kong solicitors to serve, on behalf of the defendant’s United States principal, certain American proceedings on the plaintiffs in these cases, and that when the solicitor’s representative attended the plaintiff’s registered office it was closed, and there was uncollected mail strewn about.  Information received from the Intellectual Property Investigation Bureau of the Customs and Excise Department led to the belief that the plaintiff had moved out of its registered office, which in turn sparked a company search, revealing the plaintiff as a company with an authorized share capital of HK$10,000.

7. In the event, therefore, states Mr Yao, given that the evidence is that the plaintiff’s registered office has been closed for a period, that the paid up capital of the plaintiff is nominal, that the defendant believes that the plaintiff has no substantial assets in Hong Kong, and that the defendant has a strong case against the plaintiff, his belief is that the plaintiff will be unable to pay the costs of the defendant should the defendant be successful in its defence.

8. Moreover, when on 2 August 2004 a letter was written by the defendant’s solicitors to the plaintiff’s solicitors requesting security for costs, no reply was received.  Hence this application.

9. The plaintiff’s response in each case, through the evidence of Miss Tsang, is that in order to cut down operational expenses the plaintiff has cut down its employees in Hong Kong, and that she is the only person remaining in station.  She states that business is slow, most of the plaintiff’s funds are “locked up”, and that in effect she now works out of home, only occasionally visiting the office to collect mail.  Nevertheless she maintains that the plaintiff has a “substantive (sic) business operation in Hong Kong” and that she has been advised that the plaintiff has a good chance of success in its claim against the defendant.

Decision

10. It strikes me that in so far as the defendant’s evidence was essentially circumstantial in terms of the plaintiff’s situation, Miss Tsang hasassisted considerably in revealing the fundamentally skeleton nature of the plaintiff’s current Hong Kong operation and its less than robust financial status.

11. Moreover, no effort has been made by the plaintiff to demonstrate, whether by evidence of bank accounts, of the existence of Hong Kong assets or otherwise, that the plaintiff is other than at a low financial ebb, and in the circumstances I have little difficulty in concluding that indeed there is “reason to believe” that if the case was to go against the plaintiff that the defendant’s bill of costs will be at significant risk, and that the plaintiff will be unable to meet such costs.

12. Accordingly, I am against the plaintiff in its submission that there is insufficient evidence on the point.  I am also against the further contentions of Mr Cheung, counsel for the plaintiff, to the effect first, that this was an attempt to stifle a genuine claim, and second, that in any event the plaintiff had directors who would be prepared to meet an unpaid costs bill.  There is no evidence whatever to make good either proposition.

13. At the end of the day, therefore, I have concluded that the plaintiff is to provide security for the defendant’s costs of this action.  The only question remaining thus is : how much?

14. In this connection a skeleton bill in very short form is annexed to the affirmation of the defendants’ representative, Mr Yao.  This is not a skeleton bill that gave the court much assistance on its face, and it was the subject of a number of questions being put to Mr Lau, the defendant’s solicitor, by the court.

15. The bill exhibited in each instance specified costs thus far incurred, and to be incurred up to and including trial.  Somewhat curiously the bill for costs in the two cases combined amounts to a total of some $625,000, although the summons in each instance seeks but $250,000 in security for costs in each action, making a total of $500,000.00.

16. The court has elicited from Mr Lau that out of the first figure stipulated, some $205,000 for costs thus far incurred, that a total of $87,000 represents counsel’s fees for advice and drafting, and the balance profit costs.  Further, out of the global figure put forward for trial, namely $320,000, the sum of $275,000 represents counsel’s fees.

17. I have reflected upon the figures thus put forward, and I have taken a view about the appropriate level of costs that a case of this dimension should be regarded as generating, as against the specific sums as now claimed.

18. On the basis of the information placed before me, in my view the appropriate sum in security for costs for the prosecution of these two cases to trial is $485,000, and I so order.

19. I further order that this sum is to be paid into court within 21 days of the date of this order, alternatively that such security be provided by means of a first class bank guarantee in terms to be agreed.  No interim stay is ordered in the interim.  However, absent such security being furnished within the time stipulated, there then will be a stay of these actions pending the provision of security for costs in the amount now ordered.

20. As to costs, no offer of security has been made by the plaintiff - in fact, the situation appears to be that the defendant’s request was simply ignored - and the plaintiff has chosen to come to court to fight the issue.  It has lost, and in the circumstances costs must follow the event. Accordingly, I further order that the plaintiff is to pay the defendant’s costs of this application, such costs to be taxed if not agreed.  I make an order nisi to this effect.