XCHRX UNISEL LTD. v. MODERN TOWN ESTATE LTD.

HCA432/99

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 432 OF 1999

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J U D G M E N T

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The appeal

1. This is an appeal by the Plaintiff against the decision of the Master which imposed a security for costs of $1 million against it. The basis of the application is that the Plaintiff is a limited company and there is reason to believe that it will be unable to pay the costs of the Defendant if successful in its defence.

The parties' claims

2. The Plaintiff seeks the return of $7,080,000 paid to the Defendant under an agreement for the sale of a property. The purchase price was $23,600,000. It is not disputed that of the sum of $7,080,000, $2,360,000 is the deposit and a balance of $4,720,000 is part payment of the purchase price. The sum constitutes 30% of the purchase price.

3. The Defendant claimed that the Plaintiff had repudiated the agreement and the Defendant had properly rescinded the agreement. It seeks to forfeit the deposit of $2,360,000 and applies to set off the $4,720,000 against damages it allegedly had suffered as a result of the repudiation.

The Plaintiff failed to establish a case for security

4. In my view, it is not necessary for me to go into the details of the merits of the case of the parties. What is clear is that the Defendant is holding a substantial sum of money from the Plaintiff. While under the agreement the Defendant may forfeit the deposit, no particulars are given of the Defendant's alleged damage other than a bare allegation that the loss and damage well exceed the 30% of the purchase price. These losses are said to include loss of profit and loss of value of the property which is much less than the purchase price.

5. In the absence of any pleaded damages, how could it possibly be contended by the Defendant that its counterclaim will exceed the $4.7 million now it holds from the Plaintiff and that it would be out of pocket for the costs of the litigation if it is eventually successful. It is for the party who seeks security to prove that the case is fit for security to be imposed. In my view, the Defendant has failed to do so. To impose the security of $1 million is really an attempt to stifle what otherwise, as appeared in the pleadings before me, is a genuine claim by the Plaintiff.

Appeal allowed

6. Accordingly, I would allow the appeal and set aside the Order of the Master.