ELEGANT WAY PROPERTIES LTD v. LO HIN WAH AND ANOTHER

DCCJ 2378/2005

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 2378 OF 2005

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JUDGMENT

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1. The plaintiff was the owner of a house lot.  The 1^st Defendant was the purchaser of this house lot.  They signed a provisional agreement on 7^th June 2004 for the sale and purchase at the price of $3,900,000.  The 1^st Defendant put up a cheque issued by the 2^nd Defendant for the down-payment of $50,000.  Completion was to take place on 10^th July 2004.  The plaintiff presented the cheque for payment on 7^th June 2004 but the bank told him that it was dishonoured on the following day.  The 1^st and the 2^nd defendant did not put up any money or proceed with the transaction.  On 23^rd September 2004, the house lot was sold in an auction at $3,350,000.  The plaintiff sued the 1^st defendant for essentially the shortfall of $550,000 and the 2^nd defendant for the value of the dishounoured cheque.

2. On 30^th August 2005, the defendant took out a summons for security for costs to be provided by the plaintiff. 

3.  The defendants’ pleaded case, in the Defence filed on 10^th August 2005, was essentially that the plaintiff failed to mitigate its loss, among others.  According to a valuation report (“LHW-4”) under the 1^st Affidavit of the 1^st defendant filed on 27^th September 2005, the house lot was assessed to be worth $3,960,000 on 23^rd September 2004 when the plaintiff resold it to a Yeung Shuk Yi to mitigate loss.  The house lot was sold by Yeung Shuk Yi to a Sek King Chor at $4,100,000 on 14^th October 2004 (“LHW-5”).      

4.  The plaintiff produced a valuation report (“YKY-11”) under its Yeung Kwai Yau’s Affirmation filed on 12^th August 2005.  The house lot was assessed to be worth $3,100,000 on 23^rd September 2004.

5. The defendants applied for security for costs against the plaintiff under s. 357 of the Companies Ordinance, Cap. 32.  The section reads:

Where a limited company is plaintiff in any action or other legal proceedings, any judge having jurisdiction in the matter, may, if it appears by credible testimony that there is reason to believe that the company 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 the security is given.

6. The Court of Appeal in Wing Hing Provision, Wine & Spirit Trading Co Ltd. v Hanjin Shipping Co Ltd [1984] 4 HKC 461 adopted the abstract of relevant principles summarized in Peter Gibson LJ’s judgment in Keary Developments Ltd v Tarmac Construction Ltd & Anor [1995] 3 All ER 534, 539-540 as follows:

a. The court has a complete discretion whether to order security, and accordingly it will act in light of all the relevant circumstances.

b. The possibility or probability that the plaintiff company will be deterred from pursuing its claim by an order for security is not without more a sufficient reason for not ordering security.

c. The court must carry our a balancing exercise.  On the one hand it must weigh the injustice to the plaintiff if prevented from pursuing a proper claim by an order for security.  Against that, it must weigh the injustice to the defendant if no security is ordered and the defendant finds himself unable to recover costs fro the plaintiff in due course.

d. In considering all the circumstances, the court will have regard to the plaintiff company’s prospects of success.  But it should not go into the merits in detail unless it can clearly be demonstrated that there is a high degree of probability of success or failure.

e. The court may order any amount up to the full amount claimed by way of security, provided that it is more than a simple nominal sum; it is not bound to order a substantial amount.

f. Before refusing to order security on the ground that it would unfairly stifle a valid claim, the court must be satisfied that in all the circumstances it is probable that the claim would be stifled.  There may be cases where this can properly be inferred without direct evidence.  The court should consider not only whether the plaintiff company can provide security out of its own resources to continue the litigation, but also whether it can raise the amount needed from its directors, shareholders or other backers or interested parties.  It is for the plaintiff to satisfy the court that it would be prevented by an order for security from continuing with the litigation.  

       Impecunious Plaintiff

7. As mentioned in the Skeleton Argument for the Defendants the available evidence shows that:

a. The plaintiff has a paid-up capital of $10,000 only;

b. It has no other business other than property investment;

c. Taking all its assets and liabilities together the net liability is $2,669,363.

I regard that there is reason that the plaintiff would not be able to meet its debts when an order for costs was made against it at the time of the application. 

       Probability of Success

8. In issue is the reasonableness or otherwise of the steps taken by the plaintiff in mitigation.  There was a vast difference between the respective values of the house lot put forward by the plaintiff on the one hand and the 1^st defendant on the other hand.  One will have to go into the details and exact weight of the evidence to determine this important issue.  At the present juncture, the plaintiff has not demonstrated a high probability of success.  Insofar as the 2^nd defendant is concerned, the plaintiff has demonstrated a high probability of success to sue on the dishonoured cheque.     

       Stifled Claim

9. The plaintiff’s claim will not be stifled as Yeung Kwai Yau is willing to finance it [see para. 58 of his Affirmation]. 

       Security for Costs

10. I order security for costs against the plaintiff.  The quantum will be worked out in a minute.      

       Costs of the Summons

11.  The plaintiff shall get one-third of the costs of this summons from the 2^nd defendant.  The 1^st defendant shall get two-thirds of the costs of this summons from the plaintiff. 

Dated this 10^th October 2005