XCHRX MOHAWK INC. AND OTHERS v. SWIRE INSURANCE LTD. and WILLIS FABER (FAR EAST) LTD. (Third Party)

HCCL81/87 &
HCCL247/88

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL LIST NOS.81 OF 1987 & 247 OF 1988

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J U D G M E N T

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The Application

1. By its summons dated 30th June 1999 the Defendant herein applies for an Order that the Plaintiffs do give further security for the Defendant's costs in this consolidated action on the ground that the Plaintiffs are ordinarily resident out of the jurisdiction.

The Background

2. The curiosity about this particular application lies in its history, it being common ground that the Plaintiffs are without the jurisdiction, and thus susceptible in normal course to an application for security for costs.

3. There have been two prior successful applications for such security, the first, culminating in the pre-consolidation Order of Kaplan J. dated 24th October 1990 whereby the aggregate sum of HK$190,972.00 (which was security ordered up to the stage of discovery), and the second such application resulting in the Order of Deputy Judge Burrell (as he then was) dated 23rd May 1995 in what had by then become the consolidated action, in the sum of HK$3 million.

4. Both such amounts of security were provided, as ordered, albeit the second figure was provided by bank guarantee on 7th February 1996 but some eight months after the Order.

5. In broad terms, therefore, as at the date of the current application for further security, the Plaintiffs have provided the sum of almost $3.2 million. It is also noteworthy - and in fact a central part of the present argument - that the Order of Deputy Judge Burrell was to cover the projected costs up to and including the trial of this action, so that this application, the Plaintiffs say, constitutes an unwarranted "second bite of the cherry", and as such should not be permitted.

The Sum Now Sought

6. The summons does not specify any figure, but inter-solicitor correspondence between the Defendant's solicitors, Messrs Clyde & Co. and those acting for the Plaintiffs, Messrs Holman, Fenwick & Willan, rehearses that the Defendant now seeks an additional $4 million by way of security, such further sum emerging on the basis of a revised skeleton bill of costs which was served on the Plaintiffs' solicitors under cover of a letter dated 8th June 1999.

7. In purely arithmetical terms, therefore, the figures break down as follows :-

		HK$
(i)	Security ordered by Kaplan J. on 24/10/90	190,972.00
(ii)	Security ordered by Deputy Judge Burrell on 23/5/95	3,000,000.00
	Total :	3,190,972.00
		==========
(iii)	Total security sought as per revised bill dated 8/6/99	7,363,617.00
(iv)	Shortfall	4,172,645.00

8. In this context, the letter of request from Messrs Clyde & Co. dated 8th June 1999 concludes as follows :-

"... Your clients have accepted since our client's original application for security in 1990 that it is appropriate for them to provide proper security for these proceedings. Indeed, it is unlikely that they imagined at that stage that the matter would still be outstanding in 1999. Nevertheless, the amounts provided by them in 1990 and 1995 no longer reflect with any degree of accuracy the cost of these proceedings today, particularly, bearing in mind that there is still all the trial preparation work to be done.

Unless, therefore, your clients are prepared to provide further security in an acceptable form in the sum of HK$4 million, then we anticipate that we will be instructed by our client to make a further application for this amount of additional security to the Court. ..." (emphasis added)

The Issues for Decision

9. Against this somewhat unusual background, the following two broad issues therefore arise for decision :

First, in light of the terms of the Order of Deputy Judge Burrell, does the Court have jurisdiction to entertain this further application and, if so, should the Court exercise its discretion so to do; and second, if the first issue be decided in favour of the Defendant, the assessment of the quantum of such additional security, such assessment involving a critique of the revised bill of costs and a comparison of the disparate views of two law costs draftsmen, Mr Nelson Yu for the Defendant and Mr Alfonso Fung for the Plaintiffs.

10. I take each of these issues in turn, pausing to note only that the Court has been fortunate on this application to have had before it cogent and succinct argument from Counsel together with affidavit evidence of clarity from the solicitors on both sides.

(1) Should this application be entertained?

11. As a matter of pure jurisdiction, I decline to hold that the Court has been rendered powerless by the terms of the May 1995 Order of Deputy Judge Burrell. The fact that this latter Order makes no reference to any further security for costs application in my view amounts to little more than a useful forensic point, and in no sense derogates from the Court's power to regulate its own procedure to meet changing circumstances.

12. In any event, Mr Fisher for the Plaintiffs does not, I think, put his case that high. He says, however, that the Court does not have an unfettered jurisdiction to hear and determine this application, but that the Court may, in its discretion, assume jurisdiction if it is satisfied that the necessary conditions for such assumption of jurisdiction are satisfied, as to which the burden lies squarely on the Defendant. In this regard, both Counsel have referred to the useful (albeit strangely unreported) case of PL Parsons & Co. Ltd. v. Hangar Services (a firm) & others Court of Appeal (Civil Division) transcript dated 8th November 1994 (Bingham MR, Hobhouse & Morritt LJJ) wherein, in the context of an appeal against an award of additional security for costs by a Leeds County Court judge, Sir Thomas Bingham MR offered the following observations upon matters of principle :-

"... There are various principles which lie behind the argument that we have heard today, which are essentially common ground between the parties. First and foremost, it is inevitably common ground that a company which is shown to fall within s 726 of the Companies Act 1985 is liable, in the exercise of the Judge's discretion, to be ordered to give security. It is no longer in issue that this is an appropriate case for security to have been ordered in the first instance. Second, I think it is common ground that interlocutory decisions are not final, in the sense that they can never, in any circumstances, be reopened. Thirdly, it is common ground, as I understand, and certainly it is true in my experience, that it is very usual for parties to seek security in successive tranches to cover various stages of an action as it progresses. If this is not the usual practice, then it is certainly a very common practice and parties are by no means always inclined to seek an order for security on a once and for all basis. Fourthly, it is common ground, as it must be in the light of authority, that it is no part of the Court of Appeal's function to interfere with a trial judge's exercise of discretion simply because the Court of Appeal feels that it would, or might, have exercised its own discretion differently if it had been in the judge's position.

On the other hand, there are various other principles which I think have a sound basis in authority and common sense. The first of these is that where a matter has been fully litigated and ruled upon at an interlocutory stage, the court will not ordinarily permit the matter to be re-litigated unless there has been some change of circumstance which justifies reconsideration of the matter. The principle upon which the court works is that once a matter has been fully chrashed out, and a decision made, it is not to be re-opened unless there are special grounds for doing so. A second point relevant to this case is, as it seems to me, that there is a difference between the case where the party makes successive applications for security to cover various stages of an action and a case where a party applies for a sum to cover it through to trial, without any indication of any intention to return for more. In the latter case the court will ordinarily expect the party to make the best estimate it can, and then live with it, unless the scale, format, nature or circumstances of the action change in quite a significant manner. Thirdly, while the Court of Appeal must remember that it is the Judge who has the discretion, not it, the Court is entitled, and in some circumstances bound, to substitute its own discretion for that of the Judge if satisfied that the Judge's exercise of discretion is vitiated on any one of the familiar grounds or if his exercise of discretion is shown to be plainly wrong. I rehearse these various points very briefly without intending to add anything to existing authority, but simply to make plain that there is, I think, very little room for controversy about them. ..."

13. Both Mr Fisher and Mr Fok, SC, for the Defendant are, I think, content with the basic approach therein outlined. Where they differ, however, and where for present purposes the battle-lines are drawn, is whether there is present in this case a sufficient change of circumstances so as to justify reconsideration of this matter.

14. For his part, Mr Fok, SC, for the applicant says the answer to this question is a resounding 'Yes', submitting that there were in this case five specific matters which had prompted this further applications; viz that the 1995 skeleton bill had made no provision for expert evidence, that there had been a necessity for supplemental witness statements of fact, together with unanticipated interlocutory applications (such as the application for a split trial), that the time estimate for the trial had been, in effect, doubled (from four to eight weeks), and that there had been inordinate delay in the prosecution of this action since 1995, with the consequence that the taxed rates applicable, both for solicitors and counsel, were now very much out of date when compared with those which were reflected in the earlier skeleton bill forming the basis of the May 1995 Order.

15. Against these heads, Mr Fisher mounted a spirited and succinct attack. He maintained that, in reality, expert evidence had always been envisaged, that the witness statements point was at bottom de minimis, that the application for a split trial was on notice prior to the Order of Deputy Judge Burrell, that the issues on the pleadings remained as they had been since 1995 so that, absent estimate error, there was nothing to explain the increased forecast of the length of trial, and that the delay which had further transpired was unfortunate but was not a significant enough circumstance to warrant the success of this application. Descriptive summary generally fails to do justice to cogent argument, but that at any rate was the gist of the submission; indeed, Mr Fisher's approach was that there was nothing here of a substantial enough nature to justify this second bite of the cherry and, in blunt terms, he said that if the Defendant had got it wrong in the 1995 bill, it would simply have to live with its past errors.

16. The debate was persuasively canvassed on both sides, and has given pause for overnight reflection. At the end of the day, however, I have come to the conclusion that the Defendant has put forward sufficient to warrant the exercise of the Court's discretion to reopen the issue. Although I have factored every element into the weighing process, in my view the key factor in the equation is the issue of delay, without which the Defendant would have been in considerably greater difficulty in surmounting the 'discretion hurdle', if I may so term it. Mr Fok was surely right when he submitted that it could not reasonably have been in anyone's contemplation, in May 1995 at the date of the Order of Deputy Judge Burrell, that fully 4 1/2 years down the line the case would not have been tried, much less not yet set down (albeit I recognise that the institution of the Third Party proceedings was unanticipated until relatively late in the day). Mr Fok further pointed out that in light of the Defendant's application to strike out for want of prosecution, an application rejected by the Court in its judgment dated 29th July 1997, the finding therein made was that to-date there had been inordinate and inexcusable delay, and that of the specific periods of delay then complained of (as reviewed at page 7 of that judgment), categories (c) and (d) (i.e. from 23rd May 1995 to 7th February 1996, and from 24th February 1996 to 22nd February 1997) postdated the Order of Deputy Judge Burrell. Accordingly, whilst I decline at this stage to be further drawn into attribution of blame for delay, there is little doubt in my mind that the delays in this case have served to throw the 1995 calculations out of kilter. I have also taken into account the fact that Mr Fisher specifically has not sought to characterize this further application as oppressive, nor for that matter is there evidence of any particular prejudice to the Plaintiffs if additional security is ordered, although I recognise his observation that when the Plaintiffs put up the original $3 million, it took well in excess of six months to do so, and that having done so they may justifiably have thought that that was that.

17. My conclusion on this primary issue, therefore, is that I do consider that in this case there has been a change of circumstances justifying reconsideration of the matter, although I am constrained to add that the decision in the Defendant's favour on this point of principle was far from a foregone conclusion. At the end of the day, however, taking all the circumstances into account, I consider this to be the just course. Which brings me onto what in my mind is the considerably more difficult task of assessing quantum.

(2) How much more?

18. The Court is here faced with the competing views of two costs draftsmen, Mr Nelson Yu for the Defendant and Mr Alfonso Fung for the Plaintiffs. The manner in which the evidence is presented is that Mr Fung has done a critique of Mr Yu's revised skeleton bill, and in turn Mr Yu has responded to Mr Fung's criticisms.

19. At first blush it is not easy to see how, with little background expertise in costs or, indeed, the process of taxation, the Court can navigate successfully and fairly between the two sets of experts' views absent viva voce input, and in fact I briefly considered the option of adjourning the quantum element of this case to a Taxing Master. But that course perhaps would be to fudge the issue and, more important, would be to cause further delay in a case in which delay has already played a very prominent role - hence it is said, the necessity for this application.

20. So far as the respective expert views are concerned, Counsel have endeavoured to assist as best they can, particularly in those areas in which the Court may reasonably be thought to have had some 'feel' for the position, but at the end of the day the Court, I think, must look at the matter broadly. Security for costs is not to be decided as if by micrometer, and the clear aim is to produce a result which is consistent with principle and is not unfair to both sides.

21. Turning to the figures, the macro picture in arithmetical terms is striking : the Defendant seeks an additional $4 million, whilst the effect of Mr Fung's critique of the revised bill is that if (which is disputed) there is to be any increase in security, then the bill should itself be reduced by $2.3 million. Indeed, in his attractive address Mr Fisher goes further. He says that if the Court is to order further security, any figure it settles upon should itself be reduced by half to take cognisance of what he says is the Plaintiffs' "sure win" on the 'warranty point'. I reject that approach, persuasively though it was advanced. I do not intend at this stage to canvass the merits, and in any event in this connection Mr Fok has drawn my attention to the comments of the Court with regard, inter alia, to difficulties of causation in its earlier judgment refusing the Plaintiffs' application for a split trial.

22. One aspect, however, which I do consider may legitimately be borne in mind, albeit this was not the subject of specific submission by Counsel, is that in any instance of this type, wherein an earlier bill is effectively reopened on the basis of change of circumstance, it is in my view permissible for the Court to look at the matter with a somewhat more restrictive bias than if this had been an application for security in normal course.

23. On the basis, therefore, that the quantum nettle must now be grasped, I am of the view, after reviewing the material before the Court, that in all the circumstances of the case the Plaintiffs are to be required to provide further security for costs in the sum of $2.2 million, such sum to be paid into Court, or otherwise to be provided to the satisfaction of the Court. It may, of course, be that the terms of the existing guarantee need only to be amended, I know not.

24. I further order that the Plaintiffs are to have 28 days within which to provide such additional amount of security, and that in the circumstances there will not be an interim stay. However, should such security not have been forthcoming by the expiry of that 28 day period, this action will then be stayed pending such provision.

25. I will now hear Counsel as to costs and as to any other matter arising.

[Submissions from Counsel]

26. I have now had the opportunity of hearing submissions from both Counsel, both of whom have been good enough to attend this morning.

27. Two matters have arisen. First, in terms of the actual mechanics of satisfying the Order for security that has been made, I have been shown a copy of a letter from Messrs Holman, Fenwick & Willan to Messrs Clyde & Co. of today's date which proposes a certain course of action in terms of a guarantee for the entire amount by an associate company within the group. To this, Mr Fok says not a great deal, save and except that it was received only at 10:49 a.m. this morning and, perfectly reasonably, that those instructing him have not really had a chance to consider all the matters that will doubtless have to be considered in terms of this letter. In the circumstances, therefore, I consider that the best course is to allow the solicitors for both sides to negotiate the matter and, in default of a successful conclusion, to permit the parties to come back to Court on a date to be fixed at 9:15 or 9:30 so as to debate their respective positions and to permit me then to put this matter to bed. I will leave this aspect of the matter there.

28. The second issue is, of course, costs. Mr Fok asks for the costs of this application. He says that the matter has been opposed root and branch by the Defendant. He has had to come to Court to get what he has ultimately achieved, and that therefore costs should follow. He emphasises that this is a discrete matter, and should not be entwined with any possible outcome of this action.

29. For his part, Mr Fisher suggested costs in the cause might be a more satisfactory outcome, given the tenor of the judgment and the lesser amount ultimately recovered by the Defendant compared with the amount that they wished to obtain.

30. I confess that, as must have been clear to Counsel by my interjections, I had considered the costs issue before rendering this judgment, and in truth had been casting around for costs formulations which seemed to me to fit the present situation. On analysis, however, I think that this is one occasion where brain must hold sway over stomach. In the circumstances, given the lack of any Calderbank correspondence on the issue, at bottom I think that it would be wrong to deny the Defendant its costs, tempted though I was at one stage to do so. Accordingly, my Order is that the costs of the application are to be to the Defendant in any event, to be taxed if not agreed.

31. It remains only to thank the legal advisers on both sides for their considerable assistance in preparing and in mounting this application.