ROGER PAUL GERMAIN YVES FROMENTIN v. KIM'S YACHT CO LTD AND ANOTHER

HCA 1226/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1226 OF 2004

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JUDGMENT

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1. This is the adjourned hearing of the plaintiff’s application by summons dated 5 January 2007 for an order that the plaintiff’s payment into Court of US$100,000 pursuant to the order of Yam J made on 23 November 2004 be withdrawn and paid out with accrued interest to the plaintiff. 

2. The matter first came before me on 24 January 2007.  At that time I was also dealing with the plaintiff’s appeal from Master de Souza’s order of 5 December 2006 whereby he ordered that the plaintiff provide security for the defendants’ costs of the action in the sum of HK$450,000 by payment into Court or by way of a bank guarantee.  He also ordered that in the interim all further proceedings be stayed. 

3. On 24 January 2007 after hearing arguments, I dismissed the appeal from Master de Souza’s order but varied his order to the extent that the plaintiff be permitted to make the application for the payment out of the sum of US$100,000 which had been paid into court.  I also gave directions for the filing of evidence by the defendants as they indicated that they were opposing the plaintiff’s application for payment out. 

4. The plaintiff’s claim in the action is for breach of contract in respect of an agreement dated 22 December 2000 as amended in February 2003 for the building of a yacht.  The plaintiff’s case is that the 1^st defendant was in breach of the agreement.  There is also a claim for damages for deceit.  The plaintiff’s claim for damages is to the extent of about US$847,000. 

5. The defendants deny that they are liable to plaintiff.  They plead a discharge of the agreement and the entering into of a new agreement.  There is also a counterclaim by 1^st defendant to the extent of US$580,000.

6. The order of Yam J dated 23 November 2004 provided, inter alia,as follows :

“The Yacht named “Sea Cellar” currently moored at the Gold Coast Marina, Tuen Mun, New Territories, Hong Kong and under the custody of the chief Bailiff of the High Court, be released to the Plaintiff and be allowed to leave Hong Kong upon the Plaintiff either paying into Court the sum of U$100,000, or by way of a bank guarantee for the same amount to the satisfaction of the Master of the High Court.”

7. Mr. Sheppard, for the defendants, submitted that the order for security in the sum of US$100,000 to be provided by the plaintiff was in respect of a lien on the yacht by a company in the Mainland, Kim’s Yacht Company Xinhui Limited (“Xinhui”), the boatyard.  He submitted that the subject of the lien of Xinhui was in the documents before the court when it made the order and that the security ordered was in respect of Xinhui’s lien to the extent of US$100,000.  He also relied on the evidence filed after the last hearing and submitted that that is how his clients understood the position in respect of the security ordered and paid in.  He submitted that the Court should not grant the plaintiff’s application. 

8. Mr. Sheppard does not act for Xinhui in the application before me and I observe that Xinhui has not sought to be joined as a party in these proceedings or in this application. 

9. In my view, it is quite clear from the perusal of the transcript of the proceedings before Yam J on 23 November 2004 why he ordered the plaintiff to provide security.  The plaintiff was seeking the release of the yacht unconditionally.  The 1^st defendant had a defence and a counterclaim. 

10. After hearing arguments, Yam J gave his ruling.  This is at page 74 of Bundle B2 of the documents before me and he said :

“COURT:

Yes.  In the hearing today, I am asked by the plaintiff to release the yacht to him and I have taken the course of calculating of how much would be the figure in order to secure the defendant’s position should the defendant succeed in the defence and the counterclaim.  The plaintiff offered US$50,000; the defendant suggested US$230,000...”

And then Mr. Brodie interrupts him by saying that the figure should be $250,000, actually, and the Court continued with its ruling :

“COURT:	Two hundred and fifty, yes.  A substantial sum of that $250,000 concerned with future costs of defending the action and proceeding with the counterclaim in terms of HK$1 million.  I am afraid that has to be a separate proceedings in terms of an application for security for costs.
	That left me with US$100,000.  I consider US$100,000 is a fair assessment of the amount the plaintiff should pay into the court for the purpose of having the yacht released.  I therefore make an order that the plaintiff either pay into court the sum of US$100,000, or by way of a bank guarantee to the satisfaction of a Master of the High Court.”

11. The ruling he gave, as well as earlier passages in the transcript that Mr. Maurellet has referred me to, makes it quite clear in my view that Yam J ordered the provision of the security to secure the 1^st defendant’s position should it succeed in its counterclaim. 

12. I would also mention that in the 7^th affidavit of the 2^nd defendant which was before Yam J at the time at paragraph 10 he said this :

“The yacht provides security to the 1st defendant for the value of its counterclaim against the plaintiff and for costs.  The counterclaim is for an amount of US$580,000.”

13. And at paragraph 11, in response to the plaintiff’s solicitor’s affirmation at paragraph 8, the 2^nd defendant said this :

“The defendant’s claim against the Plaintiff if the Court rules that the “New Agreement is valid is RMB 779,569.45 which has to be paid to Kim’s Yacht (Xinhui) Company and the execution of the release agreement.”

There the 2^nd defendant was speaking about the 1^st defendant’s counterclaim against the plaintiff.

14. I do not think that it can reasonably be said that the security ordered by Yam J was not to provide security for the 1^st defendant’s counterclaim but was to secure Xinhui’s lien.  At that time the 1^st defendant maintained its counterclaim against the plaintiff. 

15. It was only subsequently that the 1^st defendant indicated that it wanted to discontinue the counterclaim.  At the Check List hearing before Master Lung on 4 October 2005 the Master was informed by the 2^nd defendant speaking on behalf of the 1^st defendant that he intended to discontinue the counterclaim.  This can only be a reference to the 1^st defendant’s counterclaim. 

16. Furthermore, at the hearing before Master de Souza on 5 December 2006, solicitors for the 1^st defendant made it plain that there was no separate counterclaim but only a set-off.  This made it plain that the counterclaim was by way of set-off only.  This was on the basis that if it is found at trial that the 1^st defendant is liable to the plaintiff then the 1^st defendant counterclaims by way of set-off the sum of US$580,000.  If the defendant is not found to be liable then there is no counterclaim.  It is beyond argument it operates by way of set-off only and not as a separate counterclaim. 

17. In my judgment as the counterclaim is no longer put forward as a separate counterclaim it seems to me that the purpose of the payment into Court ordered by Yam J is no longer there.  In the exercise of my discretion I grant the plaintiff’s application.