PROSPEROUS TONE LTD. v. PEARL FAME DEVELOPMENT LTD.

CACV 1128/01

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 1128 OF 2001

(ON APPEAL FROM HCA No. 2196 OF 2000)

_________________

J U D G M E N T

_________________

1. This is an application for security for costs by the Defendant against the Plaintiff who had failed in its action in the Court of First Instance and is now appealing against that decision.

2. The Plaintiff is a limited company with a paid up capital of $10,000. According to the company search of the Plaintiff, the total amount of mortgage and charges registered by the Plaintiff is $40,762,000. One of the properties of the Plaintiff is No. 7, Pollock's Path ("the 1st property"). It was acquired by the Plaintiff in 1996 for $83,800,000. It is secured by a all moneys mortgage. The present estimated value of the 1st property by the Defendant is $53,500,000. The Plaintiff has another property valued at $12,300,000. This is a flat in Bowen Road ("the 2nd property"). According to a letter dated 17 October 2001 from the bank, the mortgage on this property had been fully repaid on 15 March 2000.

3. Using the worst case scenario, even if the 2nd property is to be fully mortgaged in the future, the Plaintiff will still have about $13,000,000 after deducting the $40 million mortgage from the current estimated value of the 1st property. As a matter of fact, the current bank loan balance, up to 28 September 2001, in respect of the mortgage of the 1st property is only in the sum of $26,260,122.16. Hence the balance is even higher if the current mortgage liability of $26 million is adopted. This is more than sufficient to cover the estimated legal costs of the Defendant of $3,374,797.90 ($2,530,460.90 in the hearing below and the estimated costs of the appeal of $844,337). It is also sufficient to cover a contingent liability referred to in the audited account of the Plaintiff of $2.6 million. This is in respect of another litigation engaged by the Plaintiff. The question of damages had been adjourned until after the determination of the appeal, hence there is no question of the Plaintiff being required to pay any damages at this stage.

4. Although the Plaintiff has not disclosed its latest financial report for the year ending 31 March 2001 (because it is still being prepared and extension of time had been granted until November this year to file the return), this is not a ground for ordering security to be furnished. According to the Year 2000 account, the Plaintiff carried forward a retained profit of $26 million.

5. As to the merits of the appeal, unless the matter is so strikingly apparent that the Plaintiff is unlikely to succeed, otherwise one should not go into the merits of the appeal. It is not shown in the present case that the Plaintiff is bound to fail in the present appeal.

6. The burden for requiring the Plaintiff to furnish security lies with the Defendant. It has to show that based on the available evidence the Plaintiff is unable to pay for the costs of the appeal. It has failed to do so in the present application. The application is accordingly refused with costs to the Plaintiff.