SUN-IOMS MAINTENANCE LTD. AND ANOTHER v. SHI KAI BIU AND OTHERS

HCA1278/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.1278 OF 2002

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D E C I S I O N

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1. There are three applications before the court.  Firstly, there is an appeal by the plaintiffs against a decision by Master de Souza dated 17 October 2005 by which he dismissed both plaintiffs’ actions against all three defendants for want of prosecution.  Secondly and thirdly, there are two applications for security for costs, one by the 1^st defendant and one by the 2^nd and 3^rd defendants, both against the 1^st plaintiff.

(1) Appeal against Master de Souza’s order

2. It is not in the least surprising that the Master made the order he did.  At the time he made the order the plaintiffs made no appearance to resist the defendants’ application to dismiss for want of prosecution.

3. It was also plainly clear that the plaintiffs had been in serious financial difficulties for some time prior to that hearing.  They had been given leave to set the matter down for trial by an order dated 24 March 2004 but had not done so.  Their solicitors had ceased to act for them.

4. However, since the Master’s order there have been a number of developments which result in this court allowing the appeal and setting aside the order to dismiss.

5. Firstly, by an order dated 31 March 2006, the 1^st defendant consented to the order for dismissal being set aside against it.

6. Secondly, at the hearing of the appeal the 2^nd and 3^rd defendants (they are husband and wife) consented to the order dismissing their action against the 1^st plaintiff being set aside.  All that remained therefore was the 2^nd plaintiff’s appeal against the 2^nd and 3^rd defendants.  The latter maintained that the order for dismissal in their favour should remain.  However Mr Kam Cheung, counsel for the 2^nd and 3^rd defendants, recognized the ground on which he relied to resist the appeal, namely, the weakness of the 2^nd plaintiff’s case against him, was more relevant to the security for costs application and not to the appeal against the Master’s Order.

7. Thirdly, since the Master’s order the plaintiffs’ finances have taken a turn for the better.  They have instructed new solicitors and detailed affirmations have been filed explaining their financial difficulties and their inactivity during 2004 and 2005.

8. On the face of the affirmations the picture presented to this court was significantly different to the picture that the Master was looking at.  The appeal is a re-hearing and I therefore examine the present position.  There are three circumstances in which a court may dismiss for want of prosecution, firstly, if the plaintiff has been in intentional and contumelious default, secondly, where there has been inordinate and inexcusable delay (the two principles in Birkett v. James [1978] AC 297) and thirdly, where plaintiff has demonstrated no intention to proceed, amounting to an abuse of process (the principle in Grovit v. Doctor [1997] 1WLR 640).

9. As previously stated, Mr Cheung for the 2^nd and 3^rd defendants emphasized the weakness of the case against his clients.  He recognized however that, in the light of present circumstances, he was in difficulty in bringing his opposition to the appeal within any of the above three principles.  This had, in effect, been conceded by the 1^st defendant who had consented to the appeal being allowed as had the 2^nd and 3^rd defendants as against the 1^st plaintiff.

10. Suffice it to say that there is sufficient evidence to show, at the time of this appeal, that any default by the plaintiffs was not intentional or contumelious, the delay was not inordinate, the delay was excusable and did not prejudice the defendants and there was no abuse of process.

11. Finally, it is a matter of considerable weight in the plaintiffs’ favour that the limitation period has not expired.  In all the present circumstances, it would be pointless to confirm the dismissal of the action and thus force the plaintiffs to merely start again.

12. The appeal is allowed, the proceedings restored and the costs of the appeal by the 2^nd plaintiff against the 2^nd and 3^rd defendants shall be the plaintiffs’ costs in the cause.

(2) Applications for security for costs

13. Both the 1^st defendant and the 2^nd and 3^rd defendants apply for security for costs against the 1^st plaintiff only, under section 357 of the Companies Ordinance, Cap.32 (“the Ordinance”).  No application is made against the 2^nd plaintiff because jurisdiction under section 357 is confined to companies “formed and registered” under the Ordinance.  The 2^nd plaintiff is a limited company incorporated in Bermuda and not formed and registered under the Ordinance.  Moreover the 2^nd plaintiff makes no claim against the 1^st defendant. 

14. The 2^nd plaintiff is the parent company of the 1^st plaintiff.  It is not disputed that the 1^st plaintiff is a $2 dormant Hong Kong company.  Neither is it disputed that it is the 2^nd plaintiff who is funding the 1^st plaintiff’s litigation.  In the course of the hearing counsel for the plaintiffs, Mr Anson M.K. Wong, gave an undertaking that should any costs orders in the action be ultimately made against the 1^st plaintiff, the 2^nd plaintiff would be liable to pay them.  This undertaking was conditional upon no order for security for costs being made in favour of the defendants.  Such an undertaking does not provide the protection that the defendants require but it is a matter which can properly be taken into account when deciding whether or not to make an order in favour of any individual defendant.

15. The primary test is to determine whether the defendants can show that the plaintiffs will be unable to pay the costs.  On its own the 1^st plaintiff would be unable to pay, but with the backing of the 2^nd plaintiff the position is not so clear-cut.

16. Counsel for the defendants have relied on the group’s recent accounts to show that the present finances are far from being healthy.  I do accept however that the finances have improved since the parlous position the group found itself in during 2004 and 2005.  With the 2^nd plaintiff’s undertaking the defendants’ costs may be met.  The onus is not on the plaintiffs to show that they will, as a matter of absolute certainty, be met.  If there is a good likelihood that they will be met the court should carefully consider the justice or otherwise of making an order which may stifle a claim which otherwise had a good prospect of success.

17. It is by the application of this principle, bearing in mind that I consider the issue of the future finances of the plaintiffs to be difficult to predict, that I have come to the conclusion that I should order some security for the 2^nd and 3^rd defendants but not for the 1^st defendant.

18. It is inappropriate to make strong statements about the relative merits of the parties’ cases at this stage and I do not propose to do so.  Neither is it necessary to set out in any detail the ingredients of each party’s pleaded case.  It is sufficient to state that the relative merits of the 1^st plaintiff’s case against the 1^st defendant on the one hand and its entirely different case against the 2^nd and 3^rd defendants on the other, has been the determining factor in persuading to order security for the latter but not the former.  In attempting to do justice between the parties the 2^nd and 3^rd defendants are entitled to more protection than that provided by the 2^nd plaintiff’s undertaking whereas, in my judgment, the 1^st defendant is not.  Mr Kenneth Ng, on behalf of the 1^st defendant, explained carefully the nature of the 1^st defendant’s pleaded defence.  Whatever the defence may be the 1^st defendant will still have to explain his signature on a written guarantee upon which the plaintiff, understandably, places great reliance.

19. A final factor against the 1^st defendant is that the application has been brought late in the day.  It could have been brought at a much earlier date and it is not realistic to claim that the plaintiffs’ impecunious state over the past few years was unknown to the 1^st defendant.  The 1^st defendant’s application for security is dismissed with a costs order nisi in the 1^st plaintiff’s favour.

(3) Quantum of security for 2^nd and 3^rd defendants

20. The 2^nd and 3^rd defendants ask for $1.8 million to cover costs to date and future costs including a 4-5-day trial.

21. Mr Cheung very fairly and properly conceded that the estimated costs for counsel’s fees in the future were excessive and asked for a reduced figure of approximately $1.4 million.  It seems to me that it was not only counsel’s fees which were excessive in the draft estimated bill.  Five hours at $4,500 per hour for considering a 16-page Amended Statement of Claim is but an example.  An item called “corresponding with 1^st and 2^nd plaintiffs’ solicitors from time to time” which appears twice under estimated future costs, once for 10 hours and another occasion for 12 hours, is another example.  In an 18-page bill there are 91 items claimed.  The senior partner claims under 85 of them, the assistant solicitor under one of them, the trainee solicitor under one of them and the legal clerk under 33 of them.  Items at the senior partner’s rate represent about 95% of the solicitor’s claimed costs.

22. I therefore reduce the $1.4 million by one third to approximately $933,000.  I reduce this figure by a further third because the application is against the 1^st plaintiff only, not both plaintiffs, to approximately $622,000.  This figure I round down to $600,000 (to include trial costs).

23. I grant the 2^nd and 3^rd defendants’ application for security for costs against the 1^st plaintiff under section 357 of the Ordinance in the sum of $600,000.  Unless the said sum is paid into court within 21 days of the date of this judgment all further proceedings against the 2^nd and 3^rd defendants shall be stayed.

24. There will be a costs order nisi that the 1^st plaintiff shall pay two-thirds of the 2^nd and 3^rd defendants costs of the application for security.  I award less than 100% costs in their favour because of the disparity between the sum claimed and the sum awarded.