SHENZHEN LUOHU RUNAN INDUSTRIAL LTD. CO. v. YUEN KING HAY APPOINTED TO ACT FOR UN KAU KUNG TSO

HCMP2320/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO.2320 OF 2000

---------------------------

---------------------------

----------------

R U L I N G

----------------

1. On 17 December 2001, I gave judgment in favour of the applicant, Yuen King Hay, appointing him as representative of the Un Kau Kung Tso, and set aside the judgment obtained by the plaintiff against the Tso. The matter comes back before me for directions for the future conduct of the action, and argument as to costs. The defendant now also applies for security for costs on the ground that the plaintiff is ordinarily resident out of the jurisdiction or that it is a limited company which has no assets which could meet any order for costs.

Directions

2. The parties agree the substance of the directions; the only dispute is about the time limits suggested by the plaintiff. The defendant says that they are too long; the plaintiff says that they must be longer than normal precisely because it is a limited company incorporated in Shenzhen. I have some difficulty with that proposition in these days of ready travel between Hong Kong and Shenzhen, especially in circumstances where there are already voluminous affirmations before the court. I would have thought that pleadings could be drafted quite quickly.

3. It appear that experts on Chinese law and Tsing law will be required; see below. The parties did not include any direction on exchange of reports, but for the sake of completeness I have included it.

4. I direct as follows :

(1) the proceedings herein be continued as if the cause had been begun by Writ pursuant to Order 28, rule 8(1);

(2) the plaintiff shall file and serve a Statement of Claim within 21 days from the date of the Order to be made herein;

(3) the defendant shall file and serve a Defence and/or Counterclaim within 14 days thereafter;

(4) the plaintiff shall file and serve a Reply and/or Defence to Counterclaim as may be advised within 14 days thereafter;

(5) the parties herein shall file and serve list of documents within 21 days after the pleadings in the action herein are deemed to be closed, and inspection of the documents be carried out within 14 days thereafter;

(6) the parties shall exchange statements of witnesses of fact within 42 days after the close of pleadings;

(7) the parties shall exchange reports of experts on Mainland Chinese law and Tsing law within 42 days after the close of pleadings; and

(8) the parties do have liberty to apply.

Costs

5. The plaintiff commenced its action by an Originating Summons dated 10 May 2000 against the defendant, the Un Kau Kung Tso, and its manager Un Yuk Shu. The Originating Summons was later amended by the deletion of the name of Un Yuk Shu who is said to have died in 1972. On 28 July 2000, Mr Registrar Chan made an order for substituted service on the defendant. Service by advertisement was carried out. No Acknowledgment of Service was filed. On 17 October, Sakhrani J ordered the setting down of the Amended Originating Summons and the substituted service, again by advertisement, of the Notice of Hearing. This was done, and the matter came before me for hearing on 8 January 2001. I gave judgment in favour of the plaintiff, in the absence of any representative of the defendant.

6. The applicant, Yuen King Hay, took out a summons dated 23 March 2001 to apply that he be appointed "as manager" of the defendant to represent it under Order 15, rule 13 of the Rules of the High Court and section 15 of the New Territories Ordinance, Cap.97. He also applied for the judgment to be set aside under Order 28, rule 4. He later amended the summons, by consent, to delete "as manager", so he then applied simply for appointment to represent the defendant.

7. He further applied by summons dated 3 September 2001 to amend his application to set aside, so as to rely on a new ground to set aside the judgment as irregular, because the orders for substituted service on which it was based were obtained by material non-disclosure and misrepresentation on the part of the plaintiff.

8. The effect of my judgment is that the applicant succeeded in his applications both to represent the Tso and to have the judgment set aside. I found that the judgment had been regularly obtained. The plaintiff now says that it should have the costs thrown away as a result of the setting aside of the judgment; that it should also have the costs of the hearing on 6 September 2001 which were mainly concerned with the service issue; and that the costs of the adjourned hearing on 30 November 2001 dealing with the questions of the applicant's locus standi and the defendant's real prospect of success should be in the cause. The defendant says that the costs thrown away should be in the cause and that it should have all the costs of the other applications in which it, or the applicant, succeeded.

9. As to the costs thrown away, I found that the judgment was regular. Neither party was at fault. The costs thrown away should be in the cause; see Hong Kong Civil Procedure 2002, paragraph 13/9/16 and the case of Peter Cox Ltd v. Thirwell there cited.

10. As to the rest of the costs, the applicant and the defendant have succeeded in their applications which were to have the applicant appointed to represent the Tso, and to have the judgment set aside. It is true that the applicant added, by late amendment, the ground that the judgment had been obtained irregularly but even though that contention was not accepted the result was an overall success. It is difficult and I think contrary to principle to split up costs according to which party succeeds on which issue. It seems to me proper that the costs should follow the event and that the applicant - for it was he who brought the summonses - should have them.

11. There will therefore be an order that the costs thrown away by the setting aside of the judgment be in the cause, and that the costs of the summonses dated 23 March, 6 August and 3 September 2001 be to the applicant in any event.

Security for Costs

12. The plaintiff is a foreign plaintiff. I have found that the defendant has a real prospect of success. There is no dispute that there should be an order for security for costs. The dispute is over the quantum.

13. The defendant's estimate for the total costs and disbursements, already incurred and to be incurred, comes to a hefty $2,695,725.00. The plaintiff says that it would not be just for it to be ordered to put up so large a sum. In the first place, the cause of action (as if begun by writ) will commence against the defendant with the service of the Statement of Claim, and security should only run in respect of costs incurred from then on. In the second place, it is argued that security should only be ordered for costs up to the close of pleadings or discovery, because it is likely that an application will be made under Order 4A. In the third place, the costs should be on the party and party basis and they are excessive.

14. The parties, however, agree that the court should follow the principle set out by Hunter JA in considering section 357 of the Companies Ordinance, Cap.32 in Re Cirtex Co. Ltd and the Companies Ordinance (1987) Civ.App.No.133 of 1987 (CA) (Hunter JA; 27 October 1987), at page 3 :

"What the Court should be doing is to have regard to the closing words of the rule which are 'as may be just' and to seek to exercise its discretion in a way which will not be oppressive to the actual appellants and may have the result of precluding them from continuing with the appeal. The only way that can do that is to look rather carefully at the figures put before the Court in support of the application for security and to have regard to the fact that the principle to be applied is that the security should not exceed a reasonable estimate of the taxed costs on the appeal. If there is a lurking doubt about oppression the security should be perhaps reduced to a point at the lower end of such estimate."

15. Unfortunately, there is no evidence as to whether the plaintiff which is a limited company has assets which could meet any order for costs to be made or whether the order sought would be oppressive. The plaintiff argues that an excessive figure is in any event oppressive.

16. It seems to me that the order for security must cover costs already incurred. Granted that these are ordered in favour of the applicant, not the defendant, he is in effect the alter ego of the defendant and has taken the steps he has taken on behalf of the Tso and its members. I do not see that security should only begin with service of the Statement of Claim; an action continued as if begun by writ is not a fresh action. I do take the point, however, that there may well be an application under Order 14A; it seems appropriate that a decision be made at an early stage on the legal point of whether or not the Limitation Ordinance applies to a Tso or whether under section 13 of the New Territories Ordinance the application of Chinese custom is mandatory.

17. The defendant estimates costs up to 30 November 2001 at profit costs of $211,057.00 plus disbursements of $132,440.00. The disbursements in respect of counsel's and experts' fees up to the stage of discovery are put at $630,000.00. That gives a total of $973,497.00. I do not think the solicitor's charging rate is excessive though I accept that the profit costs figure should be reduced to reflect party and party costs. Against that, further profit costs and counsel's fees may be expected in connection with the Order 14A application. Tsing law and Chinese law experts will need to be consulted, whether or not there is an application under Order 14A. It is all very well to say that the figure should be reduced to the lower end of the estimate, but if experts are needed, as I have no doubt they are here, they must be paid for. It seems to me in all the circumstances that the figure should not be lower than $1,000,000.00, to cover the costs up to the stage of discovery.

18. There will therefore be an order that the plaintiff give security for the defendant's costs up to the stage of discovery in by bank guarantee for or payment into court of the sum of $1,000,000.00, and that in the meantime all further proceedings be stayed. The costs of the application for security be to the defendant in any event.