ASIA HOLDINGS INVESTMENT LTD. v. CHAN CHI KEUNG GARY

DCCJ17281/2001

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 17281 OF 2001

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R U L I N G

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1. This is an application for security for costs under section 357 of the Companies Ordinance, Cap. 32.

2. The present action arose out of an aborted property transaction. By a sale and purchase agreement dated 30 August 2001 ("the Agreement"), the Plaintiff agreed to purchase and the Defendant agreed to sell the property known as Flat B, 13th Floor, Block 6, Seacrest Villa, Phase II, No. 18 Castle Peak Road, New Territories, at a price of $2,650,000. There is a dispute as to whether the parties agreed to an extension of time for the completion of the sale, which in turn determines which party was in wrongful repudiation of the Agreement. In the present action, the Plaintiff claims that the Defendant was the party in default, and so it claims for, inter alia, the return of the deposit and other consequential damages.

3. At this stage, both sides have an arguable case on the merits, and so for the purpose of the present application, the merits of the claim is a neutral factor.

4. According to the company search record, the Plaintiff has a paid-up capital of $100. Mr Lau for the Plaintiff submits that this piece of evidence alone is not sufficient to show that the Plaintiff would be unable to pay the costs if the defence is successful. More evidence is required. However, in my judgment, as the Plaintiff has a paid-up capital of only $100, it may reasonably be inferred that the Plaintiff would be unable to pay the costs if the Defendant succeeds in the action.

5. Further, in the case of R v IRD & Anor ex parte T.C. Coombs & Co. [1991] 2 AC 283, Lord Lowry said the following in page 300 of the judgment:

"Another fact is the sparseness of the evidence adduced by the revenue. In our legal system generally, the silence of one party in face of the other party's evidence may convert that evidence into proof in relation to matters which are, or are likely to be, within the knowledge of the silent party and about which that party could be expected to give evidence. Thus, depending on the circumstances, a prima facie case may become a stronger or even an overwhelming case."

That case involved an application for judicial review against a statutory notice issued by the Inland Revenue, and there was an issue as to whether the evidence adduced by the Revenue was sufficient. To me, the same principle applies here. The Plaintiff should be in a position to adduce evidence to rebut the aforesaid inference, and yet no such evidence is available in this case. Hence, I am of the view that the Defendant has actually discharged the burden of putting credible evidence before the court that the Plaintiff would be unable to pay for the costs if the defence is successful.

6. The second factor put forward to object the application is delay. It is common ground that the Defendant's application could have been made at a much earlier time, and hence the Defendant is guilty of delay in making the present application. However, delay is only one of the factors taken into account by the court in determining whether to order security. In the present case, there are certainly factors which favour the order of security in the present case. Firstly, there is a real risk that if the defence is successful, the Plaintiff's directors would just let the Defendant to wind-up the Plaintiff rather than to let the Plaintiff to pay for the costs itself. The temptation is simply too great. Secondly, the Plaintiff's directors have the means to fund the litigation. In such circumstances, the order for security will not stifle the Plaintiff's claim. Taking all these factors into account, I will exercise my discretion to order security in the present case.

7. I now turn to the issue of quantum. As the application has not been made promptly, there is a discretion for the court to limit the security to the future costs of the proceedings only (see: the Hong Kong Civil Procedure 2001, Volume 1, paragraph 23-3-32). Miss Cheng for the Defendant does not seek to argue otherwise. So far as the actual quantum is concerned, Mr Lau for the Plaintiff submits that a two-days' trial should be sufficient and the estimated costs should be in the region of $40,000. On the other hand, Miss Cheng submits that a three-days' trial would be more appropriate and the engagement of counsel is necessary. As the Plaintiff has also engaged counsel to appear in today's hearing, it is very difficult to argue that the engagement of counsel is unreasonable in the present case. Assuming that the trial will last 21/2 days, my estimate of the costs would be in the region of $60,000 calculated as follows: 17.5 hours x $2,000 = $35,000, brief - $12,000, two refreshers - $12,000. A total of $59,000. As I do not need to give 100 per cent security to the Defendant in the present case, I am of the view that security in the amount of $40,000 is appropriate. I therefore order security in such amount. I now listen to the parties' submission on the final wording of the order, the form of the security and also on the question of costs.