MAZE ALUMINIUM ENGINEERING CO LTD v. CHINA STATE CONSTRUCTION ENGINEERING CORPORATION AND ANOTHER

HCCT38/2006

IN THE HIGH COURT OF THE

   HONG KONG SPECIAL ADMINISTRATIVE REGION

   COURT OF FIRST INSTANCE

    CONSTRUCTION AND ARBITRATION PROCEEDINGS

  NO.38 OF 2006

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DECISION

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1. Firstly, the defendants seek security for costs against the plaintiff pursuant to section 357(1) of the Companies Ordinance Cap. 32.  The defendants must establish by credible testimony that there is reason to believe that the plaintiff will not be able to pay the defendants’ costs if they win. 

2. Secondly, the defendants seek an order for specific discovery pursuant to Order 24, rule 7, Rules of High Court. 

Security for costs

3. The defendants have submitted a draft bill estimating their costs to date at $2.7 million.  

4. The case concerns four building contracts in which the plaintiff was a sub-contractor to both defendants in its capacity as an aluminium window works specialist.  The total value of the four contracts exceeded $25 million.  Taking all four contracts together the plaintiff claims it is still owed approximately $9 million.  The defendants claim that the final account should result in a refund to them of approximately $3.8 million.  

5. No argument has been advanced by the plaintiff that the granting of security will stifle its claim.  Their opposition is based on the argument that the defendants have not demonstrated by credible testimony that there are grounds to believe that their costs order would not be paid. 

6. I have come to the conclusion that the court’s discretion should be exercised in the defendants’ favour.  In my judgment the defendants have established a number of factors which, when taken together, discharge the burden upon them to justify the order sought. 

7. There is no doubt that the plaintiff now is a very different entity from the company which was granted the sub-contracts in issue in 2002/2003.  At that time the plaintiff tendered for and undertook large contracts and was on the government list of approved contractors.  In about 2003 onward it became involved, either as plaintiff or defendant, in a number of legal disputes and court actions.  Some have been settled, some are continuing, and some have “gone to sleep”. 

8. In any event, it seems that as a consequence of these troubled times there have been two significant developments.  First, the plaintiff now undertakes only the smallest maintenance type contracts.  Mr Danny Choi, counsel for the plaintiff, submits they are “on-going projects”.  Ms Christine Mak, on the other hand, on the defendants’ behalf, points out that the invoices exhibited show them to be often little more than the replacement of broken windows.  With respect “on-going projects” greatly overstates the reality of the current position.  In truth, the plaintiff is “ticking over” with an extremely modest turnover. 

9. Secondly, the plaintiff’s major shareholder (a 45% shareholder) and former director, Mr Simon Yuen, appears to have taken no interest in the company since 2005.  Attempts to contact him have been unsuccessful.  There is cogent evidence that since 2005 he has had no interest in the plaintiff and has been building up his own aluminium window business in the mainland. 

10. During the same period the plaintiff disposed of its only two assets of real property.  In 2004 it owned two properties which it had purchased in the mid-1990’s for approximately $16 million.  They were both sold for a total of just over $8 million in 2004 and 2005.  

11. As to the current day-to-day liquidity of the plaintiff Ms Mak has referred to considerably more detail than I consider it necessary to recite herein.  Ultimately, as correctly stated by Mr Choi, it is a balancing exercise for the court.  As already stated, that balance, given all the current circumstances, is in the plaintiff’s favour and I exercise my discretion accordingly. 

12. In reaching this conclusion, although I have given some consideration to the respective merits of each parties’ case, I have come to no views, provisional or otherwise, which are adverse to either case.  

Quantum

13. I am not minded to order the full amount sought.  The plaintiff submits that the draft bill in the sum of $2.7 million to date, is “grossly exaggerated”.  No detailed submissions have been made about the areas of or extent of the alleged exaggeration.  However, in my judgment, the amount of security to which the defendants are entitled at this stage of the litigation (it being unlikely that any trial will be listed before late 2009) is $1.5 million.  

14. Accordingly I make an order in terms of the defendants’ summons dated 13 November 2007 save that it be in the sum of $1.5 million.  

Specific discovery

15. Originally three categories of documents were requested.  Only categories 1 and 3 are now being pursued in this application. 

16. Category 1 concerns documents emanating from two other High Court actions (HCA1142/2004 and HCA4044/2003) which were between the plaintiff and its sub-sub-contractor, Wah Ting Machinery Co. Ltd. 

17. The first case concerned the same balcony work that is in issue in these proceedings.  The case has been settled. 

18. I am told and accept that the discovery so far made in these proceedings is already voluminous.  In my judgment the underlying reason for wanting to examine documents in the plaintiff’s settled litigation with its sub-contractor is so as to compare the plaintiff’s position in the two cases and fish for evidence which might be usable in cross-examination as to credit. 

19. I exercise my discretion against the defendants on these documents.  A line must be drawn.  I am not satisfied that such documents will be relevant to the pleaded issues between these parties in this case. 

20. The second case concerns an issue between the plaintiff and Wah Ting on a different project in a different location.  The defendants’ entitlement to discover such documents is weaker still.  The request itself lends support to the criticism that the application is no more than a fishing expedition. 

21. The category 3 documents are those passing between the plaintiff and its sub-contractors “in connection with the balcony balustrade work on the 4^th sub-contract including those related to court/tribunal proceedings between Maze [the plaintiff] and such subcontractor”. 

22. I refuse this application for the same reasons that the category 1 have been refused and also because the request is too wide and general.  It opens up all the issues between the plaintiff and all its sub-contractors.  The issues between the plaintiff and the defendants are defined and specific whereas this request for yet more discovery, which is at best peripheral, is neither. 

23. I dismiss the defendants' specific discovery summons with costs.