LIMING CAPITAL LTD v. CLSA LTD

HCA 2055/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2055 OF 2008

_________________________

BETWEEN

_________________________

__________________

DETERMINATION

__________________

1.  This is the Defendant’s application against the Plaintiff for further security for costs up to and including the trial of this action in the sum of $1,487,500[1]. The application is opposed. On 12 April 2010, I directed the parties to lodge in their submissions and the application to be determined on the papers.

2.  The application is made under Order 23, rule 1 on the ground that the Plaintiff is ordinarily resident out of the jurisdiction. The Plaintiff is a company incorporated in the British Virgin Islands and its “attorney-in-fact” (Mr Weber) is residing in Switzerland. The Plaintiff does not dispute that it ordinarily resides outside the jurisdiction. In fact, the Plaintiff has provided security in this action before. On 1 June 2009, the Plaintiff voluntarily paid $350,000 into court as security for the Defendant’s costs up to and including the preparation of witness statements.

3.  The Plaintiff refuses to provide further security for the following reasons:

(a)	The Plaintiff’s genuine case has merit, and the evidence discovered since the provision of voluntary security has greatly improved the Plaintiff’s case.
(b)	The Plaintiff is impecunious and a further order for security for costs will stifle the Plaintiff’s genuine claim.
(c)	Having regard to all the circumstances of the case, it would not be just for further security to be provided.
(d)	Even if further security is to be provided, the amount sought by the Defendant is grossly overstated.

4.  I do not think there is any substance in the Plaintiff’s opposition, save perhaps on the question of quantum. Let me highlight my reasons below.

Merit of the Plaintiff’s claim?

5.  The Plaintiff’s claim is based on an alleged oral agreement made on 8 October 2007between Mr Weber on behalf of the Plaintiff and Mr Wilson on behalf of the Defendant. The Plaintiff says it should be entitled to 50% of the Defendant’s net commission and brokerage under the oral agreement for assisting the Defendant in placing the shares of a Hong Kong listed company called Amax Holdings Limited (“Amax”) with investors. After the placement, the Plaintiff has only been paid Amax shares equivalent to 40% of the Defendant’s net commission and brokerage. The Plaintiff therefore commenced this action to claim for the remaining 10%, valued at $3,964,628.

6.  The Defendant denies any oral agreement between the parties. The Defendant says the Plaintiff should only be entitled to 40% of the Defendant’s net commission and brokerage as provided in a written agreement dated 17 October 2007.

7.  The Plaintiff says the written agreement is void asthe Plaintiff was forced to sign it under economic duress and the agreement was not supported by consideration.

8.  For the purpose of this application, the Plaintiff’s solicitor submits that the Plaintiff stands a good chance to succeed at trial by reason of the circumstantial evidence since discovered, including the Defendant’s internal documents and a tape recording of the conversation between Mr Weber, Mr Wilson and the chairman of Amax: see the Plaintiff’s written submission, §9-21. The Defendant’s solicitor argues otherwise and submits that much depends on the evidence at trial: see the Defendant’s supplemental written submission, §5-13.

9.  It has been said that it is not the function of the court when faced with an application for security for costs to make a “preliminary run” at deciding the ultimate success or failure of the claim, and parties should not attempt to go into the merits of the case unless it can be demonstrated one way or another that there is a high degree of probability of success or failure: see Hong Kong Procedure 2010, §23/3/3.

10.  To succeed in this action, the Plaintiff must establish both the alleged oral agreement as well as the circumstances vitiating the written agreement. That will ultimately depend on whether the Plaintiff’s evidence (mainly in the form of Mr Weber’s testimony) will be preferred to that of the Defendant’s (mainly in the form of Mr Wilson’s testimony). Both Mr Weber and Mr Wilson have filed witness statements detailing the exchanges between them on or before 8 October 2007 and the circumstances leading to the signing of the written agreement on 17 October 2007.

11.  Given the limited material before me and without the benefit of cross-examination, it is simply impossible for me to deal with the arguments advanced by the parties at this interlocutory stage. Given the nature of the dispute, I do not think the Plaintiff has succeeded in demonstrating a high probability of success at trial. I shall therefore leave the merit of the Plaintiff’s case out of account in deciding this application.

Further security will stifle the Plaintiff’s claim?

12.  The Plaintiff says it is in a precarious financial position. It says it was unable to engage in other income generating projects during the most of 2008 and 2009 by reason of the placement project and the subsequent dispute but has to incur substantial legal expenses during the same period. As a result (so claimed the Plaintiff), both the Plaintiff and Mr Weber have suffered much financially, and Mr Weber has to re-mortgage his property, sold his other Swiss company and got rid of his automobile. The Plaintiff’s solicitor submitsthat if the Plaintiff is ultimately required to provide security, the Plaintiff can only afford no more than HK$900,000 in terms of guarantee shares of Amax instead of cash.

13.  On this, I tend to agree with the Defendant’s solicitor that the Plaintiff has failed to demonstrate that an order for security would most probably stifle its claim. The Plaintiff has adducednothingin terms of evidence (e.g. the Plaintiff’s audited accounts, Mr Weber’s personal bank statements, or the Plaintiff’s solicitors’ client bills, etc.) to substantiate the bald assertions that the Plaintiff and Mr Weber are both impecunious.

14.  The Defendant’s solicitor has discovered that the Plaintiff has recently obtained summary judgment in the sum of $7,917,074 against one Jackie Yeung in the related action of HCA 1818/2008. In response, the Plaintiff’s solicitor submits that the Plaintiff has not been paid on that judgment. The Plaintiff alleges that Jackie Yeung is involved in several legal proceedings and does not appear to have any sizeable assets. The Plaintiff has attempted to serve a statutory demand on her but failed, and one of her creditors has already commenced bankruptcy proceedings against her.

15.  In my view, all these must be looked at against the injunction obtained by the Plaintiff in that action against Jackie Yeung’s assets pending trial or further order: see the judgment exhibited as Exhibit “JAD-4” in the second Affidavit of Jonathan Allan Denniss. However, I have not been provided with sufficient information to assess how much of the Plaintiff’s judgment against Jackie Yeung is secured by the injunction.

16.  In any event, it is the Plaintiff’s pleaded case that it has received 151,150,000 Amax sharesfrom the Defendant equivalent to 40% of the Defendant’s net commission and brokerage. Adopting the way the Plaintiff quantifies its claim in the Statement of Claim (at about HK$0.1049/share), the shares received by the Plaintiff should worth about HK$15,858,660. The Plaintiff has failed to mention what has become of these shares.

17.  All in all, I am not satisfied that the Plaintiff (or Mr Weber) is impecunious so much so that an order for further security will probably stifle its claim.

Other circumstances?

18.  The Plaintiff’s solicitor has asked me to take into account the following matters:

(a)	The Defendant has failed to disclose all the relevant documents in the discovery process, and further important documents only came to light when the Defendant filed its witness statements.
(b)	The Plaintiff may be able to get further documents to improve its case through further applications for specific discovery.
(c)	The Plaintiff was recently informed by the Defendant by a letter dated 12 March 2010 of a possible mistake in the calculation of the Defendant’s net commission and brokerage which may impact on the overall entitlement of the Plaintiff.  The Plaintiff’s solicitor submits that this mistake clearly discredits the Defendant’s case and the Plaintiff will seek further discovery in this regard.

19.  In my view, all these are variations of the point taken by the Plaintiff in relation to the merit of its claim. The Plaintiff has failed to satisfy me on the presently available evidence that it stands a good chance of succeeding at trial. In those circumstances, I am not going to speculate on what further evidence it may be able to come up with in support of its case through further discovery.

20.  The parties are apparently engaged in an argument on whether the last statement in paragraph 2(e) of the letter dated 12 March 2010 was made on a “without prejudice” basis and hence should not be disclosed to me. I refuse to be drawn into this satellite argument, as a determination on that matterwill not shed light on the present application.

Quantum?

21.  The amount of security awarded is in the discretion of the court, which will fix such sum as it thinks just, having regard to all the circumstances of the case. It is for the applicant to place materials before the court to enable the court to come to a view on the quantum to be ordered as security. The court will not condescend to a line-by-line evaluation of the applicant’s skeleton bill of costs but instead will adopt a “broad-brush” approach. See Hong Kong Civil Procedure 2010, §23/3/32.

22.  There is already a sum of $350,000 in court as security for the Defendant’s costs up to and including preparation of witness statements. The security now sought by the Defendant is in relation to the additional costs it will have to incur to prepare for trial.

23.  Having looked at the skeleton bill and the supplementary skeleton bill, I find the Defendant’s estimation grossly excessive. For example:

(a)	It would not take the Defendant’s solicitors 7-8 hours to prepare for a CMC or PTR.
(b)	Given the intention to engage counsel, the Defendant’s solicitors would not require 8 days of work to prepare for trial.
(c)	The estimated time (totaling 22 hours) for the Defendant’s solicitors to instruct counsel, attend on counsel and consider counsel’s advices is excessive.
(d)	There is a duplication of charges in that both counsel and solicitors propose to charge for their advices.
(e)	The charges ($130,000) for solicitor’s attendance at the trial of this action which is estimated to last 2-3 days are clearly excessive.
(f)	The estimated counsel’s fees (totaling $588,500) is excessive.
(g)	The supplementary skeleton bill relates to the estimated costs of the Defendant’s application to amend its pleadings to add a counterclaim and the subsequent costs (e.g. on discovery and preparation of supplementary witness statements, etc.).  On 19 May 2010, the Master granted leave to the Defendant to amend its pleadings and ordered the costs of the application be in the cause.  In any event, I find the estimation (totaling $155,000) excessive.

24.  In the exercise of my discretion here, I should try to give effect to the underlying objectives set out in O.1A, one of which is to promote a sense of reasonable proportion and procedural economy in the conduct of proceedings. Adopting a “broad-brush” approach and having regard to all the circumstances of this case including the amount claimed by the Plaintiff, I have decided to order further security in the sum of $400,000 only.

25.  The usual and convenient mode in which to order security for costs is to require the specified sum to be paid into court: see Hong Kong Civil Procedure 2010, §23/3/28. The Plaintiff has not elaborated on its proposal for security to be given by means of guarantee shares of Amax. In any event, given the fluctuation in the price of Amax shares (see the Defendant’s supplementary written submission, §32-34) it would be impracticable to order the Plaintiff to deposit into court Amax shares to a specified value as security.

Conclusion

26.  For the above reasons, I order the Plaintiff to give further security for the Defendant’s costs up to and including the trial of this action in the sum of $400,000 by paying the said sum into court within 21 days from the date hereof, and until such security is given all further proceedings be stayed.

27.  Costs normally follow the event. I make a costs order nisi that the Plaintiff do pay the Defendant the costs of this application in any event. Having regard to the estimation in the Defendant’s skeleton bill, I assess the Defendant’s costs summarily at $25,000.