XCHRX WUI FU DEVELOPMENT CO. LTD. v. TAK YUEN CONSTRUCTION CO LTD.

1998, No. CT 40

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

____________

JUDGMENT

____________

1. I have before me an application by the defendant for an order that the plaintiff give security for costs.

2. The dispute between the parties arise out of a construction contract under which the plaintiff was the employer and the defendant was the contractor. The plaintiff commenced proceedings, and is claiming that the defendant failed to proceed with the work with due diligence. The plaintiff terminated the contract, and seeks a declaration that this termination was rightful. It also claims unliquidated damages. The defendant denies the plaintiff's claim, and counterclaims for payment of work done, retention money, loss of profit and removal expenses.

3. Mr Chain does not dispute that there is a risk arising from the plaintiff's financial position that, if it has an award of costs made against it, it will not be able to pay these. In fact, the plaintiff's evidence is that because of its financial position it is unable to provide security, and "neither I nor any other party is in a position to further assist the plaintiff whose assets are heavily charged." On the evidence, the probability is that, if I order the plaintiff to provide security for costs, it will not be able to pursue its action.

4. The point put forward by Mr Chain is raised crisply in the affirmation by Mr Wong Wing Fu, the controlling shareholder and director of the plaintiff. He says -

"Even if the plaintiff's claim is stayed, the defendant's counterclaim will proceed and the plaintiff will be relying on, and be entitled to raise all the matters in dispute and it would be wholly unjust that if at the end the Court finds for the plaintiff, the Court is not in a position to enter judgment for the plaintiff (if so warrants) only because the plaintiff's claim is stayed."

5. Mr Chain prayed in aid what he called the "rule of practice" that, if a claim and counterclaim arise out the same matter and the counterclaim operates as a defence, the court will ordinarily refuse to order the defendant to give security. Mr Chain says that, because the plaintiff commenced proceedings for an injunction to exclude the defendant from the site, it is in the position of plaintiff, but it might just as well have been the defendant who was plaintiff. So, he says, as I understand him, I should regard the plaintiff as defendant, and the "rule of practice" applies. In that event, Mr Chain says, the plaintiff's claim would be a counterclaim and this would be a defence relied upon and arising out of the same matter as the claim. I do not go along with this argument to its full extent, but I think it is legitimate to say that, if I were to order security and the probability that the plaintiff could not provide it was realised, we would have a situation in which the plaintiff, in defence of the counterclaim, would be able to present its case to show that the defendant did not proceed with due diligence and that its termination of the contract was justifiable. But it would not be entitled to the formal declaration and damages that would usually follow from establishing this. In essence, in this event, it would get the declaration it wanted because the court would find in its favour; only the claim for damages would be the victim of my order. That would be a strange consequence of an order that should seek to do justice to both parties on balance. To put it another way, I see very little prejudice to the defendant if I were not to make an order for security because, if the plaintiff is allowed to proceed with its claim, there would be very little by way of extra costs incurred by allowing the plaintiff to put forward its case on damages.

6. In the result, on balance, I do not think it just to make an order for security on the facts of this case. In the exercise of my discretion, the application is refused.

7. There seems no clear reason why costs should not follow the event. I make an order nisi that the defendant pay the plaintiff's costs in any event.