CHEONG SHING LTD v. YU KWAN

HCA12021/1998
HCA2183/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.12021 OF 1998

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

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

AND

ACTION NO.2183 OF 2001

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

BETWEEN

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

(Consolidated by Order of Deputy High Court Judge Muttrie dated 6 March 2002)

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

D E C I S I O N

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

1. This is an application for security for costs by four defendants (“D1” and “D5” apply jointly, D5 being D1’s company; “D3” and “D4” also apply) against both plaintiffs (“P1” and “P2”).  P1 is a foreign plaintiff and P2 is said to be impecunious.  There is a counterclaim by D3 and D5 against a Mr Yu Kwan who was originally P3 but has withdrawn as a plaintiff.  Mr Yu, as defendant to the counterclaim also seeks security for costs against D5, a foreign “plaintiff” in the counterclaim.

BACKGROUND

2. The trial is part-heard.  Twelve days of the hearing took place in May 2005.  It was then adjourned part-heard to be resumed in June 2006 with an estimate of a further 18 days.  Prior to the trial two orders for security for costs had already been made by consent.  P1 had agreed to pay HK$2.1 million as security for D1 and D5’s costs and P1 and P2 had agreed to pay HK$2 million as security for D4’s costs.

3. D3 issued his first application for security, in June 2005, soon after the conclusion of the part-heard trial, having announced its intention to do so during the hearing when it had become apparent that the case was going to seriously overrun.  D4 followed suit, for further security, by taking out a summons in October 2005; D1 and D5’s summons was taken out on 7 December 2005 (six days before this hearing).  As a result of D1/D5’s summons, Mr Yu also took out a summons two days later on 9 December 2005.

4. All applications arise out of the sole fact that another 18 days is estimated to be needed to conclude the trial.  D1, D4 and D5 are seeking security to cover the extra costs incurred because of the overrun.  D3 is seeking security for his costs from the outset.

GROUNDS

5. There are a number of competing factors for and against the making of orders for security.

(A)     The defendants applications on the claim

6. The main factors advanced in favour of security orders are these :

(i)	The overrun is long and unexpected.  The additional costs to be incurred will therefore be substantial.  The original consent orders were based on a maximum of 12 days in court.  It now may be up to 30 days.
(ii)	The fact of P1 being a foreign plaintiff is not in issue.  P2’s impecuniosity only came to light in the course of the 12-day hearing as a result of cross-examination of Mr Yu and as a result of late discovery of certain documents including P2’s accounts.
(iii)	The defendants are entitled to “sufficient” security which they do not have.
(iv)	It is not appropriate to blame any particular party for the overrun.
(v)	If successful the defendants are at serious risk of being unable to enforce any costs orders that may be made in their favour.
(vi)	Due to the nature of the case it is reasonable and proper for the defendants to be separately represented, except D1 and D5.
(vii)	It is apparent that P1 is funding P2 in the litigation.  There is little or no risk therefore that the plaintiffs’ claim will be stifled by security orders.

7. In response, the plaintiffs’ main submissions in favour of not making any orders against them are as follows :

(i)	D1/D5 and D4’s existing orders were by consent and should not be increased.  The plaintiffs agreed to those orders and took the financial implications into account when deciding to litigate.  They should not be further prejudiced by a further financial commitment for which they had not accounted.
(ii)	The overrun has been caused by unnecessarily long cross-examination of the plaintiffs’ witnesses.
(iii)	The applications are being made too late.  Delay in making the applications is a ground, on its own, for making no order.  An order for security should only be made in exceptional circumstances if the application comes mid-trial.
(iv)	The plaintiffs are having to face three teams of defence lawyers.  The cumulative costs which result are excessive for a plaintiff to have to meet.
(v)	Prior to the trial D3 stated (in its pre-trial check list) that it would not make an application for security (to which D3’s answer is that that was based on the original estimate and before it knew of P2’s impecuniosity).
(vi)	The applications are oppressive.  The greater the costs the greater the chance of the plaintiffs surrendering.  It is thus a tactical move by the defendants to force the plaintiffs into submission.
(vii)	The applications are inflated.  The lion’s share of the amounts sought are to cover counsel’s fees which, to put it mildly, are expensive.
(viii)	The plaintiffs have a good claim and would be seriously prejudiced by having to put up more security.  The greater the amount, the greater the prejudice.  The total amount being sought, namely over HK$12 million more is excessive and would be crushing.

DECISION ON DEFENDANT’S APPLICATIONS

8. In coming to a decision, I have attached no weight to two matters.  First, where the blame for the overrun lies.  I attach no blame to any party.  That is not to say that there is no blame, merely that I do not state an opinion as to where it lies nor do I attach that blame to any particular party for the purpose of these applications.  Secondly, I make no comment about the respective strengths of the case either way.  That I may think the plaintiff has a strong case or that any particular defendant has a good defence or counterclaim has played no part in the decision.

9. Ultimately, it is a balancing exercise and a matter of discretion.

10. The inescapable fact is that the trial costs will be significantly higher than originally expected.  If successful the defendants may face serious difficulties in enforcing costs orders.  I have decided that security orders are merited.  It is true that D1/D5’s application has come late in the day but that factor does not, in my judgment, tip the balance against it so as to result in no order being made at all.  It may however be a factor to be taken into account when considering quantum.

11. I am not persuaded that because the original orders for security (totalling HK$4.1 million) for D1/D5 and D4 were by consent bars further orders being made.  The reality is that the consent was based firstly on assessments of between 8 and 11 days for the length of trial and secondly on little or no knowledge of P2’s financial situation (it was not known that it was, in effect, a dormant Hong Kong company).  The reality of the existing circumstances should not, in the unusual circumstances which now prevail, be overlooked.  The existing security is plainly insufficient.

12. Moreover, in view of the fact that the plaintiffs’ current costs are being met and that they plan to fund an additional leading counsel for the remainder of the trial, it is reasonable to conclude that the risk of their claim being stifled by orders for security is low.

(B)     Yu Kwan’s application against D5 on the counterclaim

13. The same principles apply.  D5 has already consented to a pre-trial order for security in the sum of HK$2 million.  D5 is a foreign plaintiff.  In the overall context of the present circumstances and in view of my decision on the defendants’ applications, there can be no good reason to refuse Mr Yu’s application for further security.

QUANTUM

14. All parties have submitted a brief schedule of the amounts they claim.  There are good reasons to reduce all the requests.  The amounts I will order are significantly less than the amounts requested for the reasons I give.  I also take a broad brush approach and deal in round figures.

15. All the defendants’ applications are against both plaintiffs jointly.

(i)      D1/D5’s request

16. D1/D5’s request is to cover the costs of the second part of the trial.  The consent order of HK$2.1 million was to cover costs to date.  They estimate their future costs at about HK$4 million but have discounted their claim to HK$2.5 million.

17. The bulk of the claim is represented by expensive counsel’s fees.  Further, the application came very late.  I therefore discount it further to HK$1.5 million.

(ii)     D3’s request

18. D3 seeks a sum in excess of HK$6 million.  This is to cover all costs to date and future costs to the end of the trial.  I refuse their application for costs to date.  They stated that no application for the original trial would be made.  It is too late to change their minds about that element of security now.  The order therefore is for future costs only.  That amount is over HK$3 million.  For the same reasons as above I discount it to HK$1.5 million.

(iii)    D4’s request

19. D4’s request is for future costs only.  It already has an order for HK$2 million for costs to date.  Their estimate of future costs is about HK$3 million.  They discount this sum to HK$2.3 million.  For the same reasons as above I discount it further to HK$1.5 million.

(iv)    Yu Kwan’s claim

20. This claim is higher.  Although it only relates to the counterclaim, the point is made that the counterclaim is merely the mirror image of the claim.  Moreover, the plaintiffs have 3 teams of defence lawyers to face.  Therefore their costs are higher.

21. Their estimate of future costs is about HK$4.6 million.  This must be substantially reduced for two reasons.  Firstly, over 50% of it relates to the cost of instructing an additional more senior leading counsel.  This is no reflection on the competence of leading counsel presently instructed who is conducting the litigation most ably.  However, I do not think that D5 should be burdened with such extra costs which arise out of a decision made by the plaintiffs over which D5 has no control.

22. Secondly, D5 is not the only party involved in the counterclaim.  D3 is involved as well.  If Mr Yu is successful in the counterclaim, D5 will not be the only party made the subject of a costs order.

23. For these reasons I think Mr Yu’s estimate should firstly be halved and then further discounted to reflect the above matters.  I order HK$1.5 million.

CASE MANAGEMENT

24. Common to all the discounting exercises done above is the court’s opinion that merely because a further 18 days have been set aside, it does not follow that 18 days will be taken up.  In due course I propose to put time limits on the length of the examination of witnesses.  The plaintiffs’ case has been completed.  The issues are now all in the open.  There is no reason not to expect that the case will accelerate from here onwards.  I express the hope that about 12 more days will be sufficient.  It is true that there are many documents however it is also true that only a small number of them are relevant and the number of key issues is small.

25. All four applications have been successful to a similar extent.  I grant security in the sums stated to be provided in the same form on the original orders, namely by bank guarantees.

26. In each case the successful party is awarded costs against the party or parties ordered to provide security on a nisi basis.  Certificates for two counsel are not granted.