WELL FORCE CO. LTD. v. BOOMWAY (HONG KONG) LTD.

HCA4480/1994

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.4480 OF 1994

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J U D G M E N T

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The Applications

1. I have before me three summonses for security for costs taken out against the Defendant herein by the Plaintiff, the 1st Third Party and the 2nd Third Party on, respectively, 29th May 1998, 3rd June 1998 and 20th April 1998.

2. This matter has been strenuously argued over a day and a half, the applications assuming an added urgency because of the imminence of the trial of the action, presently listed to commence before this Court on Monday, 22nd June 1998.

The Background Facts

3. This action is of some age, as are the basic facts which provide its genesis. In broad outline, they are not, I think, controversial.

4. The Plaintiff company is the owner of a second floor apartment in a low rise block at No.27, Plantation Road, The Peak, Hong Kong. The occupiers of those premises and, I apprehend, the owner of the holding company, are a Mr and Mrs Ronald Ho. They say that in March 1994 their peaceful enjoyment of their property was substantially disturbed, and indeed the infrastructure of their apartment damaged, by interior decoration and renovation works which were being carried out immediately above them, on the third floor of the same block, for and on behalf of the owner of that apartment, the Defendant herein. And the owner of the Defendant, and the occupiers of this third floor apartment, were a gentleman known as Mr Kenny Bee, and his wife, Mrs Theresa Bee, otherwise known as Theresa Cheung, both of whom, I am given to understand, are persons of some prominence within the local entertainment industry.

5. Be that as it may. The alleged disruption and damage to the fabric of Mr and Mrs Ho's flat led to the institution, on 11th May 1994, of proceedings against the Defendant. In turn, these proceedings elicited a Defence and Counterclaim on behalf of the Defendant, dated 27th April 1995, the Counterclaim claiming loss and damage consequent upon the unauthorized changing of the locks of the building by the Plaintiff, in the person of Mrs Ho, thereby delaying the works of the Defendant's contractors. In broad terms, the value of the Plaintiff's claim, I am told, is in or about HK$230,000, and the sum counterclaimed by the Defendant slightly in excess of HK$250,000. So by any commercial standards, it is fair to observe that the amounts of money at issue in the head proceedings are strikingly disproportionate to the costs of funding High Court proceedings which have been in train since 1994, particularly given what I gather have been several tenaciously fought interlocutory applications.

6. But I digress. After the filing of the Defence and Counterclaim, the Defendant issued Third Party proceedings against both the 1st Third Party, the contractor which had contracted with the Defendant to do the renovation works in question, and against the 2nd Third Party, an interior designer who apparently had agreed with Mrs Bee of the Defendant to supervise the renovations, and to design the newly refurbished interior.

7. I pause at this stage to add that the named 3rd Third Party is no longer part of this case; in any event, the appellation 3rd Third Party is somewhat of a misnomer in the circumstances, that party having been joined as third party by the Plaintiff in its capacity as Defendant to the Defendant's Counterclaim, third party proceedings which, by Consent Order of today's date, have now been discontinued.

8. That therefore, in macro terms at least, is the overall shape of the case which, as I have earlier observed, appears to have generated an amount of effort and expense wholly disproportionate to the substance of the dispute. Against this background, therefore, I turn to consider the particular applications, and for these purposes it assists, I think, to accord separate treatment to the application of the Plaintiff on the one hand and those of the 1st and 2nd Third Parties on the other. For reasons which will doubtless become clear, I take them in reverse order.

(1) The Third Party Summonses

9. It is probably fair to say that it was and is the 2nd Third Party, represented at this hearing by Mr Paul Emerson, who has really made the running in the security for costs stakes. Indeed, so far as Mr Emerson is concerned, there is a history to this, in that in February 1996 he took out an earlier application for security for costs, which was dismissed in June 1996 on the predominant basis, I am told, that the Defendant possessed sufficient equity in its Plantation Road premises to defeat an argument pursuant to the provisions of section 357 of the Companies Ordinance, Cap.32, to the effect that "it appears by credible testimony that there is reason to believe that the company will be unable to pay the costs of the Defendant if successful in his defence ...".

10. In any event, ever vigilant, in or about April of this year Mr Emerson discovered that the Defendant, Boomway, was in apparent financial difficulties, at least in terms of what is nowadays fashionably referred to as 'negative equity'. I have been shown a number of different figures, but in broad terms it seems fairly clear, and I accept, that the two properties owned by the Defendants, that is the one in Plantation Road and another, a house at Las Pinadas, 33 Shouson Hill, are very heavily charged in favour of one Yu Tai Hing Company Limited, such charges apparently having been taken out to secure borrowings on the part of Mr and Mrs Bee, in a sum which appears to be considerably in excess of the current market value of the properties; indeed, there is even a suggestion by Mr Ronald Ho, on affidavit, to the effect that the Plantation Road property has been, in effect, repossessed, albeit this suggestion has been roundly rejected by Mrs Bee in her latest affidavit.

11. On the basis of this material, however, I can certainly see why the concerns of the 2nd Third Party, and thereafter of the 1st Third Party, have been aroused; indeed, the figures on a Schedule prepared by Mr Wesley Ip, appearing on behalf of the 1st Third Party, which schedule is cross-referenced with the relevant mortgage memorial numbers, serve to highlight and underscore the broad situation.

12. In response to what seems to me to be cogent evidence, within the terms of section 357, Cap.32, Miss Cheung's 6th Affidavit is not, in my view, satisfactory in terms of casting light upon the financial affairs of Boomway. She asserts (at paragraph 4) that the charges on the two properties held by Boomway as reflected in the Land Search record "does not reflect the actual amount outstanding under the various charges", and (at paragraph 7) that she has confirmed with Yu Tai Hing, the chargee, that the total amount outstanding in respect of all the charges on the five properties in question is currently $170 million "of which only $82,380,000 is in respect of the Defendant's two remaining properties". She further asserts that the entry 'Nil' in Boomway's Annual Return dated 25th February 1998 was an error on the part of the secretarial services company, she maintains the current viability of the Defendant but declines to disclose confidential accounts (at paragraph 10), and thereafter concludes (at paragraph 11) -- in my judgment somewhat incongruously -- that from the information given "it can be shown that the Defendant has sufficient equity to meet the legal costs which may possibly arise from this action". The present security for costs allegations are based upon guesswork and founded upon mere rumour, she says, and the applications are late and are being used as instruments of oppression. Miss Cheung finally asserts that "the Defendant is unable to raise for such purpose" the total sum of $3 million required by the applicants in security for costs, and she asks the Court to dismiss the applications with costs.

13. The various points made by Miss Cheung in her 6th Affidavit mirror, in substantial part at least, the arguments put forward on her behalf by Miss June Wee, Counsel for the Defendant, whose attractive address did full justice to the Defendant's resistance to these applications. In specific response to the Third Party applications, Miss Wee submitted, in addition, that whilst there was undoubtedly jurisdiction to order security for costs in Third Party proceedings, a primary consideration which the Court should place into the discretionary 'mix', so to speak, was that in the particular circumstances of this case that which the Defendant was doing, as the entity caught in the middle between the Plaintiff and the Third Parties, constituted no more than a purely defensive reaction analogous to the situation of Anwide in the case of Anwide Company Limited v. Attorney General [1994] 2 HKC 114 (CA), a case to which she drew my attention, as she did in this context also to the commentary at White Book MN 23/1-3/15.

14. I am bound to say, however, that I do not think that this argument really assists; the cases are clearly and fundamentally distinguishable. Moreover, whilst I was initially attracted to Miss Wee's further point going to that which she submitted were the 'feeble' Defences filed by the respective Third Parties, a perusal of the respective pleadings (which, to my surprise, do not indicate the constitution of a lis inter se) has not satisfied me, on a pure merits basis, that security for costs should not lie. Nor, for that matter, does the lateness argument suffice, though again on this point I hesitated somewhat before concluding that it did not operate to preclude the award of security; I do not think, on analysis, that there is sufficient in Miss Wee's submission that the mortgage situation of Boomway has been extant on the Land Registry record since October 1997, and that therefore earlier applications should have been mounted.

15. So at the end of the day, qua the Third Party applications, I am against Miss Wee. I have of course reminded myself of the well known principles to apply in security for costs applications, as digested in the White Book at MN 23/1-3/2, and I am satisfied, on all the available evidence, that jurisdiction is indeed established under section 357, Cap.32. I am further satisfied, in the exercise of my discretion, that it is just and appropriate in the circumstances to order an element of security for costs in respect of the applications of the 1st and 2nd Third Parties.

16. However, the extent of the security for costs that I think is appropriate in the circumstances is not co-extensive with the scale of the sums claimed by the Third Party applicants. As I made clear to Counsel during argument, I am not in the circumstances of what has been a somewhat tortuous piece of litigation interested in revisiting the archives, so to speak, and in looking at costs incurred in the past; so that all that I am prepared to consider in the current security for costs context is future costs, which in practical terms means those immediately associated with the forthcoming trial. As to which, I am at a loss to comprehend why 10 days has been permitted to be allotted to what is, at bottom, a straightforward case, so that (again as I made clear during argument) I am working on the basis of no more than five days. Indeed, I should have attributed even less to the potential length of the trial had it not been for Counsel's indication that on a perusal of the papers probably the better view was five days. Further, without wishing to cause embarrassment or to personalize the matter, I am unable to comprehend the rationale for the scale of junior Counsel's brief fee apparently quoted for this case; the case is small in monetary terms, and is hardly taxing in terms of the legal concepts involved; I have gauged the costs accordingly.

17. In all the circumstances of the case, therefore, and after perusing the skeleton bills of the respective Third Parties, I have come to the conclusion that the Defendant herein should provide each of the 1st and 2nd Third Parties with security for costs in the sum of HK$230,000, such sums to be paid into Court or otherwise furnished to the satisfaction of the Third Parties.

18. Given the current timetable for trial, I will hear the parties on consequential matters arising, and in particular the time frame within which these sums are to be furnished.

19. Subject therefore to the further submissions of Counsel, that concludes the consideration of the Third Parties' position. I now turn to that of the Plaintiff.

(2) The Plaintiff's Summons

20. The application for security for costs by the Plaintiff, like that of the 1st Third Party, is effectively run on the coattails of the application by the 2nd Third Party, a fact that Mr Franklin, who appears on behalf of the Plaintiff, did not seek to obscure. He accepts that he comes to the Court relatively late in the day, and that he relies, in substance, upon the information but relatively recently uncovered by the 2nd Third Party.

21. Moreover, as Mr Franklin readily recognised in what, if I may say so, was a notably balanced and fair address, the Plaintiff's security for costs application raises different considerations to those of the Third Parties. As a plaintiff qua plaintiff he cannot, of course, bring an application for security for costs -- under our system if a litigant chooses to sue what turns out to be an impecunious defendant that is but one of the perils of litigation -- but Mr Franklin mounts his client's application in the capacity of defendant to the Defendant's Counterclaim. The nature of this Counterclaim, to which I have earlier but briefly alluded, is for loss and damage allegedly caused by the changing of the locks of the apartment building by the Plaintiff, or, to be more precise, its corporeal representative Mrs Ho, who, it will be recalled, was the aggrieved occupant of the second floor apartment below that of the Defendant, and whose apartment had suffered damage by reason of the renovation works.

22. I note in passing that, at first blush at least, it is slightly odd that the mere act of changing the locks on what I am told was two occasions, should have been causative of loss and damage of the scale of in or around a quarter of a million dollars -- particularly since the new keys were apparently left with the non-resident building manager, the now departed 3rd Third Party; but that, I suppose, is nothing to the immediate point.

23. In any event, as Mr Franklin accepts, in order to get into the frame for security for costs in a counterclaim situation, he has to demonstrate that the counterclaim is really in the nature of a cross-action. In this connection, Mr Franklin very properly drew my attention to the commentary in the White Book at MN 23/1-3/8, the essence of which is the necessity to distinguish between whether the counterclaim is a cross-action or operates as a defence. Mr Franklin suggests that the matter of the locks is a distinctly separate issue and, as such, is a distinct cross-action, and should therefore attract security for costs. He accepts, of course, that cases in this area are very much governed by their particular facts, but draws my attention to Strong v. Carlyle Press (No.2) [1893] WN 51 as a useful example supporting his contention.

24. To the contrary, Miss Wee, for the Defendant, asserts that the present Counterclaim essentially "arises out of the same matter" to quote from the commentary in the White Book at MN 23/1-3/8, and is in fact a defence to the action. As a counter to Strong v. Carlyle, she draws my attention to the approach of the Court in Mapleson v. Masinie (1879) 5 QBD 144, and she goes so far as to submit that the Counterclaim, if established in this case, will operate as a defence by way of equitable set-off; as such, therefore, this counterclaim should not operate, in effect, as a 'trigger' to permit the Plaintiff an opportunistic, and late, application for security for costs. She further points out that both the Plaintiff's Claim and Counterclaim are reliant, for their causes of action, upon cross breaches of the same Deed of Mutual Covenant, that on the merits, given the Plaintiff's admission as to the actual changing of the locks, it is difficult to discern a realistic defence, and she refers in addition to prior substantial costs orders "in the bank", so to speak, in favour of the Defendant and against the Plaintiff by reason of an Order dated 14th December 1994 upon the dismissal of the Plaintiff's contested application for summary judgment. She further attacks the Plaintiff's attribution to the Counterclaim of the proportion of 50% of the trial costs, suggesting in an attractive turn of phrase that the Counterclaim is little more than a 'garnish' upon the substance of the claim.

25. So far as the Plaintiff's application is concerned, the matter is finely balanced, and, it seems to me, the question is essentially one of degree; whilst Mr Franklin accepts that both Claim and Counterclaim arise out of the same broad factual matrix, is he correct in his submission as to the lack of connection between the noise and damage and the locking out?

26. It is a close-run thing, but after reflecting on the circumstances, I am inclined to think first, that for all practical purposes the events are too closely connected, in terms of cause and effect, to merit the distinction required to justify security for the Plaintiff's costs of the Defendant's Counterclaim; and second, and were I to be wrong in that conclusion, looking at the matter in the round and taking into account all the circumstances, I would not in any event have been minded to exercise my discretion in favour of the Plaintiff. At the end of the day, although Mr Franklin has said all that could properly be said on behalf of his clients, on balance I am minded to agree with Miss Wee's submissions. In my judgment, the issues are too closely connected, both factually and evidentially, to justify the type of distinction that is required to accommodate a separate security for costs application on the part of the Plaintiff.

27. My order, therefore, upon the Plaintiff's application, is that the Plaintiff's summons dated 29th May 1998 is dismissed. I will, of course, hear the parties on costs and upon any other matter arising.

28. It remains only to thank all legal representatives for their efforts to assist the Court, both in argument and in terms of fairly presenting the somewhat convoluted history of this case.