WING HONG CONSTRUCTION LTD (In Compulsory Liquidation) v. HUI CHI YUNG AND OTHERS

HCA 1423/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1423 OF 2015

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JUDGMENT

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1.  This is an appeal against a Master’s decision dismissing the defendants’ application for security for costs against the plaintiff which is a private company in liquidation.

Background

2.  At the material time, the 1^st – 3^rd defendants were directors of the plaintiff which was an active participant in the construction industry.

3.  The 4^th defendant was a listed company on the main board of the Hong Kong Stock Exchange.  At the material time, the 4^th defendant was the indirect wholly-owned parent company of the plaintiff.  The 4^th defendant held the entire issued share capital of the plaintiff through two wholly-owned intermediate holding companies, namely Shing Tak Construction Company Limited (“Shing Tak”) and Wing Hong Contractors Limited (“WH Contractors”). 

4.  On 19 October 2010, Shing Tak and WH Contractors transferred all of their shares in the plaintiff to Keen Fortune Investments Limited (“Keen Fortune”). Since then, there was a new management operating the plaintiff.

5.  Winding-up order was made against the plaintiff on 8 January 2014.  The present action was instituted by the liquidators in the name of the company on 26 June 2015.

6.  The plaintiff’s case can be summarized as follows:

(1) the cause of action against the 1^st – 3^rd defendants is based on alleged breach of fiduciary duties as directors;

(2) it is alleged that during the period from 18 September 2009 to 10 March 2010 (the “Relevant Period”), the 1^st – 3^rd defendants caused the plaintiff to dispose of substantial assets to the 4^th defendant for no legitimate commercial purpose or justification (“the Scheme”);

(3) at the commencement of the Scheme in September 2009, the plaintiff was insolvent or alternatively of doubtful solvency in that it was indebted to its creditors in the sum of at least HK$59,817,461[1];

(4) The Scheme involved 3 transfers from the plaintiff to the 4^th defendant for no legitimate commercial purpose or justification:

(i)  HK$5 million on 18 September 2009;

(ii)  HK$45.5 million on 19 February 2010; and

(iii)  HK$100,000 on 10 March 2010 (“the 3 Transfers”);

(5) the 1^st – 3^rd defendants have personal interest (directly or indirectly) in the 4^th defendant[2];

(6) the cause of action against the 4^th defendant is based on “knowing receipt”; of the 3 Transfers; and

(7) the plaintiff also seeks declaration for the avoidance of the 3 Transfers pursuant to section 60 of the Conveyancing and Property Ordinance (Cap 219) as dispositions with the intent to defraud creditors of the plaintiff.

7.  The main plank of plaintiff’s case is that as of September 2009, the company was either insolvent or of doubtful solvency.  It was also alleged in the alternative that the plaintiff was rendered insolvent by reason of the 3 Transfers.  The 1^st – 3^rd defendants are alleged to have been aware of such financial condition of the plaintiff at the time of the transfer.  The plaintiff relies heavily on the financial statements of the plaintiff for the years ended 31 March 2008; 2009 and 2010.

8.  The defendants deny that the plaintiff was insolvent or of doubtful solvency at or around the Relevant Period.  In particular, they pointed out that:

(1) the list of creditors were all sub-contractors of the plaintiff in the Beacon Hill property development project in which the plaintiff was the main contractor and the developer was the Cheung Kong group;

(2) at the Relevant Period, the 1^st – 3^rd defendants genuinely/reasonably did not regard these sub-contractors as creditors either because payments had not been duly certified; that the plaintiff had contra-charges and/or cross-claims against them; that parties had already been engaged in litigation or arbitration; or that final account had not yet been settled such that liability would just be contingent[3];

(3) the 3 Transfers were genuine partial repayments of inter-companies loans provided by the 4^th defendant to the plaintiff throughout a number of years and were hence legitimate and justifiable[4];

(4) the 4^th defendant had been the single largest creditor of the plaintiff throughout its financial history.  As of April 2008, the 4^th defendant had already advanced not less than HK$123 million to the plaintiff to finance its operations.  Given their parent-subsidiary relationship, there was a common understanding that the plaintiff would make repayments to the 4^th defendant as and when the plaintiff’s financial conditions permitted.  Consequently, when the 1^st – 3^rd defendants considered the financial condition of the plaintiff, they would exclude the amount due to the 4^th defendant;

(5) in 2004, Cheung Kong refused to settle the plaintiff’s interim bills in the Beacon Hill Project.  In 2005, the plaintiff commences arbitration proceedings.  In 2006, arbitration proceedings were also commenced by the plaintiff against another developer within the Cheung Kong Group in relation to another project in Tung Chung.  The 4^th defendant had been injecting funds to the plaintiff from time to time to support its operation and its arbitration proceedings[5].

(6) On or around 19 March 2009, 11 July 2009 and 11 December 2009 respectively, 3 partial awards were granted in favour of the plaintiff in the Beacon Hill arbitration.  Two interim payment orders were issued by the arbitrators on 22 August 2009 and 26 January 2010. Between September 2009 and February 2010, the plaintiff received the first 2 tranches of payment under the partial awards totalling HK$59.55 million[6];

(7) around that time, the plaintiff was also expecting further recovery from the Beacon Hill arbitration proceedings as well as from the Tung Chung arbitration proceedings.  The plaintiff was also expecting final payment in relation to a project in Lai Chi Kok[7];

(8) the 3 Transfers were effected as partial repayment to the 4^th defendant.  The 1^st Transfer was made soon after the first order of interim payment.  The 2^nd and 3^rd Transfers were made after the second order of interim payment.  At that time, the 1^st – 3^rd defendants were also anticipating recovery of interest and legal costs in millions.  The plaintiff was also successful in obtaining an interim award of over HK$9 million in the Tung Chung arbitration.  They were also expecting final payment of over HK$23 million in the Lai Chi Kok project[8];

(9) in the circumstances, the 1^st – 3^rd defendants reasonably and genuinely considered the plaintiff to be solvent, acted in good faith and in the best interest of the plaintiff to effect the 3 Transfers;

(10) when the shares of the plaintiff were sold to Keen Fortune in October 2010, due diligence was conducted.  Financial information recording the 3 Transfers were provided to Keen Fortune which never raised query;

(11) the operation of the plaintiff was profitable for the years ended 31 March 2011 and 31 March 2012.  The profit in 2011 was over HK$130 million and that for 2012 was over HK$14 million[9]; and

(12) it was only 4 years after the change of ownership and management of the plaintiff that it became insolvent and wound up in 2014.

The Application for security for costs

9.  The defendants’ application for security for cost is made pursuant to section 905 of the Companies Ordinance (Cap 622) which reads:

“ 905. Costs in action by company etc.

(1) This section applies where —

(a) a company is a plaintiff in an action or other legal proceedings; and

(b) it appears, by credible testimony, to the court having jurisdiction in the matter that there is reason to believe the company will be unable to pay the defendant’s costs if the defendant succeeds in the defence.

(2) Without limiting the powers of the court under any other Ordinance, the court may —

(a) require sufficient security to be given for those costs; and

(b) stay all proceedings until the security is given.”

10.  By reason of the fact that the plaintiff is a company in liquidation, there is a presumption that the plaintiff is insolvent and unable to pay the defendants’ costs (see Re Grand Pacific Hotel Ltd[2004] 1 HKLRD 1025 at §9).  The plaintiff has not attempted to rebut this presumption. In fact the liquidators confessed that the plaintiff has no assets available to satisfy any order of payment of security.  By parity of reasoning, they confessed that the plaintiff is unable to pay the defendants’ costs if the latter succeed in their defence. 

11.  The plaintiff opposes the application on 4 grounds:

(1) it has a strong case;

(2) an order for security will stifle its claim;

(3) plaintiff’s impecuniosity was caused by the defendants; and

(4) the defendants were guilty of delay in making the application.

Strength of plaintiff’s case

12.  It is trite law that in an application for security for costs, it is not the function of the court to make a preliminary run at deciding the ultimate success or failure of the claim.  The court should not delve into the respective merits of parties’ cases unless it can clearly be demonstrated one way or the other that there is a high probability of success or failure.  The threshold of demonstrating the probability of success is very high (see Re Silver Tech Enterprise Ltd, HCCW 883/2004 at §6; Wing Hing Provisions, Wine & Spirits Trading Co[1998] 4 HKC 461 at 464D; and Sunchase International Group (China) Ltd & others v Vincor Group of Companies (Investment) Ltd & others [2004] 1 HKLRD 731 at 733, §5)

13.  I am far from being satisfied that the plaintiff’s case has clearly been demonstrated to have strong merits or that the strength of the defendants’ defence is weak.  I agree with senior counsel for the defendants Mr Paul Lam SC that I should proceed on the basis that the plaintiff has a bona fide claim and the defendants have a bona fide defence.  My main reasons are as follows:

(1) the burden is on the plaintiff to establish that the plaintiff was “insolvent or of doubtful solvency” at the Relevant Period.  On the pleadings and affidavit evidence, the plaintiff has taken a rather simplistic approach of comparing the figures of “Assets”, “Liabilities”, “Net Assets” and “Net loss” as revealed in the financial statements for the periods ending 31 March 2008, 2009 and 2010.  Whilst they are relevant information, they are not conclusive of the issue.  In this connexion, it is pertinent to note that Ng J had granted leave to both parties to adduce expert evidence on the issue of “insolvency” or “doubtful solvency”.  In particular, it involves a dispute on the existence of continual expectation of financial support from the 4^th defendant and its impact on the solvency or otherwise of the plaintiff.  The experts have not been able to reach agreement.  The trial would involve resolving conflicting expert opinions.  Resolution of this issue will also impact on the reasonableness of the 1^st – 3^rd defendants’ subjective beliefs as explained in (2) and (3) below;

(2) the figures of “Liabilities” would necessarily include the inter-companies loans advanced by the 4^th defendant to the plaintiff from time to time.  Given the relationship between them, the 1^st – 3^rd defendants might be justified at the Relevant Period in expecting continual financial support from the plaintiff’s parent company.  This is particular so when the 4^th defendant had been financially supporting the plaintiff’s pursuits for payments under the various arbitrations which already showed signs of prospect of success.  They might be justified in thinking that the 4^th defendant would not just “pull the plug” whimsically; 

(3) the defendants also argue that the 3 Transfers were partial repayments of inter-companies loans under the particular financial situations or expectations as mentioned in paragraph 8 above.  These arguments are fact sensitive and involve probing into the subjective good faith or otherwise of the defendants which cannot be judged upon affidavit evidence.  Furthermore, an inference of “intention to defraud creditors” should not be lightly inferred and needs to be backed by cogent evidence; and

(4) the defendants further argue that they have reasonable grounds to treat those sub-contractors in the Beacon Hill Project not as creditors as of the Relevant Period since their claims were then either challenged or subjected to contra-charges and cross-claims.  The reasonableness or otherwise of the 1^st – 3^rd defendants’ attitude and beliefs would have to be judged after close examination of documents and evidence concerning such challenges, contra-charges and cross-claims. 

Stifling the plaintiff’s claim?

14.  This argument has to be understood in the special context of an application under section 905 of the Companies Ordinance. In China Smart Properties Ltd v Manson Holdings Ltd, HCA 13913/1997 at §16, Deputy Judge Lam (as he then was) said the following in relation an application under the predecessor of section 905:

“ However, one must bear in mind that in all applications under section 357 of the Companies Ordinance, before the court could exercise any discretion to order security for costs, it must be satisfied 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. Hence, when the defendant evokes this provision to ask for security for costs, it must establish by credible testimony that the plaintiff is impecunious. It follows that the court should not infer too readily form the impecuniosity of the plaintiff that proceedings will be stifled. Otherwise, the whole section would be self-defeating.”

15.  In Bart Willem Jozef Bost v Jerry Teng Mei Sheng & another, HCCW 141/2007 at §33, Barma J (as he then was) said:

“ In order to resist the provision of security on this ground, it is necessary for a plaintiff to do more than simply assert that he is not in a position to provide security. Generally, it will be necessary for him to provide the court with reasonably detailed information as to his resources, and to show not only that he is unable to meet any order for security from his own resources, but also that he is unable to raise the funds from other sources, whether through commercial borrowing, or from other backers.”

16.  In the present case, according to the affidavit of Mr Michael Chan of the liquidators, the liquidators have been funding the litigation.  They did so in view of the strength of the plaintiff’s case and that they anticipated recovery of their costs from the present litigation[10].  In a subsequent letter[11], the liquidator tried to qualify the word “funding” used by Mr Chan in his affidavit to mean: “holding over their fees and fund the time costs of the Liquidators and their staff internally…”.  It then transpired that the liquidators were also able to make a similar arrangement with the plaintiff’s solicitors who agreed to park their fees “in the anticipation that these fees will be paid out of the asset recoveries made by the Plaintiff in these proceedings”.  At the hearing, Mr Lam SC pointed out that the liquidators have not told the entire story.  Mr Lam referred me to the engagement letter of the accounting expert[12] which showed that at least HK$150,000 had already been paid upfront to the expert as disbursement.  Mr Lam thus submitted that the liquidators have not explained who has been paying and agreeing to pay for all the “disbursements” (which must have been substantial including this HK$150,000 paid to the expert upfront and those subsequently payable pursuant to the terms of the engagement letter) incurred by the plaintiff in these proceedings.  Despite this explicit challenge, Mr Wood for the liquidators provided no explanation at the hearing.  He did not suggest that these disbursements were paid out of the plaintiff’s remaining funds or were gathered from other sources.  He did not suggest that these disbursements had not been paid by the liquidators.  The prima facie inference is that despite the alleged unavailability of source of funds or financial backer, someone has been financially supporting the plaintiff in this litigation.  Since the liquidators have failed to provide the “detailed information” expected of by Barma J in the Bart Willem Jozef Bost case, the plaintiff cannot expect me to lightly infer that it is unable to raise fund from its hitherto backer, whoever that may be.  In fact, on the evidence presented and in the absence of explanation from Mr Wood, I draw the inference that the true situation is as originally deposed to by Mr Michael Chan, ie, the liquidators have been funding this litigation since 26 June 2015.

17.  It is also pertinent to look at the fee arrangements of the liquidators and the plaintiff’s solicitors.  Mr Wood submitted that there is nothing wrong in such arrangement.  He referred me to Winnie Lo v HKSAR (2012) 15 HKCFAR 16.  I certainly accept that the fee arrangement is legitimate and not champertous.  However it is a factor that I can and should take into account in the exercise of my discretion.  In Francesca Frank & ano v Chlorelle Construction Ltd (in liquidation), 2010 EWHC 3233 (TCC), Judge Wilcox said at §§2 and 4:

“ …I am told by the liquidator that he has taken steps to raise money for disbursements-£50,000 odd-that there is a CFA [conditional fee arrangement] in place, and there is now an insurance policy-an “After the Event” policy- that is proposed. A CFA arrangement now puts a Claimant in a very advantageous position when it comes to litigation. It puts the Defendants in a disadvantageous position in litigation should they not succeed. I must bear that in account…

…The balancing exercise is an exercise that must relate to the prejudice not only prospectively to a Claimant against whom security is sought but so far as the Defendant who seeks security to protect his or her position also.  It is of particular materiality in this case because the Defendant face a CFA” 

In this connexion, I also note Mr Wood’s admission that if the plaintiff eventually wins at the trial and makes recovery, those parked fees of the liquidators and the plaintiff’s solicitors would be paid out of the recovered sum in priority to the general creditors. 

18.  At the hearing, the liquidators maintain that the plaintiff has a strong case against the defendants.  I agree with the observation of Mr Lam that if this application has not been taken, there is no evidence or indication that the liquidators would not have continued their financial support to the plaintiff’s claim herein.  In fact, the liquidators have not provided any evidence on their financial capability.  Neither did they provided evidence that they are not in a position “financially” to continue their hitherto support if security for costs is ordered.  After all, an order of security for costs means only that a certain sum of money is “locked up” until the trial is completed.  Given the liquidators’ hitherto support and their avowed confidence on the merits of the plaintiff’s case, I agree with Mr Lam that I should not assume or infer that the plaintiff will not be able to find funds for providing the security if a failure to do so will prevent the claim from proceeding.  In my view, the plaintiff’s and the liquidators’ resistance to this application shows no more than “unwillingness” on the part of a hitherto financial backer of the plaintiff to put up security as opposed to “inability” (see the distinction explained in Vigers Hong Kong Ltd v Junsa Development Ltd, HCA 5173/1998 at §22).

19.  As for other possible financial backers, Mr Lam submitted that the liquidators did not suggest they had contacted the existing directors and shareholders of the plaintiff for the purpose of seeking their financial support or that they had indicated their inability to financially support the plaintiff’s claim.  Mr Wood referred me to an affirmation of Lai Ming Yan (Joanne)[13].  That was an affirmation filed in support of a discovery application against the defendants.  It simply stated that the liquidators had previously written to a current director of the plaintiff requesting for disclosure of books and records of the plaintiff and received no response.  It further said that the liquidators had written to the 4^th defendant asking for information and records including the details of contact persons of the plaintiff and Keen Fortune.  It was said that the 4^th defendant only provided the liquidators with “scant publicly available information”.  With respect, I fail to see how these paragraphs in the affirmation of Lai Ming Yan (Joanne) could answer the defendants’ criticism. 

20.  As for contacts with the creditors of the plaintiff, the evidence of Mr Michael Chan[14] is coughed in careful terms.  He said:

“ Further, none of the Plaintiff’s creditors have provided any funding in relation to this litigation. The general view of the creditors is that there are substantial amounts owed to them by the Plaintiff. However, it is uncertain how much the creditors can recover in the litigation of the Plaintiff and in this light, they do not have any budget to provide the liquidators with funding.” [emphasis added]

21.  First of all, the Statement of Claim listed 10 creditors.  Mr Chan did not say whether he had discussed with all of them and what he meant by “the general view of the creditors”.  Secondly, it is unclear as to whether the liquidators had try to impress on creditors their view that the plaintiff has a strong case and hence a good chance of recovery.  Thirdly, those creditors who had expressed their views simply said “they do not have any budget to provide the liquidators with funding”.  In my view, that indicates no more than “unwillingness” on their part as opposed to inability.  In this connexion, I find the dictum of Judge Wilcox in Frank v Chlorelle Construction Ltd (in liquidation) [2010] EWHC 3233 (TCC) at §5 helpful and persuasive:

“ I am not persuaded that the onus of showing that more money cannot be raised has been discharged by the Claimants.  In fact, there is a list which is considerable of interested parties [i.e. the creditors] and they are the real litigants who stand in the shoes of Chlorelle now and stand to gain.  There is, I am satisfied, at present evidence of an unwillingness to put their hands in their pocket but there is no evidence before me of an inability to raise money essentially to protect their own interest.  They are the gainers if they do.  So this is not a case, it strikes me, where this litigation is being stifled or would be stifled if security or a security for costs order in addition to the ATE [an “After The Event” insurance policy] were ordered by this court.  If the litigation did not proceed, it would (sic.) proceed in consequence of the unwillingness of the parties who seek to be protected, ie  the creditors, to put their hands in their pockets and given the number of them that would be a comparatively modest exercise for each of them to protect their own position.  There is no question in my view of stifling here.”

22.  Mr Wood submitted that there is no jurisdiction to order security against the creditors or the liquidators.  I agree.  The court can only make an order of security of costs against the plaintiff.  If the plaintiff fails to provide the security ordered, the consequence is that it will not be permitted to proceed with the action.  It is for the creditors (whose interests are sought to be protected by this action) and the liquidators (who has hitherto been funding the litigation and who is also financially interested in the successful outcome of the litigation) to reconsider their hitherto “unwillingness”. On the evidence before me, I am not satisfied that the plaintiff has discharged the onus of showing that an order of security will likely stifle the claim.

Impecuniosity caused by defendants?

23.  The liquidator argues that there is a “strong prima facie case” that the 3 Transfers caused or materially contributed to the plaintiff’s insolvency and subsequent winding up.  I do not agree.  The eventual liquidation took place some 4 years after the 3 Transfers.  For the financial year ended 31 March 2011, the plaintiff made very substantial profit.  Although profit making in the subsequent financial year was greatly reduced, there was still HK$14 million of profit.  Mr Wood submitted that I should be careful with these figures.  He said firstly that the profit figure was derived merely from the financial statement of 2012[15].  Secondly, Mr Wood submitted that the 2012 opinion of the auditor was “qualified”.  I have considered the 3 specific qualifications and do not consider them sufficiently serious to raise substantial doubt on the profit figures set out by the auditor in respect of the financial years of 2011 and 2012.  Mr Wood also submitted that the time lapse between the 3 Transfers and the actual date of liquidation order is not necessarily elucidative.  However, in my view, a time lapse of 4 years must however be a relevant consideration (cf the 6 years gap observed by DHCJ Poon (as he then was) in Vigers Hong Kong Ltd(supra) at §20).  In the circumstances, I do not see a “strong prima facie case” argued by the liquidators at all.

24.  In any event, one must be warned of the circular nature of this argument as observed by Rogers VP in Sunchase International Group (supra) at §6.  Such an argument is premised on the court’s finding that the plaintiff indeed has a strong case.  I have already held that I cannot draw such a conclusion in this case.

Delay

25.  The plaintiff and liquidators argue that the defendants’ delay in bringing this application has caused the plaintiff substantial prejudice in that the plaintiff has already incurred significant costs in the conduct of these proceedings.

26.  I agree with Mr Lam that the starting point is that under the rules, a defendant can make application for security for costs at any stage of the proceedings.  I have also been referred to the dictum of Staughton LJ in Croft Leisure v Gravestock & Owen [1993] BCLC 1273 at 1279 which was quoted with approval by DHCJ Lam (as he then was) in China Smart Properties Ltd (supra) at §13:

“ …it is often a difficult decision when to make a substantive application [for security for cost] before trial. If one makes it too early one is reproached because one cannot forecast accurately how long the trial will take and how much it will cost. If one makes it too late, one is said to have led the plaintiff up to the garden path.”

27.  DHCJ Lam then observed, in the case before him, that the application was made before the case was set down for trial.  His lordship also noted that in a way, before the exchange of witness statements, one may not be able to give an accurate or fair estimate as to the length of the trial. In the end, his lordship concluded that though the application could have been made earlier, it was not made so late or so close to the trial as to be oppressive (see §§11 – 14).

28.  In the present case, the defendants first indicated their intention to apply for security for costs by correspondence on 26 November 2015[16].  They reiterated their intention on 1 February 2016 in their Timetabling Questionnaire[17].  The plaintiff and the liquidators thus knew about such intention. In its first reply to the defendants’ correspondence request[18], the plaintiff’s solicitors asserted, inter alia, that the plaintiff has a strong prospect of success.  In the circumstances, I agree with Mr Lam that it is not unreasonable for the defendants to put their intended action on hold and wait for the exchange of witness statements before making an informed decision.  Witness statements were exchanged on 26 September 2016.  The summons was taken out on 3 November 2016.  Even up to now, the case has not been set down for trial.  After the issuance of the summons, preparation for trial continued and the liquidators continued to fund for the preparation of expert evidence.  Leave was granted on 8 February 2017 for adducing expert evidence.  Expert reports were prepared and exchanged around 24 April 2017.

29.  In the circumstances, I do not find that the defendants had acted in any way oppressively.  I am of the view that the application has not been made so late in the date or so close to the trial.  It cannot be said to be a case that had the application for security been brought earlier, the plaintiff would have abandoned its claim bearing in mind that the plaintiff and the liquidators are still asserting at this hearing that the claim has strong merits (see the observations of Chu J (as she then was) in Big Islands Construction (HK) Ltd (supra) at §44).

Public Interest

30.  Mr Wood submitted that there is a prima facie case that the defendants have acted in breach of their fiduciary duties, hence there is a strong public interest in allowing the liquidators to advance the plaintiff’s claim.  He referred me to the dictum of Lord Walker in Re Pantmaenog Timber Co Ltd [2004] 1 AC 158 at §77 confirming that one of the purposes of winding up is the investigation and imposition of criminal or civil sanctions in respect misconduct on the part of directors of an insolvent company in compulsory liquidation.

31.  I am not aware of authorities suggesting that “public interest” is an independent established ground for resisting an application for security for costs.  Mr Wood has produced no such authority, and in all fairness I do not understand him as advocating for such a principle.  Mr Wood accepted that there is no different set of principles governing the situation of a plaintiff company in liquidation.  I understand him as inviting me to consider this point as an important factor in the exercise of my discretion.

32.  First of all, even accepting that there is a wider public interest dimension in the role of a liquidator in compulsory winding up, the strength of such “public interest factor” must vary according to circumstances.  For instance, if an action pursued by a liquidator is based on breach of fiduciary duties of directors and he is able to demonstrate a strong prospect of success, then the wider public interest of allowing the liquidators to expose inequities may be a weighty factor in the balancing exercise.  However, in the present case, I have already concluded that the liquidators cannot satisfy me that the plaintiff has a strong case.  Accordingly, the weight I can place on this factor is substantially reduced.

33.  Secondly, I agree with the submission of Mr Lam SC that the mere fact that the liquidator has a public role to discharge could not, by itself, lead to a conclusion that he can have a free ride to pursue a litigation.  This is particularly so when apparently the creditors in this case, who are the main beneficiaries of the litigation exercise, have not vouched their support for the litigation but the liquidators nonetheless went ahead with it.

34.  Thirdly, I have to bear in mind (as I have pointed out in paragraphs 16 – 18 above) that the liquidators in this case have ventured beyond their pure public role and have assumed a considerable personal financial interest in the outcome of the litigation.  Furthermore, apart from funding the litigation and parking their own fees, the liquidators also secured an arrangement whereby another party, the plaintiff’s solicitors, also became financially interested in the outcome of the litigation. 

35.  In the end, I also have to balance this so-called “public interest factor” against the disadvantageous situation faced by the defendants in the way Judge Wilcox did in Frank v Chlorelle Construction Ltd (in liquidation).  In the overall exercise of my discretion, I do not find that this factor could upset all other factors which I have so far found in favour of the defendants.

Conclusion

36.  In conclusion, I do not find that the plaintiff has established any valid opposition to the defendants’ application.  I accordingly allow the appeal and proceed to consider the quantum of security for costs that I should order.

37.  Base on the skeleton bill provided by the defendants[19], the solicitors costs incurred up to October 2016 is HK$1,292,257.00 and the estimated costs up to conclusion of trial is HK$1,256,863.00.  The total disbursement, largely consisting of counsel fees and expert fee, is HK$2,464,500.00.  The total sum is thus HK$5,013,620.00.  Mr Lam SC acknowledged that this court can take a broad-brush approach and needs not order full security.  He fairly asked the court to assess and order what this court considers as reasonable security for costs.  In the end, I consider that HK$2 million is a reasonable sum to be ordered as security for costs.

38.  I make the following orders:

(1) the plaintiff do within 28 days from the date of this Order give security for the 1^st – 4^th defendants’ costs in this action in the sum of HK$2,000,000.00 by paying the said sum into court (with such sum to be placed in an interest bearing account and the interest accruing thereon be accrued to the credit as a security for the 1^st – 4^th defendants’ costs in this action);

(2) until the above security is given, all further proceedings in this action be stayed;

(3) there shall be liberty to apply; and

(4) there shall be an order nisi (which shall become absolute if no application for variation is made within 14 days from the date of this Order) that the plaintiff do pay to the 1^st to 4^th defendants costs of their summons dated 3 November 2016, to be taxed if not agreed on party-and-party basis which is taxable and payable forthwith.