ELEGANT JUMP LTD. v. TRIBUNE BRIDGE LTD. AND ANOTHER

HCA14037/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.14037 OF 1999

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D E C I S I O N

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1. This is an application by Angus Ronald Yan Tak Cheng ("Mr Ronald Cheng"), who is the 1st defendant by counterclaim, for an order that the plaintiffs by counterclaim do give security for the costs of his defence. The plaintiffs by counterclaim are Tribune Bridge Limited ("Tribune Bridge") and Terry John Miller ("Mr Miller"). They are also the 1st and 2nd defendants in this action. The plaintiff in the main action, which is also the 2nd defendant by counterclaim, is Elegant Jump Limited ("Elegant Jump"). Mr Ronald Cheng is not a party in the main action.

2. It is not in dispute that Mr Ronald Cheng is the beneficial owner of all the issued shares in Elegant Jump and Mr Miller is the beneficial owner of all the issued shares of Tribune Bridge. Both companies are incorporated in the British Virgin Islands. Further, it is not in dispute that Mr Miller is ordinarily resident out of the jurisdiction and it was accepted by Mr Charles Sussex, SC, who appeared on behalf of Tribune Bridge and Mr Miller, that the court does have jurisdiction to order security for the costs of defending the counterclaim under the Rules of the High Court, Order 23, rules 1(1) and (3). The question is whether the court should exercise its discretion to do so in the circumstances of this case.

Background and pleadings

3. It is necessary to look into the pleadings in this action because of the argument advanced by Mr Sussex that the counterclaim is in substance put forward as a defence to the claim which in reality is brought by Mr Ronald Cheng in his capacity as the alter ego of Elegant Jump and that the court should, in these circumstances, decline to exercise its discretion to order security.

4. The main action was brought by Elegant Jump against Tribune Bridge and Mr Miller for these reliefs : specific performance of two share sale agreements and in the alternative damages in lieu thereof; injunctions to restrain the defendants from disposing of the shares, being the subject matter of the two share sale agreements; and damages for breach of contract. Mr Ronald Cheng has no locus to bring the action because he was not a party to one or other of the agreements. Both agreements were made on 15 June 1999. One was between Tribune Bridge as the vendor and Elegant Jump as the purchaser whereby 208,577 shares of Tribune Bridge in New Media Corporation ("the New Media Shares") were to be sold to Elegant Jump at the price of US$5,214,425.00 ("the 1st Share Sale Agreement"). The other agreement was between Mr Miller as the vendor and Elegant Jump as the purchaser whereby the two shares of Mr Miller in Tribune Bridge, being the entire issued share capital of Tribune Bridge ("the Tribune Bridge Shares"), were to be sold to Elegant Jump at the price of US$2,085,770.00 ("the 2nd Share Sale Agreement"). The date of completion under both agreements was on or before 25 July 1999.

5. On or about 22 July 1999, Essential Enterprises Company Limited ("Essential"), a listed company in Hong Kong, gave public notice of making a conditional general offer, through its subsidiary Hanshaw Investments Limited ("Hanshaw"), for the purchase of all existing issued shares of New Media. Hanshaw would offer for each share of New Media :

(1) US$12.50 in cash;

(2) HK$75.00 principal amount of convertible bonds to be issued by Essential; and

(3) 75 new ordinary shares in the capital of Essential, credited as fully paid at par and at an issued price of HK$1.00 each.

6. Completion did not take place on 25 July 1999 under either agreement. On 28 July 1999, the defendants' solicitors gave notice to the solicitors of Elegant Jump to rescind the two agreements on the ground of breach of fiduciary duty of a director of New Media and the failure of Elegant Jump to disclose to the defendants, prior to the execution of the two agreements on 15 June 1999, the interests of Essential in acquiring all the issued shares of New Media at a consideration far in excess of the consideration under the two share sale agreements.

7. On 6 August 1999, Tribune Bridge entered into an undertaking to accept Hanshaw's offer for the New Media Shares. On the same day, Elegant Jump issued a Stop Notice under Order 50, rule 11 of the Rules of the High Court, asserting that it was beneficially entitled to an interest in the New Media Shares.

8. On 31 August 1999, Elegant Jump issued the writ in the main action. On 8 September 1999, Elegant Jump issued a summons for an interim injunction restraining Tribune Bridge from disposing of or dealing with the New Media Shares and the Tribune Bridge Shares other than by transferring them to Elegant Jump. On 14 September 1999, Elegant Jump applied to amend its earlier summons to seek a further order to restrain Tribune Bridge from removing from the jurisdiction, disposing of or dealing with the proceeds of sale of the New Media Shares which Tribune Bridge had undertaken or agreed to sell to Hanshaw and to compel Tribune Bridge to deposit such proceeds of sale in court as soon as Tribune Bridge should receive them.

9. The two summonses were dealt with by consent when the matter came before Deputy High Court Judge To on 21 September 1999 upon, inter alia, the following undertakings given by the parties and their solicitors as embodied in the order ("the Consent Order") :

(1) Tribune Bridge gave an undertaking to issue forthwith an irrevocable instruction to Messrs Holman Fenwick & Willan, directing that all consideration payable to Tribune Bridge by Hanshaw under Tribune Bridge's undertaking dated 6 August 1999 to accept Hanshaw's offer be delivered to the defendants' solicitors Messrs Sinclair Roche & Temperley with a cheque for US$2,607,212.50 being made out to that firm as agent for Tribune Bridge;

(2) an undertaking was given by the defendants and their solicitors jointly to hold and maintain in an interest bearing one-month time deposit account until trial or agreement of the parties or further order US$521,442.50 being part of the proceeds of sale of the New Media Shares;

(3) an undertaking was given by the defendants' solicitors to hold in their custody until trial or agreement of the parties or further order the certificates representing :

(a) the convertible bonds in the total sum of HK$15,643,275 ("the Convertible Bonds") to be issued by Essential;

(b) the 15,643,275 new ordinary shares ("the Ordinary Shares") in the capital of Essential to be issued by Essential pursuant to the sale of the New Media Shares; and

(c) the certificates representing the Tribune Bridge Shares;

(4) an undertaking was given by Mr Miller until judgment or further order not to dispose of the Tribune Bridge Shares; and

(5) an undertaking was given by Elegant Jump and the defendants that the solicitors for Elegant Jump and the solicitors for the defendants should write to Messrs Holman Fenwick & Willan, directing that the US$100,000.00 held by them as a deposit under the 2nd Share Sale Agreement be paid into court to stand as full security for the defendants' costs of the action and the defendants should waive all entitlement to apply to court for any further security for costs.

10. Tribune Bridge's sale of the New Media Shares to Hanshaw was subsequently completed. Of the consideration received from Hanshaw, the certificates representing the Convertible Bonds and the Ordinary Shares and cash of US$521,442.50 have been held by the defendants' solicitors pursuant to the undertakings in the Consent Order.

11. Shortly before the Consent Order was made, the defendants served their defence and counterclaim dated 20 September 1999. In the defence, it was pleaded that Elegant Jump is estopped from asserting that the two agreements were concluded contracts and from seeking specifically to enforce the same because of breach of fiduciary duty of Mr Ronald Cheng to the shareholders of New Media in that he had failed to disclose the likely offer of Essential prior to the conclusion of the agreements. Further, it was alleged that there was misrepresentation of Elegant Jump in that Mr Cheng had represented to Mr Miller that he had no association with a third party acting on behalf of Elegant Jump in making an offer to Mr Miller for the New Media Shares. As a further and alternative defence, it was pleaded that Mr Cheng, Elegant Jump and another had entered into a conspiracy to defraud Tribune Bridge and Mr Miller. The particulars of the conspiracy were pleaded in the counterclaim and there was pleaded in the defence a set-off of the counterclaim in answer to or in diminution of the claims of Elegant Jump. The counterclaim repeated the defence and it was pleaded that Tribune Bridge had suffered loss and damage as a result of Mr Cheng's breach of fiduciary duty and that Tribune Bridge and Mr Miller had suffered loss and damage from the fraudulent misrepresentations of Mr Cheng and Elegant Jump. The acts in furtherance of the conspiracy to defraud were pleaded. They are the acts of Mr Cheng and Mr Cheng's nominee in Elegant Jump. It was pleaded that as a result of this conspiracy, Tribune Bridge and Mr Miller had suffered loss and damage. The defendants counterclaimed against Mr Cheng and Elegant Jump for a declaration that the two agreements are null and void and for damages.

12. On 26 June 2000, it was ordered that the action was to be set down for trial within 42 days in the Fixture List with an estimated length of hearing of 10 days. On 3 August 2000, Elegant Jump applied to fix dates for trial. Prior to the order for setting down and on 27 June 2000, Mr Ronald Cheng made his application for security for costs of his defence of the counterclaim.

13. I should mention two interlocutory applications. The first was an application of Elegant Jump by summons issued on 27 September 2000 for leave to amend its statement of claim to plead that by the Consent Order, the parties had by implication agreed that Elegant Jump's interests in the New Media Shares would be converted into the Convertible Bonds, the Ordinary Shares and the sum of US$521,442.50 with interests held by the defendants' solicitors and/or that Elegant Jump was entitled, by virtue of its equitable interests in the New Media Shares, to trace its interests into the Convertible Bonds, the Ordinary Shares and the monies aforesaid. In the prayer for relief, it was proposed to drop the claim for specific performance of the 1st Share Sale Agreement and instead, a declaration was sought that Elegant Jump is beneficially entitled to the Convertible Bonds, the Ordinary Shares, the Tribune Bridge Shares and the monies aforesaid. This application was heard by Deputy High Court Judge Longley on 11 October 2000. I understand the defendants have opposed Elegant Jump's application to amend on the basis that Elegant Jump has, since the commencement of the action, made a binding election to treat the 1st Share Sale Agreement as discharged and has thereby limited itself to a claim for loss of bargain damages and by reason whereof, Elegant Jump would have no beneficial interest or proprietary claim to the Convertible Bonds, the Ordinary Shares, and the cash consideration paid by Hanshaw for the New Media Shares. As decision on that application was not delivered when I heard the present application on 27 October 2000, I must take the pleadings as they stand.

14. The other interlocutory application was an application of Elegant Jump and Mr Ronald Cheng for security for costs of the defendants' appeal in CACV200/2000 against my order made on 26 May 2000 dismissing the defendants' application for fortification of the cross-undertaking as to damages given by Elegant Jump and Mr Cheng in the Consent Order. This application was heard by Woo JA on 13 October 2000 and judgment was handed down on 18 October 2000. Woo JA ordered that the defendants do provide security in the sum of HK$350,000.00 for the costs of their appeal. As both Mr Benjamin Yu, SC, who appeared on behalf of Mr Cheng, and Mr Sussex had relied on various parts of Woo JA's judgment to support their respective arguments, it may be convenient to summarise what the judge has held and they are as follows :

(1) The defendants had opposed the application on the ground that the defendants had assets in Hong Kong vastly in excess of the alleged costs exposure of Elegant Jump and Mr Cheng, pointing to the assets under restraint pursuant to the undertakings given in the Consent Order. Woo JA rejected that argument and held that the subject matter of the defendants' undertakings is only worth the total amount to which Elegant Jump would be entitled if it succeeds in its claim. Hence, there is no surplus left from the subject matter of the undertakings other than what is sufficient to cover the claim of Elegant Jump (at page 9J-L).

(2) The subject matter of the defendants' undertakings in the Consent Order should not be taken into account in considering whether to order security for costs, as although the subject matter is at present the assets of the defendants, treating it as assets available for covering the costs of the pending interlocutory appeal would be prejudging the action in favour of the defendants, applying Wah Nam Holdings Co. Ltd & Ors v. Excel Noble Development Ltd & Ors, CACV241/99, 23 December 1999 (at page 10E-M).

(3) The interlocutory injunction sought by Elegant Jump in September 1999 was to preserve the status quo before the final determination of the action. The undertakings under the Consent Order could not have been in contemplation of the parties and the defendants in particular that the subject matter of the undertakings would also be used to cover the costs of Elegant Jump or Mr Cheng in the action, let alone in the interlocutory proceedings not yet then taken (at pages 10R-11D).

The substance of the counterclaim

15. I turn to consider whether the counterclaim of the defendants is in substance put forward as a defence to the claim in the main action. It would be convenient to start with the words of Lord Esher, MR in Neck v. Taylor [1893] 1 QB 560 at 562 :

"The rule laid down by the cases seems to be as follows. Where the counter-claim is put forward in respect of a matter wholly distinct from the claim, and the person putting it forward is a foreigner resident out of the jurisdiction, the case may be treated as if that person were a plaintiff, and only a plaintiff, and an order for security for costs may be made accordingly, in the absence of anything to the contrary. Where, however, the counter-claim is not in respect of a wholly distinct matter, but arises in respect of the same matter or transaction upon which the claim is founded, the Court will not, merely because the party counter-claiming is resident out of the jurisdiction, order security for costs; it will in that case consider whether the counter-claim is not in substance put forward as a defence to the claim, whatever form in point of strict law and of pleading it may take, and, if so, what under all the circumstances will be just and fair as between the parties; and will act accordingly. Therefore, the Court in that case will have a discretion." (emphasis supplied)

16. As Lawton LJ has commented in The Silver Fir [1980] 1 Lloyd's Rep 371 at 374, what Lord Esher, MR was saying was that :

"... there is a discretion to award security for costs even in cases which arise out of the same subject matter. But if the counterclaim is a defence and nothing more then normally the discretion should not be exercised in favour of ordering security."

17. Examples where the court has ordered security for costs in respect of a counterclaim notwithstanding that the same issues arise on both the claim and the counterclaim are The Silver Fir and Petromin S.A. v. Secnav Marine Ltd [1995] 1 Lloyd's Rep 603. In these two cases, the court found it just and equitable that there should be orders for both parties to put up security for costs, the plaintiff in respect of the claim and the defendant in respect of the counterclaim; the reason being that there are "mirror image" issues in the claim and the counterclaim, that both parties have made claims against the other on the same facts and either could properly have been the plaintiff, and that it is mere chance that one had started the action before the other and both should be treated alike insofar as security for costs is concerned.

18. Insofar as Elegant Jump is concerned, there may be an argument that the position of Elegant Jump vis-à-vis the defendants is not unlike that of the parties in The Silver Fir and Petromin, having regard to the matters leading to the issue of the writ as I have set out above, and that both Elegant Jump and the defendants are making substantive claims against the other and either side could properly have been the plaintiff. I am not, however, concerned with Elegant Jump's position as this is an application for security for costs by Mr Cheng alone. The case of Mr Cheng cannot be regarded as akin to the position in The Silver Fir for the simple reason that Mr Cheng is not the plaintiff in the main action and he is in no position to bring any claim against the defendants in respect of the two agreements.

19. It is not seriously in dispute that the claim and the counterclaim in this action arise out of the same matter or transaction. The matters put forward as a defence to the claim are relied on to found a counterclaim, or as Mr Yu has put it, the defence here is mounted on the back of the counterclaim. To paraphrase the words of Ormrod J in Visco v. Minter [1969] P 82 at 85D, the defendants have merely counter-attacked on the same front on which they are being attacked by Elegant Jump, hence it should be regarded as a defensive manoeuvre as against Elegant Jump. The defendants have not opened a counter-attack on a different front. My assessment of the situation is that the claims in the counterclaim against Elegant Jump are not distinct and separate from the claims used merely as a shield against the claims of Elegant Jump in the main action.

20. The question remains as to how one should look at the counterclaim against Mr Cheng. Mr Yu has submitted that the rationale behind the principle that a counterclaiming defendant should not be ordered to give security for costs when the counterclaim is no more than a defence does not apply when the defendant is counterclaiming against an additional party. In support of this proposition, he has referred me to the unreported decision of the English Court of Appeal in Ashworth v. Berkeley-Walbrook Ltd, 27 September 1989 and the decision of Sakhrani J in Smarking International Ltd v. Lau Chi Keung George [1999] 4 HKC 669 which was upheld by the Court of Appeal in CACV306/1999, 8 March 2000.

21. In Ashworth, an action was commenced by 120 or so plaintiffs who claimed against the defendant company, which was an insurance broker, for commissions earned on business through the medium of the plaintiffs. The defendant did not dispute that commission was due but set up a counterclaim in set-off based on breach of contract, breach of confidence, conspiracy to defraud, inducement to breach of contract and defamation. There were additional defendants to the counterclaim being a company set up by the plaintiffs after the plaintiffs had terminated their agreements with the defendant and two individuals who became the directors of that company. The application for security for costs was made by both the plaintiffs and the additional defendants to the counterclaim. The English Court of Appeal held that there should be no order for security of the plaintiffs' costs because the issues raised in the counterclaim and set-off were so inextricably bound up with the claim that in reality, if not in form, the counterclaim amounted to a defence. However, as regards the additional defendants to the counterclaim, it was held that "entirely different considerations prevail and that by no stretch of the imagination can the defendants' cross-claim be regarded as in any sense a defence so far as those defendants are concerned" (per Russell LJ). Stuart-Smith LJ, the other member of the Court of Appeal, stated that "there is no question of any set-off or defence being raised to any claim so far as [the additional defendants to the counterclaim] are concerned." Thus, the additional defendants were entitled to an order for security for costs of their defence to the counterclaim.

22. In Smarking International Ltd, no defence of set-off was raised. Whilst Sakhrani J held that the counterclaim was not so inextricably bound up with the claim and that the scope of the counterclaim went far beyond the issues raised in the statement of claim, he regarded it as a relevant factor for awarding security for costs in favour of the defendants by counterclaim that there were two additional defendants by counterclaim who were not parties to the original action. In the Court of Appeal, Godfrey VP had this to say so far as the additional defendants by counterclaim were concerned :

"... the 'counterclaim' is quite plainly a 'cross-action' going 'far beyond' the issues in the original action and the judge was entitled on the material before him to decide to exercise his discretion in favour of those two defendants by counterclaim in the way he did."

23. I bear in mind that I am called upon to exercise a discretion if security for costs should be ordered. In exercising such a discretion, the courts have developed guidelines and identified circumstances relevant to the exercise of the discretion. The statements made in the cases on the application of the guidelines are not principles of law. As stated by Beldam LJ in L/M International Construction Inc. & Anr v. The Circle Ltd Partnership (1992) 37 Con LR 72, "judges exercising their discretion on the circumstances of a particular case have of necessity stressed one or other feature of the circumstances of the cases before them" and that circumstances identified as relevant in a particular case "depended upon a question of degree".

24. With that in mind, I turn to consider whether, on the particular facts of this case, the fact that Mr Ronald Cheng is not a party to the original claim should be an important factor to cause the court to exercise the discretion in favour of ordering security. Mr Sussex has submitted that this should not be a factor in favour of Mr Cheng. He said that the question one should ask is whether the counterclaim against Mr Cheng is any different from the counterclaim against Elegant Jump and the answer is clearly no. He has argued that Mr Cheng is, in reality, dominus litis in that he is a director and the beneficial owner of all the issued shares in Elegant Jump. He submitted that the counterclaim is in substance no more than a defence to a claim which is brought in reality by Mr Cheng in his capacity as the alter ego of Elegant Jump. Mr Sussex has pointed out that in Ashworth, it would appear from the report that no argument was raised that the plaintiffs and the company established by the plaintiffs after they had terminated their agreements should be regarded as one and the same.

25. I am unable to accept these submissions. I do not think there is sufficient justification for lifting the corporate veil. There is no question of Mr Cheng enforcing the two share sale agreements in his own right, nor could it be suggested that Elegant Jump is only a plaintiff in name but not in substance. I do not think it is right to ask the question whether the counterclaim against Mr Cheng is any different from the counterclaim against Elegant Jump. The fact remains that there is no question of set-off being raised as far as Mr Cheng is concerned and the "counterclaim" against him is quite plainly a "cross-action" going beyond the issues in the original action. In the counterclaim against Mr Cheng, the defendants not only seek a declaration that the share sale agreements are null and void to ensure that he is also bound by any declaration the court may make against Elegant Jump, but also makes a substantive claim against Mr Cheng and Elegant Jump for damages at large. Further, when it suited the defendants, they did not treat Elegant Jump as the alter ego of Mr Cheng. I refer to the instance when the defendants sought and obtained security from Elegant Jump for their costs of the action in the amount of US$100,000.00 as provided in the Consent Order.

26. For the above reasons, I am inclined to the view that I ought to exercise my discretion to award security for the costs of Mr Cheng's defence of the counterclaim, unless there are other factors which point the other way.

Whether Mr Cheng is already substantially secured

27. Mr Sussex has advanced an argument that I should decline to exercise my discretion in favour of Mr Cheng because he is already sufficiently secured in that Tribune Bridge does have substantial assets, either within Hong Kong, or within the reach of Mr Cheng, from which to satisfy any award of costs that may be made in his favour. I have earlier set out the rulings made by Woo JA in CACV200/2000 regarding the security for costs of the defendants' appeal, in which he rejected the submission by the defendants' counsel (not Mr Sussex) that the assets under restraint by virtue of the defendants' undertakings in the Consent Order should be taken into account in considering whether security for costs should be ordered. Mr Yu has argued before me that the defendants should not be allowed to argue this point as this would be an abuse of process in that exactly the same issue had been decided by Woo JA. Having heard Mr Sussex's argument on this point, I am satisfied that the argument he raised is different from the argument presented to Woo JA. In short, what Mr Sussex was contending is that as Elegant Jump is seeking specific performance of the two share sale agreements, it would be required to pay the purchase price of US$5,214,425.00 under the 1st Share Sale Agreement and US$2,085,770.00 under the 2nd Share Sale Agreement. The purchase price of US$5.2 million odd to be paid by Elegant Jump under the 1st Share Sale Agreement alone should be more than enough to secure any order of costs made in favour of Mr Cheng. This is not the argument advanced by the defendants' counsel before Woo JA. It is an argument that could have been advanced by the defendants in resisting an earlier application for security for costs and may be said to come within the doctrine of res judicata in the wider sense as propounded by the Privy Council in Yat Tung Investment Co. Ltd v. Dao Heng Bank [1975] AC 581. I do not, however, think the doctrine should be strictly applied in the circumstances of this case, bearing in mind that it is open to one or more of the parties in the action to make a fresh application for security for costs of a different part of the proceedings and it should not be incumbent on an opposing party to bring forward all his arguments in opposition in the first application. I rule that Mr Sussex should be allowed to argue the point.

28. There is an odd feature about the purchase price to be paid under each of the share sale agreements. If Tribune Bridge and Mr Miller were to receive the purchase price under each agreement, the total amount they would receive would be US$7.3 million odd. Contrasted with the consideration received by Tribune Bridge from Hanshaw for the New Media Shares, as stated by Woo JA at page 6 of his judgment, that was only US$6.6 million odd. It is clearly not the case that Tribune Bridge and Mr Miller should receive US$7.3 million odd from Elegant Jump. If that were so, there should have been no obstacle to the completion of the sale under the two agreements and there would have been no complaint on the part of Tribune Bridge and Mr Miller that Elegant Jump and Mr Cheng had attempted to defraud Tribune Bridge by concealing Essential's proposals to purchase all the issued shares of New Media. It is the defendants' case as pleaded that the net consideration of the shares under the two share sale agreements was US$10.00 per share for each of the New Media Shares, making a total of US$2,085,770.00, as the sale of the New Media Shares was to be effected through Mr Miller's sale of his two shares in Tribune Bridge. It was alleged by the defendants that the consideration for the New Media Shares as stated in the 1st Share Sale Agreement of US$5.2 million odd was intended to avoid the pre-emption provisions in New Media's Articles of Association and had no other purpose. In the reply and defence to counterclaim, it was admitted that the net cash consideration for the purchase of the New Media Shares and the Tribune Bridge Shares was to be US$2,085,770.00. The alleged purpose of providing for a consideration of US$5.2 million odd in the 1st Share Sale Agreement was denied.

29. I was also taken to a letter of the defendants' solicitors to the solicitors of Elegant Jump and Mr Cheng dated 28 July 1999 in which it was stated that completion of the 2nd Share Sale Agreement was conditional on completion of the 1st Share Sale Agreement and that if the two contracts were completed, Mr Miller would receive US$2,085,770.00, which was equivalent to US$10.00 in respect of each of the New Media Shares held by Tribune Bridge. It would also appear to be the understanding of all parties that the sum of US$521,442.50 to be held by the defendants' solicitors pursuant to their undertakings in the Consent Order represented the difference between US$2,607,212.50 paid by Hanshaw to Tribune Bridge and the sum of US$2,085,770.00, which is the undisputed net consideration payable by Elegant Jump under the two share sale agreements.

30. Mr Sussex has submitted that I should not look at the net cash consideration payable by Elegant Jump, as to do so would be to adopt a blinkered approach. As existing pleadings stand, Elegant Jump is suing for specific performance of two share sale agreements. He reminded me of the basic principles that (1) a plaintiff seeking specific performance must show he is ready and willing on his part to carry out those obligations which are in fact part of the consideration for the undertaking of the defendant that the plaintiff seeks to have enforced (Australian Hardwoods Pty Ltd v. Commissioner for Railways [1961] 1 WLR 425 at 432-433), so that Elegant Jump is obliged to pay the purchase price of US$5.2 million odd to Tribune Bridge in the event that specific performance of the 1st Share Sale Agreement should be ordered; and (2) a shareholder does not have any property, whether legal or equitable, in the assets of a company (Macaura v. Northern Assurance Co. Ltd [1925] AC 619 at 633) so that Elegant Jump could not have acquired any legal or equitable interest in the assets of Tribune Bridge and the only way in which Elegant Jump can actually acquire the proceeds of Tribune Bridge's shares in New Media is by enforcing the 1st Share Sale Agreement.

31. Mr Sussex has also taken me to an affirmation filed by Mr Cheng in support of Elegant Jump's application for an interlocutory injunction in September 1999 in which Mr Cheng exhibited two cheques to support the assertion that Elegant Jump is ready, willing and able to fulfill all its obligations under the 1st and 2nd Share Sale Agreements. One was a bank draft dated 21 July 1999, made out in favour of Holman, Fenwick & Willan, being the solicitors of Mr Miller, for US$1,985,770.00 (i.e. US$2,085,770.00 less US$100,000.00 for the deposit paid). The other was a cheque dated 21 July 1999 in favour of Tribune Bridge for US$5,214,425.00, being the purchase price under the 1st Share Sale Agreement.

32. Even if I were to disregard, for the purpose of this application, the fact accepted by all parties that the net cash consideration under the two agreements was only US$2 million odd and proceed on the basis that Elegant Jump is obliged to come up with US$5.2 million odd to complete the 1st Share Sale Agreement, I do not think it would help to advance the argument of Mr Sussex that no security for costs should be ordered. I have read the two share sale agreements exhibited to the affirmation of Mr Cheng in support of his application for an interlocutory injunction. I note that under the 2nd share sale agreement, Mr Miller had given various undertakings to Elegant Jump pending completion in Clause 6 which reads as follows :

"The Vendor [Mr Miller] hereby undertakes to the Purchaser [Elegant Jump] to procure that, pending Completion, save as provided in or pursuant to this Agreement, neither the Vendor nor any shareholders (whether registered or beneficial) or directors of [Tribune Bridge] will do any act or thing save such as may be necessary in order for it to carry on its business in the ordinary course after consultation with the Purchaser and, where such act or thing is material, only with the Purchaser's prior consent and in particular will not, save as contemplated in this Agreement:-

...

(d) save as aforesaid, acquire or dispose of any interests or assets (including but not limited to any moneys arising from or under the [1st Share Sale Agreement]) or enter into any contract; or

(e) create or permit to arise any lien, charge, encumbrance, pledge or other third party right or interest or in respect of any of its undertaking, property or assets (including but not limited to any moneys arising from or under the [1st Share Sale Agreement])." (emphasis supplied)

33. Thus, by the terms of the 2nd Share Sale Agreement, it is simply not open to the defendants to use any part of the purchase price payable under the 1st Share Sale Agreement to meet the defendants' liability for costs to Mr Cheng.

34. As for the purchase price to be paid by Elegant Jump to Mr Miller under the 2nd Share Sale Agreement, Mr Sussex has made a similar submission to the effect that Elegant Jump would need to come up with the purchase price of US$2 million odd if it should be successful in its claim for specific performance of that agreement and that the purchase price is more than enough to cover any costs that may be ordered in favour of Mr Cheng. In my view, the amount of US$2,085,770.00 which was released to the defendants out of the cash consideration received by Tribune Bridge from Hanshaw was due to a recognition of all parties that this was a sum payable to the defendants in any event. If Elegant Jump should succeed in its claim for specific performance of the 2nd Share Sale Agreement, Elegant Jump would have to pay that amount to Mr Miller; if the defendants should succeed in resisting the claim of Elegant Jump, they would be entitled to keep the proceeds of sale received from Hanshaw. That is also the view of Woo JA when he stated on page 7 of his judgment that in respect of the claim of Elegant Jump for specific performance of the 2nd Share Sale Agreement or damages in lieu :

"There is little risk of an empty judgment in this regard either. The purchase price under the 2nd agreement for these shares is US$2,085,770, but this sum had been deducted from the cash proceeds being held in restraint. The rationale seems to be that if Elegant succeeds in its claim on the 2nd agreement, Elegant would not have to pay this US$2,085,770 since the amount had been deducted from the cash restrained."

35. Mr Sussex has argued that I should reject the suggestion that Elegant Jump has already given credit for the purchase price of US$2 million odd by virtue of the Consent Order. He has argued that there is no evidence that this amount was paid to Mr Miller. Further, the money was not paid by Elegant Jump but came out of the proceeds of sale of the New Media Shares paid by Hanshaw to Tribune Bridge. It may be that this is an argument open to the defendants at the trial. Elegant Jump has contended to the contrary. For the purpose of this application, I do not think I should hold that Elegant Jump has not already given credit for the sum of US$2 million odd in the purchase price under the 2nd Share Sale Agreement as a result of the Consent Order, as I am not persuaded at this stage that Mr Sussex is obviously right about this, and in view of the observations of Woo JA which I have quoted. If I were to hold otherwise, this would be prejudging the issue in favour of the defendants, which is something that I should not do.

36. Mr Sussex has also advanced an argument that Tribune Bridge does have substantial assets within the jurisdiction in the event that Elegant Jump is not entitled to specific performance of the two agreements but is confined to a claim for damages for loss of bargain because Elegant Jump has made a binding election to treat the agreements as at an end. In that situation, the property under restraint by reason of the undertakings in the Consent Order would be regarded as the property of Tribune Bridge. I have stated earlier that it is part of the rulings of Woo JA that the subject-matter of the defendants' undertakings in the Consent Order is only worth the total amount to which Elegant Jump would be entitled if it should succeed in its claim and that there is no surplus left over. Notwithstanding this, Mr Sussex has argued that the assets under restraint by virtue of the undertakings should be regarded as assets under restraint of a Mareva injunction and he cited Hitachi Shipbuilding & Engineering Co. Ltd v. Wiafiel Cia Nav. S.A [1981] 2 Lloyd's Rep 498 for the proposition that where a plaintiff obtains a Mareva injunction against a defendant resident abroad for a sum exceeding the costs of the counterclaim by the defendant, the defendant is in the same position as a plaintiff resident abroad who has substantial assets within the jurisdiction, and the court would refuse an order for security for costs against the defendant in respect of such counterclaim. I was given to understand by Mr Yu that the defendants had sought to argue before Woo JA that the undertakings given by the defendants in lieu of an injunction should be treated like a Mareva injunction and that was the reason why Cretanor Maritime Co. Ltd v. Irish Marine Management Ltd [1978] 1 WLR 967 was cited by the defendants' counsel to Woo JA. It would appear from the judgment that Woo JA had rejected that submission as he had stated that Elegant Jump had sought an interlocutory injunction to preserve the status quo before trial. I am not persuaded that Elegant Jump was seeking a Mareva injunction by its summons in September 1999. It seemed to me that the object of that application was to preserve the assets in dispute, being the proceeds of sale received by Tribune Bridge from Hanshaw for the New Media Shares, in which Elegant Jump has asserted a proprietary claim, pending the trial of the action. I do not think the proposition in Hitachi would have any application here. Further, this argument is mounted on the premise that Elegant Jump has made a binding election to sue for breach of bargain damages and has no proprietary claim to the proceeds received by Tribune Bridge from Hanshaw. This may well be a matter in contention, if Elegant Jump is allowed to formally raise the issue in the proposed amendments to the statement of claim. I should not prejudge the issue in favour of the defendants at this stage.

37. For the above reasons, I reject the submissions of Mr Sussex that Mr Ronald Cheng is already substantially secured without an order of security for costs.

The quantum of security

38. Mr Sussex has made three points here.

39. Firstly, it was argued that the question one should ask is to what extent would the presence of Mr Cheng as an additional defendant by counterclaim increase the costs which would have been incurred if the counterclaim had been brought against Elegant Jump alone. As the answer to that must be no, the court should order a nominal amount of security if the court is minded to order security for costs. I do not think that is the right approach.

40. Mr Yu has drawn my attention to Ashworth, supra. in which the English Court of Appeal approached the question of the amount of security to be ordered by looking at the entire sum put forward by the plaintiffs and the additional defendants to the counterclaim for their costs, and having regard to the fact that the costs of the counterclaim would be shared between the plaintiffs and the additional defendants to the counterclaim. In that case, ￡40,000 out of an estimated sum of ￡100,000 was ordered as the amount of security to be provided for the additional defendants to the counterclaim. An argument of similar effect was advanced in Petromin, supra. and likewise rejected. In the latter case, it was found that the claim and the counterclaim were based on the same body of facts and an argument was advanced that the amount of security ought to be measured by the extent to which the plaintiffs' potential costs had been and would be increased by having to meet the counterclaim over and above the costs of pursuing their claim had there been no counterclaim. Colman J held that in such a case, the plaintiff is entitled to be secured in respect of costs no less fully than if he were merely defendant to the claim advanced in the counterclaim and not also the plaintiff in the action.

41. I reject the first argument advanced by Mr Sussex. In my judgment, substantial security should be furnished. In the supporting affirmations filed on behalf of Mr Cheng, Mr Cheng has sought an amount of security on the basis that he would be sharing the costs of this action equally with Elegant Jump and he has asked for half of the estimated costs in this action to be provided as security. I would fix the appropriate share of Mr Cheng's costs at 40% of the total, having regard to the fact that some of the issues in dispute, such as the effect of the undertakings in the Consent Order and the obligations of Elegant Jump if it should succeed in getting specific performance, do not concern Mr Cheng.

42. The second point argued by Mr Sussex is that under the Consent Order, the defendants have waived their right to apply for further security for costs in the action over and above US$100,000.00. He submitted that in fairness to the defendants, I should take US$100,000.00 as the maximum sum for the estimated costs of Elegant Jump and Mr Cheng and award half or less than half of that amount to Mr Cheng as security for his costs. I also reject this submission. It was not provided in the Consent Order that Mr Cheng should give any undertaking to waive his entitlement to apply for security for costs over and above any particular amount.

43. The third and last point taken by Mr Sussex is that the amount of security claimed in the revised skeleton bill submitted by the solicitors of Elegant Jump and Mr Cheng is grossly exaggerated and should be cut down substantially. Mr Sussex has not, however, taken me through the items separately, nor has Mr Yu. The total amount estimated for Mr Cheng's costs, on the basis of 50% of the items except for the costs relating to the present application, is HK$1,724,800.00. I bear in mind that security to be provided is to be sufficient security, not complete security, and the likely reduction of the bill of costs on taxation. I also have regard to the fact that part of the costs in the skeleton bill had already been incurred. It does, however, seem to me that some of the items are excessive. For instance, for the application for fortification of the cross-undertaking as to damages which I heard in May 2000, a total of 43 hours was claimed for the partner in the firm, 21 hours for the assistant solicitor, notwithstanding that senior counsel and junior counsel were engaged to attend the hearing which lasted one day. On the basis that Mr Cheng is to bear 40% of the costs in these proceedings except for the present application for security for costs which he would bear entirely, an appropriate amount to be fixed for security for costs would be HK$900,000.00.

44. The order I make is as follows :

In the event of the defendants not paying into court the sum of HK$900,000.00 or providing a bank guarantee of that sum by way of security for the costs of Mr Ronald Cheng within 21 days of this order, the defendants' counterclaim against Mr Ronald Cheng is to be stayed until such time as such security is provided.

45. I make an order nisi that the costs of and occasioned by this application are to be paid by the defendants to Mr Ronald Cheng, to be taxed if not agreed.