XCHRX HONG KONG TOY CENTRE LTD. AND ANOTHER v. CHAN KAN KWONG MARGARET AND OTHERS

HCA9971/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 9971 OF 1998

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REASONS FOR DECISION

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This concerns the Defendants' application for additional security for costs following the adjournment of trial originally to start in early June 1999.

2. By an order dated 14th April 1999, Suffiad J ordered the Plaintiffs to furnish a sum of $2 million as security for the Defendants' costs. As I understand it, the Defendants' application was for $6 million to cover costs up to and including trial for 14 days as originally scheduled. The learned judge did not say in his judgment that $6 million was unjustified. Indeed no point was taken by the Plaintiffs on that amount. However, considering that there was limited time for the Plaintiffs to raise money, the learned judge ordered security to the tune of $2 million only.

3. On the application before me, Mr. Shieh for the Plaintiffs quite properly conceded that the Plaintiffs should furnish additional security. The only issues were the amount and the form of the order that the court should make.

4. The Defendants, following established practice, tendered a skeleton bill. The bill was revised during the course of arguments. The Plaintiffs, through their counsel, challenged the estimates and came up with their own figures as to what the Defendants' costs should be. It should be helpful to set out the contrasting figures.

It should be noted that the estimates are divided into Parts and the Parts are identified by only the main event thereunder when in fact there were other work done under those Parts. So far as Part III costs are concerned, I have already ordered that substantial portions of them be paid forthwith on an indemnity basis.

5. Miss Audrey Eu, S.C. for the Defendants drew my attention to Procon (G.B) Ltd. v. Provincial Building Co. Ltd. & Ors. [1984] 1 All E.R. 368. There, it was held by the English Court of Appeal that apart from treating the skeleton bill on the correct taxation basis, usually party and party, the court in considering the amount to be ordered as security for costs should not apply an automatic further one-third discount. This approach was approved by our own Court of Appeal in Sujanani v. Middle East Finance International Ltd. (No. 1) [1983] 2 HKC 226. Mr. Shieh for the Plaintiffs did not take issue on the general principle. He, however, implored the court to mark the unquenchable fire of optimism in rendering bills of costs and hence to come to a realistic assessment of the costs that may be allowed on taxation. On the other hand, Mr. Shieh also accepted that my function at this stage is not to embark upon a mini taxation of the Defendants' skeleton bill.

6. Mr. Shieh then went to point out items in the skeleton bill which he said are unjustified. Bearing in mind the precept that I should not embark upon some kind of taxation, I did not think it is appropriate for me to address each of the items in the skeleton bill attacked by Mr. Shieh. I accepted, as Miss Eu explained, that the skeleton bill was drawn up on party and party basis and that as far as possible the costs and disbursements billed are already scale charges.

7. Nonetheless, I had to be alive to the reality that a bill of costs may well be taxed down although it is already drawn up on party and party basis. In making allowance for taxing down, I did not think it is useful to apply some sort of across the board percentage or fractional discount because, obviously, taxing masters do not do that. Taxing masters look at each item, ticking off or cutting down any questionable item as appropriate. The fact that at the end of the taxation process the total by adding up the amounts allowed under each item may come to a convenient percentage or fraction of the original tender is neither here nor there.

8. There is another reason for not making any observation on those items in the skeleton bill questioned by Mr. Shieh. Any comment from me on a particular item may be cited as indication to the taxing master on what he or she should allow or disallow. I did not wish to be seen to be usurping the function of the taxing master. Moreover, I could not possibly "allow" or "disallow" particular items without hearing arguments, evidence and justification. The occasion before me was clearly not intended for such exercise.

9. Since the parties also agreed that I needed only to take a broad brush approach, I added up the costs under Parts I, II and III of the Defendants' skeleton bill to get the sum of $5,861,280.00. I felt, and this is necessarily a hazardous plunge, that the amount in excess of $5 million is likely to be casualties of taxation on the appropriate bases. Hence the amount of security to cover those Parts may be fixed at $5 million, including the $2 million already provided pursuant to the order by Suffiad J. The Plaintiffs were therefore ordered to furnish $3 million top-up security within 28 days.

10. As to Part IV costs, they are estimates only. I was reluctant to project estimates to beyond the stage of discovery. I was told, and I believed, that the parties may well work together during the process of discovery to narrow down some of the factual issues. Then the next stage of preparation for trial, i.e. obtaining proof of evidence and advising on evidence, may well be less costs intensive. Moreover, the parties should be able to come to a more accurate estimate as to the length of the adjourned trial after discovery has been made and the issues solidified. Hence I divided the Defendants' estimates of Part IV costs as to 40% for discovery and 60% for subsequent work. The 40% works out to be approximately $1.6 million. This amount is quite close to the estimate by the Plaintiffs of the Defendants' costs for dealing with the Anton-Pillar Order. During the execution of the Anton-Pillar Order, the Plaintiffs seized some 8,000 documents. Those documents relate to only a small portion of the trade the Plaintiffs allege is protected. Full discovery relating to the full range of protected trade asserted by the Plaintiffs would involve several times more documents. So $1.6 million may well be a conservative estimate for the massive discovery to follow. Accordingly, I ordered the Plaintiff to furnish on or before 30th September 1999 a second tranche of security to cover $1.6 million only. The Defendants would have to apply for additional security to cover post-discovery work if appropriate.

11. Mr. Shieh pointed out that the usual order for security for costs puts a stay on the proceedings until security has been furnished as ordered. Miss Audrey Eu, S.C. on the other hand contended that a stay is not satisfactory. If the Plaintiffs cannot furnish security as ordered, a stay does not wrap up the case whilst for all practical intents and purposes the stay kills the action. The Defendants may, of course, apply during the stay for the action to be dismissed but why waste costs and time on another application to dismiss? If I may say so, there is a lot of sense in making a kind of unless order. But this is not to say that the order is final. The Plaintiffs may, on good grounds, apply for extension of time to provide security. It was on such understanding that I ordered that the action be dismissed upon default by the Plaintiffs to furnish any security as ordered.

12. The question of costs of the application was another contested issue. Although he could not seriously argue that the Defendants should have costs other than on an indemnity basis because the application was occasioned by the faults of the Plaintiffs, Mr. Shieh contended that the court should not certify for two counsel for the Defendants. The Plaintiffs having earlier conceded liability to provide additional security, it was not necessary for the Defendants to have two counsel arguing on quantum. Miss Tam for the Defendants argued that the application is important and crucial for the Defendants. The Defendants were entitled to have the best representation. I decided that the matter was indeed very important for the Defendants. Quality, not quantity, of arms was justified. Accordingly, I certified the application fit for leading counsel, but not two counsel, for the Defendants. If it is any consolation, Miss Tam, obviously, has proven her worth and I have no doubt grateful clients will settle her untaxable fee note promptly.