JUNSA DEVELOPMENT LTD v. KB CHAU & CO (a firm)

HCA 4486/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4486 OF 2001

______________________

______________________

______________________

JUDGMENT

______________________

1. This is an application by the defendant for an order that the plaintiff do provide further security in the sum of $1,526,925 for the defendant’s costs up to and including the trial of this action or to give such security to the satisfaction of this court on the grounds that the plaintiff is a limited company and that there is reason to believe that the plaintiff would be unable to pay the costs of the defendant if the defendant is successful in its defence to the plaintiff’s claim.  The defendant also seeks an order that pending provision of such security all further proceedings on the plaintiff’s claim against the defendant be stayed. 

2. The defendant previously successfully applied for security for costs against the plaintiff.  By the order of Master Woolley made on 14 January 2003, he ordered that the plaintiff do provide security for the defendant’s costs in the sum of $700,000 within 28 days.  He also ordered that the proceedings be stayed pending provision of the security.  The plaintiff appealed against that order.  This came before Deputy Judge Poon.  He dismissed the appeal on 28 April 2003. 

3. The trial of this action commenced on 1 December 2004.  The trial was originally set down for 4 days.  This was a gross under-estimate of the length of trial by the legal representatives for the parties.  As the trial progressed it became abundantly clear that the 4 days’ estimate given by counsel was wholly inadequate.  After 6 days of trial the matter was adjourned part-heard with 10 further days reserved for the resumed trial.  The trial is now scheduled to resume part-heard on 28 November 2005. 

4. The amount that was ordered by Master Woolley and upheld by Deputy Judge Poon was $700,000 for a 4-days’ trial.  Because the revised estimate is now 16 days, taking into account the 6 days already used up and 10 further days which have been reserved, the defendant applies for further security in the sum of $1,526,925 which, it is submitted, is a reasonable sum.  The plaintiff opposes the application. 

5. In his judgment dated 28 April 2003 Deputy Judge Poon set out the applicable principles and applying those principles he determined that it was appropriate to order security in the amount ordered by the Master.  It is not necessary for me to set out the applicable principles.  These are not in dispute.

6. The circumstances of the plaintiff have not really changed since the time Deputy Judge Poon dealt with the matter.  It is not disputed that the plaintiff is a shell company.  Its authorized share capital remains at $10 comprising of 10,000 shares of $1 each of which only 9,000 shares have been issued and paid out.  The plaintiff has not carried on any other business apart from entering into the agreement to lease with the landlord, the subject matter of the litigation.  There is also evidence that the defendant has not paid a demand note for the renewal of its business registration certificate which I am told is for $2,600.  It seems to me that, as Deputy Judge Poon found, there is reason to believe that the plaintiff will be unable to pay the costs of the defendant if the defendant is successful in its defence.  That was the position before Deputy Judge Poon and that is still the position.

7. Mr Lau submitted that in effect this is an application for further security during the course of a trial and such applications are rare.  He submitted that there will be grave injustice to the plaintiff if it were prevented from continuing with the trial by an order for further security.  However, it seems to me that there is a material change in the circumstances.  The defendant did successfully apply for security on the basis of a 4-days’ trial.  The trial is now estimated to last 16 days instead of the originally estimated 4 days.  If the Master had been told that the trial would last for 16 days I have no doubt that he would have ordered much more than the sum of $700,000 that he did order to be provided as security.  The $700,000 ordered was based on the 4-days’ estimate. 

8. There is no evidence that shareholders or backers of the plaintiff would not be in a position to provide any further security ordered.  It has not been demonstrated by evidence that the plaintiff’s claim will probably be stifled by the ordering of further security.  The correspondence that I have been referred to shows that initially the plaintiff was prepared to offer $550,000 as further security.  This demonstrates that the plaintiff is able to raise funds for the further security, otherwise it would not have made the offer. 

9. Mr Lau also submitted that the court is in a position to assess whether there is a high degree of probability of the plaintiff’s success.  I have heard the plaintiff’s main witness give evidence.  I have not heard any evidence for the defendant.  I am not in a position to say at this stage that the plaintiff has a high degree of probability of success. 

10. Mr Lau also complains of the defendant’s delay in taking out the application.  The defendant did not ask for further security for costs until 23 May 2005 after it was informed that the plaintiff was going to apply for a re-amendment to the statement of claim.  However, it seems to me that in March 2005 the defendant’s solicitors already made further investigations into the plaintiff.  In March 2005 a search was made at the Business Registration Office and it was discovered that the demand note which had been sent to the plaintiff had not been paid.  The steps taken by the solicitors were obviously done in preparation for a request for further security.  The delay until 23 May 2005 in making the request is not, in my view, a significant factor.  The trial is not to resume until 28 November 2005.  As I have said, there is no evidence that the plaintiff will be unable to raise, either from its shareholders or backers, any amount ordered for further security.  I am satisfied that the plaintiff should provide further security for the defendant’s costs. 

11. As to the amount to be ordered, the defendant asks for $1,526,925.  This is arrived at by taking a total of profit costs and disbursement in the sum of $2,226,925 and deducting the sum of $700,000 already provided as security for costs.  The defendant’s skeleton bill of costs supports the figures for profit costs and disbursement.  Mr Lau has submitted that the amount set out in the defendant’s skeleton bill of costs is over inflated and he has drawn my attention to various items in the skeleton bill.  It is not necessary for me to go through the items in detail.  It seems to me that a reasonable sum for profit costs and disbursements for a 16-days’ trial is $2,000,000.  As $700,000 has already been provided as security it seems to me that the sum of $1,300,000 should be provided as further security for the defendant’s costs.