XCHRX POLICYD S. A. DE C.V. v. KWAN KIM HUNG t/a KING TAI CO.

HCA11225/97

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 11225 OF 1997

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R U L I N G

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1. This is an appeal from the Order of Master Bennett given on 7th October 1998, in which he ordered that the Defendant's summons filed on 17th November 1997 be dismissed with costs of the application to the Plaintiff, to be taxed in any event. The Defendant's summons is one asking for security for costs in respect to this matter.

2. This matter arose when the Plaintiff issued its writ in October 1997 claiming for unpaid goods in the sum of US$73,216 which roughly translates to the equivalent of about HK$570,000 odd. The Defence and Counterclaim filed by the Defendant pleads that in so far as the goods in question, the subject matter of the Plaintiff's claim are concerned, they were not fit for purpose and were of unmerchantable quality, and in that respect, the Defendant had to compensate its customers in the sum of HK$690,000 odd.

3. The Counterclaim goes on to claim for the breaches by the Plaintiff of two further agreements. The first one in December 1995 where it is alleged that the Plaintiff failed to deliver goods on time and that the goods delivered did not fit the description and/or were unmerchantable, and for which the Defendant suffered a loss of HK$169,000 odd. In respect of the second agreement in February 1996, it is alleged that the Plaintiff was in breach by his failure to deliver goods on time and for which the Defendant had to purchase substitute goods for its customers and suffered a loss of some HK$77,000 odd. There is no dispute by the Defendant as to the delivery of the goods, the subject matter of the Plaintiff's claim. The total sum counterclaimed by the Defendant therefore comes to some HK$940,000 odd.

4. In December 1997, the Plaintiff took out an application for summary judgment on his claim. This was heard in March 1998 by Mr Registrar Betts, who gave judgment for the Plaintiff. The Defendant appealed against that judgment and the matter was heard before Stone J. on 3rd June 1998, at which hearing Stone J., after hearing both parties, gave leave to the Defendant to defend conditional upon payment into Court of the entire sum claimed by the Plaintiff.

5. I have the benefit of reading the entire judgment of Stone J. given in this O.14 appeal. I note that in that judgment of his, Stone J. stated that :

"I have almost been persuaded to uphold the judgment, but not quite."

Moreover, Stone J. made the point that had he been sitting at first instance, he might have very nearly been prepared to give judgment for the Plaintiff. And in coming to that decision of his, he had taken into account the lack of particularities given by the Defendant as to its allegation of defective goods and late delivery in the absence of any contemporaneous complaint by the Defendant.

6. The Defendant's application before me is based on, firstly, that the Plaintiff is a foreign Plaintiff, there being no dispute that the Plaintiff is a limited company incorporated in Mexico with no office or branch nor any form of assets in Hong Kong, save and except that the Plaintiff has business dealings here. Secondly, that the Plaintiff's claim is now fully secured by reason of the order of Stone J. pursuant to which the Plaintiff had paid into Court the entire amount of the claim by the Plaintiff.

7. On the other hand, the Plaintiff's position in this application is that having regard to the strength of the Plaintiff's case, which could be seen from the comments given by Stone J. in the O.14 appeal, there should be no security ordered in so far as cost is concerned.

8. Mr Ho, for the Defendant, further asked me to take into account the fact that the Counterclaim is in the sum of some HK$940,000 odd, and that two skeleton bills of costs produced into evidence by the Defendant shows that to-date costs incurred is in the amount of some HK$1.1 million. Mr Ho further says that even granted that, a part of that bill of costs may be whittled down by reason of either being disallowed or being excessive, there would still be left a very substantial bill for which the Defendant would be faced with, and for that reason he urges me to make an order for security of costs.

9. I accept that under O.23 of the Rules of the High Court, I have a complete discretion in this matter. That discretion is to be exercised by having regard to all the circumstances of the case, and on that basis to decide whether it is fair and just to order security for costs against the Plaintiff. Gone are the days when there was an inflexible rule that a foreign plaintiff must necessarily be ordered to pay security for costs before it would be allowed to proceed with its claim.

10. I have taken into consideration all the matters that have been urged upon me by both parties. I further take into consideration the decision in the case of T. Sloyan & Sons (Builders) Ltd and another v. Brothers of Christian Instruction [1974] 3 All ER 714. In that case, contractors claimed for the balance of money due to it in respect of the building of a school. The defendants, being the employers of the contractors, counterclaimed on the basis of alleged defects in the building. It was held, inter alia, that in so far as the cross-claim exceeded the contractors' claim, it had to be treated as a counterclaim to which the contractors were in the position of defendants and in respect of which they could not be ordered to give security. That is clearly supported in Marginal Note 23/3/23 of the White Book under the heading "No security for costs against defendant", where it says :

"... security for costs cannot be required from a defendant who is exercising his rights to defend himself against attack, though resident out of the jurisdiction ..."

citing the case of Naamlooze etc. v. Bank of England [1948] 1 All ER 465 (C.A.).

11. From the decision in the case of Sloyan, it must be clear that the Counterclaim in the present case exceeds the Plaintiff's claim, and in so far as that part of it which exceeds the Plaintiff's claim it will have to be treated as a counterclaim to which the Plaintiff would be in the position of a defendant and in respect of which they could not be ordered to give security. I therefore focus myself only in so far as to the amount of the Counterclaim which could be used as a set-off against the Plaintiff's claim. For that reason, I do not take into consideration the alleged breaches of the agreements in February 1996 and December 1995.

12. Looking only to the defence of set-off put forward, it is a major consideration to take into account the relative strength or weakness of both the Plaintiff's as well as the Defendant's case. In this case, a clear indication of the strength of the Plaintiff's case comes from the judgment of Stone J. Although he had allowed the appeal of the O.14 from the Registrar, he gave conditional leave to defend. But more than just his Order, the comments, which fell from his lips in giving that judgment, clearly indicates that the Plaintiff has a very strong case.

13. Taking into consideration all the factors in this case, and, in particular, the strength of the Plaintiff's case, in the exercise of my discretion in the matter, I have come to the view that no order for security should be ordered in this case. In the light of the view that I have taken, I have not gone into the details which both parties have submitted to me in so far as the amount of security is concerned.

14. In the circumstances, this appeal is dismissed and the order of Master Bennett stands.

[Submissions on Costs]

15. Having heard both of you, I will adhere to the same costs Order as the Master below, I will therefore make an Order that the costs of this appeal be to the Respondent/Plaintiff, to be taxed in any event.