XCHRX NEW JADE ENTERPRISES LTD. v. JING YING SHE LTD.

HCA 13764/1997

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 13764 OF 1997

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REASONS FOR DECISION

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1. This is an application for security for costs by the Plaintiff against the Defendant. The subject matter of the dispute between the parties is the Ground Floor premises at No. 79 Tong Tsoi Street, Mongkok, which the Defendant agreed to purchase from the Plaintiff for the sum of $18,300,000.00 in August of 1997 and had paid a deposit of $1,830,000.00 being 10% of the purchase price.

2. The Plaintiff's allegation is that the Defendant had failed and/or refused to complete the transaction and hence the claim for the forfeiture of the deposit and damages to be assessed. The Defendant counterclaims for the return of the deposit and damages on the basis that the Plaintiff had failed and/or refused to satisfactory answer the requisitions raised by the Defendant and had failed to prove a good title to the property.

3. It is, perhaps, necessary to mention that there is in fact a concurrent action in which the parties' positions as the Plaintiff and the Defendant are reversed.

4. By an order of this court, the concurrent action is to be dealt with at the same time as the present action and will be bound by the judgment in this action.

5. The issues involved in the claim and the counterclaim in respect of both actions are in fact identical.

6. There is no dispute that under Order 23 of the Rules of the High Court, the Court has a discretion to order a Defendant in the counterclaim to give security for the Plaintiff's costs of the counterclaim if there is reason to believe that the Defendant may not be able to pay the Plaintiff's costs when ordered to do so.

7. In support of this application, the Plaintiff raises two matters. Firstly, that the Defendant only has a paid up capital of $100.00. Secondly, that the Defendant is being sued in another action. The suggestion is that the Defendant has no other property or other known asset to satisfy any order for costs should such an order be made against it.

8. The Defendant, on the other hand, suggests that the application is misconceived as the subject-matter of the claim and the counterclaim are identical and that the counterclaim is in fact the defence to the Plaintiff's claim and hence, there is no basis for invoking Order 23 of the Rules of the High Court nor Section 357 of the Companies Ordinance.

9. Mr. Lee may well be right in his observation. But the rules stipulate that in exceptional circumstances, the court still has a discretion in making an order which is fair and reasonable in all the circumstances.

10. The Defendant by its counterclaim is asserting more than just putting forward a defence. It is in fact asking the Plaintiff for the return of over $1.8 million. The situation is perhaps reinforced by the fact that the Defendant is the Plaintiff in the concurrent action which will be dealt with at the same time as the present action.

11. There is in my view, valid basis upon which the Plaintiff can make an application for security for costs against the Defendant.

12. The Defendant further suggests that it is a substantial company. The suggestion is that it is now a judgment creditor for the judgment sum of about $2.6 million and that it also has a net asset of over $2.5 million which is in fact the balance of a loan from a shareholder. In so far as the judgment for $2.6 million is concerned. In my view, until and unless the judgment sum is recovered, being a judgment creditor for whatever amount is not really relevant.

13. The Plaintiff claims to have a net asset of over $2.5 million. But as I have observed, it is not an asset as such. In fact, the Defendant is having a negative asset as the sum of $2.5 million in the company's account as on 31st March 1998 must be matched with the advance of about $2.8 million, from its shareholder. It is conceded by the Defendant that this shareholder can withdraw the fund at any time although the shareholder seems to have given an undertaking not to withdraw any money from the company's account until the conclusion of this action.

14. But as I have observed in the course of counsel argument, there is no update account of the company and there is no indication as to whether this shareholder's advance to the company remains with the company's account and this so called undertaking by the shareholder is at least, ambiguous because no reference was made to this loan or advance at all other than the suggestion that she undertakes not to withdraw money on the company's account until the conclusion of this action.

15. There is no update account of the Defendant. It is not known if there is still any money in the company's account. The undertaking by the shareholder is simply worthless.

16. If the Defendant's assertion is that it has a significant sum of money in the company's account, then it should have no difficulty in putting up a reasonable security for the Plaintiff's costs.

17. I do not consider the merit or otherwise of the parties' case nor the fact that the Defendant is being sued to have any significant impact on the issues that I have to resolve.

18. But looking at the evidence in its entirety, I am persuaded that there is reason to believe that the Defendant will be unable to pay the Plaintiff's costs of the counterclaim when ordered to do so. Bearing in mind the special circumstances in this case, namely the Defendant, in fact, is the Plaintiff in the concurrent action which involves the same dispute between the parties, this is a proper case for the order of security in favour of the Plaintiff.

19. In my deliberation, I am also influenced by the evidence that any order for security would not stifle the Defendant's claim or counterclaim.

20. The Plaintiff asks for a security in the total amount of about $285,000.00. As I have observed earlier, bearing in mind the Plaintiff is only entitled to security for the costs in respect of the counterclaim. Bearing in mind also that the matter is a relatively simple one which has been set down for trial for two days. I am of the view that a security for the Plaintiff's costs in respect of the counterclaim in the sum of $100,000.00 would be adequate.

21. Therefore, I made a following order. I order that the Defendant is to provide security in the sum of $100,000.00 by paying the same into court within 14 days to be put in an interest bearing account as security for the Plaintiff's costs in respect of the counterclaim. Also, for the avoidance of doubt, the security for costs so ordered is to cover the entire case up to judgment, but not any subsequent appeal. I also order that in default, the counterclaim by the Defendant against the Plaintiff is to be stayed.