XCHRX NISSAN LTD. v. LEUNG MAY YUK

1995, No.MP3715

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

MISCELLANEOUS PROCEEDINGS

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J U D G M E N T

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1. This is an appeal from the decision of Master Jones given on 24 September for the dismissal of the Defendant's application for security for costs.

2. It is not disputed that the Plaintiff company would be unable to pay costs if they be ordered to do so at the end of the day. So the first condition for bringing s.357 of the Companies Ordinance into operation has been satisfied.

3. The next question is a matter of discretion : whether the judge in consideration of all relevant matters should order security; and if so, in what amount? It has been suggested by the Plaintiff company that the court has no jurisdiction to order security for past costs. I do not accept that as a correct proposition of law in view of the authorities.

4. Macey v. Alan [1878]12 Ch.D.807 and Procon (Great Britain) Limited v. Provincial Building Co. Ltd. & Another [1984]1 WLR 557 are authorities directly on the point. It has been well established that the court has jurisdiction to order security for past costs. Indeed in every application for security for costs, there will be an element of past costs involved unless, of course, the Defendant applies for security before he filed the acknowledgment of service. It is inevitable for every application for security that the court would have to consider security for costs already spent, disbursements already out of pocket and for future costs to be incurred. I was referred to the case of Penny v. Penny [1996]1 WLR 1204 which the plaintiff said is a decision to the effect that the court should not order security for costs in the present case on a matter of jurisdiction. Penny v. Penny is a case involving facts quite different with the present case. The distinguishing features on the facts of that case are very important to the inapplicability of that decision to the present case. The decision in Penny v. Penny was based on the court's conclusion that the court had no jurisdiction to order security for costs in respect of separate proceedings; and not as in the present case where we are dealing with the same proceedings. There is no question of a second or separate proceedings in the present case, save of course, the counterclaim which for some purposes can be separate proceedings. But that has never been considered to be an obstacle for security for costs if the counterclaim is really in essence a defence of set-off.

5. In Penny v. Penny, the court found it difficult to order security for costs because such an order can only have teeth if the court can order a stay of the proceedings for a failure to put up security. The application was made in proceedings instituted to vary the order for periodical payments after the completion of the divorce proceedings and the original order for periodical payments were made. In that sense, the application was truly a separate set of proceedings from the original divorce proceedings. In that separate and subsequent application for variation of periodical payments, the wife applied for security for costs not only in respect of the husband's said application, but also for costs involved in the divorce proceedings. The court came to the view that surely that cannot be right because a court cannot order a stay of the proceedings which had already been completed. It was on that very basis that the court had come to the conclusion that it had no jurisdiction to order security for costs.

6. Mr Chain submitted that case is similar to the present in that the plaintiff had already conceded that it was in breach of the sale and purchase agreement and the only issue left to be litigated upon would be the claim for the refund of the deposit on the basis that the 20% deposit paid was a penalty. I do not believe he can apply the decision of Penny v. Penny in the present case because one cannot equate different issues in the same claim with separate proceedings. The fact that one of the many issues had been put to an end by concession of the Plaintiff, leaving other issues very much alive, is a very different situation from separate proceedings. There is no separate proceedings in the present case.

7. The defence of the Defendant in the present case is that it is not a penalty. But if it be held to be a penalty, she falls back to the position that she is nevertheless entitled to claim damages because of the admitted breach by the Plaintiff and she would set off such damages against the deposit.

8. Mr Chain also submitted that as far as the quantum of security is concerned, the court should only consider costs restricted to the argument over the issue of penalty and nothing else. I cannot accept that to be proper in the present case. The Defendant is always entitled to defend the Plaintiff's claim in whatever way the law allows her to defend it. It is not only in a case of a denial of the Plaintiff's case that all costs involved in the defence should be taken into consideration in an application for security for costs. If the Defendant is permitted by law to raise a defence of set-off, then any costs involved in establishing that set-off would also be costs in defending the Plaintiff's claim, and therefore a subject matter for which security can be ordered.

9. Mr Chain also tried to persuade me not to order security on the strength of a variety of matters including Defendant's lateness in making the application. I do not accept that the Defendant should be shut out from her application because she only made her application for security in June. The action was commenced in December 1995. Sometime in May, the Plaintiff admitted they were in breach; and almost immediately thereafter (I think it was about two days thereafter) when the parties had come to court and the formal admission was recorded in an order dated 3 June, the Defendant sought security for costs from the Plaintiff. I do not consider her application to be late in any sense. It was the sudden admission of liability which shortened the proceedings and gave the impression that the application was made very late in the day and very close to trial. But for the admission probably the matter would not have been brought to trial so quickly. I do not consider making an application six months after the commencement of proceedings in any way late to the extent that the Defendant should be prevented from applying for security.

10. I was also asked to consider and compare the strength of the claim of the Plaintiff against the defence and counterclaim of the Defendant. It is of course not appropriate for the court to go into a detailed analysis of the various arguments and in fact conducting a mini-trial at this stage. It is only in very clear cases that the scale would come down in favour of one party, the court would give such matter substantial consideration in the application for security. It suffices for me to say that Mr Chain had not been able to persuade me that it is such a clear case, or that he has a very strong chance of succeeding at the trial.

11. I do not propose, in view of the time, to go into other matters and factors which Mr Chain urged me to consider. Suffice it for me to say that I have given them due consideration and none of them individually, or collectively, had dissuaded me from the conclusion that this is a proper case for security for costs to be ordered against the Plaintiff.

12. The next issue is of course the quantum.

13. I should also mention before I consider the question of quantum that the Defendant had given an undertaking to the court not to proceed with the counterclaim if an order for security for costs should be ordered in her favour, coupled with the usual condition for stay for a failure to comply with the order for security. Such an undertaking would eliminate any injustice that may be caused by staying the claim and allowing the counterclaim to proceed.

14. On the issue of quantum, the total estimated costs of the Defendant comes to $771,864 under two separate bills. One of the bills, for past costs in the sum of $406,484, has already been filed in court under the order I made on 3 June. The other bill is for the sum of $286,000 representing future costs for the trial.

15. I have studied the skeleton bill for future costs and the breakdown of future costs as detailed therein. I have considered also the bill for past costs filed in court, and come to the conclusion that the proper and just amount to be ordered as security should be $550,000 representing something slightly less than three quarters, I believe, of the bills.

16. So there will be an order allowing the appeal and setting aside the order of Master Jones given on 24 September 1996. There will be an order for the Plaintiff to pay security for the Defendant's costs up to the end of trial in the sum of $550,000.

(Jerome Chan)

Judge of the High Court