HAIFA INTERNATIONAL FINANCE CO LTD v. CONCORD STRATEGIC INVESTMENTS LTD AND OTHERS

CACV 168/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 168 OF 2008

(ON APPEAL FROM HCA 2308 OF 2006)

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REASONS FOR DECISION

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Security for costs of appeal

1. On 14 May 2008 Suffiad J struck out the plaintiff’s

Amended Statement of Claim against the 1^st defendant on the ground that it disclosed no reasonable cause of action and dismissed the plaintiff’s claim against the 1^st defendant.  The plaintiff appeals against the judgment which will be heard on 10 March 2009.  The 1^st defendant applies for security for costs of the appeal.

Impecuniosity of the plaintiff

2. The first issue to be decided is whether the 1^st defendant has shown that there are special circumstances which may justify the imposition of security.  The main ground relied upon by the 1^st defendant is the impecuniosity of the plaintiff.

3. The plaintiff is said to be a Hong Kong company with backings from the Hainan Development Bank (‘HDB’) in the Mainland.  It had advanced loans of about $30,280,000 which it now seeks to recover from the 1^st defendant.

4. The evidence shows that the plaintiff was set up in Hong Kong without the permission of HDB and it had ceased trading.  A representative from HDB was sent to Hong Kong to investigate its affairs.  It does not hold any real property in Hong Kong.  The plaintiff has disclosed a statement issued by a securities company showing that the plaintiff holds Hong Kong listed securities valued at $233,700 as of 2 January 2009.  It also produced a statement with no details about the loans it had advanced to various parties in the sum of $70,270,000 (which includes the $30,280,000 it is pursuing in this action).  This statement is most unhelpful and gives no indication whatsoever as to the chance of recovering the loans, apart from the bare indication that one loan was being pursued in the Mainland, one had been recovered and one of the borrowers was bankrupt.  What is lacking is a simple statement of its assets and liabilities which shows that it has available assets to meet an order for costs.  There is also no indication that HDB will make advances to the plaintiff to meet the security for costs. 

5. In my view the proper inference to be drawn is that while the plaintiff may have some assets, it is certainly not enough to meet the costs orders that had been made against it or would be made against it in the event that it loses its appeal.  In my view impecuniosity has been established.

Merits

6. As to the merits of the appeal, as the striking out was based on the lack of reasonable cause of action, one looks to the pleading, namely, the Amended Statement of Claim to see if the plaintiff has pleaded a sustainable case of fraud. It is clear that particulars of fraud are lacking such as the identity of the parties were not pleaded. What is more important is that it has not been pleaded as to how the fraud was practised on the plaintiff.  Even if, for the purpose of argument, the Judge should not have considered the evidence relating to Mr. Liu Yu, the representative of the plaintiff who was also a shareholder of the 1^st and 3^rd defendants and had signed instruments relating to the change of name of the 1^st and 3^rd defendants, I am not satisfied that the plaintiff has at this stage showed that it has such a meritorious appeal that I should exercise my discretion against ordering security.

7. For these reasons I ordered security to be given.

Orders

8. The 1^st defendant asked for $500,000.  Senior and junior counsel fee for the appeal is $380,000.  In my view the appropriate sum for security is $450,000. 

9. I ordered that this sum is to be paid to Court on or before 27 February 2009.      Pending payment the appeal will be stayed.  In default of payment the appeal will be dismissed with costs to the 1^st defendant.  The costs of the application will be in the cause of the appeal.