DOLPHIN ADVERTISING LTD v. TRONKEN ENTERPRISES LTD

HCA2409/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2409 OF 2006

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BETWEEN

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D E C I S I O N

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1.  The defendant applied by summons dated 2 October 2009 for an order that the plaintiff do give security for the defendant’s costs in this action and that in the meantime all further proceedings herein be stayed.

2.  The application for security is put on the grounds that :

(i)  there is reason to believe that the plaintiff will be unable to pay the costs of the defendant if so ordered to; and

(ii)  the plaintiff had changed its registered address during the course of these proceedings with a view to evade the consequences of the litigation.

Background

3.  The plaintiff claims for specific performance of a written contract in which the plaintiff alleges that the defendant had granted a licence to it in mid 2006 to use an LED TV panel and some other advertising panels inside Shun Tak Centre, Sheung Wan.

4.  The plaintiff further claims damages in addition to or in lieu of specific performance as well as damages resulting from the defendant’s breach of the licence in that the defendant had refused access to the plaintiff in respect of the LED TV panels as well as the advertising panels after the alleged licence had been granted.

5.  The plaintiff has quantified its damages in the region of some $24 million.

6.  The defendant’s main line of defence is that it had never entered into any licence agreement with the plaintiff, nor had it instructed any solicitors to prepare the written licence agreement relied on by the plaintiff. Moreover, the person signing the licence agreement (purportedly on behalf of the defendant) was not a director of the defendant and was never authorized by the defendant to enter into any such licence agreement with the plaintiff.

7.  The trial of this matter is scheduled to commence on 23 November 2009 with 6 days reserved for the trial.

Defendant’s application for security

8.  The defendant’s application for security is made pursuant to section 357 of the Companies Ordinance Cap. 32 and under Order 23 Rule 1.

9.  The grounds upon which the application for security is made have already been stated above.

10.  In so far as the first of the two grounds are concerned, the defendant says that the Annual Return of the plaintiff to the Companies Registry dated 24 February 2009 shows that the paid up capital of the plaintiff is only a nominal $10.

11.  As for the second ground, the evidence from the defendant is that from an update company search carried out by the defendant’s solicitors in early September 2009, it was discovered that by a Notification of Change of Address of Registered Office dated 29 January 2009, the plaintiff has changed its registered office from a business premises at Unit 121, 1^st floor, Auto Forum, No. 8 Sham Shing Road, Aqua Marine Shopping Centre, Kowloon West to the address of its corporate secretary at Room 1406, Loon Kee Building, 267-275 Des Voeux Road Central, Hong Kong.

12.  It was submitted by the defendant that the cumulative effect of the two matters above, namely that the plaintiff has only a nominal paid up capital of $10 and that its change of registered office to the address of its corporate secretary, is sufficient for the inference to be drawn that the plaintiff will be unable to pay the costs of the defendant if ordered to do so.

Decision

13.  There is no dispute that whether or not security for costs is ordered against a plaintiff being a limited company is a matter for the discretion of the court.

14.  However, before one comes to the exercise of discretion, it has to be considered whether the necessary threshold has been crossed by the defendant in this application for security for costs.

15.  In this respect, the first matter to note is that under section 357 of the Companies Ordinance, the burden is on the defendant to show that the plaintiff “will be unable to pay the costs” and not “may” be unable to pay the costs.

16.  It was conceded by counsel for the defendant that the fact that the plaintiff had only a nominal paid up capital was a matter which was known to the defendant and/or its legal advisers well before September 2009, but that it was only in September 2009 when the update company search was carried out that the defendant’s camp came to know that the plaintiff had changed the address of its registered office.

17.  It was also conceded by counsel for the defendant that although the summons expressly stated that the change of the address of the plaintiff’s registered office was made with a view to evading the consequences of the litigation, there is in fact no evidence to support that allegation.

18.  In light of that concession and the absence of any basis to suggest that the change of address of the registered office of the plaintiff was made with a view to evade the consequences of the litigation, I am bound to take the change of registered office address by the plaintiff to be nothing more than an innocent change of registered office address.

19.  That really leaves the only basis for this application being the $10 nominal paid up capital of the plaintiff.

20.  In my view that is not sufficient grounds for the defendant to have crossed the necessary threshold to show that the plaintiff “will be unable to pay the costs” if ordered to do so.

21.  This can be seen from the fact that the defendant knew, as admitted by counsel on its behalf, that the plaintiff had a nominal paid up capital of $10, yet when this matter came up for a Pre-Trial Review before me in July of this year, there was not the slightest indication by the defendant of any possibility of an application for security for costs against the plaintiff. Indeed the indication at the PTR was that there was no outstanding interlocutory application to be made before trial, which was to commence as from 23 November 2009.

22.  Albeit that the explanation put forward by the defendant was that at the time of the PTR, they had not known of the change of registered office address by the plaintiff, but given the reasons stated above in respect of the change of address, I do not see how that explanation would assist the defendant to show the necessary threshold to have been surmounted by them.

23.  Given that the trial is less than a month away, I view this application by the defendant with some scepticism as being an attempt to delay the trial of this matter.

24.  In the circumstances, the application by the defendant for security for costs is dismissed with costs (being a cost order nisi) to be borne by the defendant in any event.