XCHRX GRANDCO (HOLDINGS) LTD. v. HARBOUR WEALTH CO. LTD.

HCA 3388/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3388 OF 1998

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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 Muttrie given on 8th June 1999 ordering that paragraph 1 of the summons taken out by the Defendant on 4th February 1999 for security for the Defendant's costs of this action against the Plaintiff be dismissed.

2. By a summons dated 4th February 1999, the Defendant applied for an order that the Plaintiff do within 14 days give security for the Defendant's costs of this action to the satisfaction of the Master on the ground that the Plaintiff is a limited company incorporated in Hong Kong on 3rd November 1992 with a paid-up capital of HK$10,000.00 and in view of its present financial position, the Plaintiff, if unsuccessful in its claim, will be unable to pay the Defendant's costs thereof. The application was made under S. 357 of the Companies Ordinance. The matter is, of course, discretionary.

3. The Plaintiff's claim against the Defendant in this action is for breach of an agreement for sale and purchase whereby the Plaintiff agreed to sell and the Defendant agreed to purchase, the premises known as House No. 34, 15th Street, Hong Lok Yuen, Tai Po, New Territories, Hong Kong on Subsection 587 of Section F of Lot No. 1945 in Demarcation District No. 7 ("the premises"). The Plaintiff alleges that it was entitled to rescind the agreement for sale and purchase and forfeit deposits paid by the Defendant as the Defendant failed to complete the purchase by paying the balance of the purchase price at the time for completion.

4. There is a Defence and Counterclaim filed by the Defendant. The Defendant alleges that the Plaintiff was in breach as the Plaintiff failed to answer requisitions satisfactorily and that it was the Plaintiff who wrongfully repudiated the agreement. There is a counterclaim for a declaration, return of deposits and other amounts and a lien over the property in respect of the sums claimed. The Plaintiff has now applied for leave to set the action down for trial. It has not yet been set down for trial.

5. This is not the type of case where it can be clearly demonstrated that the Plaintiff has a very high probability of success. There are witnesses of fact as well as expert evidence on both sides. I am satisfied that the court should not, therefore, embark on a detailed examination of the merits of this case on the application for security for costs. (See Porzelack v. Porzelack [1987] 1 All ER 1074.

6. On the evidence before the court, the Plaintiff is a company with a paid-up capital of HK$10,000.00. The premises were at one time mortgaged to the First Pacific Bank Limited but the First Pacific Bank Limited as mortgagee has entered into possession of the premises. They have since been sold by the mortgagee and an assignment of the premises has been executed on 7th December 1998. There is also evidence placed before the court that on 2nd December 1998, Centaline Property Agency Limited commenced legal proceedings against the Plaintiff claiming for estate agent commission of HK$216,000.00 together with interest and costs. That action, as I understand the position, is still proceeding.

7. Before the application for security for costs was taken out, the then solicitors for the Defendant wrote to the solicitors for the Plaintiff by a letter dated 25th January 1999 pointing out that the Plaintiff was only a limited company with a paid-up capital of HK$10,000.00. It was also pointed out that from the Companies and Land Registries, there appeared to be default by the Plaintiff in making mortgage payments which resulted in the mortgagee, First Pacific Bank Limited, entering into possession of the premises and disposing of the same on 7th December 1998. It was also pointed out that Centaline Property Agency Limited had commenced proceedings against the Plaintiff. The point was made that there was reason to believe that the Plaintiff would be unable to pay the costs of the Defendant if the Defendant was successful in its defence. Faced with that letter, one would expect the Plaintiff to respond. Unfortunately, the Plaintiff's solicitors did not reply to that letter dated 25th January 1999.

8. On the evidence before the court, it seems to me that this is a proper case where I should order that the Plaintiff do provide sufficient security for the Defendant's costs of the action.

9. The next question is how much should be ordered by way of security? The Plaintiff's original skeleton bill of costs estimated the costs of the action on the part of the Defendant to be in the sum of HK$2,253,828.60. At the hearing of the appeal, this has been revised downwards in an amended skeleton bill of costs to the sum of HK$1,572,614.60.

10. Mr. Mak, for the Plaintiff, has taken me through the amended skeleton bill of costs and has levelled criticism at some of the items. Mr. Lam recognises that some of the criticism is justified and is prepared to further revise the skeleton bill of costs by a reduction in the sum of HK$250,000.00. Without going through the items set out in the amended skeleton bill of costs in detail, and I do not think it is desirable that I should do so, it seems to me that sufficient security should be provided in the sum of HK$750,000.00 and I so order.

11. I make an order that the action be stayed pending security to be provided by the Plaintiff for the Defendant's costs of the action in the sum of HK$750,000.00 by way of payment into court or other form of security to the satisfaction of the Master within 14 days from today or such further time as may be extended by the Master. I also order that unless the Plaintiff provides such security the Plaintiff's claim is to be dismissed. Costs of the appeal to the Defendant. Costs of the hearing before Master Muttrie are to be costs to the Defendant with a certificate for counsel.