LAW AND ECONOMICS PACIFIC LLC & ANOTHER v. CHINA WEB CONCEPT HOLDINGS CO. LTD.

HCA4927/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4927 OF 2000

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J U D G M E N T

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1. This is an appeal against the Master's order dated 11 December 2001, whereby the plaintiffs were ordered to pay security of $250,525 into court within 21 days from the date of the order.

2. The plaintiffs are ordinary residents outside Hong Kong. They claim against the defendant for the return of US$275,000 which they allege to have invested into the defendant company. They also claim that the defendant holds the money as a constructive trustee. The defendant does not dispute that it had received the money but denies that it is liable to return the money or that it is holding it as constructive trustee.

3. On 17 May 2000, the plaintiffs obtained, ex parte, a Mareva injunction against the defendant. The Mareva injunction was subsequently discharged after the parties came to an agreement whereby a sum of US$300,000 was paid into a joint account held in the name of their solicitors.

4. The defendant's application for security of costs is based on two limbs : (1) that the plaintiffs are ordinary residents outside Hong Kong and, (2) the 1st plaintiff's address is incorrectly stated in the writ : see Order 23 rule 1(a) and (c), Rules of the High Court. On the materials before me, I am satisfied that the mistake in stating the 1st plaintiff's address in the writ is innocent. That being the case, security for costs should not be ordered on that ground. As to the first limb, that is, the plaintiffs being ordinary residents outside Hong Kong, the court has a wide discretion in ordering security for costs, and the court should take into account all the circumstances. If the court comes to the conclusion that it is just to order security in the circumstances of the case, it will so order. The parties before me agreed that I should not, at this stage, embark on a mini-trial on affidavits to examine the merits of their respective case. This must be right because the investigation of the merits is justified only when the plaintiffs are able to demonstrate a very high probability of success, or if there is a strong prima facie presumption the defendant will fail in its defence to the action : see paragraph 23/3/3 at page 380 of the 2000 Hong Kong Civil Procedures, Volume I.

5. A number of points have been advanced by Mr Chan appearing for the plaintiffs. The primary submission is that the plaintiffs have substantial assets in Hong Kong. What Mr Chan is referring to is the investment money paid by the plaintiffs to the defendant, the very subject matter of dispute. Mr Chan also seems to suggest that the funds now kept in the joint account is also the plaintiffs' money. With respect, I cannot agree. For the purpose of this appeal, the ownership of the investment money, or the money now paid into the joint account, is very much in dispute. The plaintiffs are not entitled to earmark the money as theirs in order to make good their submissions that they have substantial assets in Hong Kong to meet any possible costs order in the future. This argument must fail.

6. Mr Chan also refers to the defendant's conduct and the defendant's possible inability to pay any costs order in the event that it loses in the action. On the evidence before me there is nothing to suggest that the defendant, though a small company, would be unable to meet any costs order. And I do not think the parties' conduct in connection with the Mareva injunction should have any bearing on the issues now before me. The plaintiffs have not demonstrated to me that there are any other special circumstances where security for costs should not be ordered.

7. Having regard to all the circumstances of the case, I am of the view that it is just to order security for costs. The Master was correct in coming to the conclusion as she did. I will, therefore, dismiss the appeal.

8. The time given by the master to make payment had already expired. I am prepared to grant further indulgence to the plaintiffs. In this regard, I will adopt the terms of the proposed order referred to in the case of Lam Fei Hong v. Wong Kam Fong & Others [1992] 2 HKC 781, a decision of Keith J (as he then was). (I understand that his proposed formula was subsequently endorsed by the Court of Appeal in another case.) I will give the plaintiffs 14 days to comply with the order. My order is that in the event of the plaintiffs not paying the sum of $250,525 into court, as security for costs ordered by Master Yuen on 11 September 2001, by 4 pm on 8 February 2002, all further proceedings be stayed until such time as such sum is paid into court.

9. Though urged upon me, I will not make an unless order at this stage. I think that can be visited later, if necessary. It would be premature to make an unless order today.

10. On costs of this appeal, I am prepared to invoke Order 62 rule 9(4) to make a gross sum order in lieu of taxed costs.

[Submissions on costs]

11. Having heard the parties on the quantum, and relying on my experience as a taxing master in the past, I will fix the quantum at $15,000. It will be paid by the plaintiffs to the defendant forthwith.