XCHRX FIL LEVERAGED US GOVERNMENT BOND FUND LTD. AND OTHERS v. TCW FUNDS MANAGEMENT, INC.

HCCL231/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO.231 OF 1998

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______________________

J U D G M E N T

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1. This is the judgment consequent upon the consolidated hearing of several outstanding interlocutory applications in this case, the trial of which has been fixed for three months commencing on 29 October 2001. Originally four matters were in dispute, but this has now been reduced to three, leading counsel having informed the court that the plaintiffs' application for specific discovery, pursuant to the summons dated 4 October 1999, happily now is the subject of agreement, and that a consent order will reflect the "common approach in principle" which now has been reached. I take the three outstanding applications in the order in which they were argued.

1. The defendant's application for leave to issue and serve a Third Party Notice

2. By its summons dated 3 October 2000, the defendant sought leave, pursuant to Order 16, rule 1, RHC, to issue a Third Party Notice and Co-Party Notice, in the form of the draft attached to the summons "claiming against Geoffrey Jay Mansfield, and each of the Plaintiffs herein, indemnity against the Plaintiffs' claims and/or contribution from the Third Party and Co-Parties and the costs of the Third Party and Co-Party Proceedings".

3. This application was backed by the 8th affidavit of Mr Halford, sworn on 26 October 2000. This application was strenuously resisted by the plaintiffs, and immediately at the conclusion of argument leave was given to issue the Notice in terms of the draft annexed to the summons, the court at that time declining the plaintiffs' contention, pursuant to Order 16, rule 4(3)(c), that the defendant's application for leave so to issue should be dismissed.

4. Consequential directions were thereafter agreed, and I now set out brief reasons for the decision made by the court at the conclusion of argument.

5. In making the defendant's application, Mr Carr QC, for the defendant, noted that the composite Notice now before the court was a somewhat unusual document, and that only one component therein, the Third Party claim against Mr Mansfield, in fact required leave. Whilst TCW's case was that they had a right to contribution against him, Mr Mansfield was also a director of all five of the plaintiff companies. In effect, therefore, Mr Mansfield's acts were their acts. But FIL was the manager of Bond Fund and FIS was the manager of MCSL and MSL, so that if TCW's case concerning Mr Mansfield was correct, those management companies would be liable as well (FIL to Bond Fund and FIS to MCSL and MSL). Accordingly, said Mr Carr, these claims for contribution against FIL and FIS could have been pleaded, absent any necessity for leave, under a separate Co-Party Notice issued and served under Order 16, rule 8. However, it had been thought more convenient for both the parties and the court to plead all relevant facts and matters in a composite document, rather that to employ separate notices. Equally, submitted Mr Carr, certain of the matters pleaded in the Third Party Notice were also relevant to causation, and as such would have been placed in the Defence in the head action. But once again it had seemed more practical to place all connected materials in one place, albeit paragraph 152 of the Defence put a marker down that this course had been followed.

6. There is no need, for present purposes, to outline in detail the categories of complaint mounted by TCW against Mr Mansfield; they are in any event set out in Mr Carr's skeleton argument, and denote alleged acts of Mr Mansfield which TCW maintains contributed in their various ways to the losses presently attributed to TCW by the plaintiffs. One particular example, which was frequently adopted in argument, and which exemplifies the difference of approach between the parties on this application, concerns that which TCW say was the excessive leveraging of the Bond Fund. One of the main complaints made against TCW by the plaintiffs is that the securities which they purchased on behalf of Bond Fund and the MSL Fund fell in value in early 1994, at a time when interest rates increased and the market suffered a major dislocation. TCW deny that this is a legitimate complaint, but also claim that if they were liable for having pursued a course of security selection that exposed Bond Fund and MSL Fund to too much risk, this was a course which they pursued upon the direct instructions of Mr Mansfield, who had instructed that Bond Fund should be leveraged to the greatest extent possible. Mr Mansfield was a director both of Bond Fund and FIL, which in turn was the investment manager of Bond Fund. TCW allege that FIL (as the investment manager) and Mr Mansfield (as a director of both Bond Fund and FIL) ought to have acted more prudently than they did in pursuing an aggressive and leveraged investment policy.

7. Other complaints, in outline, made by TCW against Mr Mansfield are that he caused or exacerbated the problems of the MSL Fund by being in a position of conflict of duty and interest, that if TCW are liable for the content of Mr Pitts' Rangely Brochure, then Mr Mansfield and the plaintiffs equally ought not to have relied upon it, that the losses of Bond Fund were increased by Mr Mansfield's actions in marketing Bond Fund as a conservative investment when he knew it was not, that TCW's appointment as investment adviser was prematurely and wrongly terminated by Mr Mansfield, thereby crystallizing losses that otherwise could have been avoided, and that the payment of dividends by Bond Fund from September 1994 onwards, at Mr Mansfield's instigation and insistence, effectively reduced the capital base of the Fund so that it was less able to benefit from the recovery in prices when it occurred, thereby enhancing Bond Fund's losses. I note here that Mr Carr confirmed during argument that the latter two areas were more properly to be regarded as issues going to causation than as matters the subject of contribution.

8. Mr Heslop QC, for the plaintiffs, whilst pointing out the "flawed procedure" that had been adopted by the defendant in this application, was nevertheless content to approach the present application essentially as one for directions under Order 16, rule 4(3)(c), the provisions of which read :-

"(3) On an application for directions under this rule the Court may -

(a) ...

(b) ...

(c) dismiss the application and terminate the proceedings on the third party notice;

and may do so either before or after any judgment in the action has been signed by the plaintiff against the defendant."

9. Mr Heslop drew the attention of the court to Note 16/4/8 which sets out the various grounds upon which the court could dismiss the defendant's Third Party proceedings. He submitted that no authority was advanced by the editors for the proposition that it will be for the plaintiff or third party "to show some special circumstance why the direction [to allow the Third Party proceedings to continue] should not be given". His suggestion was that this placed an excessively high burden on the plaintiffs or third party and that the correct test is and was : "has a proper case been made out for the continuation of Third Party Proceeding?" In any event, he said, on either test, the plaintiffs opposed the continuation of the Third Party/Co-Party proceedings : first, as a matter of law and second, on the basis that the introduction of the Third Party claim against Mr Mansfield will (or may) embarrass the fair trial of the plaintiffs' action.

10. I take this last point first. It is probably fair to say that the embarrassment factor did not loom large in the argument, save perhaps as a buttress for the purely legal submission, and appeared to focus primarily upon whether or not Mr Mansfield may require separate representation should the claim against him be permitted to be included in the matters canvassed at trial next year, wherein Mr Mansfield is expected to be the principal witness on behalf of the existing plaintiffs. I do not think that there is a great deal in this point, and I find it difficult to see why the court should be persuaded on this ground alone not to exercise its undoubted discretion to grant leave to issue the Third Party Notice. It is not suggested that there will in fact be a conflict if Mr Mansfield is joined, so that this possibility is speculative at best, particularly since those acting for the plaintiffs have indicated that they will accept service on behalf of Mr Mansfield. Moreover, as Mr Carr pointed out, the 'embarrassment card' is generally one played by a plaintiff in cases in which, for instance, the addition of Third Party proceedings may in some way be prejudicial to the status or progress of the existing head action, which was not the case here. In any event I fail to see, if and in so far as there is a pleaded case against Mr Mansfield which is not demurrable on its face, why all relevant matters should not be ventilated at one trial. To the contrary, in the present circumstances, and if I am otherwise satisfied that issuance of this Notice is permissible, it is plainly right that this course be adopted.

11. Which brings me to the main thrust of Mr Heslop's attack. It is this. Any claim for contribution can and must arise under the Civil Liability (Contribution) Ordinance, Cap.377, section 3(1) of which provides :-

"any person liable in respect of any damage suffered by another person may recover contribution from any other person liable in respect of the same damage (whether jointly with him or otherwise)."

12. The difficulty in this case, maintained Mr Heslop, was that the statutory requirement of "the same damage" was not satisfied, in that the damage inflicted by TCW on the plaintiffs was not the same as the damage allegedly inflicted by the activities of Mr Mansfield. The requirement of the Ordinance was strict, he said, and left no room for doubt; absent such identity of damage, the statutory right to contribution could not be invoked.

13. For the purposes of this exercise, Mr Heslop accepted that he was required to proceed on the basis that the facts pleaded were true, and that he had to show that the plea was demurrable on its face. And within this constraint, he proceeded to analyze each of the sections in the Third Party Notice which revealed, he submitted, the absence of such identity of damage as was necessary to crystallize the statutory cause of action. For example, in the case of the allegations that Mr Mansfield's decision to apply leverage to the Fund, and to purchase $250 of securities for every $100 of assets owned, Mr Heslop pointed to the crucial plea at paragraph 11(vi)(d) of the draft Notice, which reads :-

"(d) If the securities in which Bond Fund invested suffered a loss, the losses suffered by Bond Fund would consist of (a) the loss affecting the non-leveraged component; (b) the further loss affecting the leveraged component; and (c) the associated cost of capital.

Accordingly, the decision to apply leverage to the investments of Bond Fund entailed the pursuit of an investment policy which offered the prospect of an enhanced return but carried the risk of an enhanced loss."

14. It was clear on the face of the pleadings, said Mr Heslop, that the loss sustained by Bond Fund consisted, in effect, of two layers : the loss on the 'non-leveraged' element, by reason of TCW's activities, and the alleged loss arising from Mr Mansfield's aggressive leveraging policy, which provided the next layer. As such, therefore, these twin components of the loss were clearly and distinctly not the same; only the leveraged component could be attributable to Mr Mansfield, with the consequence that the "same damage" benchmark necessary for the invocation of the Ordinance remained unsatisfied.

15. This theme of the separate nature of the components of loss due to the variously pleaded allegations regarding Mr Mansfield was repeated by Mr Heslop in his analysis of the other sections of the Third Party Notice, with the repeated emphasis that absent satisfaction of the "same damage" requirement TCW did not have a cause of action for contribution conferred upon it. No other basis for contribution was relied upon, he said, and Mr Carr had made it clear that he was not pursuing an indemnity plea per se, but merely contribution to varying degrees. In short, maintained Mr Heslop, there was "different damage in every case", and section 3(1), Cap.377 did not bite. This submission was buttressed by reference to the English Court of Appeal decision of Birse Construction Ltd v. Haiste Ltd (Watson & Ors, third parties), [1996] 2 All ER 1, (referred to with approval by Godfrey JA, obiter, in Yeung Shu v. Alfred Lau & Co. (a firm), [1997] 2 HKC 153 at 159-160), and in particular the judgment therein of Sir John May.

16. It followed, submitted Mr Heslop, that if he was correct on this submission, he succeeded on either test, whether such be in terms of "special circumstances" or "a proper case". And all the more necessary was it to focus on this issue now, given the potentially "dire consequences" of the necessity for separate representation for Mr Mansfield.

17. In response, Mr Carr submitted that something akin to a "clear case" needed to be the relevant standard, analogous to the "plain and obvious" rubric employed in a striking out - which was precisely what in effect this was, given that if these third party proceedings were to be dismissed at this stage, this element of the case could never proceed.

18. In terms of the "same damage" argument, Mr Carr took issue with Mr Heslop's analysis. On the plaintiffs' argument, he said, in order to constitute a case of the same damage, it would be insufficient that some damage was caused in common by two parties, as manifestly had occurred in this case. To the contrary, it was necessary, on Mr Heslop's argument, that the limits/boundaries of all damage caused by the conduct in question coincided exactly. So that applying this to the Bond Fund leverage example, whilst TCW and Mr Mansfield undoubtedly shared a common liability in respect of the leveraged component of damage, the presence of the unleveraged component (which was accepted to be purely attributable to TCW) produced the consequence, upon the plaintiffs' analysis, that the leveraged component which represented a true community of damage somehow ceased to fall within the rubric "the same damage". This could not be right, Mr Carr submitted. It was irrational in principle, and it was difficult to detect any sound policy basis underpinning such an approach. In this connection, Mr Carr referred to the judgment of Roch LJ in Birse, op.cit., who recognized that the evaluation was not a comparison of the way in which damages are computed against A and B, but that the question to be isolated was whether the harm suffered by the plaintiffs at the hands of each of A and B could be said to be the same harm :-

"The word 'damage' in the phrase 'the same damage' in s 1(1) does not mean 'damages'. This is demonstrated by other sections of the Act, for example s 2(3). By s 6(1) 'damage' is the harm suffered by 'another person', to use the phrase in s 1(1), for which that person is entitled to recover compensation; it is not the compensation which is recoverable, although in cases of purely financial loss it may be commensurate with it."

19. Plainly, submitted Mr Carr, on the pleadings as they stood TCW and Mr Mansfield had caused the "same harm" to Bond Fund. The harm was the exposure to risk of market movements in certain conditions, and equally clearly this harm was the product of TCW's actions and Mr Mansfield's responsibility. Both had caused the destruction of the leveraged component of Bond Fund, via highly leveraged, interest rate-sensitive securities (TCW having selected which securities to buy, and Mr Mansfield having been responsible for holding too many of them), and thus had caused the same loss. This stark fact could not be undermined by the further fact that TCW alone, as a consequence of its allegedly incorrect selections, allegedly had been responsible for the destruction of the non-leveraged component alone. And whilst the respective roles played by TCW and Mr Mansfield were matters relevant to the apportionment of responsibility, this did not detract from the fact that they had caused the same damage. In this connection, Mr Carr relied upon a test expounded by Scott VC in the recent unreported case of Howkins & Harrison (a firm) v. Tyler & Powell, a decision of the English Court of Appeal dated 12 July 2000 (Court Reporter's transcript), wherein the Vice Chancellor said :-

"It seems to me that a simple test could be applied to identify a claim capable of being one to which the 1978 Act can apply. That test is this :

Suppose that A and B are the two parties who are said each to be liable to C in respect of the same damage that has been suffered by C. So C must have a right of action of some sort against A and a right of action of some sort against B. There are two questions that should then be asked. If A pays C a sum of money in satisfaction, or on account, of A's liability to C, will that sum operate to reduce or extinguish, depending upon the amount, B's liability to C? Secondly, if B pays C a sum of money in satisfaction or on account of B's liability to C, would that operate to reduce or extinguish A's liability to C? It seems to me that unless both of those questions can be given an affirmative answer, the case is not one to which the 1978 Act can be applied. If the payment by A or B to C does not pro tanto relieve the other of his obligations to C, there cannot, it seems to me, possibly be a case for contending that the nonpaying party, whose liability to C remains unreduced, will also have an obligation under section 1(1) to contribute to the payment made by the paying party.

The Act was intended to deal with cases where the damage suffered by the victim could be remedied by a claim against one or other of two or more possible defendants, and where the quantification of the damage to the victim for which a defendant would be liable would be affected by what the victim might recover or had recovered from one or other of the possible defendants. If that condition is not present, it seems to me that the Act was not intended to apply and cannot be applied. ..."

20. This was a simple test, suggested Mr Carr, which was useful at the striking out stage, and its application in this case made his point. If, for example, TCW paid Bond Fund in full for the capital loss allegedly suffered, it was plainly the case that any such payment would impact upon Mr Mansfield's liability to TCW in respect of the leveraged component, otherwise there would be double recovery; conversely, if Mr Mansfield paid to Bond Fund a sum equal to the loss suffered in respect of the leveraged component, equally plainly Bond Fund could not maintain a claim against TCW for loss on that component. It followed, he submitted, that the plaintiffs' argument was very weak in a striking out context, and indeed, on the Vice Chancellor's test, not only would the Third Party Notice satisfy that test, but the case for contribution would otherwise be established.

21. Mr Carr further submitted that the decision in Birse, op.cit., upon which Mr Heslop placed such reliance, had to be viewed in the context of a case in which the item of damage respectively caused by the two engineers had not even been caused to a common plaintiff, and it was in that context that the court had made its observations that it was not enough, in effect, simply to say that all the damage in question had been in terms of the negligent construction of the reservoir. By contrast, he said, in this case damage clearly had been caused to a common plaintiff, Bond Fund. He further pointed out that, in Birse, a late amendment to the third party notice in that case had been made which in their Lordships' view raised "difficult questions of fact and law", so much so that Sir John May could not say "that they are so ill founded in law that they should be struck out in limine". The result was that the court did not prevent the continuation of the amended third party notice against Mr Newton, notwithstanding that the allegations underpinning Mr Newton's liability were different factually and legally. It did not appear to have been suggested in Birse, said Mr Carr, that there was any necessity to satisfy a "complete identity" test such as that posited by the plaintiffs in this case.

22. I agree with these observations. In my view, in principle the defendant has the better of the argument. I was, and am, unwilling to dismiss the Third Party Notice as demurrable on its face. For present purposes, I need go no further than to express the view that whichever test is invoked - whether it be on the basis of "special circumstances", "a proper case", "a clear case" or the time-honoured "plain and obvious" - the application of that test to the present pleading manifestly fails to achieve the result for which the plaintiffs contend, and this in terms of any of the areas of damage for which TCW seeks contribution against Mr Mansfield.

23. The argument that the various categories of loss only came about because of the wrongful act of each of TCW and Mr Mansfield, that is, that such losses required the wrongful act of each, seems to me to be highly persuasive, and in my judgment is not susceptible to interlocutory intervention in the form of the dismissal so sought. In short, the plaintiffs have been unable to land the knock-out blow which would have been required. Whether the case as put be established on the facts I know not, and I do not wish to speculate. But in my judgment the defendant must be permitted to put its case for contribution in the form of the Notice as drawn, Mr Carr in the course of argument having usefully also clarified a number of matters. I am satisfied, on the assumed facts, that the alleged wrongful acts of TCW and Mr Mansfield were necessary to produce the losses complained of and that, as Mr Carr neatly put it, the logical impossibility of attempting sole causal responsibility for what had occurred is that which triggers the need for contribution.

24. As to the costs of this argument, which has taken slightly in excess of one day, Mr Heslop's submission was that in the course of the argument certain clarifications to the pleading had been proffered, and therefore that costs should be in the cause, in like manner (as Mr Carr accepted) as the costs of the summons and co-party notice and affidavit in support. After considering all the circumstances, I do not think that the costs of this contested hearing should be so treated. The Third Party Notice has been attacked from the outset with a view to its dismissal, and that attack has been repelled. The defendant is to have its costs of this argument in any event, such costs to be taxed if not agreed. I certify the matter as fit for two counsel.

2. Costs of the plaintiffs' application for leave to amend the Statement of Claim

25. This issue was left over from the judgment dated 23 June 2000, wherein this court acceded to the plaintiffs' application for leave to amend the revised draft pleading.

26. Unsurprisingly, given the background of two hearings in which the proposed amended pleading was vigorously contested, and the ambit of argument therein, the issue of costs of this ultimately successful application has also attracted signally opposite views.

27. The broad position is thus : Mr Heslop QC accepts that the plaintiffs should bear "a modest proportion" of the costs of the hearing on the basis that leave to amend was required, and that certain pleading points needed clarification by agreement or further amendment. Accordingly, he submitted that the plaintiffs should be awarded 90% of their costs against the defendant of and occasioned by the application to amend.

28. Mr Carr disagrees. His position is that his client ought to recover "a reasonable proportion" of its costs as the result of having been put in the position either of having to accept a pleading that remained unsatisfactory or in having to draw certain objections to the court's attention.

29. Both sides have their bull points. Mr Heslop says that, when the dust has settled, he has been successful in obtaining the leave that was sought. He has won. Whilst admittedly leave was granted subject to a number of amendments, a great deal of the time at the May/June hearing was taken up with the application to amend, and that the main thrust of the defendant's opposition was based on "abuse of process" points, pursuant to which the defendant had filed an enormous amount of affidavit evidence in the form of affidavits from Mr Cahill and Mr Arentsen, to which Mr Mansfield had had no option but to reply. The court had dismissed the defendant's abuse of process submissions, albeit Mr Carr had been permitted at least to venture into this area. Accordingly, said Mr Heslop, it is only fair that the defendant should pay first, the costs of the plaintiffs attributable to the filing of evidence on the strike out application and second, the "overwhelming bulk" of the costs of the May hearing itself.

30. Mr Carr accepted that the hearing was prolonged by the defendant having adverted to abuse, but TCW had not pursued this in the face of indications from the bench, and that in any event the same matters referred to as constituting abuse involved matters relied upon as being objectionable from the point of view of the form of the pleading. In addition, Mr Carr invited attention to the background of this particular application, and to a letter dated 28 February 2000 from the defendant's solicitors wherein detailed reasons were given for the defendant's objections to the revamped document. Principal among these objections were two : the plea of a range of managerial and supervisory duties under Hong Kong law (referred to in that letter as the "regulatory duties"), and the naming of the TCW parent company as a defendant on a basis that was bad in law. The purpose of this letter, he said, had been to avoid, if possible, a full hearing, yet by their response of 29 February 2000 the plaintiffs had declined to engage, stating that no response of theirs would prevent the need for a hearing, and that they would respond in due course. This had not happened, and by letter dated three days later, 13 April, the plaintiffs had indicated that there would be no further amendments. Again this was not the case, amendments being proffered prior to and during the hearing. In so far as TCW's parent was concerned, this of course had been met by a suitable undertaking that TCWFM would be responsible for certain alleged representations, whilst the "regulatory pleas" were sidestepped by what Mr Carr labelled a "deft forensic move", the basis of the defendant's objection to these pleas under Hong Kong law being cleverly avoided by stating that the regulatory duties would be pleaded by reference to Californian law, a new development which "wrongfooted TCW and saved the plea from risk".

31. On occasion the issue of costs proves more difficult than the substantive argument, and this may be one of those instances. The 'regulatory pleas' point has force, as do the submissions made as to the abuse argument. It is perhaps unfortunate that more attention was not paid to the defendant's pre-hearing correspondence setting out these concerns; equally, I am unable to persuade myself, had there been such engagement on the issues then raised, that a contested hearing could or would have been avoided. The probabilities, it seems to me, point the other way. At the end of the day costs orders often involve an element of rough justice, perhaps in this case more than others. However, after reflecting upon all the circumstances, together with the submissions of counsel, I have come to the view that the order which should be made is that in any event the plaintiffs are to have 50% of the costs of the contested application to amend the Statement of Claim, such costs to be taxed if not agreed, save and except that the costs of the preparation and filing of the affidavit of Geoffrey Jay Mansfield, filed herein on 16 May 2000, be not subject to such percentage reduction, and be taxed in normal course. The application is certified as fit for two counsel.

32. I hope that this formulation, which in my judgment meets the broad justice of the case, does not occasion the taxing master undue difficulty.

3. Security for costs

33. This matter has some history. The issue of provision by the plaintiffs of security for the defendant's costs was argued at the hearing in early June this year, and was dealt within the judgment of this court dated 23 June 2000. That judgment speaks for itself. The court's broad conclusion at that time was that it was appropriate in principle for security for costs to be provided, and that an interim order would be made in respect of costs up to and including discovery, but that no decision then would be made on quantum, further assistance being requested upon this issue. At that hearing, the respective submissions were thus : Mr Carr QC sought an interim sum of $13.724 million, consisting of a base figure of $8 million for historical costs (which at that stage appeared to be uncontested) and the further sum of $5.724 million. In response, Mr Heslop QC submitted that there should be reductions in the figures claimed, such revisions amounting to $2.5 million. Accordingly, the broad parameters of the debate at that stage were $13.724 million proposed by the defendant as against $11.224 million on behalf of the plaintiffs.

34. Thereafter, the plaintiffs appeared to have had a change of heart in terms of what was considered an appropriate level for security for costs. Their solicitors' letter dated 10 August 2000 stated that although no objection had been taken to the initial estimate up to 20 April 2000 of $8 million, the position had been "reconsidered", and in this regard an alternative figure of $2 million was put forward. Perhaps unsurprisingly in the circumstances, this change of stance was ignored by the defendant.

35. The quantum issue has now been re-argued, on this occasion with the assistance of a considerable amount of further evidence filed in the interim. There have been detailed affidavits from Miss Carpio and Mr David Law on behalf of the defendant, and from Mr Byrne Hill and Miss Edith Tang for the plaintiffs. I have now had the opportunity to review all the evidence as has been put in, and to consider in particular the detailed observations/arguments of the respective law costs draftsmen, Mr Law and Miss Tang. I have also been considerably assisted by detailed skeleton arguments of counsel.

36. This additional work has produced significant variations in both the level of security sought, and that which is proffered. The defendant now applies for the sum of HK$21,189,745 (as compared with the initial figure of $13.724 million) whilst the plaintiffs now suggest the interim sum of HK$8,693,085 (as against the earlier figure of $11.224 million).

37. Mr Heslop QC, for the plaintiffs, challenged "these huge figures which are manifestly excessive" and highlighted the criticisms made of Mr Law's methodology by Miss Tang, in particular the fact that Mr Law worked from secondary data in a period of but some three days in order to complete his evaluation, together with what Mr Heslop perceived as the very real possibility of duplication. As a consequence, the court was invited to reject the defendant's figures, and to order security by reference to the plaintiffs' suggested figures. This, said Mr Heslop, produced the sum of $8,693,685.

38. To the contrary, Mr Fok SC, who argued this element of the application for the defendant, explained the manner in which Mr Law had been required, given time constraints, to approach his task, and noted that the draft skeleton bill was limited to six specific aspects of work undertaken by the defendant in respect of incurred costs and future costs up to the completion of discovery. Clearly, said Mr Fok, this was not a full bill in taxable form, but a type of summary bill typically used in security for costs applications, and in drawing it up Mr Law had conscientiously formed his own judgment as to the items and amounts of costs he believed would be recoverable by the defendant upon a party and party taxation in relation to these six specific areas covered by the skeleton bill. So that the amount of costs which security was now sought involved the sum of costs incurred to 20 April 2000 ($15,447,325) together with future costs to completion of discovery ($5,742,420).

39. Whilst the subject-matter of the application is hotly disputed, no difference arises between leading counsel as to the principles to be applied, and I have been usefully reminded of judicial statements in the leading cases in this area. I will not here set them out in detail. Suffice to say that in the exercise of its discretion, the court seized with this type of application is attempting to do no more and no less than to pitch the level of security at a figure considered reasonable and just in the circumstances, the court already having decided, after weighing various factors, that provision of security is appropriate. It is also accepted in principle that in considering the amount of security that might be ordered, the court can order any amount up to the full amount claimed, provided it is more than a simply nominal sum - see Keary Developments v. Tarmac Construction [1995] 3 All ER 534 (CA) citing Roburn Construction Ltd v. William Irwin (South) & Co. Ltd [1991] BCC 726 (CA).

40. The present quantum assessment, even at this interim stage, is more than usually striking given the disparity between the respective figures put forward on behalf of the parties.

41. Rarely I suspect, particularly in interim applications, does there arise such a divergence of view as is represented by the defendant's request for $21,189,745 and the plaintiffs' corresponding figure of $8,693,085. Unusual also is the enormous disparity in attributable partners' time within the make-up of the respective bills, namely 2,343 hours as against 534.87 hours (out of overall totals of 3,877.2 and 2,196.4 hours respectively) as revealed in Miss Tang's Schedule A, annexed to her affidavit. Whilst I recognize, as Mr Fok submitted, that the reasonableness of fees is not necessarily to be benchmarked by reference to the plaintiffs' costs, nevertheless at this stage, when the court is occupied with a broad assessment as to the reasonableness of the costs requested, this is not, it seems to me, a statistic to be discarded; indeed, Miss Tang makes the cross-reference only because at this point, in light of the raw data currently available, she does not consider that there is "any alternative" but to make this type of "astounding" comparative assessment. This, of course, links in with the criticism of the fact that Mr Law was working from schedules drawn up by the in-house costs clerk showing the time entries and work summaries done by each of the defendants' solicitor fee-earners at different stages of the proceedings, together with a schedule of counsel's fees.

42. In the circumstances, it does not strike me as inappropriate to treat this approach with a real degree of caution, particularly in light of what Miss Tang appears to suspect, at bottom, is considerable duplication of effort between the various fee-earners, not least in the context of a "team work arrangement". In this context I have not, of course, overlooked Mr Law's expression of his own judgment as to the defendant's entitlement to the costs and disbursements in issue, albeit on his own case the review of approximately 120 lever arch files of documents and the "comprehensive set of schedules" provided to him must have provided a busy three-days' work. And whilst it was not sought to impugn his good faith, Mr Heslop was surely entitled to take forensic aim, as he did, at Mr Law's assertion that, on the materials provided, there was "no unjustifiable duplication of work between fee-earners". I bear in mind, also, Miss Tang's observations about the "generous use" of counsel, together with the levels of fees charged, matters about which Mr Law makes no comment.

43. I do not intend, on a security for costs application, to become overly enmeshed in detail. Looked at in the round, however, and bearing in mind counsel's submissions on each side, aided by the skeleton outlines, I am firmly disinclined to adopt the figures now put forward by the defendant as representing that which would be allowed on any future taxation upon a party and party basis. I recognize that this sort of application tends to provoke, no doubt with the best of intentions, an overly optimistic stance at each end of the spectrum. In any security for costs debate, perceptions inevitably vary depending upon whether the issue is viewed from the standpoint of provider or recipient - as Sir Nicholas Browne-Wilkinson put it in Chandless v. Whittome (1986) Ch D (Court Reporter's transcript), "due allowance" should be made "for the exaggerations which in all good faith everybody is inclined to make in estimating the expense which they can recoup from somebody else ...."

44. In the earlier judgment in which the primary decision was made as to whether in principle security was to be provided, the court noted that the sum of $11 million odd to get a case to discovery was extraordinary. This is a concern which has not been lessened by the expanded claim as now put forward, albeit the additional evidence placed before the court has served to re-emphasize the significant volume of materials involved in what is undoubtedly a complex case, which, in addition, has taken a somewhat unusual course in the interlocutory stages; rarely, for example, does a commercial case require two attempts to get a pleading up and running.

45. Having reflected upon the evidence and the skeleton bill, and having considered the forceful submissions on both sides, I have concluded that the appropriate figure for what is but an interim order for security for costs is the sum of HK$11.5 million. Whilst this is considerably less than the defendant requested, even after the deduction of those sums in the skeleton bill dealing with contribution proceedings (which Mr Fok properly accepts should not be included), nevertheless in my judgment this sum is justifiable in all the circumstances. I so order.

46. I leave it to the parties to decide upon the mechanics of the provision of such security. In my view, it does not greatly matter whether this sum be paid into court, or held in a deposit account in the joint names of Herbert Smith and Baker & McKenzie, or whether it is furnished by means of a guarantee issued from a first class bank in Hong Kong, and I would not anticipate being requested to referee a dispute regarding such mechanics.

47. As to the period within such sum is to be provided, Mr Heslop was instructed to ask for eight weeks. I consider that excessive, particularly in light of the length of time that it has taken to resolve this application. Such security, in such form as is to be agreed, is to be provided within 42 days of the date of the judgment herein.

48. So far as costs are concerned, in response to a query from the bench, Mr Fok made it clear that, as he put it, there was "nothing on the table". Accordingly, he submitted, he was simply continuing the application for security for costs which had been adjourned from the June hearing. For his part, Mr Heslop asked for costs to be reserved. Perhaps the correct course is to make an order nisi, which I now do, to the effect that the costs of the defendant's summons dated 20 April 2000 be to the defendant in any event, to be taxed if not agreed. I decline to certify the matter as fit for two counsel.

49. Should directions or clarification be required consequential upon this judgment, I will hear the parties at a 9:30 a.m. appointment to be fixed before the end of this year. I remain concerned (as, no doubt, do the litigants) that this case remains on course for its scheduled trial date.

50. I thank all counsel for their considerable assistance.