STARMETRO HOLDINGS LTD v. TUEN SIU WA

HCA 1968/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1968 OF 2011

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D E C I S I O N

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1.  The defendant seeks security for costs against the plaintiff on the ground that the latter is a foreign company.  The plaintiff opposes the application on the ground that it has substantial assets and that it has strong merits on its claim.

The background

2.  The plaintiff purchased 50% shares of one Microdust (HK) Limited) (“the company”) from the defendant and another person under a written agreement which gave the plaintiff a put option to require the defendant to re-purchase the shares at US$165,000 (“the put option”).  The plaintiff could exercise the put option only once in writing and serve it on the defendant at an address at Johnston Road (“the Johnston Road address”) or by fax to a designated number within 30 days after the 5^th anniversary (ie 3 October 2011) of the date of the put option agreement. 

3.  On 4 October 2011, the plaintiff exercised the put option by serving written notice (“the notice”) on the defendant but was not successful because the building at the Johnston Road address had been replaced by a new building.  The designated fax number was disconnected.  All phone calls to the defendant were unanswered.

4.  The plaintiff tried alternative methods of serving the notice on the defendant:

(i) by advertisement in an English and a Chinese newspaper on 20 October 2011;

(ii) at the registered office of the company (“the registered office”);

(iii) by sending to Messrs Lau, Chan & Ko (“LCK”) who acted for the defendant generally in this matter. 

From time to time, the plaintiff’s representative attempted to locate the defendant at the registered office but the defendant was not present, the door to her room was locked and staff working at Microdust refused to reveal the whereabouts of the defendant. 

5.  Suddenly, on 3 November 2011, LCK wrote to the plaintiff’s solicitors (“CLW”) stating that the defendant had received the notice and that she was ready and willing to perform her obligations under the put option. However, LCK clearly stated that they had not received instructions to act for her in the completion of her purchase of the shares being the subject matter of the notice but that did not prevent the sale and purchase from going forward. The letter was silent as to the place of completion or how the defendant could be contacted. 

6.  Another surprise came on 4 November 2011, after office hours, when LCK wrote to CLW claiming that the defendant’s representative (Mr Tse) had waited at the registered office with a cashier order for the sum of US$165,000 (copy enclosed) for the purpose of completion and “for that purpose he waited until midnight”.  LCK claimed that time was of the essence; the plaintiff was in default and the defendant purported to accept the plaintiff’s repudiatory breach. 

7.  The fact is that the defendant has never informed the plaintiff that the property at the Johnson Road address had been demolished.  No one at the registered address would confirm that the defendant had received the notice despite enquiries by the plaintiff.  The defendant never informed the plaintiff that she had elected the registered office as the place of completion.  There was no evidence that the defendant or Mr Tse had never tried to contact the plaintiff or CLW at any time on 4 November but simply waited until midnight!

8.  Mr Tse was in fact a clerk of LCK.  The defendant did not explain why she instructed the clerk instead of LCK to do the completion properly.  She did not explain why she had not asked LCK to mention in its letter dated 3 November of what Mr Tse would do on that day.  Note that this letter had expressly asked the recipient to reply to Mr Tse.  LCK had never explained why Mr Tse would have acted in his personal capacity and spent a whole day even beyond normal working hours to perform what did not seem to be a complicated completion. 

9.  The defence was that what was served was the notice but not documents required to be executed by the parties for the purpose of completion.  In particular, the share certificate was missing.  Moreover, the default position at common law was that simultaneous exchange of the relevant documents by the plaintiff and the tender of purchase price by the defendant was required.  The plaintiff was allegedly in default and repudiatory breach. The defendant counterclaimed for a declaration that she had duly rescinded the put option agreement and was relieved from any obligations thereunder. 

10.  The plaintiff has taken out an Order 86 application returnable for argument on 2 May 2012.  The affirmations in support of and in opposition to that application have been placed before me as well. 

Relevant factors for ordering security

11.  It is not in dispute that the plaintiff is not resident in Hong Kong.  Generally security will be ordered where a foreign plaintiff is involved.  However, there is no inflexible rule and the court has a real discretion under Order 23: Lauria v. Le Salon Orient (Hong Kong) Ltd & another [1996] 3 HKC 157; Re Greater Beijing Region Expressways Ltd (No. 3) [2000] 3 HKC 608.  The court has to consider a host of factors in the exercise of its discretion and will order security only if it is just to do so. Parties should not attempt to go into the merits of the case unless it can be clearly demonstrated that there is a high degree of probability of success or failure. Hong Kong Civil Procedure 2012, para 23/3/3, at pages 507-8. 

12.  In Lauria v. Le Salon Orient (Hong Kong) Ltd & another, the plaintiff suffered personal injuries as a result of walking through the glass panel of a salon.  She sought damages claiming that the accident was caused by the negligence or breach of statutory duty and occupiers’ liability.  Ordering security against her would have stifled her claim.  Le Pichon J (as she then was) took the view that the plaintiff’s prospects of success against one or other of the defendants were “good”.  Even if the plaintiff might have been found to have been contributorily negligent, it was inconceivable that she would be held wholly to blame for the accident.

13.  In Re Greater Beijing Region Expressways Ltd (No. 3), Le Pichon J (as she then was) refused to strike out the petition.  She took the view that but for the alleged wrongful conduct complained of in the petition, the petitioner would have been ordinarily resident in Hong Kong.  She therefore declined to order security.

14.  In Wong Kwok Mei Sanrita & ors v. Eversonic Inc [1992] 2 HKC 62, the plaintiff contracted for blank video cassette but what the defendant delivered were far from blank.  No security was ordered.

15.  Each case has its own unique circumstances.   The above 3 cases cited by Mr Yau may be useful illustrations of the rule but the court’s power should not be fettered. I now turn to the specific grounds in opposition of the plaintiff.

Merits of the claim

16.  The evidence speaks clearly of the plaintiff being very keen to exercise the option.  It has attempted service of the notice by every possible means it could think of, be it prescribed by contract or otherwise.  Upon receipt of the letter dated 4 November (Friday) from LCK after office hours, the plaintiff reacted quickly.  On 7 November 2011 (Monday), the plaintiff immediately despatched the necessary documents for the defendants to execute.

17.  The defence that the plaintiff had not left the relevant documents at the registered office for execution cannot hold water.  Where there was no confirmation that the defendant could be located there, there was no reason for the plaintiff to leave such important documents at the registered office.

18.  In his submission, Mr Yau said that the plaintiff had not tendered the share certificate for inspection.  Without disrespect, this was simply an afterthought and not the defendant’s case in correspondence.  The letter dated 4 November stated,

“In the case the matter has to be resolved by litigation, let us as soon as possible inspect the real documents your client intends to execute to effect the sale of the shares if they have already been in existence.”

One can therefore see that the request for inspection was not for the purpose of completion but in the context of litigation.  A chaser letter from LCK came on 30 January 2012, which was already after the filing of the defence.

19.  Further, Mr Yau’s submission has completely overlooked the letter dated 7 November from CLW which stated that the original share certificate was with CLW, who undertook to return, amongst others, the original share certificate to LCK.

20.  The defendant’s conduct in keeping the place of completion to herself could not facilitate simultaneous execution of documents and payment of purchase price for the shares.  It also exhibits lack of genuine intention to honour her obligation under the put option.

21.  The merits are overwhelmingly in favour of the plaintiff.  Given the lack of good faith in the defendant’s conduct, I fail to see why the court in the exercise of its discretion might refuse relief in specific performance. The counterclaim falls once the claim is established.

Availability of assets

22.  The plaintiff has exhibited a one-page letter from a bank showing that it has a credit balance of over HK$2,900,000.  It offers to place the money in a fixed deposit as the court deems fit. 

23.  Notwithstanding the sum is substantial, it is not in a fixed and permanent form and can easily be diverted out of Hong Kong.  Should the plaintiff fail in its claim, the company shares are not worth much, given the admitted financial difficulty of the company.

Exercise of discretion

24.  Having considered all factors, I am of the view that the strong merits of this case tip the scale against the ordering of security. 

25.  I will add that if my view were otherwise and security ought to be ordered, the amount of $360,000 claimed as security for (i) drafting a defence and counterclaim; (ii) meeting an order 86 application; and (iii) making this security for costs application, is entirely out of proportion to the amount at stake.   The claim is only worth US$165,000 (equivalent to about HK$1,286,000).  Without disrespect to Mr Yau, whose standard of work is as usual admirable, this case does not warrant engagement of such a senior counsel.   Besides, the plaintiff has already taken out an Order 86 application.  In the interest of saving time and costs, the defendant should have acceded to the plaintiff’s suggestion of having both the Order 86 and this application heard together.  In any case, if the defendant had been successful, the costs on the Order 23 application would have been summarily assessed instead of being made the subject of security.  Therefore, the security (not indemnity) for costs which I might order would be $120,000.  This amount would not stifle the plaintiff’s claim given the plaintiff’s available funds.

Conclusion

26.  With strong merits on the claim, I decline to order security notwithstanding that the plaintiff is ordinarily resident out of Hong Kong.  I therefore dismiss the application.  I order nisi that costs should be to the plaintiff, summarily assessed at $80,000 (inclusive of the costs of this hearing).

27.  I thank counsel for their assistance.