ZHU KUAN CO. OF ZHUHAI SEZ v. BRICKELL LTD. (In Liquidation) AND OTHERS

IN THE HIGH COURT OF HONG KONG

COURT OF FIRST INSTANCE

COMMERCIAL LIST NO. 42 OF 1995

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J U D G M E N T

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1. I have before me a summons dated 25th February 1997 taken out by the 4th Defendant in this action asking for an order that the Plaintiff do within 14 days give further security for the 4th Defendant's costs to cover the period up to the setting down of this action for trial. The sum requested is $800,000.00.

2. This is in fact the third summons, as I understand it, in the security for costs sequence of applications by the 4th Defendant. The first summons was in April 1995 whereby $1.5 million was requested up to the date of setting down. In the event an Order was made by consent that the Plaintiff furnish the sum of $450,000.00 up to and including the filing of the defence. This was followed in January 1996 by a further summons requesting an additional sum of $1 million up to the date of setting down, but again it was compromised by a Consent Order wherein the 4th Defendant accepted the sum of $400,000.00, but clearly without prejudice to its right to come back for more. The third summons, which is the summons I am presently dealing with, was issued on 25th February 1997. As I have already indicated it asks for a further sum of $800,000.00 up to the date of setting down.

3. At this stage I should indicate that when the matter first came before me on 13th March 1997 at 9:30 a.m, Mr. Kerr of Counsel, who was then instructed by the Plaintiff in fairly short order, appeared with Mr. Wintle for the 4th Defendant and indicated that he wished to argue the entitlement of the 4th Defendant to ask for further security in light of the previous Consent Orders. He also indicated that he wished, in any event, to attack the skeleton bill that has been put up. As a consequence, the matter was adjourned to today's date, and I have had the benefit of full argument by Mr. Kerr for the Plaintiff and by Mr. Fok for the 4th Defendant. The mode of proceeding in this application was that having read Mr. Fok's admirable skeleton setting out the arguments, I asked him to sit down and let Mr. Kerr make the running. Mr. Kerr then did so with some spirit and fortitude in the face of a certain amount of judicial pressure. To sum up Mr. Kerr's argument, he takes two points, and he will forgive me, I hope, if I put them in less than elegant language. He says, first, that no security for costs should be ordered because effectively in this case costs are being used as a weapon of oppression, and that it is not just in the circumstances to award a further sum in security for costs. He says further that if matters go on the way that they are going then when one looks at the orders for security for costs which are being made in favour of the five Defendants in this case, the sum ordered to be paid in security would actually exceed the claim, which I understand is in the region of some HK$4 million. That is his first submission. His second submission, and it is a detailed one, is that he attacks the skeleton bill that has been put forward.

4. I should note that Mr. Kerr does not take any point about the 4th Defendant's inability to apply for security for costs on the basis of the previous Consent Orders. He tells me that he is satisfied, having looked at the precise terms of those Consent Orders and the collateral correspondence, that the point is not open to him to take. I agree with that view. The point would seem to me to be unarguable.

5. Before turning to the specific arguments, I should mention that I am informed by Counsel that, at the moment at least, the 5th Defendant in this action has been awarded security for costs in the sum of $425,000.00, and that the 1st, 2nd and 3rd Defendants have obtained security for costs in the sum of $1.23 million.

6. It is against this background, therefore, that I turn to consider the present application, although before so doing I remind myself of the provisions of Ord. 23 r. 1 dealing with security for costs, and in particular the Marginal Notes in the White Book at Marginal Note 23/1-3/2 (at page 407) and Marginal Note 23/1-3/29 (at page 417) as to the provision of security. The notes are self-explanatory, the principles are well-known, and the matter is fundamentally one for the exercise of the judicial discretion upon all the material before the Court.

7. I turn first to Mr. Kerr's interesting primary argument, which I might conveniently term his 'philosophical approach' to the question of security for costs. Descriptive compression rarely does justice to cogent argument, but a summary of the way he puts it in his attractive submission is along the following lines: that this is a case involving a claim for HK$4.4 million or so. The Plaintiff has one way or another already put up security of HK$2.3 million, and assuming the amounts claimed by way of security are genuine, if it is to be accepted that each Defendant is entitled to be substantially secured for all their costs in relation to this matter, the net result of this will be that when the case actually gets trial the Plaintiff would have put up security far in excess of the claim.

8. Mr. Kerr further suggests, I think probably unjustifiably, that if the Court adopts such a stringent approach for security, as a matter of reality this would have the effect of deterring foreign plaintiffs from litigating in the Hong Kong courts; and, as a matter of principle, the Court should not allow applications for security for costs to become weapons of oppression.

9. This is an interesting approach, but I regret that it is one that does not commend itself to me. The reality of the matter is that in multi-party commercial litigation one simply cannot take a global approach, and therefore compare the accumulated amount of security to the face amount of the claim. The short point, in my view, is that if the Plaintiff (which it is common ground is an overseas company, a mainland Chinese company), chooses to sue a number of Defendants or blocs of Defendants in Hong Kong, then each of those Defendants or blocs of Defendants, as the case may be, is entitled to ask for security according to the usual principles. That is simply a matter of litigation reality. I do not accept Mr. Kerr's philosophical approach, and I am buttressed in that view by his own acceptance of the fact that, to use his words, "the Plaintiff is a large significant company with Hong Kong links and has a presence in Hong Kong through an associated company; it is not a fly-by-night entity". I am pleased to hear that. I intend to proceed in this application along the usual principles.

10. Mr. Kerr next attacks the skeleton that is being put in pursuant to this application. It is interesting to note that the skeleton, which I am told by Mr. Fok has been prepared by the Deacons' law costs draftsman, indicates that the total of the actual costs which have been and will be expended up to the date of setting down comes to an amount of $1.883 million. So that if one subtracts the security for costs which have already been ordered in the respective sums of $450,000.00 (on 2nd May 1995) and $400,000.00 (on 3rd May 1996) the net shortfall is $1.033 million. I have already observed that notwithstanding this figure, those responsible for putting this application before the Court have elected to ask for the sum of $800,000.00 in further security.

11. Mr. Kerr has addressed me extensively upon the content of the skeleton; again if I may take the liberty of compressing his argument, he makes three broad points within the plethora of detail. He says, first, that the skeleton bill of costs has been drawn with reference to the maximum amounts allowed under the Law Society guideline promulgated on 1st May 1995 with regard to the hourly rates both of partners and of associated solicitors; second, that it has been drawn (as he says is always the case) very much with rose-coloured spectacles, and third, that in any event it contains in places some real duplication. He also suggests that there really should be no place in a claim of this dimension for the participation of leading Counsel, whilst he is nonplussed by the apparent presence within the skeleton of provision for expert accountancy evidence.

12. In his succinct reply Mr. Fok joined issue with the propositions put forward by Mr. Kerr, although in characteristically fair fashion he accepted that here and there elements of optimism might arise, and in one or two cases minor duplication. He did make the fair point, I think, that normally in situations like this (and I confess I have little experience) any plaintiff attacking a draft bill would normally come to Court armed with his own law draftsman's bill so that the Court could see a competing expert view and compare the two draft bills. This has not happened in this case nor, he notes, has there been any indication of the level of costs which the Plaintiff has been charging its own client.

13. At the end of the day, the Court hears both sides and must seek to avoid the danger of simply going round in circles. It seems to me that the Court has to look at what is put up, and then take a view. This is security for costs, not final judgment. The Court has to look at the draft bill and has to use its own experience, such as it is, and its own feeling for the broad justice of the case. I have looked at the skeleton and I have been much assisted by the comments of both Counsel, who have acted most responsibly. I take into account that this is a commercial action which, whilst it may not involve a very large amount of money, nevertheless may in certain areas involve considerable complexity. Small is not necessarily simple. Indeed that might be one reason why this case ultimately may not be fought to its conclusion, but I know not. I also bear in mind the fact, as Mr. Kerr has told me, that the Plaintiff's case against the 4th Defendant, a Dutch bank, is framed, inter alia, in terms of misrepresentation and fraud, so that given such serious allegations against a reputable financial institution it is perhaps not unreasonable that a good deal of attention is paid to such allegations. Equally, I am satisfied that it is generally the case (and I say so without meaning any sense disrespect), that security for costs bills are often drawn through rose-tinted glasses, as it were.

14. So all in all what is the answer? Bearing the recognised principles firmly in mind, having taken in the arguments of Counsel and having reflected upon the skeleton bill, and last but not least having looked at, for general reference purposes, the levels of security for costs which thus far have been awarded to the first three Defendants, I have taken the view that the broad justice of the case is best served by ordering that the Plaintiff do within 14 days from today's date provide further security for the 4th Defendant's costs to cover the period up to the setting down of this action for trial in the sum of $550,000.00. If my mathematics are correct this means that the total sum which the 4th Defendant would have obtained in terms of security for costs in the three applications that I have outlined totals $1.4 million. This is generally in line with what the 1st, 2nd and 3rd Defendants have achieved, and it seems to me broadly to fit the situation. These issues cannot be decided as if by micrometer; if my instinct indicates that this is the right figure, then that is the figure I am going to order. There now remains the question of costs of and occasioned by this application; such costs will, of course, include the costs occasioned by the appearances on 13th March 1997, on which date, as I have indicated, this matter was stood down for argument.

(Submissions from Counsel)

15. In light of my decision Mr. Fok, for the 4th Defendant, asks for the costs of and occasioned by the application, including the costs reserved at the 9:30 a.m. hearing on 13th March 1997. Mr. Kerr resists. He accepts that the costs of the first hearing should follow today's costs, but he says that he has been partially successful in the sense that Mr. Fok has got $250,000.00 less than the $800,000.00 asked for. He draws my attention to the fact that a Calderbank letter of 27th June 1997 was written, whereby the Plaintiff offered the sum of $200,000.00 in costs. Mr. Kerr suggests that it would be a bitter pill for the Plaintiff to swallow were it ultimately to win this case but to be penalised in costs by reason of this application. He suggests that costs be in the cause.

16. I have some sympathy with Mr. Kerr's approach, but at the same time I note that, as a distinguished Judge once remarked, "litigation is not a garden party". Applications are taken out, costs are expended, and there are winners and losers. It is simply part of the life of the law. The short point, and I am afraid that there is no getting away from this, is that Mr. Kerr came to Court today to argue, first, that security for costs should not be ordered, and that if I was against him on that, his secondary position was to attack the skeleton bill. The protection that our legal system accords litigants in Mr. Kerr's client's position is, of course, to use the Calderbank procedure; had those instructing Mr. Kerr 'upped the ante', so to speak, and made the figure so offered rather more realistic instead of a mere 25% of the amount claimed on the face of the summons, I dare say a good deal of thought would have gone into whether or not to accept it. Certainly the history of the action thus far indicates, by virtue of the Consent Orders hitherto entered into, a willingness on the part of the 4th Defendant's advisers to be reasonable and not to come to Court unless forced. Interestingly in this context Mr. Fok has drawn my attention to the pre-application correspondence, whereby on 6th January 1997 Messrs. Deacons Graham & James wrote an open letter to the Plaintiff's solicitors asking for additional security in the sum of $500,000.00 to cover the period up to the setting down of the action for trial. However, no response was received, and thereafter the application proceeded in normal course.

17. Nor do I accept the proposition that costs of an application such as this should be dependent in some way upon the cause. It seems to me that security for costs are essentially a discrete matter, and should be dealt with as such. The short point is that the Calderbank which was issued was considerably below the ultimate level achieved, and I am afraid that in this instance costs must lie where they fall.

18. In all the circumstances, and having taken due regard of the arguments of Counsel and the very able way in which they were presented, I am in no doubt in this case that the 4th Defendant must have its costs of and occasioned by this application, including both of the hearings of 13th March 1997 and of today. The 4th Defendant, of course, has carriage of this Order. It will no doubt arrange to put it in proper form.

(Further submissions from Counsel)

19. After further hearing from Counsel, and for the avoidance of doubt, my Order is as follows:

(1) The Plaintiff do within 14 days from the date of the Order herein give further security for the 4th Defendant's costs to cover the period up to the setting down of this action for trial in the sum of HK$550,000.00 by way of payment into Court of the said amount, such moneys to be placed in an interest bearing account;

(2) If such additional for security as aforesaid be not provided within the time so ordered, all further proceedings herein be stayed;

(3) The 4th Defendant be at liberty to apply for further security for costs; and

(4) Costs of and occasioned by this application be to the 4th Defendant in any event.

20. Finally, I would like to thank both Counsel for dealing with a detailed matter with precision and economy. I have been much assisted by their efforts.