MENYOUTH LIMITED v. KWAN AND KWAN(a firm)

BETWEEN

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JUDGMENT

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1. On the 7th May 1985 Master O'Donnell held that he had no jurisdiction under Section 357 of the Companies Ordinance to make an order for security of the defendant's costs and made no order. The defendant appeals against this decision. The defendant also applies by summons for security if the appeal is unsuccessful. I will first deal with the matter of jurisdiction.

2. Section 357 of the Companies Ordinance provides: -

        "Where a limited company is plaintiff in any action or other legal proceeding, any judge having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the company will be unable to pay the costs of the defendant if successful in his defence, require sufficient security to be given for those costs, and may stay all proceedings until the security is given."

3. The jurisdiction and powers of a Registrar now called a Master are set out in Section 38 of the Supreme Court Ordinance which reads where relevant as follows:-

                 "38.    (1) The Registrar shall have and may exercise and perform -

4. Order 1 rule 2 of the Rules of the Supreme Court specifically excepts the application of the Rules of the Supreme Court to proceedings relating to the winding-up of companies, but not to other proceedings under the Companies Ordinance. However Order 32 rule 11(1) of the Rules of the Supreme Court gives jurisdiction to a Master to exercise the same powers under any ordinance as a judge in chambers with certain specified exceptions which do not apply in the present case. As a result I am satisfied that the Master had jurisdiction to hear the defendant's summons for security of costs.

5. I will now proceed to consider the merits of the application. The defendant is a firm of solicitors who acted for the plaintiff in respect of a tenancy agreement for premises that the plaintiff intended to use for the purpose of a restaurant. The agreement expressly provided that the premises were to be used only for business purposes. After the tenancy agreement was signed on the 24th December 1983 the plaintiff spent about $235,000.00 on fixtures, fittings and other expenses for the restaurant. However, when the plaintiff made an application to the Urban Council for a restaurant licence it was refused on the grounds that the occupation permit restricted the user to domestic purposes only, and because the premises were structurally unsuitable for a restaurant. The plaintiff therefore claims damages for negligence on the grounds inter alia that the defendant failed to exercise due care and failed to give proper advice. The defendants deny the allegations of negligence, and plead in the alternative contributory negligence by the plaintiff.

6. It is conceded that the plaintiff company is a shelf company formed specifically for operating the restaurant. It has an issued capital of $10,000.00 but only a paid up capital of $2.00. No other business is intended to be done by the plaintiff. There is no evidence that the plaintiff has any assets. The defendant's solicitor contends that the plaintiff's claim is frivolous and vexatious. However in my opinion upon the available evidence there is an arguable case, although I would not describe it to be a strong case.

7. The court has an unfettered discretion whether or not to make an order for security for costs see Sir Lindsay Parkinson & Co. Ltd. v. Triplan Ltd. (1973) 1 Q.B. 609. There is uncontradicted evidence in this case that if the defendant is successful the plaintiff may be unable to pay the defendants' costs. Accordingly in the exercise of my discretion I am satisfied that an order for security should be made.

8. I shall therefore allow the appeal and make an order for security in the sum of $100,000.00.