IDMISTON LTD v. ASIATIC FORTUNE CO LTD

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

1987, No. A7889

(Civil)

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JUDGMENT

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1. This is one of three very similar actions brought by the plaintiff, the other two being A7891/87 and A7892/87.

2. The basis of the claim in each case is that a loan allegedly due to the plaintiff by the defendant has not been repaid and the defence is that it has in fact been settled by means of accord and satisfaction.

Background

3. This is a claim where the fundamental point seems simple but voluminous documents have been filed. I do not consider it necessary for the purposes of this application to go into them in detail.

4. The plaintiff is a wholly owned subsidiary of a Hong Kong publicly listed company, Mandarin Resources Corporation Limited ("Mandarin"). In August 1986 Mandarin took an assignment from one of its own subsidiary companies, Lu's Finance (Hong Kong) Limited ("Lu's") of its outstanding loan portfolio. Part of that portfolio was a loan of $5 million made to the defendant. By a letter dated the 23rd March 1987 the plaintiff gave notice to the defendant of that assignment. It is the defendant's case however that Mandarin was indebted to a Liberian company called Toma Investment Corporation ("Tomax") for the sum of $12 million Singapore dollars. In mid-July 1986 it was agreed between Tomax and the defendant that Tomax would repay the outstanding loan to Mandarin and that would be debited to Tomax's account with Mandarin. By a letter dated the 26th July 1986 from Tomax to Mandarin this was duly authorised. By a letter dated the 6th August 1986 Mandarin informed the defendant that they had been instructed by Tomax to apply their credit balance with them to pay off the loan and interest owing by the defendant to Mandarin's wholly owned subsidiary, Lu's. By a further letter dated the 28th August 1986 Mandarin advised the defendant that the sale of Lu's had been completed and that the defendant's loan, plus interest, from Lu's had been totally repaid by Tomax. Both the letters of the 6th August and 28th August 1986 from Mandarin to the defendant were signed by Mr. Wong Chung Kit a director of Mandarin.

Case for the Plaintiff

5. The authenticity of the letters relating to the alleged repayment have been very strongly challenged. In particular it is submitted that the letter of the 6th August was signed when apparently Mr. Wong was in Thailand. Mr. Wong in a letter dated the 21st January 1987 addressed to the plaintiff's solicitors said -

"...I was elected a Director on Feb. l 1986 and am a non-resident Director who has not been to Hong icons during the pas year. ''

The letter refers to Mandarin and is written from Bangkok.

6. It is the fundamental case for the plaintiff that it has been the victim of an enormous fraud perpetrated by one Ho Hua Min and his nephew David Cheng who are now fugitives from justice and most certainly not in Hong Kong. The plaintiff says that Ho, although not listed as a shareholder, controls the defendant company as he does the companies referred to in the ocher actions namely Asiatic Fortune Company Limited and Crownhall Investments Limited. The plaintiff says that in 1986 Mandarin was totally controlled by Ho, as Tomax still is. There was never any debt owing from Mandarin to Tomax. Wong Chung Kit was a director of Mandarin purely as Ho's nominee and one Sideman Ho who has sworn an affidavit for the defendant was a director of Lu's also as Ho's nominee. Neither had any independent discretion and did only what Ho directed them to do. All these matters are set out in a very long affidavit sworn on the 12th March 1988 by one of the plaintiff's directors. Tam Yiu Cho.

7. It is submitted that every possible procedural step has been taken by the defendant to frustrate and delay this action and this application is only one more such step. It is the case for he plaintiff that if Mandarin and its subsidiary, the plaintiff here, are in financial difficulties it is entirely due to the fact that they have been systematically defrauded by Ho and it would be quite wrong to stifle this action by making an order for security for costs because this would prevent action being taken against Ho's controlled companies by reason of Ho's own fraudulent actions. A company should not be denied access to the courts, which it is submitted would be the effect of an order, unless there are compelling reasons which do not exist here. While the plaintiff's capital is small the defendants have failed to produce evidence of lack of assets sufficient to pay the defendant's costs and the onus is on it to do so. There is no onus on the plaintiff to show assets.

Case for the Defendant

8. Section 357 of the Companies Ordinance provides that if it appears by credible evidence that a plaintiff company will be unable to pay the defendant's costs, the Court may require that security be given. This provision is usually only used if the company is in liquidation or receivership but Mr. Chan for the defendant submits it is not confined to those situations.

9. The defendant here says that the paid-up capital of the plaintiff is only $20 and there is no evidence of any other substantial assets. If the action would fail the plaintiff could simply be wound up and the defendants would be left with an empty order for costs. A skeleton bill of cost has been exhibited and, while the amount is disputed by Mr. Barlow for the plaintiff, the estimate is almost $1,000,000. The plaintiff is a subsidiary of Mandarin which is in trouble itself, its shares having been suspended from trading.

Decision

10. These are complicated matters. There has already been substantial litigation between the parties and voluminous documents have been filed in these actions. It does seem to me that there is substantial support for the allegation made by the plaintiff that Ho Hua Min has indeed been guilty of massive fraud and that it was Ho who does control the defendant companies. I am satisfied there is considerable evidence to indicate that Mandarin and the plaintiff have been the victims of this fraud. At the same time there is also obvious merit in the defendant's submission that the plaintiff is a company without any real capital and there is no evidence of any other assets.

11. There are seven factors set out at page 402 of the Annual Practice which should be taken into account by a Court in exercising its discretion as to whether to award security for costs by a plaintiff company. These are taken from the decision in Sir Lindsay Parkinson and Co. Ltd. v. Triplan Ltd ⁽¹⁾. I set out these questions and answer them as follows :

12. Here the allegation is that the plaintiff, admittedly a company with a minute capital, did have a very large asset - the loan of $5,000,000 and the plaintiff's case in each action, which seem to have support, is that that asset has been taken from it by fraud. Section 357 of the Companies Ordinance states that an order for security for costs may be made if there is evidence that the plaintiff may be unable to pay costs. Such a situation could arise with many small companies given the high cost of litigation. Here, taking into account all the factors referred to in Sir Lindsay Parkinson and Co. Ltd. v. Triplan Ltd. ⁽¹⁾ and the evidence contained in the various affidavits filed herein, while it would seem that there is a chance that the plaintiff, if unsuccessful, would not be able to pay the defendants costs, I do not consider I should exercise my discretion to make an order for security. The application in each case is therefore refused.

13. The plaintiff is entitled to its costs of the application in each case. I was asked for an order that they be taxed and paid forthwith. As I understand it such is the case without such further order. It is only if the words "in any event" are added that the plaintiff has to wait. I do not so order here.

14. There will be a similar order in respect of High Court actions A7891/87 and A7892/87.

(1) [1973] Q.B. 609