BIL INTERNATIONAL LTD v. PAUL Y.-ITC CONSTRUCTION HOLDINGS LTD

HCCL 26/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO.26 OF 2004

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J U D G M E N T

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The applications

1.  There are two applications before the court, each taken out by the defendant herein, Paul Y.‑ITC Construction Holdings Ltd.

2.  By summons dated 17 May 2004 the defendant seeks to strike out the plaintiff's Statement of Claim, and accordingly to dismiss the action, on the grounds that there is disclosed no reasonable cause of action, or that the claim is embarrassing, frivolous and vexatious, or that the claim should be struck out as an abuse of process.

3.  In the alternative, if and in so far as such relief is not forthcoming, the defendant seeks security for its costs, up to and including discovery, in the amount of HK$500,000 on the basis that the plaintiff is ordinarily resident out of the jurisdiction.

The background

4.  The dispute between these parties has considerable history, and the present applications cannot be understood without brief reference to the background facts.

5.  The substance of this case previously has presented itself to the court in HCA No.5776 of 2000, re‑intituled Commercial Action No.87 of 2000 (the 'first action').  This is an action between Tiken Limited, as 1^st plaintiff, and Paul Y.‑ITC Holdings Ltd, as second plaintiff, and Brierley Investments Limited, the former name of the present plaintiff, as defendant.

6.  This first action is of some complexity in terms of detail, but in essence it is relatively straightforward.  It is a claim for sums due under an Agreement, dated 6 June 1994, whereby the plaintiffs, Tiken and Paul Y, together with others, had purchased shares in an entity known as Downer Group Limited.

7.  One of the terms of this Share Acquisition Agreement was that Brierley Investments Limited (as it then was known) undertook to indemnify Tiken and Paul Y against losses suffered by Downer Group Limited (DGL) upon certain construction contracts to which DGL and/or its subsidiaries were party.

8.  The sums claimed in the first action are substantial.  They are asserted to be for losses suffered by DGL under the contract for the construction of the Ting Kau Bridge, which was designed and built by the Ting Kau Contractors Joint Venture, of which Downer and Company, a subsidiary of DGL, was a part.

9.  The quid pro quo for the contractual indemnity provided to Tiken and Paul Y under the Share Acquisition Agreement was contained within Clause 14A.2 of this Agreement, which provided that Paul Y shall procure that it and its subsidiaries were to use all reasonable endeavours to maximize income and control costs so as to minimize any payment due to Paul Y and/or Tiken.

10.  Allegations of failure in this regard have already been ventilated during interlocutory hearings in the first action.  There is no need for present purposes to provide more than an outline of the position.  Suffice to say that in the course of the first action the defendant therein, Brierley Limited, has sought on two occasions to amend its Defence to allege a breach of Clause 14A.2 of the Share Acquisition Agreement.

11.  I have been reminded that these applications were made before this court by summonses taken out by Brierley dated 7 March 2001 (resulting in an Order of 23 April 2001), and further by summons dated 21 October 2003.  Upon each occasion the application so to amend was refused.

12.  I am told that upon the first such application to amend to plead a breach of Clause 14A.2 that no judgment was rendered underpinning such refusal (I note that at that stage a number of other amendments simultaneously were permitted).

13.  However, the second such application to invoke such a breach — an application which was strenuously contested, and which took place during a bifurcated hearing on 26 January and on 18 February 2004 —resulted in a detailed judgment dated 23 February 2004 setting out the reasons for such refusal, which was embodied in an order of that date, together with a further order granting permission to the plaintiffs to set this matter down for trial.

14.  This judgment speaks for itself, and little will be served by revisiting the matters set out in detail therein.  I note, however, that in that judgment this court made reference to a sense of déjà vu about that application, and further stated that clearly it was time to put this particular aspect to rest and to get on with the case.  In this connection I am told that the trial of this action now has been set down for 20 days, to be heard from 6 June 2005.

15.  No appeal was launched against this order dismissing the application so to amend, and so far as allegations as to breach of Clause 14A.2 were concerned, that appeared to be an end to the matter.

16.  However, in fact this was not so.  Evidently Brierley Limited — or BIL in its present incarnation — was dissatisfied with that which had transpired.

17.  And thus it hit upon an ingenious alternative course.  Instead of appealing the refusal to permit the desired amendment, it was decided to issue fresh proceedings, wherein BIL was now to be plaintiff.

18.  This new action raised the precise allegation as to breach of Clause 14A.2 which had been the subject of dismissal by this court on the two earlier occasions, that which is pleaded in support thereof mirroring the matters earlier relied upon, in addition to pleading two new 'particulars' of such breach.

19.  The situation, therefore, is that by way of these new proceedings this allegation now is raised for the third time, the essence of this claim being that following a mediation against the Government, the Ting Kau Joint Venture settled for the sum of HK$78 million claims originally quantified at HK$492 million, and that Paul Y could and should have taken steps to achieve a greater financial recovery.

20.  Accordingly it is this second action, containing this renewed plea, which now is the subject of complaint on the part of the defendant thereto, Paul Y, which of course remains the 2^nd plaintiff in the first action.

The strike out argument

21.  On behalf of the applicant, Paul Y, Mr Dymond spent some time reviewing the history of this case.  In my view it was appropriate to do so, and thus to set the broad scene against which to mount his argument.

22.  I do not intend to set out the detailed chronology of events which was thus compiled; suffice to say that I am satisfied that he has made good his thesis that efforts have been made on behalf of Brierley — or BIL as it is now called — to delay and obfuscate the trial of this dispute, which I note was initially listed for trial for seven days in September 2001.  In my view it is difficult for an objective observer to consider the detailed procedural history of the first action, as now supplemented by this second action, without being driven to the unfortunate conclusion that the twin aims of delay and a desire to change the present shape of this case have underpinned Brierley's conduct of this litigation to‑date.

23.  Against this backdrop the broad thrust of Mr Dymond's argument was that the claim now purportedly mounted in this new action was inextricably connected with, and contingent upon, Paul Y's claim in the first action, that in substance if not form it was effectively a defence and counterclaim, and thus properly belonged within the first action, and that there were no special circumstances justifying departure from accepted Yat Tung principles (Yat Tung v. Dao Heng Bank [1975] AC 581).

24.  Further and in any event, Mr Dymond submitted, pursuant to the allegation (at paragraph 28 of the new Statement of Claim) that Paul Y had “failed to use all reasonable endeavours to or to cause to obtain the maximum payment or by achieving a better settlement for the claims”, the two new particulars proffered (at subparagraphs (d)(i) and (ii)) which had not been subject of prior adjudication by this court, represented bald allegations only absent any factual underpinning, and which manifestly failed to state what his client, Paul Y, ought or ought not to have done in terms of considering and/or settling the relevant claims.  It was pointed out, also, that had the Ting Kau Joint Venture not entered into the settlement that it had, the only further recourse would have been to go to arbitration, and that any such decision would have required the unanimous decision of the Joint Venture participants, of which Paul Y was but a minority participant.

25.  Thus, said Mr Dymond, and putting to one side the fundamental structural objection to the course now adopted, the present pleading was deliberately coy, and did not serve to get the allegation off the ground.  In addition, he noted that the present claim patently had failed to quantify any loss, no doubt because it could not even be alleged that any loss in fact had been suffered, and in particular that if the claims had been further progressed and not settled that any further additional sums would have been recovered.

26.  Looked at in the round, therefore, Mr Dymond castigated the new claim as embarrassing, in that the defendant was not told the case that it had to meet, vexatious, in that if permitted it would open up the “cornucopia” of discovery that specifically had been disallowed in the first action — for the reasons adumbrated in the earlier judgment dated 5 May 2003 upon the specific discovery issue — and that above all, in light of the history of this litigation, these proceedings simply were abusive.  The history of both actions spoke for itself, he said, with all applications being directed to the same result, which was to seek open up discovery, and to turn what should be a straightforward matter, involving analysis of the contractual position and expert evidence surrounding the treatment of accounting issues, into a massive construction trial, an eventuality which the provisions of the Share Acquisition Agreement clearly had been at pains to avoid.

27.  On behalf of BIL, Mr Shaw stoutly defended his position and the existence of the new action.  I think it fair to observe that his was a wide-ranging address, but in essence he submitted that his client was perfectly entitled to issue new proceedings in this fashion.  He disputed that the Yat Tung principle had been breached, maintaining that it did not apply, either on the basis that his client was now plaintiff and not defendant, as had been the case in the first action, or, and perhaps more importantly, because Paul Y “could not have it both ways”.  By this he appeared to mean that by reason of Paul Y having successfully prevented the allegations now made from taking their place in the first action — that is, the two earlier attempts by Brierley to amend its Defence in that action to allege a breach of Clause 14A.2 — it was thus not open to Paul Y to complain if this disputed allegation now was to appear in this new action. It followed, he said, by virtue of these amendment attempts having been “knocked back” in the first action, that Yat Tung had no application, and accordingly that there had been neither requirement nor necessity to appeal this court's adverse amendment judgment of February 2004.

28.  Mr Shaw further argued that within the context of the new action his client had given the best particulars that it was possible to give at this stage, and that it was a fundamental principle that mere insufficiency of particulars was not a ground for striking out a pleading.  He suggested that the issue of particularization could be reviewed after discovery, which would occur in the relatively near future should his client be permitted to surmount this strike out application.

29.  Mr Shaw also suggested that the trial of this new action could be “ready in a year”, and that it could be heard together with the existing action, so that with co‑operation from the parties the dates set for the trial of the first action in all probability could be maintained.

Decision

30.  I confess to surprise at this turn of events.  I had imagined, perhaps naively, that absent any successful appeal the issue of breach of Clause 14A.2, and that of the alleged failure on the part of Paul Y to use “reasonable endeavours” to obtain greater payment over and above the HK$78 million as was in fact achieved, represented a matter which had been comprehensively dealt with by the judgment, and consequent order, of 23 February 2004 refusing leave so to amend.  Evidently such expectation was unfounded.

31.  Let me go to the nub of this case.  I remain utterly unable to see how a litigant who, within the context of one set of proceedings, has moved a particular amendment issue upon two previous occasions, only to fail upon each occasion, may properly thereafter circumvent the adverse effect of such decisions not by means of successful appeal to an higher court, but by the simple expedient, as in this case, of issuing fresh proceedings containing precisely the allegation that has failed to find approval within the existing action, and then assert that the two actions can and should be heard together.

32.  It seems to me not greatly to matter whether the view of this court is couched in terms of the application of the principle espoused in Yat Tung, or represents a variant thereof to meet a set of circumstances which rarely can have arisen within the conduct of serious commercial litigation.

33.  Accordingly, as an issue of principle I am minded to exercise my discretion in favour of the present application to strike out.  In all the circumstances I can see no reason to permit to continue that which strikes me as a procedural nonsense.

34.  Were BIL to be permitted thus to continue, by the artifice of such new proceedings a specific issue earlier rejected for trial nevertheless would be raised at that same trial, given Mr Shaw's confident assertion that these new proceedings could be brought up to speed in time to be heard together with the existing action.  I note in passing that Mr Dymond did not share this confidence — in fact, he considered such assertion preposterous, given the ambit of the discovery that BIL clearly intended to obtain pursuant to this allegation of lack of reasonable endeavours — but at bottom this is nothing to the point, which is that by this stratagem BIL is attempting to re‑introduce into this dispute an allegation that has been the subject of two orders to the contrary.

35.  In coming to this conclusion I have not overlooked the fact of the two 'new particulars'.  As Mr Shaw pointed out, there would have been no absolute bar to a further attempt to amend within the existing proceedings, although of course this pointedly is what was not done.

36.  In any event, and placing to one side that which I perceive as the fundamental objection to the course which has been adopted, I agree with Mr Dymond's criticisms of that which is pleaded at paragraph 28(d)(i) and (ii).  These are bare and general assertions which in my view are embarrassing; had the matter been approached purely within an amendment context they would have been subject to precisely those objections that were raised (and found favour) at the last amendment hearing in the first action in January/February of this year, wherein Mr Au, then representing Brierley, was granted an adjournment to consider further amendments to his revised draft pleading, only to return to court to state that he had done the best that he could on the information available to him, and that absent discovery he was not in the position to provide any more particulars.  Just as this court then decided that the factum of settlement at the HK$78 million level did not constitute a sufficient inference of breach to allow the pleading to stand in the form then before the court, in the same way the formulation as now put forward would not in my judgment have been sufficient to permit the defendant to move to discovery, and classically to 'fish' for information which might have proved of assistance to such a generally pleaded case.  In a nutshell, therefore, the like difficulties remain as previously was the case.

37.  At the end of the day, therefore, I am in no doubt, in these most particular circumstances, that this claim must be struck out, and the present action dismissed as being an abuse of process, alternatively, in so far as this be wrong, that in these particular circumstances and in light of the history of this matter that it is embarrassing and/vexatious.  I so order.

Security for costs

38.  This represents the second, and alternative limb to this application.

39.  In light of the conclusion reached on the striking out, strictly no necessity arises to deal with the request for security for costs.

40.  However, if and in so far as the conclusion upon the striking out is held to be incorrect, I should perhaps provide an indication of my thoughts on this topic.

41.  Mr Shaw, whom in this action acts for the plaintiff, does not dispute the fact that his client is based overseas.  However, he does resist the idea that it is appropriate to provide security for Paul Y's costs.  In this regard he invokes the existence of the first action (wherein of course his client is defendant) and asserts that it cannot be right to award security for costs when it is feasible to hear the new action at the same time as the first.  Moreover, he prays in aid the liquid resources held by his client within the territory.  Alternatively he demurs at the quantum of such security, the amount presently claimed being the sum of HK$500,000 up to and including discovery.

42.  For his part Mr Dymond submits, in so far as the concept of security for costs be relevant, that by their action in issuing new proceedings that Mr Shaw's clients have made their own bed, as it were, and that if this action were to continue, there is no good reason in principle why such security should not be granted.

43.  In the event, of course, all this is academic in light of the primary view which has been taken by this court.  As a matter of principle, however, I consider that Mr Dymond's argument is correct.

44.  Nor do I accede to Mr Shaw's argument relating to the quantum of resources currently held in Hong Kong.  Mr Dymond points out that such resources as allegedly are present are apparently in entirely liquid form, that is, in terms of shareholdings which are easily realizable and moveable, and thus could not seriously be regarded as sufficient security.

45.  Once again I consider that this argument is well made.  Had it been relevant I should have been minded to exercise my discretion in these circumstances to order security for costs in principle; thus the only remaining consideration would be the usual argy‑bargy as to quantum.

46.  The Commercial Court is known not to become unduly exercised about such matters.  Looking at the issue broadly, I should have concluded that an appropriate sum to deposit, either in court or by way of first class bank guarantee, for security for the defendant's costs up to and including discovery would have been the sum of HK$450,000.

47.  Accordingly, if the order of this court striking out the claim in these proceedings and dismissing the action itself were not to stand, then in the alternative the order of this court regarding security for costs would be that in the terms aforesaid.

Costs

48.  It strikes me in the circumstances of this case that the order for costs on the defendant's summons dated 17 May 2004 should not merely reflect the granting of costs to follow the event, but that the scale of such costs should be the subject of more critical evaluation.

49.  After some reflection, I make an order nisi that the costs of and occasioned by this application be paid by the plaintiff, BIL International Limited, to the defendant herein, Paul Y.‑ITC Construction Holdings Limited, and that, absent agreement, such costs are to be taxed and paid upon a common fund basis.

Mr Geoffrey Shaw of Messrs Deacons, for the Plaintiff

Mr Anthony Dymond of Messrs Herbert Smith, for the Defendant