THOSOWIN PROPERTIES LIMITED AND ANOTHER v. TUFNELL INVESTMENT LIMITED AND OTHERS

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JUDGMENT

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Sir Alan Huggins, V.-P.

1. This is an appeal by the Defendants from the dismissal by Jones, J. of an application for security for costs under s.357 of The Companies Ordinance. The Plaintiffs are suing for the recovery of a deposit under a contract between them and the first two Defendants. The 3rd and 4th Defendants are guarantors.

2. The learned judge came to the conclusion that there was no evidence of impecuniosity before him. The position was that these two Plaintiff companies were shelf companies. That much is admitted. They each had an authorized capital of $10,000 but a paid up capital of only $200. They were bought for the Purpose of entering into this contract, and the evidence suggests that they have done no business other than entering into the contract. The Defendants rely upon these facts as showing that there is no income, and so far as they can find there is no anticipation of income before this case is tried. On that basis they apply for security. The Plaintiffs have not advanced any evidence to show that they have assets and, in particular, they have not shown that the contract itself is a valuable asset. All that they can show is that they have in fact paid $3,000,000 by way of deposit under the contract and that they have in fact paid a sum of $114,000 odd in respect of costs in relation to an 0.14 application. Their contention is that they have what Mr. Faulkner has called "a good track record" they have not defaulted on any payment which was due from them - and it is suggested that there is every likelihood that they will be able to pay anything that is due from them in respect of the costs of this action.

3. With respect to the learned judge I do not think that it is fair to say that on this evidence there is no evidence of impecuniosity. It was suggested that the payment of the $3,000,000 was itself some evidence upon which this court should exercise its discretion as showing that there was a likelihood of payment, but I do not think that that is sufficient: we have not been told the source of this money. As I see it, there is no guarantee that the Plaintiffs will be able to pay. It may possibly be that there is behind them some financier who, although apparently not liable to pay, would pay, but that to my mind is not sufficient. I think there is prima facie evidence that the Plaintiffs will not be able to meet the costs.

4. There is then the question of discretion. The learned judge did not exercise his discretion, because he thought that there was insufficient evidence to call for an exercise of discretion, but he said that he would have refused the application on the grounds that the Plaintiffs have a strong cause of action and that there had been inordinate delay. Again I am unable to agree with this approach. The Plaintiffs have an arguable case. It has not, in my view, been shown that they have a "strong" case, and I do not think that there has been shown any inordinate delay which would justify our refusing to grant security. This is a different case from that of Sir Lindsay Parkinson & Co. Ltd. v Triplan Ltd. (1973) 1 Q.B.609 where the application was so late that, in order for the order for security to be challenged on appeal, it became necessary to adjourn the hearing of the arbitration. Here the trial is not to take place until March. There has been ample time for the hearing of an appeal and in my judgment there is no ground for refusing an order for security.

5. I would allow the appeal and order security in the sum of $200,000.

Cons, J.A.:

6. I agree with my Lord and would make the same order.

Fuad, J.A.:

7. I also agree.  With the utmost respect to the learned judge, for the reasons given by my Lord the Vice-President, I am quite satisfied that there was credible testimony that there was reason to believe that the Plaintiffs would be unable to pay the costs of the Defendants if successful in their defence, in terms of s.357 of the Companies Ordinance. I also agree with my lords that there was nothing in this case that would justify the court in exercising its discretion to decline to make an order for security. If the Plaintiffs indeed do have assets that would be available to pay any cost that might be incurred, they have only themselves to blame for being so coy about bringing that evidence forward. I agree with my lords that the appeal should be allowed, and with the order that they propose.

22nd January 1985