WILLTURN LTD v. CHINA INTERNATIONAL WATER & ELECTRIC CORPORATION

HCCT 56/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO. 56 OF 2004

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D E C I S I O N

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1.  This is an application by the defendant for security for costs.  It is made under section 357 of the Companies Ordinance.  (The plaintiff was used only for a project with the defendant.  Its operation has stopped and its registered address has been moved to a residential unit.)

2.  There is also a summons by the plaintiff for leave to adduce a 2nd affirmation by the plaintiff’s director, Mr Lee Alan.  I will deal with this summons first.

3.  The defendant opposes this summons on the grounds that the content of the 2nd affirmation constitutes evidence on the details of the merits of the action which is inappropriate for this application for security and, in any event, such evidence has come too late.  The defendant further says that if this summons should be allowed, it would like to file a reply affirmation within 28 days.

4.  The application for security was made on 25 May 2007.  The affirmation in support was filed on the same day.  The first affirmation of Mr Lee Alan in opposition was filed on 6 July 2007.  The defendant then filed its affirmation in reply on 17 August 2007.  The plaintiff’s application to adduce Mr Lee’s second affirmation was only made two days ago on 17 December 2007.  It was no doubt very late.

5.  However, the more important consideration is whether such evidence should be considered in this application for security.  It is well settled that in an application for security for costs, unless it can be clearly demonstrated one way or another that there is a high probability of success or failure, the parties should not attempt to go into the merits of the case or into the evidence in any great detail (see Porzelack KG v Porzelack UK Limited [1987] 1 WLR 420 at 423 and Sunchase International Group (China) Limited and Others v Vincor Group of Companies (Investment) Limited [2004] 1 HKLRD 732 at 733D).

6.  Mr Pirie for the plaintiff submits that I should admit the 2nd affirmation of Mr Lee as it can demonstrate the plaintiff’s merits so clearly that the plaintiff can succeed on an application for summary judgment.  He refers to a number of quotations allegedly for variation works which have been checked, amended and confirmed by the defendant.  He said these quotations as amended had been accepted by the defendant as proof of the variation works stated therein having been done and the defendant should pay for them.  He also said that the defendant had omitted from applying to the employer for payment for these variation works during the period when the plaintiff was working on the site.  I understand this to mean that the defendant did this for the purpose of depriving the plaintiff of the payments for these variations.

7.  The defendant denies that these quotations as amended and confirmed were evidence of variation works that had been done for which the plaintiff should be paid.  In any case, the defendant has six grounds of defence and counterclaim as summarised in paragraph 18 of Mr Lee’s first affirmation.  They are (i) denial that the plaintiff had done the variation works; (ii) disputes on the values of the variation works; (iii) repudiation of the contracts by the plaintiff; (iv) delay caused by the plaintiff resulting in the defendant having to pay liquidated damages; (v) defective works done by the plaintiff; and (vi) payment by the plaintiff for materials supplied by the defendant under the agreement.  Mr Pirie submits that these grounds of defence and counterclaim are of no merit. 

8.  I have read through the three affirmations already filed by the parties.  I do not think the merits of either party have been clearly borne out. 

9.  The second affirmation of Mr Lee Alan just continues and extends the scope of the argument on the merits but still does not demonstrate a high degree of probability of success by the plaintiff.  In such circumstances, I do not think I should admit this second affirmation.  To admit this affirmation would also produce unnecessary delay and expense as I cannot deny the defendant the opportunity to respond to it.  I therefore dismiss this application for adducing the second affirmation of Mr Lee with costs against the plaintiff.

(Discussion re submissions)

10.  Having dealt with the plaintiff’s application for further evidence, I now deal with the defendant’s application for security for costs.  The quantum sought is $1.89 million-odd.  Of this sum, $900,000 is earmarked as fee for leading counsel.  When this action was about to be tried in 2004, no leading counsel was involved.  It was then adjourned.  There is still no leading counsel involved up till now.  The nature and complexity of the case has remained more or less the same as before.  It is basically a case of factual dispute.  I do not see the need for leading counsel.  The defendant also does not insist on having security for the fee of leading counsel.  So $900,000 plus another sum of about $100,000 for assisting leading counsel can be knocked off.  For the remaining $890,000-odd, giving some allowances here and there and applying a broad-brush approach, $600,000 appears to be a fair sum for security. 

11.  However, Mr Pirie does not feel that he can accept this sum.  He proceeded to submit that this is a balancing exercise and I can take into consideration the strength of the plaintiff’s case and the weakness of the defendant’s case.

12.  I pause to note that all applications and invoices for payments submitted by the plaintiff to the defendant have been entertained.  The dispute on the alleged outstanding payments for variation works was allegedly evidenced by documents headed “quotation.”  The defendant denies that these were evidence of variation works having been executed.

13.  Mr Pirie further argues that there is no quality surveyors’ reports on the defects nor is there a progress chart prepared by surveyors with a critical path showing the plaintiff’s delay. 

14.  However, there are other evidence in the bundles that support the defendant’s case on these and other grounds.  All in all, I am of the view that both sides have presented bona fide cases. 

15.  The next point is the plaintiff’s impecuniosity allegedly caused by the defendant’s failure to pay.  This, however, is a circular argument (see Sunchase International Group China Limited & Others v Vincor Group of Companies Investment Limited & Others [2004] 1 HKLRD 731 at 733F to G).

16.  Lastly, the plaintiff argues that an order of security may stifle the plaintiff’s claim.  There is, however, no evidence of the means of the plaintiff’s backers (see Tufnell Investment Limited & Others v Thosowin Properties Limited & Another [1985] 2 HKC 14 at 15 F to G and Dragages et Travaux Public v Hong Kong Chinese Insurance Company Limited [1993] 1 HKC 617 at G to H and 621 C to F).

17.  In the circumstances, I think security should be provided by the plaintiff and a sum of $600,000 is a fair and reasonable sum.  I therefore order the plaintiff to give security for the defendant’s costs by payment into court of $600,000 or by the provision of a bank guarantee for the same sum in terms to the satisfaction of a master within 42 days.  I make the order on the ground that there is reason to believe that the plaintiff will be unable to pay the costs of the defendant if ordered to do so.  In the meantime, all further proceedings are stayed.  In the event that the plaintiff should fail to provide security either by way of payment into court or by the provision of a bank guarantee within 42 days, the action shall be dismissed without further order. 

18.  Finally, I order the costs of this application be the defendant’s costs in the cause.  I do not order costs to the defendant in any event because the quantum originally sought was excessive.