HIN FAI LTD t/a SUN FOOD SEAFOOD v. LONGRACE DEVELOPMENT LTD AND ANOTHER

HCA1788/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.1788 OF 2003

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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. Firstly, the plaintiff, Hin Fai Limited trading as Sun Food Seafood ("Hin Fai"), applied for a mandatory injunction against the 1st defendant, Longrace Development Limited ("Longrace"), and the 2nd defendant, Chong To Chai ("Chong"), to deliver up certain goods including kitchen utensils, furniture and electrical appliances ("the Goods"), pursuant to section 21L of the High Court Ordinance, Cap.4 and Order 29, rule 1 of the Rules of the High Court ("the Rules"). Alternatively, Hin Fai sought an order against the defendants to preserve the Goods and be restrained from using or disposing of the same until trial or further order. By an amendment to the Summons dated 21 May 2003, which was not opposed to by the defendants, Hin Fai further sought an order that the defendants do file an affidavit disclosing the whereabouts of such parts of the Goods not found on the subject premises and that the same be preserved until trial.

2. The second application is the defendants' application for security for costs against Hin Fai pursuant to Order 23, rule 1 of the Rules and section 357 of the Companies Ordinance, Cap.32 on the ground that Hin Fai was a nominal plaintiff and that there is reason to believe that it will be unable to pay the defendants' costs if so ordered.

Background

3. Until about 1998 when it ceased business, Longrace operated four restaurants under the name of Sun Fook Restaurant "新福大酒樓" at, inter alia, public housing estates. Longrace was on the approved list of tenants kept by the Commercial Properties Sub-Division of the Hong Kong Housing Authority ("HKHA").

4. Ip Hin ("Ip") and his brother-in-law Wong Kwok Hing ("Wong") were directors and shareholders of Longrace. Other directors and shareholders of Longrace included Chong and another called Chan Chun Tak.

5. In mid 2002, Ip approached a number of investors to start a restaurant at Shop No.102, Fu Cheong Shopping Arcade, Fu Cheong Estate, Sham Shui Po ("the Premises"), through Hin Fai which was a company newly incorporated in 2002. The registered business name of Hin Fai is "Sun Fook Seafood" and "新福漁港". Fu Cheong Estate is a public housing estate and the HKHA is the landlord of the Premises.

6. Ip collected different sums ranging between HK$100,000.00 and HK$1,200,000.00 from those investors. Cheques for such contributions were all written out in favour of Ip who issued receipts and acknowledgments stating that the money was for the share capital of "新福漁港". Part of that money in the sum of $609,873.00 eventually went to settle directly the payment of rental deposit, rent and air conditioning charges of the Premises on 20 September 2002.

7. There were a total of 15 such investors who subsequently became registered shareholders of Hin Fai. Ip was the majority shareholder holding 30% of the shares of Hin Fai. Prior to 12 April 2003, the directors of Hin Fai were Ip, Wong and two others.

8. A Tenancy Agreement with HKHA in respect of the Premises was signed on 29 October 2002. However, the tenant named in the Tenancy Agreement was Longrace, as opposed to Hin Fai. The tenancy was for a term of six years with a monthly rent of $160,000.00 (and $175,000.00 for the last three years) commencing on 1 November 2002. Ip signed the Tenancy Agreement purportedly as the authorized signatory of Longrace.

9. According to the defendants, Ip had no authority to enter into the Tenancy Agreement on behalf of Longrace. The defendants allege that the relevant board minutes and letters of authorization which Ip presented to the HKHA for proving his authority were forged by Ip. A report to the police was made by Chong on 13 April 2003.

10. In the meantime, even before the Tenancy Agreement was signed, preparation for the opening of the restaurant on the Premises had gone ahead. Money was spent on the decoration of the Premises. Kitchen utensils, furniture and other equipment were purchased for the restaurant's use. A total of 58 employees were also recruited by Hin Fai.

11. The Goods, i.e. the kitchen utensils, furniture and other equipment purchased, were the subject matter of the present action and application. The details of the Goods are set out in the List of Inventory annexed to the Summons. The defendants dispute Hin Fai's ownership of the Goods. They argue that the documentary evidence adduced by Hin Fai (e.g. quotations, invoices, delivery notes, cheques and receipts) showed that it was Ip as opposed to Hin Fai who paid for and thus owned the Goods.

12. The restaurant under the name of "新福漁港" or "Sun Food Seafood" was eventually opened on the Premises in December 2002. Unfortunately business was poor at the outset and was further hard hit when SARS suddenly broke out in Hong Kong in March 2003. The shareholders of Hin Fai met on 14 April 2003 and decided to close the restaurant immediately in order to cut costs.

13. On or about 15 April 2003, Ip purportedly entered into an agreement with Longrace which was recorded in a Chinese Note dated 15 April 2003 signed by Ip and Chong, and witnessed by Chong's brother ("the Handover Note"). The Handover Note has not been officially translated but the key matters stated therein are the following :

(1) Longrace appointed Chong to take over the Premises and the keys from Ip at 12 noon on 15 April 2003.

(2) The trading tools and moneys should be removed and should any of those be missing, Longrace could be held responsible.

(3) Longrace would not be responsible for any debt caused by "新福漁港" including salaries, rent, loans, chit funds, decoration fees, water, electricity, gas, or any civil claims, or any legal liability.

14. According to Yeung Kwok Ming ("Yeung"), the new director of Hin Fai, on 22 April 2003, he discovered that some furniture (which was among the furniture listed as Category D of the List of Inventory) had been removed from the Premises and a report was made to the police.

15. In the meantime, rent for the periods between 26 December 2002 and 28 February 2003, and between 1 April 2003 and 30 April 2003 was not paid to the HKHA. By a letter in Chinese dated 28 February 2003 written with the letterhead "Sun Food Seafood", Ip requested the HKHA to accept an early surrender of the tenancy by reason of the loss of business due partly to SARS. By a letter dated 15 April 2003 to Longrace, the HKHA referred to Longrace's failure to pay rent and air conditioning charges, and warned that interest would be charged on the arrears. By a further letter dated 30 April 2003 to Longrace, the HKHA demanded vacant possession of the Premises before 31 May 2003.

16. It transpired that on 13 May 2003, Longrace submitted an appeal to HKHA regarding the tenancy. I was informed by Mr Lawrence Ng, counsel for the defendants, that the appeal was lodged to enable Longrace to continue with the tenancy of the Premises. Counsel further said that if the HKHA considered the appeal favourably, Longrace intended to run another restaurant on the Premises and to use the Goods now in its possession for the purpose of operating that restaurant business. Mr Ng however said that such actions of Longrace were for the purpose of mitigating damages. He said if the tenancy were to be treated as unilaterally terminated, Longrace would be liable to pay to the HKHA an unknown but substantial amount of compensation. The appeal is still pending and the letter from HKHA acknowledging the appeal was produced by the defendants as an exhibit at the hearing.

17. Hin Fai commenced this action on 19 May 2003 for wrongful interference of goods and detinue, seeking an order that the Goods be delivered up to them and for damages to be assessed.

18. On 31 May 2003, Longrace paid the arrears of rent together with interest in the sum of $573,880.20 to the HKHA.

19. On 10 and 11 June 2003, the defendants engaged a firm of surveyors to inspect, count and assess the value of the Goods as found on the Premises. According to the report prepared by the surveyor dated 18 June 2003 ("the Report"), a number of items in the List of Inventory attached to the Summons were not found on the Premises ("the Missing Items"). For those that were found, the surveyors assessed that they were only worth $55,668.00 on "forced sale" basis.

20. Further, in response to Longrace's inquiry dated 12 June 2003, the HKHA by letter dated 18 June 2003 advised Longrace of the practice and procedure in dealing with default in rental payment. HKHA advised that their current policy was to require compensation should the tenant unilaterally terminate the tenancy, and that should compensation be paid the tenant's prospect in tendering for premises under HKHA's control would not be prejudiced.

21. Finally, I should mention that according to the annual returns of Hin Fai, Ip resigned as director of Hin Fai on 12 April 2003 and was replaced by Yeung on the same day.

The issues

22. On Hin Fai's application for injunctions, the following issues were raised :

(1) whether Hin Fai is the owner of the Goods;

(2) whether Hin Fai should be denied the injunctions on the ground of lack of clean hands;

(3) whether Hin Fai should be denied the injunctions by reason of Longrace's counterclaim against Hin Fai;

(4) the balance of convenience; and

(5) the exact scope of the Goods to be delivered if an order is made and whether Hin Fai is entitled to an order for discovery regarding the Missing Items.

23. In granting a mandatory injunction such as the order for delivery now being sought, Hin Fai has to make out a strong prima facie case, or a case to a higher standard of proof than is required for a prohibitory injunction, and the court must feel a high degree of assurance that at the trial it will appear that the injunction was rightly granted (see Shepherd Homes Ltd v. Sandham [1971] Ch 340, at 351G; TKI Ltd v. New Happy Ltd [1995] 1 HKC 551, at 554B-D).

24. Mr Ng further submitted that since the grant of mandatory injunction at this stage would in effect dispose of the action finally in favour of Hin Fai, the principles in American Cyanamid Co. v. Ethicon Ltd [1975] AC 396 are not applicable and the court has to assess the relative merits as opposed to just finding there is a serious issue to be tried and balancing the convenience between the parties (N.W.L. Ltd v. Woods [1979] 1 WLR 1294, at 1306B-E; Lansing Linde Ltd v. Kerr [1991] 1 All ER 418, 422g-424d).

25. However, as to the alternative prohibitory injunction being sought by Hin Fai, namely, that the defendants do preserve and be restrained from using, damaging or disposing of the Goods, there is no dispute that the principles set out in American Cyanamid Co. will apply.

26. As mentioned, according to the defendants, the Goods as found on the Premises are only worth $55,668.00. At the hearing before me, Hin Fai through its counsel, Mr Jonathan Yue Tin Kong, offered to pay the said sum into court in exchange for the defendants delivering up the Goods to Hin Fai.

27. The defendants, however, rejected the offer. Mr Ng argued that Longrace has incurred the sum of $573,880.20 by way of payment of rent arrears and is further exposed to an unknown but substantial sum of compensation claimed by the HKHA. Thus, the sum of $55,668.00 is wholly insufficient to provide the defendants with security.

Ownership of the Goods

28. To prove Hin Fai's ownership of the Goods, Yeung had exhibited a number of quotations, invoices, delivery notes, cheques and receipts. Some of the Goods were not fully paid for. However, the parties do not dispute that the right to bring the action falls on the purchaser and not the suppliers (see Jarvis v. Williams [1955] 1 All ER 108).

29. It is true that the only cheques (all dated 30 October 2002) produced by Hin Fai in this connection were personal cheques of Ip. However, it does not follow that the Goods therefore belong to Ip personally. Yeung explained that these payments were paid by Ip's personal cheques because Hin Fai only started to have a bank account at the end of 2002. There is clear documentary evidence that in September 2002 the investors of the restaurant had paid over $2 million into the personal account of Ip who represented that the sums paid to him were for the share capital of "新福漁港". There can be little doubt that such money paid into Ip's bank account was trust money which eventually was used as the working capital of Hin Fai.

30. Furthermore, almost all the quotations and invoices were addressed to "新福漁港" in Chinese at the Fu Cheong Estate address. Most of them were further addressed to Wong as the person in charge. "新福漁港" is of course the Chinese business name of Hin Fai and Wong was a director of Hin Fai.

31. It is not disputed that Hin Fai employed a total of 58 employees to run the restaurant. Plainly Hin Fai was the operator of the restaurant. In these circumstances, it is quite inconceivable that the Goods were not purchased by Hin Fai, but was owned separately by Ip as contended by the defendants.

32. I reject Mr Ng's submission that without being the tenant of the Premises, it is impossible for Hin Fai to operate the restaurant and thus impossible for it to be the owner of the Goods. The submission is defeated by the defendants' very allegation that it was Ip who operated the restaurant. Ip of course was not the tenant himself.

33. It is a matter of significance that although he must be aware of these proceedings, Ip has never claimed, as the defendants are suggesting, that he is the owner of the Goods. The Goods were not subject to any competing ownership claim at all.

34. In these circumstances, Hin Fai has made out a strong prima facie case that it is the owner of the Goods. In any event, whether Hin Fai is the owner of the Goods must be a serious question to be tried.

Lack of clean hands

35. According to Mr Ng, Hin Fai did not come to court with clean hands for a number of reasons. Firstly, Hin Fai is the "alter ego" of Ip and thus all the knowledge and wrongdoings on the part of Ip would be attributed to Hin Fai. Secondly, it was argued that apart from imputed knowledge, Hin Fai through Yeung knew of the breach of fiduciary duties on the part of Ip. Thirdly, Hin Fai is liable to Longrace for knowingly assisting Ip to breach his fiduciary duties owed to Longrace. Fourthly, Hin Fai was guilty of passing off by using the name "Sun Fook Restaurant". I am unable to agree to these submissions.

36. Mr Ng submitted that, by reason of the "alter ego doctrine" as referred to in El Ajou v. Dollar Holdings Plc. [1994] 2 All ER 685, at 695g to 696d, the court should attribute to the company Hin Fai the mind and will of Ip, the natural person who managed and controlled its actions.

37. For the purpose of testing the argument, I will assume that Ip (together with his relatives like Wong) was in fact the directing mind of Hin Fai prior to his resignation on 12 April 2003, although the evidence is by no means clear on this.

38. In appraising Hin Fai's "cleanliness" in pursuing the present action, I do not think Ip and Hin Fai can or should be treated as the same entity by virtue of the "alter ego doctrine". In exercising its equitable jurisdiction, the court must adopt a pragmatic approach. Ip had ceased to be a director of Hin Fai as from 12 April 2003 upon his resignation. Upon discovering Ip'a alleged acts, Hin Fai had warned Ip of its potential claim against him. On Hin Fai's version of events, there is a clear case of breach of fiduciary duties against Ip at the very least. Where a company and some of its shareholders have fallen victim to the delinquency of a controlling director, it cannot be just that the company under a newly constituted board without the delinquent director is prevented from seeking remedies for loss against a third party simply because of the unclean hands of the delinquent director. It would have been different if Ip had not resigned but were still the directing mind of Hin Fai in pursuing the present action.

39. As regards the alleged knowledge of Yeung, on the affidavit evidence before me, I am unable to accept Mr Ng's submission that Yeung, the new director of Hin Fai, knew of Ip's alleged forgery and breach of fiduciary duties owed to Longrace at the material time. Mr Ng relied on certain alleged inconsistencies in Yeung's affirmations and police statement as to whether Hin Fai had asserted that it was the tenant of the Premises. In my view, the alleged inconsistencies are exaggerated. Mr Ng's submission started on the assumption that it was impossible for Hin Fai or anyone else to operate the restaurant without being the tenant of the Premises. The assumption is probably correct in law by reference to the Tenancy Agreement but not so in fact. As mentioned, it is the defendants' own case that the operator of the restaurant was Ip, who was of course not the tenant.

40. Furthermore, even if Yeung had known that Ip had used Longrace's name to sign the Tenancy Agreement, it does not follow that Yeung would have had knowledge of the alleged forgery or breach of fiduciary duties on the part of Ip.

41. As regards the argument that Hin Fai had knowingly assisted Ip to breach the fiduciary duties owed to Longrace, it is important to understand what breaches of fiduciary duties are allegedly committed by Ip : (1) forging the documents to deceive HKHA and Longrace, and (2) signing the Tenancy Agreement with HKHA purportedly as the authorized director of Longrace when he did not in fact have the authority.

42. In performing these acts, Ip plainly was purporting to act in his capacity as a director of Longrace. In none of these acts did Ip purport to act in his capacity as a director of or the person in control of Hin Fai. Hin Fai as a separate legal entity has not in any way assisted Ip in these acts. Furthermore, before one can be found liable for knowingly assisting a breach of trust, dishonesty has to be proved either under the combined objective and subjective test (the majority view) or the pure objective test (per Lord Millet) as set out the House of Lords' decision in Twinsectra Ltd v. Yardley [2002] 2 All ER 377. Neither has been made out in this regard.

43. Further and in any event, in invoking the maxim that "he who comes into equity must come with clean hands", I agree with Mr Yue that there must be "an immediate and necessary relation" between the alleged "depravity" of the plaintiff and the "equity" being sued for. The cleanliness required is to be judged in relation to the relief sought (see Snell on Equity, 13th Edition, para.3-15; Halsbury's Laws of England, 4th Edition, Reissue, Vol.16, para.751).

44. Even if Hin Fai were "tainted" by Ip's forgery and breach of fiduciary duties vis-à-vis Longrace in entering into the Tenancy Agreement with HKHA, such "depravity" could only affect Hin Fai's claim, if any, in respect of any interest in the tenancy or in the use and occupation of the Premises. I am not satisfied that such "depravity" on the part of Hin Fai has "the immediate and necessary relation" with its claim for the return of the Goods.

45. For the same reason, the fourth matter raised by Mr Ng, namely, that Hin Fai had been engaging in passing off, cannot possibly give rise to the kind of depravity which would deprive Hin Fai of the relief sought.

Longrace's counterclaim

46. Longrace's counterclaim is as follows :

(1) If Hin Fai is found to be the operator of the restaurant, then Hin Fai as the undisclosed principal of Ip is in breach of the agreement set out in the Handover Note, as Ip was acting with actual authority of Hin Fai in entering into the said agreement. Hin Fai was in breach of the said agreement as it had, inter alia, failed to pay the arrears of rent due to HKHA.

(2) Hin Fai is liable to Longrace as it had knowing assisted Ip in the latter's breach of fiduciary duties owed to Longrace.

47. Longrace counterclaimed damages comprising (1) arrears of rent and interests in the sum of $573,880.20 which it had paid, (2) indemnity against some unknown compensation to be claimed by the HKHA for unilateral early termination of the tenancy, and (3) loss of status as contractors on the approved list should it fail to pay the compensation to HKHA.

48. The argument that Hin Fai is liable to Longrace as the undisclosed principal of Ip is without merit. First, the Handover Note merely contained a disclaimer by Longrace over any liability including arrears of rent. There is no contractual undertaking given to Longrace by Ip under the Handover Note to pay the arrears of rent. Second, there is no evidence that the Handover Note was signed by Ip acting with actual authority of Hin Fai, be it express or implied.

49. For reasons which I have already given, I also reject the argument that Hin Fai is liable to Longrace for knowingly assisting Ip in the latter's breach of fiduciary duties.

50. It is thus unnecessary for me to deal with Mr Ng's argument that the counterclaim gave rise to an equitable set-off so that Longrace is justified in resisting the claim for the delivery of the Goods. However, even if I were wrong and Longrace is entitled to rely on equitable set-off and to have security for its counterclaim, Hin Fai has now offered to pay into court the sum of $55,668.00 which is the value of the Goods as found on the Premises assessed on a forced sale basis by the defendants' own surveyors. The defendants cannot insist on any security of a value higher than the Goods as found on the Premises.

Balance of convenience

51. Hin Fai's offer to pay $55,668.00 into court means that the defendants will have the security equivalent to the value of the Goods found on the premises as assessed by their own surveyors.

52. Longrace refused to accept the said offer. As I see it, the true and only reason for such refusal is that, contrary to their intention as stated in the Handover Note, Longrace is now desirous of using the Goods for the purpose of running a new restaurant on the Premises should the appeal to HKHA be successful.

53. According to Yeung, Hin Fai had spent considerable money on the Goods. It was keen to retrieve the Goods so that it could use them for running a restaurant on the Premises if it could secure an agreement with the HKHA, or for running a restaurant elsewhere if such an agreement could not be reached. If the Goods were not returned, Hin Fai will stand to lose not just the value of the Goods but also the use of them for the purpose of running a restaurant either on the Premises or elsewhere. To buy them anew will cost millions.

54. Chong had asserted that Hin Fai had no chance to continue with the tenancy as Hin Fai was not on the approved list of HKHA. However, I am unable to accept that there is an absolute prohibition against becoming HKHA's tenants unless one is already on the approved list of HKHA. There is no documentary evidence adduced in this regard.

55. As to the financial position of Longrace, Mr Ng emphasized repeatedly Longrace's membership on the HKHA's approved list is an important asset. However, in assessing whether Longrace will be able to pay damages if found liable, the status on the HKHA's approved list is quite immaterial. Being in the list is not a licence which can be transferred to others. If Longrace had to be wound up, that status would be absolutely worthless. In this connection, according to a letter dated 13 November 2002 disclosed by the defendants, the directors of Longrace would commence liquidation of the company in the near future.

56. Chong has a property with equity allegedly worth $4.2 million. Thus it was argued that should Hin Fai succeed at trial, Chong would be able financially to pay any damages ordered. However, Mr Yue frankly admitted that the case against Chong personally is not strong. Furthermore, the alleged liabilities of Longrace and Chong are not necessarily joint and several.

57. For Longrace, it is difficult to see what hardship would be inflicted on it if the Goods were removed from the Premises, save and except the removal of a possible source of assets for execution of judgment if Longrace wins on the counterclaim. As mentioned, there is no proper basis for this sort of security to be provided. Even if Longrace is entitled to such security, a better security would be provided in the form of the payment of $55,668.00 which Hin Fai was prepared to make covering the value of the Goods as found on the Premises.

58. Mr Ng stressed that Longrace is exposed to a claim of substantial "compensation" by HKHA if the Tenancy Agreement were terminated now. However, if agreement could be reached between HKHA and Hin Fai so that the Tenancy Agreement could be novated to Hin Fai, Hin Fai could resume business on the Premises and the risk of Longrace being landed with a huge bill of compensation can be reduced.

59. Neither of the defendants is or contends to be the owner of the Goods. In fact, they insisted on Ip disposing of them according to the Handover Note. To allow Longrace now to keep the Goods for its future use, namely, to run a restaurant at the Premises, will in my view confer an unfair windfall on Longrace. Such an advantage will be in addition to the new decoration on the Premises which plainly would have been paid for by Hin Fai.

60. Last but not least, if I were to grant the prohibitory injunction, which I will do if no mandatory injunction is granted, the defendants would not be able to use the Goods in any event, but would incur cost to store them.

61. In these circumstances, particularly with Hin Fai's offer to pay the sum of $55,668.00 into court, the balance of convenience is clearly in favour of delivering up to Hin Fai the Goods now found on the Premises. Furthermore, by reason of the payment in to cover the value of the Goods, it is not in my view necessary to impose any condition on Hin Fai that upon delivery of the Goods it should refrain from disposing of the same pending trial or further order.

The extent of the Goods to be delivered if order is made and the Missing Items

62. The List of Inventory annexed to the Summons is based upon the quotations and delivery notes back in 2002. There is no evidence that all the Goods set out in the List of Inventory were still on the Premises as at 14 April 2003 when the restaurant was closed. Furthermore, for many items such as plates and cups, there must have been considerable wastage over the months when the restaurant was in operation. Accordingly, even if particular items on the List of Inventory were not found when the defendants' surveyors inspected the Premises, it does not follow that they had been removed by the defendants elsewhere.

63. As regards the specific allegation that Chong had removed some items of furniture from the Premises (falling within Category D in the List of Inventory) some time between 15 and 22 April 2003, it remains a bare assertion on the part of Yeung. No particulars are given as to what these items are. Mr Yue has frankly admitted the weakness of the case against Chong personally.

64. In these circumstances, the order for delivery must be confined to the Goods as admitted by the defendants to be present on the Premises, i.e. those listed in the Report.

65. For the same reasons, I do not think Hin Fai is entitled to the order of discovery against the defendants as sought.

66. Among the Goods found on the Premises, there is an issue whether some (in particular those under Category A of the List of Inventory) are fixtures the removal of which might cause damage to the Premises. By his 2nd Affirmation, Yeung seemed to have accepted that Category A were fixtures which Hin Fai was prepared to exclude from the order for delivery. However, at the hearing, Mr Yue relied on the Report to contend that the items in Category A were not fixtures and thus the defendants' surveyors were able to attribute a value to them on the forced sale basis.

67. The fact that the defendants' surveyors were able to attribute value to these items individually shows that these items could be removed or taken down intact. Looking at the description and photographs of the items under Category A, I am not convinced that these items are fixtures.

68. Even if the removal of some of these items would cause damage to the Premises, such damage is unlikely to be substantial. In any event, the HKHA still retains a rental deposit in the sum of $335,000.00 paid by Hin Fai which can be resorted to if any rectification works are deemed by HKHA to be necessary.

Security for costs

69. Mr Ng did not really pursue the contention that Hin Fai is a "nominal plaintiff", which is in my view bound to fail. Hin Fai was the substantive corporate vehicle used to operate the restaurant business and it was Hin Fai who employed the staff. Plainly it is not someone merely named as a plaintiff suing only for the benefit of some other persons.

70. The real issue in the application for security for costs is whether there is reason to believe that Hin Fai is unable to pay the defendants' costs if so ordered. Hin Fai has an authorized capital of $10,000.00 only. The restaurant was closed apparently due to financial problems. Hin Fai presumably also has incurred liability to the 58 employees arising from the said closure. There is no evidence that Hin Fai has any assets except the Goods now on the Premises valued at $55,668.00. There is thus prima facie evidence that Hin Fai would be unable to meet any costs order.

71. Mr Yue argued that an order for security for cost would have the effect of stifling Hin Fai's claim which is bona fide and having good prospect of success. In considering whether the action would be stifled by the order, it is well established that the court will consider the possibility of Hin Fai raising funds from directors, shareholders or other backers (see Keary Developments Ltd v. Tarmac Construction Ltd [1995] 3 All ER 535, adopted by the CA in Wing Hing Provision, Wine & Spirits Trading Co. Ltd v. Hanjin Shipping Co. Ltd [1998] 4 HKC 461, at 464A-F, and Junsa Development Ltd v. K.B. Chau & Co., HCA5173/1998, unreported, 28 April 2003). Yeung admitted that the present action was funded by the shareholders. There is no suggestion that if security for costs is ordered, the shareholders would have no financial means to come up with funds for this purpose. Instead, what Yeung said is that if security for costs is ordered, the shareholders would not consider it just or right to pursue the claim and might therefore abandon it. Unwillingness to pay is not the same as inability to pay (see Junsa Development Ltd v. K.B. Chau & Co., supra). The alleged stifling effect of the order for security for costs is thus not made out.

72. However, the court still retains a complete discretion whether to order security for costs having regard to all relevant circumstances of the case, even if the inability to pay costs is proved. Merits of the claim are highly relevant but the court will not go into the merits in details unless it can be clearly demonstrated there is a high degree of probability of success or failure.

73. However, as to Hin Fai's claim against Longrace, by reason of the application for mandatory injunction, the court has considered the merits in details and concluded that Hin Fai has established a strong prima facie case for the recovery of the Goods as found on the Premises. Of course, the granting of the order for delivery does not completely exhaust Hin Fai's claim against Longrace. There are still the issues on the Missing Items and damages for loss of use of the Goods (to be assessed). However, upon considering all the relevant circumstances, I do not think it is just to order Hin Fai to give any security for costs in respect of its claim against Longrace.

74. The claim against Chong in his personal capacity, however, is quite separate and distinct from that against Longrace. In paragraph 5 of the Amended Statement of Claim, Chong was alleged to have personally removed some furniture from the Premises prior to 22 April 2003. As mentioned before, this unparticularized claim is supported only by a bare assertion of Yeung and was admitted to be weak. In these circumstances, if Hin Fai still proceeds with its claim against Chong, Hin Fai should provide Chong with some security for costs.

75. As to the quantum of payment, the Skeleton Bill submitted by the defendants is of little reference value as it is based primarily upon the claim against and the counterclaim by Longrace. Furthermore, there are some glaring omissions in the Skeleton Bill including provision for the costs on pleadings.

76. The case against Chong is relatively straightforward and Chong has no counterclaim to raise. The action is still at an early stage and might be discontinued, either by way of settlement or withdrawal, in view of Mr Yue's admission regarding its strength. Certainly, security for costs covering full costs of trial is unwarranted. In these circumstances, a relatively small sum will be sufficient to meet the justice of the case. I therefore order that the amount to be paid to Chong by way of security for costs is $100,000.00.

Orders

77. The orders I make on the two summonses are as follows :

(1) Upon Hin Fai paying into court within the next 14 days from this Order a sum of $55,668.00, Longrace and its directors (including Chong) do deliver up to Hin Fai the Goods as set out in the Report within 14 days of their being informed of the said payment by Hin Fai. To avoid unnecessary argument, I hereby direct that Hin Fai should engage the necessary workers to conduct the removal and to bear the costs thereof.

(2) I further make an order nisi that costs of Hin Fai's Summons dated 21 May 2003 be costs in the cause.

(3) The application by Longrace for security for costs pursuant to the Summons dated 24 June 2003 be dismissed and I make an order nisi that costs be to Hin Fai, to be taxed if not agreed.

(4) All further proceedings against Chong in his personal capacity as opposed to being a director and agent of Longrace be stayed until Hin Fai gives security for Chong's costs in this action by paying into court a sum of $100,000.00 within 14 days of this order, with an order nisi that costs of Chong's application for security for costs be to Chong, to be taxed if not agreed.

(5) I further direct that for the purpose of taxing the costs in paragraphs (3) and (4), the time spent on the application for security for costs by Longrace and Chong was not more than 20% of the hearing time on 2 July 2003.

(6) Unless any party applies to vary the costs orders nisi within 14 days after this judgment is handed down, the orders shall become absolute.