ASIA-PAC INFRASTRUCTURE DEVELOPMENT LTD AND OTHERS v. SHEARMAN & STERLING (a firm) AND OTHERS

HCA 806/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 806 OF 2006

______________________

______________________

__________________________________

REASONS FOR DECISION

__________________________________

1. On 19 November 2014, DHCJ W Chan handed down a decision, and ordered, among others, that the 1^st plaintiff was to pay into court within two months a sum of HK$3.4m as further security for the costs of D1-D8 and HK$3.1m as further security for the costs of D9 in this action (“Decision”).  The learned judge had further ordered that pending provision of security the 1^st plaintiff’s action against the defendants be stayed and in default of payment into court of the security ordered, the 1^st plaintiff’s action against the defendants be dismissed without further order.  The deadline would fall on 19 January 2015.

2. On 6 January 2015, the 1^st plaintiff applied for the two month period to be extended for a further two months, namely until 19 March 2015.

3. The application for extension was opposed by the defendants and the hearing took place before this court on 14 January 2015.

4. Counsel Mr Paul Carolan appeared for the 1^st plaintiff.  Mr Harrington appeared for D1-D8 and Mr Sassi for D9.

5. At the end of the hearing, I granted an extension to the 1^st plaintiff, but only until 13 February 2015, the date fixed before DHCJ W Chan for the hearing of the 1^st plaintiff’s application for leave to appeal against the Decision.  I now set out my reasons hereinafter.

6. Mr Carolan had referred this court to paragraph 23/3/33 of the Hong Kong Civil Procedure 2015 Vol 1 stating as follows:

“The power to dismiss an action for default by a plaintiff in complying with an order for security derives from the inherent jurisdiction of the court, and applies as much to an order for security made under s.357 of the Companies Ordinance as to one made under O.23, r.1; the court has power to dismiss the action where it is satisfied that (i) the action is not being pursued with due diligence, (ii) there is no reasonable prospect that the security will be paid, or (iii) the time limit prescribed by the court for the giving of security has been disregarded … It is open to the court to provide in the order for security that in the event such security is not given within the time specified (during which a stay usually operates) the action will be dismissed …”.[1]

7. In the present case, the dismissal was built into the order, but Mr Carolan submitted the corollary should follow, namely that the action should not be dismissed and that the extension of time be allowed, as this was not a case where the action had not been pursued by the 1^st plaintiff with due diligence, or that there was no reasonable prospect that security would be paid, or that the time limit ordered had been disregarded.

8. The court has power to extend time under O 3 r 5 of the RHC.  As stated in paragraph 3/5/2 of HKCP, this rule explicitly confers the widest measure of discretion and draws no distinction whatsoever between various classes of cases, and its object is to avoid injustice to the parties. It is further stated in paragraph 3/5/2 that in making an application for an extension of time, a clear statement of the reasons for the inability to comply with the stipulated time limit should normally be provided.  The requirement of an explanation for delay on an application for time is the norm.  Cases where it may be appropriate to exercise a discretion to extend time notwithstanding the absence of an adequate explanation for the delay are an exception to the rule that an adequate explanation is normally required, even though given that the grant of an extension of time involves the exercise of a judicial discretion there is no absolute requirement that an adequate explanation for delay be given before the discretion can be exercised; rather all matters (including the adequacy of any reason for delay) must be considered.

9. Although the relevant events took place in late 1999/2000, some 15 years ago, the writ was only issued in April 2006.  The action had somewhat a chequered history due to a number of reasons which I do not propose to go into, save that the statement of claim had already been amended twice before the 1^st plaintiff sought a third amendment before DHCJ W Chan which was refused for reasons set out in the Decision. 

10. The defendants had applied for security for costs in April 2011 and subsequently, on 6 December 2011, DHCJ Mayo ordered the 1^st plaintiff to provide HK$2m security for costs of D9, and HK$1m for D1-D8, up to completion of discovery (“2011 Order”).  The learned judge also gave liberty to apply for further security for costs.  There had been no appeal by the 1^st plaintiff against the 2011 Order and the amounts were duly paid by the 1^st plaintiff.

11. The defendants sought further security for costs in January 2014 which was about 2 years after the 2011 Order.

12. Mr Carolan had submitted that it was on 19 November 2014 upon the Decision being handed down that the 1^st plaintiff  realised that it had to come up with the funds. 

13. However, the parties had already exchanged Lists of Documents.  The 1^st plaintiff should have been aware that the proceedings had reached the stage to which security was ordered by DHCJ Mayo in the 2011 Order.  The 1^st plaintiff should not have been caught by surprise by the defendant’s applications, and indeed had had plenty of notice of the defendants’ applications as such were made almost a year ago.  

14. It was further clear from Ms Hou’s 13^th affirmation that the possibility of the 1^st plaintiff having to come up with further security had crossed its mind since she herself had said it was around the time of the hearing before DHCJ W Chan in May and June 2014 that the 1^st plaintiff was approaching a number of “after the event” insurers in London and elsewhere for ATE insurance. 

15. The defendants had presented skeleton bills seeking a total of around HK$32m at the hearing before DHCJ W Chan.  The 1^st plaintiff’s own costs draftsman’s view was that no more than HK$2m each could reasonably be attributed to all of the relevant future work[2]. The total amount ordered in the end was HK$6.5m, an amount much closer to the 1^st plaintiff’s amount, than the amounts sought by the defendants.

16. That the 1^st plaintiff’s “backers” were no longer willing to fund the company to pursue the present action was indicated in Ms Hou’s 11^th affirmation filed on behalf of the 1^st plaintiff in April 2014.  This matter had been considered by DHCJ W Chan and he held that, notwithstanding the indication of unwillingness, the alleged stifling effect of an order for security had not been made out by the 1^st plaintiff [3].

17. Ms Hou had tried to explain at length about the ATE insurance in her 13^th affirmation and produced an email dated 22 September 2014 from a person called simply “Richard”, said to be from the insurance broker.  There was, however, no “indicative offer” as alleged by Ms Hou.  It was further not clear who the recipient/s of the email was, which, for reasons unexplained, was blocked out from the email.  Anyway, on my reading of the email, it was no more than an indication for guidance only on the normal coverage of such insurance, and the amount and payment of the premium.  There was no evidence in that email to support what Ms Hou had said, that the indication was based on any assessment or approval of the 1^st plaintiff’s claim based on the proposed amendments being sought at that time. 

18. Anyway, notwithstanding what Ms Hou had said about the ATE insurance, at the hearing, Mr Carolan in fact concentrated more on the other two potential funders, namely:

(i)  True Treasure Enterprises Ltd (“True Treasure”);

(ii)  China New Investments Limited (“China New Investment”)  and its co-partner Fidelity Insurance Company Ltd (“Fidelity”).

19. As for the potential funding from (ii) above, Ms Hou had in her 13^th affirmation produced a letter from China New Investment and one from Fidelity, but there was clearly no commitment of funding by China New Investment and Fidelity in those letters.  China New Investment and Fidelity had said they needed until at least late February/early March 2015 to conduct due diligence, including seeking independent legal advice on the merits and prospects of the action before entering into any formal funding agreement.

20. As Mr Harrington pointed out, this was like a “pie in the sky”.  I agree, and there was clearly no sufficient evidence that there would be any funding of HK$6.5m from China New Investment and Fidelity by 19 March 2015.

21. In relation to potential funding from True Treasure, Ms Hou had also produced in her 13^th affirmation two letters from True Treasure, one dated 18 December 2014, and one dated 6 January 2015.  True Treasure has stated that it is the major creditor of the 1^st plaintiff.  According to the 1^st letter, it said it was willing to provide funding upon the successful approval of the latest application to amend, and in the 2^nd letter, it said its decision to fund was on the basis that the proposed amendments would be approved, and that they needed more time, including seeking independent legal advice, to assess the prospect of this action before committing further substantial funding.   

22. Pausing here for the moment, in my view, there was no adequate explanation from Ms Hou in her 13^th affirmation for the delay to arrange for funding, bearing in mind she had said the 1^st plaintiff was making enquiries from ATE as early as May/June 2014, which was over 6 months ago.  There was also no sufficient evidence that the 1^st plaintiff had used its best endeavours to secure funding to meet the deadline.  Based on what Ms Hou had said, any potential funding would seem to be dependent on the 1^st plaintiff’s appeal in relation to the amendment application, and it would be extremely unlikely that such appeal would be heard before 19 March 2015, even if leave to appeal were to be given immediately on 13 February 2015 by DHCJ W Chan.  Thus, there was no sufficient evidence at that stage that given the extension of time, the security would be paid .

23. Both Mr Harrington and Mr Sassi submitted that any further delay should be avoided, and that there would be prejudice to them, in particular, the defendants would have to incur more costs in the meantime in instructing counsel to oppose the 1^st plaintiff’s application for leave to appeal.

24. At almost the eleventh hour, in the middle of the hearing, Mr Carolan suddenly produced another letter dated 12 January 2015 from True Treasure.  This latest letter indicated that True Treasure decided to fund the HK$6.5m security for costs once they receive a substantial sum from a business deal in February 2015, and that True Treasure would continue funding the 1^st plaintiff’s claim in the action to trial.

25. Further, Mr Carolan indicated that to meet the defendants’ “prejudice” point”, the 1^st plaintiff would be prepared to consent to an adjournment of its application for leave to appeal, until after the provision of the security of HK$6.5m.

26. The latest letter from True Treasure indicated that it had already received independent legal advice, namely that even without the approval of the proposed amendments to the existing Re-Amendment Statement of Claim, the prospect of the 1^st plaintiff’s claim succeeding at trial would still be very good, and that the prospect of the appeal would also be good.  Thus, this latest letter showed that True Treasure’s decision to fund would no longer be dependent on the outcome of the 1^st plaintiff’s leave to appeal application, or any appeal if leave were to be given.

27. True Treasure had said they would provide funding once they received the “substantial sum”.  There was no date of expected receipt, nor was there any amount stated in the letter, but True Treasure had also said that they would continue the funding for the 1^st plaintiff’s claim to trial.  There was no evidence from True Treasure as to why the payment of HK$6.5m was to be linked to their receipt of the “substantial sum”.  Nor was there any evidence as to why they could not or would not pay HK$6.5m prior to such receipt.  There was no mention in True Treasure’s earlier two letters that its funding would have to depend on the receipt of any “substantial sum”.

28. Having considered the latest letter from True Treasure, I was of the view that it showed prospect of the security being paid.  I was, however, not convinced that as much as two more months would be required.  As pointed out by Mr Carolan, if deemed necessary, the defendants could apply for a short adjournment of the leave application and for it to be refixed after the payment of the security. Having considered all the circumstances of this case, I decided to give the 1^st plaintiff a further chance, but only until 13 February 2015, namely the hearing of the leave application.

29. As for costs, Mr Carolan submitted that the defendants had been invited to consent to the application, and that following the introduction of CJR the court would expect parties to agree time extensions as much as possible.  As I had said at the hearing, I was of the view that the defendants had good reasons to oppose the application, and that I was only persuaded to give the 1^st plaintiff slightly more time because of the latest letter from True Treasure.  It was the 1^st plaintiff who had come to this court to seek an indulgence, and I was of the view that the 1^st plaintiff should pay the defendants’ costs of this application.

30. I did not specify the level of costs at the hearing.  I note that Mr Sassi had sought indemnity costs in his skeleton arguments, but this was not raised at the hearing.  In any event, I see no reason to order indemnity costs.  The costs to the defendants will be on party and party basis, to be taxed, if not agreed.

[1] At page 545-546

[2] At para 54, Decision, B:41

[3] See paras 49-50, Decision, B:40