XCHRX TALFORD GROUP LTD. v. SINOBEST INTERNATIONAL LTD.

HCA4253/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.4253 OF 1999

-------------------------

----------------------

J U D G M E N T

----------------------

Security for costs

1. This is the plaintiff's appeal against the decision of the master ordering the plaintiff to pay security for costs in the sum of $500,000. The basis of the defendant's application was made under section 357 of the Companies Ordinance.

Evidence of impecuniosity

2. The plaintiff is a limited company and has an authorized share capital of HK$10,000. It has an issued share capital of $2. The defendant had obtained judgment in its counterclaim against the plaintiff in the sum of $792,740.30. The defendant was entitled to levy execution on $492,740.30 while the execution for the balance of the judgment in the sum of $300,000 is stayed. The plaintiff did not pay any of the judgment sum. The defendant managed to garnishee $189,332.39 from the plaintiff's account with a bank. This sum is used to reduce the partial judgment, leaving a balance of $303,409.91 with interest. The plaintiff's balance sheet as of 30 November 1999 showed that it has suffered loss in excess of $6 million. It is clear from the evidence disclosed so far that there is reason to believe that the plaintiff will be unable to pay the costs of the defendant if the defendant is successful in its defence.

The plaintiff's case

3. The plaintiff stated that its financial difficulty was caused by the defendant and that it has a good case against the defendant. It also said that the order for security will stifle its claim. The plaintiff's claim against the defendant is as follows : the defendant is the landlord and the plaintiff the tenant of an office premises. There was leakage of water in the curtain wall of the premises during heavy rain which caused the plaintiff to suffer loss in the sum of $1.5 million. This includes loss of use of the premises, both partially and wholly, for a substantial period of time. From June 1997 to October 1998, there were 13 months of loss of use of one-quarter of the premises and four months for the loss of the whole of the premises. The other items of damages are in respect of the renovation fees and damages to the assets of the plaintiff. The plaintiff also seeks loss of profit.

Issues to be tried

4. In my view, this is not a case where the plaintiff could show that the strength of its case is so overwhelming and that the defendant has no defence to the action. The issues turn on, among other things, the construction of the terms of the tenancy agreement and whether the leakage caused disruption to the operation of the plaintiff for such a substantial period of time as alleged. In the affirmation, the defendant stated that when the caretakers delivered the dispatches to the premises of the plaintiff, they noticed that the office was operating in a normal way. The defence further pleaded that the plaintiff had prevented the defendant from entering the premises to deal with the complaints. There is no evidence at this stage of the costs of the renovation claimed by the plaintiff. As to the damages to the furniture in the sum of $286,880, even if, for the purpose of argument, the plaintiff may succeed in recovering this sum, it seems this amount is covered by the defendant's judgment of $300,000 which is now stayed.

Discretion in ordering security

5. Clearly from a review of the matter, the liability of the defendant is a hotly contested issue. In my view, since the issue of liability is in serious dispute, the plaintiff has not established that its impecuniosity is caused by the conduct of the defendant. As to the argument that the order for security will stifle the claim, it is not enough for the plaintiff to show that it is impecunious, but it must also demonstrate that there are no other sources to provide for the security. There is nothing to suggest that the discretion should not be exercised in ordering security.

Conclusion

6. In my view, the master's decision is correct. Having regard to the fact that this case will probably last for three days and that substantial costs had already been incurred in interlocutory applications, namely the Order 14 application and the appeal against that decision, the sum of $500,000 is appropriate. Accordingly, the appeal is dismissed.