XCHRX CLINTON ENGINEERING LTD. v. TRIDANT ENGINEERING CO. LTD.

HCCT98/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO.98 OF 1999

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J U D G M E N T

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1. This is an application for security for costs made by the Defendant pursuant to O.23, r.1 Rules of the High Court. It is in relation to substantial construction litigation in which both the claim and the counterclaim are in the region of $100 million. The security sought is $3 million. By an order of Findlay J. on 4th November 1999, the Plaintiff paid into court a sum of $3 million on an interim basis simply so that the Defence could then be filed before the hearing. The contents of the Defence may have had a bearing on the merits of the security for costs application. It was duly served on 11th November.

2. The Plaintiff accepts that it is a foreign Plaintiff. It is a B.V.I Company without assets in Hong Kong. It is also accepted that it is able to provide security, which in fact goes without saying because it has already paid $3 million into court on an interim basis. Mr Barlow, for the Defence, therefore claims that he has made out a case for security in the absence of any unusual circumstances, which he says there are none. The only real issue, he submits, is quantum.

3. Mr Hew, for the Plaintiff, submits certain points of principle should be determined first, which if resolved in the Plaintiff's favour would result in the court ordering no security for costs.

4. Firstly, he submits that if the Plaintiff had not issued proceedings first, the Defendant would have sued on the matters contained in its counterclaim. The present Plaintiff would then have been the Defendant and an issue of security for costs would not have arisen. The Plaintiff, he submits, is only the Plaintiff by chance. I find nothing in this submission. The Plaintiff is not the Plaintiff by chance, he is the Plaintiff by choice. There is only merit in this argument when there is a risk that the Plaintiff will be shut out of pursuing its claim if it is ordered to pay security. Then, the substance of the issues in the claim and counterclaim can be considered. It does not arise here because the ordering of security will not shut out the Plaintiff.

5. Secondly, Mr Hew submits that the application should be dismissed in its entirety because the Defendant has failed to distinguish between the costs which will be incurred in defending the claim (which are securable) and those incurred in prosecuting its counterclaim (which should not be secured). I find no merit in this argument either. The Defendant is not making a cross claim. The issues to be determined on the claim and counterclaim are indistinguishable.

6. Thirdly, Mr Hew submits that if any security is ordered, it should, at this stage, be confined to the costs that might be incurred in arguing a preliminary point, namely whether it is the correct Plaintiff who is suing. The Defendant's first line of defence, as pleaded, being that it has no contractual relations with this Plaintiff. It pleads that this Plaintiff's parent company, Mansion China, was the party with whom it contracted. Preliminary points such as this generally serve no useful purpose and are discouraged because they usually cause delay and unnecessary expense. If the Defendant took the point and lost, the case would continue, albeit delayed. If it won, new proceedings with a new Plaintiff would be commenced from scratch. For the same reasoning it is not a good reason to limit an order for security for costs. The fundamental rationale for security is that the Defendant is entitled to be protected against an unenforceable award of costs against a foreign plaintiff.

7. In short, I am satisfied that this Defendant is entitled to an order. The question then is how much? The Defendant's draft bill estimates costs up to the time of setting down for trial at $3,637,666.00. The order it seeks is for $3 million. It is thus asking for just over 80% of its estimated bill.

8. Mr Hew, with some force has criticized the draft bill in many respects. His criticism that, according to the bill, 96% of the solicitors hours claimed will be by the senior partner and only 4% by his junior partner, is valid. So is his criticism of the work to be done by counsel, such as settling witness statements, which he contends is normally the work of the solicitor. He criticizes also the level of counsel's fees. I do not accept his submission that no allowance should be made in relation to experts reports. This is substantial construction litigation. The use of experts on both sides is inevitable.

9. In a security for costs application, the court should resist the temptation to play the taxing master and make detailed adjustments to the draft bill. It is, after all, only a draft. If, on the other hand, the bill appears to be unacceptably high, the court can and should take a broad approach and make an overall reduction without being specific as to which parts of the bill it considers are too high.

10. This is the approach I will adopt in this case. However, in fairness to the Defendant, I will make the reduction from the full estimate of the bill, not from the amount actually claimed because they have already trimmed it by nearly 20%.

11. There will be an order in the terms of the Defendant's summons for security for costs dated 13th September 1999 save that the figure of $3 million be amended to $2.5 million. As a consequence, the sum of $500,000 plus interest be paid out to the Plaintiff from the $3 million paid in on an interim basis.