XCHRX SINO PRESTIGE LTD. v. SILVER GREAT INVESTMENT LTD.

HCMP 2046/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2046 OF 1998

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J U D G M E N T

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1. This is the Defendant's appeal against the order of Master Ho dated 2 September, 1999 when the learned Master dismissed the Defendant's application for security for costs to be given by the Plaintiff.

2. The Plaintiff was the purchaser and the Defendant was the vendor under a Sale and Purchase Agreement dated 10 June, 1997. Completion was scheduled to take place on 2 May, 1998. Title documents were sent to the Plaintiff's solicitors on 17 March, 1998, and requisitions were raised in a letter dated 19 March, 1998.

3. Further, on 31 March, 1998, the Plaintiff obtained from the Building Authority an approved floor plan. In a letter dated 2 April, 1998, the Plaintiff's solicitors raised requisitions relating to a discrepancy between the floor layout in the approved floor plan and the plan annexed to the 1st Assignment. This is the requisition in issue in this action. In essence, the discrepancy is that according to the approved floor plan, each of the 4th to 9th floors should be one single unit, but in the plan annexed to the 1st Assignment (sent to the Plaintiff's solicitors on 17 March, 1998), the 4th floor was partitioned into 12 units.

4. The Plaintiff contends in this application that two title problems arose from this discrepancy :

a) whether the partitioning work involved structural work; if so, it can amount to the erection of illegal structures; and

b) even if the partitioning work did not involve structural work, it still needs to comply with the Building Regulations pursuant to s.41 of the Buildings Ordinance, Cap.123.

5. During the period between the date of the Agreement dated 10 June, 1997 and the date scheduled for completion (2 May, 1998), various reports were made by the parties' respective surveyors/architects and sent by one side to the other. There is no need to go into the details of these reports, suffice it to say that by 2 May, 1998, the Plaintiff regarded the Defendant as not having satisfactorily answered the requisition whereas the Defendant opined otherwise. As a result, each party in this action alleges that the other side breached the Agreement.

6. Mr Pow for the Plaintiff argued in this appeal that the merits of the Plaintiff's case are such that there is a high degree of probability of success. The court should therefore have regard to this factor despite the usual rule that it would not go into the merits of the parties' case in detail. Mr Pow's argument over this point is based mainly on a so-called "qualification" to the report of the Defendant's surveyors in the following terms :

"However, we consider it necessary to study the building works (alteration and addition) record under Buildings Department's file reference 2-3/4100/85(12) to check the loading and the standard construction of partition before compilation of a full report."

Based on this passage, Mr Pow submitted :

".... that this qualification means the Defendant's surveyor had not measured the loading of the partitions and was not aware of the standard of condition of the partitions. His so-called opinion was nothing more than a bare unsupported statement."

7. With respect to Mr Pow, although that may be one way of understanding that passage, the passage can have other meanings. For example, the surveyors may mean that they already concluded that their opinion in the reports was correct but considered that studying the report under the Buildings Department's file further would reinforce their opinion so as to enable them to prepare a more detailed "full report". I therefore do not find that this case is one where the merits are so overwhelming that it justifies a detailed analysis to arrive at a conclusion as to which party has a stronger case.

8. The other argument of Mr Pow relates to the question of delay. The trial of this action was originally fixed on 8 June, 1999. Due to inclement weather, that has now been adjourned to 24 January, 2000 (with an estimated length of five days). The hearing is therefore about four and a half months' away. However, by now the Plaintiff has paid about $630,000 by way of its own legal costs. I find that there is substance in Mr Pow's argument that because of this delay, not only will a security for costs order likely to put a stop to the claim of an impecunious Plaintiff, the delay would also cause the Plaintiff's own costs incurred earlier to be wasted.

9. The next matter relied on by Mr Pow in opposition is the stifling effect of a security for costs order. He relies on the part of the Plaintiff's affirmation where the Plaintiff's shareholders said they had exhausted their resources in funding the litigation. That, however, was a statement not supported by particulars or some objective basis, for example, the income (if any) and/or expenses of the shareholders, or the nature and value of their assets (if any). Be that as it may, the Plaintiff's shareholders may have been telling the truth when they made that statement.

10. I find that this aspect has to be considered together with Mr Pow's argument relating to delay. This is because if a security for costs order is made and it turns out that the Plaintiff's shareholders in fact cannot provide the security ordered, the injustice to the Plaintiff would be greater. As stated earlier, the Plaintiff's claim will likely be put to a stop and all of the Plaintiff's own costs spent would be wasted.

11. As to why the Defendant delayed in making the application, Mr Yeung very fairly accepted that it was something to do with the Defendant's former solicitors. In my view, that has nothing to do with the Plaintiff and the delay cannot therefore be attributed to the Plaintiff at all.

12. I disagree with Mr Pow's argument that it was the Defendant's conduct which brought about the Plaintiff's impecuniosity, namely, the "wrongful" retention of the Plaintiff's deposit. This is in essence a repetition of the earlier argument that the Plaintiff's case has merits. The retention of the deposit is "wrongful" only when it has been established that it was the Defendant who had breached the Agreement. By reason of the conclusion I reached earlier as regards merits, I do not find that the Plaintiff has at present proven that the Defendant's conduct caused the Plaintiff's impecuniosity.

13. At the end, I am persuaded, in particular, by Mr Pow's argument relating to the question of delay and the related question of injustice to the Plaintiff. I find that my discretion should be exercised in refusing the order sought. The appeal is therefore dismissed.

14. Having decided against the Defendant on liability, it is unnecessary strictly to deal with the question of quantum. If it had been necessary to do so, I would have agreed with Mr Pow to the extent that the fees of Senior Counsel should not be included in the amount of security to be given by the Plaintiff. This is because the Plaintiff indicated that it is prepared for its case to be handled by junior Counsel. On the other hand, I note that Mr Yeung has been an experienced solicitor before he became Counsel. He should have been able to conduct the case for the Defendant in a case like the present one without the need to engage leading Counsel.