Wing Hing Provision, Wine & Spirits Trading Co. Ltd. v. Hanjin Shipping Co. Ltd.

CACV 245/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 245 OF 1998

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J U D G M E N T

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Godfrey, J.A. :

Introduction

1. This is an appeal from an order of His Honour Judge Z.E. Li (sitting as a Deputy Judge of the Court of First Instance) made on 30 September 1998, whereby he refused an application made by the defendant in the action, Hanjin Shipping Company Limited ("Hanjin") for security for costs against the plaintiff, Wing Hing Provision, Wine & Spirits Trading Company Limited ("Wing Hing"). Hanjin is represented before us today by Mr. Shieh of counsel. Wing Hing is represented by one Mr. Yip Chun Nam, a director of the company, pursuant to an order of the court made, ex parte, on 4 July 1998 giving leave for Mr. Yip to represent Wing Hing in the proceedings. Hanjin now appeals against the judge's dismissal of its application.

The facts

2. The facts giving rise to the dispute between the parties may briefly be summarised as follows.

3. Wing Hing was a company trading, among other things, in beer. It entered into contracts with Hanjin for the carriage of containers of beer. But differences arose between the parties as to the proper rate of freight to be charged by Hanjin to Wing Hing. As one would expect, the charge for freight had been agreed between the parties. But it appears that in the two transactions which gave rise to the dispute between the parties, Hanjin (at any rate, according to Wing Hing) sought to levy an extra charge, for terminal handling charges. In summary, Wing Hing says that it had been asked to pay extra charges to Hanjin which it had not agreed and so refused to pay, and that, in those circumstances, Hanjin was in breach of its contract with Wing Hing in failing to deliver up the goods the subject of these transactions, as a result of which Wing Hing has suffered heavy losses. Hanjin says that the extra charges which it sought to levy in relation to the disputed transactions were in fact agreed with Wing Hing, and, in any case were charges which it was compelled to make by reasons of certain provisions of United States Federal Law reflecting mandatory requirements of the United States Federal Marine Commission.

4. Whatever the merits of the case may be, it is clear that Hanjin refused to deliver up the goods to Wing Hing unless the charges it demanded were met; that Wing Hing refused to pay those charges; and that as a result Wing Hing suffered the losses to which I have referred. Wing Hing's claim in the action is for damages totalling nearly HK$3 m.

The application for security for costs

5. The application for security for costs made by Hanjin was made under section 357 of the Companies Ordinance, Cap. 32. The ground on which the application was made is that Wing Hing would be unable to meet any order for costs made against it if it were unsuccessful in its claim. There seems to be little doubt that that is so. Wing Hing ceased trading in 1996, having suffered serious losses by then. It has no money.

6. The action is listed for 5 days commencing on 12 October 1998. It is now already 7 October 1998. The application for security for costs is therefore made very late but, for my part, I would attach no blame to Hanjin in that connection. It was not until comparatively recently that Hanjin became aware of Wing Hing's lack of funds. It became so aware when it learned of the order made on 4 July 1998 by which, as I have said, leave was granted for Mr. Yip to represent Wing Hing in the proceedings. The reason for this was that Wing Hing's solicitors, Messrs. Herbert Smith, had not been put in funds to continue to represent Wing Hing. Indeed the evidence shows that Herbert Smith were, and still are, owed some US$400,000 on account of costs.

The judgment below

7. The judge, as I have said, refused the application of Hanjin for security for costs. A judge has a complete discretion in such a matter. This court will be reluctant to interfere with the exercise of the judge's discretion, as Mr. Shieh, for Hanjin, very properly recognised at an early stage of the argument. The judge, in his judgment, set out an abstract of the relevant principles, which had been summarised in the judgment of Peter Gibson, L.J. in Keary Developments Ltd. v. Tarmac Construction Ltd and another [1995] 3 All ER 534 at pp. 539-540. As I understand it, Mr. Shieh raises no objection to the judge's summary of the principles and I shall therefore set them out in the same terms as did the judge :

"1. The court has a complete discretion whether to order security, and accordingly it will act in the light of all the relevant circumstances.

2. The possibility or probability that the plaintiff company will be deterred from pursuing its claim by an order for security is not without more a sufficient reason for not ordering security.

3. The court must carry out a balancing exercise. On the one hand it must weigh the injustice to the plaintiff if prevented from pursuing a proper claim by an order for security. Against that, it must weigh the injustice to the defendant if no security is ordered and the defendant finds himself unable to recover costs from the plaintiff in due course.

4. In considering all the circumstances, the court will have regard to the plaintiff company's prospects of success. But it should not go into the merits in detail unless it can clearly be demonstrated that there is a high degree of probability of success or failure.

5. The court may order any amount up to the full amount claimed by way of security, provided that it is more than a simply nominal sum; it is not bound to order a substantial amount.

6. Before refusing to order security on the ground that it would unfairly stifle a valid claim, the court must be satisfied that, in all the circumstances, it is probable that the claim would be stifled. There may be cases where this can properly be inferred without direct evidence. The court should consider not only whether the plaintiff company can provide security out of its own resources to continue the litigation, but also whether it can raise the amount needed from its directors, shareholders or other backers or interested parties. It is for the plaintiff to satisfy the court that it would be prevented by an order for security from continuing the litigation."

8. The judge went through these principles "as a sort of checklist". First, he assessed the prospects of the plaintiff's claim. He rightly referred to this as "necessarily a rather superficial exercise". He then performed that exercise, using words to which Mr. Shieh has taken objection and which, he says, vitiate the judge's exercise of his discretion on this aspect of the case. The judge says this :

"It appeared to me that the Defendant must have done some wrong to the Plaintiff. The parties had contracted on the same lower freight rates previously. If the Plaintiff cannot succeed on breach of contract to deliver it must surely have a strong case for misrepresentation on freight rates which affected the Plaintiff's budget and re-sale calculations. So, without going into the details of the merits, I thought the Plaintiff's claim should have good prospects."

9. Mr. Shieh fastens in particular on the reference made by the judge to the plaintiff's "strong case for misrepresentation". This does seem to me to be a less than wholly accurate way of summarising what the case of Wing Hing really is. The case of Wing Hing really is that, having entered into a number of transactions at agreed freight rates lower in total than those sought to be charged for the transactions which gave rise to the dispute, Hanjin have not demonstrated an entitlement to the higher freight rate which they later sought to charge for those transactions. That is not, as it seems to me, a case of misrepresentation, giving rise to an action for damages because the person to whom the misrepresentation is made is induced to enter into the contract by virtue of that misrepresentation. But I do not think that is what the judge really meant. It may be that what he had in mind was that Hanjin might be held estopped from claiming the higher rates of freight by reason of its previous conduct. But, as it seems to me, the judge's actual conclusion, that Wing Hing's case "should have good prospects" cannot be faulted. Of course, the court does not, on an application for security for costs, go into the respective merits or demerits of the case, certainly not in detail. It is enough that Wing Hing had shown a reasonable case for its complaint against Hanjin.

10. I do not, for my part, think that the judge's use of the words "a strong case for misrepresentation", although they do seem to me to be an inaccurate description of Wing Hang's case, vitiates the exercise of the discretion. Since that was the first point taken by Mr. Shieh and I do not think it is a point of any substance, I would not be prepared to upset the judge's decision on that ground.

11. The second point taken by Mr. Shieh is that the judge erred in finding as he did that Wing Hing's case would be stifled if an order for security for costs which had been made against it. Mr. Shieh points out quite rightly that it is not enough, in this connection, for Wing Hing to show that it has no money. That is indeed simply a condition precedent to an application for security for costs, as Nourse, L.J. pointed out in Trident International Freight Services Ltd. v. Manchester Ship Canal Co. [1990] BCLC 263 when he said (at p.266) :-

"It would be pointless to insist on the company putting in evidence in order effectively to admit that which the defendant effectively asserts."

12. But that does not cover the whole ground. There are two separate questions to be considered. The first question is whether the condition for the application of section 357 is satisfied, and there is no doubt that it is. The second question is whether Wing Hing will be prevented from pursuing its litigation if an order for security is made against it. This is a wider question. Mr. Shieh says that on this question evidence from the defendant is needed, and there is no such evidence. All that Wing Hing has demonstrated is that it has not any money of its own. It has not demonstrated, says Mr. Shieh, that no one else would be prepared to put up money to assist Wing Hing to pursue its case.

13. The judge said, in this connection, that he was "certain that an order for security backed by stay of proceedings on default would stifle the Plaintiff's claim". He relied on the fact that "the present regional and local economic crisis" made it difficult for the company to borrow (no doubt he meant from third parties at arm's length) and that is indeed plainly so. Irrespective of the present regional and local economic crisis, nobody is going to lend money to a company which has ceased to do business some years ago, and which has no money of its own, simply in order to prosecute an action with chances which cannot be considered certain.

14. Then, Mr. Yip had referred the judge to the liability of Wing Hing to Messrs. Herbert Smith. There is no doubt about that either, but this merely shows that the company has no money, which has already been established. Lastly, the judge said :

"The Plaintiff being a family business, if the shareholders, directors and backers were able to put up money, they would have used the money to retain professional lawyers to act for the Plaintiff instead of obtaining leave on 4th July, 1998 for the Plaintiff to act through one of its directors. The court in granting such leave on 4th July, 1998 must have also considered that the Plaintiff could not raise funds from other sources to retain its legal team."

15. I have felt some difficulty about this passage in the judgment because it does not seem to me that the court in making its order ex parte on 4 July 1998 "must" have considered that the plaintiff could not raise funds from other sources to retain its legal team. There does not seem to have been any such evidence before the registrar who granted that leave. It may be that it would be appropriate, if such an application is made, for the registrar to make an inquiry into such matters. But such an inquiry never seems to have been made and it does not seem right to speculate upon the matter.

16. In the end, then, one is thrown back on common sense. The chances of a company which has ceased to trade finding a backer even within "the family" to put up money to support the company's action is remote in the extreme. It may well happen that, even though a man has no capital of his own, he may have friends, he may have business associates, he may have relatives all of whom can help him in his hour of need: see M.V. Yorke Motors v. Edwards [1982] 1 All ER 102, at p.1028, where Lord Diplock approves the remarks of Brandon, L.J. in the Court of Appeal to that effect.

17. But in the present case, I think there was enough, even though only just enough, to justify the judge in coming to his conclusion that an order for security backed by stay of proceedings on default would stifle Wing Hing's claim. And since Wing Hing's impecuniosity is based on what it says is the wrong done to it by Hanjin, this seems to me to be a proper case in which the judge could properly have concluded that the justice of the case told against an order for security for costs, especially at this late stage, when most of the costs of the action have been, or certainly ought to have been, incurred. There are some cases in which the probability that a claim will be stifled may be properly inferred without direct evidence, as is pointed out in Trident International Freight Services Ltd. v. Manchester Ship Canal Company, above. This is, in my judgment, such a case, and the judge did not fall into error in so concluding.

The result

18. I would therefore uphold the judge's exercise of his discretion, even if he made some errors on the way to his conclusion. Even if those errors were sufficiently serious to warrant us in looking at the matter afresh for ourselves, I would myself conclude that this is not a proper case, at this stage in these proceedings, to order security for costs against Wing Hing.

Conclusion

19. For these reasons, I would dismiss this appeal, but not without an expression of gratitude to Mr. Shieh for the able and competent way in which he presented to us the case for Hanjin.

Leong, J.A. :

20. I agree. On the first point taken that the Deputy Judge took an erroneous view on the merits of the case, the Judge in stating his judgment that there was "a strong case for misrepresentation on freight rate" was not really stating that the plaintiff had a case based on misrepresentation. He was saying no more than that the lower freight rate would affect the plaintiff's budget which would necessarily go to the damage suffered by the plaintiff as a result of non-delivery. The plaintiff's case on breach of contract is not without merits. The Deputy Judge had not gone into the merits of the case. As may be seen clearly from the relevant passage in his judgment, he had fully in mind that merits of the case is only one of the factors for consideration. The Judge could not be said to have erred in his consideration of this matter.

21. On the second point that the Deputy Judge's conclusion that an order for security would stifle the plaintiff's action was wrong, there was evidence which he accepted that the plaintiff owed its former solicitors Herbert Smith $400,000 in legal costs which the plaintiff was not able to pay and as a result the papers were held as a lien by the solicitors. There was also evidence that the plaintiff suffered accumulated losses in excess of $2 million and balance in the company's account was only a few hundred dollars and the plaintiff had ceased business. The Deputy Judge was entitled to conclude on such evidence that in the present economic crisis in Hong Kong, it would not be possible for the plaintiff to borrow from financial institutions and with such financial background, the Judge was entitled to conclude the plaintiff would not be able to raise money from other sources. The Deputy Judge had followed the guiding principles in Keary v. Tarmac Construction Ltd. [1995] 3 All ER 534. He had considered all the circumstances balancing all the relevant factors and cannot be said to have exercised his discretion in a way that this court should interfere. I would dismiss the appeal.