EASTERN HOPE LTD. v. STARLIGHT (INTERNATIONAL) ENTERPRISES LTD.

1997, No.A1294

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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J U D G M E N T

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1. I have before me a Notice of Appeal dated 19th September 1997. It is an appeal by the Defendant herein against the decision of Master Jones given on 16th September 1997, whereby the learned Master ordered that the Defendant's summons dated July 1997 for security for costs be dismissed, and that the costs of the application be to the Plaintiff with certificate for Counsel.

2. Mr Warren Chan, S.C., who appears for the Defendant upon this appeal, together with Mr Leong, has convincingly argued that on the face of the papers, there really is no question but that the requirements of section 357 of the Companies Ordinance, Cap.32 indeed have been met. Section 357 is the equivalent of section 726(1) of the 1985 Companies Act, a useful digest as to the rules pertaining to which appears in the 1997 Supreme Court Practice at MN 23/1-314; suffice to say that in this application I have reminded myself of the relevant principles.

3. Mr Li, who appears for the Plaintiff/Respondent in opposition to this appeal, argues that there is cogent evidence before the Court to demonstrate that the fears of Mr Chan's client are unfounded. Mr Li also takes issue with the quantum of the application for security which, on the face of the bill exhibited, amounts to something in excess of HK$1.3 million.

4. This is a dispute between a Vendor and Purchaser. Mr Chan has kindly taken me to the broad issues in the case and I will not comment in detail thereon lest the matter go to trial. What I will do, however, is specifically to recognise that since the hearing for security for costs below, which took place on 16th September 1997, Mr Chan's clients, the Vendor of the property in question, had written to the Plaintiff offering to complete, and that on 12th November 1997, the Plaintiff Purchaser indicated to the Defendant Vendor that it did not wish to complete nor to maintain its action for specific performance, and that it would confine itself to a remedy in damages. Mr Chan, S.C. further suggests that in the particular circumstances of this case such remedy in damages cannot amount to more than the sum of $300,000 together with interest and costs, the said sum comprising the amount of the initial deposit put down at the beginning of last year prior to the dispute breaking out between the parties. For present purposes, therefore, the parameters of this case have, within the last two months, significantly changed.

5. Accordingly, I approach the application against this broad background, and I am grateful to Mr Chan S.C. for the detailed skeleton arguments he has placed before me, outlining his contentions. I think that these contentions are well-founded. I refer, in particular, to the content of his skeleton Reply. In my view, when looking at the evidence as a whole, and after taking into account Mr Dickson Li's tenacious submissions, that nevertheless, in the words of the statute, it does appear by credible testimony that there is reason to believe that the Plaintiff will be unable to pay the Defendant's costs if successful in its defence. Accordingly, in the exercise of my discretion, and it is of course an unfettered discretion which I am exercising in this matter, I am going to allow this appeal. I do not wish to say much more, although I would observe that even though there has been a change in the complexion of the case since the hearing before the learned Master, I can only assume that the argument before the learned Master was conducted in somewhat different terms to the argument that I have had before me today.

6. So, as a matter of principle, security for costs is going to be ordered and the appeal, as I have said, allowed. This raises a further fundamental issue. The Skeleton Bill of Costs which has been prepared by a law draftsman and which has been submitted on behalf of Mr Chan's client, the Defendant herein, takes the case up to trial. Indeed, that Bill of Costs has been the subject of critical commentary by a law draftsman employed by Mr Li's client, and Mr Li, perhaps in a rather more general sense, has invited me to compare the two.

7. My own view on the issue of quantum is very much coloured by my present perception as to the future progress, or probable future progress, of this case. If Mr Chan S.C. is right in his contention that, with the abandonment of a plea for specific performance, the case is ineluctably about $300,000 plus interest and costs only, (and I pause to observe that Mr Li appeared to agree with this proposition), this is a very different state of affairs from the original full-scale dispute involving a property the price of which at the beginning of January 1997 (the date of the Provisional Sale and Purchase Agreement) was some $16.8 million, and the same property which, at the end of that year, commanded a significantly lower price, and with regard to which the only remedy pursued is that of damages. In this regard, Mr Chan has told me from the Bar - and I believe there is a supplemental affidavit in this regard - that at the beginning of 1998, the Defendant has located a possible purchaser for the property in question at a price of $14 million.

8. There is, however, a fly in the ointment. Notwithstanding the abandonment by the Plaintiff, in November 1997, of the remedy of specific performance, the lis pendens registered by the Plaintiff against the property prior to that abandonment, and when the Plaintiff was, on its original case, pursuing specific performance, remains in place; indeed, by an exchange of correspondence between the respective solicitors for the parties at the end of November 1997, the Defendant's invitation, in the changed circumstances, to uplift the registration of the lis pendens was met with a flat refusal. Mr Li today, during a short adjournment which I granted during the hearing, attempted to get instructions as to whether or not this situation is going to continue or whether he can tell the Court, today, that an application which I am told is envisaged by the Defendant in the immediate future to vacate the registration of the lis pendens will be in fact required. But Mr Li has been unable, perhaps understandably, to obtain immediate instructions on the point and therefore (and this is the significance in the present context), for present purposes I am going to proceed on the basis that in the immediate future, by reason of the conditional sale and purchase agreement which I understand has been entered into with a new purchaser for the suit property, the Defendant will be mounting an application to vacate the registration of the lis.

9. It is against this background, therefore, that I return to the question of quantum. Those instructing Mr Chan S.C. have kindly furnished him with figures up to and including discovery, and also including the costs of today, on the basis of what I understand are approved Law Society rates, and this figure up to and including today in terms of costs incurred stands at $570,000. Mr Chan tells me from the Bar that the anticipated application to vacate the registration of the lis would command, on a heavily discounted basis, further fees in the sum of $200,000.

10. In the particular circumstances, which I have taken some pains to set out because this is not the usual run of the mill case, I am prepared to grant security for costs to take account of this imminent application; it seems to me that this imminent application under the Land Registration Ordinance to vacate the lis must be crucial insofar as the Defendant and its prospective purchaser are concerned.

11. This approach does not mean, however, that I simply add together the sum of $570,000 plus a further $200,000 to make $770,000. Whilst this appeal will be upheld with costs, the question also arises whether this appeal merited the participation of Senior Counsel. The Court is always illumined by the submissions of Mr Chan S.C., but although he stoutly maintains that this particular appeal was fit for Senior Counsel, I confess that I entertain my doubts. It may be, I suppose, that he sees the case in a global sense and divines that the structure of the case may be materially altered if, on behalf of the Defendant, he is able to win the appeal and to obtain a sizeable sum in security for costs. That may be the case. But I think, for present purposes, that I have to look at the position on an application by application basis. It logically follows, therefore, that if I do not certify this particular application as fit for two Counsel, then this will have a signal effect upon the amount of security for costs which I am going to order to take account both this appeal, and also of the imminent application for the vacation of the lis pendens.

12. All these is a pretty round-about way of arriving at a final figure. There is no magic in security for costs; it is not some arcane process, and it has an entirely logical basis. But at the end of the day, it comes down to what seems to the judge seized with the application to be just and appropriate in the circumstances. There is necessarily an element of broad brush about security for costs applications, which cannot be decided as if by micrometer. The court takes a broad view on all the evidence before it. Accordingly, after considering all the evidence and after reminding myself of the relevant principles, in the unfettered exercise of my discretion I am going to order that the Plaintiff do furnish to the Defendant the sum of HK$550,000 in security for costs, such security to represent the costs situation up to and including the imminent application for the vacation of the lis. I doubt very much, as a matter of practical politics, or perhaps I should say as a matter of commercial reality, if the case will be pressed a great deal further if at the end of the day in fact it is worth no more than the sum claimed of $300,000. But that is not a matter for me, it is a matter for the parties. All I can do is make the Order that I think is right on the material before me, and then let nature take its course, so to speak.

13. So my Order is that the appeal against the decision of Master Jones is allowed, that his Order dated 16th September 1997 be set aside, that the Plaintiff is to pay the sum of HK$550,000 into Court within 21 days of the date hereof; and that the costs of this appeal be to the Defendant in any event, to be taxed if not agreed. On this latter issue, as I have made clear, I reluctantly, but firmly, do not certify the matter as fit for two Counsel. I certify the present application as fit for one Counsel only. As to the costs below, which the learned Master ordered to the Plaintiff, I have set that Order aside and since, ex hypothesi, in my view the learned Master ought to have granted the application for security on the material before him, I am going to give to the Defendant the costs of that application in any event, to be taxed if not agreed; for that application before the learned Master, I certify also as fit for Counsel.

14. Finally, and somewhat unusually, I am going to give the parties liberty to apply, because I apprehend that this may be necessary either with regard to the application which is going to be made for the removal of the lis pendens, or alternatively (and I suppose conceivably in the circumstances) because the Order as to the payment into Court of the said sum of $550,000 may not be complied with. In this regard, Mr Chan does not ask for a stay of proceedings because he wants to take out the application to vacate the registration of the lis. Normally, of course, absent payment in, the proceedings would be stayed. But in any event, I agree with his submission that there should, in these particular circumstances, be liberty to apply.

15. That, I think, concludes matters for this afternoon. I am grateful to Counsel for the assistance they have given to the Court.