PRIMA LUCK INVESTMENTS LTD. v. WANG WEN HSI AND ANOTHER

1998, No. A 13812

HEADNOTE

Agreement for sale and purchase of land - Purchaser a shelf company - Sale went off - Vendors forfeited purchaser's deposit - Purchaser sued for recovery of deposit - Vendors defended and counterclaimed for damages - Vendors applied for security for costs under s. 357 of the Companies Ordinance, Cap. 32

On an application for security for costs under s. 357 of the Companies Ordinance, Cap. 32:

(i) what a plaintiff company can raise to purchase property, and on what security, whether by way of say mortgage or personal guarantees of the shareholders, is a very different matter from what assets the plaintiff company has for the purpose of meeting an order as to costs;

(ii) the jurisdiction is to provide security for the defendants' costs of being sued, not for their costs of suing, which is what they are doing when they counterclaim beyond set-off.

1998, No. A 13812

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CIVIL ACTION NO. HCA 13812 OF 1998

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J U D G M E N T

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1. This is the defendants' appeal against a Master's refusal to order the plaintiff company to provide security for their costs. The application for security for costs was made under s. 357 of the Companies Ordinance, Cap. 32, which provides that:

"Where a limited company is plaintiff in any action or other legal proceeding, any judge having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the company will be unable to pay the costs of the defendant if successful in his defence, require sufficient security to be given for those costs, and may stay all proceedings until the security is given."

2. Apparently the Master dismissed the defendant's application for security on the ground that they failed to adduce sufficient evidence to satisfy him that the plaintiff company would be unable to pay the defendants' costs if it is eventually ordered to do so.

3. The written submission put before the Master on the plaintiff company's behalf in that regard reads:

"4. The fact that the Plaintiff is a company duly incorporated in H.K. with an issued share capital of HK$10,000 doesn't necessarily indicate any inability to pay costs. The Plaintiff agreed that it was ready, willing and able to raise nearly 25 million to purchase the Property in dispute with the cockloft legally constructed on it."

4. Here I think it is fair to say this. What the plaintiff company can raise to purchase property, and on what security, whether by way of say mortgage or personal guarantees of the shareholders, is a very different matter from what assets the plaintiff company has for the purpose of meeting an order as to costs.

5. Security was sought in the sum of $950,000.00. The plaintiff company's claim is for the return of a $2.48m deposit. The defendants resist the claim, and counterclaim for damages. As to the nature of this counterclaim and how it has been pleaded, I will read out these two paragraphs from the Defence and Counterclaim:

"30. By reason of the Plaintiff's repudiation of the Agreement, the Defendants have suffered loss and damages.

PARTICULARS

Net difference between the purchase price under the Agreement and the market price of the Property as at 10th June 1998 after deduction of the deposits forfeited

31. The Defendants will provide valuation report on the market price of the Property as at 10th June 1998 at trial or sooner determination of this Action."

6. That does not provide justification for a court, on an application such as the present, to proceed on the basis that anything substantial would be recovered by way of counterclaim even if the counterclaim succeeds. Moreover, the jurisdiction is to provide security for the defendants' costs of being sued, not for their costs of suing, which is what they are doing when they counterclaim beyond set-off.

7. The $950,000.00 sought by way of security includes $250,000.00 as senior counsel's brief fee and $100,000.00 as senior counsel's refresher. As for the claim which the defendants face, it is, as I have said, one in the sum of $2.48m. If I were to order security, I would not be minded to order the same in any sum in excess of half the amount in which the defendants seek security. Indeed, all things considered, I think that if security is ordered, the security should be less than half that amount.

8. Should security be ordered? The plaintiff company seeks to rely on the fact that the $2.48m deposit is generating interest. But if the defendants win, which is the situation in which they would recover costs, the position would be that the deposit and the interest thereon were rightly theirs anyway.

9. All things considered, I propose to order the plaintiff company to give security for the defendants' costs in the sum of $400,000.00, such sum is to be paid into court within 14 days from today. Meanwhile the plaintiff company's claim is stayed until such security is given. I should mention that the defendant's summons before the Master and its notice of appeal to a judge in chambers asks for dismissal of the claim in default compliance of any order for security. But that is not appropriate as one sees from the terms of s. 357 and as defence counsel conceded once I drew the terms of the section to his attention.

What remains is for me to hear the parties on the question of costs.