成都中泰交通建設發展有限公司 v. NEO CHINA LAND GROUP (HOLDINGS) LTD

HCA 2196/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2196 OF 2009

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REASONS FOR DECISIONS

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1.  This case has been fixed for trial on 8 January 2013 with an estimated time of 8 days. Shortly before the PTR hearing on 10 October 2012, the defendant took out the following 2 summonses:

(i)  the summons dated 29 August 2012 for the plaintiff to provide further security to cover the defendant’s costs in this action up to trial (“the Security for Costs Summons”); and

(ii)  the summons for directions dated 28 September 2012 (“the Summons for Directions”) for leave to the defendant to amend its Re-Amended Defence, and to file: (a) the supplemental expert report of the defendant’s expert, 陳乃蔚 (“Mr Chen”); (b) the 2^nd supplemental witness statement of Mr Huang Shaoyuan; (c) the supplemental witness statement of 馬碧貴 (“Mr Ma”); and (d) the witness statement of 楊彪 (“Mr Yeung”).

2.  In the adjourned hearing on 28 November 2012, I allowed the defendant’s applications under the Summons for Directions and ordered the plaintiff to pay a sum of $2,500,000 into court on or before 24 December 2012 as further security for the defendant’s costs in this action up to trial.  I now give my reasons.

The applications under the Summons for Directions

3.  Mr Chan, counsel for the plaintiff, opposes the various applications under the Summons for Directions on the ground that, firstly, there was inordinate and unexplained delay on the part of the defendant in making these applications.  In particular, the defendant had confirmed in its 3 listing questionnaires dated 8 December 2010, 1 June and 6 October 2011 that the defendant did not intend to take out any other interlocutory applications.  Secondly, the defendant has sought to introduce new factual and expert evidence for the purpose of the trial, which has taken the plaintiff by surprise and would leave it with inadequate time for the proper preparation of the trial.  The introduction of such new evidence will also lengthen the trial or disrupt the trial date.

4.  In Li Shiu To v Li Shiu Tsang & Ors, unreported, HCA 416/2003 (14 August 2012), I have made the following observations about any late applications for amendment of pleadings:

(i)  the new O 1A of the RHC makes it clear that the courts shall give effect to the underlying objectives of the CJR;

(ii)  if an amendment application is made in circumstances offending the underlying objectives, the court may have to balance all the factors in the case in determining whether to grant the application;

(iii)  there was a heightened concern to guard against late applications after the implementation of the CJR; and

(iv)  if a party makes a late application to amend the pleading with the effect that the trial date (being a milestone date) may have to be adjourned, the court would be very reluctant to allow the application (given that an adjournment of the trial would be a serious prejudice to the parties involved in the litigation) unless there are exceptional circumstances.

5.  Although Li Shiu To was a case about late application for amendment of pleadings, the same principles should apply to all late interlocutory applications relating to the introduction of new evidence for the purpose of the trial.

6.  Despite the observations I have made in Li Shiu To, I would exercise the discretion to allow the applications under the Summons for Directions.

7.  For the proposed amendment of the Re-Amended Defence, I agree with Mr Wong, SC, counsel for the defendant, that the defendant does not seek to introduce a new line of defence by way of the proposed amendments.  Instead, the defendant sticks to the original defence that the Shares Transfer Agreement (“the STA”) and the Supplement Agreement (“the SA”) had not come into effect before the necessary approval from the relevant Mainland authorities was secured.  The amendments are made basically to include points and Mainland legislations and rules that Mr Chen had raised and mentioned in his supplement expert report.

8.  For the supplemental expert report of Mr Chen, I also agree with Mr Wong that such supplemental report was prepared for the purposes of: (i) responding to the views expressed by the plaintiff’s expert; and (ii) further explaining to the court in greater details, and with the support of some latest authorities, the views that Mr Chen had already expounded in his previous reports, the most important of which being that the STA and the SA must not have come into effect before the necessary approval from the relevant Mainland authorities was obtained for the STA.  In such circumstances, Mr Chen does not depart from the views he gave in his previous reports but simply gives more authorities and particulars in support of his original views.

9.  In his 2^nd supplemental witness statement, Mr Huang gives a more detailed account of the alleged plaintiff’s refusal to take the required steps to effect the transfer of shares in accordance with the STA, the alleged background leading to the oral agreement between the parties in or around March or April 2009 and its terms.  In such witness statement, Mr Huang also explains in more details the alleged involvement of the defendant in the said oral agreement and the subsequent settlement agreement.

10.  In his supplemental witness statement, Mr Ma elaborates on what he had said in paragraphs 14 and 15 of his first statement.

11.  Mr Yeung is an executive director of the defendant. In his witness statement, he seeks to give an explanation to the court the separation between the defendant’s Mainland and Hong Kong offices and hence the purported reasons behind the previous changes in the defendant’s pleaded case.

12.  In short, I accept that the amendment of the Re-Amended Defence and the supplemental statements and report which the defendant now seeks to introduce before the court are in essence nothing more than an extension or a more detailed version of the defendant’s original pleaded case.  There is no fundamental or major departure from the issues as framed or as can be gleaned from the documents already before the court.

13.  I also take the view that Mr Chan has exaggerated the difficulties facing the plaintiff in dealing with these new materials before the trial.  As I see it, the plaintiff can comfortably ask the existing witnesses to deal with the allegations raised in the new witness statements, and it should not require the plaintiff to carry out substantial investigation to deal with such new allegations.  For the new authorities stated in the supplemental expert report, I expect that the plaintiff’s expert should be familiar with those authorities.  In any event, the parties’ experts should be allowed to cite the latest authorities to support the views expressed in their earlier reports.

14.  Undoubtedly, these applications could have been made earlier and the plaintiff may experience some inconvenience in the preparation of the trial in light of the new materials.  Despite these factors, the amendments and the introduction of the new materials are, in my judgment, necessary to enable the real questions in the case to be decided.  Even in the post-CJR decision of 厦門新景地集團有限公司 v Eton Properties Limited, unreported, HCMP 13, 15, 18, 21/2012 (decision of the Court of Appeal on 3 February 2012), the Court of Appeal affirmed the decision of the lower court in allowing an application for amendment of the Statement of Claim on the ground that the same was necessary to enable the real questions and controversy between the parties to be decided, despite the fact that the application was made just a couple of months before the scheduled trial date.

15.  What is most important here is that there is very little risk for the disruption of the trial date.  The trial may be slightly lengthened, but I consider it justified as the introduction of the new materials would enable the court to decide the real questions and controversy between the parties.  I also do not accept that the late applications are causing any serious prejudice to the plaintiff.  I therefore exercise the discretion to allow the various applications under the Summons for Directions.

The application for further security for costs

16.  It is common ground that the plaintiff is an overseas company incorporated in the Mainland.

17.  By the agreement of the parties, the plaintiff, on 24 February 2010, made a payment of $1,270,000 into court as security for the defendant’s costs up to the stage of discovery.

18.  By a letter dated 22 June 2012, the defendant’s solicitors made a request to the plaintiff’s solicitors for the plaintiff to provide further security for the defendant’s costs from the end of discovery up to trial.

19.  By a letter dated 13 July 2012, the plaintiff’s solicitors asked the defendant’s solicitors to specify the quantum of the further security requested.

20.  In the subsequent letter dated 21 August 2012, the defendant’s solicitors quantify the costs from the end of discovery to trial in the sum of $6,198,600.

21.  By the letter dated 27 August 2012, the plaintiff’s solicitors replied as follows:

“Our client, in principle, agrees to pay further security for costs provided that the requested sum of further security for costs is reasonable and acceptable. However, your requested sum of further security for costs in the amount of HK$6,198,600 is unreasonable and excessive and therefore not acceptable to our client.”

22.  In the hearing, the defendant asks the plaintiff to provide further security in the sum of $7,068,522.

23.  Mr Chan submits that the court should not exercise the discretion to order further security against the plaintiff.  Firstly, the defendant had confirmed in the 3 listing questionnaires that it did not intend to take out any other interlocutory applications, and there was inordinate and unexplained delay on the part of the defendant in making the application for further security for costs.  Secondly, the late application would cause serious prejudice to the plaintiff, as it would have great difficulty in raising an extra sum of about $7,000,000 in the relatively short period of time before the trial.  Thirdly, by virtue of “the Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters by the Courts of the Mainland and of the Hong Kong Special Administrative Region pursuant to Choice of Court Agreements between Parties Concerned” made between the Supreme People’s Court of the Mainland and the Government of the HKSAR, the defendant should not have great difficulty in enforcing a costs order in the Mainland against the plaintiff in the case that it succeeds in its defence against the plaintiff’s claim.  Based on these considerations, Mr Chan submits that this court should not order the plaintiff to furnish further security at such a late stage of the proceedings.

24.  Despite the able submission of Mr Chan, I would still exercise the discretion in favour of the defendant.  There is no dispute about the general principle that the plaintiff, being an overseas company and a foreign plaintiff, ought to furnish security for costs in favour of the defendant.  Undoubtedly, the defendant could have made the application earlier.  This can avoid disruption to the court’s diary, as there is always difficulty for the court to find an early date in the packed diary to hear the late application in the limited time before the trial.  An early application would also minimise the possible hardship caused to the plaintiff in having to raise a substantial amount of money shortly before the trial.

25.  Nevertheless, as pointed out by Muttrie DHCJ in Midland Realty International Ltd v Wise Surplus Ltd, unreported, HCA 3065/2001 (21 June 2005), the decision on the timing of an application for security involves a balancing act between applying too early and applying too late, and the court has a complete discretion to decide on whether to require security to be given.  Although there was delay in the making of the application in that particular case, the plaintiff in the counterclaim all along knew that security was in consideration, and so he “was never or should never have been lulled into a false sense of security.  Hence, the learnt judge affirmed the decision of the master in ordering the plaintiff in the counterclaim to provide security for costs in respect of the counterclaim.

26.  The same applies in the present case.  When the plaintiff paid the security in the sum of $1,270,000 into court in February 2010, the plaintiff had already noticed that the defendant intended to demand security for costs up to trial.  The plaintiff was formally notified about the request for further security for costs in June 2012, which was about 6.5 months before the scheduled trial, and the plaintiff would have had by then ample time to arrange funding.  Further in the letter dated 27 August 2012, the plaintiff had indicated no objection to pay security as a matter of principle and the parties only disagreed as to the quantum of the security.  Throughout the correspondence exchanged between the parties, no allegation of delay had ever been raised.  Hence, I do not accept that the plaintiff is suffering any serious prejudice by reason of the late application on the part of the defendant, or that the plaintiff had been lulled into a false sense of security by reason of such delay.  There is also no evidence to suggest that the provision of a modest sum of security would stifle the plaintiff’s claim.  I therefore exercise the discretion to order the plaintiff to provide further security.

27.  So far as quantum is concerned, I decide to adopt a broad brush approach rather than go into each individual item claimed by the defendant.  After perusing the defendant’s schedule of incurred costs and its estimate for future costs, I am of the view that a more realistic figure for the defendant’s costs after discovery and up to trial should be in the region of $5,500,000 to $6,000,000.

28.  It is trite law that the court, in ordering the provision for security for costs, will not require the plaintiff to provide complete protection to cover the defendant’s costs.  The court has a wide discretion so far as the quantum of the security is concerned.

29.  In the present case, taking into account the delay in the making of the application and the difficulty facing the plaintiff in having to raise a substantial amount of money in the relatively short period before the trial, I am of view that the quantum of the security should be in the region of $3,000,000.  As the defendant is liable to pay some costs to the plaintiff in respect of the applications under the Summons for Directions, I reduce the quantum of the security to the sum of $2,500,000.  I therefore so ordered in the hearing.

Costs 

30.  For the costs of the various applications under the Summons for Directions, I agree that the costs of the hearings should be treated separately from the costs of the Summons itself.  Since the plaintiff has opposed the defendant’s applications unsuccessfully, Mr Wong asks the plaintiff to pay the defendant’s costs of the 2 hearings on 10 October and 28 November 2012.

31.  Although the plaintiff has failed in its opposition, one cannot ignore the fact there was considerable delay in the making of these applications.  As I have mentioned above, there was a heightened concern to guard against late applications after the implementation of the CJR.  Ultimately, the defendant is seeking the court’s indulgence in allowing it to amend the pleading and to introduce new materials at a late stage of the proceedings.  As such kind of late applications should not be encouraged by the court, the fair order for the hearings on 10 October and 28 November 2012 should be one of no order as to costs.  For the other remaining costs of and occasioned by these applications, the defendant should pay for those costs.  I therefore so ordered. 

32.  After I made the order for security for costs in the hearing on 28 November 2012, I was given to understand that the plaintiff had, by without prejudice correspondence, offered to pay into court a sum of $2,000,000 as further security for the defendant’s costs.  Since the court has actually ordered the plaintiff to pay a larger sum of $2,500,000 into court, the defendant has succeeded in the application for further security.  I therefore ordered the plaintiff to pay for the costs of the Security for Costs Summons.

33.  After the hearing, the plaintiff has written to the court seeking to reargue the issue of costs for the Security for Costs Summons. Since the court has heard the arguments of the parties before making the relevant costs order, I declined the plaintiff’s request to revisit the issue of costs.