HANG FUNG JEWELLERY & GOLDSMITH LTD v. WURTTEMBERGISCHE VERSICHERUNG AG AND OTHERS

HCA 2009/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2009 OF 2005

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BETWEEN

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REASONS FOR DECISION

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INTRODUCTION

1.  This is the defendants’ application for security for costs.  At the end of the hearing, I refused the application and indicated the reasons for doing so would be handed down later.  They are as follows.

2.  The plaintiff is a company operating a jewellery and goldsmith business.  Although in the form of a company, it is undisputed this is essentially a small family business operating by husband and wife with the help of a few staff.

3.  At least for the purpose of this application, the 3 defendants can be treated as one.  All 3 are insurance companies.

4.  The plaintiff commenced this action in October 2005, shortly after it reported to the police that robbers intruded into their premises and stole about $4.8 million worth of goods.  The plaintiff complains that the defendants wrongly refused to compensate them for their loss (which allegedly amounts to a breach of the insurance policy taken out by the plaintiff).

5.  The defendants deny liability on various grounds including the non-admission of the robbery, breach of conditions and no loss has been suffered because the robbed goods were held on consignment.

THIS APPLICATION

6.  It is common ground a two-stage test is applicable to this application:-

(a) whether there is reason to believe the plaintiff cannot pay the costs;

(b) if so, security for costs may be ordered (as a matter of discretion).

S. 357, Companies Ordinance (Cap. 32); Lindsay Parkinson Ltd. v. Triplan Ltd. [1973] 1 QB 609; Keary Developments Ltd. v. Tarmac Construction Ltd. [1995] 3 ALL ER 535; Wing Hing Provision, Wine & Spirits Trading Co. Ltd. v. Hanjin Shipping Co. Ltd., CACV 245/1998 (7 October 1998).

(a) The Plaintiff’s Ability to Pay Costs

7.  Despite the plaintiff’s somewhat shifting stance, it can be inferred the plaintiff does not have the ready cash to pay for the amount of security sought by the defendants (about $3.2 million at the time of the hearing, or about $2.45 million at the time of the defendants’ supporting affidavit).

8.  This does not, however, mean that the plaintiff will necessarily be unable to pay for the defendants’ costs should the obligation to do so actually arise (such as if this action is dismissed after trial with costs to the defendants).  It may mean the plaintiff will have to sell off most of its substantial assets to enable it to do so.

9.  The plaintiff’s more updated audited accounts (31 March 2010) show it holds a property valued at about $19.8 million and inventories at about $13.67 million (this is countered by trade debts of about $6.75 million, bank loans and overdraft totalling about $5.8 million and other non-current loans of about $7.9 million).

10.  In making the above observations, I already bore in mind the defendants’ criticisms that the documentary evidence concerning the plaintiff’s ownership of:-

(1) the property (which turns out to be a piece of land in the Mainland registered in another company’s name);

(2) its inventory (which may be held on consignment),

is unsatisfactory to say the least. In brief, I find the plaintiff’s explanation in the affirmation to be plausible and should not be rejected.

(b) Discretion

11.  The factors which I have taken into account before concluding that the discretion should be exercised in the plaintiff’s favour are set out below.

12.  As stated above, the plaintiff is in essence a family business.  It has been in business for about 16 years (since 1995).  Its accounts show an apparently healthy business generating modest profits (relative to the amount of costs sought in this application).  It can be inferred from the accounts quite some of its financial resources have been ploughed back to the business.  The relevance of the above facts to this application is that the plaintiff does not have the look of a “fly-by-night” operation.

13.  Secondly, this application was not taken out until April 2011 (about 4½ years after the commencement of this action).  As a result, about 70% of the defendants’ costs have already been incurred “without cover”.  More important than that, the trial of this action is scheduled to commence in December (that is, slightly more than one month from the hearing).

14.  In view of the above and the imminence of the trial, and most of the plaintiff’s financial resources having been tied to its business, there is a real risk the plaintiff would be deterred from pursuing its claim (when the parties must by now be ready for trial) if an order for security were in fact made.