ATAL TECHNOLOGIES LTD v. STRATECH SYSTEMS LTD

CACV 125/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 125 OF 2011

(ON APPEAL FROM HCCT 56/2006 AND HCCT 3/2007)

____________

HCCT 56/2006

BETWEEN

____________

______________

DECISION

______________

1.  This is an application for security for costs of an appeal. After a six-day trial, on 30 June 2011 Reyes J handed down judgment for ATAL Technologies Limited (“ATAL”) against Stratech Systems Limited (“Stratech”) in the net amount of $8.72 million with interest and costs. Stratech is incorporated in Singapore and is listed on the main board of the Singapore Exchange Securities Trading Limited since 2000. It has no assets in Hong Kong. Its business is the design, development, implementation, maintenance and project management of information technology and advanced technology systems. The claim and counterclaim in the proceedings below arose out of a sub-contract by which Stratech was engaged as ATAL’s sub-contractor for the supply, installation, supervision and maintenance of software and various systems relating to the clearance of passengers and vehicles at the borders of Hong Kong for the Immigration Department.

2.  On 13 July 2011 Stratech filed a Notice of Appeal and sought a stay of execution pending appeal.  The application for stay was dismissed by Reyes J on 19 July.  On 10 October, Stratech provided a bank guarantee in the amount $12.4 million to cover its liability for the damages and interest awarded pending the determination of its appeal.

3.  On 2 August, ATAL filed a Respondent’s Notice which includes a cross-appeal on liability.  The substantive appeal is fixed to be heard in May next year, with two days reserved.

4.  ATAL issued the present summons for security for costs of the appeal on 24 August, seeking security in the sum of $2,033,975 by cash payment into court within 28 days.  The application was made on the grounds that Stratech is resident out of the jurisdiction, that enforcement of any costs order of this court would involve additional time and costs through enforcement procedures in Singapore, and that the financial status of Stratech is not healthy.

5.  Stratech opposed the application, contending that there are no special circumstances under Order 59 rule 10(5) of the Rules of the High Court to justify the exercise of discretion to order security for costs on appeal.  It was submitted further that the amount of security sought is grossly inflated and unreasonable and that an appropriate sum should be in the region of about $400,000 only.

6.  For the purpose of this application, I think it is right to proceed on the basis that Stratech has an arguable appeal, and that the merits in this appeal do not go strongly one way or other.

7.  The applicable legal principles may be stated shortly as follows.  The rationale for the practice of ordering security where the appellant is resident abroad is deemed expectation of undue delay or expense in enforcing the costs order abroad.  The presumption that it is difficult to enforce the costs order abroad may be disproved by the appellant.

8.  There is reciprocal arrangement between Hong Kong and Singapore for the enforcement of judgments.  Singapore is a country covered under the Foreign (Reciprocal Enforcement) Ordinance, Cap. 319, and Hong Kong is covered by the Reciprocal Enforcement of Foreign Judgments Act of Singapore and was gazetted under that statute with effect from 1 July 1997.  The Act provides for a registration mechanism for foreign money judgments given in the superior courts of non-Commonwealth countries.  Thus, ATAL may enforce a costs order made by the Hong Kong Court of Appeal by registering the same with the High Court of Singapore, and a registered judgment shall, for the purposes of execution, be of the same force and effect as if the judgment had been originally given in the Singapore court and entered on the date of registration.  And although Stratech may apply to set aside such a registered judgment under one or more of the limited grounds as provided in the statute, I find it difficult to envisage what possible grounds could be open to Stratech in respect of a costs order made by the Hong Kong Court of Appeal.

9.  ATAL’s solicitor, Mr Nunn, deposed that however simple the enforcement procedures are, additional time and costs would be involved, as Singapore lawyers would need to be instructed, ATAL would need to apply for registration of the Hong Kong costs order, it would need to wait for this application to be processed by the relevant authorities in Singapore, and it is only after the costs order is recognised that ATAL may eventually enforce the costs order by various means of execution in Singapore.

10.  Stratech’s Chief Corporate Officer, Miss Leong Sook Ching, who was a legal practitioner in Singapore and had experience regarding court procedures in both jurisdictions, said in her affirmation that the time and costs involved in enforcing a judgment in Singapore would not be substantially longer or greater than that in Hong Kong.  Mr Nunn made the point in his affidavit in reply that this is irrelevant in relation to the extra time and costs that would be incurred in enforcing the costs order in Singapore.  No doubt, additional time and costs would be involved.  But the question is whether there would be undue delay or expense in doing so to make out a case of special circumstances for security to be ordered.  It should not be difficult for Mr Nunn to depose to the amount of extra time and costs he estimated would be involved, but he did not do so.  On the available evidence, I am not satisfied that the extra time and costs involved in this situation could be characterised as undue delay or expense.

11.  I turn to consider the financial position of Stratech.  ATAL relied on these matters in the financial statements of Stratech to support its contention that the financial status of Stratech is not healthy. The Half-Year Financial Statement and Dividend Announcement up to 30 September 2010 showed that the Stratech group of companies made a loss before taxation of S$3,496,000.  The net assets of the group had dropped from S$15,641,000 as at 31 March 2010 to S$12,210,000 as at 30 September 2010, and net assets of Stratech had dropped from S$19,727,000 to S$16,433,000.

12.  Stratech did not make any provision for the outcome of its litigation with ATAL.  To the losses of S$3,496,000, one would need to add approximately S$2 million (equivalent to the $8.72 million damages awarded to ATAL).  Mr McCoy, SC made the point that Stratech now has a combined loss of approximately 40% of its total assets.  He submitted there is further evidence of financial difficulty in that Stratech had taken more than three months to obtain a bank guarantee of $12.4 million to cover its liability to satisfy the judgment debt if it should fail on this appeal.

13.  It has not been suggested by ATAL that Stratech is insolvent or impecunious.  The allegation is that Stratech’s financial status is “not healthy” or that its financial health is “at issue”, in that Stratech has recently suffered a loss of approximately 40% of its total assets.

14.  I note from the financial statements of Stratech that the group had recorded net profits of S$1,180,000 for the financial year of 2009 and S$1,169,000 for the financial year of 2010.  It was for the year ended 30 September 2010 that a loss of S$3,496,000 was recorded.  Notwithstanding this loss, the group and Stratech have maintained substantial net assets of S$12,210,000 and S$16,433,000 respectively.  Stratech has in February 2011 secured a major contract by the Ministry of Defence in Singapore and the revenue from this contract was expected to be recognised in the financial years of 2011 and 2012.  Further, as per its announcement in July 2011, it has entered into a sale and purchase agreement to acquire 80% of Global Telecom Co. Ltd., a leading systems integrator in South Korea, at the consideration of US$7.6 million.  Global Telecom Co. Ltd. achieved a turnover of S$46 million for its last financial year ended 31 December 2010.  I do not agree with Mr McCoy that these contracts are immaterial to the actual financial position of Stratech.

15.  As for the delay in obtaining the bank guarantee of $12.4 million, according to the evidence Stratech had paid S$2.2 million odd to its bank in mid August 2011 to procure the guarantee.  It did not appear that the delay was due to Stratech’s inability to provide funds to the bank.

16.  Looking at the available financial information in the round, I do not think it has been established there would be significant risk that Stratech would not have sufficient assets to satisfy the costs order of this appeal, nor has it been shown that ATAL is likely to have a much greater burden in terms of time and costs in enforcing the costs order in Singapore as compared to the situation of enforcement in Hong Kong.

17.  For the above reasons, I am of the view that special circumstances have not been shown to make it just to order security in this instance.  It is therefore not necessary to consider the arguments on the amount of appropriate security.

18.  I therefore dismiss the summons for security for costs.  I order ATAL to pay the costs of Stratech of this application in any event.