FORM PASS LTD v. CHONG PAK CHIU

HCA574/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.574 OF 2002

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J U D G M E N T

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1. This is an application for security for costs made by the defendants in the counterclaim against the plaintiff in the counterclaim. The counterclaim has arisen as a result of the plaintiff bringing an action for injunction to restrain nuisance by the defendant in the main action, the defendant being Chong Pak Chiu ("Mr Chong").

2. The result of the proceeding, having started, is that the defendant, Mr Chong then counterclaims against the 1st and 2nd defendants in the counterclaim the 1st defendant in the counterclaim, being the plaintiff in the action, Form Pass Limited, and the 2nd defendant in the counterclaim, Mr. Leung, being a principal shareholder of the plaintiff company. Mr Chong alleged in the counterclaim that he had been cheated by the company and Mr Leung of a large sum of money (going back many years) and the substance of that allegation in the counterclaim can be seen in paragraphs 23 and 25 of the defendants' counterclaim at page A17 of the bundle. It refers to 22 cheques amounting to a total sum of $6 million. That is the substance of the complaint of being cheated by the defendants of the large sums.

3. There had been acrimonious steps taken in these proceedings and no doubt the trial is going to be troublesome. Trial Date has been set and is coming on before me in early August with five or six days set aside for the Trial.

4. The defendants in the counterclaim, that is, the company and Mr Leung, are seeking against Mr Chong, the plaintiff in the counterclaim, security for costs in the sum of something like $600,000 to $700,000, divided into past costs, costs of preparation for the trial from now until the trial and the costs of the actual trial itself. I will go a little bit further into the details of the quantum at a later stage.

5. To resist the application, a number of points had been raised by the plaintiff in the counterclaim, Mr Chong. The first point is that the application is made late. I can dispose of it very quickly. The application is not made early, it is made not however so late, that the court should not contemplate it. The rules are fairly wide, and it allows the court to make the order at anytime. I do not think that there is a good reason because of the timing to refuse the application.

6. It is said, secondly, that the chances of the defendant winning the case and therefore having to recover the costs is slim. That is to say, Mr Chong thinks that he is going to win. It is impossible in a case such as this one for so much depends on details and in particular about details of 25 transactions going back sometime ago for the court, without minute examination, to come to any firm view as to what are the chances of Mr Chong winning it. Taking a broad view and have looked at the papers, particularly the report of the expert, it seems to me that there is no way this court will be able to say that Mr Chong has a strong chance to win. So I do not think prospect of success is a reason for refusing the order.

7. A third and somewhat unusual point was taken in resistance. It is said that even if Mr Chong should lose the counterclaim, having regard to the past conduct of the defendants in the counterclaim, it is very likely that the court would deprive the winning defendants in the counterclaim of the costs of counterclaim. Of course, it is possible but what is the basis of this assertion. In fact, having regard to the circumstances of the case and having looked at the papers, at the moment no court can possibly and confidently say that it is likely to happen. It seems to me that it is very unlikely to happen. It is very rare for a court having found one party to be right then because of their past conduct (either leading to the litigation or in the course of litigation) deprive them of the fruit of their success, namely the costs of the counterclaim. So I do not think that this 3rd unusual point helps Mr Chong.

8. Finally the point taken against the making of the order is that the order if made would stifle the proceedings. I, of course, accept that the court, in special circumstances would have regard to the financial position of the plaintiff, especially his inability to raise any money to meet the security for costs order and therefore having his claim stopped in total. But the facts of this case do not come anywhere near to such a situation. The affidavit of Mr Chong on this can be found at page C45 of the bundle, at paragraph 6(vi) where he says this :

"As far as financial situation is concerned, balancing the need for livelihood and that for litigation, I can only afford to put in a sum of HK$100,000 (of course I pray that opposite side's application be dismissed)."

He said earlier at paragraph 3 that he comes to Hong Kong to earn a living because the nature of the trade, and he says he has little education and that in Shenzhen, he earns as little as $1,000 per month. Nowhere did he say what is his total financial position; nowhere did he say what are his assets, what are his liabilities, what did he pay to his solicitors for this litigation, how much is left after he paid, or that his resources are such that he cannot raise any money and that therefore if security for costs of more than $100,000 is ordered, then he had to drop the claim and that his claim therefore would be stifled. I think paragraph 6 is carefully drafted and drafted in such a way that the court cannot possibly conclude that there will be a stifling of the counterclaim. I therefore do not believe that there is factual basis for this submission that the application of security for costs is stifling in nature.

9. It remains therefore only to consider the key and only relevant issue which requires a decision by this court today, namely the quantum of security for costs. I have looked at the skeleton bill of the defendants in the counterclaim, at page C21, plus the additional documents, that is, the counsel's fee note, and I must say for an action of this kind and for the level of representation that is before me, $737,000 is grossly excessive and is in no way justified. Mr Chong has said in the affidavit that the proper figure for the costs at the trial (at C45 at paragraph 6(ii)) should be $220,000, made up of $100,000 for the solicitors and $120,000 for the barrister with the breakdown of $40,000 for the brief and $20,000 a day for the refresher.

10. In my view, that figure of $220,000 seems to be about right. But that, of course, is a figure that would include not just a counterclaim but also the claim, if one has to apportion the claim and the counterclaim and a proper apportionment of 2/3 for the counterclaim and 1/3 for the claim, then the proper costs for the trial of counterclaim would be somewhere around $140,000 or $150,000. There remains the question of how much would be the proper costs for all the work done from the very beginning up to the trial (excluding the trial itself) but including the preparation work? That question was explored in the course of the submission, and it seems to me that one must not try to go into a detailed analysis of counsel's fee note (most of which included matters that should not be allowed or related to the claim only, and in any event are excessive). But taking a broad view, if the proper costs for the trial alone of the counterclaim is $140,000 or $150,000, I believe that the proper costs to be allowed for the counterclaim from the beginning up to trial should be no more than $100,000, and certainly it would be a sum less than the costs of the trial. In my view, therefore the total reasonable security for costs that should be allowed, to give proper protection to the defendants in the counterclaim, should be no more than a sum of $250,0000.

11. The only question left to consider is whether and to what extent I should make a further allowance for the fact that, for example, Mr Chong might succeed in part of his claim. The figure of $300,000 was mentioned as a sure win out of these large number of transactions. I think on the whole, it seems to me wrong to make further allowance in the circumstances. I have looked at the case in a round. I have examined what ought to be a fair sum to give proper protection to the defendants in the counterclaim. It seems to me that, in the circumstances, $250,000 should be the proper sum to order and I therefore so order that sum as security to be given within 21days.