XCHRX KAROCHEM INTERNATIONAL LTD. v. RICHARD LIU & CO. LTD. t/a KAYO PACIFIC INC.

1998, No. 206
(Civil)

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

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D E C I S I O N

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Rogers, J.A. :

1. This is an application for security for costs in an appeal by Richard Liu & Co. Ltd, trading as Kayo Pacific Inc. from a decision under Order 14 of Barnett, J., who gave judgment for the Plaintiff.

2. There were two defences. First, the Defendant had not contracted directly with the Plaintiff and secondly, the commodity, which was supposed to be melamine but was not melamine, had, at some stage, been swapped. The Defendant said that it was not responsible. Having considered the matter, the Judge had no hesitation in giving judgment for the Plaintiff.

3. The application is made on the basis that the Defendant is impecunious. There is justification for alleging that because having attempted to enforce judgment by Garnishee Order on the Defendant's bank account nothing was recovered. As a result of that, the banking facilities with the Defendant's bank appear to have been withdrawn. The Defendant has not, throughout the proceedings, as far as I am aware, been able to afford legal representation despite the fact that it is a company. It was on the basis of impecuniosity, that it sought leave to be represented by its director.

4. In an effort to show that the Defendant has money, the Tax Demand Note issued on 18th November 1996 has been exhibited. This shows that having taken into account previous year's losses, a profit for the year 1995-96 of $308,951 was the figure which the Inland Revenue accepted. When I inquired as to where the assessment in respect of later years was, I was told that the accounts for the present year are with the auditors and as regards the year 1996-97, there was no profit shown and hence no tax.

5. Mr. Liu tells me that the Defendant anticipates being able to make substantial profits out of deals which are being made despite the fact that it is in a difficult position because the banking facilities have been withdrawn.

6. On the basis of this, I have no hesitation in saying that the Plaintiff has shown that the Defendant company is impecunious to the extent that the Plaintiff should be protected as to the costs.

7. As to the merits of the appeal, the only point that was argued was that the Defendant might not be responsible for the loss. It was said that the insurers should be the persons who should bear the loss since on the Defendant's argument melamine was shipped and the fact that salt and chalk was received at the other end, was no responsibility of the Defendant.

8. There are other documents in the case which would indicate that there may well have been difficulties with the manufacturers in the People's Republic of China. However, Mr. Liu says that his contemporaneous faxes to that effect saying that the manufacturers in China were under police investigation were factually wrong and incorrect.

9. It seems to me on the whole of the evidence that the best the Defendant could possibly hope for would be conditional leave to defend with a payment into Court of the full amount claimed. It seems to me that however would be an act of mercy, if it could be called mercy.

10. As regards the security for costs, I propose to order security for costs to be given in the sum of $130,000, the security to be given on or before 16th November 1998 by cash or banker's draft to be paid into Court or by the provision of a bank guarantee of the like amount which guarantee will have to be approved by the Registrar and until such payment is made or guarantee provided and notice of that is given to the Registrar and the solicitors for the Plaintiff, all proceedings in this appeal are to be stayed. In default of giving security within the time specified or any further time as this Court may allow and upon the Plaintiff's solicitors certifying the default to the Registrar, the appeal will be dismissed.

(Anthony Rogers)

Justice of Appeal