J.S.P. PACIFIC LTD (IN LIQUIDATION) v. NGAN CHUNG POR AND OTHERS

HCA 2000/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 2000 OF 2011

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D E C I S I O N

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Background

1.  By a summons dated 5 February 2016, the 1^st to 4^th defendants apply for further security for costs against the plaintiff.  As stated in the defendants’ skeleton bill of costs prepared for the application, the proposed amount of further security is $1,261,400 for costs incurred or to be incurred after the exchange of witness statements up to and including the 7‑day trial, which will commence on 19 April 2017.

2.  The defendants had previously applied for security for costs against the plaintiff, but it was refused by Master de Souza on 29 May 2013.  The defendants then appealed against Master de Souza’s decision and the appeal was allowed by Deputy High Court Judge Leung (as he then was) with reasons stated in his decision dated 17 April 2014.  The amount of security ordered by Deputy High Court Judge Leung was $500,000.  The plaintiff provided the security as ordered without further appeal.

3.  In relation to the present application, the plaintiff is agreeable to paying further security in principle as evidenced by the letter dated 2 October 2015 from its solicitors to the defendants’ solicitors, but the plaintiff contends that the defendants’ proposed amount of security is grossly excessive.  The plaintiff is only prepared to pay a further sum of $350,000 into court as further security.

4.  Thus, the parties have dispute only on the quantum of further security to be provided and have obtained a consent order from me to have the application dealt with by way of paper disposal without an oral hearing.

Main issues of the case

5.  As set out in paragraphs 2 to 5 of Deputy High Court Judge Leung’s decision dated 17 April 2014, this case can be summarized as follows:‑

“2. Before its liquidation, the plaintiff carried on business of trading gifts and consumer products. The 1^st, 2^nd and 3^rd defendants were its only shareholders.

3. In 2001, the 1^st, 2^nd and 3^rd defendants set up the 4^th defendant; and started carrying on similar business. Some suppliers and customers of the plaintiff became those of the 4^th defendant. Some staff of the plaintiff also joined the 4^th defendant. The plaintiff ceased business but was only wound up upon creditor’s petition in 2004.

4. The liquidators complain that this was diversion of the plaintiff’s business to the 4^th defendant in direct competition. This, the liquidators say, amounted to breach of fiduciary duties of the 1^st to 3^rd defendants as directors of the plaintiff; and the 4^th defendant assisted them in such breach and is liable as constructive trustee. The plaintiff claims damages against the defendants as well as account of profits.

5. In defence, the defendants say that it was the unanimous decision of the shareholders in late 2000 that the operation of the plaintiff should cease and the 4^th defendant should be set up as their new corporate vehicle to carry on the business.  In any event, any cause of action that the plaintiff has against them is outside the 6‑year limitation period under the Limitation Ordinance, Cap 347 and is therefore barred.”

6.  Thus, there are only two main issues in this case, namely, whether the unanimous decision of the shareholders can be upheld and whether the action is time‑barred.  There are a number of sub‑issues, but it is not necessary for me to list them out here.

7.  There will be 4 witnesses in total with about 4 to 5 box folders of documents (including pleadings and Court documents) for the trial.

Up to which stage of the proceedings was the previous security ordered?

8.  The parties have dispute in relation to the coverage of the previous security ordered by Deputy High Court Judge Leung, as his order did not state up to which stage of the proceedings the security of $500,000 was to cover, even though he gave liberty to the defendants to apply for further security.

9.  The defendants submit that as evidenced by the title and the contents of the defendants’ skeleton bill of costs submitted to the court on appeal, they were seeking security for costs in the sum of $678,400 which was for costs up to the exchange of witness statements only.  Thus, the security of $500,000 ordered by Deputy High Court Judge Leung was for proceedings up to the exchange of witness statements.

10.  The plaintiff, on the other hand, submits that the said security was for the defendants’ costs “in this action” (as stated in Deputy High Court Judge Leung’s order).  The plaintiff refers to the defendants’ skeleton bill of costs in support of their first application for security for costs, and argues that it had already included an item (ie Item 6) for “Preparing and attending to various interlocutory hearings including CMC, etc”.

11.  The defendants contend that this item was only for CMCs prior to the exchange of witness statements, but the plaintiff disagrees as there is no proviso from the face of the bill which restricts the defendants’ claim to some CMCs or just CMCs “prior to the exchange of witness statements”.  Thus, the plaintiff contends that as the defendants have already been given security for attendance of interlocutory hearings including CMCs, to award further security for this item would be “double‑counting”.

12.  In this regard, I accept the defendants’ explanation that Item 6 was only for various interlocutory hearings including CMCs before the exchange of witness statements.  The whole skeleton bill was prepared for costs up to the exchange of witness statements as evidenced by the title of the skeleton bill.  All the items contained therein must be prepared for that purpose, even though there was no mentioning again of what stage the costs was calculated up to for each individual item.  I do not think that it is reasonable to require the defendants to specify with express words in Item 6 that the CMCs referred to therein were for CMCs prior to the exchange of witness statements, as it should be readily understood to be the case from the context of the whole skeleton bill.

13.  Thus, I do not agree that there would be “double‑counting” as alleged by the plaintiff.

14.  It is also clear to me that Deputy High Court Judge Leung was dealing with an application for security of costs up to the stage of exchange of witness statements as he was considering the defendants’ skeleton bill for costs up to that stage only.  It is inconceivable that he would be ordering security for the whole action when he was dealing with an application for security in the sum of $678,400 up to the stage of exchange of witness statements and he ordered only $500,000, especially when he also gave liberty to the defendants to apply for further security.

15.  In the premises, I have no doubt that the previous security covers only up to the stage of exchange of witness statements.  The words “in this action” in Deputy High Court Judge Leung’s order do not carry the meaning that the security was for the whole action.

Counsel’s advice on merits

16.  In the defendants’ skeleton bill of costs in support of the present application for further security, there is an item for further advice by counsel.  The plaintiff submits that in Item 9(c) of the defendants’ skeleton bill of costs used for the previous security for costs application, the defendants made a claim for an advice on merits by counsel, and the defendants’ present application for further security must be seen in the light that the defendants’ counsel has already given detailed advice on merits (or at the very least, the plaintiff has already given security for the defendants to take such an advice).  Thus, it is difficult to see why the defendants would need a further advice when they have already taken one.

17.  The plaintiff further submits that the merits of each party’s case have already been argued, and research into the relevant law has already been conducted in the defendants’ first application for security.  This ought to be taken into account when assessing counsel’s brief for preparing for trial.  Although the defendants assert that further research is needed because their research for the first security application was conducted to rebut the plaintiff’s contention that it had good prospects of success at trial, it is difficult to see how the research for the trial would be different.  The parties will still be referring to the same cases identifying the same legal principles which are to be applied.

18.  I agree with the defendants that further advice on merits by counsel after the exchange of witness statements and for the trial will be needed.  The advice on merits and research into the relevant law for the defendants’ first security for costs application were only to show that the plaintiff would not have a case of high probability of success.  The advice on merits and the research into the law would need to be prepared in a more substantial manner after the exchange of witness statements and discovery of documents so as to enable the defendants to prepare for the trial.  However, some discount on costs should be given to such further advice as some of the ground work must have been done during the first application for security for costs.

Up to which stage of the proceedings should the further security be ordered?

19.  The defendants are now seeking further security for costs up to the end of trial.  The plaintiff’s stance is that security should only be paid for the costs up to the first day of trial.  The plaintiff submits that given the heavy contest on merits, the trial judge would be in the best position to determine whether to continue ordering security against the plaintiff.  Moreover, cases frequently settle right before trial. It will be oppressive to order the plaintiff to pay a large sum of security for all of the defendants’ remaining legal costs in one go, given the prospect of settlement before trial.  This is particularly so since the trial will not commence until 19 April 2017.

20.  The defendants disagree with the plaintiff and submit that it is against the underlying objectives of Order 1A of the Rules of the High Court to order security up to the first day of trial, and after the first day of trial, the trial judge would have to decide whether to continue ordering security against the plaintiff with interruption to the trial.  If further security is ordered after the first day of trial, all further proceedings would be stayed with an adjournment of the trial pending payment of such security.

21.  The plaintiff, on the other hand, submits that there are numerous examples where security is ordered only up to (but not including) trial (see for example, 成都中泰交通建設發展有限公司v Neo–China Land Group (Holdings) Limited (中新地產集團(控股)有限公司),HCA 2196/2009 (unreported); Wingames Investments Limited & Ors v Mascot Land Limitted & Ors,HCA 907/2011 (unreported); and Wing Fai Construction Co Ltd v ChengKitYinKelly and Ors, HCA 833/2004 (unreported)).  In particular, two of these judgments were given after the civil justice reforms, and none of these cases expressed that security up to trial would be contrary to the underlying objectives.  There will not be any interruptions to the trial.  The trial judge will be able to give adequate directions to ensure that the trial will not be disrupted.

22.  I disagree with the plaintiff.  There is simply no evidence whatsoever that this case could be settled before trial.  The defendants have to prepare the case with counsel marked for the 7‑day trial.  They are entitled to estimate the costs on that basis.  I do not think that it would be oppressive to order the plaintiff to pay the security in one go.  Indeed, as submitted by the defendants, it would be contrary to the underlying objective of the Civil Justice Reform, to ask the trial judge to consider further security after the first day of trial, as it would certainly disrupt and delay the trial.

23.  In the case of成都中泰交通建設發展有限公司v Neo–China Land Group (Holdings) Limited (中新地產集團(控股)有限公司),HCA 2196/2009 (unreported), Deputy High Court Judge Lok ordered further security to cover the defendant’s costs up to trial.  The application for further security was made shortly before the PTR hearing and the amount of security ordered was $2,500,000.  It defies common sense for the plaintiff to argue that this security was ordered only up to but not including trial.  With such a large amount of security, it is clear to me that the security is to cover the costs of the trial.  In any event, this case does not give any express ruling to support the plaintiff’s contention that security should be ordered up to the first day of trial and then let the trial judge decide whether further security should be ordered after the first day of trial.

24.  In Wingames Investments Limited & Ors v Mascot Land Limitted & Ors,HCA 907/2011 (unreported), Deputy High Court Judge Pow SC ordered the plaintiffs to provide further security for costs in the sum of $2,400,000 upon the defendants’ application for further security to cover all of the defendants’ costs incurred from close of pleadings through to trial.  Again, it does not make sense to me if this security was only to cover costs up to but not including trial as contended by the plaintiff.  There is also no express ruling to support the plaintiff’s contention that security should be ordered up to the first day of trial.

25.  As to Wing Fai Construction Co Ltd v ChengKitYinKelly and Ors, HCA 833/2004 (unreported), Deputy High Court Judge Poon only ordered the plaintiff to provide security in the sum of $800,000 for the defendants’ costs up to the stage where preparation for the trial concludes, without prejudice to any future application for further security for costs, when the defendants’ application (for the 1^st time) was for security for costs of $1,994,774 up to trial.  This case is totally different from our present case and does not give any support to the plaintiff’s contention at all.

26.  Thus, there is actually no authority produced by the plaintiff to say that further security for costs should be ordered up to but not including trial.  The plaintiff’s contention in this regard is utterly groundless.

27.  I therefore agree with the defendants that further security should be ordered up to and including the 7‑day trial.

Quantum

28.  It is trite that the amount of security awarded is in the discretion of the court, which will fix such sum as it thinks just, having regard to all the circumstances of the case.  The court may not condescend to a line by line evaluation of the applicant’s skeleton bill of costs but instead may adopt a “broad‑brush” approach.  “Sufficient” security or security that in all circumstances of the case is just does not mean complete security.  (See Hong Kong Civil Procedure 2016, paragraph 23/3/32)

29.  Thus, although the plaintiff has prepared a detailed list of objections to the defendants’ skeleton bill of costs, it is not necessary for me to go through these objections line by line.  It is also not necessary for me to provide the defendants with complete security as sufficient security is all that is required.

30.  Having considered the complexity of the case, the volume of documents involved, the length of the trial and the number of witnesses to be called, and adopting a “broad‑brush” approach, I am of the view that the amount of further security (from the exchange of witness statements up to and including the 7‑day trial) should be in the sum of $800,000.

31.  I should point out that it is wrong for the defendants to rely on my decision in Eric Edward Hotung and another v HoYuenKi and others,HCA 857/2011, to try to suggest that $1,261,400 for a 7‑day trial is a reasonable amount when compared with $4,000,000 for a 17‑day trial in that case, as the contents of the parameters under consideration for these two cases are very different.

Time for payment

32.  The plaintiff requests for 42 days to make payment of the further security as it was the time given by Deputy High Court Judge Leung for the previous security.  The defendants do not seem to have any objection to this payment period.  I also do not think that it will create any prejudice to the defendants by giving the plaintiff this payment period as the trial would not commence until 19 April 2017.

33.  Thus, I will allow the plaintiff 42 days to provide the further security of $800,000.

Costs

34.  As the parties only require determination of the court as to the amount of further security to be provided by the plaintiff and have agreed by way of the consent order dated 2 March 2016 to have the costs of and incidental to the defendants’ summons dated 5 February 2016 to be in the cause, this will be so ordered.

Liberty to apply for further security

35.  The defendants ask for liberty to apply for further security in case there is any change of circumstances resulting in substantial increase of costs or the trial may last for over 7 days.

36.  The plaintiff, however, submits that if security is given up to the end of the trial, then there is no reason why the defendants should be given further liberty to apply for further security.

37.  I agree with the plaintiff that it is not necessary to grant liberty to the defendants to apply for further security as the amount that I order should be sufficient security up to the end of the trial based on the information available.  However, not having liberty to apply does not mean that the defendants will be barred to make any further application for security.  If there are indeed any unforeseen circumstances that justify another application for security, there is nothing to stop the defendants to make another application even though there is no liberty to apply.

Orders

38.  I therefore order as follows:‑

(1) The plaintiff do pay into court further security for the defendants’ costs in this action from the exchange of witness statements until the end of the trial in the sum of $800,000 within 42 days from the date hereof; and until such payment, all further proceedings be stayed;

(2) In default of payment as aforesaid, the defendants be at liberty to apply for the dismissal of the action against them with costs; and

(3) The costs of and incidental to the defendants’ summons dated 5 February 2016 be in the cause of the action.