XIN NAN (H.K.) TRADING DEVELOPMENT CO. LTD. v. HO HUNG AND OTHERS

HCA 10685/1997 & HCA 11189/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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HCA 11189/1999

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J U D G M E N T

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1. This is an appeal against the order of Master Rogers ordering the plaintiff to pay into court the sum of $2 million as security for the Defendants' costs of the actions up to and including the examination of a witness in the PRC to take place in the near future.

2. The order of Master Rogers was subsequently varied by this court to the extent that the security can be in the form of a bank guarantee.

3. It may not be necessary to go into the background and the nature of the cases in details. Suffice it to say that in the first of the consolidated actions, namely High Court Action No. 10685 of 1997, the plaintiff claims against the Defendants for specific performance of a deed which confirmed the advance of the sum of $83 million to the 1st and 2nd Defendants to acquire over 770 million shares in a public listed company, and in return, the 1st Defendant agreed to pledge all her shares in the 2nd Defendant in favour of the Plaintiff.

4. It appears that there are concurrent actions between the parties in the BVI and the validity of the deed is being challenged.

5. In the second of the consolidated actions, High Court Action No. 11189 of 1999, the Plaintiff claims a sum of $100 million against the 1st Defendant which sum the 1st Defendant agreed to pay under a document termed as "a release". It is fair to say that the matter appears to be quite complicated.

6. Master Rogers took the view that the nature of the dispute and the background of the case were such that it was not possible at this stage to ascertain the merit or otherwise of the parties' case, a view shared by the parties.

7. It is not disputed that the Plaintiff is basically a $2 company. There is suggestion that it has an office premises valued at about $1.1 million but the premises are subject to legal charges to secure unspecified general banking facilities. It is also not disputed that on the defendants' case, the Plaintiff is entitled to 52% of the shares in the 2nd Defendant, with a value of about $1.5 million although the value of those shares can fluctuate.

8. I find it not possible to attach too much significance to the assets of the Plaintiff. Quite apart from the possible variation or fluctuation of those assets, their net value is doubtful. On top of that, I cannot ignore the fact that the Plaintiff also has its own costs to meet.

9. At the hearing before Master Rogers the Defendants submitted a skeleton bill in the total sum of over $3.6 million, the breakdowns are as follows:-

(1) costs incurred to date of about $1.5 million after credit was given for $220,000.00 already paid by the Plaintiff pursuant to the costs order that had been given against it;

(2) about $1.4 million incurred or to be incurred for the examination in PRC; and

(3) the costs thereafter up to and including trial in the sum of about $800,000.

10. Master Rogers concluded that a sum of $3.2 million was likely to be recoverable by the Defendants as costs should they be successful at the end. Master Rogers also concluded that the Plaintiff would not have adequate assets to meet its own costs and that of the Defendants should it be unsuccessful.

11. Master Rogers had mentioned the delay of the application by the Defendants. In my view, he was quite right not to attach too much weight to such delay in the light of the background and the circumstances that he had identified in his reasons for decision. In the exercise of his discretion after what clearly had been a full and detailed analysis of the entire matter, Master Rogers ordered security in the sum of $2 million up to and including the examination in PRC. He indicated that the matter can be revisited after the examination if the need arose.

12. Mr Wong, in his succinct submission, points out that , the present solicitors only started to act for the Defendants lately and only after initial rounds of litigation between the parties had been concluded.

13. It is suggested that the Defendants' solicitor had done very little since they took over the matter. The suggestion is that they only drafted or prepared 2 affirmations, the defence, a list of documents and certain hearsay notice.

14. This observation may well be an understatement. In fact, as Mr Ling points out to this court we are talking about 4 affirmations.

15. I have had a brief examination of those documents. Apart from one affirmation of about 12 pages, and another affirmation of about 10 pages; the other 2 affirmations are brief. May be that is why Mr Wong mentions that we are basically only talking about 2 affirmations.

16. In his skeleton submission, Mr Wong also suggests that as the Defendants have not yet identified the counsel to be engaged for the examination in PRC, they should not be given any security to cover that exercise. But in his oral submissions, Mr Wong seems to have a slight change to the extent that even if counsel has to be engaged, he needs not be a "popular" counsel, and hence a lot less expensive than anticipated.

17. The Defendants' solicitors are still acting for the Defendants. The examination of an important witness is to take place in PRC and the Defendants would have to engage counsel for such an exercise. The solicitors for the Defendants would have to make the necessary preparation in the discharge of their duties not just to their clients but to the court. I am of the view that the costs of the examination in PRC must be included when ordering security. But the reasonableness or otherwise of the estimated costs for that exercise is a different matter.

18. I do not want to comment on the individual items of the Defendants' skeleton bill of costs. Clearly it is neither necessary nor desirable to have a detailed analysis of the documents for the purpose of the present application. My task is to have an overall view of the matter and to decide what is a reasonable amount of costs that should be provided as security for the Defendants' costs. I bear in mind that the Defendants are entitled to such legal representation as they wish but on the other hand, when ordering security, the court should only order a reasonable amount.

19. Despite the complexity of the case. I am of the view that the skeleton bill of the Defendants is very much inflated, particularly the suggested 12 hours working day for 7 days; the need for 2 senior solicitors attending the examination involving just one witness and the charge for the travelling time. Those items, in my view, are highly questionable. The actual examination will only last 4 day at most and the plaintiff will pay for all other ancillary expenses.

20. The same observation can be said of the skeleton bill pertaining to the preparation work in connection with the procedures up-to-date. Of course, how much the Defendants are prepared to pay for their lawyers is a matter for them to consider and for them to agree. But when ordering security, the court must take an overall view of the matter and make a reasonable amount so as to do justice to both sides.

21. In my view, the amount ordered by Master Rogers for security for costs up-to-date including the examination in PRC in the sum of $2 million is excessive. In my view, a more reasonable and realistic figure should be 50% of that sum.

22. In the circumstances, I order that the amount of the security is to be reduced from $2 million to $1 million to cover the Defendants' costs up to and including the examination in PRC to take place in about 10 days' time.

23. Of course, should the need arise or that further security is considered proper and necessary, the Defendants can make such application as they consider appropriate.