BILL CHAO KEH LUNG v. DON XIA

HCA9289/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.9289 OF 2000

-------------------------

-------------------------

-------------------------

J U D G M E N T

-------------------------

1. The defendant applies under Order 23 rule 1(1)(a) of the Rules of the High Court for an order for security for costs, on the ground that the plaintiff is ordinarily resident out of the jurisdiction. The total costs incurred and to be incurred are calculated at $971,475.00. The defendant has been paid US$60,000.00 by the plaintiff, is prepared to give credit for that sum, and accordingly seeks security for the sum of $504,075.00.

2. There is no dispute that the plaintiff is ordinarily resident out of the jurisdiction; his address given in the Writ is in Mainland China.

3. The case arises out of an agreement between the parties for the transfer of shares in Teleway Communications Ltd ("Teleway") which provided for the defendant to transfer to the plaintiff 30,000 shares at a price of US$10.00 per share. The price was to be paid in five instalments. The shares were to be transferred once all the payments had been made. The plaintiff paid the first three instalments, totalling US$60,000 by 31 October 1998, but not the balance. The date for payment of the 4th instalment was 6 July 1999. The plaintiff's case is that the defendant on 3 June 1999 agreed to transfer all his shares in Teleway to third parties, and did in fact transfer them on 14 July 1999, thereby committing an anticipatory breach of the agreement which the plaintiff accepted on 24 September 2000. Teleway was a shareholder in one Chinabig.com Ltd; an offer was made by Pacific Century Cyberworks Hong Kong Telecom to purchase some of the shares in Chinabig.com Ltd; the plaintiff was deprived of participation in that offer, which, he says, would have brought the value of 300,000 Teleway shares up to about US$1.125 million. The defendant's case is that there was no breach on his part; he could have acquired shares from other shareholders for transfer to the plaintiff in terms of the agreement, if the plaintiff had paid the instalments. This is the case in brief; there are other issues but I do not think it is necessary to go into them here.

4. The Writ was issued on 29 September 2000. On 16 October 2000, the defendant through his solicitors requested security for costs, which the plaintiff did not give. The plaintiff applied for summary judgment under Order 14 and Order 14A. On 9 March 2001 the defendant was given unconditional leave to defend. On 2 April 2001 the defendant's solicitors wrote to the plaintiff's solicitors demanding security for costs by way of bank guarantee or payment into court of $973,595.00. On 4 April 2001 the defendant filed his Checklist indicating that an application for security for costs would be made within 14 days. In the meantime, on 4 April 2001 the defendant through his solicitors offered to repay the sum of US$60,000 held by him, with interest at 1% above the US dollar prime rate from 31 October 1998. The plaintiff disregarded this offer which was open until close of business on 11 April 2001. However no application was made for security for costs at that stage.

5. Then on 7 September 2001 the defendant filed a 2nd Checklist, indicating that an application for security would be made within 42 days, but again it was not made, though on 10 October 2001 the defendant's solicitors indicated in correspondence that an application was being prepared. On 20 October 2001 the case was set down for trial in the fixture list, to be heard on 2 July to 5 July 2002 inclusive.

6. The question of security arose again on 2 April 2002, when the defendant again through solicitors demanded security for the same sum. The plaintiff's solicitors replied that the defendant was more than adequately "secured" by virtue of its retention, since 31 October 1998, of the part payment of US$60,000. The defendant's solicitors replied that the defendant would take the US$60,000 into account and demanded security for HK$506,195.00. This was refused and a summons for security for costs was filed on 6 May 2002, less than two months before the commencement of the trial.

7. The defendant argues that it is the usual, ordinary or general rule of practice to require a foreign plaintiff to give security for costs and that the figures put forward by his solicitors in their skeleton bill of costs are reasonable.

8. The plaintiff argues there is a general discretion in the court as to whether or not to order security for costs, even against a foreign plaintiff. The court may take into account the strength of the plaintiff's case; it is a strong one, and therefore no order for security should be granted. Further, the defendant is extremely late in bringing this application, a mere two months before the trial. There will inevitably be prejudice to the plaintiff if an order is made, even though there is no specific evidence of such prejudice from the plaintiff. The plaintiff also attacks the quantum of the skeleton bill and the final figure sought.

9. The defendant replies that the merits of the case can only be taken into account if there is a very high probability of success or failure. There is no such probability here; the defendant has been granted unconditional leave to defend, and in any event there can be no certainty that he could not have complied with his part of the bargain by acquiring and transferring shares if the plaintiff had paid up. With regard to the delay the defendant says that the application was not necessary before, because he was holding the US$60,000.00 but the actual and potential costs are now double that figure. Counsel has also sought in argument to justify the figures.

10. The order for security for costs is discretionary and may be made if, having regard to all the circumstances of the case the court thinks it is just to do so. The fact that a plaintiff is foreign does not now mean that an order for security for costs is inevitable : Lauria v. Le Salon Orient (Hong Kong) Ltd & Anor [1996] 2 HKLR 37. The merits of the plaintiff's case may be taken into account in exercising the discretion; Wong Kwok Mei Sanrita & Ors v. Eversonic Inc. [1992] 2 HKC 62. However the starting point remains that, other things being equal, a foreign plaintiff will normally have to give security, and the merits should only be weighed where the plaintiff shows a high probability of success. This should not involve a mini-trial. In Porzelack K.G. v. Porzelack (U.K.) Ltd [1987] 1 WLR 420 at 423 Sir Nicholas Browne-Wilkinson VC said :

"Under RSC Order 23, Rule 1(1)(a), it seems to me that I have an entirely general discretion either to award or refuse security having regard to all the circumstances of the case. However, it is clear on the authorities that if other matters are equal, it is normally just to exercise the discretion by ordering security against a non-resident plaintiff. The question is what in all the circumstances of the case is the just answer. The matters urged before me have spread over a fairly wide field. First, there have been attempts to go into the likelihood of the plaintiff winning the case or the defendant winning the case, presumably following the note in the Supreme Court Practice 1985, page 384 under rubric 23/1-3/2 which says : 'A major matter for consideration is the likelihood of the plaintiff succeeding.' This is the second occasion recently on which I have had a major hearing on security for costs and in which the parties have sought to investigate in considerable detail the likelihood or otherwise of success in the action. I do not think that is a right course to adopt on an application for security for costs. The decision is necessarily made at an interlocutory stage on inadequate material and without any hearing of the evidence. A detailed examination of the possibilities of success or failure merely blows the case up into a large interlocutory hearing involving great expenditure of both money and time. Undoubtedly, if it can clearly be demonstrated that the plaintiff is likely to succeed in the sense that there is a very high probability of success, then that is a matter that can be weighed but for myself I deplore the attempt to go into the merits of the case unless it can be demonstrated one way or another that there is a high degree of probability of success or failure."

11. Here there has been argument about the merits of the case. The plaintiff says that it would have been practically impossible for the defendant to have reacquired shares for transfer to him. The value of the shares increased considerably after the defendant had disposed of his holding. In any event, he left Teleway under a cloud, so that the other shareholders would not have sold them to him. Counsel for the defendant referred extensively to the arguments put forward on the defendant's behalf in the Order 14 hearing. He argued that the plaintiff's contention that the defendant could not have reacquired shares is a matter of evidence. He relied on Alfred C Toepfer International GmbH v. Itex Italgrani Export S.A. [1993] Lloyd's LR 360 as authority for the proposition that inconsistent agreements do not necessarily make it impossible for a party to comply with one of them. That proposition is no doubt correct but it has to be noted that there is a considerable difference between an agreement to buy and sell shares in a private company, and an agreement to ship a load of maize, as in that case.

12. The plaintiff was unable to obtain a summary judgment. Here the burden is less onerous in that the plaintiff does not have to demonstrate that there is no arguable defence but only that he has a high degree of probability of success; nevertheless it is still an onerous burden. Whether the defendant could have reacquired shares for transfer to the plaintiff is a matter of evidence which can only be decided at trial and I do not think that I can find, on the affidavit evidence, a high probability either way. I cannot therefore refuse security on the ground that the plaintiff is highly likely to succeed.

13. There remains the question of delay. The plaintiff particularly relies on the case of BBNB Finance (Hong Kong) Ltd v. China Underwriters Life and General Insurance Company [1991] 1 HKLR 617. That case concerned an application for security for costs made against a limited company 3 1/2 years after the writ was issued, seven months after the action had been set down for trial and eight weeks before a 10-week trial was due to begin. The plaintiff itself was in liquidation. It was held that the proper test of lateness was whether the defendants were dilatory after they had obtained the information on the company's financial position which enabled them to apply, and that since the defendants knew from the inception of the action that the plaintiff was in liquidation, the application came too late. The prejudice to the plaintiff caused by the oppressive conduct on the part of the defendants was plain enough.

14. Here the defendant knew from the outset that the plaintiff was a foreign plaintiff. The position is analogous to that in BBMB Finance where the defendant knew the plaintiff's financial situation from the outset. The application was only made two months before the trial, though, as I have shown above, the plaintiff has been giving notice of its intention to apply, though not following it through, at least since April 2001, and asked for security long before that. One cannot escape the inference that the making of the application at this stage is a tactical move on the defendant's part, to put pressure on the plaintiff ahead of the trial.

15. There is no real explanation as to why the application was not made earlier. It cannot be said simply that the defendant is holding US$60,000 for which he is prepared to give credit against security for costs, and that the projected bill has now gone well over that figure, because it went over that figure long ago. If one looks at the projected costs of preparation for and attendance at trial, and counsel's fees, the total figure (leaving aside any discussion of whether it could be obtained on taxation) is $305,000.00. That projected figure would have been the same in October 2001 when the case was set down, or even in April 2001 when the defendant was offering to return the US$60,000.00.

16. Having said that, there is no direct evidence of prejudice in that the plaintiff does not say that he cannot put up the money and his case will be stifled if he is required to do so. It is argued for the plaintiff that some prejudice is inevitable. I think this must be right. The plaintiff will probably have had to pay or secure his own solicitors' costs. Some preparation for trial will be going ahead, even if it is only for a four-day trial. Against that is the fact that the plaintiff has known all along that as a foreign plaintiff he could face such an application and that following Porzelack the court would take the view that, other things being equal, it is normally just to order security for costs against a foreign plaintiff. He has had ample time to make arrangements to provide security if ordered to do so. I do not think, in the absence of any direct evidence of prejudice, that it would be just to refuse an order for security.

17. With regard to quantum the plaintiff says that interest on the US$60,000.00 should be taken into account; this comes to about HK$150,000.00. So in effect the defendant should be giving credit for about HK$620,000.00. This is not, I think, strongly disputed though one wonders if the defendant could have obtained such a high interest rate. The plaintiff also attacks the defendant's bill in considerable detail. His solicitor has argued, in his latest affirmation, that it should be reduced to a mere $13,349. I do not think that the defendant's solicitor, Mr Hill's hourly rate charged to the client is excessive; given his seniority he should get at least that on taxation on the party and party basis. I do not think counsel's fees are excessive given that both counsel briefed by the defendant, though not long called, were experienced solicitors before their call to the Bar. I do however take the point that Mr Hill seems to be estimating too many hours both for the Order 14 application and for the preparation by a senior partner for a short trial, and that a considerable amount of his time will inevitably be taxed off on taxation on the party and party basis.

18. Taking all these factors into account I think a reasonable figure for security for costs is $200,000. There will accordingly be an order that the plaintiff do provide security for the defendant's costs up to the final disposal of the action in the sum of $200,000.00 by way of bank guarantee or payment into court within seven days from the order; that all further proceedings be stayed in the meantime; and that the costs of the summons (nisi) be costs in the cause.