THOSOWIN PROPERTIES LTD AND ANOTHER v. TUFNELL INVESTMENT LTD AND OTHERS

Mr. P. Fung (Johnson, Stokes & Master) for Defendant/Appellant.

Mr. R.J. Faulkner (Robert W.H. Wang & Co.) for Plaintiff/Respondent

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JUDGMENT

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1. This is an appeal by the defendants against the refusal by Master Clay on the 5th October 1984 to make an order requiring the plaintiffs to give security for the defendants costs.

2. The writ in the action was filed on the 29th March 1983. On the 26th May 1983 the defendants' solicitors wrote to the plaintiffs' solicitors requesting evidence that the plaintiffs would be able to pay the defendants costs if they were successful. After further correspondence between the parties solicitors the defendants solicitors informed the plaintiffs solicitors by a letter dated the 10th June 1983 that any application for security would be deferred until after the hearing of Order 14 proceedings.

3. Judgment under Order 14 was granted by Mr. Commissioner Clough as he then was on the 14th June 1983 in favour of the plaintiffs against the 3rd and 4th defendants. The judgment was set aside on the 19th October 1983 by the Court of Appeal when unconditional leave to defend was given on the basis that there was an issue of law to be tried.

4. I do not propose to set out the facts as they already appear in the judgment given by Kempster J. as he then was.

5. The action was set down for trial in the fixture list on the 18th October 1984. The summons for security of costs was filed on the 13th September 1984 pursuant to Section 357 of the Companies Ordinance, Section 357 provides:-

"Where a limited company is plaintiff in any action or other legal proceeding, any judge having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the company will be unable to pay the costs of the defendant if successful in his defence, require sufficient security to be given for those costs, and may stay all proceedings until the security is given.''.

The evidence in support of the application is set out in an affidavit of Mr. Thornhill the defendants' solicitor. It is not in disoute that both plaintiffs were shelf companies each with an authorised capital of $10,000.00 and a paid up capital of $200.00. They were acquired specifically for the purpose of entering into the sale and purchase agreement the subject matter of these proceedings. Neither company had any assets nor carried on any trading activity before the execution of the agreement. Based on this evidence Mr. Thornhill believes that the plaintiffs will be unable to pay the defendants costs if the defence should succeed. Nevertheless it is not in dispute that the plaintiffs have paid a deposit of $3,000,000.00 and the costs of the Order 14 proceedings which amounted to $114,606.00.

6. Mr. Fung who appeared for the defendants submitted that no burden of proof is cast upon the defendants for the court has an unfettered discretion upon an application for security. He cited Sir Lindsay Parkinson & Co. Ltd. v. Triplan Ltd. [1973] 1 Q.B. 609 where it was held that the court has an unfettered discretion whether or not to order security for costs even though there was credible evidence of the claimants inability to pay the costs of successful defendants.

7. Whereas I agree with Mr. Fung that the court has an unfettered discretion to make an order for security for costs the discretion will not arise until the defendants have established by credible testimony that the company will be unable to pay. The only evidence to justify the defendants fear is that the plaintiffs are shelf companies. No evidence of impecuniosity has been put before the court. In fact past performance by payment of the costs of the Order 14 proceedings indicates to the contrary. Upon the evidence adduced the defendants have not discharged the burden of proof that on a balance of probabilities the plaintiffs will be unable to pay the costs of the defendants if they should succeed.

8. However, if I had hold in favour of the defendants upon the evidence, I would in my discretion have refused the application for security, on the grounds that the plaintiffs have a strong cause of action having regard to the Order 14 proceedings before Mr. Commissioner Clough, and the inordinate delay that took place before the summons for security was issued.

9. The appeal is therefore dismissed with costs.