XCHRX SHING FUNG CONTAINER SERVICES CO. LTD. v. YOUNGHOOD CO. LTD.

HCA 6719/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 6719 OF 1999

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J U D G M E N T

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By its summons, the Defendant seeks security for costs under Order 23 rule 1 of the Rules of the High Court, Cap. 4 and section 357 of the Companies Ordinance, Cap. 32. Since both parties believe that the strongest case against the Plaintiff is that on section 357 of the Companies Ordinance, Cap. 32, I shall consider this limb of the application first.

2. S.357 of the Companies Ordinance Cap. 32 provides that:

"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."

There is no dispute that the Plaintiff is a $10 company with no valuable assets whatsoever. It has been admitted that the Plaintiff had ceased business and does not have sufficient financial resources. More than what the statute requires, it is in fact indisputable that the Plaintiff will be unable to pay the costs of the Defendant if successful in its defence.

3. Mr Sousa for the Plaintiff, however, contended that no order for security should be made. He suggested that on an application under s.357, the court has a discretion whether or not to order security having regard to all the circumstances of the case. See Sir Lindsay Parkinson v. Triplan [1973] 1 QB 609. Factors which may properly be taken into account in exercising the discretion include (i) whether the Plaintiff's claim is bona fide and not a sham; (ii) whether the Plaintiff has a reasonably good prospect of success; (iii) any admission by the Defendant that money is due; (iv) whether application for security is being used oppressively so as to try to stifle a genuine claim.

4. Although it is trite law that the court should not go into much detail about the merits of the case, I have to address the basic substance of the respective case of the parties in order to give due consideration to this application. According to the Statement of Claim, the Plaintiff claims $462,362.00 as charges ("service charges")for depot services provided by the Plaintiff to the Defendant. It is common ground that the depot was originally let by a company called Stepland to an individual called Yim although the depot was operated in the name of the Plaintiff company and it was the Plaintiff company that issued invoices to the Defendant for charges for depot services. Within 3 months after the depot began operation, it is also common ground, because Yim failed or refused to pay rent to Stepland another company called Great Well was appointed by Stepland to take over the land. By the time Great Well took over, the Defendant admittedly had accumulated outstanding depot service charges of $403,747. Allegedly, Great Well refused to allow the Defendant to remove some of the Defendant's containers from the depot unless the Defendant pay to Great Well all outstanding service charges due to the Plaintiff.

5. The crucial part of the Defendant's case is that at a meeting attended by the respective representatives of the Plaintiff, Defendant and Great Well, it was agreed by all that the Plaintiff would appoint Great Well to collect on behalf of the Plaintiff all outstanding charges due to the Plaintiff. Pursuant to such agreement, the Defendant paid Great Well. Hence, arguably the Plaintiff is estopped from pursuing claim against the Defendant.

6. Mr Sousa drew an ingenious distinction between charges for depot services and charges for the land. Depot services were rendered by the Plaintiff to the Defendant even though rent had not been paid by Yim for the land on which the depot was operated. Hence, so the argument runs, the Plaintiff's claim against the Defendant is bona fides. The problem with this argument is the true nature of the depot services. The Plaintiff never says categorically what those services were. The Defendant says that they were in the main "services" for storage of containers. So, in essence, the service charges were storage charges, a kind of rent but not exactly rent because obviously there was no exclusive possession for the space used. Seen in that light, the distinction between rent and service charges may be unreal. At this stage, I can only say the Plaintiff's claim is arguable.

7. Mr. Sousa for the Plaintiff went into a lot of details extracted from affidavit evidence to show that the Plaintiff has a good case. But, essentially it all depends on credibility which can only be resolved by trial. At this stage, I cannot say if the Plaintiff can prove its case on the balance of probabilities.

8. Mr. Sousa for the Plaintiff also contended that since the Defendant has effectively made an admission of liability to pay the service charges which were due to the Plaintiff, the Plaintiff's case must be deemed to be good. With respect, the defence is based on estoppel. If the defence succeeds, the admission by the Defendant is of no use to the Plaintiff. Whether the defence will succeed depends, again, on credibility.

9. It is said that if security is ordered, the claim will be stifled because the Plaintiff has no means. In this respect, I may take into account the means or resources available to the directors and/or controlling shareholders of the Plaintiff. No information in that regard has been forthcoming from the Plaintiff's side.

10. In any event, Mr. Sousa indicated that in the light of pending legislation increasing the civil jurisdiction of the District Court to $600,000, the Plaintiff will, in order to save costs, seek to have the case transferred down. The Defendant's side appears to be content to go along with that. The Plaintiff is also considering advice on whether to join in other parties as additional defendant or defendants. When the Plaintiff joins another defendant, a similar application for security for costs may arise. At this stage, the draft bill on High Court scale costs from the Defendant suggests security payment of $461,582 into court.

11. It is, in my view, not realistic in the present state of affairs to proceed further with the case in the High Court. Nor is it possible for me to assess what is reasonable security without knowing whether the case will be removed to the District Court in the near future. In the premises, I make an order nisi that this action shall not be proceeded further without the leave of the court. Leave will, of course, be granted for the purpose of application for transfer of the action to the District Court. As to the summons for security for costs, it is presently adjourned sine die but will be reserved for consideration by the District Court when the case is transferred there. Should transfer of the action to the District Court become impossible within the next six months, parties may of course apply to revive the action in the High Court. The order nisi will be made absolute unless the parties apply within 14 days from the date of this judgment for variation or otherwise.