XCHRX HO JUAN HEE, EDWARD and Another v. PICO EXHIBITS (H.K.) LTD.

1997 No. A470

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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J U D G M E N T

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1. This is an appeal by the Defendant from the dismissal by Mr Registrar Betts on the 23rd of April 1998 of an application for security of costs against 4H International (HK) Limited (the Company plaintiff) under section 357 of the Companies Ordinance (Cap 32).

2. HO JUAN HEE, Edward (the individual plaintiff) commenced proceedings (as the sole plaintiff) in February 1997 claiming a share of profits earned in accordance with an employment contract governing his employment by the Defendant between April 1993 and March 1996.

3. In its defence dated 3rd March 1997 the Defendant, inter alia, withdrew its admission that it had made before the Lands Tribunal (which was initially seized of these proceedings) that the individual plaintiff was the employee of the Defendant and pleaded that the Company plaintiff was in fact its employee albeit that the management consultancy services provided to the Defendant by the Company plaintiff were provided in the person of the individual plaintiff who is a director of the Company plaintiff.

4. In the light of this the solicitors acting for the individual plaintiff issued a notice dated 1st August 1997 to the Defendant's solicitors to admit the fact that the individual plaintiff was an employee of the Defendant at all material times. The Defendant declined to do so and in consequence the individual plaintiff obtained an order from Master Chung on the 8th October 1997 granting leave to join 4H International (HK) Limited as co-plaintiff in this action and to amend the Statement of Claim.

5. It was by summons dated 14th January 1998 that the Defendant sought to make application for the order which was dismissed by Mr Registrar Betts on 23rd April. In support of that application the solicitors for the Defendant, by affidavit dated 12th January, submitted inter alia that as the Company plaintiff was a private limited company with a total nominal share capital of $10,000.00 with no assets known to the Defendant, it would not be able to meet its debt should the Defendant be successful in defending its claim and an order for costs be made against it.

6. In an affirmation dated 13th February the individual plaintiff set out in detail, with documents exhibited in support, the status and the financial position of the Company plaintiff and he explained his relationship with that company.

7. The Solicitors for the Defendant responded by further affidavit dated 22nd April stating, inter alia, that whatever the financial position of the Company plaintiff might be at any given time there could be no guarantee that such position would remain pending these proceedings. The affirmation went on to say, and I quote from it:-

"There is nothing to prevent the withdrawal/usage of funds by the (Company plaintiff) thereby creating a real risk of it being unable to meet any order of costs made against it."

8. Section 357 of the Companies Ordinance (Cap 32) reads as follows:-

"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."

9. Neither before me, nor before Mr Registrar Betts has the Defendant produced any "credible testimony that there is reason to believe that the Company will be unable to pay the costs ..." There is no evidence at all - let alone any prima facie evidence - so that no question of the exercise of my discretion arises.

"An applicant for security for costs has to show that the company would not (as opposed to may not) be able to meet its debts when an order for costs was made against it. This question had to be answered at the time of the application though the Court could take into account evidence of what was to be expected in the future before any order would be made." Supreme Court Practice 1997 Vol. 1 p.412/413

10. In the present case the Defendant has not shown what it is required to show in order to obtain security for costs. It is plainly not sufficient in my judgment in the light of the specific wording of section 357 to simply rely upon the fact that the Company plaintiff has a total nominal share capital of $10,000.00 and to either ignore its current assets - and thus its present ability to pay - or to boldly state that there exists a risk of dissipation of these assets without any evidence at all to suggest that that might happen.

11. All of that being so there was no discretion in the matter to be exercised by Mr Registrar Betts and, it must follow, there is none for me to exercise either.

12. The position would of course have been different had the plaintiffs not advanced any evidence at all regarding the assets of the Company plaintiff as was the case in Tufnell Investment Ltd. & Ors. v. Thosowin Properties Ltd. & Anor. [1985] 2 HKC 14.

13. Because no question of discretion arises - the matter in the present case being determined by the precise words of section 357 - the point argued before me concerning the position when there are two plaintiffs, one a limited company and the other a "natural person" as considered in Pearson & Anor v. Naydler & Ors. [1977] 1 WLR 899 simply does not arise and nor does the fact, as claimed by Mr Lam, counsel for the plaintiffs, that they (the plaintiffs) have a strong case.

14. I might just add finally that were my decision upon this appeal dependant upon the exercise of discretion, Mr Lam's argument that the claim made by both plaintiffs is identical and that in the event that that claim fails the individual plaintiff will have to pay the costs in any event - would be highly persuasive to me in rejecting the application for security of costs.

15. It follows from all that I have said that this appeal must be dismissed. I make an order nisi for costs to the plaintiffs.

(C.G. Jackson)

Deputy Judge of the Court of First Instance