LEADER CROWN LTD v. HERBERT TSOI & PARTNERS (a firm)

HCA 3038/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3038 OF 2003

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DECISION

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1. There are before the court two applications for security of costs made by the defendant and the claimants against the plaintiff pursuant to section 357 of Companies Ordinance, cap.32.

2. The plaintiff has filed no evidence in opposition of the applications. On 16 June 2004, upon their application, the plaintiff's solicitors were granted leave to cease acting for the plaintiff. On 23 June 2004, two days before the hearing of these applications, a Mr Yiu Ka Chu applied for legal aid be granted to himself. Mr Yiu is a director and shareholder of the plaintiff, but he is not a party to these proceedings.

3. Mr Yiu has appeared at the hearing, but he had not applied to and obtained leave from the Registrar to act for the plaintiff. The necessary procedure must be within the knowledge of Mr Yiu because this is not the first time Mr Yiu attended hearing to represent the plaintiff without first obtaining leave from the Registrar. Previously on 26 November 2003, the plaintiff's then solicitors, Messrs. Francis Kong & Peter Lau ("FKPL"), was granted leave to cease acting for the plaintiff. At the hearing of the interpleader summons on 2 December 2003, Mr Yiu appeared before Master Kwang as a director of the plaintiff to request for an adjournment. When granting the adjournment with costs against the plaintiff, Master Kwang had explained to Mr Yiu the requirement to obtain leave. Thereafter, the plaintiff became legally represented again. Since no leave had been given to Mr Yiu to represent the plaintiff, the plaintiff is regarded to be absent at the hearing. Mr Yiu is permitted to, and he has remained in court throughout the proceedings to observe the proceedings. A court interpreter is also present throughout.

4. Given that Mr Yiu is not a party to these proceedings and it does not appear from the pleadings and materials before the court that Mr Yiu has any personal interest to be joined as a party to the proceedings, the Memorandum filed by the Director of Legal Aid on 24 June 2004 giving notice of Mr Yiu's application for legal aid should not operate to invoke the statutory stay under section 15(4) of the Legal Aid Ordinance, cap. 91. It is also trite that legal aid is not available to the plaintiff, who is a limited company. In any event, there is no apparent justification for the very late application for legal aid. It is not an unjustified view to regard the application as an attempt to gain an advantage through the statutory stay such that if, contrary to my view, section 15(4) does apply, it will be appropriate to exercise my discretion to lift the statutory stay: Lee Shiu Ming v. Yeo Hiap Seng (Hong Kong) Limited (unreported) CACV 39/1993; The China State Bank Limited v. Wong Chun Ying trading as Wing Fung Hong Company (unreported) HCA 10825/1999.

Background

5. I turn now to deal with the two applications for security for costs. Briefly stated, the background leading to the applications is as follows.

6. By an agreement dated 17 March 2003, the plaintiff agreed to assist the claimants to obtain a loan in return for the payment of a fee in the amount of HK$2.95 million. The loan was to be secured by a hotel in Shenyang. Pursuant to the terms of the agreement, HK$2.95 million ("the Sum") was paid into the account of the defendant, who was the claimants' solicitors, on about 17 March 2003.

7. By a letter dated 17 March 2003 to the plaintiff's then solicitors, Messrs. Gary Lau & Partners ("GLP"), the defendant gave an undertaking to release the Sum upon receipt of written notice that the loan agreement and the security documents were ready for execution by the claimants. The undertaking was to remain in force for 5 months until 16 August 2003.

8. Disputes subsequently arose over the validity of the notice given by the plaintiff's solicitors, and also over whether the Sum could be released to the plaintiff's subsequent solicitors as stakeholder. The defendant requested to be release from its undertaking, but received no confirmation from GLP or the plaintiff's subsequent solicitors, Messrs. Fred Kan & Co.

9. On 15 August 2003, the plaintiff, acting by FKPL, commenced these proceedings against the defendant claiming for the Sum in breach of undertaking. On 15 September 2003, the defendant issued an interpleader summons. Pursuant to the order of Master Kwang made on 2 December 2003, the defendant paid the Sum into court on 3 December 2003.

10. At the hearing of the summary determination of the interpleader summons on 2 April 2004, the Registrar ordered, inter alia, that the amount paid into court be released to the claimants subject to the defendant's first charge for costs. The plaintiff is appealing against the Registrar's order, and the appeal is scheduled to be heard on 22 July 2004.

11. On 28 April 2004, the claimants applied by summons for an order that the plaintiff provide security for the claimant's costs. On 21 June 2004, the defendant made a similar application by summons.

Section 357 of Companies Ordinance

12. Both applications are made under section 357 of the Companies Ordinance, which provides:

"Where a limited company is plaintiff in an 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."

Application of section 357 to interpleader proceedings

13. In Brand Farrar Buxbaum LLP v. Samuel-Rozenbaum Diamond Ltd (unreported) HCA 5191 of 1998, Ma J (as he then was) held that the term "legal proceedings" in Section 357 is wide enough to cover interpleader summons, and that in deciding whether a party to the interpleader proceedings is to be treated as a plaintiff within the meaning of the section, the court must examine the situation as a matter of substance and not form, so as to see who is the "attacker" in the proceedings.

14. In the present case, having regard to the factual background, there is no doubt that in relation to the Sum, the plaintiff is an "attacker" and the claimants stand in the position of a defendant. The claimants are thus entitled to invoke the court's jurisdiction under section 357.

The plaintiff's ability to pay costs

15. The defendant and the claimants rely on a number of matters as showing the plaintiff will be unable to pay the costs awarded against it. Firstly, it is said that the plaintiff only has a paid up share capital of $2. Secondly, several gross sum costs orders had been made against the plaintiff in favour of the defendant and the claimants. Although demands and statutory demands had been issued, the plaintiff has not paid any of the costs ordered against it. Thirdly, the plaintiff appears to have moved out of its registered office address in City Garden, North Point. Fourthly, it is also pointed out that the plaintiff has not filed any affidavit evidence as to its financial position.

16. In my view, there are ample materials to suggest that the plaintiff will be unable to pay any costs awarded in favour of the costs of the defendant and/or the claimants.

Amount of security to be ordered

17. The claimants initially sought a security in the sum of $138,956, which includes a stay application. Since the application has been withdrawn, at the hearing the claimants only seek $104,756. This has included $52,000 assessed costs awarded by the Master and the Registrar on 2 December 2003 and 2 April 2004. The amount of security sought by the claimants, in my view, is of a reasonable amount.

18. As for the defendant, it seeks a security of $112,500, which includes $12,500 assessed costs. From the breakdown provided, a substantial part of the estimated costs go to the appeal in July 2004. The Notice of Appeal filed by the plaintiff suggests that the focus of the appeal does not relate to the consent order, but is on the part of the order ordered by the Registrar. This part of the order does not materially concern the defendant. Accordingly, it would not be necessary for the defendant to incur substantial legal costs for the appeal. I am of the view that a security in the sum of $60,000 would be sufficient.

19. Since the appeal is to be heard on 22 July 2004, a period of 14 days for paying the security would be appropriate.

Conclusion

20. For the reasons indicated, I order that the plaintiff do within 14 days from the date of this hearing provide security for defendant and claimants' costs up to and inclusive of the appeal against the Registrar's order in the respective sum of $60,000 and $100,000 by way of payment into court. Pending compliance with this order, all proceedings herein be stayed save and except the assessment of the defendant's costs pursuant to the order dated 2 April 2004.

21. There is no reason why the usual practice of costs follows event should not apply. The plaintiff is to pay the defendant and the claimants their costs of these two applications.

22. I accept that this is an appropriate case to make a gross sum costs order under Order 62 rule 9(4)(b) of Rules of the High Court. For the defendant, a sum of $16,000, representing 4 hours of work of Mr Shin is sought. This is a reasonable amount. Mr Shin had lodged with the court a helpful written submission, and the time claimed is inclusive of the 1 hour 30 minutes hearing time. The amount claimed should be allowed in full.

23. As for the claimants, a skeleton bill in the sum of $38,200 had been provided to the court. Other than the time spent by the solicitors on research, perusal of counsel submissions and communicating with claimants, which in my review requires adjustment, the bill is allowed as claimed. The claimants' costs are assessed at $34,000.