READY SET GOAL LTD (IN LIQUIDATION) AND ANOTHER v. KAY EL (HONG KONG) LTD

HCA 223/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 223 OF 2013

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D E C I S I O N

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THE APPLICATION

1.  The defendant (“D”) applies by way of summons for security for D’s costs against the plaintiffs (“Ps”) from the next CMC up to the conclusion of the trial in the total sum of $4,588,258.  D now concedes that the demand for security for costs is $4,531,258.

2.  Ps do not dispute their liability to provide security for costs.  They only contest the quantum.  The parties are legally represented.[1]

ISSUES OF DISPUTE

3.  Ps have previously by consent provided $750,000 as security for costs in 2013 up to the first CMC.

4.  The factual background was set out in my previous Decision dated 18 November 2014 and in Deputy Judge Seagroatt’s Decision dated 20 April 2015 [2015] 3 HKLRD 1.  It is not necessary to repeat it here.

5.  D seeks further security of HK$4,531,258 on top of the security of $750,000 already paid by Ps[2]. Ps are only willing to provide further security of HK$1,200,000 up to the stage of the conclusion of the whole trial.

6.  D seeks a lump sum payment into court in line with common practice.  Ps suggest payment into court by installments, or provision of a bank guarantee in lieu of payment into court.

7.  The applicable legal principles were set out in my previous Decision: Saturn Storage Ltd v Tsoi Tin Chun & Ors (unreported, HCA 1265/2012, 15 November 2013).  There is no dispute over those legal principles.  I shall apply them to the application accordingly.

D’S CASE

8.  D has set out the six causes of action raised by Ps in the pleadings:

(a) Breach of the oral agency agreement in failing to ensure quality of the defective iGoals;

(b) Alternatively, breach of an agreement between the 1st Plaintiff and Defendant as the principal manufacturer in failing to ensure quality of the defective iGoals;

(c)  Breach of the oral agency agreement in failing to obtain the best manufacturing price – which requires the Court to make a factual determination of what is the best manufacturing price that could have been obtained and what would be excessive in comparison;

(d) Breach of fiduciary duty as an agent by colluding with the PRC factories to earn secret profits – a very serious allegation of wrongdoing which could affect the Defendant’s business reputation and standing;

(e) Conversion of the moulds which were created for the manufacturing of the iGoals; and

(f) A claim for disclosure of the Defendant’s books, records, and accounts arising out of the incidence of the agency relationship between the 1st Plaintiff and the Defendant – this involves considerations as to principles of agency law, to what extent and in what circumstances an agent would have to disclose its own documents to the principal.[3]

9.  D further summarized the characteristics of the present case include: -

(a) A claim involving 6 causes of action seeking a monetary award of at least HK$40 million;

(b) Complex legal issues (involving identifying the precise terms of oral agreement, estoppel, and agency law) and factual issues, with a serious allegation made, requiring the statement of claim to be settled by senior and experienced counsel;

(c) The complexity of the factual dispute being illustrated in particular by 82 total pages of pleadings, 17 lever arch files of documents, 6 total witnesses, and a 66 page expert report;

(d) A reasonably estimated 12-day trial length, which would justify instructing senior counsel to attend trial;

(e) Over 3 years being required to get to the current pre-witness statement stage, with 3 still outstanding interlocutory applications by the Plaintiffs concerning pre-witness statement matters.[4]

10.  There is no dispute over the above analysis by Ps.  This means that the arguments in the trial will be over the factual issues of the oral agreement and the practices over the time between the parties, unlike Ps’ submissions in paragraph 9 that the crux boils down to legal issues.

THE ASSESSMENT

Senior counsel

11.  No doubt, the court has the discretion to determine the quantum for the security, taking all the circumstances into account.  Wing Hing Provision, Wine & Spirit Trading Co. Ltd v Hanjin Shipping Co Ltd [1998] 4 HKC 461 at 464A-F.

12.  Ps submit that the crux of the dispute boils down to legal issues revolving around the laws of agency, breach of contract, and defective goods and 2 counsel or senior counsel is unnecessary for trial and one senior junior will be more than qualified to conduct the trial.  This is a subjective opinion without taking into consideration the allegation of dishonesty and the amount involved.  Such subjective opinion does not warrant much weight.

Length of trial

13.  By parity of reason, the same analogy applies to the estimated length of the trial.  The Court will give due consideration to the parties’ estimation of the length of the trial.  They are in the best positions to make the estimate themselves and the court should rely upon their honesty in their estimation.  D’s estimate is 12 days’ trial whilst Ps consider 7 days will be sufficient.  Without going deep into the substance of the evidence, I consider that 12 days should be reserved for the trial, especially where there will be factual issues and expert evidence to be given by Ps for the trial.  In fact, Ps also submit that they have to amend the pleadings, which may complicate the issues.  The interlocutory applications and the consequential procedures will escalate the costs as well.

Mediation

14.  Ps have also complained that D had unreasonably refused to attempt mediation with them.[5]

15.  Ps ask this Court to take into consideration settlement by mediation, which is one of the underlying objectives under Order 1A, r.1(e), RHC.

16.  This morning, D has indicated that it agreed mediation upon condition that Ps should bear the costs of mediation.  This is not the norm of mediation, the costs of which are usually shared by the parties.  The court will not impose any conditions on any parties for mediation because this is very much a consensual activity.  However, when it comes to consider the reasons for one party’s refusal of mediation, it is entitled to take this factor into consideration.  This condition is, no doubt, an impediment to mediation.  The Court will encourage the parties to take a more pragmatic approach towards mediation.

17.  Ps also submit that to order them to pay hefty sum into court before mediation will give D an upper hand in mediation.  D argues that if Ps say that this will weaken their position or stifle their claims, they have the burden of proof, which they have failed to put to the Court. It is only common sense that the amount of costs to be paid into court will cause pressure on Ps, which the Court will also take into account in its determination of the fair way of dealing with this application.

18.  Where the pleadings are in the course of being amended, it will be difficult for the parties to mediate the terms for settlement as they are not in a position to gauge their positions in the legal proceedings.  The position will be clear after finalization of the pleadings and the exchange of the witness statements, though this is by no means a hard and fast rule.

Further security up to the stage of PTR

19.  In the circumstances, I shall consider ordering the security for costs up to the stage of Pre- trial Review, which should take place after close of pleadings and presumably after mediation if the parties are serious about it.

20.  The amount of security is assessed on the basis that there will be amendments to the pleadings and further interlocutory applications. According to the draft bill for this application, the costs up to May 2015, including disbursements are about $443,000; and the costs from 28 May 2015 to October 2015 are about $124,000.  The total amount up to now is about $570,000, excluding the costs for today’s hearing.  This is on top of the security for costs of $750,000 already depleted before May 2015. The estimated costs for the trial are about $4,000,000.

21.  In view of the pending applications for amendment and other interlocutory applications up to the stage of Pre-trial Review and the costs of preparing the witness statements, I estimate the costs will be $1,200,000, which should be sufficient to cover the costs for mediation as well.

Mode of payment

22.  As to the mode of payment, I do not accept the proposals of payments by installments as this is not provided for in Order 23 and such proposal will inevitably incur more costs and time for the parties and the court.  If Ps say that such costs paid in one lump sum will stifle their legitimate claims against D, it is incumbent upon them to prove their case in accordance with the decided authorities.  As to the mode of bank guarantee, which D opposes, the reasonable approach will be for Ps to make the proposal with the terms of the guarantee, such as the bank and the conditions upon which the guarantee is to be provided to D.  If D objects to such terms, the Court will determine on them at the hearing.  Otherwise, there will be further dispute over the terms of the guarantee between the parties.  The Court will have to deal with them subsequent to the hearing, incurring more costs and time too.  Since Ps have not been able to put before me the proposed guarantee for consideration, their proposal is refused.

23.  For the reasons above, I shall make the order of further security for costs in the sum of $1,200,000 up to but exclusive of the Pre-trial Review to be paid into court within14 days from the date hereof, with liberty to apply.  Further proceedings shall be stayed until payment of the said sum into court.  If the parties are unable to reach settlement through mediation and the matter has to go through trial and D would ask for further security for costs, the parties should first sit together to reach an agreement on the costs for the trial without coming back to court for argument.  By this time, the costs can be assessed much easier.

COSTS AND ORDER

24.  As to the costs of this application, O.62, r.3 RHC provides that the costs should follow the event and this is the basis on which D asks for the costs for today’s hearing.  This begs the question what the event is for this hearing. D’s application for the security for costs for the whole trial has been rejected for the reasons stated above.  On the other hand, Ps’ suggestion that $1.2 million should cover the trial and the modes of payment by installments or bank guarantee have also be rejected by this Court for the reasons above.  In the circumstances, the proper costs should be the costs in the cause (with counsel’s certificate for today’s hearing), having taking into account of the factors stipulated under O.62, r.5 of RHC.  So I order.

25.  I shall now make an order in terms as follows:

(a) Security for costs in terms of paragraph 23 above;

(b) (Costs in terms of paragraph 24 above.