WING FAI CONSTRUCTION CO LTD v. FITZROYA FINANCE CO LTD

HCA 2570/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2570 OF 2003

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D E C I S I O N

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1.  Wing Fai has sued Fitzroya alleging a debt due in the sum of some $34 million.  On 6 September 2004, a consent order was made, in so far as is relevant to these proceedings, in the following terms:

1.  The Plaintiff do pay into court within 21 days the sum of HK$1,200,000 in cleared funds as security for the Defendant’s costs in this action,

4.  liberty to apply.

2.  Wing Fai did not comply with the order within the required time, and on 7 October 2005, an “unless” order was made, requiring compliance with the order within two months.  On 10 November 2005, Wing Fai sought leave to vary the 6 September 2004 order, permitting it to give security for costs by way of a bank guarantee.  That application came before the Master on 1 December 2005, and was declined with costs fixed at $48,000.  From that order Wing Fai now appeal.

3.  Opposition to the application comes on two bases.  First, it is contended, (and was conceded before the Master), that the consent order embodies a true contract.  From that it is argued, in reliance upon Leung Yee v Ng Yiu Ming [2001] HKLRD 309, CA, that in those circumstances the court has no power to set it aside or to vary its terms.  Second, it is contended that the “liberty to apply” that was reserved is not a sufficient basis upon which the consent order may be varied.

4.  I pressed Mr Sakhrani as to whether or not there was any practical difference in security for costs between cash in court and a bank guarantee, particularly a guarantee from HSBC.  At the end of the day he was unable to satisfy me that there was any practical difference in the protection offered.  It is common for a bank guarantee to be accepted as security for costs and equally common when making an order for security for costs to order that it be given by cash or banker’s draft or by the provision of a bank guarantee, the guarantee having been approved by the Registrar: see e.g. Oldham Lie & Nie v Wong Lin Chooi, (unreported, CACV 319/2005).

5.  Mr Sakhrani stands on the matter of principle.  He  argues that by seeking to alter the mode of performance of the order Wing Fai are seeking to vary the consent order. He says, that as a matter of principle, such a variation should not be permitted.  He cites Stone J in Zhu Khan v Brickell Ltd (unreported HCCL42/1995):

“It seems to me a variation is a variation, whether it goes to reduction or to increase of amount, or indeed alteration of mode, and I do not think that any thing can be gained by semantic hair-splitting.”

6.  With respect to the learned judge I disagree.  In my view it is not a merely a matter of semantics.  In the situation in which the order was made, what a party seeks is security for costs.  That is an order which may or may not be made.  Order 23 r 2 specifically provides that the manner in which security is a given is in the discretion of the court.  There are various modes by which that security may be given.  The important matter of principle is whether or not the security is given.  It is an entirely different matter as to how it is given.  So long as the Court is satisfied that the party entitled to security is adequately protected I see no reason at all why the mode of security ought not to be varied even when security has been ordered by consent.

7.  It follows that the contract between the parties is a contract that security for costs will be provided.  The mode by which the security is to be provided is a peripheral matter, so long as the Court is satisfied that the security is appropriate and adequate.  A variation of the mode by which security is given seems to me to be no different to an extension of time for performance, as the court in Leung Yee found acceptable, following the making of a consent order that a party undertake certain steps.

8.  Even if I am wrong in that conclusion, I am satisfied that I have jurisdiction to vary the mode of payment by virtue of the existence of the provision for liberty to apply.  Plainly, liberty to apply must have been included for some purpose.  First, it is simply not necessary to reserve liberty to apply for there to be a power to extend time.  It is clear that from O. 3 r. 5, the court has jurisdiction to extend the time whether or not liberty to apply is reserved.  Mr Maurallet submitted that the liberty to apply plainly included the mode of the provision of security for costs.  I suggested that it could also cover a circumstance in which Fitzroya might wish to increase the amount of the security.  Mr Sakhrani did not demur from that proposition, but was unable to suggest any other purpose for liberty to apply other than that “there might be other things”.

9.  The substance of the order, the provision of security, is not affected by a variation of the mode of payment, which may also be described as the working out of the order, if at the end of the day the Court is satisfied that there is adequate security.  For my own part, I would not wish to restrict the meaning of the expression “liberty to apply” to the equivalent of the “slip rule”, as the Singapore court did in Koh Ewe Chee v Koh Hua Leong [2002] 3 SLR 643.  The slip rule plainly has its own purpose; when liberty to apply is reserved it must go further.

10.  I accept completely that it would not be open to the court to vary a consent order, even where there are is liberty to apply, where the substance of the order is varied.  An example of such a situation arises in Christel v Christel [1951] 2 KB 725, where, in resolution of matrimonial matters, a husband agreed to provide his wife with a bungalow.  He sought to vary the order, relying on a liberty to apply, to add to the order, by way of an alternative to a bungalow, a flat.  A flat being significantly less than a bungalow, the variation was rightly refused.

11.  The following comment may also be made.  On the basis that the consent order comprises a contract, Wing Fai would be in breach of that contract were they to lodge a bank guarantee instead of the cleared funds required by the order.  It would be open, technically, for Fitzroya to sue for breach of contract and damages.  But what loss would they have suffered?  They are equally well protected by the bank guarantee as they are by the deposit of cleared funds.  I pressed Mr Sakhrani on the issue of damages.  He was unable to suggest any basis upon which there might be any damages awarded. Fitzroya would have suffered no loss at all and would not be entitled to damages. 

12.  I accept entirely the submission from Mr Maurallet, that arguments based upon principle, where a party’s position cannot be seen to have been undermined in any way at all, ought not to be encouraged.  As he put it, this is precisely what modern litigation should not be about.  The modern approach to litigation is to encourage parties to adopt a reasonable and cooperative attitude in relation to all procedural issues: see Civil Justice Reform - Final Report (Executive Summary) p. 23.  While the point of principle might properly have been seen by Stone J. in 1998 to have been the touchstone, it is my view that the modern approach places greater emphasis on the achievement of the resolution of the essential dispute between the parties, in this case whether Fitzroya are liable to Wing Fai for $34 million, and the avoidance of unnecessarily expensive wayside battles on the way to that resolution.

13.  Fitzroya are equally well protected and perfectly well protected by a bank guarantee from HSBC, its terms having been approved by the Registrar.  They have lost nothing at all compared with funds in court.  All they have achieved by opposing the request that the mode of giving security be changed is the quite unnecessary expense involved in the proceedings that have followed that unjustified opposition.

14.  The order of the Master is set aside.  Wing Fai have leave to give security for costs in the sum of HK$1,200,000 by way of a bank guarantee from the Hongkong and Shanghai Banking Corporation, the terms of which guarantee must be approved by the Registrar.  The guarantee must be given within 28 days of today.

15.  I heard counsel in respect of costs.  There will be an order that the Plaintiff will have its costs both here and before the Master, those costs to be in the cause.  There will be certificates for counsel, both here and before the Master.