Wing Hing Provision, Wine & Spirits Trading Co. Ltd. v. Hanjin Shipping Co. Ltd.
Read the full judgment text of CACV 245/1998 on BabelCite. This Court of Appeal judgment was delivered on 7 October 1998 before Godfrey JA, Leong JA.
Civil procedure – security for costs – Companies Ordinance (Cap. 32) s.357 – plaintiff company impecunious – whether order for security for costs should be made – balancing exercise between injustice to plaintiff of being prevented from pursuing a proper claim and injustice to defendant of being unable to recover costs – whether plaintiff's claim had good prospects – whether inaccurate reference by judge to 'a strong case for misrepresentation' vitiated discretion – whether order for security would stifle plaintiff's claim – whether probability of stifling can be inferred without direct evidence – relevant principles summarised in Keary Developments Ltd v Tarmac Construction Ltd [1995] 3 All ER 534 and Trident International Freight Services Ltd v Manchester Ship Canal Co [1990] BCLC 263 followed – M.V. Yorke Motors v Edwards [1982] 1 All ER 102 considered – application of principles – contracts for carriage of beer containers by sea – dispute over agreed freight rate and additional terminal handling charges alleged to be compelled by US Federal Law – plaintiff refused to pay and defendant refused to deliver – plaintiff ceased trading in 1996, had no money, owed former solicitors Herbert Smith about US$400,000 – leave granted ex parte on 4 July 1998 for plaintiff to be represented by director Mr. Yip Chun Nam – application for security made very late on eve of five-day trial listed for 12 October 1998 – first issue held no; description as misrepresentation was inaccurate but did not vitiate discretion because judge had not gone into merits and underlying conclusion that plaintiff showed a reasonable case was sound – second issue held no; on common sense inference and economic circumstances, the probability of stifling could be inferred without direct evidence – appeal dismissed.
Legal issues: Whether judge's reference to 'misrepresentation' vitiated his assessment of prospects of success · Whether judge erred in finding security for costs would stifle the plaintiff's claim
Outcome: Appeal dismissed; the Deputy Judge's refusal of security for costs was upheld.
Cited by 1 case
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CACV000245/1998 CACV 245/1998 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CIVIL APPEAL NO. 245 OF 1998
---------------------- Coram : Hon. Godfrey and Leong, JJ.A. in court Date of Hearing : 7 October 1998 Date of Judgment : 7 October 1998 ---------------------- J U D G M E N T ---------------------- Godfrey, J.A. : Introduction 1. This is an appeal from an order of His Honour Judge Z.E. Li (sitting as a Deputy Judge of the Court of First Instance) made on 30 September 1998, whereby he refused an application made by the defendant in the action, Hanjin Shipping Company Limited ("Hanjin") for security for costs against the plaintiff, Wing Hing Provision, Wine & Spirits Trading Company Limited ("Wing Hing"). Hanjin is represented before us today by Mr. Shieh of counsel. Wing Hing is represented by one Mr. Yip Chun Nam, a director of the company, pursuant to an order of the court made, ex parte, on 4 July 1998 giving leave for Mr. Yip to represent Wing Hing in the proceedings. Hanjin now appeals against the judge's dismissal of its application. The facts 2. The facts giving rise to the dispute between the parties may briefly be summarised as follows. 3. Wing Hing was a company trading, among other things, in beer. It entered into contracts with Hanjin for the carriage of containers of beer. But differences arose between the parties as to the proper rate of freight to be charged by Hanjin to Wing Hing. As one would expect, the charge for freight had been agreed between the parties. But it appears that in the two transactions which gave rise to the dispute between the parties, Hanjin (at any rate, according to Wing Hing) sought to levy an extra charge, for terminal handling charges. In summary, Wing Hing says that it had been asked to pay extra charges to Hanjin which it had not agreed and so refused to pay, and that, in those circumstances, Hanjin was in breach of its contract with Wing Hing in failing to deliver up the goods the subject of these transactions, as a result of which Wing Hing has suffered heavy losses. Hanjin says that the extra charges which it sought to levy in relation to the disputed transactions were in fact agreed with Wing Hing, and, in any case were charges which it was compelled to make by reasons of certain provisions of United States Federal Law reflecting mandatory requirements of the United States Federal Marine Commission. 4. Whatever the merits of the case may be, it is clear that Hanjin refused to deliver up the goods to Wing Hing unless the charges it demanded were met; that Wing Hing refused to pay those charges; and that as a result Wing Hing suffered the losses to which I have referred. Wing Hing's claim in the action is for damages totalling nearly HK$3 m. The application for security for costs 5. The application for security for costs made by Hanjin was made under section 357 of the Companies Ordinance, Cap. 32. The ground on which the application was made is that Wing Hing would be unable to meet any order for costs made against it if it were unsuccessful in its claim. There seems to be little doubt that that is so. Wing Hing ceased trading in 1996, having suffered serious losses by then. It has no money. 6. The action is listed for 5 days commencing on 12 October 1998. It is now already 7 October 1998. The application for security for costs is therefore made very late but, for my part, I would attach no blame to Hanjin in that connection. It was not until comparatively recently that Hanjin became aware of Wing Hing's lack of funds. It became so aware when it learned of the order made on 4 July 1998 by which, as I have said, leave was granted for Mr. Yip to represent Wing Hing in the proceedings. The reason for this was that Wing Hing's solicitors, Messrs. Herbert Smith, had not been put in funds to continue to represent Wing Hing. Indeed the evidence shows that Herbert Smith were, and still are, owed some US$400,000 on account of costs. The judgment below 7. The judge, as I have said, refused the application of Hanjin for security for costs. A judge has a complete discretion in such a matter. This court will be reluctant to interfere with the exercise of the judge's discretion, as Mr. Shieh, for Hanjin, very properly recognised at an early stage of the argument. The judge, in his judgment, set out an abstract of the relevant principles, which had been summarised in the judgment of Peter Gibson, L.J. in Keary Developments Ltd. v. Tarmac Construction Ltd and another [1995] 3 All ER 534 at pp. 539-540. As I understand it, Mr. Shieh raises no objection to the judge's summary of the principles and I shall therefore set them out in the same terms as did the judge :
8. The judge went through these principles "as a sort of checklist". First, he assessed the prospects of the plaintiff's claim. He rightly referred to this as "necessarily a rather superficial exercise". He then performed that exercise, using words to which Mr. Shieh has taken objection and which, he says, vitiate the judge's exercise of his discretion on this aspect of the case. The judge says this :
9. Mr. Shieh fastens in particular on the reference made by the judge to the plaintiff's "strong case for misrepresentation". This does seem to me to be a less than wholly accurate way of summarising what the case of Wing Hing really is. The case of Wing Hing really is that, having entered into a number of transactions at agreed freight rates lower in total than those sought to be charged for the transactions which gave rise to the dispute, Hanjin have not demonstrated an entitlement to the higher freight rate which they later sought to charge for those transactions. That is not, as it seems to me, a case of misrepresentation, giving rise to an action for damages because the person to whom the misrepresentation is made is induced to enter into the contract by virtue of that misrepresentation. But I do not think that is what the judge really meant. It may be that what he had in mind was that Hanjin might be held estopped from claiming the higher rates of freight by reason of its previous conduct. But, as it seems to me, the judge's actual conclusion, that Wing Hing's case "should have good prospects" cannot be faulted. Of course, the court does not, on an application for security for costs, go into the respective merits or demerits of the case, certainly not in detail. It is enough that Wing Hing had shown a reasonable case for its complaint against Hanjin. 10. I do not, for my part, think that the judge's use of the words "a strong case for misrepresentation", although they do seem to me to be an inaccurate description of Wing Hang's case, vitiates the exercise of the discretion. Since that was the first point taken by Mr. Shieh and I do not think it is a point of any substance, I would not be prepared to upset the judge's decision on that ground. 11. The second point taken by Mr. Shieh is that the judge erred in finding as he did that Wing Hing's case would be stifled if an order for security for costs which had been made against it. Mr. Shieh points out quite rightly that it is not enough, in this connection, for Wing Hing to show that it has no money. That is indeed simply a condition precedent to an application for security for costs, as Nourse, L.J. pointed out in Trident International Freight Services Ltd. v. Manchester Ship Canal Co. [1990] BCLC 263 when he said (at p.266) :-
12. But that does not cover the whole ground. There are two separate questions to be considered. The first question is whether the condition for the application of section 357 is satisfied, and there is no doubt that it is. The second question is whether Wing Hing will be prevented from pursuing its litigation if an order for security is made against it. This is a wider question. Mr. Shieh says that on this question evidence from the defendant is needed, and there is no such evidence. All that Wing Hing has demonstrated is that it has not any money of its own. It has not demonstrated, says Mr. Shieh, that no one else would be prepared to put up money to assist Wing Hing to pursue its case. 13. The judge said, in this connection, that he was "certain that an order for security backed by stay of proceedings on default would stifle the Plaintiff's claim". He relied on the fact that "the present regional and local economic crisis" made it difficult for the company to borrow (no doubt he meant from third parties at arm's length) and that is indeed plainly so. Irrespective of the present regional and local economic crisis, nobody is going to lend money to a company which has ceased to do business some years ago, and which has no money of its own, simply in order to prosecute an action with chances which cannot be considered certain. 14. Then, Mr. Yip had referred the judge to the liability of Wing Hing to Messrs. Herbert Smith. There is no doubt about that either, but this merely shows that the company has no money, which has already been established. Lastly, the judge said :
15. I have felt some difficulty about this passage in the judgment because it does not seem to me that the court in making its order ex parte on 4 July 1998 "must" have considered that the plaintiff could not raise funds from other sources to retain its legal team. There does not seem to have been any such evidence before the registrar who granted that leave. It may be that it would be appropriate, if such an application is made, for the registrar to make an inquiry into such matters. But such an inquiry never seems to have been made and it does not seem right to speculate upon the matter. 16. In the end, then, one is thrown back on common sense. The chances of a company which has ceased to trade finding a backer even within "the family" to put up money to support the company's action is remote in the extreme. It may well happen that, even though a man has no capital of his own, he may have friends, he may have business associates, he may have relatives all of whom can help him in his hour of need: see M.V. Yorke Motors v. Edwards [1982] 1 All ER 102, at p.1028, where Lord Diplock approves the remarks of Brandon, L.J. in the Court of Appeal to that effect. 17. But in the present case, I think there was enough, even though only just enough, to justify the judge in coming to his conclusion that an order for security backed by stay of proceedings on default would stifle Wing Hing's claim. And since Wing Hing's impecuniosity is based on what it says is the wrong done to it by Hanjin, this seems to me to be a proper case in which the judge could properly have concluded that the justice of the case told against an order for security for costs, especially at this late stage, when most of the costs of the action have been, or certainly ought to have been, incurred. There are some cases in which the probability that a claim will be stifled may be properly inferred without direct evidence, as is pointed out in Trident International Freight Services Ltd. v. Manchester Ship Canal Company, above. This is, in my judgment, such a case, and the judge did not fall into error in so concluding. The result 18. I would therefore uphold the judge's exercise of his discretion, even if he made some errors on the way to his conclusion. Even if those errors were sufficiently serious to warrant us in looking at the matter afresh for ourselves, I would myself conclude that this is not a proper case, at this stage in these proceedings, to order security for costs against Wing Hing. Conclusion 19. For these reasons, I would dismiss this appeal, but not without an expression of gratitude to Mr. Shieh for the able and competent way in which he presented to us the case for Hanjin. Leong, J.A. : 20. I agree. On the first point taken that the Deputy Judge took an erroneous view on the merits of the case, the Judge in stating his judgment that there was "a strong case for misrepresentation on freight rate" was not really stating that the plaintiff had a case based on misrepresentation. He was saying no more than that the lower freight rate would affect the plaintiff's budget which would necessarily go to the damage suffered by the plaintiff as a result of non-delivery. The plaintiff's case on breach of contract is not without merits. The Deputy Judge had not gone into the merits of the case. As may be seen clearly from the relevant passage in his judgment, he had fully in mind that merits of the case is only one of the factors for consideration. The Judge could not be said to have erred in his consideration of this matter. 21. On the second point that the Deputy Judge's conclusion that an order for security would stifle the plaintiff's action was wrong, there was evidence which he accepted that the plaintiff owed its former solicitors Herbert Smith $400,000 in legal costs which the plaintiff was not able to pay and as a result the papers were held as a lien by the solicitors. There was also evidence that the plaintiff suffered accumulated losses in excess of $2 million and balance in the company's account was only a few hundred dollars and the plaintiff had ceased business. The Deputy Judge was entitled to conclude on such evidence that in the present economic crisis in Hong Kong, it would not be possible for the plaintiff to borrow from financial institutions and with such financial background, the Judge was entitled to conclude the plaintiff would not be able to raise money from other sources. The Deputy Judge had followed the guiding principles in Keary v. Tarmac Construction Ltd. [1995] 3 All ER 534. He had considered all the circumstances balancing all the relevant factors and cannot be said to have exercised his discretion in a way that this court should interfere. I would dismiss the appeal.
Representation: Mr. Paul Shieh (M/s. Sinclair Roche & Temperley) for Appellant (Defendant) Respondent (Plaintiff) represented by Director of the Company, Mr. Yip Chun Nam |
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