China Medical Technologies, Inc (in Liquidation) and Another v. Kpmg (A Firm)

HCCL 7/2020

[2022] HKCFI 1403

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO 7 OF 2020

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BETWEEN

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Before:  Hon Mimmie Chan J in Chambers (Open to Public)

Dates of Written Submissions:  3, 6 & 12 May 2022

Date of Decision:  13 May 2022

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D E C I S I O N

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1.This is the disposal of the Defendant’s application by its summons of 18 October 2021 (“Summons”), for security of $15 million as the Defendant’s costs incurred from the filing of the Defence and Counterclaim on 2 December 2019 up to and including the exchange of witness statements on 17 September 2021. Prior to the Summons, security of $8.6 million had been ordered on 24 June 2020, by consent, in respect of the Defendant’s costs up to the filing of the Defence and Counterclaim.

2.The Plaintiffs do not dispute their liability to pay security, but the amount of the security to be ordered is contested.  Correspondence between the parties has not resulted in any agreement.

3.In dealing with an application for security for costs, the Court adopts a broad-brush approach, without scrutiny of the merits of the case, unless it can be clearly demonstrated one way or the other that there is a high probability of success or failure.  It is not so apparent in this case.

4.The Plaintiffs have not suggested that their claim, or the liquidators’ pursuit of the action, will be stifled by any order for further security.  They only seek to argue that there is strong public interest in allowing the liquidators to advance the Plaintiffs’ claim in the interest of creditors. On the part of the Defendant, it was highlighted that even in a civil claim made by liquidators, payment of security is regularly ordered, and the Defendant highlighted the fact that as evident from the damages sought by the Plaintiffs (in excess of US $800 million), this litigation is driven by commercial considerations.

5.In considering the appropriate amount to order as security for costs, the Court should endeavor to allow security for the reasonable costs incurred by a defendant, for a sum which is just in all the circumstances of the case.

6.I do not consider it useful or appropriate to review the cases cited by the parties, as to the percentages or amounts of security allowed by the Court. Each case is to be decided on its own facts and circumstances. Considering the percentage allowed of the amount claimed is particularly inappropriate, as it is necessary to consider whether the amount of costs included in the original claim for work carried out is itself reasonable.  Otherwise, a claim can be grossly inflated in anticipation or on the premise of the Court allowing a particular percentage thereof.

7.Adopting a broad-brush approach, and bearing in mind the complexity and magnitude of the claims made by the Plaintiffs in this case, including the period of time to which the claims extend, and noting that the Defendant has already made deductions or exclusions regarding the time and rates for the costs claimed by lawyers of different seniority and jurisdiction, I will allow a sum of $10 million as further security for the period sought.  This takes into consideration the elaborate discovery and the necessary work for the Liquidators’ Notes and the Mainland Documents, but accepting that the exercise is to be made with regard to what might be allowed on taxation on party and party basis.

8.The application is granted in terms of paragraphs 1 and 2 of the Summons, save that the payment into court of the security ordered is to be made within 28 days from the handing down of this Decision.

9.On the facts of this case, and to discourage parties’ argument on interlocutory matters which may otherwise be sensibly agreed, I consider that the appropriate order for costs is that the costs of and incidental to the Summons should be in the cause, and an order nisi is made to such effect. Such order will be made absolute, unless application for variation is made within 14 days on good grounds.

Mr Justin Ho, instructed by Karas LLP, for the 1^st & 2^nd plaintiffs

Mr Jin Pao SC and Ms Queenie Lau, instructed by Kirkland & Ellis, for the defendant