C.S. Low Investment Ltd v. East Asia Warburg Ltd and Others
Read the full judgment text of HCA 7786/1989 on BabelCite. This High Court CFI judgment.
1. This is an appeal from an Order of Master Jennings made on July 17, 1989, whereby he ordered the plaintiff company to give security for the costs of the 3rd Defendant up to the completion of discovery in the sum of $375,000, either by way of a payment into court (such sum to be placed in an interest-bearing account) or by a bank guarantee meeting with the approval of the Registrar within 14 days of the Order. The learned Master ordered that the costs of the application be to the 3rd Defendant
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HCA007786/1989 1989 No A7786 ---------------------- H E A D N O T E ---------------------- Where the defendants in an action or other legal proceeding face different allegations, deciding what amounts to "sufficient security" within the leaning of section 357 of the Companies Ordinance, Cap 32, for each defendant's costs requires the Court to consider the relative complication and seriousness of the allegations which each of then have to meet. 1989, No. A7786 IN THE SUPREME COURT OF HONG KONG HIGH COURT ____________ BETWEEN
____________ Coram: Bokhary, J. in Chambers Date of hearing: October 27, 1989 Date of delivery of judgment: October 27, 1989 ---------------------- J U D G M E N T ---------------------- 1. This is an appeal from an Order of Master Jennings made on July 17, 1989, whereby he ordered the plaintiff company to give security for the costs of the 3rd Defendant up to the completion of discovery in the sum of $375,000, either by way of a payment into court (such sum to be placed in an interest-bearing account) or by a bank guarantee meeting with the approval of the Registrar within 14 days of the Order. The learned Master ordered that the costs of the application be to the 3rd Defendant in any event. The application was brought under section 357 of the Companies Ordinance, Chapter 32, which provides as follows :-
The application was made to a Master in reliance upon, I believe, sub-sections (1)(b) and (2) of section 38 of the Supreme Court Ordinance, Chapter 4 and Order 32, rule 11. It is conceded - rightly I think as presently advised that the Master had jurisdiction. But if he did not, I would treat this appeal as an application to me; and my decision on an application would not differ from my decision on an appeal. 2. The background to this matter is somewhat involved. Shortly stated, it is as follows. In 1985, the Ka Wah Bank began to experience liquidity problems. It soon became apparent that the bank was not viable in the absence of a capital reconstruction. Various things then happenedin that regard. There is now a complaint by the Plaintiff, who was the largest single pre-reconstruction shareholder in the bank, that, as a result of the fault of various parties in various ways, there took place a reconstruction far less favourable to it as a shareholder than would have taken place if the Defendants had not been at fault as alleged. A number of the Defendants face, in addition to an allegation of breach of duty, an allegation of conspiracy to injure the Plaintiff. 3. The 3rd Defendant were the auditors of the bank. The allegations against them appear to be twofold. First of all, it is said that they were in breach of their duty to shareholders to take reasonable care in ascertaining the true value of the shares in the bank. Secondly, it is said that they negligently over-estimated the provision to be made by the bank for bad debts. These two allegations of breach of duty - or two aspects of an allegation of breach of duty - are said to have caused or contributed to the less favourable reconstruction of which the Plaintiff makes complaint. That is all that it is necessary to say in regard to the background. 4. When the question of security for the 3rd Defendant's costs arose, the solicitors for the Plaintiff and the solicitors for the 3rd Defendant, acting very properly to avoid unnecessary applications and resultant costs, entered into correspondence with a view to arriving at an agreement in regard to such security if possible. By a fairly early stage, the parties were in broad agreement that there should be some security. The figure offered by the Plaintiff was $200,000 up to the completion of discovery. The 3rd Defendant's solicitors did not regard this sum as sufficient; and they made various points to that effect in correspondence. In their letter of June 21, 1989, the 3rd Defendant's solicitors said this: "It is not our client's wish to increase the costs of proceedings more than necessary. If your client is prepared to increase their offer to $300,000, which sum we estimate would be sufficient to cover our costs up to and inclusive of Discovery, our client is prepared to accept the same." What is important here is the formula inserted in parenthesis, which amounts to a statement to the effect that the solicitors estimated that $300,000 would be sufficient to cover the 3rd Defendant's costs up to the completion of discovery. 5. For the 3rd Defendant, Mr Stone, in tae course of his able argument, informed me that that estimate did not include leading and junior counsel's fees for an application to strike out the Statement of Claim, which application (estimated for a day) is going to be brought but was not contemplated at the time when the solicitors wrote the letter with which I am dealing. As coincidence would have it, the brief fees come to, Mr Stone informs me, $75,000. 6. Sir Oswald Cheung, Q.C., who appears for the Plaintiff with Mr Patrick Fung, points out, in the course of his able argument, that if the striking-out application fails, then the likelihood is that the 3rd Defendant would have to pay the costs of that application rather than be in a position to recover those costs against the Plaintiff. If however, Sir Oswald points out, the application succeeds, then the action would be at an end as against the 3rd Defendant and, since discovery has not been made yet, the costs of making discovery would be saved. 7. I do not know how great a saving that would be. Nevertheless, there would be some saving. For all these reasons, I think that some significance remains to be attached to the statement in the 3rd Defendant's solicitors' letter of June 21, 1989, that they estimated that $300,000 would be sufficient to cover the 3rd Defendant's costs up to and inclusive of discovery. That is one of the factors to be taken into account. 8. I have been shown a copy of an attendance note taken by somebody with the Plaintiff's solicitors. What Master Jennings said, in announcing his decision, is recorded in that note in these words :-
The expression "I stay with Master Woolley's order" needs some explanation. What had happened was that at an earlier stage, Master Woolley had ordered the Plaintiff to give security for the costs of the 4th, 5th and 6th Defendants up to the completion of discovery in the sum of $375,000 for each of those three defendants. Therefore, what Master Jennings meant was that he was going to do precisely what Master Woolley had done. 9. That course is attacked by Sir Oswald on this basis: The 4th, 5th and 6th Defendants are among the defendants who face an allegation of conspiracy to injure the Plaintiff. That allegation is a very serious one. It is in addition to the allegation of breach of duty levelled against those three defendants. Without in any way minimizing the seriousness of an allegation of professional negligence - which is the allegation made against the 3rd Defendant - Sir Oswald says that the inclusion of an allegation of conspiracy to injure makes the case against the 4th, 5th and 6th Defendants a far more complicated and serious case than the one which the 3rd Defendant faces. I agree. 10. Now, Mr Stone says that even if that is so, that is not the end of the matter because what I am ultimately concerned with - security being accepted in principle is to see that the amount ordered by way of security is neither illusory on the one hand nor oppressive on the other. 11. There is some substance in what Mr Stone says. But in deciding what is appropriate, it seems to me not only legitimate but indeed necessary to have regard to the fact that each of the defendants who have obtained $375,000 by way security do face a far more complicated and serious case than the one faced by the 3rd Defendant. Normally, the more complicated and serious a case the more time and costs it requires to prepare to meet it. 12. These matters are never easy; and I do not find in this case any single factor on which I would feel it appropriate to base the whole of my decision. That is why I have discussed these various factors in the way that I have. It seems to me that on the whole the learned Master was in error in ordering security in the sum which he ordered. Doing the best I can with the material before me on this appeal, which operates by way of a rehearing, I conclude that $300,000 is sufficient security for the 3rd Defendant's costs up to the completion of discovery. I allow the appeal accordingly. There is no quarrel, as I understand it, with the method provided in the Master's Order, which is either payment into court in an interest-bearing account or the provision of a bank guarantee approved by the Registrar. That part of the Order I do not disturb. 13. As far as the costs before the Master are concerned, Sir Oswald has indicated that he would not ask me to interfere with the order as to costs below unless I were to reduce the amount of security to $200,000 or less. If I had done so, he would have relied on the fact that his client had offered $200,000. As it is, I have reduced the amount of security only to $300,000. That being so, the order for costs made by the Master in respect of the proceedings before him will stand. The only outstanding thing, apart from repeating my indebtedness to counsel on both sides, is to invite them to address me on the costs of this appeal, which I now do. [Submissions on Costs] 14. Sir Oswald asks for the costs of the appeal; and Mr Stone does not resist that. So I order that the costs of the appeal be to the Plaintiff in any event. Sir Oswald does not invite me to grant a certificate for two counsel. He asks for a certificate for one if necessary. I do not think that it is necessary for me to grant a certificate for one counsel. But, if there is any doubt about it, I would say that the appeal is certainly fit for counsel.
Representation: Sir Oswald Cheung, Q.C. and Mr Patrick Fung (instructed by Oscar Lai & Ho) for the Plaintiff Mr William Stone (instructed by Johnson, Stokes & Master) for the 3rd Defendant |