Senior Honor Ltd v. Lee Ki Luk & Others

HCA004043/2001

HCA 4043/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4043 OF 2001

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Coram: Hon A Cheung J in Chambers

Date of Hearing: 14 November 2003

Date of Judgment: 14 November 2003

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J U D G M E N T

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1.This is a late application for security for costs by the 1st, 2nd and 4th Defendants against the Plaintiff company. The trial, estimated to last 4 days, is due to commence on 3 December this year. The summons by which the application for security was made was taken out on 4 November 2003. The first indication of the Defendants' intention to apply for security for costs, leaving aside what is said to have been said by the parties themselves during a meeting in October about possible settlement, came from a letter requesting for the provision of security written by those representing the Defendants on 21 October 2003.

2.There is no serious dispute that the Plaintiff is a so-called "window company" beneficially owned by a state-owned enterprise in the Mainland with essentially no significant asset in Hong Kong, notwithstanding some vague suggestions that the company has some long overdue and outstanding accounts receivable. So on the face of it, the Defendants have made out a prima facie case for making an application for security for costs pursuant to the provisions in section 357 of the Companies Ordinance, Cap. 32. In other words, there is a prima facie case that if the Plaintiff should fail in the forthcoming trial, it would not be able to meet any costs order that would in such an event likely be made against the Plaintiff in respect of the costs of the present action of the Defendants which have been estimated to be in the region of half a million dollars.

3.Whilst the Defendants have on the evidence established such a prima facie case, the Court still has a complete discretion in the matter regarding whether to order security and, if such security should be ordered, the amount thereof. Of course, the fact that the Defendants have made out such a prima facie case of inability on the part of the Plaintiff to pay costs is by and of itself a relevant and important consideration for the Court to take into account in considering how its discretion in the matter should be exercised.

4.The real problem facing the Defendants in their present application lies in the delay in making the application. The present action was commenced in September 2001. The facts now relied on in support of the application have been known to the Defendants almost from the outset. There was at one stage an application to strike out based on a limitation point. The application was taken out in December 2001 and was eventually dismissed after a contested hearing before a master in April 2002. Thereafter, the case ran its normal course and eventually it was set down for trial in May this year pursuant to an application to set down made in April. It is significant to note that in the 1st, 2nd and 4th Defendants' checklist filed on 18 March 2003 for the purpose of a checklist hearing, which eventually led to the setting down of the action for trial, the Defendants through their solicitors confirmed by way of an answer to the standard question 18 in the checklist, that no application for security for costs or further security for costs or stay of proceedings would be made. That, as I said, remained the position until October this year, less than 2 months before the scheduled commencement of the trial when the Defendants first intimated an intention to apply for security for costs.

5.I have no doubt, as I have so described the present application, that this is indeed a late application. According to authorities (e.g. BBMB Finance (Hong Kong) Ltd v. China Underwriters Life and General Insurance Co. Ltd [1991] 1 HKLR 619), in this type of situations, the Defendants would need to provide the Court with a reasonable explanation for the lateness of the application. In the present application, the Defendants put forward two purported explanations. I will deal with the two explanations in the reverse order, as the second explanation given (i.e. that the recent introduction of a further witness by the Plaintiff has the effect of increasing the costs of the trial) is quite plainly unsustainable, because the first indication from the Plaintiff to introduce this further witness came after the first intimation from the Defendants of their intention to apply for security for costs. This further witness therefore cannot explain the delay in the application by the Defendants.

6.The remaining explanation is that, and I quote from the 3rd Affirmation of the 1st Defendant filed in support of the present application, paragraph 2:

"2. It only became clear recently that the parties cannot reach an amicable settlement. Before that, it remained the intention of the 1st, 2nd and 4th Defendants to minimize the legal costs to be incurred for the conduct of the present proceedings and to enhance the chance for an amicable settlement. The legal costs for such application at the stage of negotiation would have adverse implications."

I am not satisfied with the explanation proffered. No details or particulars of the alleged negotiations were provided. The alleged "adverse implications" of the costs of an application for security for costs at the stage of negotiation have not been elaborated upon. Furthermore, on the evidence, apart from a reference to a meeting on 12 October this year between the relevant parties in the Mainland in which possible settlement was discussed unsuccessfully, and apart from another reference in a witness statement filed on behalf of the Plaintiff to a discussion that took place at around the time of the Mid-Autumn Festival in 2001, there are in evidence no settlement negotiations or the details of any such negotiations between the parties.

7.In my judgment, it is incumbent upon the Defendants when making this late application for security to give a reasonable explanation to the Court about the lateness. I am not satisfied with the very brief purported explanation given based on the claimed negotiations between the parties.

8.Regarding the meeting in October this year, that obviously came too late to be a valid explanation. Regarding the meeting back in late 2001, I do not think that that provided a sufficient explanation either. The simple fact is that in December that same year, the Defendants took out a strike-out application against the Plaintiff's claim, which was only disposed of after a contested hearing before a master in April the following year. So all this talk about not wanting to upset any hope of possible settlement by an application for security for costs could not be relevant at least to the period between December 2001 and April 2002, and as I said, apart from these two references to meetings between the parties for possible settlement, on the papers before me, I can really find no further reference to any other negotiations between the parties, and I have been referred to none. Furthermore, it is not disputed by counsel appearing for both sides that there was no without prejudice correspondence regarding settlement via the parties' solicitors.

9.Ms Po, appearing for the Defendants, has sought to persuade the Court with attractive arguments to the effect that one could infer from what has been said that there had been ongoing negotiations. I am afraid in this type of situations when it is incumbent upon the Defendants to proffer the necessary explanation, this Court is not prepared to draw any such inference.

10.Now, the lack of a reasonable explanation for the delay in making the application is a material consideration that the Court should take into account. One further matter that I should take into account amongst the general circumstances of this case, is the fact that I have already alluded to, i.e. that in the checklist filed by the solicitors acting for the 1st, 2nd and 4th Defendants, the solicitors had on behalf of their client confirmed with the court that there would be no application for security for costs. That confirmation came on 18 March 2003. It cannot be over-emphasized that the answers given by the parties' legal representatives in their respective checklists constitute important information that the court relies on in the proper and efficient management and disposal of the actions pending before it. One can only assume that those representing the Defendants must have obtained thorough instructions from their clients before filling in the boxes in the standard checklist form. Not only would the court rely on the answers given in order to decide how best to deal with the further management of the case, the opposite party to the litigation would also rely on the information supplied in the checklist for the further conduct of its case and the arrangement of its affairs. That again is a relevant matter that I can and should take into account.

11.Now, in line with general equitable principles, perhaps delay per se should not be regarded by itself as an important consideration if it is not accompanied by resulting prejudice, although the modern trend places strong emphasis on good case management by the court and prompt actions by the parties for the efficient and expeditious prosecution of cases to their logical conclusions; yet prejudice is being suggested in this case.

12.In the present case, the suggested prejudice resulting from the very late application or the failure to take out the present application earlier is that the Plaintiff, being a subsidiary of a state-owned enterprise in the Mainland, has very stringent procedures to follow in order to obtain funding from the state. According to the evidence filed, there are standard procedures to follow and any amount in excess of HK$80,000 would require advance application in the prior financial year for approval. The long and short of it is that if the application is acceded to and a substantial amount of security is ordered, the Plaintiff would likely have difficulties in raising the necessary fund before the commencement of the scheduled trial. In other words, the scheduled trial would stand a high chance of having to be adjourned. That, by itself, to a plaintiff, must be a prejudice. Of course, the Plaintiff has also put in evidence to say that any such adjournment would cause difficulties with their witnesses and the calling of these witnesses to give evidence at trial.

13.Any adjournment of a scheduled trial, particularly if it should happen shortly before the commencement of the trial, would be frowned upon by the court, especially in recent years when good case management and efficient utilisation of the court's valuable and limited resources are prized objectives.

14.Ms Po, doing her best, tried to discredit what has been said about the Plaintiff's procedures and difficulties in raising funds in such a short period of time. Whilst I have borne in mind the submission made by Ms Po, there is really no good evidence before me to lead me to disbelieve what has been said in the Affirmation filed on behalf of the Plaintiff, setting out, amongst other things, the difficulties faced by the Plaintiff in this late application made against it.

15.On the other hand, of course I have not forgotten the prejudice to the Defendants if no security for costs should be ordered, but in a very real sense, their present predicament or their predicament if no such security should be ordered, is or would be brought upon by their lateness in applying for security for costs.

16.Finally, I should expressly mention that I have thus far been proceeding on the basis that the Plaintiff has a reasonably arguable claim; after all, it has survived a strike-out application. On the other hand, I have also been proceeding on the basis that the Defendants have a reasonably arguable and viable defence. So in the balancing exercise which the Court must conduct in considering how its discretion should be exercised, merits do not really feature significantly in the Court's task.

17.I have borne the above considerations, as well as the general circumstances of the case, in mind. In the exercise of my discretion, I refuse the present application. The summons of the Defendants is therefore dismissed.

18.I should add, for the sake of completeness, that if I had been persuaded by the Defendants to order the provision of security in the present case, I would have, having looked at the estimated bill of costs in a global manner, been minded to fix the amount of security in the sum of $300,000; but as I said, I am not prepared to accede to the Defendants' late application.

[Submissions on costs]

19.As regards the costs of the present application, having heard the parties further, I order that the costs of and occasioned by this application be paid by the 1st, 2nd and 4th Defendants to the Plaintiff in any event. I do so because the trial is due to start in slightly more than 2 weeks' time and there is really no point in ordering a separate taxation of the present costs.

Representation:

Mr Alfred Liang, instructed by Messrs Pansy Leung, Tang & Chua, for the Plaintiff

Ms Po Wing Kay, instructed by Messrs Chan, Wong & Lam, for the 1st, 2nd and 4th Defendants