Winghing Investments Ltd v. Lee Hoi Wing and Others
Read the full judgment text of CACV 378/2005 on BabelCite. This Court of Appeal judgment was delivered on 23 February 2006 before Woo VP, Waung J.
Civil procedure – security for costs – Order 23 Rules of the High Court and s.357 Companies Ordinance, Cap 32 – impecunious BVI plaintiff – plaintiff ordered to give security of $360,000 within 21 days – whether security for costs should be ordered where there is a counterclaim arising from the same transaction – whether court may order forfeiture of deposits held by stakeholder in default of security – whether defendant may be required to give security for defending – whether plaintiff is the attacker in respect of the initial deposit – agreement for sale of New Territories land conditional on appointment of managers of Tso's and District Officer's consent – plaintiff served notice of completion April 1999 and did not complete – defendants served notice of completion October 1999 and plaintiff did not complete – basic condition for ordering security satisfied by plaintiff's impecuniosity – strength of plaintiff's claim may be considered under Keary Developments Ltd v Tarmac Construction Ltd – counterclaim on same facts does not bar security for costs – plaintiff is attacker as to the initial deposit of $100,000 and defendants are defenders – forfeiture of further deposit of $744,192.80 in default of security wrongly enabled defendants to obtain the fruit of their counterclaim without trial and would penalise the plaintiff's defence – principle that defendant cannot be required to give security for defending and security is not a procedure to strike out a defence – order for security maintained but forfeiture of further deposit deleted – appeal dismissed with variation – no order as to costs of appeal – costs order below undisturbed.
Legal issues: Whether security for costs should be ordered against an impecunious BVI plaintiff · Whether forfeiture and release of the further deposit to defendants in default of security was a proper exercise of discretion
Outcome: Appeal dismissed; the judge's order varied by deleting the provision for forfeiture and release of the further deposit of $744,192.80 in default of security, so that default would result only in dismissal of the plaintiff's claims and forfeiture of the initial deposit of $100,000 to the defendants. The formal judgment entered on 25 November 2005 was to be amended accordingly.
Cited by 7 cases · Cites 2 cases
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CACV 378/2005 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CIVIL APPEAL NO. 378 OF 2005 (ON APPEAL FROM HCA NO. 15600 OF 1999) ------------------------------------- BETWEEN
------------------------------------- Before : Hon Woo VP and Waung J in Court Dates of Hearing : 23 February 2006 Date of Judgment : 23 February 2006 Date of Reasons for Judgment : 28 February 2006 ------------------------------------- REASONS FOR JUDGMENT ------------------------------------- Hon Woo VP: Introduction 1.On 17 October 2005, Deputy High Court Judge Muttrie made the following order:
2.The plaintiff appeals against the order. 3.In the meantime, the plaintiff having failed to provide the security as ordered by the judge, its claim was dismissed and a formal judgment was entered on 25 November 2005 accordingly. 4.The plaintiff’s solicitors have ceased to act for it. At the hearing on 23 February 2006, the plaintiff did not appear before us. We proceeded to deal with the appeal and made an order that the appeal be dismissed but that the judge’s order be varied. We also made no order as to costs of this appeal, while the judge’s order for costs was not disturbed. My reasons appear below. The facts 5.The essential facts can be dealt with very briefly. 6.By a provisional agreement dated 3 October 1997, the plaintiff agreed with the personal defendants, who were intended managers of the two defendant Tso’s, to purchase a piece of land in the New Territories of which the Tso’s were the owners. The plaintiff paid an initial deposit in the sum of $100,000 to the defendants (“initial deposit”) under the agreement. By a formal agreement dated 15 June 1998 to purchase the land, the plaintiff paid a further deposit in the sum of $744,192.80 (“further deposit”) to Messrs Adrian Yeung & Cheng, Solicitors as stakeholder (“the stakeholder”). The completion of the sale of the land was provided in the formal agreement as conditional upon the personal defendants being appointed the managers of the Tso’s and obtaining the consent of the District Officer for selling the land. However, there was no provision in the formal agreement as to the time in which the appointments and the consent should be obtained. 7.On 1 April 1999, the plaintiff through its solicitors gave notice of completion, to take place by 5 pm on 30 April 1999. Completion did not so take place. 8.By 27 October 1999, the appointments and the consent to sell the land had been obtained. On 30 October 1999, the defendants’ solicitors gave to the plaintiff notice of completion, to take place within 14 days. No completion took place within the time or at all. 9.The plaintiff’s claim is based on the agreement having been repudiated by the defendants in April 1999, for the return of the initial deposit and for a declaration that the further deposit be released to it by the stakeholder. The defendants have raised a defence and counterclaim, seeking a declaration that they are entitled to keep the initial deposit and to the release to them of the further deposit from the stakeholder. The basis of the defendants’ defence and counterclaim is that the plaintiff had failed to complete the sale despite their notice of 30 October 1999. The plaintiff’s defence to counterclaim is a mirror image of its entitlement to the return of the two deposits as raised in its claim. 10.The defendants applied for security for their costs of the action pursuant to Order 23 of the Rules of the High Court and section 357 of the Companies Ordinance, Cap 32, on the ground that the plaintiff was a $2 BVI company and they would have difficulty in getting the costs in the event of their success in the action. Matters not in dispute 11.The following matters are not in dispute between the parties, namely,
The judge’s reasoning 12.The judge adopted the law on security in Keary Developments Ltd v Tarmac Construction Ltd [1995] 3 All ER 535. 13.He considered that in view of the impecuniosity of the plaintiff, the basic condition for ordering security was satisfied. 14.Regarding the issues raised in the parties’ pleadings, and in particular, the plaintiff’s defence to the counterclaim, the judge further took into consideration Wui Foo Development Co Ltd v Tak Yuen Construction Co Ltd, HCCT 40/1998 and Vigers Hong Kong Ltd v Junsa Development Ltd, HCA 5173/1998. In his Ruling, he identified the issue before him and dealt with it in the following way:
15.The judge then considered the merit of the plaintiff’s claim. He said:
16.On the defendants’ application that in default of the plaintiff providing security, its claim and defence to counterclaim be dismissed, the judge had the following to say:
Grounds of appeal 17.Six grounds of appeal have been raised in the notice of appeal settled by the plaintiff’s former counsel. What I consider to be significant are two of them, which need be dealt with. They are set out below:
18.In the present case, the central issue in the action between the parties is who was liable for the non-performance or non-completion of the agreement, which will in turn be the determinant factor as to whom the deposits should belong. If the plaintiff does not make its claim or is not allowed to continue with its claim, the defendants will keep the initial deposit which had been paid to them, and the plaintiff will not be allowed to get back the further deposit from the stakeholder. On the other hand, if the defendants do not raise their claim, they will similarly not be allowed to get the further deposit from the stakeholder. The only difference between the parties’ positions is that if there were no claim by the plaintiff, the defendants would be able to keep the initial deposit without requiring any order from the court. Thus the defendants are in a more advantageous position than the plaintiff, but only regarding the initial deposit of $100,000. They still have to raise a claim (as in their counterclaim) for a declaration that they are entitled to have the further deposit, involving the larger sum, released to them by the stakeholder. 19.While the judge was perfectly correct to consider the strength or otherwise of plaintiff’s claim in make an order for security, it is an entirely different matter to adversely affect the plaintiff’s defence to counterclaim. It is plain that in paragraphs 17 and 27 of his Ruling, the judge acknowledged the principle that a defendant cannot be ordered to give security for maintaining his defence to a claim. But what the judge did was to order that in default of the provision of the security for costs, the further deposit be forfeited and released by the stakeholder to the defendants. This enables the defendants to obtain the fruit of their counterclaim as if it had been won, without paying regard to the principle that he had apparently accepted that the plaintiff is entitled to maintain its defence to the counterclaim. 20.While accepting that the judge had, in the exercise of his discretion, properly taken into account the merit of the plaintiff’s claim and even accepting that he was correct in his view that there is a high probability that that claim will fail, the defendants’ application for security is not the proper procedure for allowing the defendants to obtain the fruit of a judgment on their counterclaim. There does not appear to be any justification for allowing the defendant to have this added benefit. 21.If the plaintiff’s claim were dismissed in default of its providing security, which had actually occurred, and the defendants were entitled to forfeit the further deposit and have it released to them from the stakeholders, they would become the prime moving force in bringing their counterclaim to trial. They would have no incentive to proceed with the counterclaim expeditiously and the process of the plaintiff’s defence to the counterclaim would probably be delayed. 22.It appears that my fear is not without foundation. In the skeleton submission of Mr Andrew C H Y Leung, counsel for the defendants before us, it has been mentioned no less than five times that the defendants will not proceed with their counterclaim if the plaintiff’s claim is dismissed. The basis as stated is that without a counterclaim by the defendants, the stakeholder would have to pay the further deposit to them since their claim would be the only valid remaining claim. This would create an even worse situation for the plaintiff, and would be a total disregard of the principle that a defendant cannot be made to give security for costs for defending, for the judge’s order is intended to be wrought with the effect of dismissing not only the plaintiff’s claim but also its defence to counterclaim. Security for costs is not a proper procedure for striking out or dismissing a defence. Unless the court is fully apprised of the situation, it might unwittingly be led to grant leave under Order 21, rule 3 of the RHC for the defendants to discontinue or withdraw their counterclaim. 23.In the circumstances, I consider that the judge had erred not in exercising his discretion to order security, but in making the order for forfeiture and release of the further deposit to the defendants as a consequence of the plaintiff’s default in complying with the order for security. 24.I now turn to consider the situation regarding the initial deposit. The judge was correct to hold that the plaintiff must certainly be seen as the attacker and the defendants the defender in respect of this sum (paragraph 20 of the Ruling). There is no dispute that the defendants’ costs of the action amount to $360,000. The initial deposit is only $100,000. Due to the impecuniosity of the plaintiff, it is unlikely that if the defendants succeed they would be able to recover the costs. While it is true that most probably the same amount of time and costs would have to be incurred for dealing with the plaintiff’s claim, the defendants’ counterclaim and the parties’ respective defences, I do not see any sound basis for disturbing the judge’s exercise of discretion in this respect. If the plaintiff considers that it is not worth its while to put up $360,000 for making its claim for the return by the defendants of this $100,000 initial deposit, it remains able to defend the defendants’ counterclaim of a declaration that the further deposits be forfeited and released by the stakeholder to the defendants. It is for the plaintiff to maintain its claim for the return of the initial deposit, or else it cannot claim it back, in view of paragraph (b) of the judge’s order. While I appreciate that the time and costs for the trial of the defendants’ counterclaim, be the initial deposit included or excluded, would likely to be identical, that factor had obviously been considered by the judge. I cannot say that the judge’s discretion in that regard was exercised without taking into account any relevant factors or against principle. All the grounds of appeal raised by the plaintiff do not help lead me to a different view. Conclusion 25.Although the plaintiff was absent and did not prosecute its appeal before us, I consider that the mistake in the Ruling should be corrected. We therefore dismissed the appeal but ordered that the judge’s order be varied. The variation only applies to paragraph (b) of the order, by deleting a certain part of it, which should after the deletion be as follows:
26.The formal judgment entered on 25 November 2005 should be amended accordingly. Costs 27.Although the order is varied, the defendants are able to sustain the order for security. In all the circumstances, especially where the plaintiff was absent to prosecute the appeal, the proper course to take is to make no order as to the costs of this appeal. As to the order for costs made by the judge, the defendants were successful before the judge, and their success in their application for security for costs of the action has been maintained before us. I would not disturb the costs order made by the judge. Hon Waung J: 28.I agree.
The Plaintiff (Appellant), absent Mr Andrew C H Y Leung, instructed by Messrs Leung Kin & Co, for the Defendants (Respondents) |
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