Goal Setting Consulting Co Ltd v. Unigraphics Solutions Asia/Pacific Incorporated

HCA 994/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 994 OF 2003

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BETWEEN

Before : Hon Sakhrani J in Chambers

Date of Hearing : 27 June 2006

Date of Judgment : 13 July 2006 

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JUDGMENT

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1.The defendant applies by summons dated 10 March 2006 for an order that the plaintiff do within 14 days give security for the defendant’s costs on the ground that the plaintiff is ordinarily resident out of the jurisdiction and that in the meantime all further proceedings be stayed.

2.This is the second application by the defendant for security for costs.

3.The defendant previously applied for security for costs by its summons dated 11 December 2003. That application was dismissed by Master J. Wong on 30 July 2004.  At that time the Master was dealing with two applications.  One for O.14 judgment by the plaintiff and the other the defendant’s application for security for costs.  The Master gave summary judgment to the plaintiff and dismissed the defendant’s application for security for costs.

4.The matter came before me on 11 October 2004 on an appeal by the defendant from the order of the Master giving summary judgment to the plaintiff and dismissing the defendant’s application for security for costs.  I gave judgment on 25 October 2004.  For the reasons given in my judgment I allowed the appeal against the Master’s order giving summary judgment to the plaintiff and granted the defendant unconditional leave to defend the action.  I dismissed the appeal against the Master’s order dismissing the defendant’s application for security for costs.

5.The background facts and the nature of the claim and defence are set out in my judgment of 25 October 2004.  I shall not repeat the same here.

Jurisdiction

6.The first matter to consider is whether there is jurisdiction to deal with the defendant’s application this being a second application for security for costs.

7.The plaintiff takes the point that an order has been made dismissing the defendant’s first application for security for costs.  There has been no appeal from that order.  Mr Maurellet, for the plaintiff, submitted that the crucial question was whether there is new evidence that seriously justifies reconsideration of the issue or a material change of circumstances of a non-evidentiary nature.  This is common ground between the parties.  It is submitted on behalf of the plaintiff that there has been no material change in circumstances and that the defendant is abusing the court’s process by making this second application for security for costs.

8.The defendant does not rely on new evidence but does rely on a material change of circumstances.

9.Mr Chua SC, for the defendant, submitted that there has been a material change in circumstances since the dismissal of the appeal against the Master’s order dismissing the first application for security for costs.  That being so, the court has jurisdiction to make the order.  Whether or not it will make an order is a matter for the court’s discretion.

10.O.23 , r.1 (1) RHC provides that :

“Where, on the application of a defendant to an action or other proceeding in the Court of First Instance, it appears to the Court -

(a) that the plaintiff is ordinarily resident out of the jurisdiction, or  …………………………………………

(b) …………………………………………

(c) …………………………………………

(d) then, if, having regard to all the circumstances of the case, the Court thinks it just to do so, it may order the plaintiff to give such security for the defendant’s costs of the action or other proceeding as it thinks just.”

11.The rule provides that the court has to have regard to all the circumstances of the case.  In my judgment this must include whether there has been any material change in the circumstances from the time the first application was made to the time the second application was made.  And the rule does not expressly prohibit a second application for security for costs being made.

12.In Anderson & Another v Huang Kuang Yuan [1997] HKLRD 1360 security for costs was ordered on the third application and in the course of the trial.  Keith J (as he then was) said at page 1365 :

“First, there had been previous unsuccessful applications for security.  Accordingly, for a subsequent application to be successful, there would have had to be at the very least a material change of circumstances since the previous applications had been dismissed.”

13.The matter was put succinctly by Sir John Knox in Kristjansson v R Verney (unreported 18/6/98) at page 8 as follows :

“ …….given the very wide discretion conferred by Ord. 23, r.1, I can see no justification for an arbitrary rule that no second application for security can ever properly be made unless the first application was successful, in particular if circumstances have arisen since the initial refusal of security, which place a new complexion on the second application as compared with the first, there is no logical reason for denying the court the right to deal with that different application on its altered facts.  There is nothing which I can see in Ord. 23, r.1 which can be construed to do that.”

14.As to what may be considered a sufficient change in circumstances, Sir John Knox said at page 9 :

“It would, in my view, be undesirable to seek to define at all closely what the Rules of the Supreme Court have no doubt quite deliberately left at large in the circumstances in which it would be proper for the court to revisit security for costs after an earlier refusal.  Obviously, there must be a significant and relevant change of circumstances, otherwise there would be only a re-run of an existing scenario and that, for the reasons I have given, is not permissible.  But I can see no logical reason for limiting the field of inquiry in any particular manner, not only for the reason that the rule is a very wide one, but also because it is important that the court should not be in any way fettered in considering what circumstances do justify a new approach.”

15.It is necessary to consider whether there is a material change in circumstances so that the Court’s jurisdiction is engaged.

16.The defendant relies on the fact that at the time of the first application the defendant had not only raised a defence but also a counterclaim.  There was a counterclaim for damages for breach of the Agreement.  There was also a counterclaim for an indemnity against the claim of Matana in the Thai proceedings (paras. 6 and 7 of my judgment of 25 October 2004).  It is plain from my judgment that I considered the counterclaim of the defendant as a cross-action and that it did not operate merely as a defence. At para. 53 I considered that the claim by the plaintiff and the counterclaim by the defendant raised essentially the same issues which would have to be fully litigated.  I then exercised my discretion and refused to order security for costs on the first application.

17.What has changed since then is the fact that the defendant has now abandoned its counterclaim.  The defendant applied by summons dated 23 December 2005 to amend the defence and counterclaim by deleting the counterclaim in its entirety.  That application was granted by the Master on 9 January 2006.  This resulted in the amended defence being filed on 10 January 2006.

18.Subsequently, on 1 March 2006 the defendant through its solicitors requested security for costs from the plaintiff.  This was rejected.  The summons for security for costs was issued on 10 March 2006.

19.Mr Maurellet disputed that there has been a change of circumstances.  He submitted that it was entirely within the control of the defendant to withdraw the counterclaim at the time of the first application but that it chose not to do so.  He further submitted that this was a change of intention not a change of circumstances.  

20.I accept that it was within the control of the defendant to withdraw the counterclaim at the time of the first application and at the hearing of the appeal before me.  However, the defendant was advised by leading counsel to maintain the counterclaim at that stage.  Also, it seems to me that when the counterclaim was pursued it could not be said that the same was unsustainable.  The defendant maintained the counterclaim and it was argued that security for costs should nevertheless be ordered against the plaintiff.  The defendant failed in its arguments but I cannot say that the matter was so unarguable that leading counsel should never have argued it. 

21.The defendant no longer wishes to pursue the counterclaim and has abandoned it.  That being so, I am satisfied that there is a material change of circumstances.  As can be seen from my judgment, it was because of the existence of the counterclaim that I exercised my discretion not to order security for costs on the first application.  That obstacle has now been removed by the abandonment of the counterclaim.  The plaintiff has satisfied me that there is a material change of circumstances.

22.I am unable to accept Mr Maurellet’s submission that the second application amounts to an abuse of the process of the court.

Discretion

23.O.23;r.1 is in very wide terms and the court’s discretion is not to be fettered.

24.The plaintiff is a company incorporated in the British Virgin Islands.  It is a shelf company formed for the special purpose of entering into the Agreement with the defendant.  It is ordinarily resident out of the jurisdiction.  The plaintiff has no assets within the jurisdiction.  That being so, it is the usual ordinary or general rule of practice that the Court would order a foreign plaintiff to provide security for costs because it is ordinarily just to do so.

25.Mr Maurellet, however, submitted that an order should not be made for these reasons :

(1) the defendant has delayed its application;

(2) the plaintiff’s claim would be stifled;

(3) the plaintiff’s claim bears a very high probability of success.

26.As to (3), Mr Maurellet in his oral submissions did not press this further.  I am satisfied that this is not the type of case where it can be demonstrated that the plaintiff has a very high probability of success.  It would be difficult to show this in view of the grant of unconditional leave to defend to the defendant.  In my view, the court should not embark on a detailed examination of the merits of the case for the purpose of deciding whether or not to order security for costs.

27.Since 25 October 2004 when I gave judgment the defendant has taken some time to decide to abandon the counterclaim and to make the second application for costs.  The defendant made its request for security for costs on 1 March 2006.  It took out its summons on 10 March 2006.  The summons to amend the defence and counterclaim by deleting the counterclaim was taken out on 23 December 2005.  As to delay, I accept that there has been delay on the part of the defendant in making the application.  That is a factor to be taken into account.  However, I bear in mind that an application for security for costs can be made at any stage of the proceedings, even after the trial had commenced (Lessy SARL v Pacific Star Development Ltd & Another [1997] HKLRD 1248).  In Anderson & Another v Huang Kuang Yuan an order for security for costs was made in the course of the trial.

28.Despite Mr Maurellet’s submissions, it is plain to me that the action is not ready to be set down for trial.  Although Mr Chua did inform me in October 2004 that the defence would be amended to plead foreign law, that has not yet taken place due, I am told, to an oversight by the defendant’s solicitors.  Be that as it may, the pleadings will have to be amended to plead foreign law.  The action is nowhere near ready to be set down for trial.

29.I do not consider that the delay by the defendant in launching the second application should prevent the defendant from obtaining an order for security for costs. 

30.As to the stifling of the plaintiff’s claim if security is ordered, the onus is on the plaintiff to show that it will probably be prevented from continuing on with the litigation if security is ordered (Keary Developments Ltd v Tarmac Construction Ltd and another [1995] 3 All E R 534).

31.Peter Gibson LJ said at page 540 :

‘However, the court should consider not only whether the plaintiff company can provide security out of its own resources to continue the litigation, but also whether it can raise the amount needed from its directors, shareholders or other backers or interested persons.  As this is likely to be peculiarly within the knowledge of the plaintiff company, it is for the plaintiff to satisfy the court that it would be prevented by an order for security from continuing the litigation (see Flender Werft AG v Aegean Maritime Ltd [1990] 2 Lloyd’s Rep. 27).  In that case Saville J applied by way of analogy the approach adopted in another context, that of payment into court as a condition of leave to defend.  In M V Yorke Motors (a firm) v Edwards [1982] 1 All ER 1024 at 1028, [1982] 1 WLR 444 at 449, 450 Lord Diplock approved the remarks of Brandon LJ in the Court of Appeal :

“The fact that the man has no capital of his own does not mean that he cannot raise any capital; he may have friends, he may have business associates, he may have relatives, all of whom can help him in his hour of need.” ’

32.In the third affirmation of Prayoon filed on 9 January 2004 in opposition to the first application, he said that the plaintiff had no substantial assets.  He said at para. 6 that if security for costs are ordered, the plaintiff’s legitimate claim would be stifled.  He also said that he had contacted various banks and they had refused to fund the litigation by lending monies to the plaintiff.  He also attempted to borrow from business associates but was unsuccessful.  No particulars are given of the banks and business associates and of when they were approached.  This is a bare assertion without sufficient particulars.

33.The fourth affirmation of Peter Ha Wing Ho filed on behalf of the plaintiff on 18 May 2006 provides evidence that there is no material change in the financial status of the plaintiff.  However, it is said that it was more difficult for the plaintiff to source funds from banks or financial institutions in view of the publicity surrounding this litigation in Thailand.  No particulars are given of any attempts to source funds from anyone.

34.The second affirmation of Rajiv Ghatikar filed on 3 February 2004 shows that in connection with the implementation of the Agreement,a due diligence exercise was carried out against Prayoon.  It was discovered that Prayoon was interested in at least five companies in Bangkok.  Details of Prayoon’s shareholding and directorship of these companies are provided in Exh. “RG-2” to Ghatikar’s second affirmation.

35.Prayoon also signed a questionnaire dated 29 October 2001 (Exh. “RG-3” to Ghatikar’s second affirmation) where it is acknowledged by Prayoon that he is a 60% shareholder and Ms Rungrat Kuysuwan is a 40% shareholder of the plaintiff.  Prayoon also acknowledged that he was the owner of another company in the sugar mill business.

36.I was also referred to extracts of an interview with Mongkol Aksinikul (Exh. “CS-8” to the affirmation of Chaiporn Supvoranid) which shows that Prayoon is well connected in Thailand and that his wife also owns a hotel in Bangkok.

37.From the available evidence, it is plain that Prayoon is well connected in Thailand with many business interests including the sugar mill business.  The fact that the plaintiff has no substantial assets does not mean that it cannot raise the funds to continue on with the litigation from its backers or business associates.  The assertion made by Prayoon that the plaintiff’s claim will be stifled if an order for security is made is simply a bare assertion without sufficient particulars and evidence.  No accounts or financial statements of the plaintiff have been placed in evidence.  The plaintiff has not condescended to particulars as to how it has been funding the litigation up to now.  The evidence is insufficient in my view to demonstrate that the plaintiff’s claim would probably be stifled if an order for security for costs were made.

38.In all the circumstances of the case, I consider that it would be unjust to the defendant not to make an order for security for costs.

Quantum

39.As set out in the letter dated 1 March 2006 from the defendant’s solicitors to the plaintiff’s solicitors, the estimated costs incurred up to 27 February 2006 (“the past costs”) amount to a total of HK$932,140.67.  The estimated future costs up to and including trial (“the future costs”) amount to a total of HK$735,164.  The amounts are supported by the draft skeleton bill of costs.  It has not been suggested that the estimates are unreasonable.

40.As to quantum, the court has an unfettered discretion in the matter.  Security for costs is not necessarily confined to future costs but may include costs already incurred (Anderson & Another v Huang Kuang Yuan).  However, as I have mentioned, there has been delay by the defendant in making the second application.  After the first application was determined in the plaintiff’s favour on 25 October 2004 and there was no appeal by the defendant, the plaintiff was entitled to proceed with the action on the basis that for the costs already incurred it would not be required to provide security.  In view of the delay on the part of the defendant in making the second application in the exercise of my discretion I am of the view that it would be just to order security for costs only in respect of the future costs.

41.I make an order that the plaintiff do within 28 days from today provide security for costs in the sum of HK$735,164 and that in the meantime all further proceedings be stayed.

42.I also make an order nisi that the plaintiff do pay the defendant its costs of this application.

Mr José-Antonio Maurellet, instructed by Messrs Kok & Ha, for the Plaintiff

Mr Chua Guan-Hock, S.C., instructed by Messrs Wilkinson & Grist, for the Defendant