Trendex International Ltd v. Yick Shun Technology (HK) Ltd and Another

DCCJ5125/2006

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 5125 OF 2006

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BETWEEN

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Coram : H.H. Judge Chow

Date of Hearing : 12^th October 2007

Date of handing down Decision : 20^th November 2007

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Decision

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1.This is an application by the Defendants for an order of security for costs under section 357 of the Companies Ordinance.  During the hearing, I granted leave to the Defendants to withdraw the application.  The only issue I have to deal with is the matter relating to costs of this application.  The estimated costs of the Defendants are estimated to be over $233,500. 

2.On 21 February 2007, the Defendants’ solicitors wrote to the Plaintiff’s solicitors asking the Plaintiff to provide a copy of its latest audited financial statements to ascertain if the Plaintiff would be able to pay the Defendants’ costs in case the Defendants should succeed in their defence.  The Plaintiff did not respond to the letter.  On 3 March 2007 the Defendants’ solicitors wrote a further letter pressing for a reply.  The Plaintiff did not make any response.

3.The Defendants submit that the following is the relevant law applicable to this case:-

‘	In Dragages et Travaux Public v. Hong Kong Chinese Insurance Co. Ltd. [1993] 1 HKC 617, Kaplan J. observed at 620D that the respondent had “chosen not to put in any evidence of its financial position in the way of audited or management accounts.  They are, of course, perfectly entitled to do this and factually put the plaintiffs to strict proof, but it is clear that they take a risk in so doing.” ’
‘	In Concorde Enterprises Ltd. v. Anthony Motors (Hutt) Ltd. No. 2 [1977] NZLR 516 at 518 (50), Quillam J. stated that “the expression used is if it appears by credible testimony that there is reason to believe.  I think this form of expression is of some significance and the reason for it is not difficult to find.  There can be no doubt that the onus under the section rests upon the applicant, that is, the defendant.  By the very nature of the application, however the defendant cannot be expected to produce anything very conclusive in the way of proof.  It has no access at this stage to the plaintiff’s books of account or other records, and can do no more than point to the surrounding circumstances.” ’
‘	The reasoning of Quillam J. in Concorde Enterprises Ltd. referred to above was also accepted by Deputy High Court Judge L. Chan in Sprite Mass Enterprises Ltd. v. Loyal Profit Enterprises Ltd. HCA No. 1841 of 2004 at paragraph 9.’

4.The Defendants submit that the Plaintiff never responded to the Defendant’s request by way of letters of 21 February 2007 and 3 March 2007 for evidence of the Plaintiff’s financial position by way of its audited accounts.  That effectively meant that at the time that the application was made, the Plaintiff was acting in a similar manner to the plaintiff in Dragages et Travaux Public, namely, it was choosing not to give the Defendants any evidence of its financial position in the way of audited accounts, and although it was factually entitled to do so, the Plaintiff was taking a risk in doing so.  The Plaintiff subsequently produced a letter of credit reference from the Plaintiff’s bank and its bank statements respectively.  In particular, the credit reference letter states, inter alia, that “TIL has maintained a savings and a current account with our bank since March 1998 showing a present balance up to mid-seven figures”.  The Plaintiff only produced these documents, and in particular the credit reference letter, after the application was made.  The Defendants submit that the Plaintiff could nevertheless quite easily have produced the very same credit reference letter from its bank in response to the letters referred to above.  Instead, the Plaintiff did nothing, thereby taking the risk that the Defendants would make the application.

5.In my judgment, whether the Defendants chose to make the present application or not is a matter of their choice.  There is nothing to indicate by the Plaintiff’s response whether it was taking the risk that the Defendants would make the application.  Its remaining silence is not positive evidence that it was taking any risk.  It is not under any duty to meet the Defendants’ requests.

6.The Defendants submit that “by the very nature of the application, the defendant cannot be expected to produce anything very conclusive in the way of proof.  It has no access …… to the plaintiff’s books of account or other records, and can do no more than point to the surrounding circumstances ……”  According to the Defendants, the surrounding circumstances include the following facts:-

(a)	The Plaintiff’s paid-up capital ($100,000) would have been insufficient to pay the Defendant’s costs in this action.  In my judgment, merely the size of the paid-up capital cannot be a ground for the application; the whole financial circumstances of the company concerned, and not merely its paid-up capital, have to be looked at.
(b)	The Plaintiff had no apparent assets.  The 2nd Defendant and the Plaintiff had a long business relationship since April 2005.  For more than 10 transactions between them the business involved an average of HK$230,000; the Plaintiff defaulted only once for an amount of HK$56,700, because it intended to withhold payment in order to set off part of its damages and losses caused by the 2nd Defendant in this case.  Even after this default, it still paid the bills to the 2nd Defendant in sums ranging from HK$50,000 – HK$780,000.  It did not appear to be in difficult financial situation.
(c)	The Plaintiff has since the date of its Writ, i.e. 14th October 2006, up to the time of the application being made, i.e. 11 May 2007, taken no steps and done nothing to push its claim in this action forward ……, thereby suggesting to the Defendants that the Plaintiff’s claim in this action was only being used by the Plaintiff to keep out of the fruits of the 2nd Defendant’s judgment in DCCJ 5075/06 wherein the 2nd Defendant has obtained summary judgment against the Plaintiff pending the determination of the Plaintiff’s counterclaim (which is a repetition of the Plaintiff’s claim in the represent action).
(d)	The fact that the Plaintiff only issued the Writ in this action the day after the 2nd Defendant’s Writ in DCCJ 5075/06 was served on the Plaintiff …… fortifies that “belief” in (c) above that the Plaintiff only commenced this action to frustrate the 2nd Defendant’s claim in DCCJ 5075/06 by endeavouring to put the 2nd Defendant on notice (before the time limit required for the Plaintiff to file its defence in DCCJ 5075/06) in the hope of putting the 2nd Defendant off from trying to seek summary judgment in DCCJ 5075/06. The Defendants’ “belief” is not evidence and is not helpful in this respect.  I will not adjudge whether the Defendants’ belief is correct or not.  What is important is the evidence relating to the financial situation of the Plaintiff.
(e)	By the time the application was made, the Plaintiff had still failed to settle the 2nd Defendant’s costs in DCCJ 5075/06 ……
	(i)	by then, those costs had already been provisionally taxed in the sum of HK$32,694.00 and the Notice in relation to such taxation had been served on TIL on 12 April 2007;
	(ii)	by then, the Plaintiff had also made no challenge to the amount taxed within the 14 days as required by the Notice, i.e. by 26 April 2007; and
	(iii)	the 2nd Defendant had demanded the Plaintiff to pay such costs by 9 May 2007 through CLW’s letter dated 4 May 2007. On 2 May 2007, an unsealed allocatur was served on the Plaintiff.  An unsealed allocatur was not enforceable.  The Plaintiff is only obliged to make payment after the allocatur has been sealed.  The Defendants served the sealed allocatur on 1 June 2007.  But the Defendants took out the present application on 11 May 2007.  The above points does not give rise to an inability to pay.

7.On 26 June 2007, the Defendants agreed not to proceed with the present application, subject to a resolution of the question of costs of the present application.  The Defendants suggested to the Plaintiff that the Defendants agree to withdraw the application on condition that the Plaintiff agrees that the costs of the application be in the cause.  The Plaintiff did not accept the offer.  The Defendants regard that as a reasonable offer on the question of cost, and submit that the Plaintiff’s unreasonable attitude to settle this matter without the need for a hearing means that the costs of and incidental to the application since 26 June 2007 should be to the Defendants.

8.In my judgment the Plaintiff is not under a duty to give any assistance to the Defendants to withdraw their case.  It is entitled to have the matters of costs to be argued in court.  I do not accept the Defendants’ submission.

9.It is not clearly obvious that the Defendants’ application is without any basis.  I do not regard that the circumstances of this case warrant the granting of an indemnity costs order.  It is just an ordinary case that the Defendants would fail should the application proceed.  I therefore order that the Defendants do pay costs of this application to the Plaintiff, to be taxed, if not agreed, with certificate for Counsel.

The Plaintiff: represented by Mr. Lam Chi Ming, instructed by M/S. Edwin Yun & Co., Solicitors.

The Defendant: represented by Mr. R. Souza of M/S. Chan, Lau & Wai, Solicitors.