Tri-tech Metals Co Ltd v. Ykk Ap Hong Kong Ltd
Read the full judgment text of HCCT60/2004 on BabelCite. This 高等法院原訟法庭 judgment was delivered on 30 April 2009 before Hon Burrell J.
Procedure — Security for costs — Construction contract disputes — Plaintiff in liquidation — Plaintiff claims over $16 million owed; defendant claims overpayment — Defendant applies for security for costs late in proceedings — Plaintiff impecunious and unable to provide security — Court considers whether order would stifle bona fide claim, whether impecuniosity caused by defendant, delay by defendant, and unfair advantage to defendant — Court accepts plaintiff has arguable case and credible evidence of impecuniosity caused by cessation of defendant’s payments — Defendant’s delay in application prejudiced plaintiff as security requested for costs already incurred — No order made for security to avoid stifling claim and to encourage settlement — Defendant to pay costs of application — Application for security for costs refused.
Legal issues: Whether an order for security would stifle the plaintiff’s bona fide claim · Whether the plaintiff’s impecuniosity was caused by the defendant · Whether delay by the defendant in making the security application prejudiced the plaintiff · Whether security for costs would give the defendant an unfair advantage by allowing counterclaim pursuit
Outcome: The application for security for costs is refused with costs to the plaintiff.
Cited by 10 cases · Cites 1 case
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HCCT60/2004 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE CONSTRUCTION AND ARBITRATION PROCEEDINGS NO. 60 OF 2004 ------------------------- BETWEEN
---------------------- Before : Hon Burrell J in Chambers Date of Hearing : 16 April 2009 Date of Decision : 30 April 2009 --------------------- D E C I S I O N -------------------- 1.This is a defendant’s application for security for costs. Between 1998 and 2001 the plaintiff was a sub-contractor to the defendant on a total of eight building projects. It is said that approximately 30 contracts were involved in all. 2.Disputes arose over payments concerning, inter alia, familiar issues in construction cases such as retention money, variation works, contra-charges and so on. Ultimately, the plaintiff in or around 2001 left the site of the 8th and final project upon which they had been engaged by the defendant. Soon afterwards, in 2002, the plaintiff went into voluntary liquidation. It has not operated since. Each side blames the other for the disputes. The plaintiff claims it was owed over $16 million by the defendant at the time it finally left the 8th site. The plaintiff claims that the defendant’s failure to pay caused cash flow problems which, in turn, meant it could not pay its own sub-contractors and, consequently, blames the defendant for the fact that it was forced into voluntary liquidation. The defendant, on the other hand, claims it had overpaid the plaintiff by $3,587,186 and that the plaintiff was in breach of contract when it left the site. 3.The plaintiff’s writ was issued in August 2004. Since then the litigation has proceeded somewhat slowly. Four years and eight months have gone by. In a nutshell the position now is that the pleadings are complete, witness statements exchanged and expert’s reports finalized. The original estimate of the length of the trial was about 11 days. That figure has increased to about 20 days since the completion of the experts’ reports. It is ready to be set down for trial but, in view of its length, a trial date will not be available until 2010. 4.There was no hint of an application for an order for security for costs prior to December 2008, over four years after the writ was filed and over six years after the plaintiff went into voluntary liquidation. Basic principles 5.For the purpose of this application it is accepted by both parties that the plaintiff has an arguable case. It is a substantial piece of litigation involving numerous contracts. There are likely to be many many issues, most of which will be fact-sensitive. Both oral and documentary evidence will be considerable and an expensive and lengthy trial looms unless the parties are able to settle the matter. Given the fact that the matter is effectively ready for trial now and given the fact that it will be 2010 before a trial date is available there is clearly time for the parties to negotiate a realistic commercial settlement. One of the factors to be weighed in the balance on this application is that the time available to negotiate a settlement or even agree certain issues (namely, in the months ahead) would be frozen if an order for security was made with which the plaintiff was unable to comply. The court should be slow to make orders which effectively shut the door on possible settlements. 6.It is also accepted between the parties that the plaintiff will not be able to pay the defendant’s costs should the plaintiff lose at trial. To this extent the plaintiff’s impecunosity is not an issue. 7.The issues which therefore remain for consideration are :
These issues, taken together, will determine whether or not the court’s discretion should be exercised in this case. (1) Claim stifled? 8.On the one hand the plaintiff’s impecuniosity is not in issue. It has been in liquidation for over six years. The latest statement of account shows it to have receivables of approximately $1 million. On the other hand the defendant points out that this litigation has been funded thus far and so there is clearly a financial backer. The defendant submits that no proper evidence has been adduced to show that the backer would not be able to provide security for costs. 9.The plaintiff accepts that its backer thus far has been its former director and 50% shareholder Mr Chan Tung Wan. Mr Chan has deposed that due to the current economic crisis he is neither willing nor able to continue with the funding. How the litigation will be funded hereafter is not clear. Moreover the plaintiff’s liquidator, Mr Yip Tze Wai has affirmed that it would be “extremely difficult if not impossible …” to obtain the necessary funding. It is correct to say, which the defendant does, that Mr Chan’s and Mr Yip’s evidence lacks particularity. It is not known what Mr Chan, if forced, would be willing to do. However, it should be remembered that this is an application under section 357 of the Companies Ordinance (Cap. 32) namely an action against the company not its officers. In this context I consider the evidence which is available to be believable and understandable. 10.The test is not whether an order will stifle the claim. Bingham LJ in Thune v. London Properties Ltd [1990] 1 WLR at page 573 put it as follows :
11.I am satisfied that the plaintiff has demonstrated by credible evidence that there is a reasonable likelihood that it will be unable to comply with an order for security. (2) Was the plaintiff’s impecuniosity caused by the defendant? 12.The argument between counsel on this issue has centred around the meaning of the word “caused”. 13.Mr Anson Wong for the defendant relies on the decision of Rogers VP in Sunchase International Group (China) Ltd v. Vincor Group of Companies (Investment) Ltd [2004] 1 HKLRD 731 in which it was observed that such a claim by a plaintiff is usually a “circular” argument because whether or not the cause of the impecunosity was the defendant’s conduct depends on the outcome of the case. If it turns out that the plaintiff was in breach of contract and therefore the author of its own misfortune it cannot be said that the defendant was to blame for its lack of money at the material time. This argument depends on “cause” being interpreted in the context of “blame” or “liable for”. 14.Mr Anthony Chan, counsel for the plaintiff, urges this count to resolve the issue in the context of a “causal link”. He submits that the simple fact was that the defendant was the plaintiff’s only source of money at the time, that tap was turned off and the plaintiff could not continue with its work. It could not pay its suppliers and it could not pay its sub-contractors. 15.In the particular context of this case I have some sympathy with the plaintiff’s argument. All the plaintiff’s eggs were in one basket. This was the 8th and final project involving these two parties. A huge amount of work had been completed (and, it is acknowledged, paid for) satisfactorily. There is no suggestion that the defendant was in any financial difficulty. It is accepted that the plaintiff has a bona fide claim. 16.If “caused” means no more than a “causal link” I am satisfied that this particular issue can be safely resolved in the plaintiff’s favour. If on the other hand, “caused” always implies blame then this issue would hardly ever arise. In virtually every case the issue of security for costs would pre-date any determination of blame. Therefore the “circular argument” submission would succeed on virtually every occasion. 17.Where, as in this case, the plaintiff was effectively 100% dependant on the defendant and had invested a vast amount of time, work, money and labour into substantial projects the “causal link” argument (which involves no consideration of the merits) is preferable. (3) Delay? If so, any prejudice to the plaintiff? 18.Mr Wong sensibly concedes that it might have been better if this application had been made earlier. The defendant’s only explanation for the lateness of the application is that it was only after the completion of the expert’s reports that it became apparent that the estimated length of the trial was about 20 days rather than 11 days. 19.In my judgment, given that the plaintiff has been in liquidation for over six years and given that the first application for security has come when the matter is ready to be set down for trial, the defendant’s request for security for costs already incurred must be refused. The plaintiff has incurred considerable costs itself, both in prosecuting its bona fide claim and in defending the defendant’s bona fide counterclaim. 20.The defendant is seeking $2.5 million as security. By a letter of 24 December 2008 from its solicitors, the $2.5 million was said to be for costs “up to the beginning of the trial”. The fact that its summons refers to $2.5 million is a clear indication that the sum sought is in relation to costs already incurred. After all, the matter is, to all intents and purposes, ready for trial now. 21.As to future costs slightly different considerations apply. However I do not consider it prudent to order security for the costs of the trial now, when it is unlikely to be heard until 2010. If the defendant had its trial costs securely paid into court now, it would act as a serious disincentive to the parties’ attempts to save costs hereafter by agreeing matters, either wholly or in part. 22.Thus, I consider the “delay” factor to be an important matter to take into consideration when deciding whether or not to exercise the court’s discretion. I am satisfied that to award costs already incurred would prejudice the plaintiff because it has incurred considerable costs itself already without any indication that an order for security would be made and, given my finding that there is a reasonable likelihood that such an order would stifle the plaintiff’s claim, the expenditure wasted would be considerable. Moreover, the mere fact that the trial estimate has increased from 11 to 20 days is insufficient to justify the late application. The nature of the case has not changed; it was always going to be a factually complex and lengthy trial. 23.Both counsel have helpfully referred me to a variety of judicial comment and authority on this issue. Not surprisingly, they go both ways. I have considered them but will refer to only one in this decision (below) because the particular facts of each case vary so much. The fundamental principles are (i) has there been delay? (ii) if so, is there an explanation? (iii) if so, has the plaintiff been prejudiced? 24.My consideration of these principles in this case lends support to the plaintiff’s position. 25.The one authority I mention is Southern Cross Exploration v. Fire and All Risks Insurance Co. Ltd (1985) NSWLRJ in which Waddell J at p. 125 observed that, in certain cases, it would be “commercially irresponsible for a party not to make an application”. Such could be said in the present case, however the merits of the application inevitably diminish the later it is made. More importantly Waddell J went on to say :
26.In the present case there are similarities in relation to the reasons for not ordering past costs. However, as to future costs, the facts were somewhat different. In Southern Cross the trial had been estimated for 20 days. It went part-heard after 30 days. Later, the application for security was made on the basis that the new estimate was a further 60 to 70 days. Thus, the element of unexpected future costs is in a different category altogether. (4) Unfair tactics? 27.This question has become of only minor importance since Mr Wong, on the defendant’s behalf, has undertaken not to proceed with the counterclaim in the event that security is ordered and the claim is later dismissed or stayed as a consequence of the plaintiff’s failure to make the payment. 28.Mr Chan however submits that the concession is a hollow one because, in reality, the defendant is not giving up anything of any substance. The issues in the counterclaim are in many respects the same issues as in the claim. The findings in the claim will, broadly speaking, determine the counterclaim as well. In such circumstances, the application for security remains an opportunistic and unfair exercise. The complaint that the plaintiff has been “led up the garden path” only to face a stifling “11th hour” application remains. 29.I consider the competing submissions on this issue to be equally balanced and I have thus attached little weight to it in the exercise of my discretion. Decision 30.The cumulative effect of my consideration of issues (1), (2) and (3) above (with, in my judgment issue (3) being the most compelling) I exercise my discretion against making any order for security for costs on this application at this time. 31.The application is refused with costs to the plaintiff.
Mr Anthony H.K. Chan, instructed by Messrs Ho & Wong, for the Plaintiff Mr Anson M.K. Wong, instructed by Messrs Wong Poon Chan Law & Co., for the Defendant |
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