Sun Focus Investment Ltd v. Tang Shing Bor and Another

HCA 538/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 538 OF 2007

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BETWEEN

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Before: Mr Recorder A. Chow, SC in Chambers

Date of Hearing: 5 June 2012

Date of Decision: 5 June 2012

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D E C I S I O N

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Applications

1.I have before me two summonses taken out by the defendants dated 10 December 2009 and 29 May 2012 respectively (the “1^st Summons” and “2^nd Summons” respectively, and the “Summonses” collectively) seeking an order that the plaintiff provides security for the defendants’ costs in this action.  The bases of the applications, as appear from the Summonses, are Order 23, rule 1 of the Rules of the High Court and Section 357 of the Companies Ordinance and the inherent jurisdiction of the court.

2.At the hearing this morning, Mr Calvin Cheuk for the defendants confirmed that the 2^nd Summons effectively superseded the 1^st Summons, and thus this Court should focus on the 2^nd Summons.

Background

3.These proceedings have a long history, the Writ having been issued on 16 March 2007.  The detailed history of these proceedings is set out in the written Judgment of the Court of Appeal handed down on 23 December 2011 and I shall not repeat the same in this Decision save to mention a few facts which are relevant for the present purposes.

4.The original Statement of Claim was dated 16 March 2007, and it was amended on 18 January 2008.  The Amended Defence was dated 15 February 2008.

5.On 2 June 2009, the defendants applied by summons for an order for security for costs against the plaintiff.

6.On 10 July 2009, the defendants applied to strike out various parts of the Amended Statement of Claim, and the application was amended on 16 July 2009 to seek to strike out the whole, or alternatively parts, of the Amended Statement of Claim.

7.The security for costs and strike out applications came before Mr Recorder Shieh, SC on 5 October 2009.  By an order made on the same date, the learned Recorder struck out the whole of the Amended Statement of Claim, but did not dismiss the action in order to give the plaintiff an opportunity to get its house in order by applying for leave to file a fresh statement of claim.

8.The learned Recorder also decided to make no order on the summons for security for costs in view of the fact that he had decided to strike out the whole Amended Statement of Claim.  Nevertheless, the learned Recorder made it clear in his Judgment dated 5 October 2009 that he would have been minded to order the plaintiff to give security for costs in the amount of HK$1.1 million had he not decided to strike out the Amended Statement of Claim.

9.Subsequently, the plaintiff applied by summons dated 15 October 2009 (the “Amendment Summons”) for leave to put in a fresh statement of claim (the “Fresh Statement of Claim”).  That application, as well as the defendants’ further application for security for costs under the 1^st Summons, came before Chung J on 27 April 2010.  The security for costs application was adjourned by the learned Judge, and the application for leave to file the Fresh Statement of Claim was eventually allowed by the learned Judge on 10 September 2010.

10.The order of Chung J to allow the plaintiff to file the Fresh Statement of Claim was set aside by the Court of Appeal on 23 December 2011 on a point relating to limitation.  For the present purposes, it is not necessary for me to go into the details of the reasons of the Court of Appeal for its decision, save to point out that what the Court of Appeal did was to remit the plaintiff’s application to a Judge of the Court of First Instance, with the issue of the plaintiff’s reliance on section 26 of the Limitation Ordinance (the “s.26 point”) to be tried as an issue in the Amendment Summons.  As identified in the Judgment of the Court of Appeal, there is also an issue as to whether the plaintiff is entitled to amend the statement of claim by reliance upon Order 20, rule 5(5) of the Rules of High Court (the “Order 20 Rule 5(5) point”).

11.The hearing date of the Amendment Summons has not yet been fixed.  At the hearing of the Case Management Summons taken out by the plaintiff pursuant to the directions of the Court of Appeal which took place on 3 February 2012, Deputy High Court Judge Mimmie Chan gave the following directions regarding the further conduct of the Amendment Summons and the 1^st and 2^nd Summonses:

(1) the 1^st and 2^nd Summonses be heard first;

(2) the plaintiff’s Amendment Summons insofar as it relates to the Order 20, rule 5(5) point be adjourned to a date to be fixed for argument after the disposal of the security for costs applications with 3 hours reserved;

(3) the plaintiff’s Amendment Summons insofar as it relates to the s.26 point be adjourned to a date to be fixed for argument after the disposal of the security for costs applications and the Order 20, rule 5(5) point with 2 days reserved.  I am told by Mr Calvin Cheuk for the defendants that it is envisaged that there will be cross examination of witnesses at that hearing.

12.It is not in dispute that if the plaintiff should succeed in his amendment application in reliance on the Order 20, rule 5(5) point, it will not be necessary for the plaintiff to pursue the s.26 point and the action will proceed on the basis of the Fresh Statement of Claim.  On the other hand, if the plaintiff should fail in its amendment application in relation to the Order 20, rule 5(5) point, the second part of the hearing of the Amendment Summons in relation to the s.26 point will have to be proceeded with.  If the plaintiff should fail in both the Order 20, rule 5(5) and s.26 points, the present action will effectively come to an end and there will be no trial of the action.  This is a consideration which will be relevant to the question of what, if any, security for costs should be given by the plaintiff at this stage.

The defendants are in principle entitled to security for costs

13.As earlier mentioned, the defendants rely on, inter alia, Section 357 of the Companies Ordinance in support of their applications for security for costs.  That section states as follows:

“Where a limited company is plaintiff in any action or other legal proceedings, any judge having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the company will be unable to pay the costs of the defendant if successful in his defence, require sufficient security to be given for those costs, and may stay all proceedings until the security is given.”

14.It is not disputed by Mr Ma that the plaintiff is a company within the meaning of Section 357, nor is it in dispute that there is reason to believe that the plaintiff will be unable to pay the costs of the defendants if they are successful in their defence.

15.Mr Ma submits, however, that security for costs should not be given for a number of reasons.

16.First, it is said that the defendants’ applications are premature in that the present action is without any pleading / statement of claim at the moment, and that any application for security for costs should only be dealt with or ordered after the plaintiff has been granted leave to file its Fresh Statement of Claim.

17.In support of this submission, Mr Ma relies on certain observations previously made by the learned Recorder and also by the Court of Appeal.

18.As earlier mentioned, the learned Recorder declined to make any order for security for costs in favour of the defendants in his Judgment dated 5 October 2009.  The defendants sought leave to appeal against, inter alia, that part of the decision. The application for leave to appeal was rejected by the learned Recorder.  At paragraphs 20 to 29 of the Judgment dated 22 October 2009 given by the learned Recorder, the following was stated:

“20. I confess that I had great difficulties in understanding why it is said that the Defendants would ‘suffer’ in not having an order for security for costs. As I had tested with Mr Cheuk, had I dismissed the entire action on 5 October, then no doubt the Defendants would have got all their costs in the action incurred so far, but they would then be unprotected completely by security. That is a consequence of their not having applied for security for costs earlier.

21. Secondly, under my order, if the Plaintiff had applied successfully for leave to file a fresh statement of claim, the Defendants would then be at liberty to issue a fresh application for security, and if it is able to substantiate the grounds for security under the newly cast statement of claim, then it will get security and it will then be protected, and it will then not ‘suffer’.

22. So the question arises as to how it is said to be suffering. The only possible gap, or lacuna, which I can think of, but which actually is not seriously pursued by Mr Cheuk, is this: if the Plaintiff were to issue a summons to issue a fresh statement of claim and then the Defendants were to oppose it, and successfully oppose it, then it may well be said that the Defendants’ costs in opposing the Plaintiff’s application for leave to issue a fresh statement of claim would be unprotected by any security for costs.

23. But those costs, if any, may or may not be covered by a self-standing application for security for costs. I am not saying that there is necessarily jurisdiction to apply for security for costs for the application to issue a fresh statement of claim. All I am saying is that the application for security for costs before me is for security for costs for the entire action, not for covering the Defendants’ costs in opposing the application to issue a fresh statement of claim.

24. But as I said, this is really not the suffering which Mr Cheuk had impressed upon me. The suffering that Mr Cheuk had impressed upon me is that the Defendants should not be put into a position of having to apply again for security for costs if the Plaintiff managed to successfully file a fresh statement of claim.

25. I confess that I cannot see how the Defendants can be said to ‘suffer’ in having to apply for fresh security. The old application for security is premised upon the pleadings as they then stood. Those pleadings have gone as a result of my decision to strike out. It would be entirely academic for me to make an order for security for costs based on issues, or supposed issues, on pleadings which are no longer in existence. …

…

29.     What Mr Cheuk is now impressing upon me is that, even though everyone knows full well that the pleading is gone and there is no longer any issue on the court file that could sustain any order for security, I should pretend that the old pleading, which I had just struck out, continues to be in place and give an order for security which everyone knows to be completely fictitious and which everyone knows does not reflect the state of the court file.”

19.The defendants’ renewed application for leave to appeal was also rejected by Rogers VP, sitting as a single Judge of the Court of Appeal.  At paragraph 4 of his Decision dated 24 November 2009, the learned Vice President said this:

“Given the issues involved, the recorder was perfectly entitled to consider that the question of security for costs should be left over until it can be seen what, if any action, can be pleaded against the defendants. In those circumstances, leave to appeal is refused.”

20.Mr Ma also relies upon the following observation of Fok JA in the Court of Appeal’s Decision on Costs handed down on 18 January 2012:

“The security for costs application relates to the costs of the action as a whole, assuming it is to proceed. It will only proceed if the plaintiff is successful in obtaining leave to amend the statement of claim. If leave is not granted, security for costs will not be required.”

21.Mr Cheuk says that this observation was made in the context of the defendants’ application to vary a costs order nisi previously made by the Court of Appeal, and there was no argument on whether the defendants ought to be entitled to security for costs.  That may be so, but it seems to me that the observation of Fok JA makes perfect good sense and is, with respect, correct as a matter of principle.

22.The present state of the proceedings is, in my view, materially the same as it was before the learned Recorder, Rogers VP and Fok JA, and I agree with their observations recited above.  At this stage, it is unknown whether the plaintiff will succeed in its application to file the Fresh Statement of Claim and thus it is unknown whether there will be any trial of the action.  Also, it is, in my view, inappropriate to make any order for security for costs at this stage which would put the defendants in a better or more secured position than would be the case had the defendants been successful in having the plaintiff’s action dismissed by the learned Recorder in October 2009. I recognise that the defendants have incurred some further costs since that time but the defendants have also been awarded costs of the appeal to the Court of Appeal which I believe should make up a significant part of those further costs incurred by the defendants.  In the exercise of my discretion, I decline to make any order for security for costs except in so far as they relate to the costs which may be incurred by the defendants in relation to the current applications for security for costs and also the Amendment Summons.  In respect of all other costs which may already have been be incurred by the defendants in this action or which may be incurred by the defendants in future should the plaintiff succeed in its Amendment Summons, it would be up to the defendants to make a fresh application for security for costs after the result of the Amendment Summons is known.  It would not be appropriate for me to say anything further about the merits of such application should one be made.

23.Mr Ma’s second argument is that there is serious doubt on whether the Court has jurisdiction to make any order for security for costs covering the entire action “when there is no pleading at the moment”.  No authority has been cited in support of his argument and in any event, as indicated above, I am not minded to make any order for security for costs covering the entire action.  I see no reason, however, why the Court would have no jurisdiction to make an order for security for costs covering the current applications under the 1^st and 2^nd Summonses and the Amendment Summons.

24.Mr Ma’s third argument is that the plaintiff’s claims have a high probability of success. This argument was not seriously pursued by Mr Ma at the hearing.  The authorities also clearly establish that the Court should only take into account the merits of the claim when determining an application for security for costs where the merits can readily be demonstrated one way or another.  I agree with the submissions made by Mr Cheuk regarding the merits of the claim, and do not consider that the plaintiff has demonstrated that its claims have a high probability of success.  I do not consider that this is an appropriate case to place weight on this factor.

25.Mr Ma’s fourth argument is that the order sought will stifle the plaintiff’s claims and that the plaintiff’s impecuniosity was caused by the defendants.  These arguments were considered and rejected by the learned Recorder in his Judgment dated 5 October 2009.  The plaintiff has filed a further affirmation, namely, the 3^rd Affirmation of Tang Ngai Pui on 30 December 2009 in response to the 1^st Summons, but it does not take the matter any further.  For the reasons given by the learned Recorder with which I agree, I do not consider that there are merits in this argument.

26.Lastly, Mr Ma argues that there has been delay in the present applications.  Again the argument on delay was considered and rejected by the learned Recorder.  No new facts or matters are relied upon by the plaintiff.  I do not consider that the complaint of delay is made out.  Indeed, as observed by the learned Recorder, the defendants’ legal advisers have been writing to the plaintiff to ask for security for costs since 14 December 2007.  It is unfortunate that much time has elapsed since the order of the learned Recorder striking out the Amended Statement of Claim and that the question of whether the plaintiff may have leave to file the Fresh Statement of Claim is still unresolved at this stage, but I would not attribute fault to either party in respect of such delay.

27.In all, I consider that at this stage, justice would be served by making an order for security for costs in the defendants’ favour limited to the costs which may be incurred by the defendants in relation to the current applications for security for costs and the Amendment Summons.

Quantum of security

28.The defendants have prepared a draft Bill of Costs.  Sub‑headings 4, 5, 8 and 9 of that Bill relate to the estimated costs which may be incurred by the defendants in respect of the current applications for security for costs and the Amendment Summons.  They come to a total of $192,000 by way of profits costs and $330,000 by way of disbursements.  Mr Ma’s only specific comment in respect of those costs is that leading counsel’s fees should not be allowed in respect of the second part of the hearing of the Amendment Summons relating to the s.26 point.  That part of the hearing is not, it seems to me, straight forward, and I do not think it would be unreasonable for the defendants to instruct leading counsel for that part of the hearing if that is their wish.

29.I would make an order in terms of paragraphs 1 to 3 of the 2^nd Summons, and fix the amount of the security at $360,000.  The stay of proceedings shall not, however, affect the defendants’ joinder application by summons dated 2 February 2012 or any proceedings for the enforcement of any orders or judgments previously made in this action.

Mr Billy N P Ma, instructed by Tam, Pun & Yipp, for the plaintiff

Mr Calvin Y C Cheuk, instructed by Tai, Tang & Chong, for the 1^st and 2^nd defendants