Ample Bright Development Ltd v. Turbo International Industrial Ltd

HCA 928/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 928 OF 2011

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D E C I S I O N

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1.This is the appeal of the defendant (“Turbo”) against the Master’s order dated 10 July 2012 whereby the Master ordered Turbo to provide security for costs for Turbo’s counterclaim up to the setting down of the action. The amount of security ordered is $300,000.

2.The plaintiff (“Ample Bright”) commenced this action in June 2011 claiming damages for non-delivery of goods sold by Turbo.  Turbo denies the claim and alleges that Ample Bright was in breach of various purchase agreements, giving rise to a claim for damages.

3.This appeal concerns Ample Bright’s application brought pursuant to s 357, Companies Ordinance (Cap 32).  Essentially, Ample Bright alleges that Turbo:

“… will be unable to pay the costs of [Ample Bright] if successful in [its defence to the counterclaim] …” (adopting the language of s 357, Cap 32).

4.The applicable legal principles are trite:

(a)   the power to order security for costs to be provided is discretionary in nature;

(b)   in exercising that discretion, two of the more important factors to consider are:

(1)   merits of the claim are not to be examined in detail.  Merits are only of importance if it can be clearly demonstrated that there is a high degree of probability of success at trial;

(2)   whether there is credible evidence that there is reason to believe that the respondent is impecunious (in the sense of not being able to pay the costs).

5.The dispute involved in this action is not such as would meet the requirement set out in para 4(b)(1) above.  Despite the lengthy affirmation evidence filed by Turbo, I am not satisfied that the merits of its counterclaim against Ample Bright are overwhelming.

6.Turbo sensibly only focuses its argument in this appeal on the matter set out in para 4(b)(2) above.

7.Turbo criticises Ample Bright’s affirmation evidence regarding Turbo’s impecuniosity.  I disagree with the criticism and find that, taking all the evidence together, there is credible evidence that there is reason to believe Turbo would be unable to pay the costs of its counterclaim if unsuccessful in it. 

8.The two main matters I have taken into account are:

(1)   Turbo has framed this aspect of its affirmation evidence with care, showing only the receipt of payments; but without showing the overall state of its current financial affairs (such as by exhibiting its updated audited accounts).  Practically nothing is known of Turbo’s overall assets and liabilities.

(2)   Turbo does not dispute that its present office has been found to be closed and unattended during normal business hours, but tries to give an explanation for this.  To put it as mildly as I can, I look at with scepticism Turbo’s explanation that this is because its business hours have to match those of its Middle East and European customers.

Other matters showing Tubo’s impecuniosity also relied on by Ample Bright include Turbo being a $1 company.

9.The above circumstances entitle an inference to be drawn that Turbo’s financial affairs are not in a state which would enable it to meet a costs order which may be made against it.

10.To conclude, I agree with the Master that security for costs should be provided by Turbo.  I also agree with him as regards the quantum of security. 

11.This appeal is accordingly dismissed.

Mr Benjamin Chain, instructed by Kitty So & Tong, for the plaintiff

Mr Mike Lui, instructed by W K To & Co, for the defendant