Haifa International Finance Co Ltd v. Concord Strategic Investments Ltd

HCA 4442/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 4442 OF 2003

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J U D G M E N T

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1.This is a very late application for security for costs taken out after PTR and less than 3 months before trial. I shall dismiss it summarily on the ground of delay without going into the merits.

THE LEGAL PRINCIPLES

2.Paragraph 34 of PD 5.2 provides that “a PTR is not an extension of the CMC.  The Court expects a case to be ready for trial.  Late interlocutory application may be dismissed on the basis of delay alone.”

3.In Waddington Ltd & others v Chan Chun Hoo Thomas & others, HCA 391/2003, para 33, Deputy Judge Lok dismissed the summons on the ground of delay alone.  He added that,

“34. Further, late application for security for costs, in particular when the trial is imminent, per se constitutes very real prejudice to a plaintiff, since the plaintiff is being put in a position of having little or no choice but to put up the security in order not to abandon and waste all the work done and costs incurred in preparing for trial.”

4.Mr Cheng, counsel for the defendant, relies on 2 cases in support of his proposition that delay in itself was not a ground for refusing to order security: Peconic Industrial Development Ltd v Chio Ho Cheong, HCA 16255/1999, para 10, A Cheung J (as he then was); Sunchase International Group (China) Ltd v Vincor Group of Companies (investment) Ltd [2004] 1 HKLRD 731, Rogers VP.

5.In both cases,the principles were as follows: The court has complete discretion.  Delay in itself not sufficient to deny an application for security for costs.  The court has to consider the prejudice to the plaintiff. Prejudice can be eliminated by suitable provisions in the court’s order. 

Reasons for rejecting the application

6.Firstly, the defendant flouted Master Hui’s order dated 8 October 2012.  Master Hui ordered, by consent, that the defendant do take out an application for security for costs within 14 days as contemplated in section F6 of the timetabling questionnaire (ie after mediation has been undertaken), failing which it will be taken to have confirmed that there be no such application.

7.That order was clearly for proper discipline in terms of case management before the trial dates were fixed, and ought to be obeyed.  No valid reason was given for failure to obey it.  I accept what Ms Fan of the defendant’s solicitors has told me, namely, that the defendant has been advised of Master Hui’s order but the defendant was determined to apply for security.  No indulgence should be given by this court.

8.Secondly, the defendant confirmed in its listing questionnaire dated 11 June 2013, that it does not intend to take out any other interlocutory applications.  A party should be bound by such confirmation.

9.Thirdly, counsel indicated that the defendant would take out this application at the PTR on 23 January 2014. Even so, the defendant delayed for over 3 weeks before taking out this application on 17 February 2014. The trial is due to start on 12 May 2014, to last for 4 days. For these 3 weeks’ delay, the defendant gave the reason of change of its own counsel and the intervening Chinese New Year.  In my view, these cannot constitute good reasons for a defendant to drag its feet.

10.Fourthly, the only reason given for the late application was that (i) the current directors came on board in January 2013; and (ii) the current shareholders only came to control the defendant in August 2013 after settling some tax issues.  Reason (i) arose well before the defendant filled in its listing questionnaire.  Even if reason (ii) was relevant, there was an unexplained 6 months’ delay until the defendant took out this application.

11.Fifthly, the defendant did not believe that the plaintiff would bring this action to trial.  That was absurd.  With the exchange of substantial witness statements in April 2013 or, at the latest, when it received the notice of trial dated 13 September 2013, the defendant would have known that the plaintiff would seriously pursue the action to trial. 

12.Sixthly, application for security was not a procedure unfamiliar to the defendant.  It has made a similar application in CACV 168/2006, relying on similar grounds as here of the plaintiff’s impecuniosity and financial backing from a Mainland bank.

13.Seventhly, the timetable for dealing with this application is unworkable.  The plaintiff requires 28 days to file an affirmation in opposition because it has to take instructions from someone in the Mainland. The defendant disputes whether Ms Cheng of the plaintiff needed to take instructions from others.  Such dispute is unfounded because it is the defendant’s own case that the plaintiff is in liquidation and is funded by a Mainland bank.  I fail to see how complaint can be made of the plaintiff seeking instructions from that funder. 

14.Anyway, the defendant has consented to give 28 days for the plaintiff to file the affirmation in the consent summons (not yet approved by me). The defendant is prepared to expedite the application by using only 7 days for a reply affirmation.  With this timetable, filing of affirmations will only be closed by 11 April. 

15.Parties told me that their counsel will only be available on 17 April. I am unable to take up the hearing on that day.  But even if I can hear and determine the application on that day, that will leave only just about 24 calendar days (including the Easter holidays, and the holidays in the Mainland in early May) before trial commences on 12 May for the plaintiff to raise the security money.  I fail to see why the court and the plaintiff should be pushed into dealing with a matter in such a hasty manner when the urgency was of the defendant’s own making.  And if the trial dates are to be vacated because the plaintiff cannot raise the money, the court’s resources will be wasted.

16.Eighthly, it is said that the plaintiff is not prejudiced as the application only covers costs for the upcoming trial but not the costs already incurred.  The defendant avers that the plaintiff is funded by the state-owned People’s Bank of China and it is unlikely that the plaintiff’s claim will be stifled by an order of security. That just misses the point.  The prejudice lies in the plaintiff’s attention being diverted from preparation of a trial to answering a late application. 

17.Finally, this application can hardly be cost-effective: Order 1A, rule 1(a) Rules of the High Court.  By the time it becomes certain that the plaintiff is unable to provide security (if ordered), the defendant will have already incurred costs in briefing trial counsel. 

18.Even if the principles in the 2 cases cited by the defendant are applicable, they are distinguishable on the facts.  In Sunchase, the action has gone to sleep for 6 years “but was slowly coming to life” (para 3).  The argument of delay there was said to be entirely wrong.  There was nothing to suggest that the trial has even been fixed.  The court ordered security.  Here, the trial has been fixed 5 months ago.

19.In the Peconic case, the action was commenced 6 years before and the trial was due to start in less than 3 months of the application for security.  Security was ordered, which would only be met after the long trial shall commence.  That case is distinguishable on the following grounds:

(i)    A prima facie case for provision of security has been accepted by P (para 19 of the judgment), which is wanting here. 

(ii)   Whilst accepting Ds’ explanation that they only recently discovered P to be balance-sheet insolvent, the learned judge did not find the explanation satisfactory.  He found Ds or their solicitors to be less than vigilant.  Ds had represented in their checklists on more than one occasion that no application for security would be made according to their then belief which was not done deliberately to mislead the court. Here, the defendant had known in 2009 (as evidenced by the CACV 168/2008 proceedings) about the plaintiff’s impecuniosity.

(iii)   The trial was long (to commence at end of the year till February the following year).  The trial dates would not be prejudiced.  The court anticipated adjourning the trial, part-heard, if P was not able to come up with the security.  Here, there are only 4 days for trial, which might be wholly wasted.

20.On prejudice to the plaintiff, I have set it out in paragraph 16 above. 

Conclusion

21.In my view, there are more reasons to dismiss this summons than that in the Waddington case, in which the summons was issued before PTR.  The present application is woefully late.  There is no benefit even to the defendant or to the court process if the application is entertained.  The summons should thus be dismissed on the ground of delay alone. 

Costs

22.Costs should follow the event and be to the plaintiff.  In principle, it is appropriate to order costs on indemnity basis to mark the court’s disapproval of the defendant’s conduct in flouting two court orders, going back on its own listing questionnaire and dragging its feet. 

23.The security claimed is $590,000, yet in arguing this issue of delay, each party’s costs statement seeks costs in the region of $120,000!  That completely lacks any sense of reasonable proportion: Order 1A, rule 1(c). The question of delay is within the competence of solicitors to argue at the first opportunity on call-over of this late application.  No difficult points of law are involved.  But for the unpreparedness of the solicitors, the paper submissions from counsel would have been spared. Without disrespect, engagement of counsel was unnecessary and totally disproportionate to the issue at stake. Therefore, notwithstanding that indemnity costs should be awarded, I disallow all unreasonable amount or any unreasonably incurred costs as if the matter has been argued by a solicitor.

24.I make an order nisi that the plaintiff shall have the costs of this application on indemnity basis, summarily assessed and allowed at $40,000.  Such costs shall be set off against previous costs orders obtained by the defendant.

25.I thank Mr William Wong SC and Mr Alfred Cheng for their assistance.

Mr William Wong SC, instructed by Pang, Kung & Co., for the plaintiff

Mr Alfred Cheng, instructed by Dominic Y.K. Lai & Co., for the defendant