HONG KONG TOY CENTRE LTD. AND ANOTHER v. CHAN KAN KWONG MARGARET AND OTHERS

HCA009971B/1998

HCA9971/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 9971 OF 1998

____________

BETWEEN
	HONG KONG TOY CENTRE LIMITED	1st Plaintiff
	DABRO INTERNATIONAL LIMITED	2nd Plaintiff
	AND
	CHAN KAN KWONG MARGARET	1st Defendant
	FORTUNE WIN TRADING LIMITED	2nd Defendant
	MONG SIU LING	3rd Defendant
	W. GREAT WORTH LIMITED	4th Defendant

____________

Coram: Deputy Judge Li in Chambers

Dates of Hearing: 16 - 17 June 1999

Date of Handing Down Reasons for Decision: 24 June 1999

_________________________________

REASONS FOR DECISION

_________________________________

This concerns the Defendants' application for additional security for costs following the adjournment of trial originally to start in early June 1999.

2. By an order dated 14th April 1999, Suffiad J ordered the Plaintiffs to furnish a sum of $2 million as security for the Defendants' costs. As I understand it, the Defendants' application was for $6 million to cover costs up to and including trial for 14 days as originally scheduled. The learned judge did not say in his judgment that $6 million was unjustified. Indeed no point was taken by the Plaintiffs on that amount. However, considering that there was limited time for the Plaintiffs to raise money, the learned judge ordered security to the tune of $2 million only.

3. On the application before me, Mr. Shieh for the Plaintiffs quite properly conceded that the Plaintiffs should furnish additional security. The only issues were the amount and the form of the order that the court should make.

4. The Defendants, following established practice, tendered a skeleton bill. The bill was revised during the course of arguments. The Plaintiffs, through their counsel, challenged the estimates and came up with their own figures as to what the Defendants' costs should be. It should be helpful to set out the contrasting figures.

Stage of Proceedings	Defendants' Estimates	Plaintiffs' Estimates
Part I	$	$
Anton-Pillar
Order costs	2,495,429.00	1,509,257.00
Part II
Costs of application
for security for
costs before
Suffiad J	919,523.00	367,809.00
Part III
Costs of Preparation
for Trial and Costs
thrown away by
Adjournment of Trial	2,446,327.00	1,802,429.00
Part IV
Costs up to discovery
and preparation for
the Adjourned Trial	4,355,850.00	1,350,000.00

It should be noted that the estimates are divided into Parts and the Parts are identified by only the main event thereunder when in fact there were other work done under those Parts. So far as Part III costs are concerned, I have already ordered that substantial portions of them be paid forthwith on an indemnity basis.

5. Miss Audrey Eu, S.C. for the Defendants drew my attention to Procon (G.B) Ltd. v. Provincial Building Co. Ltd. & Ors. [1984] 1 All E.R. 368. There, it was held by the English Court of Appeal that apart from treating the skeleton bill on the correct taxation basis, usually party and party, the court in considering the amount to be ordered as security for costs should not apply an automatic further one-third discount. This approach was approved by our own Court of Appeal in Sujanani v. Middle East Finance International Ltd. (No. 1) [1983] 2 HKC 226. Mr. Shieh for the Plaintiffs did not take issue on the general principle. He, however, implored the court to mark the unquenchable fire of optimism in rendering bills of costs and hence to come to a realistic assessment of the costs that may be allowed on taxation. On the other hand, Mr. Shieh also accepted that my function at this stage is not to embark upon a mini taxation of the Defendants' skeleton bill.

6. Mr. Shieh then went to point out items in the skeleton bill which he said are unjustified. Bearing in mind the precept that I should not embark upon some kind of taxation, I did not think it is appropriate for me to address each of the items in the skeleton bill attacked by Mr. Shieh. I accepted, as Miss Eu explained, that the skeleton bill was drawn up on party and party basis and that as far as possible the costs and disbursements billed are already scale charges.

7. Nonetheless, I had to be alive to the reality that a bill of costs may well be taxed down although it is already drawn up on party and party basis. In making allowance for taxing down, I did not think it is useful to apply some sort of across the board percentage or fractional discount because, obviously, taxing masters do not do that. Taxing masters look at each item, ticking off or cutting down any questionable item as appropriate. The fact that at the end of the taxation process the total by adding up the amounts allowed under each item may come to a convenient percentage or fraction of the original tender is neither here nor there.

8. There is another reason for not making any observation on those items in the skeleton bill questioned by Mr. Shieh. Any comment from me on a particular item may be cited as indication to the taxing master on what he or she should allow or disallow. I did not wish to be seen to be usurping the function of the taxing master. Moreover, I could not possibly "allow" or "disallow" particular items without hearing arguments, evidence and justification. The occasion before me was clearly not intended for such exercise.

9. Since the parties also agreed that I needed only to take a broad brush approach, I added up the costs under Parts I, II and III of the Defendants' skeleton bill to get the sum of $5,861,280.00. I felt, and this is necessarily a hazardous plunge, that the amount in excess of $5 million is likely to be casualties of taxation on the appropriate bases. Hence the amount of security to cover those Parts may be fixed at $5 million, including the $2 million already provided pursuant to the order by Suffiad J. The Plaintiffs were therefore ordered to furnish $3 million top-up security within 28 days.

10. As to Part IV costs, they are estimates only. I was reluctant to project estimates to beyond the stage of discovery. I was told, and I believed, that the parties may well work together during the process of discovery to narrow down some of the factual issues. Then the next stage of preparation for trial, i.e. obtaining proof of evidence and advising on evidence, may well be less costs intensive. Moreover, the parties should be able to come to a more accurate estimate as to the length of the adjourned trial after discovery has been made and the issues solidified. Hence I divided the Defendants' estimates of Part IV costs as to 40% for discovery and 60% for subsequent work. The 40% works out to be approximately $1.6 million. This amount is quite close to the estimate by the Plaintiffs of the Defendants' costs for dealing with the Anton-Pillar Order. During the execution of the Anton-Pillar Order, the Plaintiffs seized some 8,000 documents. Those documents relate to only a small portion of the trade the Plaintiffs allege is protected. Full discovery relating to the full range of protected trade asserted by the Plaintiffs would involve several times more documents. So $1.6 million may well be a conservative estimate for the massive discovery to follow. Accordingly, I ordered the Plaintiff to furnish on or before 30th September 1999 a second tranche of security to cover $1.6 million only. The Defendants would have to apply for additional security to cover post-discovery work if appropriate.

11. Mr. Shieh pointed out that the usual order for security for costs puts a stay on the proceedings until security has been furnished as ordered. Miss Audrey Eu, S.C. on the other hand contended that a stay is not satisfactory. If the Plaintiffs cannot furnish security as ordered, a stay does not wrap up the case whilst for all practical intents and purposes the stay kills the action. The Defendants may, of course, apply during the stay for the action to be dismissed but why waste costs and time on another application to dismiss? If I may say so, there is a lot of sense in making a kind of unless order. But this is not to say that the order is final. The Plaintiffs may, on good grounds, apply for extension of time to provide security. It was on such understanding that I ordered that the action be dismissed upon default by the Plaintiffs to furnish any security as ordered.

12. The question of costs of the application was another contested issue. Although he could not seriously argue that the Defendants should have costs other than on an indemnity basis because the application was occasioned by the faults of the Plaintiffs, Mr. Shieh contended that the court should not certify for two counsel for the Defendants. The Plaintiffs having earlier conceded liability to provide additional security, it was not necessary for the Defendants to have two counsel arguing on quantum. Miss Tam for the Defendants argued that the application is important and crucial for the Defendants. The Defendants were entitled to have the best representation. I decided that the matter was indeed very important for the Defendants. Quality, not quantity, of arms was justified. Accordingly, I certified the application fit for leading counsel, but not two counsel, for the Defendants. If it is any consolation, Miss Tam, obviously, has proven her worth and I have no doubt grateful clients will settle her untaxable fee note promptly.

	(Z. E. Li)
	Deputy Judge of the High Court

Representation:

Mr. Paul Shieh instructed by Messers Or, Ng & Chan for Plaintiffs

Miss Audrey Eu, S.C. leading Miss Winnie Tam instructed by Messers Deacons Graham & James for Defendants

HCA009971A/1998

HCA9971/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 9971 OF 1998

____________

BETWEEN
	HONG KONG TOY CENTRE LIMITED	1st Plaintiff
	DARBRO INTERNATIONAL LIMITED	2nd Plaintiff
	AND
	CHAN KAN KWONG MARGARET	1st Defendant
	FORTUNE WIN TRADING LIMITED	2nd Defendant
	MONG SIU LING	3rd Defendant
	W. GREAT WORTH LIMITED	4th Defendant

____________

Coram: Deputy Judge Li in Court

Dates of Hearing: 1 to 4 & 8 June 1999

Date of Handing Down Reasons for Decision: 16 June 1999

______________________________________

REASONS FOR DECISION

______________________________________

 

This action came before me for trial with 14 days reserved. However, from day one, I was advised by Mr. Bleach, leading counsel for the Plaintiffs, that it will take at least double the time originally allocated to run the trial. This is further complicated by applications to amend the Statement of Claim out of time and to allow two late hearsay notices to stand. Miss Eu, leading counsel for the Defendants, on the other hand believed that trial should not grossly over-run but she objects to the twelveth hour amendment of the Statement of Claim and to one of the late hearsay notices.

2. Since one of the late hearsay notices, what may be conveniently called the Oral Hearsay Notice, was sorted out by consent, I only had to consider the other hearsay notice - the Computer Hearsay Notice and the proposed amendments to the Statement of Claim.

The Computer Hearsay Notice

3. The Computer Hearsay Notice covers an assortment of materials produced by computer. These materials occupy three medium sized lever-arch files. Mr. Bleach said quite frankly that it was an oversight on the part of Plaintiffs in not serving the Computer Hearsay Notice earlier.

4. True to form, Miss Eu for the Defendants argued very persuasively that a large chunk of the computer materials is either of little probitive value or questionable. Although I was inclined to agree with her, Mr. Bleach on the other hand referred me to the case of Technalloy Chemical Corp v. International Merona Ltd. [1993] 2 HKC 94. There our Court of Appeal held that in deciding whether to allow the plaintiff to adduce hearsay evidence by late notice, the court ought not to have any regard to the weight of the evidence nor, at least as a general rule, to whether any part of the evidence might be inadmissible as hearsay or on any other ground. Since there is no suggestion that the grounds for introducing the hearsay evidence, viz. the individuals concerned are either beyond the seas or cannot reasonably be expected to recall details, are untenable, I could not see how in the circumstances the evidence can be ruled out. The Computer Hearsay Notice was accordingly allowed to stand.

Amendments to the Statement of Claim

5. The massive technical details involved are meaningless except to the trial judge who will no doubt know in due course. Hence I shall not even attempt to summarize them. Mr. Bleach submitted that the proposed amendments do not add any new cause of action. They do, counsel conceded, multiply by quantum leaps the amount of details and factual issues. Frankly too, the proposed amendments were late in the day but any resulting prejudice can be compensated for by costs and additional security for costs.

6. Miss Eu objected most vigorously to all the amendments. She said that there was inexcusable delay. Indeed I thought the delay can only be explained by change of leading counsel for the Plaintiffs. Miss Eu also complained that the amendments added vast quantities of details and factual issues which the Defendants cannot possibly be expected to deal with in a matter of days. Indeed, it will be seen that the Defendants required Further and Better Particulars of the proposed Amended Statement of Claim and upto four weeks after getting them to settle an Amended Defence. In other words, the Defendants having a formidable team of lawyers are able to deal with the proposed amendments to the Statement of Claim; it was a matter of time, extra costs and postponement of trial which would have to be compensated for.

7. Counsel for the Defendants also had very powerful arguments on some ambivalent features in the proposed Amended Statement of Claim. For instance, it emerged during submissions by Mr. Bleach that the Plaintiffs' case is only concerned with the so-called "regular items" - types of goods or products which a customer had previously placed order with the Plaintiffs but the customer is now ordering from the Fourth Defendant. If transpired that there can be different classes of regular items. Unless the Plaintiffs make it clear in the Amended Statement of Claim which class or classes of "regular items" are really in question the Defendants cannot possibly plead or prepare their defence. For another instance, the Plaintiffs pray for damages for loss. But the particulars given in the proposed Amended Statement of Claim do not identify how loss can be calculated.

8. I was minded at one stage to disallow the questionable parts in the proposed amendment. However, the team of lawyers for the Plaintiffs led by Mr. Bleach took heed of the criticisms and immediately modified the proposed amendments. I do not think Miss Eu is entirely happy with the "final" version of the proposed Amended Statement of Claim. I am not either. To say the least, I think the Amended Statement of Claim introduced far too many details which may very well turn out to be irrelevant. Mr. Bleach seemed to acknowledge that too; but he indicated, cautiously, that the parties will make use of the time from now to the re-fixed trial to pick out the real bones of contention so that the re-fixed trial will be kept within manageable scale. I believed it was in the Plaintiffs' interest to keep costs down and they would be anxious to do so. On that basis, and on the basis that the Defendants would be compensated for by costs thrown away by adjournment of trial, the Plaintiffs should be allowed to mount its desired case with latitude.

9. I had not forgotten the point made by Miss Eu for the Defendants that the Defendants were entitled to their day in court as scheduled. However, the principles governing amendments are well-known and set out in Supreme Court Practice (1999) 20/8/6. In particular:-

(1) Generally all such amendments ought to be made "for the purpose of determining the real question in controversy between the parties to any proceedings or of correcting any defect or error in any proceedings": per Jenkins LJ in GL Baker Ltd v Medway Building & Supplies Ltd. [1958] 1 WLR 1216 at 1231

(2) "However negligent or careless may have been the first omission, and however late the proposed amendment, the amendment should be allowed if it can be made without injustice to the other side. There is no injustice if the other side can be compensated by costs.": per Brett MR in Clarapede v Commercial Union Association (1883) 32 WR 262 at 263.

One has to balance the interests of justice. It is not in the interest of justice to forge ahead with a trial when the real issues and the totally of issues cannot be fully and fairly canvassed.

10. In the premises, the Plaintiffs were allowed to amend their Statement of Claim in terms approved.

Costs

11. It was properly conceded that the Plaintiffs should bear the costs thrown away by adjournment of the trial. Miss Eu, however, contended that the Plaintiffs should pay all the Defendants' costs incurred up to date and that costs thrown away by adjournment of the trial should be taxed on indemnify basis if not agreed.

12. In the Supreme Court Practice (1999) 20/8/12, it is stated that

"Where the amendment asked for is a substantial one , such that the Plaintiff could not succeed without it, he will in a proper case be only allowed to amend at the trial on payment of all costs incurred up to date, and any costs thrown away by reason of the amendment."

Indeed the amendments in this case are substantial but not so fundamental such that the Plaintiffs cannot succeed without them. In any event, I thought the basic rule of costs to follow the event would do justice on the question of costs generally; if the Plaintiffs do not come up to proof of the amendments or if the amendments do not really assist the Plaintiffs' cause, the Defendants will get order for costs of the action in due course. Hence, I did not see fit to order payment of all costs incurred up to date.

13. Regarding costs thrown away to be paid on indemnity basis, Miss Eu suggested that that would be the only way by which the Defendants may be compensated for adjournment of the trial. My attention was drawn to the case of Sung Fook Kee Ltd v. Pak Lik Co. [1996] 3 HKC 570 where the Court of Appeal held that Hong Kong judges have discretionary power to direct taxation of costs on the basis they consider appropriate, including indemnity basis. This is not a discretion fettered by indications in previous cases as to the sort of special or unusual features which could justify an award of indemnity costs. When judges consider it appropriate, they should not be slow to make orders for costs to be taxed on an indemnity basis. In the instant case, I was moved by the facts that (1) the Plaintiffs had executed an Anton-Pillar order and seized all the Defendants' documents they considered relevant in the middle of 1998, (2) the Plaintiffs have also at all times been in possession of all their own documents, and (3) the Plaintiffs made no indication to the Court or to the Defendants until less than two weeks before trial that they would throw in massive factual issues. Moreover, I would have thought that as a general rule, the obligation to compensate costs thrown away should be real rather than notional. In the premises, I ordered the Plaintiffs to bear the Defendants' costs for the applications for late hearsay notices and amendment of the Statement of Claim on party and party basis and to pay forthwith the Defendants' costs thrown away by adjournment of the trial to be taxed on indemnity basis if not agreed.

	(Z. E. Li)
	Deputy Judge of the Court of First Instance

Representation:

Mr. John Bleach, S.C. leading Mr. Paul Shieh instructed by M/s. Or, Ng & Chan for the 1st and 2nd Plaintiffs

Miss Audrey Eu, S.C. leading Miss Winnie Tam instructed by M/s. Deacons Graham & James for the 1st to 4th Defendant

HCA009971/1998

HCA9971/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 9971 OF 1998

--------------------

BETWEEN
	HONG KONG TOY CENTRE LIMITED	1st Plaintiff
	DARBRO INTERNATIONAL LIMITED	2nd Plaintiff
	AND
	CHAN KAN KWONG MARGARET	1st Defendant
	FORTUNE WIN TRADING LIMITED	2nd Defendant
	MONG SIU LING	3rd Defendant
	W. GREAT WORTH INTERNATIONAL LIMITED	4th Defendant

--------------------

Coram : Hon Suffiad J. in Chambers

Dates of hearing : 9, 13 and 14 April 1999

Date of receipt of Defendants' Written Submission : 21 April 1999

Date of receipt of Plaintiffs' Written Submission : 26 April 1999

Date of handing down ruling : 5 May 1999

--------------------

R U L I N G

--------------------

1. There is before me an application by the Defendants against the Plaintiffs for security for costs under section 357 of the Companies Ordinance, Cap.32.

2. The Plaintiffs are both limited companies incorporated in Hong Kong and are both subsidiaries within a group headed by the Hong Kong Toy Centre International Ltd. ("HKTCIL group"). The 1st Plaintiff is the trading arm of the HKTCIL group involved in the retail and distribution of toys while the 2nd Plaintiff is engaged with trading of sundries other than toys in the HKTCIL group.

3. The 1st and 3rd Defendants were former employees of the 1st Plaintiff. In a nutshell the Plaintiffs' claim against the Defendants is that the 1st and 3rd Defendants left the Plaintiffs to join or set up the 4th Defendant in competition with the Plaintiffs and in doing so has wrongly used and/or taken with them "confidential information" belonging to the Plaintiffs.

4. The 1st and 3rd Defendants, on the other hand, say that they were not precluded by their terms of employment with the Plaintiffs from setting up a competing business to that of the Plaintiffs after leaving the Plaintiffs. The Defendants further deny any misuse of "confidential information" on their part but say that the information which the Plaintiffs claim to be "confidential" were in fact knowledge of and connections in the business which the 1st and 3rd Defendants had built up over the years.

5. This action was commenced by the Plaintiffs in or around June 1998 by way of an Auton Pillar Order obtained ex parte. The Plaintiffs also obtained an interim injunction restraining the Defendants from using or disclosing confidential information in relation to the Plaintiffs' business with Woolworths. That injunction lapsed on 26th June 1998 and has not been continued since. An order for early trail was made on 19th August 1998 and pursuant thereto the trial of this matter has now been fixed for 1st June 1999 and it is estimated to last for 14 days.

6. The present application is by Summons dated 29th March 1999. At first blush it may appear that this application is rather late considering that the trial is to begin on 1st June 1999. However, it has been explained in the affirmation of the 1st Defendant filed on 30th March 1999 in support of this application that the Defendants only came to learn of the Plaintiffs' financial situation in the last week of March 1999. That these matters, of which I shall be dealing with in greater detail, only came to the Defendants' knowledge in the last week of March is not disputed by the Plaintiffs and Mr Grossman has very properly indicated to me that he takes no point as to the timing or lateness of this application or that the Defendants have been dilatory in their application for security for costs. I shall therefore proceed to deal with this application on its merits.

7. The first question to ask is does it appear by credible testimony that there is reason to believe that the Plaintiffs would be unable to pay the costs of the Defendants if they are successful in their defence?

8. The Defendants rely on the following matters to support this application :-

9. Firstly, that a company search shows the 1st Plaintiff's paid up capital to be $2.25 million whilst that of the 2nd Plaintiff is only $1,000.00.

10. Secondly, that the unaudited consolidated interim results of the HKTCIL group for the year ended 31st December 1998 published by it in the Hong Kong Standard on 26th March 1999 shows a total loss of over $60 million for the year of 1998 of which no less than two-thirds of this loss is ascribed to manufacturing and export, retail and general trading.

11. Thirdly that the 1st Defendant had been told in the last week of March 1999 by one Liu Pei-ping, the factory manager of Playwell Industry Ltd., another wholly owned subsidiary of the HKTCIL group, that the salaries for the management staff of Playwell Industry Ltd. for January 1999 had only been partly paid while the salaries for February and March 1999 have not yet been paid. In this context the 1st Defendant was also told by two former colleagues of hers, namely, Kwong Hoi-pan and Lau Wing, that when they attended a wedding banquet in the People's Republic of China in the last week of March 1999, they had been told the same thing separately by other Chinese staff of Playwell Industry Ltd. Moreover, the 1st Defendant was also told by Liu Pei-ping that Playwell Industry Ltd. has been late in paying the rent of RMB900,000 per month for the factory building and that the rent for February and March 1999 (which is payable in advance) had not yet been paid.

12. Fourthly, the Defendants seek to rely on the fact that the 1st Defendant was told by Liu Pei-ping that another subsidiary of the HKTCIL group, namely, Playwell Investment Ltd. is owing some RMB20 million to the Dongguan tax authority being real estate tax in respect of developments of projects known as Grand Garden and Fantasy Garden in the town of Zhangmutou in Dongguan, and has failed to pay the amount owing despite reminders from the tax authority.

13. Fifthly, the Defendants seek to rely on the fact that the 1st Defendant was told by an unnamed employee of the Plaintiffs that the Plaintiffs have difficulties in meeting the legal fees billed them by their solicitors, Messrs Or, Ng and Chan, in this matter and have come to an arrangement with their solicitors to pay by instalment. This unnamed employee also told the 1st Defendant that the fee of about $20,000 has remained outstanding for some time to Price Waterhouse Coopers, the auditors of HKTCIL group despite reminders and that two major bankers of the 1st Plaintiff have stopped providing further facilities to the 1st Plaintiff and have frozen the current overdraft limit of the 1st Plaintiff to the level existing.

14. Sixthly, reliance is also sought on the 1st Defendant being told by a banker friend of hers, one David Lau Cheng-cheong, a branch manager of Wing Lung Bank, that HKTCIL group had arranged a meeting with five of their bankers the day before the consolidated interim results of the HKTCIL group was published where their bankers were informed of the losses for 1998 and their indulgence sought for not calling in the outstanding loans but to give the HKTCIL group time.

15. Lastly, the Defendants' legal costs in this matter incurred up to mid-March 1999 comes to $2.5 million and with the trial looming in June 1999, their projected legal costs for the entire proceedings is estimated to exceed $6 million.

16. In respect of the paid up capital of the Plaintiffs and the consolidated interim results of the HKTCIL group published in the Hong Kong Standard, showing a total loss of $60 million for the year 1998, these matters have not been denied by the Plaintiffs.

17. In respect of the failure of Playwell Industry Ltd. to pay its staff and workers the salaries for February and March 1999, this allegation has been admitted by the Plaintiffs with the explanation that this is a very normal occurrence in China for the purpose of retaining those workers who often go back to the countryside during the Chinese New Year period. The suggestion being that this was done for a reason other than financial inability.

18. In respect of the allegation of Playwell Investment Ltd.'s failure to pay the Dongguan tax authority real estate tax, the so-called reminders from the tax authority exhibited to the 1st Defendant's affirmations do not bear out this allegation. The document exhibited is addressed to "all developers of real estate" and not to Playwell Investment Ltd. The body of the document urges developers to apply for the real estate ownership certificates and not to "delay until the deadline". There is no mention of any amounts due or owing in the document. In this respect, therefore, and for the reason given, I take the view that what was told to the 1st Defendant by Liu Pei-ping to be not credible evidence.

19. Furthermore I have no hesitation coming to the view that what has been told to the 1st Defendant by the unnamed employee of the Plaintiff to be not credible evidence in this case. Quite apart from the fact that the unnamed employee of the Plaintiffs has not been identified, there is nothing to show where this unnamed employee obtained the information from and in that sense, the source of the information has not been disclosed. The fact that this unnamed employee of the Plaintiffs is an employee of the Plaintiff does not of itself preclude the fact that he could have come by those information from hearsay. It is incumbent upon the Defendants to make known the source of the information if they seek to rely upon it as evidence.

20. In like manner, I am of the view that the information supplied by the 1st Defendant's banker friend Mr David Lau Cheng-cheong is also not credible evidence in this case. There is evidence before me that David Lau Cheng-cheong was not one of the bankers present at the meeting with HKTCIL group on 25th March 1999 and this has not been disputed by the Defendants. In those circumstances, it is likely that the source of David Lau Cheng-cheong's information as to what was said at the meeting was of a hearsay nature. In any event, failure to properly identify the source of the information relied on as evidence must affect its credibility, especially where, as in this case, that evidence is strongly disputed.

21. I should also add here that the 1st Defendant also deposed in her affirmation to the fact that the Defendants' solicitor Miss Daisy Tong had informed the 1st Defendant that during Miss Tong's telephone conversation on 26th March 1999 with Mr Ludwig Ng, the Plaintiff's solicitor, at no time did Mr Ng deny that an arrangement was made between the Plaintiffs and the Plaintiffs' solicitors to pay their legal fees by instalment although Mr Ng stated that the arrangement of payment of fees was entirely a matter between their firm and the Plaintiffs.

22. Without the slightest suggestion that Miss Tong is not a proper and truthful officer of the Court and of the utmost integrity, it must be wrong for the Defendants to even try to suggest that the Plaintiffs' solicitor can, by his silence or non-denial, be deemed to have admitted matters which are privileged being communications between client and solicitors.

23. The only credible evidence left for my consideration therefore is the paid up capital of the Plaintiffs, the consolidated interim results of the HKTCIL group, the admission by the Plaintiffs of Playwell Industry Ltd.'s not having paid its workers wages for February and March 1999 (with the explanation given) and the Defendants' update bill of costs and projected estimation of legal fees for the entire trial.

24. In so far as the explanation given by the Plaintiffs for Playwell Industry Ltd.'s not having paid the wages for February and March 1999 is concerned, I have some hesitation in accepting that explanation in its entirety. Even assuming that such a practice existed in factories in the PRC, Chinese New Year was in the middle of February 1999. By the end of February the Chinese New Year period would have ended. Such a practice, if it existed, does not explain why the wages for March was not paid.

25. The Plaintiffs, on the other hand, whilst maintaining that they are financially sound, chose, as they were quite entitled to, not to put before the Court any documentary evidence to show either their liquidity or their cashflow position and in the words of Kaplan J. in Dragages et Travaux Public v. Hong Kong Chinese Insurance Co. Ltd. [1993] 1 HKC 617 at 620, "they take a risk in doing so".

26. The only documents there are from the Plaintiffs was when I ordered (upon application by the Defendants) specific discovery by them of the books referred to in paragraph 12 of the Affidavit of Lau Ka-lam Collin from which the shareholder's fund of the Plaintiffs were worked out. These have now been discovered but they do not show either the liquidity or the cashflow position of the Plaintiffs.

27. The thrust of the Plaintiffs' opposition to this application for security by the Defendants is that there is no credible evidence before the Court that the Plaintiffs will not be able to pay the costs if they lose this action.

28. From the totality of the 'credible evidence' before me as indicated above, with particular emphasis to the paid up capital of the two Plaintiffs and the loss suffered by the HKTCIL group in 1998, I can and do draw the inference that there is reason to believe that the Plaintiffs will be unable to pay the Defendants' costs if the Defendants are successful in their defence.

29. I turn now to the exercise of discretion by me as to whether, in the circumstances, it would be right to order any security and if so how much.

30. I start off with the words of Megarry V.C. in the case of Pearson v. Nagdler [1977] 1 WLR 899 at 906 :

"It seems plain enough that the inability of the plaintiff company to pay the defendant's costs is a matter which not only opens the jurisdiction but also provides a substantial factor in the decision whether to exercise it. It is inherent in the whole concept of the section that the court is to have power to order the company to do what it is likely to find difficult in doing, namely, to provide security for the costs which ex hypothesi it is likely to be unable to pay."

31. On the other hand, the security, if ordered, must not be such that it becomes oppressive in the sense of shutting the Plaintiff out from pursuing a bona fide claim but must, at the same time, afford sufficient security to the defendants in all the circumstances.

32. I therefore take account of the following factors in this case in conducting such a balancing exercise.

33. Firstly I accept that the Plaintiffs' claim is a bona fide claim. Without the benefit any evidence relating to the claim and the defence, but only looking at the pleaded cases of the parties, I am of the view that both the claim and the defences are arguable and that there are issues to be tried between them. I put it no higher than that at this stage.

34. Secondly, although Mr Grossman for the Plaintiffs has never suggested in argument that the Plaintiffs will have difficulties in meeting any order for security, having come to the view myself from the credible evidence before me that there is reason to believe that the Plaintiffs will be unable to meet an order for costs should they fail, it is likely that they will find difficulty in providing a substantial amount of security. Moreover, the trial is due to start on 1st June 1999 and that does not leave the Plaintiffs very much time to raise funds for security. Fortunately, the Plaintiffs are both subsidiaries within the HKTCIL group and in that sense will have the backing and support of the group. In the circumstances, fairness requires that those who are in a position to back up or support the Plaintiffs should see to the Plaintiffs being able to raise some security so that the costs risk of the litigation upon which the Plaintiffs have embarked would not fall wholly upon the Defendants who, at the end of the day, may not be at fault.

35. Thirdly, that the Defendants have already incurred legal costs of $2.5 million in mid-March 1999, and the estimated total costs of the Defendants for a 14 day trial commencing 1st June 1999 will come to over $6 million have not been disputed by the Plaintiffs. However I take into account that these bills and estimates have not gone through taxation.

36. Balancing all these considerations, I shall order that security shall be provided by the Plaintiffs in the amount of $2 million and I will allow the Plaintiffs 21 days from this order to comply with it. If they comply with the order, their claim may proceed else there will be a stay of proceedings of the Plaintiffs' claim. The amount of security ordered can either be deposited in cash or a bank guarantee be provided.

37. Finally, in so far as costs of this application is concerned, I make an order nisi that the costs of this application be the Defendants' costs in the cause. For although the Defendants have been successful in their application for security, I have rejected a large part of the evidence which the Defendants have attempted to rely upon on the grounds that they were not credible evidence. It is therefore understandable that the Plaintiff opposed this application in the way that they did - albeit unsuccessfully.

	(A.R. Suffiad)
	Judge of the Court of First Instance High Court

Representation:

Mr Clive Grossman, SC, inst'd by M/s Or, Ng & Chan, for the Plaintiffs

Mr Benjamin Yu, SC, leading Mr Jat Sew Tong, inst'd by M/s Deacons, Graham & James, for the Defendants