WUI FU DEVELOPMENT CO. LTD. v. TAK YUEN CONSTRUCTION CO LTD.

HCCT000040A/1998

1998, No. CT 40

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BETWEEN
	WUI FU DEVELOPMENT CO LTD	Plaintiff
	AND
	TAK YUEN CONSTRUCTION CO LTD	Defendant

Coram: The Hon Mr Justice Findlay, in Chambers

Date of hearing: 15 March 1999

Date of handing down of judgment: 17 March 1999

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JUDGMENT

____________

1. I have before me an application by the defendant for an order that the plaintiff give security for costs.

2. The dispute between the parties arise out of a construction contract under which the plaintiff was the employer and the defendant was the contractor. The plaintiff commenced proceedings, and is claiming that the defendant failed to proceed with the work with due diligence. The plaintiff terminated the contract, and seeks a declaration that this termination was rightful. It also claims unliquidated damages. The defendant denies the plaintiff's claim, and counterclaims for payment of work done, retention money, loss of profit and removal expenses.

3. Mr Chain does not dispute that there is a risk arising from the plaintiff's financial position that, if it has an award of costs made against it, it will not be able to pay these. In fact, the plaintiff's evidence is that because of its financial position it is unable to provide security, and "neither I nor any other party is in a position to further assist the plaintiff whose assets are heavily charged." On the evidence, the probability is that, if I order the plaintiff to provide security for costs, it will not be able to pursue its action.

4. The point put forward by Mr Chain is raised crisply in the affirmation by Mr Wong Wing Fu, the controlling shareholder and director of the plaintiff. He says -

"Even if the plaintiff's claim is stayed, the defendant's counterclaim will proceed and the plaintiff will be relying on, and be entitled to raise all the matters in dispute and it would be wholly unjust that if at the end the Court finds for the plaintiff, the Court is not in a position to enter judgment for the plaintiff (if so warrants) only because the plaintiff's claim is stayed."

5. Mr Chain prayed in aid what he called the "rule of practice" that, if a claim and counterclaim arise out the same matter and the counterclaim operates as a defence, the court will ordinarily refuse to order the defendant to give security. Mr Chain says that, because the plaintiff commenced proceedings for an injunction to exclude the defendant from the site, it is in the position of plaintiff, but it might just as well have been the defendant who was plaintiff. So, he says, as I understand him, I should regard the plaintiff as defendant, and the "rule of practice" applies. In that event, Mr Chain says, the plaintiff's claim would be a counterclaim and this would be a defence relied upon and arising out of the same matter as the claim. I do not go along with this argument to its full extent, but I think it is legitimate to say that, if I were to order security and the probability that the plaintiff could not provide it was realised, we would have a situation in which the plaintiff, in defence of the counterclaim, would be able to present its case to show that the defendant did not proceed with due diligence and that its termination of the contract was justifiable. But it would not be entitled to the formal declaration and damages that would usually follow from establishing this. In essence, in this event, it would get the declaration it wanted because the court would find in its favour; only the claim for damages would be the victim of my order. That would be a strange consequence of an order that should seek to do justice to both parties on balance. To put it another way, I see very little prejudice to the defendant if I were not to make an order for security because, if the plaintiff is allowed to proceed with its claim, there would be very little by way of extra costs incurred by allowing the plaintiff to put forward its case on damages.

6. In the result, on balance, I do not think it just to make an order for security on the facts of this case. In the exercise of my discretion, the application is refused.

7. There seems no clear reason why costs should not follow the event. I make an order nisi that the defendant pay the plaintiff's costs in any event.

	JK FINDLAY
	Judge of the High Court Court of First Instance

Representation:

Mr Benjamin Chain, instructed by Messrs King & Co, for the plaintiff.

Miss Teresa Cheng, instructed by Messrs KF Wong & Co, for the defendant.

HCCT000040/1998

1998, No. CT40

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BETWEEN
	WUI FU DEVELOPMENT CO LTD	Plaintiff
	AND
	TAK YUENCONSTRUCTION CO LTD	Defendant

Coram: The Hon Mr Justice Findlay, in Chambers

Date of hearing: 27 January 1999

Date of handing down of judgment: 29 January 1999

______________

JUDGMENT

______________

1. On 27 November 1997, Sears, J. made an order in the following terms -

"AND UPON the Defendant by its Counsel's undertaking that the Defendant as from 28th November 1997 will not whether by itself; its directors, servants or agents or otherwise howsoever remain on, or interfere with the Plaintiff's enjoyment of; the site/property at Nos.39-41 Hill Road, Hong Kong until the trial of this action.

AND UPON the Plaintiff by its Counsel's undertaking to this Court (1) to abide by any Order this Court may make as to damages in case this Court shall hereafter be of opinion that the Defendant by reason of this Order shall have sustained any which the Plaintiff ought to pay; and (2) during the pendency of these proceedings to have the bank guarantees referred to in paragraph (1) of this Order renewed from time to time or to provide alternative sufficient securities in a form either to be agreed between the parties or failing agreement to be decided by the Court.

IT IS ORDERED AND DIRECTED that

1. The Plaintiff do provide a bank guarantee in the sum of HK$l.4M for potential claim by the Defendant and do provide fortification of the Plaintiff's undertaking as to damages in the sum of HK$1M by way of a bank guarantee;

2. There be liberty to apply . . ."

2. In spite of the fact that, as can be seen from its terms, the order was granted on the basis of a mutual exchange of undertakings, and that Mr Chain admits that the plaintiff's financial position has worsened since the order was made, the plaintiff now seeks to be released, wholly and partly, from its undertaking and for the order to varied accordingly. Mr Chain says that the basis of his application is that, if the release is granted and the order varied, "the evidence shows that the defendant will have the same degree of protection". The emphasis is mine. What the plaintiff proposes in place of the guarantees is that Mr Wong, the principal shareholder of the plaintiff, would undertake not to recall the sum of $18.6 million owed to him by the plaintiff, that the plaintiff would not further charge its only substantial asset and that steps be taken to cause the sum of $2.4 million, after paying the mortgagees, to be held as a stake by the plaintiff's solicitors. Even assuming everything in doubt in favour of the plaintiff, the fact of the matter is that the plaintiff is not, according to its audited accounts as at 31 October 1998, in a healthy financial state, and there is, in my view, a considerable risk, given the volatile nature of the Hong Kong real property market, that the plaintiff may not have sufficient assets to cover the sum presently guaranteed at the end of the day. Certainly, it cannot be accepted that, if the guarantees disappear, the defendant will have the same degree of protection as it would have with the guarantees.

3. It seems to me, in these circumstances, especially having regard to the fact that the only change in the situation since the undertaking to supply the guarantees was given is that the plaintiff's financial position has deteriorated so that the need for the guarantees is all the greater, that it would be quite wrong to require the defendant to continue to be bound by the order but without the reciprocal guarantees undertaken by the plaintiff.

4. In the result, the plaintiff's application is dismissed. I make an order nisi that the plaintiff pay the defendant's costs of this application.

	JK FINDLAY
	Judge of the High Court Court of First Instance

Representation:

Mr Benjamin Chain, instructed by Messrs King & Co, for the plaintiff.

Ms Teresa Cheng, instructed by Messrs KF Wong & Co, for the defendant.