GOAL SETTING CONSULTING CO LTD v. UNIGRAPHICS SOLUTIONS ASIA/PACIFIC INCORPORATED

HCA 994/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 994 OF 2003

BETWEEN

Before : Hon Sakhrani J in Chambers

                 HCA 994/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 994 OF 2003

______________________

Before : Hon Sakhrani J in Chambers

______________________

JUDGMENT

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1. The defendant applies by summons dated 10 March 2006 for an order that the plaintiff do within 14 days give security for the defendant’s costs on the ground that the plaintiff is ordinarily resident out of the jurisdiction and that in the meantime all further proceedings be stayed.

2. This is the second application by the defendant for security for costs.

3. The defendant previously applied for security for costs by its summons dated 11 December 2003. That application was dismissed by Master J. Wong on 30 July 2004.  At that time the Master was dealing with two applications.  One for O.14 judgment by the plaintiff and the other the defendant’s application for security for costs.  The Master gave summary judgment to the plaintiff and dismissed the defendant’s application for security for costs.

4. The matter came before me on 11 October 2004 on an appeal by the defendant from the order of the Master giving summary judgment to the plaintiff and dismissing the defendant’s application for security for costs.  I gave judgment on 25 October 2004.  For the reasons given in my judgment I allowed the appeal against the Master’s order giving summary judgment to the plaintiff and granted the defendant unconditional leave to defend the action.  I dismissed the appeal against the Master’s order dismissing the defendant’s application for security for costs.

5. The background facts and the nature of the claim and defence are set out in my judgment of 25 October 2004.  I shall not repeat the same here.

Jurisdiction

6. The first matter to consider is whether there is jurisdiction to deal with the defendant’s application this being a second application for security for costs.

7. The plaintiff takes the point that an order has been made dismissing the defendant’s first application for security for costs.  There has been no appeal from that order.  Mr Maurellet, for the plaintiff, submitted that the crucial question was whether there is new evidence that seriously justifies reconsideration of the issue or a material change of circumstances of a non-evidentiary nature.  This is common ground between the parties.  It is submitted on behalf of the plaintiff that there has been no material change in circumstances and that the defendant is abusing the court’s process by making this second application for security for costs.

8. The defendant does not rely on new evidence but does rely on a material change of circumstances.

9. Mr Chua SC, for the defendant, submitted that there has been a material change in circumstances since the dismissal of the appeal against the Master’s order dismissing the first application for security for costs.  That being so, the court has jurisdiction to make the order.  Whether or not it will make an order is a matter for the court’s discretion.

10. O.23 , r.1 (1) RHC provides that :

“Where, on the application of a defendant to an action or other proceeding in the Court of First Instance, it appears to the Court -

(a) that the plaintiff is ordinarily resident out of the jurisdiction, or  …………………………………………

(b) …………………………………………

(c) …………………………………………

(d) then, if, having regard to all the circumstances of the case, the Court thinks it just to do so, it may order the plaintiff to give such security for the defendant’s costs of the action or other proceeding as it thinks just.”

11. The rule provides that the court has to have regard to all the circumstances of the case.  In my judgment this must include whether there has been any material change in the circumstances from the time the first application was made to the time the second application was made.  And the rule does not expressly prohibit a second application for security for costs being made.

12. In Anderson & Another v Huang Kuang Yuan [1997] HKLRD 1360 security for costs was ordered on the third application and in the course of the trial.  Keith J (as he then was) said at page 1365 :

“First, there had been previous unsuccessful applications for security.  Accordingly, for a subsequent application to be successful, there would have had to be at the very least a material change of circumstances since the previous applications had been dismissed.”

13. The matter was put succinctly by Sir John Knox in Kristjansson v R Verney (unreported 18/6/98) at page 8 as follows :

“ …….given the very wide discretion conferred by Ord. 23, r.1, I can see no justification for an arbitrary rule that no second application for security can ever properly be made unless the first application was successful, in particular if circumstances have arisen since the initial refusal of security, which place a new complexion on the second application as compared with the first, there is no logical reason for denying the court the right to deal with that different application on its altered facts.  There is nothing which I can see in Ord. 23, r.1 which can be construed to do that.”

14. As to what may be considered a sufficient change in circumstances, Sir John Knox said at page 9 :

“It would, in my view, be undesirable to seek to define at all closely what the Rules of the Supreme Court have no doubt quite deliberately left at large in the circumstances in which it would be proper for the court to revisit security for costs after an earlier refusal.  Obviously, there must be a significant and relevant change of circumstances, otherwise there would be only a re-run of an existing scenario and that, for the reasons I have given, is not permissible.  But I can see no logical reason for limiting the field of inquiry in any particular manner, not only for the reason that the rule is a very wide one, but also because it is important that the court should not be in any way fettered in considering what circumstances do justify a new approach.”

15. It is necessary to consider whether there is a material change in circumstances so that the Court’s jurisdiction is engaged.

16. The defendant relies on the fact that at the time of the first application the defendant had not only raised a defence but also a counterclaim.  There was a counterclaim for damages for breach of the Agreement.  There was also a counterclaim for an indemnity against the claim of Matana in the Thai proceedings (paras. 6 and 7 of my judgment of 25 October 2004).  It is plain from my judgment that I considered the counterclaim of the defendant as a cross-action and that it did not operate merely as a defence. At para. 53 I considered that the claim by the plaintiff and the counterclaim by the defendant raised essentially the same issues which would have to be fully litigated.  I then exercised my discretion and refused to order security for costs on the first application.

17. What has changed since then is the fact that the defendant has now abandoned its counterclaim.  The defendant applied by summons dated 23 December 2005 to amend the defence and counterclaim by deleting the counterclaim in its entirety.  That application was granted by the Master on 9 January 2006.  This resulted in the amended defence being filed on 10 January 2006.

18. Subsequently, on 1 March 2006 the defendant through its solicitors requested security for costs from the plaintiff.  This was rejected.  The summons for security for costs was issued on 10 March 2006.

19. Mr Maurellet disputed that there has been a change of circumstances.  He submitted that it was entirely within the control of the defendant to withdraw the counterclaim at the time of the first application but that it chose not to do so.  He further submitted that this was a change of intention not a change of circumstances.  

20. I accept that it was within the control of the defendant to withdraw the counterclaim at the time of the first application and at the hearing of the appeal before me.  However, the defendant was advised by leading counsel to maintain the counterclaim at that stage.  Also, it seems to me that when the counterclaim was pursued it could not be said that the same was unsustainable.  The defendant maintained the counterclaim and it was argued that security for costs should nevertheless be ordered against the plaintiff.  The defendant failed in its arguments but I cannot say that the matter was so unarguable that leading counsel should never have argued it. 

21. The defendant no longer wishes to pursue the counterclaim and has abandoned it.  That being so, I am satisfied that there is a material change of circumstances.  As can be seen from my judgment, it was because of the existence of the counterclaim that I exercised my discretion not to order security for costs on the first application.  That obstacle has now been removed by the abandonment of the counterclaim.  The plaintiff has satisfied me that there is a material change of circumstances.

22. I am unable to accept Mr Maurellet’s submission that the second application amounts to an abuse of the process of the court.

Discretion

23. O.23;r.1 is in very wide terms and the court’s discretion is not to be fettered.

24. The plaintiff is a company incorporated in the British Virgin Islands.  It is a shelf company formed for the special purpose of entering into the Agreement with the defendant.  It is ordinarily resident out of the jurisdiction.  The plaintiff has no assets within the jurisdiction.  That being so, it is the usual ordinary or general rule of practice that the Court would order a foreign plaintiff to provide security for costs because it is ordinarily just to do so.

25. Mr Maurellet, however, submitted that an order should not be made for these reasons :

(1) the defendant has delayed its application;

(2) the plaintiff’s claim would be stifled;

(3) the plaintiff’s claim bears a very high probability of success.

26. As to (3), Mr Maurellet in his oral submissions did not press this further.  I am satisfied that this is not the type of case where it can be demonstrated that the plaintiff has a very high probability of success.  It would be difficult to show this in view of the grant of unconditional leave to defend to the defendant.  In my view, the court should not embark on a detailed examination of the merits of the case for the purpose of deciding whether or not to order security for costs.

27. Since 25 October 2004 when I gave judgment the defendant has taken some time to decide to abandon the counterclaim and to make the second application for costs.  The defendant made its request for security for costs on 1 March 2006.  It took out its summons on 10 March 2006.  The summons to amend the defence and counterclaim by deleting the counterclaim was taken out on 23 December 2005.  As to delay, I accept that there has been delay on the part of the defendant in making the application.  That is a factor to be taken into account.  However, I bear in mind that an application for security for costs can be made at any stage of the proceedings, even after the trial had commenced (Lessy SARL v Pacific Star Development Ltd& Another [1997] HKLRD 1248).  In Anderson & Another v Huang Kuang Yuan an order for security for costs was made in the course of the trial.

28. Despite Mr Maurellet’s submissions, it is plain to me that the action is not ready to be set down for trial.  Although Mr Chua did inform me in October 2004 that the defence would be amended to plead foreign law, that has not yet taken place due, I am told, to an oversight by the defendant’s solicitors.  Be that as it may, the pleadings will have to be amended to plead foreign law.  The action is nowhere near ready to be set down for trial.

29. I do not consider that the delay by the defendant in launching the second application should prevent the defendant from obtaining an order for security for costs. 

30. As to the stifling of the plaintiff’s claim if security is ordered, the onus is on the plaintiff to show that it will probably be prevented from continuing on with the litigation if security is ordered (Keary DevelopmentsLtd v Tarmac Construction Ltdand another [1995] 3 All E R 534).

31. Peter Gibson LJ said at page 540 :

‘However, the court should consider not only whether the plaintiff company can provide security out of its own resources to continue the litigation, but also whether it can raise the amount needed from its directors, shareholders or other backers or interested persons.  As this is likely to be peculiarly within the knowledge of the plaintiff company, it is for the plaintiff to satisfy the court that it would be prevented by an order for security from continuing the litigation (see Flender Werft AG vAegean MaritimeLtd [1990] 2 Lloyd’s Rep. 27).  In that case Saville J applied by way of analogy the approach adopted in another context, that of payment into court as a condition of leave to defend.  In M VYorkeMotors (a firm) v Edwards [1982] 1 All ER 1024 at 1028, [1982] 1 WLR 444 at 449, 450 Lord Diplock approved the remarks of Brandon LJ in the Court of Appeal :

“The fact that the man has no capital of his own does not mean that he cannot raise any capital; he may have friends, he may have business associates, he may have relatives, all of whom can help him in his hour of need.” ’

32. In the third affirmation of Prayoon filed on 9 January 2004 in opposition to the first application, he said that the plaintiff had no substantial assets.  He said at para. 6 that if security for costs are ordered, the plaintiff’s legitimate claim would be stifled.  He also said that he had contacted various banks and they had refused to fund the litigation by lending monies to the plaintiff.  He also attempted to borrow from business associates but was unsuccessful.  No particulars are given of the banks and business associates and of when they were approached.  This is a bare assertion without sufficient particulars.

33. The fourth affirmation of Peter Ha Wing Ho filed on behalf of the plaintiff on 18 May 2006 provides evidence that there is no material change in the financial status of the plaintiff.  However, it is said that it was more difficult for the plaintiff to source funds from banks or financial institutions in view of the publicity surrounding this litigation in Thailand.  No particulars are given of any attempts to source funds from anyone.

34. The second affirmation of Rajiv Ghatikar filed on 3 February 2004 shows that in connection with the implementation of the Agreement,a due diligence exercise was carried out against Prayoon.  It was discovered that Prayoon was interested in at least five companies in Bangkok.  Details of Prayoon’s shareholding and directorship of these companies are provided in Exh. “RG-2” to Ghatikar’s second affirmation.

35. Prayoon also signed a questionnaire dated 29 October 2001 (Exh. “RG-3” to Ghatikar’s second affirmation) where it is acknowledged by Prayoon that he is a 60% shareholder and Ms Rungrat Kuysuwan is a 40% shareholder of the plaintiff.  Prayoon also acknowledged that he was the owner of another company in the sugar mill business.

36. I was also referred to extracts of an interview with Mongkol Aksinikul (Exh. “CS-8” to the affirmation of Chaiporn Supvoranid) which shows that Prayoon is well connected in Thailand and that his wife also owns a hotel in Bangkok.

37. From the available evidence, it is plain that Prayoon is well connected in Thailand with many business interests including the sugar mill business.  The fact that the plaintiff has no substantial assets does not mean that it cannot raise the funds to continue on with the litigation from its backers or business associates.  The assertion made by Prayoon that the plaintiff’s claim will be stifled if an order for security is made is simply a bare assertion without sufficient particulars and evidence.  No accounts or financial statements of the plaintiff have been placed in evidence.  The plaintiff has not condescended to particulars as to how it has been funding the litigation up to now.  The evidence is insufficient in my view to demonstrate that the plaintiff’s claim would probably be stifled if an order for security for costs were made.

38. In all the circumstances of the case, I consider that it would be unjust to the defendant not to make an order for security for costs.

Quantum

39. As set out in the letter dated 1 March 2006 from the defendant’s solicitors to the plaintiff’s solicitors, the estimated costs incurred up to 27 February 2006 (“the past costs”) amount to a total of HK$932,140.67.  The estimated future costs up to and including trial (“the future costs”) amount to a total of HK$735,164.  The amounts are supported by the draft skeleton bill of costs.  It has not been suggested that the estimates are unreasonable.

40. As to quantum, the court has an unfettered discretion in the matter.  Security for costs is not necessarily confined to future costs but may include costs already incurred (Anderson & Another v Huang Kuang Yuan).  However, as I have mentioned, there has been delay by the defendant in making the second application.  After the first application was determined in the plaintiff’s favour on 25 October 2004 and there was no appeal by the defendant, the plaintiff was entitled to proceed with the action on the basis that for the costs already incurred it would not be required to provide security.  In view of the delay on the part of the defendant in making the second application in the exercise of my discretion I am of the view that it would be just to order security for costs only in respect of the future costs.

41. I make an order that the plaintiff do within 28 days from today provide security for costs in the sum of HK$735,164 and that in the meantime all further proceedings be stayed.

42. I also make an order nisi that the plaintiff do pay the defendant its costs of this application.

HCA 994/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 994 OF 2003

______________________

______________________

______________________

J U D G M E N T

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The appeal

1.  This is the defendant’s appeal from the order of Master J. Wong given on 30 July 2004 whereby he ordered that judgment be granted to the plaintiff against the defendant for the sum of US$666,000 or its Hong Kong Currency equivalent with interest and costs on the plaintiff’s application for summary judgment.  The defendant also appeals against the order of the Master made at the same time dismissing the defendant’s application for security for costs with costs to the plaintiff.

The claim

2.  The plaintiff’s claim against the defendant is for the defendant’s failure to pay the plaintiff the sum of US$666,000 pursuant to a Service Agreement dated 26 June 2001 entered into between the plaintiff and the defendant (“the Agreement”). By the Agreement the plaintiff agreed to provide consultancy and supportive services to the defendant so as to obtain a computing services contract with the Department of Skill Development, Ministry of Labour and Social Welfare, in Thailand (“the Ministry”).

3.  As is pleaded in the statement of claim, the plaintiff duly provided the services to the defendant and caused the defendant to successfully obtain the contract with the Ministry.  This was awarded on 28 February 2002.  The defendant has received payment of US$2,200,000 from the Ministry.  Under the Agreement, the defendant is obliged to pay to the plaintiff 28% of the said sum plus US$50,000 amounting to the total sum of US$660,000.  The defendant has failed to pay the said sum or any part thereof to the plaintiff.  The writ with the statement of claim endorsed thereon was issued on 18 March 2003.

The defence

4.  The defence and counterclaim was filed on 11 September 2003.  The thrust of the defence is that the plaintiff acted in breach of the Agreement as pleaded in para. 7 as follows :

“  7.    The Plaintiff acted in breach of the Agreement

(a)    In breach of provision in Section 1 of the Agreement, the Plaintiff failed to provide two persons working full time (or four people working half-time but not less than half-time) to support the project under the Defendant’s direction.

(b)    All activities undertaken by the Plaintiff were not carried out with the prior written approval of the Defendant, in breach of Section 1 of the Agreement.

(c)    Companies associated with the Plaintiff and controlled by the same person controlling the Plaintiff bid in competition with the Defendant on projects in Thailand.  Such conduct on the part of the Plaintiff was in breach of Section 1 of the Agreement.

(d)    In breach of Section 1 of the Agreement, the Plaintiff failed to carry out the promotion and support of the Defendant in a positive and professional manner.

(e)    In breach of Section 1 of the Agreement and in breach of its representation that its officers are conversant with and would ensure due compliance of the applicable legislations, Plaintiff failed to refrain from doing anything that would diminish the value of Defendant and its products’ name and good will in the manner as described in that paragraph, and also refused to allow audit of its books and records relating to transactions pursuant to the Agreement as necessary to ensure compliance with such requirements.

(f)    In breach of Section 3 of the Agreement, despite the request of the Defendant and the agreement that such items would be the property of the Defendant, the Plaintiff refused to provide any books, records, papers or memoranda of any kind relating to the way in which it performed its obligation under the Agreement.”

4.    There is also a plea in para. 8 that there was a total failure of consideration on the part of the plaintiff as it failed to perform its contractual obligations under the Agreement.  It is pleaded that the consideration for payment to be made by the defendant wholly failed and the defendant is discharged from making payment to the plaintiff.

5.  The defendant also relies on Section 2 of the Agreement and pleads that by a letter dated 19 July 2003 the defendant terminated the Agreement with immediate effect for cause, including failure by the plaintiff to comply with the provisions of the Agreement.  It is further pleaded that the plaintiff is not entitled to receive the payments.

The counterclaim

6.  There is also a counterclaim.  The defendant repeats the whole of its defence and counterclaims damages.  No particulars of loss and damage are given.  This is a claim for general damages for the plaintiff’s breach of the Agreement. 

7.  The defendant also counterclaims for an indemnity against the claim of Mrs. Matana Uthaivathna (“Matana”) filed in Thailand on 10 March 2003 against, inter alia, the defendant.  In the Thai proceedings,Matana alleges that the defendant engaged her to assist the defendant in the bid process with the Ministry.  She alleges that the defendant agreed to pay her for the services and that it was agreed that she would be paid 28% of the price of goods and services sold and provided by the defendant to the Ministry and expenses at US$50,000.  She was the one who assisted the defendant in obtaining the contract from the Ministry.  She claims the same amount as that claimed by the plaintiff in these proceedings.  The defendant counterclaims against the plaintiff for an indemnity against the claim of Matana.  Matana has also been brought in as a Third Party by the defendant.

Foreign Law

8.  It is expressly provided by Section 11 of the Agreement that :

“This Agreement will be governed by and construed in accordance with the laws of Delaware, without reference to its choice of law rules or any statutes on the international sale of goods.”

9.  The defendant is a company incorporated in the State of Delaware, USA. 

10.  The Agreement is clearly governed by Delaware law.  The affidavits of Bruce E. Jameson (“Jameson”) and Robert S. Saunders (“Saunders”) deal with the applicable Delaware law.  The affidavit of Saunders was not before the Master as it was only recently obtained.  As there was no objection to the filing of the same for the purpose of this appeal, I gave leave to the defendant to file and use the same for the purpose of this appeal.

11.  It is trite that questions of foreign law are matters of fact and ought to be pleaded.  The defence and counterclaim does not specifically plead the matters of fact relied on as foreign law.  Mr. Chua S.C., for the defendant, accepts that the pleading will have to be amended.  However, the evidence of foreign law relied on by the defendant is before the Court.

12.  It was submitted by Mr. Chua that the Court should be reluctant to reject the evidence of the expert on foreign law which is uncontradicted.  As stated at para. 9-016 Dicey and Morris on The Conflict of Laws Vol. 1 13^th Edn. :

“But while the court will normally accept such evidence it will not do so if it is “obviously false”, “obscure”, “extravagant”, or “patently absurd”, or if “he never applied his mind to the real point of law”, or if “the matters stated by [the expert] did not support his conclusion according to any stated or implied process of reasoning”; or if the relevant foreign court would not employ the reasoning of the expert even if it agreed with the conclusion.”

13.  It seems to me that the uncontradicted evidence of Delaware law adduced by the defendant does not fall into any of the recognized reasons for rejection as set out at para. 9-016 of Dicey and Morris.  The Court should, therefore, normally accept such evidence.

Any triable issue?

14.  Mr. Yuen S.C., for the plaintiff, submitted that under the Agreement, payment to the plaintiff was conditional upon first the defendant obtaining the contract from the Ministry and secondly, the defendant receiving payment from the Ministry.  Both of those conditions were fulfilled and, therefore, the defendant should be obliged to pay the plaintiff.  Unless the defendant can raise a triable issue, the plaintiff is entitled to summary judgment.  Is there a triable issue raised so as to resist the plaintiff’s application for summary judgment?

15.  One of the matters raised by the defendant as a triable issue is the question of whether there was a breach by the plaintiff of the Agreement because it submitted competing bids against the defendant for the contract from the Ministry.  The alleged breach is pleaded at paras. 7(c) and (d) of the defence and counterclaim.

16.  Section 1 of the Agreement included a term that during the term of the Agreement and for 24 months thereafter the plaintiff would not assist or advise, directly or indirectly(including by consultation or assistance in negotiations), any of the defendant’s competitors for the contract from the Ministry.  There was also a term that the plaintiff’s promotion and support of the plaintiff should be “undertaken in a positive, professional manner and [the plaintiff] shall not do or cause to be done anything which would diminish the value of [the defendant’s] and or its products’ name or goodwill”.

17.  The obligation on the plaintiff under the Agreement was to provide services to assist the defendant to successfully obtain the contract from the Ministry but this was not to be done at all costs.  The plaintiff was not to assist in presenting a competing bid to the Ministry.  The obligation on the plaintiff was to act professionally and the plaintiff was not to do or cause anything to be done which would diminish the value of the plaintiff’s name or goodwill.

18.  As regards the competing bids, Prayoon Jenlapwattanakul  (“Prayoon”) of the plaintiff in his 2^nd affirmation states as follows :

“10. Whilst the Defendant and the Plaintiff were preparing for the project, we were approached by a company named NBEC, to provide equipment and services for the same project.  After discussion the Defendant felt that it would be good to provide a quote to this company.  The Defendant and the Plaintiff were concerned that the Ministry might not receive enough qualified bids and the project would be delayed or cancelled.  In Thailand, the Government will always make sure that there must be a certain number of bidders so that the process was felt competitive.  Thus, the Defendant provided the same equipment and solutions for NBEC to bide, but at a price that was some 10% higher than their own quote.  There is now produced and shown to me marked exhibit “PJ-6” a copy of the Invitation for Bid No. 9908G dated 16^th November 2001.  Thus, if the NBEC bid were successful, the Defendant would end up making a higher profit with less risk, because then they would not have been the Prime Contractor on the project.  Moreover, the Ministry would have an additional bid to consider.  This strategy had been expressly approved by Mr. Davidson and Mr. Tay.  Thus, the Plaintiff supported the Defendant’s bid only.”

19.  What Prayoon did not reveal in his affirmation was the fact, as shown in the evidence adduced by the defendant, that Prayoon was both a director and shareholder of NBEC at all material times. 

20.  As Mr. Chua pointed out, in exhibit “PJ-6” the supplier under the competing bid was not the defendant, as Prayoon asserted, but another entity Unigraphics Solutions (Thailand) Co. Ltd.  The defendant and Unigraphics Solicitors (Thailand) Co. are affiliated companies as they are both part of the group of companies owned and controlled by UGS Inc.  UGS Inc. is a subsidiary of Electronic Data Systems Corporation, a corporation organised under the laws of Delaware, a publicly listed company  (para. 5 of the affirmation of Tony Affuso).

21.  The Country Manager of Unigraphics Solicitors (Thailand) Co. Ltd. at all material times was Mongkol Aksinikul (“Mongkol”).

22.  Mongkol in his 2^nd affirmation at para. 9 states, as regards the competing bids, that :

“Everything was proceeding smoothly, when we were approached by NBEC about providing them a price for the UGS solution so that they could bid the project.  We were concerned that the Ministry might not receive enough qualified bids for the project, so we provided a price for all of our equipment and solutions at a price significantly higher than our bid.  Thus, the Ministry would have an additional qualified bid, and if NBEC won, we would make even more profit on our products and services.”

23.  Joseph A. Hendrix, director of the Global Investigation of the Electronic Data System Group of Companies was asked to investigate certain corrupt practices concerning the supply of software by Unigraphics Solicitors (Thailand) Co. Ltd. to the Ministry.  These were alleged in anonymous letters in January and February 2002.  In the course of his investigation he interviewed numerous persons. 

24.  As regards the competing bids to the Ministry, Hendrix says this in his affirmation at para. 12 :

“In the interview, Mr. Prayoon also admitted that he was the ultimate shareholder of the two companies which submitted competing bids against the Defendant for the 2^nd Contract.  He indicated that NBEC North Bangkok Education Center was one of these companies.  Both of his other companies inflated their bids in order to make the bid of the Defendant more attractive.  Mr. Prayoon further stated that the government officials knew that he owned those two companies and also knew that those bids were inflated to make the Defendant’s bid more attractive.”

25.  The defendant denies the assertions of Prayoon and Mongkol that the defendant was aware of and approved of the submission of the competing bid of NBEC at an inflated price so as to make the defendant’s bid more appealing to the Ministry. 

26.  Tony Affuso, the President of the defendant and Chief Executive Officer of UGS Inc., affirms that he did not have any knowledge of the same and had he known, he would not have approved of it. 

27.  Donald E. Davidson retired on December 31 2002 from Unigraphs Solutions, Inc, a Delaware company which has changed its name to UGS PLM Solutions Inc.  This company is also a subsidiary of Electronic Data Systems Corporation.  Davidson at para. 14 of his affidavit says that he does not remember being aware of and approving of Prayoon submitting competing bids at inflated prices to make the defendant’s bid look more appealing to the Ministry.  He also says that at the time such approval is alleged to have been indicated by him in November 2001 he was no longer Vice President, Asia Pacific, for UCS PLM Solutions Inc. and would not have been in a position to provide such approval if it had been requested.

28.  Hans Kurt Luebberstedt, the Vice President of the defendant, at para. 10 of his 2^nd affirmation says that he did not have knowledge of the fact that competing bids at inflated prices was submitted by Prayoon and if it had been communicated to him he would not have agreed to the same.

29.  There is obviously a serious dispute of fact which cannot be resolved by affidavit evidence.

30.  Saunders in his affidavit gives the opinion that if the evidence set out in the affidavits and affirmations submitted by the defendant in opposition to the plaintiff’s application for summary judgment is proven at trial, Delaware law would require that judgment be entered for the defendant against the plaintiff for its claim.

31.  Saunders analysed the obligations of the plaintiff under the Agreement and concluded that the plaintiff made a variety of promises including the obligations set out above in Section 1 of the Agreement.  In his opinion, if proven at trial that Prayoon was responsible for the submission of the competing bids to the Ministry, under Delaware law that would establish that the plaintiff breached its promise that the plaintiff would not “assist or advise, directly or indirectly” any of the defendant’s competitors for the contract.

32.  Saunders is also of the opinion that if the evidence of Davidson, Affuso and Luebbderstedt were proven at trial that would, under Delaware law,establish that the plaintiff breached its promise that the plaintiff’s promotion and support of the defendant “shall be undertaken in a positive, professional manner and that the [plaintiff] shall not do or cause to be done anything which would diminish the value” of the defendant’s name or goodwill.

33.  Saunders also states that under Delaware law parties may contract as to the consequences of a breach by either party.  This was provided for in Section 2 of the Agreement where it was agreed that :

“[The Agreement] may be terminated immediately upon written notice by either party for cause, including failure of the other party to comply with any of the provisions hereof......................................    

If [the defendant] terminates this [Agreement] for cause, the [plaintiff] shall not be entitled to any payments as set forth in Section 4.”

34.  Saunders is of the opinion that under Delaware law the clear language of these provisions would be enforced.  

35.  Mr. Yuen submitted that the allegations of breaches of the Agreement by the plaintiff were only made after the contract was awarded by the Ministry to the defendant and the Agreement was performed.  It was submitted that the allegations of breach by the plaintiff are afterthoughts without merit to delay payment to the plaintiff.

36.  I am unable to accept that as there were no complaints about the plaintiff before the award of the contract to the defendant this disentitles the defendant to terminate the Agreement for cause by its letter dated 19 July 2002.  According to the defendant, it was as a result of the investigation by Hendrix that the alleged breaches of the plaintiff came to light.  In my view, it is arguable that it was only as a result of the investigation that the plaintiff’s breaches came to light.  This was after the award of the contract to the defendant.

37.  Saunders also expresses his opinion that under Delaware law a party to a contract may defend on the ground that there existed at the time of termination a legal excuse for non-performance although he was ignorant of that fact at the time of the alleged breach.  The termination by the defendant for cause was by its letter dated 19 July 2002.

38.  In my judgment, on the matters as set out above the defendant has raised a triable issue and should be given unconditional leave to defend.  That being so, it is unnecessary and undesirable for me to go into all the other issues raised by the defendant.  As there will have to be a trial, these will have to be resolved at trial.

39.  Mr. Yuen also submitted that the assertions of the defendant are incredible.  I am not persuaded that the assertions are unbelievable.  Whether or not they will be believed is, of course, a matter of credibility at trial.

40.  It is also clear that where there are doubts or suspicion as to the plaintiff’s case, the correct course is for the Court to give unconditional leave to defend so that all matters could be ventilated at trial (Billion Silver Development Ltd v. All Wide Investments Ltd. [2000] 2 HKC 262).

41.  There are unsatisfactory features in the plaintiff’s case.  There is no doubt that the contract was awarded to the defendant by the Ministry.  The plaintiff claims that this was due to its efforts for which it should be paid under the Agreement.  However, Matana,who appears to be a well connected lady in Thailand, claims that she provided the services in securing the contract for the defendant.  In her evidence in the Thai proceedings she said that she set up three teams.  She was a leader of the team responsible for contacting political authority in Thailand.  Prayoon was brought in to join the team. She assigned Prayoon to take care of the bidding until the defendant signed a contract with the Ministry.  Thus, on her case, Prayoon was working for her and she secured the contract with the Ministry for the defendant and she claims to be entitled to the same amount as claimed by the plaintiff.  

42.  Hendrix in his affirmation at para. 13 states that :

“During the course of Mr. Prayoon’s interview I asked him what his or the Plaintiff’s relationship was with Ms. Matana.  He denied knowing who she was and disavowed having any relationship with her with regard to the 2^nd Contract.  However in the interview of Ms. Matana on June 19, 2002, she stated that Mr. Prayoon was in fact a part of her team on the 2^nd Contract and thus she was entitled to 5% of the commission as provided under the [Agreement].  In fact she indicated that Prayoon was her “puppet”. Further, during the course of the investigation, I also interviewed [Mongkol] who told me that although Mr. Prayoon did not know Ms. Matana, he was introduced to Mr. Prayoon through the manpower company, HAMP, a company that had a prior working relationship with Ms. Matana on a regular basis.  He also indicated that Ms. Matana was having problems getting payment from the Defendant with regard to the 2^nd Contract.”

43.  Prayoon denies even knowing Matana but there is the evidence of Matana which contradicts him.   

44.  Mr. Yuen submitted that all this is irrelevant to the plaintiff’s claim against the defendant.  I am unable to accept this submission.  It casts doubts on whether the plaintiff did actually provide the services for which it should be paid or whether Matana was the person who provided the services.  

45.   In my view, there are unsatisfactory features in the plaintiff’s case which casts doubts as to whether the plaintiff did provide services for the obtaining of the contract from the Ministry.  This, in my view, is an additional reason why unconditional leave to defend should be given to the defendant.

Security for costs

46.  The plaintiff is a company incorporated in the British Virgin Islands and is a shelf company having been formed for the special purpose of entering into the Agreement with the defendant.  It is ordinarily resident out of the jurisdiction.  There is no evidence that it has any assets within the jurisdiction.

47.  As matter of discretion, it is the usual ordinary or general rule of practice of the Court that a foreign plaintiff ought to provide security for costs because it is ordinarily just to do so.  This is not really disputed.

48.  In BJ Crabtree (Insulation) Ltd v. GPT Communication Systems Ltd. 59 BLR 43 where there was a counterclaim by the defendant which exceeded the plaintiff’s claim, it was held on the facts of that case that it would not be fair and just to order the plaintiff to give security for costs.  This was because :

(a)    to do so would prevent the plaintiff from pursuing its claim but in the course of defending the counterclaim all the same matters would be canvassed as would be canvassed if the plaintiff were to pursue its claim; and

(b)    the cost incurred by the defendant for the purposes of the defence might equally and perhaps preferably be regarded as costs necessary to prosecute the counterclaim.

49.  As Bingham LJ said at page 53 :

“It may in some cases be fair and just to make such an order even though the defendant is himself counterclaiming, but I am persuaded that it would be wrong to do so here because the costs that these defendants are incurring to defend themselves may equally, and perhaps preferably, be regarded as costs necessary to prosecute their counterclaim.”

50.  In Hutchinson Telephone (UK) Ltd v. Ultimate Response Ltd. [1993] BCLC 307 it was held that underlying all applications for security for costs was a discretion in the court to do what was fair and just in all the circumstances.  In that case the defendants had, in addition to pleading a very full defence, pleaded an extensive counterclaim in which the damages claimed appeared to exceed by a very substantial margin those claimed by the plaintiff and in which additional substantial claims for malicious falsehood were made and in which the ambit of the action was very substantially enlarged and thereby the defendant had clearly crossed the boundary which divided an aggressive defence from an independent counterclaim.

51.  As Dillon LJ said at page 313 :

“The question is whether in the particular case the counterclaim is a cross-action or operates as a defence, that is to say merely operates as a defence.”

52.  It seems to me that the counterclaim of the defendant is a cross-action and does not operate merely as a defence despite the submissions of Mr Chua.  There is clearly a counterclaim for damages for breach of the Agreement by the plaintiff although no particulars of loss and damage suffered are given.  This is a claim for general damages.  The defendant repeats the whole of its defence for the purpose of the counterclaim.  There is also a counterclaim for an indemnity against the claim of Matana in the Thai proceedings. 

53.  It seems to me that the claim by the plaintiff and the counterclaim by the defendant raise essentially the same issues which will have to be fully litigated.  Bingham LJ in Crabtree regarded this as the most important factor when he said at page 54 :

“………………….it does not appear that [the judge] paid attention to the factor which seems most important to me, namely the fact that these two claims-the claim by the plaintiffs and the cross-claim by the defendants-raise essentially the same issues and are going to be fully litigated anyway so far as one can tell.”

54.  In the exercise of my discretion I do not think that it would be fair and just in the circumstances to order the plaintiff to provide security for costs.

Conclusion

55.  The appeal against the Master’s order giving summary judgment to the plaintiff is allowed and his order is set aside.  I grant the defendant unconditional leave to defend the action.  I also make an order nisi that the defendant should have its costs of the appeal against the order granting summary judgment with a certificate for two counsel and that the costs before the Master should be costs in the cause.

56.  The appeal against the Master’s order dismissing the defendant’s application for security for costs is dismissed.  I make an order nisi that the defendant should pay the plaintiff its costs of the appeal against the Master’s order dismissing the defendant’s application for security for costs with a certificate for two counsel.

Mr. Rimsky Yuen S.C. and Mr. José A Maurellet, instructed by Messrs Kok & Ha, for the plaintiff

Mr. Chua Guan Hock S.C. and Mr. Lawrence Ng, instructed by Messrs Wilkinson & Grist, for the defendant