NATIONBUILD PACIFIC LTD v. FU YIN FINANCIAL INVESTMENT CO LTD

HCA1957/2005, HCA2196/2005
HCA886/2007 & HCA714/2007
(Heard Together)

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1957 OF 2005

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(Heard Together)

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DECISION

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1.  There are two sets of applications before the Court. Chronologically speaking, the first is the application by the plaintiff in HCA714/2007 for direction under Order 4 rule 9 of Rules of the High Court (“the O.4 r.9 application”) that the action be tried at the same time or immediately after the trial(s) in HCA1957/2005, HCA2196/2005 and HCA886/2007 (collectively referred to as “the 3 Actions”). Previously, the 3 Actions had been ordered to be tried at the same time or one after another. The application is contained in summonses issued in the four actions on 6 and 7 December 2007. The second is the application by the plaintiffs in HCA1957/2005 and HCA2196/2005 to strike out certain paragraphs in the respective Rejoinder (“the Striking Out application”). The application is contained in two summonses filed on 17 January 2008 in the two actions.

The parties involved

2.  Broadly speaking, the parties involved in these four actions fall into two groups of companies.

3.  Big Island Construction (HK) Limited (“Big Island Construction”) is the plaintiff in HCA1957/2005 and HCA886/2007 and the defendant in HCA714/2007. Big Island Construction and Nationbuild Pacific Limited (“Nationbuild”), the plaintiff in HCA2196/2005, are related companies. They together with another company called Big Island Asia Limited are within a group of companies owned and controlled by Mr Ben P Lee (“Ben Lee”). 

4.  Wu Yi Development Company Limited (“Wu Yi Development”) is the 1^st defendant in HCA 1957/2005 and the plaintiff in HCA714/2007. Wu Yi Development and Wu Yi Construction Company Limited (“Wu Yi Construction”), the 2^nd defendant in HCA 1957/2005, are the subsidiaries of China Wu Yi Company Limited (“China Wu Yi”). China Wu Yi is in turn owned by Fujian Construction Engineering (Group) Limited.  As for Fu Yin Financial Investment Limited (“Fu Yin”), the defendant in HCA2196/2005, it is partly owned by Wu Yi Development. In the case of Wu Yi Enterprises Company Limited (“Wu Yi Enterprises”), the defendant in HCA886/2007, it is also a subsidiary of China Wu Yi.

5.  For ease of reference, I shall in this Decision refer to the applicants in the O.4 r.9 application as the Wu Yi parties and the opposing parties as the Big Island parties. Likewise, I shall refer to the applicants in the Striking Out application as the Big Island parties and the opposing parties as the Wu Yi parties.

The 3 Actions

6.  The nature of the claim in the 3 Actions are similar.  They are claims for loans made pursuant to oral agreements made between Mr Xu Zhong Hua of the Wu Yi Group and Ben Lee in 1999, 2001 and 2000 respectively. HCA1957/2005 involves 19 sums paid between June 2000 and August 2001, totalling over HK$100 million. It is Big Island Construction’s case that the money was cash investment from Ben Lee’s cousin, Ms Lie. HCA2196/2005 is for a sum of US$240,334.75 paid in April 2001. HCA886/2007 concerns a sum of HK$210,000 paid in October 2000.

7.  There are also some similarities in the defences in the 3 Actions. The Wu Yi parties do not dispute receipt of the sums in question. They however dispute that they were loans or that the money originated from Ms Lie or the various plaintiffs.

8.  In HCA1957/2005 and HCA2196/2005, their main defence is that these sums were paid and received pursuant to nine written Fund Exchange Agreements, the dates of which ranged from 25 May 2000 to 15 June 2001.  It is said that the sums in question were transferred to Wu Yi Development and Wu Yi Construction after they had arranged for sums in RMB to be transferred to a Mr Li De Fu, who is Ben Lee’s friend and needed RMB for his business.  In HCA886/2007, the defence case is that the payment was in return for a sum of RMB that Wu Yi Enterprises had given to a Mr Huang Zhi Yin, who is Ben Lee’s friend.  

9.  The Big Island parties do not dispute that Big Island Construction had entered into the nine Fund Exchange Agreements, but say they were unrelated to the sums claimed in the 3 Actions. They also dispute that Li and Huang are friends of Ben Lee and that the sums were received by the Wu Yi parties in exchange for RMB they had provided to Li or Huang or other entities.

HCA714/2007

10.  HCA714/2007 is also a claim for repayment of loans. Wu Yi Development’s case is that three sums totalling HK$500,000 were lent to Big Island Construction in January, March and April 2004.

11.  Big Island Construction’s defence is that the sums were contributions made by Wu Yi Construction (through Wu Yi Development) to the operation expenses of a joint venture company called FBC Construction Company Limited (“FBC”). The related loan documents and receipts were prepared at the request of Wu Yi Construction in order to dress up the contributions as loans from Wu Yi Development to Big Island Construction.

The Striking Out application

12.  I will first deal with the Striking Out application as its determination will have a bearing on the O.4 r.9 application.

13.  By the Striking Out application, the Big Island parties move to strike out paragraph 3(b), (c) and (d) of the Rejoinder in HCA1957/2005 and paragraph 4(b), (c) and (d) of the Rejoinder in HCA2196/2005 (collectively referred to as “the Subject Paragraphs”). The paragraphs in the two Rejoinders, save the descriptions of the parties, are identical. They were pleaded in specific reply to paragraphs 2A and 2C of the respective Re-Re Amended Reply in HCA1957/2005 and HCA2196/2005.

14.  In order to understand the context of the Subject Paragraphs, it is necessary to begin with the Re-Re-Amended Defence in the two actions. Paragraph 2A of the Re-Re-Amended Defence in HCA1957/2005 contains a denial of the plaintiff’s averment of the 1999 oral agreement between Xu and Ben Lee for the advancement of loans from Big Island Construction to Wu Yi Development and Wu Yi Construction to finance the Wu Yi Group in Hong Kong. Similarly, paragraph 2A of the Re-Re-Amended Defence in HCA2196/2005 is a denial of the plaintiff’s averment of the 2001 oral agreement between Xu and Ben Lee for the loan claimed.  Both these paragraphs in the Re-Re-Amended Defence go on to aver that there had been many fund exchanges between Big Island Construction and Wu Yi Development and Wu Yi Construction lasting over a long period and in huge amounts, and that it is not possible they were done pursuant to oral agreement.

15.  In reply to this averment in the Re-Re-Amended Defence paragraphs 2A and 2C of the respective Re-Re-Amended Reply in HCA1957/2005 and HCA2196/2005 aver that it was due to four reasons that Big Island Construction had not insisted on a formal loan agreement. One of the reasons pleaded is that the Big Island group and the Wu Yi group had been doing business for almost 8 years and had trust and confidence in each other. Another pleaded reason is that as companies in the Wu Yi Group were indirectly controlled by Fujian Province People’s Government State-Owned Assets Supervision and Management Commission and held substantial amount of assets, the Big Island Group considered there was little chance of the loans not being repaid.

16.  It is in reply to these pleas in the Re-Re-Amended Reply that the Subject Paragraphs are pleaded. In summary, the Subject Paragraphs aver that:

17.  The Striking Out application is primarily made on the ground that the Subject Paragraphs are irrelevant to the issues in the two actions. The essence of the argument is that:

18.  It is trite law that the Court should only strike out a pleading or part of it in plain and obvious case.  For reasons explained below, I do not accept that it is plain and obvious that the Subject Paragraphs are irrelevant to the issues to be tried in HCA1957/2005 and HCA2196/2005.

19.  Although the central issue in the two actions is whether the sums admitted to have been received by the Wu Yi parties are loans or payments made pursuant to the Fund Exchange Agreements, there are at the same time a number of associated and underlying issues that call for determination. Among them are the issues of: (1) Whether there were the oral agreements made between Xu and Ben Lee in 1999 and 2001 relied upon by the Big Island parties; and (2) The origins of the money for the loans claimed in the two actions, whether Ms Lie did make the cash investments as claimed and whether the Wu Yi parties had made RMB payments to Mr Li or other entity.   

20.  In my view, the matters pleaded in the Subject Paragraphs, if proved, will demonstrate, inter alia: (1) the practice between the Big Island parties and the Wu Yi parties on money transactions; and (2) the respective financial positions of the Big Island parties and the Wu Yi parties. As argued by Mr Ng, these matters are relevant to the credibility or inherent improbability of the case of Big Island Construction and Nationbuild. They are also, in my view, relevant to some of the issues underlying the main disputes in the two actions.

21.  First, the FBC loans, if proved, would show that Big Island Construction was, to the Wu Yi Group’s knowledge, in financial difficulties in at least 2000 and 2001. Ben Lee himself had stated in affirmations that Big Island Construction has since 2001 not carried on business. If Big Island Construction was known to be in financial difficulties, this will cast doubt on whether the Wu Yi parties would request huge loans from the Big Island parties in 1999 to 2001. This in turn casts doubt on the existence of the oral loan agreements relied upon by the Big Island parties in the actions.

22.  Second, the financial difficulties of Big Island Construction, if proved, will also cast doubts on the likelihood of Ms Lie injecting over HK$100 million cash investment into the company, when admittedly she has not asked for repayment since.

23.  Third, the loan documents for the loans claimed in HCA714/2007 did not mention the loans owed by Wu Yi Development and Wu Yi Construction. If the loans claimed in HCA714/2007 are proved, it may cast doubt on whether the two companies were indeed heavily indebted to Big Island Construction and Nationbuild as claimed in the two actions. It is because if they were so indebted, Big Island could simply ask for repayment or seek a set-off. 

24.  Fourth, as to the practice of reducing requests of loans into writing, although the FBC loans and the loans in HCA714/2007 are loans from the Wu Yi Group to Big Island Group, it cannot be said to be plainly irrelevant. It may have a bearing on the relationship between the Wu Yi Group and the Big Island Group and the manner in which they conducted business. The weight is a matter for the trial judge.  

25.  The Wu Yi parties make a further objection to the Striking Out application on the basis that the two Rejoinders were filed by consent. What happened was in November 2006, the solicitors for the Wu Yi parties wrote to the solicitors for the Big Island parties, enclosing a copy of the Rejoinder and proposed that consent summons be filed to give leave for the filing of the Rejoinder. In reply, the solicitors for the Big Island parties indicated that they were only prepared to consent to the filing of a Rejoinder that did not contains certain paragraphs, including the paragraphs now sought to be struck out, and on condition that the Wu Yi parties consent to the filing of a Surrejoinder. However, after the Wu Yi parties filed a summons to seek leave for the filing of the Rejoinder and the supporting affirmation, the solicitors for the Big Island parties wrote to say that without prejudice to their position that the other paragraphs should not have been pleaded and simply to avoid further costs and delay, they would not oppose the application on condition that Big Island Construction had leave to file a Surrejoinder. A consent summons was filed. On 4 January 2007, Master Kwan made an order in terms, granting leave for the filing of the Rejoinder and a Surrejoinder.

26.  After Big Island indicated it would consent to the filing of the Rejoinder in HCA1957/2005, the solicitors for the Wu Yi parties wrote to request for consent to the filing of a Rejoinder in HCA2196/2005. The solicitors for the Wu Yi parties replied that without prejudice to their position that some of the paragraphs in the proposed Rejoinder, including the paragraphs now sought to be struck out, should not have been pleaded, they would not oppose the filing of the Rejoinder on condition that Nationbuild be given leave to file a Surrejoinder. A consent summons was therefore filed. On 15 January 2007, Master Lung made an order in terms, granting leave for the filing of the Rejoinder and a Surrejoinder.

27.  The Wu Yi parties say that in the circumstances, the Striking Out application, which was taken out a year later, is an abuse of process of the court and should not entertained.

28.  Miss Tong seeks to meet the objection by relying on the case of Siebe Gorman & Co Ltd  v. Pneupac Ltd [1982] 1 WLR 185. In that case, the parties attended before the master on the defendant’s summons for specific discovery and an order for discovery was made by consent. Later, the plaintiff applied for and was granted an extension of time to comply with the order. The defendant’s appeal against the extension of time was allowed. Upon the plaintiff’s appeal, the English Court of Appeal held that the consent order did not prevent the court from exercising its power under O.3 r.5 to extend the time for complying with it. In his judgment, Lord Denning observed (at p.189) that an order made by consent may evidence a real contract between the parties, but it may also mean that the parties had no objection to the order made, hence in every case it is necessary to discover which meaning is used.  

29.  In my view, the case does not assist the Big Island parties. Rejoinder and Surrejoinder can only be filed with the leave of the court. The signing and filing of the two consent summonses signify the parties’ agreements that the court should give leave for the filing of the Rejoinders and Surrejoinders in the two actions. The point is illustrated by the judgment of Eveleigh LJ (at p.191F) when he said that “It would be quite a different thing to say, “We ask the court to revoke the order for discovery itself.” The agreement clearly undertook to give further discovery.”  By taking out a striking out application a year later, the Big Island parties are effectively asking the court to revoke the leave that had been granted. This is clearly an improper use of the court process. As observed by Pickering J in Wong Wai Chun v. Chan Yuet Wah & Anor [1976] HKLR 69, at 73, the effect of the Striking Out application is the same as an application to set aside the consent order and it was not open to the court to interfere with the consent by acceding to the Striking Out application.

30.  Alternatively, even if the signing of the consent summonses merely means that the parties did not object to leave being given for the filing of the Rejoinders and Surrejoinders, it does not mean that the parties can at any time thereafter resile from their position and ask the court to revoke the leave that had been given. The point is: If the Masters had been informed that the consent summonses were filed merely to save time and costs, but that the Big Island parties might later apply to strike out part of the Rejoinders, the Masters would most probably not have endorsed the consent summonses. If there were objections to the Rejoinders which Big Island and Nationbuild were not prepared to give up, they should be adjudicated upon before leave to file is given. There will not be any genuine saving of time and costs by putting the objections to one side, only to be revived later.

31.  This brings me to the argument that the consent given by Big Island Construction and Nationbuild was without prejudice to their right to apply to strike out. I do not agree that this argument is borne out by the facts. In the letters dated 21 December 2006 and 4 January 2007, the solicitors for the Big Island parties only stated that it was without prejudice to their position that some of the paragraphs (including the Subject Paragraphs) are irrelevant. They did not say that it was without prejudice to their right to apply to strike out these paragraphs. Although the Surrejoinders plead that they were filed without prejudice to the right to apply to strike out, this came after the signing of the consent summonses and the making of the consent orders.

32.  Miss Tong further points out when the Big Island parties gave their consent in end of 2006 and early 2007, they had not realised that the Subject Paragraphs would lead to further discovery and witness statements, hence delay, and the O.4 r.9 application, which will further delay the trials of the 3 Actions. It is said that it is because of the O.4 r.9 application that the Striking Out application was made. This submission amounts to saying that with the benefit of hindsight, the Big Island parties now regret giving consent to the filing of the two Rejoinders. But this is not a good ground for asking the court to review the leave that it had previously given. The regret comes too late.

33.  Miss Tong also submits that a striking out application can be made at any stage of the proceedings. I accept that in general mere delay will not bar a striking out application. In the present case, not only were the striking out applications not promptly made, but they were made a year after the Rejoinders were filed with leave given by consent. In the meantime, there had been extensive discovery and the filing of further witness statements dealing with the averments in the subject Paragraphs. As pointed out by Cheung JA in Poon Lai Bing v. Gold Dragon Limited t/a as Club Paris & Anor (unreported) CACV136/2007, 13 December 2007, at para.30, irrespective of whether it is open to the Big Island parties to make the Striking Out application after they had consented to the filing of the Rejoinders, given that the application was made late, it should only be acceded to in the clearest circumstances. As analysed above, this is not a plain and obvious case for striking out.

34.  For these reasons, the Striking Out application fails. I make an order that the two summonses filed on 17 January 2008 be dismissed. There is no reason to depart from the normal rule that costs follow event. There is therefore an order that the plaintiffs in HCA1957/2005 and HCA2196/2005 pay the defendants the costs of the summonses and also the costs of the summonses for leave to file evidence, to be taxed if not agreed. Mr Ng submits that the costs should be taxed on either common fund or indemnity basis and paid forthwith. Given that it is a stand alone application, I agree that the costs should be paid forthwith. I, however, do not consider this is a case that warrants the award of a higher scale of costs. The costs should be taxed on a party-and-party basis.

The O.4 r.9 application

35.  I turn to deal with the O.4 r.9 application. Although the summonses ask that HCA714/2007 be tried at the same time or after the trial of the 3 Actions, Mr Ng accepted at the hearing that an order for sequential trials of the actions and by the same judge would be appropriate and sufficient. Apart from these four actions, the parties are also involved in another action, HCA 2134/2005, which is a claim against Big Island Construction for contributions to the expenses of FBC. When the claim in HCA714/2007 was ordered, on Big Island Construction’s application, to be transferred from the District Court to the High Court, it was with a view to be consolidated with HCA2134/2005. Mr Ng agreed, and Miss Tong did not disagree, that if an order for sequential trial by the same judge is to be made, it should also cover HCA2134/2005.

36.  However, the primary position of the Big Island parties is that an order for sequential trial by the same judge should not be made at all. In a nutshell, their objections are twofold. First, it is said that there are no common issues or disputes between the 3 Actions and HCA714/2005. Second, it is said that it would delay the trial of the 3 Actions.

37.  The first objection is primarily premised upon the argument that the loans claimed in HCA714/2007 are entirely irrelevant to the 3 Actions. For the reasons discussed in connection with the Striking Out application, I do not agree with this argument. I am further of the view that at the trial of the 3 Action, it would be legitimate for the Wu Yi parties to cross-examine Ben Lee on the sums claimed in HCA714/2007 and the explanations put forward by him. These matters will bear upon his credibility and the reliability of his evidence.  After all, Ben Lee had in his supplemental witness statement filed in the 3 Actions dealt with and gave explanations for the three sums claimed in HCA714/2007.

38.  As to the complaint of delay, the position is that there are pending interlocutory steps in the 3 Actions. On the part of the Wu Yi parties, they will be filing supplemental witness statements within 21 days. As for the Big Island parties, there is a pending application for the withdrawal of interrogatories. They may also file expert report. On the other hand, in HCA714/2007, the witness statements were initially due to be exchanged on 9 April 2008. I understand from the court file that subsequent to the hearing, Master Yu had on Big Island Construction’s application, extended the time for 7 days to 15 April 2008. Big Island Construction, however, has indicated that it will be applying to further amend the Defence and Counterclaim. For HCA2134/2005, discovery had been done. Mr Ng and Miss Tong both indicated at the hearing that the witness statements could be exchanged within 28 days.

39.  Thus viewed, it is not a case that the 3 Actions are already ready to be tried or set down whereas the other two actions still have a lot of mileage to make before they are similarly ready. Although the 3 Actions are at a more advanced stage, the other two actions should be able to catch up if the parties are determined to move diligently and with tighter case management by the court. A direction that the 3 Actions and HCA714/2005 and HCA2134/2005 be tried one after another should not, as the Big Island parties fear, lead to any serious delay of the trial of the 3 Actions.

40.  On the contrary, an order under Order 4, rule 9 of Rules of the High Court is clearly desirable when an overall view of the five actions is taken. Without trying to over generalising the actions, it is apparent that these disputes and litigation arose out of the dealings between the two groups of companies in the period between 1999 and 2004, when they were engaged in business ventures and cooperation. The credibility of the parties’ case and the witnesses’ evidence on the money transactions, the subject matter of claims in the five actions, will probably have to be assessed in the context of the parties’ relationship and other contemporaneous background matters.  It will be difficult, if not unrealistic, to separate the transactions as if they are isolated incidents and the parties are unrelated. I would further observe that given that these actions commenced in 2005, that the matters involved took place some 8 or 9 years ago and there are substantial factual disputes, the exercise of good case management is clearly called for.

41.  At the same time, there is a substantial overlapping of witnesses for the five actions with a fair amount of overlapping in their evidence, as can be seen from the witness statements in the 3 Actions and the affirmations filed in the summary judgment application in HCA714/2007. The credibility of the witnesses, notably Ben Lee and the several personnel of the Wu Yi Group, is of critical importance to the determination of the disputes. There are thus benefits in having the disputes in the five actions resolved on one occasion and by the same judge. Apart from savings in hearing time and costs, the common witnesses will be saved the inconvenience of having to repeat their evidence and be repeatedly cross-examined on the same subject matter.  By having the same trial judge, the risk of inconsistent findings will also be removed. 

42.  At the hearing of the security for costs application in the 3 Actions in October 2007, the parties had estimated that the total duration of the trial of the 3 Actions would take 12 days. The sequential trial of the five actions undoubtedly will require a longer period. For effective case management, a trial judge should be assigned to the actions at this stage. Among other matters, he can give directions on the order of the trials and other ancillary directions, in addition to ensuring that the parties move with reasonable expedition to bring the actions to trial.

43.  Accordingly on the O.4 r.9 summonses, I order that:

44.  On the costs of the O.4 r.9 application, I consider that the orders I have made are essentially case management directions that go further than the directions sought in the summonses. In the circumstances, the appropriate order is to make the costs of the application, including the costs of the summonses for leave to file further affidavits, in the cause of the 3 Actions and HCA714/2007. And I so order.

45.  I would further clarify that in the event the affirmations covered by the several summonses for leave to file further evidence cover both the Striking Out application and the O.4 r.9 application, the costs should be apportioned on a 50:50 basis between the two applications.

HCA1957/2005, HCA2196/2005 &
HCA886/2007 (Heard Together)

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1957 OF 2005

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BETWEEN

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ACTION NO. 2196 OF 2005

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BETWEEN

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ACTION NO. 886 OF 2007

(Transferred from District Court Civil Action No. DCCJ 4961 of 2005)

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(Heard Together)

Before : Hon Chu J in Chambers

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DECISION

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1.  On 26 October 2007, I handed down my decision on the three applications for security for costs made by the defendants in the above three actions.  I ordered that the respective plaintiffs provide security for the defendants’ costs up to trial in the following amounts:

(1)	HCA1957/2005	HK$950,000
(2)	HCA2196/2005	HK$600,000
(3)	HCA886/2007	HK$450,000

2.  I also made an order nisi in each of the three actions that the plaintiff pays the defendant(s) the costs of the application and the costs reserved on the summonses for leave to file further affidavits in any event, to be taxed if not agreed.

3.  By summonses filed on 6 November 2007, each of the plaintiffs applied to vary the costs order nisi to the following:

(1)    The plaintiff shall only pay the defendant(s) the costs of the application for security for costs incurred up to and including 5 September 2007 in any event to be taxed if not agreed; and

(2)    The defendant(s) shall bear their own costs and pay the plaintiff the costs of the application incurred from and including 6 September 2007, including costs reserved on the summonses for leave to file further evidence and costs of the hearing, in any event to be taxed if not agreed

(collectively referred to as “the plaintiffs’ applications”)

4.   By summonses filed on 23 November 2007, the defendants in the three actions cross-applied to vary the costs order nisi so that their costs of the applications for security for costs shall be taxed and paid forthwith by the respective plaintiffs (collectively referred to as “the defendants’ applications”).

The plaintiffs’ applications

5.  The plaintiffs’ applications to vary is based on a “without prejudice offer save as to costs” made by their solicitors in letter dated 6 September 2007, which was subsequently revised by another letter dated 14 September 2007.

6.  The second paragraph of the letter of 6 September 2007, which contained the offer, read as follows:

“As our clients are anxious to bring these actions to trial, strictly for the purpose of avoiding unnecessary delay in the actions and to save parties’ costs, we are instructed that our clients are prepared to provide security by way of payment into Court in the amount (inclusive of the costs of these security for costs applications) set out below:-
(1)	HCA886/2007:	HK$575,250.00
(2)	HCA1957/2005:	HK$1,061,875.00
(3)	HCA2196/2005:	HK$739,750.00”

7.  The defendants’ solicitors dealt with the offer in their letter dated 10 September 2007, the relevant part of which is as follows:

“In your letter, you have failed to indicate whether your clients will pay our clients the costs of their applications for security for costs. Since your client[sic] now effectively concede to pay security, your clients must pay our clients their costs of the applications. Solely for the purpose of saving costs and the Court’s time, our clients are prepared to accept 70% of the amount claimed in the summonses as security for their costs provided that your clients pay to ours the costs of the applications for security for costs to be taxed if not agreed, i.e.,
(1)	For HCA1957/2005:	HK$1,486,553.00
(2)	For HCA2196/2005:	HK$1,035,475.00
(3)	For HCA886/2007:	HK$805,328.00”

8.  This counter-offer of the defendants was rejected by the plaintiffs. In their solicitors’ letter dated 14 September 2007, the plaintiffs revised their offer as follows:

“With a view to bring these actions to trial expeditiously and to enable the Court to have an early opportunity to scrutinize the evidence filed in these actions, our clients are prepared to provide security by way of payment into Court in the amount (inclusive of your clients’ costs in these security for costs applications) set out below:-
(1)	HCA886/2007:	HK$665,770.00
(2)	HCA1957/2005:	HK$1,210,480.00
(3)	HCA2196/2005:	HK$843,180.00”

9.  By letter dated 20 September 2007 from their solicitors, the defendants rejected the plaintiffs’ revised offer.  After pointing out in the second paragraph that the revised offer was equivalent to about 57% of the security claimed, the letter went on to say:

“In any event, your clients have failed in your letter offered to pay our clients their costs of the applications for security for costs. As we pointed out in our previous letter to you, should the court hold for our clients, your clients must pay our clients costs of the security for costs applications. Moreover, your letter has also failed to state when security for costs will be provided by your clients. Our clients are not in a position to consider your clients’ offers if such information is not forth coming.

Our clients are anxious to have their applications for security for costs to be decided by the Court. However, solely for the purpose of saving costs and the Court’s time, our clients are prepared to accept 65% of the amount claimed, i.e., HK$1,380,370 for HCA 1975/2005, HK$961,513 for HCA2196/2005 and HK$747,804 for HCA 886/2007, totally HK$3,089,687, provided that your clients pay our clients the costs of their security for costs application[sic] to be taxed if not agreed and that the security be paid into Court within 14 days of the signing of the consent summons. ”

10.  The plaintiffs’ solicitors by letter dated 2 October 2007 rejected the defendants’ counter-offer as unreasonable.

11.  On the basis that the amounts offered in the “without prejudice” offers are higher than the amounts of security that the plaintiffs were ordered to pay into court, the plaintiffs say that they should be paid their costs of the security for costs applications as from 6 September 2007.

12.  Counsel are in agreement that a Calderbank offer should only influence but not govern the exercise of the Court’s discretion as to costs: McDonnell v. McDonnell [1977] 1 WLR 34 at 38.    In considering a Calderbank offer, the proper approach is to ask whether the party to whom the offer was made ought reasonably to have accepted the proposal in the letter: Butcher v Wolfe & Anor [1999] 1 FLR 334 at 304B.

13.  In opposing the plaintiffs’ applications, the defendants’ principal argument is that in neither the 6 September 2007 nor the 14 September 2007 letter had the plaintiffs offered to pay the defendants their costs of the security for costs application. It was said that the defendants had not acted unreasonably in refusing to accept the plaintiffs’ offers. 

14.  Miss Tong who appeared for the plaintiffs argued that the plaintiffs’ offers had already included an offer to pay the defendants’ costs of the security for costs applications. I am unable to agree.

15.  The offers of the plaintiffs in the two letters are very similarly worded.  In the first letter, the offer is “to provide security by way of payment into Court in the amount (inclusive of the costs of these security for costs applications) set out below … ”.  The offer in the second letter is “to provide security by way of payment into Court in the amount (inclusive of your clients’ costs in these security for costs applications) set out below …”. (Emphasis supplied)

16.  Plainly, the offers are to provide security by way of making payment into court. The amounts of security to be paid into court, as the words in brackets indicate, are inclusive of the defendants’ costs in the security for costs applications. The plaintiffs were offering to provide security for the defendants’ costs of the security applications by way of payment into court. The plaintiffs were not offering to meet or pay the defendants their costs of the security applications. 

17.  Miss Tong also argued that the words appearing in brackets indicated that the plaintiffs were willing to pay the defendants’ costs of the security applications. To say the least, the defendants’ solicitors did not understand the words in brackets to convey this message.  If they had, they would not have in their two reply letters expressed the concern that the plaintiffs had not indicated whether they would pay the defendants’ costs of the security applications.

18.  As an alternative argument, it was said that the defendants’ solicitors should have asked for clarifications in their reply letters. It was also argued that the defendants’ solicitors could have asked for a breakdown of the offers. The first and foremost point is that the duty is on the plaintiffs to make a clear offer: C & H Engineering v. F Klucznik & Son Limited [1992] FSR 667 at 671, see also Cheung Yu Tin v. Ho Hon Ka [2006] 2 HKLRD 674 at para.22. The blame cannot be laid at the defendants’ doorstep for not asking for a breakdown.  

19.  That aside, when the defendants’ solicitors pointed out in their letters that the plaintiffs had not indicated whether they would pay the defendants’ costs, they had clearly drawn the attention of the plaintiffs’ solicitors to the problem in the plaintiffs’ offers. The defendants’ solicitors had also stated in unambiguous term that the plaintiffs should pay for the costs of the security applications. Further, when counter-offering for 70% and later on 65% of the security claimed, the defendants’ solicitors had expressly, and stated as a separate condition, that it was subject to the plaintiffs paying the defendants the costs of the security for costs application. Putting it at the lowest, the plaintiffs’ solicitors should have been alerted to the defendants’ concern. If indeed the plaintiffs were willing to pay the defendants’ costs of the security applications, they could have simply said so in reply. If they erroneously thought that the plaintiffs’ offers already included an offer to pay costs, one would have expected them to say so to the defendants’ solicitors or indicated that they did not understand the concern, but nonetheless made a clear offer to pay costs.

20.  Miss Tong further submitted that the real reason for the rejection of the plaintiffs’ offers was the defendants regarded the amounts to be too low, and not the lack of indication as to payment of the defendants’ costs of the security applications. It was pointed out that the defendants were asking for 65% when the plaintiffs would only offer 57% of the security claimed. I agree with Mr Ng that the revised offer of 57% and the revised counter-offer of 65% were not that far apart. Further, the defendants had responded fairly quickly to the plaintiffs’ offer and revised offer. They did not make an outright rejection of the plaintiffs’ offers. Instead they sought clarifications about their costs of the security applications and made counter-offers. All these are indicative of a genuine intention and willingness to negotiate. There is no objective basis for concluding that the question of the defendants’ costs of the security applications was not a consideration or influencing factor underlying the non-acceptance of the plaintiffs’ offers.

21.  Having regard to the circumstances and the analysis above, I am of the view that the defendants did not act unreasonably in not accepting the plaintiffs’ “without prejudice” offers.  The plaintiffs’ applications to vary the costs order nisi therefore fail.  

The defendants’ applications

22.  The defendants’ applications for their costs in the security applications to be taxed and paid forthwith are made on the basis that the plaintiffs’ opposition to the security applications is wholly unmeritorious. It was said that given the admission that the plaintiffs are impecunious, they should at least have conceded liability to provide security. Instead, the plaintiffs had filed substantial affidavits dwelling into the merits of the actions thereby escalating the costs of the applications.

23.  I can see the force of the defendants’ criticism. As explained in my Decision handed down on 26 October 2007, the plaintiffs did not have a convincing case for resisting an order for security for costs. They should have only contested the quantum of the security. Notwithstanding that, this is not a case that the plaintiffs’ conduct in opposing the applications had been so bad that they should be visited with a forthwith costs order.

24.  The defendants’ bill of costs had included estimation of the costs of the security for costs applications. Although I had adopted a broad-brush approach when determining the amount of security to be provided, I had not excluded this aspect of the bills. Accordingly, the defendants’ entitlement to the cost of the security applications has been secured. There will not be necessary to make the costs order forthwith. The defendants’ applications to vary the costs order nisi is therefore refused.

Conclusion

25.  For the above reasons, the summonses issued by the plaintiffs as well as the summonses issued by the defendants in the three actions are dismissed.  Having regard to the normal rule of costs follow event and considering that the summonses were heard together and that the evidence and submissions were dealt with together, I am of the view that it is appropriate to make no order on the costs of the summonses. I so order.        

Miss Sara Tong instructed by Messrs Stephenson Harwood & Lo for the plaintiffs in all the three actions.

Mr Lawrence Ng instructed by Messrs Ford Kwan & Co for the defendants in all the three actions.