CRANE WORLD ASIA PTE LTD v. HONTRADE ENGINEERING LTD

HCA 109/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 109 OF 2014

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R E A S O N S   F O R   D E C I S I O N

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1.  This is an application by the Plaintiff to amend its Amended Statement of Claim on the second day of the trial.  At the conclusion of the parties’ submissions, I dismissed the application and indicated that I would give my reasons in writing.  I now give my reasons for my decision.

2.  This application arose under the following circumstances:

(1) On the first day of the trial, Mr Jose-Antonio Maurellet SC made a short oral opening on behalf of the Plaintiff.  At the end of Mr Maurellet’s opening address, Mr Richard Khaw SC, on behalf of the Defendant, rose and sought a number of clarifications in relation to the Plaintiff’s case.

(2) One of the points raised by Mr Khaw related to the precise amount of damages sought by the Plaintiff.  It was pointed out that the Plaintiff’s claim for the alleged breaches of 32 rental agreements (“the Rental Agreements”) in its Amended Statement of Claim is for HK$10,295,035, whereas the Plaintiff alleges in its Re-Amended Reply that the Defendant owes a sum of HK$25,064,211.76 to the Plaintiff.

(3) Mr Maurellet informed the Court that the Plaintiff intends to seek damages against the Defendant for a sum of HK$21 million odd for breaches of the Rental Agreements.  However, that ball-park figure does not appear in either the Plaintiff’s Amended Statement of Claim or its Re-Amended Reply. 

(4) After a short adjournment in the morning, Mr Maurellet indicated to the Court that the Plaintiff would apply for leave to re-amend its Statement of Claim.  Further time was sought by the Plaintiff to formulate the proposed amendments and Mr Maurellet applied for an adjournment until 10am on the following day to make submissions to support his client’s application. 

3.  In the proposed Re-Amended Statement of Claim, the Plaintiff sought to amend paragraph 9 and prayer (2) as follows:

“9. The Plaintiff’s claim is for the sums of HK$10,295,035HK$21,029,004.13 and Euro 62,825.58 as at 5 March 2015 or HK$24,678,308.53 and Euro 44,525.58 as at 9 March 2016 due under the Rental Agreements, full particulars whereof are set out in the Plaintiff’s invoices rendered to the Defendant and as set out in a letter from the Plaintiff’s solicitors to the Defendant’s solicitors dated 15 January 2014a Statement of Account dated 5 March 2015 and in a schedule of invoices dated 9 March 2016.”

“AND the Plaintiff claims:

(2) the sums of HK$10,295,035HK$21,029,004.13 and Euro 62,825.58 as at 5 March 2015 or HK$24,678,308.53 and Euro 44,525.58 as at 9 March 2016 due under the Rental Agreements as at 14 January 2014 and any further sums due under the Rental Agreement [sic] and unpaid by the Defendant thereafter;”

4.  By the proposed amendments, the Plaintiff effectively sought to increase its breach of contract claim against the Defendant from HK$10,295,035 to HK$21,029,004.13, or alternatively HK$24,678,308.53.

5.  In support of his application, Mr Maurellet submitted:

(1) the Defendant has always been aware of the fact that as at 5 March 2015, the amount claimed by the Plaintiff was HK$21,029,004.13 and a small sum in Euro;

(2) one of the Plaintiff’s witnesses has dealt with the claim for HK$24,678,308.53 as at 9 March 2016 in his witness statement;

(3) the Defendant would not be taken by surprise by the proposed amendments.

6.  Mr Khaw opposed the application and submitted:

(1) the Plaintiff has given no explanation for the delay in making this application;

(2) the proposed amendments were unclear and devoid of particulars in that the 2 documents purporting to support the sums of HK$21,029,004.13 and HK$24,678,308.53 (namely the Statement of Account dated 5 March 2015 and the schedule of invoices dated 9 March 2016) referred to invoices relating to cranes beyond the scope of these proceedings.

7.  There were 3 matters which caused me to refuse leave to the Plaintiff to amend its Amended Statement of Claim as per the proposed amendments.

8.  First, this was an extremely late application and the Plaintiff did not give any satisfactory reason for its delay in making the application.

(1) In March 2015, the Plaintiff applied for summary judgment and interim payments against the Defendant.

(2) At a hearing before B Chu J on 25 August 2015, it was ordered by consent, amongst other things, that there be a speedy trial and that leave be granted for this action to be heard together with HCA 256/2014 and HCA 462/2014 and be set down for trial with 7 days reserved.

(3) At the time when these proceedings were set down for trial in August 2015, there were already references to the sum of HK$21,029,004.13 in the Plaintiff’s affidavit evidence in the summary judgment/interim payments applications but the Plaintiff did not see fit to apply to amend its Statement of Claim to plead such a sum.

(4) In the course of his submission, Mr Maurellet drew the Court’s attention to the words in the prayer (“any further sums due under the Rental Agreement [sic] and unpaid by the Defendant thereafter”) to suggest that the Plaintiff was not required to amend its pleading to pursue the alternative claims for HK$21,029,004.13 and HK$24,678,308.53.  I was unable to accept this submission. 

(a) Paragraph 9 of the Amended Statement of Claim sets out the Plaintiff’s claims of damages for breach of the Rental Agreements and does not refer to any claims beyond 14 January 2014.  On the contrary, the purported particulars provided by the Plaintiff to support the sums of HK$10,295,035 and Euro 62,825.58 are said to be set out in a letter from the Plaintiff’s solicitors to the Defendant’s solicitors dated 15 January 2014.  That letter made no reference to any claims against the Defendant other than the claims for the sums of HK$10,295,035 and Euro 62,825.58.

(b) The words in the prayer relied upon by the Plaintiff are imprecise; they provide no clue as to what further sums the Plaintiff alleges to be due under the Rental Agreements or unpaid by the Defendant.  The Defendant is said to be in breach of 32 rental agreements and it seems to me to be only fair for the Plaintiff to specify in its Statement of Claim what sum is said to be due and unpaid by the Defendant under each of the 32 agreements. 

(5) In its Listing Questionnaire dated 7 April 2016, the Plaintiff indicated that it intended to seek leave to amend the Statement of Claim.  Leave to amend was granted by B Chu J on 14 April 2016 to amend paragraph 3 of the Statement of Claim (which was unconnected with the quantum of the Plaintiff’s claims).  This amendment only took place two months ago and the Plaintiff did not take that opportunity to seek leave to amend its Statement of Claim to include the present proposed amendments. 

(6) On 14 April 2016, B Chu J also ordered the parties to take out any further interlocutory applications 7 days before the Pre-Trial Review hearing fixed on 11 May 2016.

(7) At the Pre-Trial Review hearing on 11 May 2016, both parties through their counsel indicated to me that the case was ready for trial.

(8) In its written Opening Submissions filed on 3 June 2016, no reference was made by the Plaintiff to any claim against the Defendant for HK$21,029,004.13 or HK$24,678,308.53. 

(9) A party making an application to amend his pleading after the commencement of trial is seeking an enormous indulgence from the Court.  It is an enormous indulgence because such an application diverts the trial judge’s attention from the issues at the trial and disrupts the orderly conduct and progress of the trial: Li Xiao Yun v China Gas Holdings Ltd (unreported, CACV 38/2013, 11 March 2013) §18 (Lam JA).  It would be a rare case that such an indulgence is given without a satisfactory explanation: Chan Wing Cheung Allan v Ho Shu Yee Susana (unreported, CACV 393/2004, 10 January 2005) §9(4) (Ma CJHC).

(10) Mr Maurellet accepted that this was a late application.  However, no explanation was proffered on behalf of the Plaintiff (whether by way of affidavit evidence or counsel’s skeleton filed to support the application) as to the delay in making this application. 

9.  Second, the purported particulars given by the Plaintiff to support the alternative claims for HK$21,029,004.13 and HK$24,678,308.53 were highly unsatisfactory.

(1) As mentioned earlier, the Plaintiff relied on 2 documents (namely the Statement of Account dated 5 March 2015 and the schedule of invoices dated 9 March 2016) to support its claims for HK$21,029,004.13 and HK$24,678,308.53.

(2) However, as submitted by Mr Khaw, the 2 documents refer to numerous invoices which include those relating to cranes other than the relevant 32 cranes in these proceedings.  Indeed, by way of example, Mr Khaw referred the Court to one invoice listed in the Statement of Account dated 5 March 2015 which relates to a crane not being one of the 32 cranes we are concerned with in these proceedings.

(3) Given the very late stage in the proceedings, it would be entirely wrong to allow the Plaintiff to make significant amendments to its Statement of Claim which were supported by inaccurate particulars.

10.  Third, the consequences of allowing the proposed amendments would inevitably lead to an adjournment of the trial.

(1) If the proposed amendments were allowed, the Defendant would need to amend its Amended Defence and the Plaintiff would need thereafter amend its Re-Amended Reply.  Further, Mr Khaw informed me that additional evidence would need to be prepared to deal with the proposed amendments.

(2) Although Mr Maurellet suggested that the Defendant would only make minimal consequential amendments to its Amended Defence, I was not able to say with any certainty that that would necessarily be the case. 

(3) Therefore, if the proposed amendments were allowed to be made by the Plaintiff, further consequential steps would need to be taken by both parties and there was every possibility that the trial would not finish within the allotted time and go part-heard, which would be highly unsatisfactory.

11.  I did not lose sight of the fact that my refusal of the Plaintiff’s proposed amendment would mean that the Plaintiff could not pursue a much higher monetary claim against the Defendant.  Nonetheless, having balanced all the relevant factors, I exercised my general and case management discretion and dismissed the application.

12.  As far as the costs of and occasioned by the application were concerned, I ordered them to be paid by the Plaintiff to the Defendant on an indemnity basis with a certificate for two counsel to be taxed if not agreed.  I considered the Plaintiff’s application to be entirely without justification, disruptive and inconsistent with the underlying objectives in RHC Order 1A rule 1, and accordingly made a costs order on a higher basis.

HCA 109, 256 & 462/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 109, 256 & 462 OF 2014

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D E C I S I O N

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Introduction

1.  This is an application for security for costs in respect of 3 related actions which have a common plaintiff and defendant.  The bases of the application are that the plaintiff is resident out of Hong Kong and has no substantial assets here.

2.  The plaintiff opposes the application on the grounds that:

(a) It has not been established that the plaintiff is ordinarily resident outside Hong Kong;

(b) There is reciprocal enforcement mechanism in Singapore for enforcement of a Hong Kong costs order;

(c) The plaintiff has assets in Hong Kong;

(d) The merits in the plaintiff’s case militate against the grant of security;

(e) The defendant has delayed in making this application.

Background

3.  The plaintiff is a company incorporated in Singapore carrying on the business of provision of tower cranes and spare parts for hire and sale.  The defendant is a Hong Kong company.  By various agreements between them, the plaintiff was to provide tower cranes to the defendant for it to hire out to local contractors.  In return, the defendant shall pay 70% of the rent received from the contractors to the plaintiff and retain 30% as its profit and for maintenance of the tower cranes.

4.  The plaintiff has instituted 3 actions against the defendant:

(1) HCA 109/2014 for, amongst others, outstanding payments under 32 rental agreements and an order for the taking of accounts (“the 1^st action”);

(2) HCA 256/2014 for, amongst others, delivery up of 10 tower cranes and parts and an order for indemnification of all losses in relation to them (“the 2^nd action”); and

(3) HCA 462/2014 for delivery up of 26 tower cranes upon termination of rental agreements (“the 3^rd action”).

5.  At the heart of the parties’ disputes are 32 written rental agreements and 4 oral contracts.  There are substantial dispute of facts such that the courts have declined to make summary orders:

(a) In respect of the 1^st action, the court dismissed the plaintiff’s Order 43 application with costs to the defendant, on the ground that there were factual disputes which have to be resolved with a trial (§28 of Deputy Judge ST Poon’s decision dated 4 September 2014). 

(b) In respect of the 2^nd action, the Order 14 application was dismissed by consent, with unconditional leave to defend granted to the defendant.  The question of costs was reserved until after trial (decision of Master K Lo dated 18 June 2014).

6.  The 3 actions will be tried together from 13 to 21 June 2016.

Legal principles for grant of security

7.  I have summarized the principles in Starmetro Holdings Limited v Tuen Siu Wa, HCA 1968/2011, unreported, 5 April 2012, §11.

(a) Generally security will be ordered where a foreign plaintiff is involved.  However, there is no inflexible rule and the court has a real discretion under Order 23.

(b) The court has to consider a host of factors in the exercise of its discretion and will order security only if it is just to do so. 

(c) Parties should not attempt to go into the merits of the case unless it can be clearly demonstrated that there is a high degree of probability of success or failure.

8.  Though there is no inflexible rule, as a matter of discretion, it is the usual practice of the court to require the foreign plaintiff to give security for costs, because it is ordinarily just to do so.  After all, if the defendant succeeds and gets an order for his costs, it is not right that he should have to go to a foreign country to enforce the order.  Hong Kong Civil Procedure 2016, Vol 1, §23/3/4, p 553; Montgomery Ward & Co Inc v Evergo Trading Co Ltd & anor [1996] HKEC 305, Nazareth VP.

Whether the plaintiff is ordinarily resident outside Hong Kong

9.  The test of whether a company is ordinarily resident abroad for the purpose of O. 23, r. 1 is by reference to the location of its central management and control.

(1) A mere assertion as to where a company’s central management and control are located is unsatisfactory.  Evidence is required.

(2) All the circumstances relating to the manner in which the company carries on its business should be taken into account, though weight to be applied to each factor will obviously differ from case to case.  Those factors include the provisions of the company’s objects clause, the place of incorporation, the place where the company’s real trade and business carried on, the place where the company’s books are kept, the place where the company’s administration is carried out, the place where the directors with power to disapprove of local steps or to require different ones to be taken themselves meet or are resident, the place where its chief office is or where the company secretary is to be found, and the place where its most significant assets are.

(3) In applying the test to a non-trading company, it may be more important than would otherwise be the case to have regard to the nature of the company’s corporate activities.

See: Hong Kong Civil Procedure 2016, Vol 1, §23/3/4; Hui Yin Sang & ors v Tsoi Ping Kwan & ors, HCA 392/2008, 21 July 2011, DHCJ Mimmie Chan (as she then was), §6; CACV 208/2011, 19 April 2012, §§13-14, per Fok JA (as he then was); Stateview International Ltd v Liu Baoshun, HCA 162/2010, 3 November 2010, §§25-34, per Chung J.

10.  The burden is on the defendant to establish that the plaintiff is ordinarily resident out of Hong Kong.  That is to be determined by reference to the circumstances prevailing at the time of the application for security.  See Hui Yin Sang, §5.

11.  The plaintiff seems to suggest that it is ordinarily resident in Hong Kong by reason of the frequent travels of its management officials to Hong Kong to visit construction sites and inspect the cranes.  It is also suggested that some rental agreements were signed and decisions were made in Hong Kong.  The plaintiff also says that it has a wholly owned subsidiary here.

12.  I have taken into account the following factors:

(1) There is no dispute that the plaintiff was incorporated in Singapore with an address in Singapore.

(2) All of the affirmations of the plaintiff in the 1^st action by its director, sales manager and staff were sworn in Singapore.  At one point, the plaintiff indicated that due to the intervening public holidays in Singapore, the plaintiff required more time to prepare the affirmation in reply.

(3) The plaintiff’s official website in Singapore shows that the 2 shareholders and 2 directors are not Hong Kong residents but Singapore and overseas residents respectively.

(4) The plaintiff’s website also shows that the Certificate of Approval for the plaintiff to be certified as an approved crane contractor was granted and conferred by the Commissioner for Workplace Safety and Health, Singapore.

(5) Under the “contact us” section of the website, the address of the plaintiff is stated as in Singapore and its telephone number has an area code of Singapore.

(6) On the website, it can be seen that the plaintiff has ‘subsidiary offices’ in South Korea, Taiwan, Malaysia and Hong Kong.  The defendant affirms that its Chief Office remains in Singapore.

13.  Further, according to the defendant, it was not necessary for the plaintiff’s management to visit Hong Kong to inspect any of their cranes and the plaintiff has never sent any staff to Hong Kong for that purpose.  The only people who might visit the construction sites would be the plaintiff’s financiers who may come to check on the plaintiff’s inventory that is collateral for loans advanced to the plaintiff.

14.  Even disregarding the defendant’s evidence in the preceding paragraph, the plaintiff (being a trading entity) has shown little evidence in rebuttal.  Whether viewed individually or collectively, those matters in paragraph 12 show that the plaintiff’s central management and control are in Singapore.  I find that the plaintiff is ordinarily resident out of Hong Kong.

Reciprocal enforcement mechanism in Singapore

15.  There is no dispute that a monetary judgment in Hong Kong can be enforced in Singapore under the Singapore Reciprocal Enforcement of Foreign Judgments Act, Cap 265 (“REFJA”).  The plaintiff says that the enforcement process in Singapore should not take more than 6-8 weeks.

16.  If the plaintiff comes from a jurisdiction that does not have reciprocal enforcement of a Hong Kong order, the Hong Kong court is more likely to make an order for security against him.  However, the converse is not necessarily true.  The fact that there is reciprocal enforcement is but one factor for consideration and not dispositive of the application for security.

17.  Mr Lok, counsel for the plaintiff, relies on Lim Yi Shenn v Wong Yuen Yee [2012] 3 HKLRD 505 at §§65-66, wherein Mr Recorder H Wong SC found it difficult to imagine what grounds could possibly be open to the plaintiff to apply to set aside the registration of a costs order made by the Hong Kong Court and dismissed that as nothing but a fanciful possibility.

18.  With respect, it is not for this court to speculate except to say that there is no guarantee that the plaintiff will not stand in the way of enforcement by not raising any of the defences open to it.  Even if the plaintiff will not stand in the way of enforcement, the evidence from both sides on Singapore law illustrates that the defendant will be put to further expense and time of enforcement of a costs order from Hong Kong.  Given that there are 3 actions for trial, there may be a need for 3 separate applications under the REFJA.  Under Order 67, the Singapore court can, in turn, order security for costs against the defendant. 

19.  The existence of the REFJA does not, in my view, bar this court from ordering security.

Whether the Plaintiff has assets in Hong Kong

20.  Security will not be required from a person permanently residing out of the jurisdiction, if he has substantial property, whether real or personal, within it.  The property must be of a fixed and permanent nature, which can certainly be available for costs; or at any rate such as common sense would consider to be so.  Shares in a Hong Kong private company do not amount to substantial assets within the jurisdiction readily available for costs, because the value of such shares is difficult to ascertain and it is uncertain whether a buyer can readily be found for them.  See Hong Kong Civil Procedure 2016, Vol 1, §23/3/6.

21.  The plaintiff has 3 types of assets in Hong Kong: (i) a subsidiary (“CWHK”); (ii) tower cranes leased out to CWHK; and (iii) tower cranes in the possession of the defendant.

22.  With regard to (i), the subsidiary has 55 tower cranes in Hong Kong worth HK$112 million, some of which are loaned to clients on a continued basis.  The management accounts show that CWHK has a positive equity.  Because the assets held by CWHK are essentially of a fixed and permanent nature, Mr Lok submits that the value of CWHK shares are unlikely to be of a fluctuating character and can be ascertained on available evidence.

23.  With respect to Mr Lok, the subsidiary’s worth cannot just be measured by the number of tower cranes that it has without regard to its liabilities. It is the shares in CWHK that formed an asset of the plaintiff.  CWHK is a private company and there is nothing (not even auditted accounts) to enable the court to assess the value of its shares and whether there is an available buyer for them.

24.  With regard to (ii), there are 6 tower cranes leased out to CWHK, which are notsubject to any financing arrangements; 5 of them are presently on loan and will remain on site until at least late 2016. However, in my view, they are not assets of a fixed and permanent nature. 

25.  With regard to (iii), assets of the plaintiff in the possession of the defendant comprise 2 tower cranes.  They are now on lease at a construction site.  The rent for each of them is HK$150,000 per month.

26.  The plaintiff suggests that there will be a total rental income of HK$7,980,000 until 2017.  With respect, such income has to be paid by the defendant to the plaintiff month by month until 2017.  There is no suggestion that the defendant can cease such payment and use it as security.

27.  It is said that the undisputed value of the 2 tower cranes is about HK$6.23 million.  Only HK$2.08 million was owed to the mortgagor. The 2 tower cranes therefore have a net value of about HK$4.2 million, which is more than the amount of security sought.

28.  This computation of the value of the 2 tower cranes fails to take into account their depreciation.  More importantly, the 2 tower cranes are subject to leasing arrangements until September 2017.  Though not easily removable physically, those tower cranes may not be readily available to meet a costs order without disturbance to the leasing contract.  There is also no evidence of an available buyer for the tower cranes in Hong Kong at the time the defendant wants to enforce a costs order.

29.  I find that the plaintiff does have assets in Hong Kong, which are income generating, but not of a fixed or permanent nature.

Merits in the plaintiff’s case

30.  It is not the court’s function, when faced with an application for security for costs, to make a preliminary run at deciding the ultimate success or failure of the claim:  Sunchase International Group (China) Ltd & anor v Vincor Group of Companies (Investment) Ltd[2004] 1 HKLRD 731 (CA), at §5, per Rogers VP.  The parties should not attempt to go into the merits of the case unless it can be clearly demonstrated one way or another that there is high degree of success or failure: Hong Kong Civil Procedure 2016, Vol 1, §23/3/3.

31.  The fact that the Order 43 application was not successful and that the defendant was given unconditional leave to defend in the 2^nd action show that there are facts to be resolved.  It cannot be said that either party has a high degree of success or failure.  Nor should the court determine the merits of a party’s case without the benefit of cross-examination. 

32.  Further, the plaintiff invites this court to find that the defendant has no merits in defending 3 other actions by one Acromet, using similar defences. I decline to assess the merits of other claims not before this court.

33.  Mr Lok, very properly in my view, does not press hard on showing merits in the plaintiff’s case.

Whether the defendant has delayed in making this application

34.  In terms of delay in pursuing an application for security for costs, according to Anthony Chan J in Chinacast Education Corporation & ors v Chan Tze Ngon & ors HCA 1062/2012 (unreported, 26 September 2014) at §§10-11, this can be relevant in two ways:-

(a) Firstly, where the delay reflects dilatory conduct on the part of the applicant, it would be taken into account against him in the exercise of discretion by the court.

(b) Secondly, the delay may result in prejudice to the plaintiff.

35.  The court may also take into account whether the application for security can achieve its intended purpose: Haifa International Finance Company Limited v. Concord Strategic Investments Limited, HCA 4442/2003 (unreported, 7 March 2014), Au-Yeung J:

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

36.  A late application may be dismissed on the ground of delay alone, especially where the trial is imminent:

“34. Further, late application for security for costs, in particular when the trial is imminent, per se constitutes very real prejudice to a plaintiff, since the plaintiff is being put in a position of having little or no choice but to put up the security in order not to abandon and waste all the work done and costs incurred in preparing for trial. In these circumstances, the application should be refused.” Waddington Limited & Ors v Chan Chun Hoo Thomas & Ors HCA 3291/2003 (unreported, 7 May 2013), DHCJ Lok (as he then was)

37.  In that case, the summons for security was issued 5 days before the pre-trial review and 3 months before the trial.  Substantial costs have already been incurred by the parties in the action.  DHCJ Lok found it to be a tactical move by D1 to put pressure on the plaintiff and dismissed the application.

38.  Similarly, in Hung Wing San, Tony v Koo Shing Sun & anor HCCW 350/2011 (unreported, 4 June 2013), at §9, the scheduled trial dates were to take place some 6 months from the date of the summons and less than 3 months from the date of the hearing.  Chung J found that the fact that the petitioner has not been residing in Hong Kong ought to be a fact known to the 1^st respondent quite some time ago.  The application was refused on the ground of substantial delay.

39.  The court may decline to make an order for security for past costs because the plaintiff has been allowed to incur them by the defendant in the absence of any intimation of any application for security for costs: Tri-tech Metals Co Ltd v YKK AP Hong Kong Ltd, HCCT 60/2004, 30 April 2009, Burrell J, §§25-26.

40.  In the present case, the defendant asserts that there was no delay on its part.  It has been concentrating on tackling interlocutory applications taken out by the plaintiff.  Moreover, the defendant has made serious attempts to negotiate for settlement with a view to saving costs.  To the contrary, the plaintiff has sat on the case for about 6 months between September 2014 (after DHCJ ST Poon’s decision on Order 43) and March 2015 when the plaintiff bombarded the defendant with another round of interlocutory applications under Order 14 and Order 29 for interim payment and injunctive relief.

41.  The defendant’s efforts are understandable.  In the usual course of events, taking out the present summons at the 1^st CMC is not out of the ordinary.  I do not regard the present summons as a tactical move either.

42.  However, delay has to be viewed in context.  Despite settlement negotiations, the plaintiff has not relented in the prosecution of its claims.  As early as August 2015, there was a direction for speedy trial.  Once there was such a direction, parties ought to move quicker than usual. 

43.  The defendant made the first request for security by letter in October 2015.  The present summons was issued only 3 months later, on 25 January 2016. It was 5 months before the trial is due to commence.

44.  Applying Waddington, the plaintiff is essentially left with little or no choice but to put up the security in order not to abandon and waste all the previous work.

45.  Applying Haifa International, it is also not cost-effective, as by the time it becomes certain that the plaintiff is unable to provide security (eg 28 days after the court order), the defendant will have already incurred costs in preparing for the case and briefing trial counsel. The action may be stayed, which means that the court will have to waste its trial dates.

46.  Applying Tri-Tech Metals, the defendant is now claiming security for past costs only.  I decline to order security for those costs as the defendant has known that the plaintiff was resident in Singapore from day one but took no step in seeking security until 5 months before trial.

47.  Mr Leung submits that the trial will take longer than 7 days or go part-heard in view of the fact that there are 11 factual witnesses.  He suggests that the court should order security against the plaintiff.

48.  With respect, any party’s under-estimation or mis-management of trial time is not a reason for the court to order security.

Conclusion

49.  The plaintiff is resident out of Hong Kong.  A Hong Kong judgment can be enforced under the REFJA.  Although the shares and the 2 tower cranes are not assets of a fixed or permanent nature, they form some limited security for the defendant.  The tower cranes are income generating.  The defendant has delayed in its application.  Considering all circumstances, I decline to order security for costs. 

50.  On costs, I make an order nisi for costs to be to the plaintiff, summarily assessed at $90,000.

51.  I thank counsel for their assistance.

HCA 109/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 109 OF 2014

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D E C I S I O N

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Introduction

1.  This is the Defendant’s appeal against Master Chow’s order in respect of the Plaintiff’s summons for taking of an account summarily under Order 43, rule 1 of the Rules of the High Court (“RHC”).  I also directed that the Defendant’s appeal against Master Lai’s order refusing to stay Master Chow’s order pending appeal be heard together before me.

2.  The Plaintiff is a company incorporated in Singapore carrying on the business of provision of tower cranes and spare parts for hire or sale.  The Defendant is a Hong Kong company hiring out tower cranes to construction companies in Hong Kong.  Under the “Rental Agreements” between them, the Plaintiff is to provide tower cranes to the Defendant for the Defendant to hire them out to local contractors.  The Defendant will pay 70% of the rent received from the contractors to the Plaintiff and retain the remaining 30% as its profits and for maintenance of the cranes.

3.  By this action, the Plaintiff claims against the Defendant for, inter alia, outstanding payments under 32 Rental Agreements.  Under clause 17 of the Rental Agreements, the Defendant shall keep proper accounts of all its dealings in relation to the tower cranes and deliver to the Plaintiff any of such records when requested.  One of the reliefs sought by the Plaintiff under the Statement of Claims is an account pursuant to clause 17 for each of the Rental Agreements.

The Plaintiff’s summons

4.  As stated in the summons, the Plaintiff applied for:

“1. an order under RHC Order 43, rule 1 against the Defendant that an account be taken in respect of the Rental Agreements pursuant to clause 17 of each of the Rental Agreements,

2. an order that any amount certified on taking the account to be due to the Plaintiff with compound or simple interest be paid by the Defendant to the Plaintiff forthwith,

3. an order that the Defendant do pay to the Plaintiff such sum as the court shall think fit by way of an interim payment on account of the amount to be found due on the taking of the said account, and

4. an order that the costs of and occasioned by the present applications are to be the Plaintiff’s costs in the cause.”

Order 43, rule 1

5.  Order 43, rule 1 of the RHC provides that:

“(1) Where a writ is indorsed with a claim for an account or a claim which necessarily involves taking an account, the Plaintiff may, at any time after the Defendant has acknowledged service of the writ or after the time limited for acknowledging service, apply for an order under this rule.

(1A) . . .

(2) . . .

(3)     On the hearing of the application, the Court may, unless satisfied that there is some preliminary question to be tried, order that an account be taken and may also order that any amount certified on taking the account to be due to either party be paid to him within a time specified in the order.”

Master Chow’s order

6.  The learned master did not expressly give an order for taking of an account as applied for in the Plaintiff’s summons.  Instead, she ordered that the Defendant is to serve on the Plaintiff with all supporting documentation an account in respect of the tower cranes of the Plaintiff.  The learned master also specified in her order 7 areas which the Defendant should cover in giving the account.

7.  This approach apparently reflects the basis upon which the learned master arrived at her decision in finding in favour of the Plaintiff.  In giving her oral reasons, the learned master said:

“The present case is clearly distinguishable from the Kids World[1]case where the accounts sought as what should be due and owing to the applicant on the basis of the issues having been resolved by the trial judge. In the present case, the Plaintiff is content with an account of what is due and owing to the Plaintiff, according to the Defendant’s case. Having gone through the preliminary issues that the Defendant says have to be first determined before any account can be taken, I have come to the clear view that they do not pose any real obstacles.

Unlike the Hong Kong Century Property Development[2] case, the issues are not about whether the Plaintiff is entitled to an account, they only relate to how the account is to be taken. And with the Plaintiff not objecting to the account being taken on the basis that all the preliminary issues being decided in the Defendant’s favour, they do not prevent an account from being taken.” (Emphasis added)

8.  The learned master also made it clear that she was not adopting the two‑stage approach suggested by counsel but rejected by Reyes J (as he then was) in Kids World. She further explained that:

“The Plaintiff is only asking for an account on the basis of the aforementioned preliminary issues being resolved in favour of the Defendant. Unless the order for the checking of the account is not fully complied with, there is no need to have a second stage for each side to raise its objections to the version of the other side, or for a judge or master to proceed to an inquiry.”

9.  As can be seen by the above reasoning, it was the learned master’s view that the “preliminary issues” as put forward by the Defendant relate only to how the account is to be taken and, since the Plaintiff is now content with the account being taken according to the Defendant’s case, it would not be necessary to deal with the “preliminary issues” before the account is to be taken.

10.  As I understand it, one of the main disputes between the parties in this action is whether there are outstanding payments under the Rental Agreements at all or the amount of which, if any.  The “preliminary issues” referred to by the learned master in her oral reasons include, inter alia, issues like the time when the payments accrue and fall due under the agreements.  They are, in my view, directly relevant to the central dispute.  It is therefore inconceivable that the Plaintiff would be content to allow the account to be taken on the basis that the preliminary issues are to be decided in the Defendant’s favour.  In asking the court to take and certify an account on these bases, it would actually mean that the Plaintiff had conceded the most important part of his case in this action.

11.  Mr Wong, counsel for the Plaintiff, indicated that this is in fact not the position he held.

12.  The Defendant can of course give an account based on its own version and this is usually what a Defendant will do at the beginning of an account taking exercise.  In that case the Plaintiff will then give its version by filing evidence in reply and the court will then decide and certify the final account after an enquiry.  These are all to be done after the court ordered that an account is to be taken.  To justify an order to take account by saying that the Defendant can give an account on its own version is in my view defy of logic.  The effect of which is that an order to take account is given for the purpose of seeing whether it is necessary to take an account.

13.  If there are preliminary issues to be determined first before an account can be meaningfully taken as in the situation in Kids World, the Plaintiff cannot get round the obstacle by simply saying that the Defendant can first give an account based solely on his own version and then he will decide whether to proceed to an enquiry.  To allow this to happen is just to adopt the two‑stage approach rejected by Reyes J in Kids World.

14.  In my judgment, with respect, the reasoning of the learned master cannot stand.

15.  As this is a hearing de novo, I shall consider the Plaintiff’s application afresh.  It is a discretionary matter for the court to decide whether it is appropriate to order a summary procedure for taking an account.

Discussion

16.  It is the Plaintiff’s case that under the Rental Agreements, the Plaintiff is entitled to 70% of the “monthly income” of the Defendant in renting out the Plaintiff’s cranes to contractors as specified in each Rental Agreement.  The Rental Agreements also provide that the full amount of monthly income must be paid to the Plaintiff by TT upon receipt of the Plaintiff’s monthly invoice to the Defendant.

17.  It is pleaded in the Statement of Claims that the Plaintiff’s claim is for the sums of HK$10,295,035.00 and Euro 62,825.58 due under the Rental Agreements as at 14 January 2014, the invoices of which had been sent to the Defendant as per the Rental Agreements.  As stated under the Relief sought by the Plaintiff, the Plaintiff also claims for further sums due under the Rental Agreements and unpaid after 14 January 2014.

18.  Apart from the above claims it is also the Plaintiff’s case that the Defendant is holding the Plaintiff’s monies on trust and the Plaintiff claims for an account of the trust monies. The Plaintiff also seeks an injunction against the Defendant to restrain the Defendant from obstructing the Plaintiff to inspect its cranes.  However, it is common ground that these other claims are not relevant to the Plaintiff’s present application.

19.  It is not the Plaintiff’s case that the Rental Agreements have been repudiated or terminated by any party.  Presumably, invoices should have been issued by the Plaintiff to press the Defendant for further payments.

20.  Although the Plaintiff claims for an account pursuant to clause 17 of the Rental Agreements, as the Plaintiff’s claim effectively based on unpaid invoices, it should not be the Plaintiff’s position that it has to rely on the Defendant’s account to claim for the outstanding payments.

21.  The purpose of the Plaintiff’s application is in my view, more for pinning down the Defendant’s case and if possible, seeking interim payments, rather than a real taking of an account. In fact, Mr Wong did not shy away from this purpose.  Interim payment was expressly asked for in the summons and it was stated in Mr Wong’s written submission that what the Plaintiff is trying to achieve by way of the Order 43 application is to accelerate the process of obtaining payment from the Defendant. In defending Master Chow’s order for an account based on the Defendant’s own version, Mr Wong states clearly that “upon receiving the accounts from the Defendant, the Plaintiff will obviously avail itself with other court procedures to enforce its entitlements”.  Implicit in this statement is that the Plaintiff will consider an application for interim payment based on the Defendant’s version.

22.  With respect, I have much reservation on this approach.  The present application is in the form of an Order 43 application in which an order to take an account is sought.  In substance, as I have explained my views above, it is more akin to an application for specific discovery or interrogatories, for the purpose of an intended application for interim payment.

23.  As Litton JA (“as he then was”) put it succinctly in Ho Lee Man v Wong Wai Kai[3]: “The summary process under O 43 r 1 is not designed as an instrument for specific discovery.”

24.  The Defendant has put forward several defences against the Plaintiff’s claims.  Mr Wong submitted that these defences either do not relate to the account taking exercise or can be dealt with summarily by the court during the account taking exercise.

25.  In relation to some of the defences, with the materials placed before me thus far, I can see the force of Mr Wong’s points.  However, I do not think it is right to give an order for an account to be taken if the purpose of which is mainly to achieve something that can be achieved also by way of specific discovery or interrogatories, or even a summary judgment application.

26.  Besides, if there are issues that need to be resolved before an account can be effectively taken, even if it is possible that the issues can be dealt with by the master or judge summarily at the accounting exercise, I do not think it is right to order an account to be taken without those issues being firstly dealt with.

27.  Reyes J had this to say in giving his Lordship’s judgment in Kids World[4]:

“Order 43 is not appropriate where the parties are engaged in substantial disputes of fact which are fundamental to the manner in which any proposed account is to be taken. Such disputes of fact first need to be resolved by trial. The person conducting the account or inquiry would need guidance on how to resolve such fundamental factual disputes if the account or inquiry is to proceed smoothly. Such guidance could effectively only come after a trial judge has fully heard the parties and decided their fundamental disputes, not before.”

28.  In the present case, it is common ground that the Rental Agreements were made partly orally and partly in writing.  As submitted by Mr Dawes[5], counsel for the Defendant, the allegations of the Defendant in relation to the terms of the oral agreements between the parties cannot be rejected by the court right away.  In particular, whether it was orally agreed between the parties that there was a 90‑day credit terms and HK$10 million cash buffer; and whether the rental payment is only due subsequent to the installation of tower cranes after the issue of “machine load test certificates”. In my view, an account cannot be effectively taken without these factual issues being firstly resolved.  And I cannot say for sure that those issues can be resolved without going for a trial.

29.  This is not an appropriate case to order the taking of an account.  The order of Master Chow is quashed and the Plaintiff’s summons is dismissed.

30.  Counsel agreed that the result of the appeal against Master Lai’s decision should follow the result of the appeal against Master Chow’s order.  Hence, the Defendant’s appeal against Master Lai’s order be also allowed.

31.  I order that costs of the Defendant’s appeals against Master Chow’s and Master Lai’s orders, costs of the Plaintiff’s summons, and costs of the Defendant’s stay application be to the Defendant with certificate of counsel.  This is a costs order nisi which will be made absolute upon the expiry of 14 days from the date of this decision.

Mr Jonathan Wong, instructed by Smyth & Co,for the Plaintiff

Mr Victor Dawes and Mr Adrian Leung, instructed by K C Ho & Fong, for the Defendant