CRANE WORLD ASIA PTE LTD v. HONTRADE ENGINEERING LTD

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.