KEIRON PETER ARCH ROCHESTER v. GLORY SKY PRECIOUS METALS LTD

HCA 395/2019

[2021] HKCFI 215

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 395 OF 2019

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D E C I S I O N

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Background

1.  This is the Defendant’s appeal against a Master’s decision refusing to grant security for costs against the Plaintiff.  The Defendant also seeks leave to file the notice of appeal out of time.

2.  The Plaintiff is resident in Australia.  He claims to be the victim of the Defendant’s investment scam.  The Plaintiff alleges that he was induced by the misrepresentations of a Ms Jan Choi, who claimed to be an investment consultant of the Defendant, to open 2 Accounts with the Defendant.  He executed a Letter of Authorization authorizing Jan Choi to be his representative for the trading of metals.

3.  He remitted a total of US$1.29 million into the Accounts, which were lost within 6 weeks.  There were other victims and the Defendant has been under investigation by the police. 

4.  The Plaintiff sues the Defendant for breach of contract, misrepresentation, breach of common law duty, breach of fiduciary duties and unjust enrichment.

5.  The Defendant avers that it only provided a trading platform and brokerage services for customers to trade in spot gold.  The Plaintiff was given a user ID and password for the Accounts.  The Defendant denies that there was an employee by the name of Jan Choi.  According to the Letter of Authorization and a set of Terms and Conditions, trading was done at the Plaintiff’s own risk, and he also bore all risks arising from communication with the Defendant.

6.  The Defendant sought security for costs in the sum of HK$400,000 up to the stage of pre-trial review.  Master Anthony KK Chan dismissed the summons with costs to the Plaintiff.  The Defendant appealed.

7.  However, due to failure to act promptly under the Court’s measures during the pandemic, the Defendant filed the notice of appeal 3 days out of time.  In the meantime, it had served the Plaintiff.

8.  Taking a very pragmatic and correct approach, Mr Brown, counsel for the Plaintiff, has not opposed the application for extension of time to file the notice of appeal and I grant the extension accordingly.

9.  An appeal against a Master’s decision is by way of rehearing and the judge considers the matter afresh.  The only grounds that the Plaintiff relies on to resist an order for security are:

(1)     Reciprocal enforcement of a Hong Kong judgment in Australia is available; and

(2)     The Plaintiff has a genuine and strong case.

10.  It is the Plaintiff’s submission that each of these grounds, taken individually are sufficient to dispose of this application in his favour, but if the Court is of the view that neither is decisive, they can be taken together to point strongly away from ordering security.

Legal principles for ordering security for costs

11.  An order for security is discretionary.  The burden rests on the defendant to show that it is just to require the plaintiff to provide security.

12.  The starting point for an application for security for costs against a non-resident plaintiff is that security is usually ordered because if he eventually fails in its claim, the defendant may have difficulties in enforcing the costs order in his favour against the unsuccessful plaintiff. The situation where the Court will not exercise its discretion against the plaintiff is where the latter can demonstrate that he has a high prospect of success in its claim.  The fact that a plaintiff has a bona fide or genuine claim does not mean that he has a high prospect of success: Dracco Netherlands BV v Simba Toys GMBH & Co. KG [2018] HKCA 75, §3.3, Cheung JA.

13.  The Plaintiff can invite the court to take into account the reciprocal enforcement provisions under the Foreign Judgments Reciprocal Enforcement Ordinance, Cap 319 (“FJREO”).  However, the defendant must be afforded a chance to adduce evidence in the nature of foreign law on how a Hong Kong judgment is to be enforced in that foreign jurisdiction against the plaintiff: Dracco Netherlands, §3.6.

14.  In Lim Yi Shenn v Wong Yuen Yee [2012] 3 HKLRD 505, Recorder Horace Wong SC held that the fact that there is reciprocal enforcement is not conclusive but, in the absence of other relevant evidence, it is not just to make an order under O23, r1(1)(a), Rules of the High Court, Cap 4A.  The relevant parts of his judgment are set out below:

“64.  In the absence of any evidence filed by the Defendants to show, for example, that despite the substantial reciprocity, there exists some special difficulties and burdens for enforcement in Singapore which they would not encounter if the enforcement is done in Hong Kong, I cannot assume that there are any difficulties for enforcement in Singapore that are particular to that jurisdiction. The evidential burden is discharged by the Plaintiff's showing that there is an available regime which provides for reciprocal enforcement of judgments in Singapore. This is of course not conclusive but the burden rests with the Defendants to show that nonetheless, it is just to require the Plaintiff to provide security.

65.   I have also taken into account the fact that Singapore is an English-speaking country and there is not going to be any language difficulties in communicating with Singapore lawyers instructed to pursue enforcement in that jurisdiction. I also take judicial notice that Singapore has a common law system and the present case is not a case whereby enforcement would have to be taken in a country with a legal system that is wholly foreign to a Hong Kong defendant. It is true that the Defendants would still have to instruct a foreign lawyer, but that is, in my view, a matter of minor importance given the considerations mentioned above.

…

69.   As rightly submitted by Mr Chan, the existence of a regime for reciprocal enforcement between Singapore and Hong Kong is plainly not conclusive, but that does not mean that in the absence of any evidence filed by the Defendants to show why it is just to make an order for security for costs, that this Court should proceed to make an order simply because the Plaintiff is not ordinarily resident in Hong Kong. The fact that there is such reciprocal enforcement, in the absence of other relevant evidence, shows that it is not just to make an order under O 23 r 1(1)(a). (underline added)

15.  Ms Wong, counsel for the defendant, relies on the general need for a defendant to incur costs for reciprocal enforcement and delay: Re All Our Kids in Hong Kong Ltd, unrep, HCCW 141/2007, 20 June 2011, §§25-26, Barma J (as he then was):

“… Although there are arrangements for the reciprocal enforcement of judgments as between Hong Kong and the Netherlands, it will still be necessary for the 1st Respondent to incur additional costs and suffer some inevitable delay in having to instruct foreign lawyers to enforce judgment. In addition, in order to execute any judgment, it is likely to be necessary for the 1st Respondent to locate assets against which to execute, a process that will be more cumbersome and is likely to be more difficult to achieve abroad. There may also be means of execution or enforcement that would be available in Hong Kong, such as bankruptcy proceedings, which may not be as readily available abroad.

In these circumstances…the provision of security would be a response to the difficulties that the 1st Respondent is likely to face in enforcing any costs order that may be made in his favour at the end of the day. I therefore do not think that security should be refused on [the ground of discrimination].”

16.  A note of caution is that Barma J was dealing with the plaintiff’s argument that Order 23, rule 1 was discriminatory against a foreign plaintiff (§18). His judgment did not purport to say that the defendant can simply rely on such general need to incur costs and delay in a foreign jurisdiction to justify an order for security.

17.  That said, FJREO is no bar to an order for security: Crane World Asia Pte Ltd v Hontrade Engineering Ltd (unreported), HCA 109, 256 and 462/2014, 5 May 2016, per Madam Justice Au-Yeung, §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.”

One has to note that in Crane World, both sides had adduced evidence on enforcement in Singapore (§§18-19).

18.  The following are some matters that the Court can take into account apart from the availability of reciprocal enforcement:

(1)  Lack of information as to the plaintiff’s assets in Hong Kong and the foreign jurisdiction: Chris Au v Steve Yoon Soo Kim, HCA 1285/2014, 25 November 2016, §96, DHCJ Marlene Ng (as she then was). 

(2)  The status of the plaintiff, including his impecuniosity: Lim Yi Shenn, at §54.

19.  Again, the defendant has to adduce some evidence along the lines of paragraph 19.  In Chris Au, the defendant provided evidence to show he was unable to identify plaintiff’s assets in Hong Kong.  However, the plaintiff’s affirmations were silent on this subject (§§96-97).  The Court ordered security (§100).

20.  Overall, the Court has complete discretion whether to order security or not. It must carry out a balancing exercise, weighing the injustice to the plaintiff for being prevented from pursing a proper claim by an order for security, against the injustice to the defendant if the defendant finds itself unable to recover costs from the foreign plaintiff in due course. Wing Hing Provision, Wine and Spirits Trading Co Ltd v Hanjin Shipping Co Ltd [1998] 4 HKC 461.

Availability of reciprocal enforcement in Australia

21.  In his affirmation in opposition, the Plaintiff has made clear that he would rely on the reciprocal enforcement, however the Defendant has not filed any evidence in reply.

22.  The observations made in Lim Yi Shenn, §65,are applicable in respect of Australia, an English speaking jurisdiction and has a common law system like Hong Kong.

23.  Ms Wong is not entitled to submit, without evidence, that a costs or interest order might not be enforced on the ground of public policy.

24.  Ms Wong refers to section 8 of the Foreign Judgment Act 1991 of Australia (“the Act”) that a registered judgment may be stayed in Australia if the judgment is appealed against or the Plaintiff intends to appeal against it.  It is quite different in Hong Kong in that an appeal does not operate as a stay of execution.

25.  With respect to Ms Wong, section 8 only states that a judgment may be stayed, not would be stayed.  That is not much different from Hong Kong, as the Court or Court of Appeal does have power to stay execution pending appeal as well.

26.  Ms Wong also refers to section 17(1)(a) of the Act which provides that the Australian court can make provision with respect to the giving of security for costs by a person applying for registration of a judgment.  It would be wholly prejudicial to the Defendant if the Plaintiff can turn round and seek security against the Defendant in Australia.

27.  With respect, section 17(1)(a) is referring to the rule-making power of the Australian court.  There is no evidence that such a rule has been made.

28.  In summary, there is no evidence from the Defendant or submission from counsel on points of law that can demonstrate difficulties with reciprocal enforcement in Australia.

Genuine and strong case on the merits

29.  The Plaintiff claims that he has a strong case on the merits.  Mr Brown points out that the Defendant has not provided evidence to challenge the Plaintiff’s merits.  As the Defendant has filed no evidence in opposition to the claim, eg in respect of unjust enrichment, it is taken as undisputed: DBS Bank (Hong Kong) Limited v Happy Grace International Development Ltd [2019] HKCFI 2864, DHCJ MK Liu, at §5.

30.  In this case, the Defendant had acknowledged receipt of US$1.29 million from the Plaintiff but the defence is largely made up of bare denial and non-admission.  However, the pleadings do disclose issues like: whether that sum was lost due to an investment scam or in the trading market; whether the Defendant would be exempted from liability by the contract terms.  These issues cannot summarily be decided one way or the other.  The fact that the Plaintiff has filed an affirmation on merits or that the Defendant has been under police investigation do not affect my view.

31.  Mr Brown’s reliance on the case of DBS Bank (Hong Kong) Limited v Happy Grace is, without disrespect, misconceived.  The plaintiff there was applying for summary judgment based on unjust enrichment.  The defendant did not file any evidence in response.  Of course the Court could enter judgment for the plaintiff.

32.  The present application is wholly different.  The Defendant refrained from delving into the merits in accordance with well-established authorities. 

33.  All in all, the Plaintiff can only show that he has a meritorious claim but falls short of showing high probability of success.

Balancing of all factors

34.  The Court can consider the financial condition of the Plaintiff. However, it is not open to Ms Wong to say that the Plaintiff has given no information as to his assets in Hong Kong or Australia.  The Defendant had to at least aver that on affirmation so that the Plaintiff, if he wished to, could produce evidence in rebuttal: Chris Au.

35.  However, the Plaintiff himself admitted, through his solicitors’ letter dated 2 August 2019, that he would face financial difficulties if made subject to an order for security for costs, although he did not go so far as to aver that his claim would be stifled.

36.  In the light of such admission, even if there was reciprocal enforcement, the Defendant should not be forced to incur further costs in Australia to enforce a costs order against the Plaintiff.  I am of the view that it is first to require the Plaintiff to provide security.

Quantum of security

37.  The Defendant seeks security in the sum of $400,000 up to the stage of pre-trial review.  Taking a broad-brush approach and bearing in mind that it is for security and not indemnity, I order the Plaintiff to pay $200,000 into Court within 6 weeks.

Conclusion

38.  I order as follows:

(1)  There be leave to the Defendant to file the notice of appeal out of time;

(2)  On a nisi basis there be costs of $5,200 to the Plaintiff;

(3)  I allow the appeal and set aside the Master’s order;

(4)  The Plaintiff do provide security for costs in the amount of $200,000 within 6 weeks, failing which the action shall be dismissed; and

(5)  Liberty to apply.

39.  This application has no complexity.  The appeal is a re-run of the arguments before the Master.  On a nisi basis, I order the Plaintiff to bear the costs before the Master in the amount of $70,000 and the costs of this appeal in the amount of $60,000.  Such costs are to be set off against the costs in paragraph 38(2) above.

40.  I thank Ms Wong and Mr Brown for their assistance.