ALVIERO MARTINI S.P.A. v. BUBBLE RETAIL MANAGEMENT LTD AND OTHERS

HCA 1937/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1937 OF2008

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DECISION

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The applications

1. There are two applications taken out by the defendants for security for costs pursuant to Order 23 rule 1 of RHC on the ground that the plaintiff is a foreign company without assets within the jurisdiction:

a.  The 1^st defendant and the 2^nd defendant apply for “top up” security for costs up to trial in the amount of HK$2 million, the plaintiff having paid into court HK$700,000 as security; and

b.  The 3^rd defendant and the 4^th defendant apply for security for costs up to trial in the amount of HK$800,000.

2. Mr. D. Clark, counsel acts for the plaintiff.  Mr. Ling, counsel acts for the 1^st and the 2^nd defendants and Mr. B. Lo, counsel acts for the 3^rd and the 4^th defendants.

The facts

3. It is the plaintiff’s primary case that the 1^st defendant’s sale and/or distribution of the leather products in Hong Kong constituted acts of passing off and/or infringement of the plaintiff’s trade mark.  The plaintiff claims damages, an account of profit and injunctive relief against all the defendants for those acts.

4. The plaintiff does not dispute that it is a foreign company.  By consent, the plaintiff had made payment into court for security for the costs of the 1^st and 2^nd defendants for the sum of $700,000 up to the stage of exchange of witness statements and obtaining counsel’s advice on evidence.  Now the 1^st and the 2^nd defendants apply for further security up to and including trial, which will take 11 days.

5. The 3^rd and the 4^th defendants only joined in the proceedings in November 2011.  This is their first application for security for costs up to and including trial.

The grounds of opposition

6. The plaintiff does not dispute the fact that it had paid $700,000 into court as security for costs of the 1^st and the 2^nd defendants’ costs up to counsel’s advice on evidence.  However, it opposes the defendants’ applications on the following reasons:

a.  The court has the wide discretion whether to grant or refuse to grant the security for costs, having considered all the circumstances of the case.  The fact that the plaintiff had consented to security for the 1^st and the 2^nd defendants should not fetter the Court’s discretion in their application for further security for costs up to trial.

b.  Although the decisions of H.H. Judge Lok in the District Court in Izumo Mokko Co Ltd v TS Lines Ltd [2007] 2 HKLRD 363 was not followed in Lim Yi Shenn v Wong Yuen Yee [2012] 4 HKC 102, by Recorder Horace Wong SC Hong Kong has a reciprocal enforcement of judgment agreement with Italy.  This factor has to be taken into consideration.  Mr. Clark therefore argues that even if security should be provided, the amount should be the costs for taking out the ex-parte application to enforce the costs order in Italy.[1] &

c.  The plaintiff has assets in the jurisdiction.

Discussion

7. It is trite law that the Court has the unfettered discretion under Order 23 rule 1.  See §§15 & 36 of Hui Yin Sang & Others v Tsoi Ping Kwan & Others CACV208/2011 reported in [2012]2 HKLRD 1085 by Fok JA (as he then was) on 19 April 2012.

8. The issue of reciprocal enforcement was discussed in my another Decision in Kin Ming Holdings International Limited (建明集團國際有限公司) & Another v Lin Man Yuan (林满园) & Another HCA216/2008 (unreported) 18 June 2013 where Senior Counsel submitted that the costs order could be enforced in the mainland under the Mainland Judgments (Reciprocal Enforcement) Ordinance (Cap. 597), a similar issue of reciprocal enforcement of court orders.  At §16 of my Decision, I set out the arguments:

‘16. Mr. Fung SC submits that the rationale or objective underlying Ord. 23, r.1(1)(a) is to alleviate the difficulty that may be faced by a successful defendant in seeking to recover costs against a foreign plaintiff. Importantly, there has already been put in place a well-designed mechanism under Cap. 597 for the reciprocal enforcement of judgments between Mainland China and Hong Kong. This may be true. However, there is no authority to support that, given all other factors in support of the application are satisfied, an order for security for costs should not be granted. This factor alone, though may be one of the factors for consideration, should not, in my view, be conclusive or dispositive, to borrow Madam Justice Le Pichon’s words in Wing Fai Construction Limited (in liquidation) v. Cheng Kit Yin Kelly & Others CACV249/2010, supra. See also the discussion on the court’s approach on weight that should be given to enforcement of the costs order at §§52-55 of Lim Yi Shenn v Wong Yuen Yee [2012]3 HKLRD 505by Recorder H. Wong SC, in which the learned Recorder discussed the approach as recommended by HH Judge Lok in the case of Izumo Mokko Co Ltd v TS Lines Ltd [2007] 2 HKLRD 363 that the court should focus its attention on the issue of enforcement of the costs order in determining whether an order for security for costs should be imposed, reference having been made to the UK case Nasser v United Bank of Kuwait [2002] 1 WLR 1868, taking into account of the human rights issue of access to court. The learned Recorder refused to adopt HH Judge Lok’s approach and decided that the conventional approach, without taking the human rights issue into account, should be adopted. The learned Recorder, however, recognized that enforcement of the court order should be one of the factors for the court’s consideration for its determination whether an order for security for costs should be made.

17. The Court of Appeal in Montgomery Ward & Co Incorporated v Evergo Trading Company Limited and Evergo Holdings Company Limited, unreported, CACV 32/1996, 31 May 1996, where Nazareth VP held (paragraph 8):

‘Given that there are no proper factors weighing in favour of the foreign plaintiff or at least either way, it seems to me that [the judge's] discretion plainly had to be exercised in conformity with the position set out in the judgment of Lord Denning in AeronaveSPA v Westland Charters [1971] 3 All ER 531 at 533 where he said this:

"I agree with the note in the Supreme Court Practice that the rule does give a discretion to the court.  In 1984 in Crozai v Brogden Lopes J said that there was an inflexible rule that if a foreigner sued he should give security for costs.  But that is putting it too high.  It is the usual practice of the courts to make a foreign plaintiff give security for costs.  But it does so, as a matter of discretion, because it is 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." (emphasis added). Parker LJ observed in the case of Berkeley Administration Inc v McClelland [1990] 2 QB 407 at 418F: "....... it is, I accept, common for orders to be made on little if anything more than fact of residence outside the jurisdiction, but this is because it is also commonly the case that it is obvious from the pleadings that enforcement of any judgment for costs in the event of the plaintiff's action being dismissed would be difficult and costly to enforce. "’

9. I had refused to make an order for security for costs in that case for the reason that the plaintiff had sufficient assets within the jurisdiction.

10. Mr. Clark now submits that the plaintiff has 20 registered trademarks in Hong Kong, which can be realized by appointment of a receiver and sale.  Also, these trademarks are valuable to the plaintiff.  If they were sold, the plaintiff would not be able to carry on its business for those products with the trademarks in Hong Kong.  As the plaintiff has substantial business in Hong Kong and Asia, it is unlikely that the plaintiff will run the risk of losing the rights to the trademarks in Hong Kong.

11. The trademarks may be valuable assets of the plaintiff in Hong Kong.  However, the commodity of trademarks, unlike other tangible properties, is difficult to assess.  One wonders if there are available buyers for the trademarks and how the price is to be fixed. The plaintiff has given no evidence on this.  The burden is on the plaintiff to show that such assets are valuable assets in Hong Kong sufficient to cover the defendants’ costs if the court grants the order.

12. Having considered the circumstances and counsel’s submissions, I decide that the plaintiff has failed to discharge the burden of showing that it has sufficient assets within the jurisdiction to satisfy the defendant’s costs if orders for costs were made against it.  It is then a question of quantum for the top-up security for the 1^st and the 2^nd defendants and the security for the 3^rd and the 4^th defendants.

13. Mr. Clark has also submitted that if the court is minded, to grant security, security should only be given for extra costs that would be incurred by the defendants in seeking to enforce the costs award in Italy.  This has been the approach followed in recent years in England (albeit in case law not followed, by Recorder Wong SC).  (See paragraph 51 of Lim Yi Shenn).

14. Order 23 rule 1 provides:

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

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

(b)  … … having regard to all the circumstances of the case, it may order the plaintiff to give such security for the defendant's costs of the action or other proceeding as it thinks just.”

15. The purpose of order security for costs under Order 23 against the foreign corporation is clearly set out in Hui Yin Sang’s case, at paragraph 46:

‘It is important to bear in mind, in the context of O.23, that:

“The purpose of ordering security for costs against a plaintiff ordinarily resident outside the jurisdiction is to ensure that a successful defendant will have a fund available within the jurisdiction of this court (emphasis added) against which it can enforce the judgment for costs. It is not, in the ordinary case, in any sense designed to provide a defendant with security for costs against a plaintiff who lacks funds. The risk of defending a case brought by a penurious plaintiff is as applicable to plaintiffs coming from outside the jurisdiction as it is to plaintiffs resident within the jurisdiction.”

(Per Sir Nicholas Browne-Wilkinson VC (as he then was) in Porzelack KC v Porzelack (UK) Ltd [1987] 1 WLR 420 at p. 422H – cited in Akai Holdings Ltd v Ernst & Young (2009) 12 HKCFAR 376 at §14).”’

The Court of Final Appeal in the Akai case was discussing the jurisdiction of the court making an order for security for costs and at §15 of the judgment, P. Chan PJ, with others concurring, said: “Hence, if it can be shown that a foreign plaintiff has substantial assets in Hong Kong on which to execute the costs order, the court may not require security. …”  Thus, the court will be concerned with whether, on the evidence available, it can be shown that the plaintiff has substantial assets in Hong Kong to satisfy the costs order without going into the exact amount that will be sufficient to cover the defendant’s costs, such as to provide an indemnity to the defendant for the costs.  See 23/3/32 of HKCP 2013 Vol. 1 on “sufficient” security.

16. Mr. Clark’s suggestion of providing security for the costs of enforcing the costs order, if it is granted by the court in Italy, a civil law jurisdiction should, in my view, not be adopted for the following reasons:

a.  It is inconsistent with the intention of Order 23 rule 1, as explained by the Court of Appeal and the Court of Final Appeal, supra;

b.  Although the plaintiff has given affidavit evidence as to the procedures for enforcement of a court order in Italy, which, as Mr. Clark submits, is not disputed by the defendants, it will incur more costs if this Court entertain this suggestion, making the defendants seek legal advice on the procedures as alleged by the plaintiff;

c.  The time for this Court to consider those issues above will be increased, so will be the costs as well;

d.  All in all, it will be disproportionate in terms of costs and time for the Court to adopt Mr. Clark’s suggestion.

Conclusion

17. For those reasons above, I consider that the Court should adopt the orthodox way of having the security for costs deposited in Court.

18. Since Mr. Clark has not argued on the amount on the draft bills, I shall rely upon them for the assessment of the costs for the security.  Although Mr. Clark has commented on the bill of the 1^st and 2^nd defendants, I consider that no substantial argument has been put forth.  I shall therefore accede to their request of $2 million.  As to the 3^rd and the 4^th defendants, Mr. Clark does not dispute their quantum.  I accede to their request too.

19. As to the costs of this application, including the costs for the hearing today, Mr. Clark concedes that the costs should follow the event and he agrees that counsel’s certificates should also be given.  But he disputes the costs as appeared on the schedules of costs of the defendants.  Having considered submissions from counsel before me, I have to say that the costs are inflated.  Given the facts and legal issues involved for today, I do not consider that the solicitors’ charges should be about 3 times the fees charged by counsel.  On a broad-brush approach, the costs for the 1^st and the 2^nd defendants be assessed under Order 62 rule 9A to be $75,000 and the costs of the 3^rd and the 4^th defendants to be $70,000, taking into account of seniority of counsel.

20. I shall now make an order in terms as follows:

a.  The plaintiff shall within 28 days from the date of this order make another payment of costs as further security for the costs of the 1^st and the 2^nd defendants up to and including the trial for the amount of $2,000,000;

b.  The plaintiff shall within 28 days from the date of this order make payment of costs as security for the costs of the 3^rd defendant and the 4^th defendant up to and including the trial for the amount of $800,000;

c.  The plaintiff may, instead of making cash payment into court, provide a bank guarantee by a bank in Hong Kong for same amounts in the terms as agreed by the parties, or to be approved by the Registrar within 28 days from the date of this order;

d.  All further proceedings shall be stayed except for this order to be carried out;

e.  If the plaintiff fails to provide further security or the security herein provided within the specified time, the plaintiff’s claims be dismissed and its action struck out, with costs to the defendants;

f.   The costs of this application, including the costs reserved and the hearing today (with counsel certificates) are to be assessed at $75,000 for D1 and D2 and $70,000 for D3 and D4 respectively, to be paid by the plaintiff to the defendants within 28 days from the date hereof.