THE LESLIE FAY CO, INCORPORATION t/a BRECKENRIDGE SPORTSWEAR DIVISION v. CHEERIO LTD

[A non-resident plaintiff cannot avoid giving security for costs merely because it has a subsidiary with substantial assets carrying on business within the jurisdiction]

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. This is an application for security for costs. The defendant made an application to the Master for security for costs but the Master refused that relief. It is against that refusal that the defendant now appeals.

2. The plaintiff is resident out of the jurisdiction. The rule is that such a plaintiff may and usually will be ordered, in the interests of justice, to give security for costs. I take the principles from the judgment of Sir Nicolas Browne-Wilkinson V-C in Porzelack KG v. Porzelack (UK) Ltd. [1987] 1 All E. R. 1074 at p.1077 where the Vice-Chancellor said this :-

"         Under Ord 23, r 1[1)(a) it seems to me that I have an entirely general discretion either to award or refuse security, having regard to all the circumstances of the case.  However, it is clear on the authorities that, if other matters are equal, it is normally just to exercise that discretion by ordering security against a non-resident plaintiff.  The question is what, in all the circumstances of the case, is the just answer.

 

        The matters urged before me have spread over a fairly wide field. First there have been attempts to go into the likelihood of the plaintiff winning the case or the defendant winning the case, presumably following the note in The Supreme Court Practice 1985 vol. 1, para 23/1-3/2, which says:' ... A major matter for consideration is the likelihood of the plaintiff succeeding ... This is the second occasion recently on which I have had a major hearing on security for costs and in which the parties have sought to investigate in considerable detail the likelihood or otherwise of success in the action. I do not think that is a right course to adopt on an application for security for costs. The decision is necessarily made at an interlocutory stage on inadequate material and without any hearing of the evidence. A detailed examination of the possibilities of success or failure merely blows the case up into a large interlocutory hearing involving great expenditure of both money and time.

 

        Undoubtedly, if it can clearly be demonstrated that the plaintiff is likely to succeed, in the sense that there is a very high probability of success, then that is a matter that can properly be weighed in the balance. Similarly, if it can be shown that there is a very high probability that the defendant will succeed, that is a matter that can be weighed. But for myself I deplore the attempt to go into the merits of the case unless it can be clearly demonstrated one way or another that there is a high degree of probability of success or failure."

3. The plaintiff's case before me is, first, that the plaintiff has such a very strong case that it would be unjust to award security for costs against it; and, secondly, that there is no necessity to make such an order because the plaintiff has, in Hong Kong, a wholly-owned subsidiary company with substantial assets.  These points were urged on me with skill and clarity by Ms Kitty Cheng of counsel for the plaintiff and I will deal with them in turn.

4. As to the strong case which the plaintiff claims to have, I must briefly mention what the case concerns. It concerns garments, the subject of 8 contracts (the first of which dates back to April 1988) for the sale of the garments by sample. So much is common ground. It is also common ground that the plaintiff noted defects in the goods. But thereafter the parties part company. The plaintiff says that the defects in the sample were acknowledged by the defendant; that oral representations about the garments were made by the defendant to the plaintiff; that time was short; that the plaintiff was anxious to obtain the goods; and that the plaintiff in these circumstances took and paid for them. The defendant does not accept this version of the matter and has always denied liability; it attributes the plaintiff's complaint to a misunderstanding about the nature of the silk from which the garments were made rather than to any real defect in them.

5. I am left unpersuaded that this is so strong a case as to displace the consideration that a non-resident plaintiff is normally ordered to give security for costs. Counsel, very properly, did not attempt to go into the evidence (of which there was a wholly unnecessary mass) or into the facts of the case in any great detail.  As I have indicated, that course is one which the court would deprecate on such an application as this. Although this is a case in which the plaintiff may very well succeed at the trial, I cannot on the material before me conclude that the degree of probability of success is so very high that I ought to attribute any, let alone much, weight to this consideration in the present case.   It seems to me (adopting the words of Mr Fisher, who is instructed on behalf of the defendant) to be a "run-of-the-mill case".

6. The second point taken on behalf of the defendant is as I have said that its subsidiary here has substantial assets and that in these circumstances it is unnecessary, and therefore would be unjust, to order the plaintiff to give security for costs. There is something in this point. The problem however is that the assets are not those of the plaintiff but of the subsidiary. I would accept the proposition that a non-resident plaintiff who shows that it has substantial assets within the jurisdiction ought not to be ordered as a matter of course to give security for costs. Here there is much room for disagreement as to how substantial the assets are; but in any case they are not the assets of the plaintiff. I appreciate that it is probably not in the plaintiff's commercial interests to let its subsidiary go to the wall, or to allow it to be injured by reason of the plaintiff's failure to honour any award for costs which may ultimately be made against the plaintiff at the trial. But that is, in my judgment, not enough to enable the plaintiff to get over the difficulty that its subsidiary is not legally liable for any costs awarded against the plaintiff.

7. Ms Cheng in the course of a powerful submission asked rhetorically if the court would take the same view about those companies which have elected to transfer their domicile out of Hong Kong to other jurisdictions but which still maintain through subsidiaries a very substantial and important presence in Hong Kong. The point does not arise for decision and I express no view about it. It may be that the court might indeed take the view that, in the case of such a company, it would be unnecessary to order it to give security for costs when it appears as a plaintiff in an action here. I do not think I should complicate the matter by expressing a view of my own upon such a hypothetical point. No doubt it would fall to be considered along with all the other circumstances of the case.

8. As in most cases, this non-resident plaintiff objects to the very idea that it should give security for costs. It is obviously a substantial concern; and I have no reason whatever to doubt its commercial good faith. But in the end I am not satisfied that the circumstances here require any departure from the normal rule of practice that a non-resident plaintiff will be ordered to give security for costs. In those circumstances, I propose to order that the plaintiff here do give security for costs. It follows that the appeal must be allowed; and I will hear the parties on any matters of detail which arise out of my decision, including any argument as to costs.