CHIMBUSCO PAN NATION PETRO-CHEMICAL CO LTD v. THE OWNERS AND/OR DEMISE CHARTERERS OF THE SHIP OR VESSEL “DECURION”

CACV 198/2011 AND CACV 214/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 198 OF 2011 AND NO. 214 OF 2011

(ON APPEAL FROM HCAJ NO. 141 OF 2010)

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BETWEEN

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D E C I S I O N

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1.  The defendant, having failed to obtain an extension of time to file and serve their defence on 1 September 2011, had an default judgment entered against it on 16 September 2011 for the principle sum of about US$4.2 million and accrued interests of about US$400,000.

2.  The defendant had since filed notices of appeal against the time extension order and the default judgment.  The appeals are scheduled to be heard on 13 December 2011 with half a day reserved.

3.  The plaintiffs now seek security for costs of the appeal from the defendant, having failed to persuade it to put up the security voluntarily by letters dated 19 October 2011 and 8 November 2011.

4.  The defendant, an Argentina company, does not have a place of business in Hong Kong and its only assets in Hong Kong are the proceeds of the sale of a vessel of just over US$5 million.  However, there are seven other outstanding judgments against the defendant and the total amount involved is over US$9 million.  The defendant’s assets in Hong Kong are also subject to a mareva injunction order made on 7 April 2011 in HCA 632 of 2011 to the extent of over US$11 million.

5.  It is the plaintiffs’ case that the defendant is impecunious and without an order of security for costs, there will be undue delay and expense in enforcing any order for costs against the defendant should the defendant be unsuccessful in the appeals. The plaintiffs estimate their costs of the appeal to be around $480,000.

6.  The defendant does not challenge the plaintiffs’ basic contentions.  However it is suggested that the defendant is not impecunious as it is undergoing a significant restructuring process and that the defendant’s worth is about HK$215 million with a capital of about HK$42.5 million.  It is further suggested that the plaintiffs’ report on the defendant’s financial position is outdated and that the failure on the part of the defendant to put up US$4 million for the release of the vessel was not an indication that the defendant would be unable to meet a costs order of HK$500,000.

7.  The defendant further submits that any costs order against it could be easily enforceable in Argentina as such enforcement action is straight-forward and relatively inexpensive.

8.  Ms Jin Zhuang, the solicitor acting for the defendant, suggested in her affirmation that the defendant does have a good chance of successfully appealing against the time extension order and the default judgment.

9.  Ms Zhuang further pointed out that the defendant’s assets in Hong Kong are subject to a mareva injunction order and without a variation to the order, the defendant could not “carve out” their assets in Hong Kong to make provision for the order of security for costs.  In any event, Ms Zhuang argued that the 7-day time frame for the defendant to provide security for costs is too short and the amount asked for by the plaintiff is unreasonable.  Mr James HM McGowan, counsel for the defendant, emphasizes those matters.

10.  I do not find it necessary to go into the merits of the defendant’s appeal as such except to point out that in this case, the merits of otherwise of the appeal is not a matter that would materially affect the exercise of my discretion.

11.  The defendant is an Argentina company and whatever is the enforcement procedure there, the fact that the plaintiffs may have to enforce a costs order by a separate action in Argentina means that it will be more expensive and more difficult to enforce an order for costs.

12.  The mareva injunction order only restrains the defendant’s assets in Hong Kong and if the assertion that the defendant is not impecunious is correct, the defendant could have easily made provision for the security for costs requested by the plaintiff within a relative short period of time.

13.  I do not accept the suggestion that any funds brought into Hong Kong as security for costs in accordance with an order of this court, once within the jurisdiction, will be frozen.  The funds will be paid into court for the special purpose of meeting any costs order against the defendant.  For what is worth, the court will specify that the security for costs ordered to be paid into court will not be subject to the mareva injunction order made on 7 April 2011.

14.  I also do not accept the suggestion that any costs order against the defendant will have the effect of stifling the defendant’s appeals.

15.  On the available facts, this is clearly a proper case for ordering security for costs of the appeal against the defendant and in my view, having perused the plaintiffs’ estimated costs, an appropriate sum is $350,000.

16.  I therefore make the following orders:

(1) The defendant do provide security for the plaintiffs’ costs of the appeal by paying in court within 10 days from today the sum of $350,000 in cash;

(2) All proceedings will be stayed pending the payment into court of the said sum of $350,000 by the defendant;

(3) If the defendant fails to provide the security for costs aforesaid, the appeals will be dismissed forthwith without further order with costs of the appeals and the costs of this application to the plaintiffs to be taxed if not agreed; and

(4) If the defendant does provide the security for costs in accordance with this order, the costs of this application to be in the cause of the appeals.

(5) The sum of $350,000 paid into court by the defendant pursuant to this order will not be subject to the mareva injunction order made on 7 April 2011 in HCA 632 of 2011.