BRAND FARRAR BUXBAUM LLP. v. SAMUEL-ROZENBAUM DIAMOND LTD

HCA 5191/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 5191 OF 1998

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BRAND FARRAR BUXBAUM LLP. v. SAMUEL-ROZENBAUM DIAMOND LTD

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REASONS FOR DECISION

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Application

1. There was before me a Summons taken out by Mr. Ilan Samuel ("Mr. Samuel") on 25 July 2003 for security for costs incurred and to be incurred by him in another Summons issued by the Plaintiff (the Judgment Creditor) on 21 July 2003 for leave to issue execution against Mr. Samuel and for oral examination of him, not in the capacity as a director or officer of the Defendants (the Judgment Debtors) but as a judgment debtor himself. On 25 October 2003, I allowed Mr. Samuel's application and reserved the reasons for the decision, which I now give.

2. This case has a complicated history. I shall set out below only those events which are relevant to the present application:-

(1)	On 18 March 2000, a default judgment was entered against the Defendants, namely Samuel-Rozenbaum Diamond Limited ("SRDL") and Samuel-Rozenbaum Diamond (1992) Limited ("SRDL(1992)").
(2)	On 28 March 2002, Master Ho ordered examination of Mr. Ilan Samuel under Order 48 of the Rules of the High Court. In this order, Mr. Samuel was described as "the director of above-named Judgment Debtors", i.e. both SRDL and SRDL (1992).
(3)	On 26 March 2003, Mr. Samuel took out a summons to set aside the said order in so far as Mr. Samuel was concerned as a director of SRDL. The ground of this application was set out in Mr. Samuel's Affirmation affirmed on 25 March 2003, at paragraph 2 where he deposed as follows:
	"I never was and am not an officer of the 1st Judgment Debtor [i.e. SRDL] because the 1st Judgment Debtor never was and is not a body corporate."
(4)	On 7 July 2003, Master Woolley set aside Master Ho's said order made on 28 March 2002 in so far as Mr. Samuel was concerned as a director of SRDL.
(5)	On 21 July 2003, the Plaintiff issued the said Summons for leave to issue execution against Mr. Samuel and for oral examination of him as a judgment debtor. The application was stated to be made under Order 45 and Order 49B, Rule 1 of the Rules of the High Court. It should be noted that no reference was made to which rule under Order 45 this application was based upon, despite Order 45 covers a variety of matters concerning different aspects of execution. I shall refer to this application below as "the Execution Summons".
(6)	On 25 July 2003, Mr. Samuel took out the present application for security for costs of the Execution Summons.

Grounds of the Application

3. In the present Summons, it was stated that the application was made under Order 23, rule 1 of the Rules of the High Court and the inherent jurisdiction of the Court. At the hearing, Mr. José-Antonio Maurellet, Counsel for Mr. Samuel told the Court that he did not rely on the inherent jurisdiction of the Court. In respect of Order 23, rule 1, Mr. Maurellet said he relied on Order 23, rule 1(a) ("that the plaintiff is ordinarily resident out of the jurisdiction") and Order 23, rule 1(d) ("that the plaintiff has changed his address during the course of the proceedings with a view to evading the consequences of the litigation").

4. Of course, the proof of rule 1(a) or rule 1(d) meets the threshold of granting the security only. Having had the jurisdiction, I need to pay regard to all the circumstances of the case. If I think it just to do so, I may then order the security to be furnished. I have drawn parties' attention to the case of Wing Hing Provision, Wine & Spirits Trading Co. Ltd. V. Hanjin Shipping Co. Ltd. [1998] 4 HKC 461. Parties agree that I should follow the relevant principles summarized in Keart Developments Ltd. V. Tarmac Construction Limited & Anor. [1995] 3 All ER 534 at 539-540 and cited with approval by Mr. Justice Godfrey JA at 464 of the Wing Hing case, which are reproduced as follows:-

"	1.	The court has a complete discretion whether to order security, and accordingly it will act in the light of all the relevant circumstances.
	2.	The possibility or probability that the plaintiff company will be deterred from perusing its claim by an order for security is not without more a sufficient reason for not ordering security.
	3.	The court must carry out a balancing exercise. On the one hand it must weigh the injustice to the plaintiff if prevented from pursuing a proper claim by an order for security. Against that, it must weigh the injustice to the defendant if no security is ordered and the defendant finds himself unable to recover costs from the plaintiff in due course.
	4.	In considering all the circumstances, the court will have regard to the plaintiff company's prospects of success. But it should not go into the merits in detail unless it can clearly be demonstrated that there is a high degree of probability of success or failure.
	5.	The court may order any amount up to the full amount claimed by way of security, provided that it is more than a simply nominal sum; it is not bound to order a substantial amount.
	6.	Before refusing to order security on the ground that it would unfairly stifle a valid claim, the court must be satisfied that, in all the circumstances, it is probable that the claim would be stifled. There may be cases where this can properly be inferred without direct evidence. The court should consider not only whether the plaintiff company can provide security out of its own resources to continue the litigation, but also whether it can raise the amount needed from its directors, shareholders or other backers or interested parties. It is for the plaintiff to satisfy the court that it would be prevented by an order for security from continuing the litigation."

Is Mr. Samuel a "defendant" under Order 23, rule 1?

5. The Plaintiff raised a more fundamental challenge to Mr. Samuel's application, which was that Mr. Samuel was not even "a defendant to an action or other proceedings in the Court of First Instance" within Order 23, rule 1. If this was correct, Mr. Samuel had no locus to make the application at all.

6. The strongest challenge as I can see on this argument is the reliance on a passage in paragraph 23/3/2, Hong Kong Civil Procedure 2002:

"'Action or other proceeding' (rr.1-3) - The proceedings referred to in r.1 are required to be an action or in the nature of an action and r.1 is wide enough to include any matter in which the jurisdiction of the court is invoked by originating process and consequently includes a petition: Re Unisoft Group (No.1) [1993] B.C.L.C. 528 ... Thus a defendant in an action or other substantive proceedings who makes an interlocutory application within such proceedings, for example an application by summons or motion, is not in the position of plaintiff for the purposes of r.1 in relation to the interlocutory application, and cannot be ordered to give security for the other party's costs of resisting such application (Re B. (Infants) [1965] 1 W.L.R. 946; 2 All E.R. 651n.). Similarly there is no jurisdiction to order a plaintiff to give security for a third party's costs of defending interlocutory applications for specific discovery and interrogatories made by the plaintiff directly against the third party. The third party is in the position of a defendant in relation to the third party proceedings brought against him by the original defendant, but not in relation to the interlocutory proceedings brought against him by the plaintiff, because the latter proceedings are not an action or in the nature of an action (Taly N.D.C. International N.V. v. Terra Nova Insurance Co. Ltd. [1985] 1 W.L.R. 1359; [1986] 1 All E.R. 69, CA)." (emphasis added)

7. In a nutshell, the argument was:-

(1)	Mr. Samuel applies for security for costs incurred and to be incurred in the Plaintiff's Execution Summons.
(2)	The Execution Summons is only an interlocutory application.
(3)	Therefore, Mr. Samuel is not "a defendant to an action or other proceeding" within the meaning of Order 23, rule 1.

8. I reject the argument for the following reasons:-

(1)	Adopting the test of Scrutton LJ in Maatschappij Voor Fondsenbezit v. Shell Transport & Trading Company Limited [1923] 2 K.B. 166 at 173, 177-8 as cited with approval by Mr. Justice Ma (as he then was) in the Judgment of another application by the Plaintiff for security for costs against the Claimant in the present action delivered on 15 October 2002 at paragraph 18 (that is, "Who is the attacker and who is the defender in this case?"), looking at the substance of the Execution Summons, there is no doubt that the Plaintiff is the attacker and Mr. Samuel is the defender.
(2)	It is clear from the said passage in Hong Kong Civil Procedure 2002 and Taly N.D.C. International N.V. v. Terra Nova Insurance Co. Ltd. that Order 23, rule 1 covers proceedings which are "in the nature of an action". To distinguish it from "interlocutory proceedings", I draw assistance from the following passage in Gilbert v. Endean (1878) 9 Ch. D. 259 at 269, applied in Rossage v. Rossage [1960] 1 W.L.R. 249; [1960] 1 All E.R. 600, CA; Re J. (An Infant) [1960] 1 W.L.R. 253; [1960] 1 All E.R. 603 and cited at paragraph 41/5/2, Hong Kong Civil Procedure 2002:
	"For the purpose of this rule [Order 41, rule 5] those applications only are considered interlocutory which do not decide the rights of parties, but are made for the purpose of keeping things in status quo till the rights can be decided, or for the purpose of obtaining some direction of the court as to how the cause is to be conducted, as to what is to be done in the progress of the cause of the purpose of enabling the court ultimately to decide upon the rights of the parties." (emphasis added)
	Although this passage is in relation to Order 41, rule 5 of the Rules of the High Court, I see no reason as to why this test cannot be adopted as the test for the purpose of Order 23, rule 1, namely, whether the proceedings underlying the application for security for costs are "an action or in the nature of an action" within Order 23, rule 1.
(3)	In the Execution Summons, the Plaintiff seeks leave to issue execution against Mr. Samuel personally. This is a determination of substantive rights and liabilities between the Plaintiff and Mr. Samuel. Plainly the Execution Summons is not within the meaning of "interlocutory proceedings" adopting the test in Gilbert v. Endean. Rather, it is in the nature of an action where the liability of Mr. Samuel will be determined.
(4)	In reaching this conclusion, I also draw reliance from the said Judgment of Mr. Justice Ma in the present action delivered 15 October 2002 at paragraph 16, where His Lordship, in considering the fundamental requirement under section 357 of the Companies Ordinance as to whether the company against which security is sought, is the "plaintiff in an action or other proceeding" under that section, held that:
	"There is no doubt that the words "legal proceeding" are wide enough to cover interpleader proceedings (c.f. Hong Kong Civil Procedure 2002, Vol. 1, at paragraphs 23/3/2 and 23/3/14)".

9. Therefore, in my view, Mr. Samuel is a "defendant" under Order 23, rule 1.

The Plaintiff: Foreign Plaintiff?

10. At one stage, the Plaintiff sought to suggest that this was the same issue to be decided in another Summons taken out by the Claimant dated 23 July 2003 for leave to execute against Mr. David C. Buxbaum ("Mr. Buxbaum") for costs of the interpleader proceedings ordered against the Plaintiff, "who was at all material times a partner of the Plaintiff". And the material times according to that Summons were respectively (1) 15 October 2002, the date of the Order of Mr. Justice Ma, (2) 28 November 2002, the date of the Order of Mr. Justice Sakhrani and (3) 17 December 2002, the date of another Order of Mr. Justice Sakhrani. I rejected this suggestion. For the purpose of security for costs, the Court was concerned with the present status and residence of the Plaintiff and not its status and residence at any time in the past.

11. In his affirmation filed with this Court on the Plaintiff's behalf recently on 9 August 2003, Mr. Buxbaum deposed (at paragraph 2) as follows:

"The Plaintiff is an American law firm, established in Los Angeles, USA, in November 1997, as a limited liability partnership, pursuant to California law and the California Corporation Code, Section 16951 et seq."

12. In the evidence exhibited by Mr. Samuel, the business registration record of the Plaintiff showed that it has ceased the business in Hong Kong on 21 January 2003, whereas a letter from the Law Society to Mr. Samuel's solicitors showed that the Plaintiff ceased practice on 30 June 2003 and its "contact" address (not business address) is a residential address in Hong Kong.

13. In another affirmation filed belatedly on 23 October 2003 (which parties agreed that I could look at it de bene esse), Mr. Buxbaum deposed further on the status of the Plaintiff at paragraph 4(a):

"The Plaintiff is properly registered and carries on some business in USA, while undergoing re-organization. Its status in Hong Kong is that Plaintiff has withdrawn its registration with the Law Society. The Plaintiff is not practicing law, but it is pursuing those who owe the Plaintiff money and using said funds to pay its debts."

14. The evidence was overwhelming: that the Plaintiff was an American law firm and has no business in Hong Kong. I was satisfied that the Plaintiff is a foreign plaintiff.

15. This finding sufficiently gave me the jurisdiction to consider whether discretion should be exercised to grant security for costs. For completeness sake I express the view that the evidence however cannot demonstrate on balance of probability that the Plaintiff changed its address (in effect it ceased business) during the course of proceedings with a view to evading the consequences of the litigation under Order 23, rule 1(1)(d). This is because firstly the present proceedings in the present context refer to the Execution Summons, which was issued on 21 July 2003, but long before that in January 2003 the Plaintiff had ceased business (and the practice ceased on 30 June 2003). As such its address was not changed "during the course of proceedings". Secondly, there is simply insufficient evidence produced to me showing, whether objectively or subjectively, the intention of the Plaintiff, in ceasing business, was to avoid the consequence of the present proceedings.

Discretion to allow security

16. After looking at all the relevant circumstances, I was satisfied that security should be given by the Plaintiff, for the following reasons:-

(1)	In the said belated affirmation of Mr. Buxbaum, the Plaintiff has sought to introduce the point, albeit belatedly, that the Plaintiff's financial position is weak and any security to be ordered would be severe hamper on the Plaintiff. I agree with the submission of Mr. Maurellet that this was no more than a bare assertion. The "Income Statement" exhibited was totally unhelpful because it was not audited and even signed. The Court did not know who prepared it. Moreover, its contents were confused.
(2)	Therefore, I was not persuaded that on balance of probability the Plaintiff would be deterred from pursuing its claim by an order for security.
(3)	I have also broadly considered the Plaintiff's prospect of success. I have reminded myself that I should not go into the merits in detail. The Plaintiff might have substantial grievances against its former clients. However, I have doubt as to whether proper procedural steps have been taken to enforce its rights (if any as against Mr. Samuel personally). This is because I have doubt as to whether the Execution Summons, basing on Order 45 generally and Order 49B, rule 1 as stated therein, would enable the Plaintiff to obtain leave to execute the judgment debt against Mr. Samuel personally, in the event that the Court finds that SRDL has never been in existence as alleged by the Plaintiff. I say no more than this save the conclusion that I reached for the present purpose was that the Plaintiff could not demonstrate to me that there was a high degree of probability of success.
(4)	The result of the balancing exercise that I have done, after also taking into account the injustice to Mr. Samuel if no security is ordered and Mr. Samuel finds himself unable to recover costs from the Plaintiff in due course if he succeeds in the Execution Summons, was that Mr. Samuel should have the protection of the security.

Quantum

17. I followed the practice of this Court as set out in paragraph 23/3/32 of Hong Kong Civil Procedure 2002 in estimating Mr. Samuel's costs on a broad-brush approach. Looking at the skeleton bills submitted by Mr. Samuel's solicitors, many items were in my view excessive. I have also considered that the amount ordered should be proportional to the judgment debt at stake (which was US$92,919.60 plus interest). Bearing all these factors in mind, I took the view that HK$150,000 is a just sum of which security should be furnished.

Result

18. After hearing parties on the terms of the order, I made the following order:-

(1)	The Plaintiff do furnish security for costs incurred and to be incurred by Mr. Ilan Samuel in the Plaintiff's Summons dated 21 July 2003 in the sum of HK$150,000.00 by way of payment into court or other mode to be determined by the Court if not agreed within 42 days from the date of the Order [i.e. 25 October 2003].
(2)	The proceedings in respect of the Plaintiff's said Summons dated 21 July 2003 be stayed until the said security is given by the Plaintiff.
(3)	Liberty to apply for directions on the mode of giving the security as referred to in paragraph (1) above.
(4)	Costs of this application including costs of today's hearing be paid by the Plaintiff to Mr. Ilan Samuel with certificate for counsel in any event after the determination of the Plaintiff's said Summons dated 21 July 2003.