ALI A.H. SALEH v. FALCON INSURANCE CO (HONG KONG) LTD

DCCJ 6260 & 6261/2002

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 6260 & 6261 OF 2002

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REASONS FOR RULING

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In each of these two actions the defendant applied under Order 23 Rule 1 of the Rules of the District Court for an order for security for costs, on the ground that the plaintiff is ordinarily resident out of the jurisdiction. After hearing argument I ordered that the plaintiff give security for costs in each case. I now give my reasons for doing so.

2. There is no dispute that the plaintiff is ordinarily resident out of the jurisdiction. The order for security for costs against a foreign plaintiff is discretionary and may be made if, having regard to all the circumstances of the case the court thinks it is just to do so. Formerly it was regarded as pretty much inevitable that a foreign plaintiff would be ordered to give security but that is not presently the case; Lauria v Le Salon Orient (Hong Kong) Ltd. & Anor. [1996] 2 HKLR 37. The merits of the plaintiff's case may be taken into account in exercising the discretion; Wong Kwok Mei Sanrita & Ors. v Eversonic Inc, [1992] 2 HKC 62. However the starting point remains that, other things being equal, a foreign plaintiff will normally have to give security, and the merits should only be weighed where the plaintiff shows a high probability of success. This should not involve a mini-trial.

3. In Porzelack K.G. v Porzelack (U.K.) Ltd. [1987] 1 WLR 420 at 423 Sir Nicholas Browne-Wilkinson VC said:

"Under RSC Order 23, Rule 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 the 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, page 384 under rubric 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 be weighed but for myself I deplore the attempt to go into the merits of the case unless it can be demonstrated one way or another that there is a high degree of probability of success or failure."

4. In the present cases, the plaintiff argues that he has a genuine and strong case. The defendant, however, has raised various issues which, on its arguments, tend to show that the plaintiff is unlikely to succeed at trial.

5. The facts in the two cases are almost identical. The plaintiff is ordinarily resident in the Lebanon. He says that he is the director of one Challenger Import Export Ltd. ("Challenger"), a company registered in the United Kingdom, and one M.A.N.-PRO ("Man-Pro") a company registered in France. The cases are concerned with two consignments of cloth goods which Challenger bought from a Hong Kong company, Harrytex (Far East) Ltd. ("Harrytex") on different dates in November 1996 for onwards sale to a Mr. Amellal Omar of an Algerian company, Nedjimatex SARL though it is not clear from the pleadings whether the sale was to the individual or the company. The goods were for shipment c.i.f. from Wuhan, China to Algiers. In each case Harrytex purchased from the defendant a marine insurance policy to cover the consignment of goods. The goods were shipped to Algiers. They cleared Customs there, in one case on 19 March and in the other on 3 April 1997. In each case they were found to be wet and stained. The plaintiff's surveyor reported that the damage was caused by the ingress of water into the container. The plaintiff now claims in each case against the defendant under the marine insurance policy for the insured value of the goods.

6. The plaintiff pleads in each case as follows:

19. The said policy was effected by Harrytex as agent for Challenger or the Plaintiff

(a) Alternatively the policy was assigned to Challenger or the Plaintiff by Harrytex when the goods were transported from Wuhan on or about (date).

(b) Alternatively the Plaintiff was interested in the policy either as an insured or as director of Challenger.

(c) Alternatively the interest in the policy was assigned to the Plaintiff by the interested parties through letters of assignment.

20. Challenger had already made payment for the goods to Harrytex after the goods were shipped. The Plaintiff as a director of Challenger was an interested party in the policy. To avoid any doubt Mr. Omar and other interested parties have all made written declarations that the Plaintiff was the sole owner of the policy. The Defendant is therefore liable to pay (amount) to the Plaintiff which is the insured value of the goods.

7. The defendant has put forward various arguments, primarily on the issue of title to sue. In the first place it is argued that there is nothing to suggest that the plaintiff had given Harrytex authority to contract for insurance on its behalf. It is certainly true that there is nothing on the face of the insurance policies to show that Harrytex was contracting other than on its own behalf. Further, there is no evidence that the defendant was put on notice that Harrytex was or might be acting on behalf of another.

8. So far as assignment to Challenger or the plaintiff is concerned, there is nothing on the face of the insurance policies to show assignment by indorsement or in some other customary manner, such as delivery, as required by section 50 of the Marine Insurance Ordinance, Cap. 329 ("the Ordinance"). The plaintiff argues that it is common knowledge within the industry than an insurance policy entered into by virtue of a C.I.F. contract is done so for the benefit of the purchaser and that the rights and benefits thereof will transfer to the purchaser once the goods have been paid for. If that is so, it is not pleaded. In any event it seems to me that there would have to be some form of assignment or agreement to assign and no such agreement is pleaded.

9. The plaintiff's claim to an interest in the policy as an insured or a director of Challenger seems strange. He could only obtain the interest himself by assignment, of which more below. If the policy was assigned to Challenger - and there is no evidence that it was or that there was an agreement to assign it - then his status as Challenger's director would not give him an insurable interest. To have an insurable interest as defined by section 5 of the Ordinance he would have to have a "legal or equitable relation to the marine adventiure or to any insurable property at risk therein." But his status as director would not give him a legal or equitable interest in the company's property; see Macaura v Northern Assurance Co. Ltd. [1925] AC 619 where it was held that even a sole shareholder or creditor of a company had no insurable interest in the company's sole asset.

10. As to assignation to the plaintiff himself, the plaintiff relies on four letters which he says are letters of assignment. On 30 June 1997 Harrytex wrote to Man-Pro confirming that from that date it was the "only owner" of the policies. On 5 July 1997 Man-pro wrote to the plaintiff confirming that he was from that date the "only owner" of them. On 8 July 1997 Challenger wrote to the plaintiff confirming that he was from that date the "only owner" of the policies. Then on 15 July 1997 Nedjimatex SARL wrote to the plaintiff to the same effect.

11. Counsel for the plaintiff says that the inclusion of Man-Pro came about by mistake. On the pleadings Man-Pro never had any interest in the goods; it could not have had an insurable interest and could not have taken a valid assignment of any policy. As I have noted above, Challenger does not seem to have had any interest in the policies assigned to it, so it could not further assign such interest to the plaintiff. And how Nadjimatex SARL came to have some assignable interest is also totally unclear.

11. It is further not clear when the property in the goods passed to Challenger or from Challenger to Nadjimatex SARL or Omar. By section 6 of the Ordinance a party seeking to recover on a policy must have been interested in the subject of insurance at the time of the loss. So the plaintiff would have to show that he had an interest at least before 19 March or 3 April 1997. But by section 51, if an assured has not before he parts with his interest in the subject matter insured expressly or impliedly agreed to assign the policy to another, any subsequent assignment is inoperative. Again we run into the difficult of when, if ever, there was any agreement to assign the interest to the plaintiff. If there was no agreement before dates of the letters - and the whole exercise of writing the letters, particularly when Man-Pro has been brought into the picture, looks like an exercise in trying to set up an interest after the event - then the letters, even if they could operate as letters of assignment, would be ineffective. In any event as the defendant argues it is difficult to see how they could so operate, either as legal or equitable assignments.

12. Various other arguments have been put forward in particular on the plaintiff's failure to minimise loss by proceeding against the carrier; breach of duty of uberrima fides and lack of evidence that the loss occurred during the duration of the policy, but I need not examine them here. I think it is sufficient to say that while a major matter for consideration is the likelihood of the plaintiff succeeding, the plaintiff has in no way succeeded in demonstrating that likelihood. Rather, it seems to me that his right of action is tenuous in the extreme. His Counsel says that the pleadings will be amended and this will make the position clearer but I can only base my decision on what is before me. So there is no reason not to order security for costs; and that is why, in each of these two cases, I made that order.

13. The defendant sought security on the basis of estimates of costs on the High Court scale. The rationale for this is that there is currently before the High Court a related action, HCA 3784 of 2002, in which the facts and even the pleadings are practically the same as in these cases, and the defendant intends to apply for the cases before the District Court to be transferred to the High Court Commercial List and consolidated with the existing action there. Counsel for the defendant went so far as to make an oral application for transfer before me, which I declined to hear, because the other side was not prepared for it, but given the technical and specialised nature of these claims such transfer seems eminently sensible to me. On that basis I ordered security based on the defendant's estimates of costs on the High Court scale.