IZUMO MOKKO CO, LTD AND ANOTHER v. T. S. LINES LTD

DCCJ 3707/2005

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3707 OF 2005

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REASONS FOR DECISION

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1.  This is an application by the Defendant for security for costs pursuant to O. 23 r. 1 of the Rules of the District Court, Cap. 336.  In the hearing on 19 April 2007, I allowed the Defendant’s application and ordered the Plaintiffs to provide such security in the amount of $180,000.  These are my reasons.

2.  In this action, the Plaintiffs claim against the Defendant in the sum of Japanese Yen 3,826,500 for damage to the cargo, which was shipped on board the vessel “TS OSAKA” from Moji of Japan to Yantian of the Mainland under a bill of lading issued by the Defendant dated 22 July 2004.  The Defendant denies liability on the ground that any alleged loss or damage was caused by the defective packing of the cargo or perils of the sea, for which the Defendant is not responsible.

3.  It is common ground that both Plaintiffs are corporations which carry on their businesses outside Hong Kong, and the present application is made pursuant to the specific ground in O. 23 r. 1(1)(a), ie. the plaintiff is ordinarily resident out of the jurisdiction.  The address of the 1^st Plaintiff is in Izumo-city in Japan, whereas the address of the 2^nd Plaintiff is in Huiyang County in Guangdong of the Mainland.  From the Statement of Claim, one can infer that the cargo in question was shipped by the 1^st Plaintiff in Moji of Japan for onward delivery to the 2^nd Plaintiff in Yantian of the Mainland.

4.  No affidavit in opposition has been filed by the Plaintiffs, and so it is not necessary for the court to consider the following matters:

(a)     whether the Plaintiffs’ claim would be stifled by the provision of security;

(b)    whether the Plaintiffs have any asset within the jurisdiction against which the Defendant can enforce a costs order in its favour; and

(c)    whether the Plaintiffs’ case has such overwhelming prospects of success that would render it inappropriate to order security for costs.

The Plaintiffs’ ground to oppose the application

5.  The Plaintiffs’ ground of opposition is quite a novel one.  In short, the Plaintiffs are relying on the provisions in the Hong Kong Bill of Rights Ordinance, Cap. 383 (“the HKBRO”) and argue that it is discriminatory for the court to treat foreign plaintiffs in a way different from local ones, and the fact that both Plaintiffs in the present case are foreign corporations, by itself, is not a sufficient reason for the court to order them to provide security for costs.

6.  In support of his contention, Mr. Kerry, solicitor for the Plaintiffs, relies on the following articles in the HKBRO:

“Article 1

Entitlement to rights without distinction

(1)      The rights recognized in this Bills of Rights shall be enjoyed without distinction of any kind, such as race, colour, sex, language, religion, political or other opinion, national or social origin, property, birth or other status. ……

………

Article 10

Equality before courts and right to fair and public hearing

All persons shall be equal before the courts and tribunals. ……

………

Articles 22

Equality before and equal protection of law

All persons are equal before the law and are entitled without any discrimination to the equal protection of the law.  In this respect, the law shall prohibit any discrimination and guarantee to all persons equal and effective protection against discrimination on any ground such as race, colour, sex, language, religion, political or other opinion, national or social origin, property, birth and other status.”

7.  In Hong Kong, this line of argument was first considered by the court in Money Influx Limited v Wei Yin Mei & Anr., unreported, HCA No. 8200 of 1998 (decision on 12 April 1999).  In that case, the late Deputy High Court Judge Z. E. Li, as he then was, after referring to the then current edition of the English White Book, expressed his preliminary view that O. 23 r. 1 is discriminatory against foreign plaintiffs whether they be individuals or corporations.  However, without expressly ruling on such issue, the late Judge Li refused to exercise the discretion to order security for costs in that case based on the established principles of the then existing jurisprudence.  Hence, the learned judge’s view on the Bill of Right argument is strictly obita.

8.  In the hearing, I have ascertained from Mr. Kerry whether it is the Plaintiffs’ position that O. 23 r. 1, or more specific sub-rule 1(1)(a) thereof, should be struck down as contrary to the provisions in the HKBRO.  In this respect, Mr. Kerry clarifies his position as follows.  Firstly, he does not seek to strike down O. 23 r. 1(1)(a), and he accepts that the rationale behind such sub-rule is a legitimate one, that is to ensure that a defendant is protected as to his costs position, in the event that a foreign plaintiff fails in his action and there would be no asset within the jurisdiction against which a costs order in favour of the defendant can be enforced.  However, Mr. Kerry argues that there is no inflexible rule that the court must order security for costs against a plaintiff simply because he is a foreign resident, and to do so would be discriminatory.  In the present case, the only fact put forward in support of the application is that both Plaintiffs are foreign corporations which carry on their businesses outside the jurisdiction.  If the court were to order security based on such limited fact, the court’s decision is discriminatory as it is made simply because the Plaintiffs are foreign corporations.  In order to construe O. 23 in a way which is not discriminatory, Mr. Kerry argues that the Defendant should put forward more reasons to justify the protection given to the Defendant in respect of the enforcement of costs order.

Whether the court should follow the approach in the case of Nasser v United Bank of Kuwait?

9.  Mr. Kerry is, in fact, urging the court to adopt the approach as laid down in the English Court of Appeal’s decision in Nasser v United Bank of Kuwait [2002] 1 WLR 1868.  Before I proceed to deal with the judgment of that particular case, I should set out the statutory regime in dealing with the provision of security for costs in England.  Under r. 25.12 of the Civil Procedure Rules (“CPR”), which were enacted after the implementation of the civil justice reform in England in 2000, a defendant can apply to court to order a plaintiff to provide security for costs, whereas r. 25.15 allows a respondent in the appeal proceedings to make a similar application against the appellant.  However, the court can only make such an order if one or more of the conditions in r. 25.13(2) is or are satisfied, and such conditions include, inter alia, that the plaintiff or the appellant is a resident out of the jurisdiction but not a resident in a contracting state of the Brussels or the Lugano Conventions (“the Conventions”).

10.  Hence, the statutory regime in England divides the plaintiffs and the appellants into two categories: local residents and residents of the Conventions’ states on the one hand, and residents of the other countries on the other.  In Nasser, the respondent in an appeal sought to apply for security for costs against the appellant who was a resident in the United States, which was not a Convention’s state, and one of the issues raised was  whether the distinction between the said two categories of persons has the potential of being discriminatory under Art. 14 of the European Convention of Human Rights, which reads as follows:

              “Prohibition of discrimination

The enjoyment of the rights and freedoms set forth in this Convention shall be secured without discrimination on any ground such as sex, race, colour, language, religion, political or other opinion, national or social origin, association with a national minority, property, birth or other status.”

11.  The English Court of Appeal held that the making of an order for security for costs against foreign residents who are not subject to the Conventions is not discriminatory, if the exercise of the discretion is based on grounds relating to obstacles to or the burden of enforcement in the context of the particular appellant (plaintiff) or country concerned.  After considering the facts of that case, the court held that the order for security was justified by the appellant’s residence in the United States, but the amount of the security was limited to the probable extra burden of taking enforcement steps in the United States against the appellant compared with the enforcement steps in the United Kingdom or another Conventions’ state.

12.  In his judgment, Mance LJ said the following:

“58.    …… [The discretion under the rules to order security for costs] must itself be exercised by the courts in a manner which is not discriminatory. …… It would be both discriminatory and unjustifiable if the mere fact of residence outside any Brussels/Lugano member state could justify the exercise of discretion to make orders for security for costs with the purpose or effect of protecting defendants or respondents to appeals against risks to which they would equally be subject, and in relation to which they would have no protection, if the claim or appeal were being brought by a resident of a Brussels or Lugano state.  Potential difficulties or burdens of enforcement in states not party to the Brussels or Lugano Convention are the rationale for the existence of any discretion.  The discretion should be exercised in a manner reflecting its rationale, not so as to put residents outside the Brussels/Lugano sphere at a disadvantage compared with residents within.  The distinction in the rules based on considerations of enforcement cannot be used to discriminate against those whose national origin is outside any Brussels or Lugano state on grounds unrelated to enforcement.

59.    In this connection I do not consider that one can start with any inflexible assumption that any person not resident in a Brussels or Lugano state should provide security for costs.  Merely because a person is not resident in England or another Brussels or Lugano state does not necessarily mean that enforcement will be more difficult. …… The exercise of the discretion on grounds of foreign residence should not be either automatic or inflexible.

………

61.    Returning to rules 25.15(1) and 25.13(1) and (2)(a) and (b), if the discretion to order security is to be exercised it should be therefore be on objectively justified grounds relating to obstacles to or the burden of enforcement in the context of the particular foreign claimant or country concerned.”

13.  Hence, Nasser supports the proposition that, if there are considerable obstacles in enforcing a judgment on costs against a particular foreign plaintiff or appellant, ordering such party to provide security for costs would not be discriminatory and is therefore justified.  The focus is therefore on the difficulty in enforcing judgment in a foreign jurisdiction and not on the status of a particular plaintiff or appellant.  In fact, this is consistent with the approach adopted by the English Court of Appeal in the much earlier decision in Berkeley Administration Inc. v McClelland [1990] 2 QB 407.  The issue in that case was whether O. 23 r. 1 of the then Rules of the Supreme Court, which related to the provision of security for costs by foreign residents, was discriminatory on the ground of nationality.  The Court of Appeal held that it was not, and Parker LJ said the following in his judgment:

“As to this the current law of the United Kingdom does not permit of an order for security solely by reason of residence abroad.  As I have already stressed, residence abroad merely confers jurisdiction.  Having acquired jurisdiction the court must then consider whether in all the circumstances it would be just to make an order.  The English authorities make it plain that residence abroad is not per se a ground for making an order.  As to current practice, 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.” (p. 418 E-F)

14.  In Hong Kong, it is trite law that the court is required to consider all the circumstances of each case to decide whether to order security for costs against a foreign plaintiff, and it is not an inflexible or rigid rule that such kind of plaintiff must provide security (see: Hong Kong White Book 2007, vol. 1, para. 23/3/3).  However, it is common for a lot of the orders to be made on little if anything more than the fact of the plaintiffs’ residence outside the jurisdiction, which is quite similar to the English practice observed by Parker LJ in the case of Berkeley Administration in 1990.  In The Walt Disney Company v Disney Property Agency, unreported, HCA No. A7289 of 1992 (decision of Godfrey J on 15 March 1993), Godfrey J even expressed the view that if the plaintiff is a foreign corporation, prima facie it is liable to be ordered to give security for costs.

15.  In view of the development of the English jurisprudence on the exercise of the discretion in a manner which is compatible with the human rights legislations, the Hong Kong courts, in deciding whether to order a foreign plaintiff to provide security for costs, should now focus on the difficulties faced by the defendant in enforcing the judgment rather than on the status of a particular plaintiff.  Nasser should now reflect the modern approach, and I am prepared to accept Mr. Kerry’s submission to such extent.

Whether there are considerable difficulties in enforcing judgment in the Mainland and Japan?

16.  The next question is, therefore, whether the only fact that the plaintiff is a foreign corporation is, by itself, sufficient for the court to conclude that it would be more difficult and costly for the defendant to enforce a judgment on costs.  This is particularly crucial in the present case as the court knows nothing about the Plaintiffs except that they were corporations in Japan and the Mainland respectively.

17.  In determining such question, the court is entitled to make certain obvious inferences without formal evidence.  In Nasser, Mance LJ made the following observations:

“63.    ……… If the discretion under rule 25.13(2)(a) or (b) or 25.15(1) is to be exercised, there must be proper basis for considering that such obstacles may exist or that enforcement may be encumbered by some extra burden (such as costs or the burden of an irrecoverable contingency fee or simply delay).

64.    The courts may and should, however, take notice of obvious realities without formal evidence.  There are some parts of the world where the natural assumption would be without more that there would not just be substantial obstacles but complete impossibility of enforcement; and there are many cases where the natural assumption would be that enforcement would be cumbersome and involve a substantial extra burden of costs or delay.  But in other cases – particularly other common law countries which introduced in relation to English judgments legislation equivalent to Part I of the Foreign Judgments (Reciprocal Enforcement) Act 1933 …… - it may be incumbent on an applicant to show some basis for concluding that enforcement would face any substantial obstacle or extra burden meriting the protection of an order for security for costs.”

18.  In my judgment, the court is entitled to make use of the limited information in the present case to infer that it would be more difficult and costly for the Defendant to enforce any costs order in its favour against the Plaintiffs in the Mainland or Japan.  Such inference is made based on the following considerations:

(a)     the legal systems in the Mainland and Japan are based on the civil law system which is quite different to the common law system;

(b)    at present, both the Mainland and Japan have no reciprocal arrangement with Hong Kong in respect of the enforcement of foreign judgments;

(c)  there bound to be extra costs and delay caused by the enforcement of judgment in the Mainland and Japan, including the engagement of foreign lawyers;

(d)  the Defendant may have difficulty in locating the assets of the Plaintiffs in the Mainland and Japan, in particular the Defendant knows very little about the backgrounds of the Plaintiffs;

(e)   the Defendant would encounter difficulties arising out of the differences in culture and language barrier, in particular about the enforcement of judgment in Japan; and

(f)    there is foreign exchange control in the Mainland.

19.  In deciding whether the aforesaid considerations are sufficient, one must bear in mind the difference in the statutory regimes between England and Hong Kong.  As I have mentioned above, in England, r. 25.13 of the CPR divides the plaintiffs and the appellants into two categories: local residents and residents in the Conventions’ state on the one hand, and other foreign residents on the other.  In such case, unless there is clear evidence to show that the enforcement of judgment in other countries is more difficult than that encountered in the Conventions’ states, it is not justified to treat the residents in the Conventions’ states and the non-Conventions’ states differently, as the defendant or the respondent would have to enforce the judgment in a foreign jurisdiction in any event.  Under such circumstances, the English court may require the applicant to provide more evidence to substantiate his allegation about the difficulty in enforcing judgment.

20.  In Hong Kong, the statutory regime only divides the plaintiffs into two categories: local residents and foreign residents.  As the obstacles in enforcing judgment in a foreign jurisdiction are obvious in most cases, the Hong Kong courts may be more readily to accept the difficulties faced by a defendant if he has to enforce a judgment on costs in a foreign jurisdiction.  However in future applications, if the plaintiff is a resident in a jurisdiction which has a common law system similar to that in Hong Kong, and there is reciprocal arrangement for enforcing foreign judgments in the country concerned, more evidence about the difficulties in enforcing a judgment may be required before the court would exercise the discretion to order security for costs.

21.  In conclusion, based on the facts of this case and the considerations mentioned above, I am prepared to accept that, in the event the Plaintiffs fail in their claim, there are considerable obstacles to the Defendant in enforcing any judgment on costs against the Plaintiffs either in the Mainland or in Japan.  In such circumstances, I would exercise the discretion in favour of the Defendant by ordering the Plaintiffs to provide security for costs.

The amount of the security

22.  The Defendant claims for security in the amount of $400,000 which is supported by a rather detailed bill of costs.  However strange enough, the Defendant, way back in May 2006, only asked the Plaintiffs to provide security in the amount of $200,000 for the Defendant’s costs up to the conclusion of the trial, and now the Defendant is asking for a sum which is double that amount.  By way of explanation, Mr. Pao, counsel for the Defendant, submits that the Defendant’s solicitors had not included the costs of engaging experts and the costs of arranging overseas witnesses to testify in Hong Kong when they assessed the costs in May 2006.  However, by looking generally at the bill of costs and without going to the specific items, I would say that the Defendant’s costs up to the conclusion of the trial should be in the region of $200,000 to $250,000.  Giving a small discount for the various uncertainties which may occur in the course of the litigation, I would require the Plaintiffs to provide security for the Defendant’s costs up to the conclusion of the trial in the amount of $180,000.  I have also allowed the Defendant liberty to apply in the case that there are some unforeseen events which occur in the course of the present proceedings.

23.  As costs should follow the event, I have also ordered the Plaintiffs to pay for the costs of the Defendant’s application for security for costs with certificate for counsel.