EVERSONIC INC. v. WONG KWOK MEI, SANRITA AND OTHERS

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J U D G M E N T

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Kaplan, J.:

1. This is an appeal against a decision of Jones J. given on 17th January 1992 whereby he dismissed the Defendants application for security for costs made under Order 23 of the Rules of the Supreme Court and based on the admitted. fact that the Plaintiff was a corporation incorporated, and having its place of business, in Canada. The Defendants are all Hong Kong based.

2. We must point out at the outset that the arguments addressed to us bore little similarity to those advanced before Jones J. We do not think that the judge can be criticised for the way he approached this matter because he considered the matter on the basis then (but not now) put forward by the Defendants.

3. The Plaintiff's claim arises out of contracts whereby the Plaintiff purchased a considerable number of blank video cassettes from the 3rd Defendant. The Plaintiff purchased these cassettes for onward sale to substantial customers in Canada. After they had distributed a quantity of these cassettes complaints were received. These complaints were given some media attention in Canada because some of the cassettes, far from being blank, showed, inter alia, male actors engaging in homosexual scenes. Some of the cassettes had other defects such as showing audio and video signals of a Chinese dialect. Others contained scenes from a diet and exercise show.

4. As a result of this most unfortunate occurrence some very large customers of the Plaintiffs, such as Woolworths and The Army and Navy Stores decided to have no more business dealings with the Plaintiffs. Mr. Reeves, the Plaintiff's Hong Kong solicitor handling this matter, has deposed to the fact that Mr. Davidovits of the Plaintiff has informed him that the Plaintiffs went into receivership because of the adverse effect that these matters had upon their business.

5. The amended Statement of Claim was served in June 1991. The summons for security for costs was issued on 15th July 1991.

6. The pleaded case against the Defendants is as follows. The 1st Defendant was and is a director of 3rd and 4th Defendants. The 2nd Defendant was a director and a shareholder of the 3rd and 4th Defendants. The 3rd and 4th Defendants on both companies carrying on business of, inter alia, manufacturing video cassette tapes.

7. The amended Statement of Claim avers that the relevant contracts for these video cassettes were made with the 3rd and/or 4th Defendants. On all the information before us it seems clear that the contracts were in fact made with the 3rd Defendant and we have some difficulty in seeing what case there is against the 4th Defendant. Mr. Merry, who appeared for the Plaintiffs on this appeal, but not below, frankly admitted that the Plaintiffs wanted to keep the 4th Defendant in this action until discovery and then they would consider whether to discontinue against the 4th Defendant. We find it hard to see what case there can be against the 4th Defendant and we will return later in this judgment to their position.

8. The claim against the 1st and 2nd Defendants is based on what is termed a representation allegedly made by them prior to the Plaintiff entering into the contracts to the effect that they guaranteed to the Plaintiff "that the video tapes to be supplied under the said contracts would be high quality blank video cassette tapes". The Plaintiffs aver that relying upon this representation and guarantee they entered into the contracts with the 3rd and 4th Defendants. As we have made clear we are satisfied. that the contracts were made only with the 3rd Defendant.

9. When the matter came before the learned judge all four Defendants were, as before us, represented by the same solicitors and counsel. It seems to be common ground that the claim for security was put before the judge, and considered by him, on what we might term an 'omnibus' basis. In other words submissions were not directed to the position of individual defendants.

10. Although the amended Statement of Claim was before the judge the Defendants had not put in any amended defence and there was thus no pleading to the allegation that the 1st and 2nd Defendants were in breach of the representation/guarantee.

11. As appears from his judgment the judge took the view that the Plaintiff's claim was a strong one. We believe he expressed himself in that way because the niceties of individual involvement were not examined and he was clearly not impressed by the Defendant's apparent contention that the offending material was recorded after delivery to the Plaintiffs. He concluded, rightly in our view, that the Plaintiff's claim was a genuine one. He characterised the Defendants as putting^. the Plaintiffs to proof and we believe he said this because great play was being made in the evidence that the Defendants were not responsible for delivery of the offending cassettes.

12. The judge stated that he had an unfettered discretion to make an order for security where a Plaintiff was ordinarily resident out of the jurisdiction. He rightly pointed out that each case depended on its own facts and he correctly noted that normally a foreign Plaintiff is required to give security. In refusing to exercise his discretion in favour of the Defendants the judge took into account, as he was entitled to do, that the claim was genuine and appeared to him to be strong and he was no doubt influenced by the fact that the bankruptcy was said to be caused by the very breach of contract complained of.

13. Before us Mr. Leong, who did not appear below, took a very different tack. He took 3 points which were not taken below.

14. First, he emphasised the distinction between the Plaintiff's case against the different Defendants. Secondly he attacked the Plaintiff's pleaded case against the 1st and 2nd Defendants. Thirdly he sought to rely upon S.13 of the Law Amendment and Reform (Consolidation) Ordinance which provides that:

"No action shall be brought whereby to charge any person upon or by reason of any representation or assurance made or given concerning or relating to the character, conduct, credit, ability, trade or dealings of any other person, to the intent or purpose that such other person may obtain credit, money or goods thereupon, unless such representation or assurance is made in writing, signed by the party to be charged therewith."

15. This section was considered by this Court in Nissei Sangyo America Ltd. v. Philip Lawrence Chov [Civil Appeal 38 of 1991 - unreported - 19th September 1991].

16. We have serious doubts as to whether this section is applicable to a situation where the representor makes a representation concerning the quality of goods that are to be provided under a contract entered into with another party. That does not seem "concerning or relating to the character (etc) of any other person? It would seem to apply to a situation where the representor represents that some other person is credit worthy, honest and able in business dealings or such like. In any event the point was not taken below and we do not think there is anything in this point to justify our interfering with the judge's discretion.

17. As to the distinction between the Defendants they themselves sought to present an united front to the judge. Further they had failed to plead to the amended Statement of Claim served 7 months earlier and it ill behoves them to now present the case differently. In any event we think that the judge was entitled to come to the view that the Plaintiffs had a strong case and only at trial can the position of each Defendant be examined minutely. It suffices for present purposes that all Defendants are interconnected.

18. As to the pleaded case against the 1st and 2nd Defendants we think that it is unhelpful that the Defendants have not, even to this day, pleaded to the amended allegations against them. They, too, took their stance before the judge in unison with the 3rd and 4th Defendants and we see no grounds for differentiating between them on this appeal.

19. Mr. Merry did not dissent from the proposition that in normal circumstances a Plaintiff resident abroad is required to give security. However we note that recent cases on the subject focus more on the ease or otherwise of enforcing an order for costs in a foreign country. In both Thune v. London Properties [1990] W.L.R. 562 and Porzelack v. Porzelack [1987] 1 W.L.R. 420, the Court considered the question of ease of enforcement within the European Community. In the present case both Hong Kong and Canada are parties to the Hague Convention and although the point was not fully dealt with in this appeal it may fall for consideration in due course.

20. In relation to the 1st, 2nd and 3rd Defendants we have no doubt that, on the material before him and on the arguments addressed to him, the judge was enti_.tled to form the view that he did. In relation to these Defendants we do not feel that the different case presented in this Court justifies us, in all the circumstances, from differing with the judge in what was an exercise of his discretion. We cannot see that he applied the wrong principles.

21. However in relation to the 4th Defendant we do have great doubts about the cause of action against them. Mr. Merry did not have instructions to undertake to discontinue against the 4th Defendant. It seems to us that the Plaintiffs have got to make a choice. Either they keep the 4th Defendant in this action and accept that they are entitled to security for costs because the case against them is so weak in contra distinction from the case against the other Defendants, or else they discontinue against the 4th Defendant and avoid having to put up any security. The choice is theirs and we propose to make an order that if within 10 days from the handing down of this judgment the Plaintiffs have not discontinued against the 4th Defendant the appeal should be allowed only to the extent that the 4th Defendant should have such security for costs as a Master deems reasonable. 'If there is no discontinuance then the matter will have to be remitted to a Master for that purpose. Save as to this extent the appeal is dismissed.

Costs:

22. The 1st, 2nd and 3rd Defendants will have to pay the costs of this appeal and we make a costs order nisi accordingly. In relation to the 4th Defendant we propose to make no order as to costs.

Power J.A.:

23. I agree.

Sears J.:

24. I also agree.