XCHRX Winvar Investment Inc. v. Southern Mark Ltd.

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 4768 OF 2001

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J U D G M E N T

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1. The plaintiff is a company registered at Tortola, British Virgin Islands. The defendant company seeks an order that the plaintiff should provide security for costs as a condition of pursuing this action against it. The defendant is a Hong Kong registered company.

2. The application for security is made pursuant to Order 23, rule 1(1)(a) of the Rules of the District Court which, in its material parts is as follows:

"Where on the application of a defendant to an action ... it appears to the court that the plaintiff is ordinarily resident out of the jurisdiction ... then, if having regard to all the circumstances of the case, the court thinks it just to do so, it may order the plaintiff to give such security for the defendant's costs of the action ... as it thinks just."

3. This, therefore, is a matter to be considered in two stages; first the court must be satisfied that the plaintiff is ordinarily resident out of the jurisdiction of the courts of Hong Kong. If that is not demonstrated by the defendant, then the application must fail. If that is shown to be the case, then the court has a discretion as to whether or not to order security which it will exercise having regard to all the circumstances of the case.

4. A brief word on the substance of the action will suffice. The plaintiff is the owner of a flat on the 14th floor of Wing On Towers, a residential block of flats in Jardine's Lookout. The defendant owns the flat immediately above, on the 15th floor. The statement of claim alleges that the defendant has allowed water to leak into the plaintiff's flat causing damage.

5. There is a claim for an injunction to restrain further leaks and for damages. The defendant denies that the leaks have emanated from the defendant's flat. The action has reached the stage where the Master in the High Court, upon transferring the case to this court, has given directions for exchange of witness statements and exchange of experts' reports. This is in the process of being done so the action is someway short of being ready for trial. I am told the leak has stopped so that the injunction may no longer be required as a remedy, leaving over a very modest claim for damages, probably for less than $50,000.

6. Is the plaintiff ordinarily resident outside Hong Kong? As a British Virgin Island's company the answer, prima facie, is that it is. From the evidence filed with the court it appears to be a company set up for the purpose of owning these premises. It has no other purpose. That having been said, it would appear to form part of the Tai Hing Sewing Machine (Development) Company Limited ("Tai Hing") which is an old established and active company in Hong Kong going back three generations. The premises were purchased and the plaintiff company was established at the behest of the Lai family who control Tai Hing so that the premises might be used as a home for the directors and/or officers of Tai Hing, all of whom are longstanding Hong Kong residents.

7. That having been said and notwithstanding repeated requests from the defendant's solicitors, the plaintiff has not provided details of its shareholders and directors. Miss Glenda Lai has made three affirmations explaining inter alia that she is an officer of the plaintiff and that she is one of the persons living in the flat. She has affirmed that her responsibilities within the plaintiff company are administrative and financial and that she has daily contact with the persons having the control and management of the company. But beyond that, there is nothing else of substance concerning the operation of the company. None of the company's accounts have been exhibited to Miss Lai's affirmations. The company is not registered in Hong Kong as an overseas company under the Companies Ordinance, nor under the Business Registration Ordinance.

8. The test of whether a company is ordinarily resident for the purpose of Order 23 r.1 is by reference to the location of its central management and control (see Insurance Company of the State of Pennsylvania v Grand Union Insurance Company Limited [1988] 2 HKLR 541). This test was followed by Keith J (as he then was) in Charter View Holdings (BVI) Limited v Corona Investments Limited & Another [1998] 1 HKLRD 469, who in deciding the matter had regard to the English case of Re Little Olympian Each Way Limited [1995] 1 WLR 560, a decision of Lindsay J sitting in the Chancery Division. Keith J said that three propositions can be derived from Lindsay J's judgment:

"(1) The mere assertion of where the company's central management and control is unsatisfactory, what is needed are the primary facts on which that assertion is based;

(2) All the circumstances in which the company carries on its business should be taken into account, though the weight to be applied to each factor will obviously differ from case to case. Those factors include the provision of the company's objects clause, place of incorporation, place where the company's real trade and business is carried on, the place where the company's books are kept, the place where the company's administration is carried out, the place where the directors with power to disapprove of local steps or to require different ones to be taken themselves meet or are resident, the place where its chief office is or where the company's secretary is to be found and the place where its most significant assets are;

(3) In applying the test to a non-trading company it may be more important than would otherwise be the case to have regard to the nature of the company's corporate activities.

9. Applying those propositions to the facts of this case, I, (as was also the case in Charter View Holdings), have very sparse information as to the plaintiff company. I do not know who its shareholders are, nor who its directors are. All I know is that Miss Lai is one of its officers and that she resides at the flat. I do know of its links to Tai Hing, and that Tai Hing is well established in Hong Kong as are the Lai family who control it. But of course, Tai Hing is a separate corporate entity who could not possibly be liable for any order for costs in this action.

10. In these circumstances, the defendant has satisfied me on the facts before me that the plaintiff is not ordinarily resident in Hong Kong and it must follow therefore that I have the power under Order 23 r.1(1)(a) to exercise my discretion to order the plaintiff to provide security for the defendant's costs.

11. How should I exercise that discretion? In Porzelack KG v Porzelack (UK) Limited [1987] 1 WLR 420, Sir Nicholas Browne-Wilkinson VC (as he then was) at page 423B expressed the view that:

"Under rules of the Supreme Court, Order 23 r.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 (see also The Alpha [1991] 2 Lloyd's Rep. 52 at page 54 per Lord Donaldson of Lymington MR). The basic principle underlying RSC Order 23 r.1(1)(a) is that it is prima facie unjust that a foreign plaintiff, who by virtue of his foreign residence is more or less immune to the consequences of an order for costs against him, should be allowed to proceed without making funds available within the jurisdiction against which such an order can be executed."

This approach has been adopted in Hong Kong by Godfrey J (as he then was) in the Walt Disney Company v Disney Property Agency [1992] A 7289 who ordered the world famous Walt Disney Corporation, as plaintiff, to provide security in a passing-off action that it had brought against a nondescript Hong Kong estate agency.

12. The main point on discretion which is made by Mr Chung, who appears for the plaintiff, is that in a case where a party is resident outside the jurisdiction but has property in the jurisdiction, the court should not order security to be given (see Redondo v Chaytor (1879) 4 QBD 453).

13. In the case before me the premises would provide that security. Against that, Mr Leung for the defendant refers to Ebard v Gassier (1884) Ch. 232 where Bowen LJ at page 235 observed that:

"The plaintiffs being abroad were prima facie bound to give security for costs and if they desired to escape from doing so, they were bound to show that they had substantial property in this country, not of a floating but of a fixed and permanent nature which would be available in the event of the defendant's being entitled to the costs of the action."

14. The issue is to be decided in this way: firstly, I have no evidence of the value of the premises but, more importantly, the evidence is that the Bank of East Asia has a charge over the premises up to $18.4 million to secure the trading debts of Tai Hing in addition to which it also has a similar charge over two other properties and personal guarantees from the directors of Tai Hing. On this paucity of information - and I am afraid that the plaintiff has only itself to blame for this - I am unable to say that the property, encumbered as it is, would provide security for any order for costs that the defendant might obtain. Mr Chung's submission on this aspect must therefore fail.

15. It is not suggested that an order for security would stifle the claim by the plaintiff and so I need not consider the sort of balancing exercise contemplated by Peter Gibson LJ in Keary Developments v Tarmac Construction Limited [1995] 3 All E. R. 534. So this is a case where "all the other matters being equal" (see Browne-Wilkinson VC in Porzelack v Porzelack supra), I shall order security against this non-resident plaintiff.

16. The next issue relates to quantum. The defendant seeks $260,000. It has put in a detailed bill of costs for costs actually incurred and projected up to and including trial. $260,000 represents a one-third discount on the gross amount. I have a discretion to fix such sum as I consider just in all the circumstances of the case, see Order 23/3/32, page 370 of Hong Kong Civil Procedure 2001 (the White Book).

17. This is a very modest claim and a relatively straightforward one. There will be one expert on either side. It should last no longer than two days. I would have thought that $220,000 would be a proper amount to order in all the circumstances.

18. This must be paid into court within 56 days. In the meantime the action will be stayed. In the event that it has not been paid the action will be struck out. There will be liberty to the plaintiff to apply to extend the time for payment upon proper cause being shown. As I have already indicated, having heard argument from counsel earlier, the appropriate order is costs in the cause and I also give certificate for counsel.