XCHRX MONEY INFLUX LTD. v. WEI YIN MEI AND ANOTHER

HCA 8200/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 8200 OF 1998

____________

____________

__________________________

REASONS FOR JUDGMENT

__________________________

This is the Defendant's application for security for costs against the Plaintiff under Order 23 r.1 of the Rules of High Court and section 357 of the Companies Ordinance, Cap.32. At the start of hearing, however, Mr. Li for the Defendant indicated that the Defendant would not rely on section 357 of the Companies Ordinance, Cap.32 because of some doubt as to its applicability to the Plaintiff. My attention was, therefore, directed to Order 23 r.1 which reads:-

"(1) Where, on the application of a defendant to an action or other proceeding in the High Court, it appears to the Court-

(a) 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 or other proceeding as it thinks just"

2. It is common ground that the Plaintiff is a company registered in the British Virgin Island and there is evidence that the Plaintiff has no assets in Hong Kong and is not likely to receive injection of funds. In these circumstances, Mr. Li for the Defendants said that security for costs should be ordered so as to ensure that Defendants would be able to recover costs for successfully defending the action.

3. As to the rationale for ordering security for costs, Mr. Li said that it has been well established in a number of cases - Porzelack KG v. Porzelack (HK) Ltd. [1987] 1 All ER. 1074, Leslie Fay Companies, In corporation t/a Breckenridge Sportswear Division v. Cheerio Ltd. [1990] 1 HKC 463 and The Walt Disney Company v. Disney Property Agency HCA 7289 of 1992 - 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.

4. Mr. Li and his learned friend Mr. Mayne for the Plaintiff referred me to Paragraph 23/3/3 in the White Book:-

"The main and most important change effected by this Order concerns the nature of the discretion of the Court on whether to order security for costs to be given. Rule 1(1) provides that the Court may order security for costs "if, having regard to all the circumstances of the case, the Court thinks it just to do so." These words have the effect of conferring upon the Court a real discretion and indeed the Court is bound, by virtue thereof, to consider the circumstances of each case and in the light thereof to determine whether and to what extent or for what amount a plaintiff (or the defendant as the case may be) may be ordered to provide security for costs. It is no longer, for example, an inflexible or rigid rule that a plaintiff resident abroad should provide security for costs. In particular, the former O.65 r.6B, which had provided that the power to require a plaintiff resident abroad, suing on a judgment or order or on a bill of exchange or other negotiable instrument, to give security for costs was to be in the discretion of the Court, has been preserved and extended to all cases by r.1(1).

In exercising its discretion under r.1(1) the Court will have regard to all the circumstances of the case. Security cannot now be ordered as of course from a foreign plaintiff, but only if the Court thinks it just to order such security in the circumstances of the case. For the circumstances which the Court might take into account whether to order security for costs, see per Lord Denning M.R. in Sir Lindsay Parkinson Co. Ltd. v. Triplan Ltd. [1973] Q.B. 609 at 626-627; [1973] 2 All E.R. 273 at 285-86, and see "Plaintiff a limited company," para. 23/3/21. A major matter for consideration is the likelihood of the plaintiff succeeding. This is not to say that every application for security for costs should be made the occasion for a detailed examination of the merits of the case. Parties should not attempt to go into the merits of the case unless it can be clearly demonstrated one way or another that there is a high degree of probability of success or failure (Porzelack KG v. Porzelack (U.K.) Ltd [1987] 1 All E.R. 1074). In the cases which follow, investigation of the merits was justified only because the plaintiffs demonstrated a very high probability of success. If there is a strong prima facie presumption that the defendant will fail in his defence to the action, the Court may refuse him any security for costs (see per Collins J. in Crozat v. Brogden [1894] 2 Q.B. 30 at 33 (the judgment of the CA in that case was in substance reversed by the former O.65, r.6B, made in 1920, which in substance is repeated in r.1(1)."

5. My immediate reaction after reading the annotation in White Book was that Order 23 r.1 is discriminatory against foreign plaintiffs whether they be individuals or corporations. I wondered if it could be considered unjust that a local plaintiff, whether an individual or limited company, would not even be the subject of an application under this Order. Mr. Li said that a local limited company would be liable to an order for security for costs under section 357 of the Companies Ordinance, Cap.32. That is, of course, not a satisfactory answer to my concern because firstly the Companies Ordinance, Cap.32 does not apply to an individual and secondly the matter before me is not argued on the basis of that ordinance.

6. The concern that exercised my mind is not completely far-fetched. If one reads further in the White Book, there is Paragraph 23/3/6:-

"Brussels Convention (rr.1-3) - The line of cases including Porzelack KG v. Porzelack (U.K.) Ltd [1987] 1 W.L.R. 420, De Bry v. Fitzgerald [1990] 1 W.L.R. 552, and Berkeley Administration Inc. v. McLelland [1990] 2 Q.B. 407 that concluded that ordering security for costs against individual plaintiffs resident in other E.C. countries did not discriminate against them on the ground of nationality (and thus impugning Art. 6 of the E.C. Treaty) were reviewed by the Court of Appeal in Fitzgerald v. Williams [1996] 2 All E.R. 171 in the light of the European Court decision of Case C-398/92, Mund and Fester v. Hartrex International Transport [1994] E.C.R. 1-467.

The Court of Appeal held that O.23, r.1(1)(a), whilst not overtly discriminatory, was covertly discriminatory on grounds of nationality as most plaintiffs ordinarily resident outside the jurisdiction would not be British. Consequently, the English Court should never exercise its discretion to order security of costs against an individual plaintiff who was a national of and resident in another Member State. The court affirmed that this decision had no application to the case of a foreign insolvent company whether resident in the E.C. or not or to a plaintiff resident in a country not a member of the Community.

The Court conceded, without deciding whether or not it was sound in Community law, that a possible exception might exist if there was cogent evidence of substantial difficulty in enforcing a judgment in the plaintiff's country or residence.

The reasoning in this case was followed in Cheque Point SARL v. McLelland (1996) The Times, June 18, where security was ordered against an insolvent French company. The court emphasised that O.23, r.1(a) was not of itself void as contrary to Community law, merely that it was now subject to a proviso that it would not be exercised in a manner contrary to Community law. The anomaly whereby a company incorporated in a Member State but resident in England was exempt from applications for security for costs was discussed.

A provision in Swedish Law which allows the Swedish Courts to order a foreign plaintiff, whether individual or corporate, to furnish security for costs has been held by the European Court to contravene Article 6 of the E.C. Treaty and to constitute direct discrimination on the grounds of nationality (Data Delecta Akiebolag v. MSL Dynamics Ltd [1997] I.L.P. 738; E.C. Case No. C43/95)"

7. Whereas English courts need not directly apply the anti-discrimination provisions in the Brussels Convention, Hong Kong courts do need to bear in mind the Hong Kong Bill of Rights Ordinance, Cap.383 ("HKBOR"). Section 7 of HKBOR defines "person" as including any body of persons, corporate or unincorporate. Article 22 in HKBOR provides that:-

"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 or other status." (Emphasis added)

8. Thus there is a prima facie case that at least part of Order 23 r.1 is discriminatory and to that extent should not be given effect to.

9. The next issue is whether I should go into the merits of the action in order to decide whether security for costs should be required. Mr Mayne was anxious that I should find a high probability of success in the action in favour of the Plaintiff. Mr. Li, on the other hand, was adamant that I should not launch into a detailed analysis of the respective case of the parties. I felt obliged to size up the respective case of the parties bearing in mind the injunction issued by Mr. Li.

10. According to Mr. Mayne, the dispute between the parties arose from a property transaction. The property in question is Shop 6B on the Ground Floor of a building in Tuen Mun. The Plaintiff was the purchaser and the Defendants the vendors bound by a formal sale and purchase agreement. The Plaintiff refused to complete due to questions over a number of illegal structures or unauthorized alterations contrary to the Buildings Ordinance and the deed of mutual covenant. Photographs taken by a surveyor expert of the Plaintiff and placed before the court do show certain structures or alterations such as an extended permanent canopy and a hoist. It is the Plaintiff's case that before completion date protests had been made to the Defendants about these structures and alterations affecting title and as a result some but not all of the structures were removed. Mr. Mayne suggested that the Plaintiff have a high probability of success in view of the yet unreported decision by Waung J. in Sun Great International Limited v. Hui Lai Ying, Polly HCA 10742 of 1994. In that case, it was held that where a property had illegal structures contravening building laws or unauthorized alterations in breach of the deed of mutual covenant, and it was sold on the standard "as is" term, then either the vendor would be held to be unable to deliver good title for not removing the offending structures or alterations or the vendor would be held liable for failure to deliver "as is" if the vendor restored the property to its original state. In either case, the purchaser would win.

11. Mr. Li, doing the best for the Defendants, argued that the existence of illegal structures or unauthorized alterations have been denied in the defence. Moreover, in Boldful Way Development Ltd. v. Wellstable Development Limited [1999] 1 HKLRD 563, Yuen J. held that where there are illegal structures the vendor is entitled to remove them so as to make good title and in so far as re-instatement would result in reduction of floor area the vendor may be regarded as having given substantial performance. Therefore, there is still room for arguments and the Plaintiff's case is not a sure win either way.

12. To buttress the Defendants' application for security for costs, Mr. Li pointed out that in The Walt Disney Company v. Disney Property Agency HCA 7289 of 1992 where it was accepted that the Walt Disney Company is a substantial company with no doubt ability to meet any order for costs yet Godfrey, J. (as he then was) ordered the company to provide security. The Plaintiff herein, in no way comparable to the Walt Disney Company, should not escape the same fate.

13. So far as denial of the existence of the illegal structures and unauthorized alterations is concern, I think it is no more than a tactical device. The Defendant has in fact admitted on "without prejudice" basis that illegal structures or unauthorized alterations had been removed. No one can seriously doubt that the Plaintiff would be able to prove existence of illegal structures or unauthorized alterations. The balance of the scale is then considerably tilted in favour of the Plaintiff. Goldful Way Development Ltd. v. Wellstable Development Limited might come to the rescue of the Defendants but it is all a matter of degree when it comes to what constitutes substantial performance. I am inclined to think the preponderance of authorities is against vendors selling with illegal structures or unauthorized alterations. The underlying rationale for the trend is not far to find. The hazards posed by illegal structures and authorized alterations to a densely populated city like Hong Kong are obviously. Rather than to wait for removal by law enforcement agencies or for arguments after a sale and purchase agreement has been signed, it is much more desirable to nudge owners to take the initiative to re-instate their properties before putting them on the market. The sooner re-instatement is done the earlier potential dangers are removed and the lesser the need for litigation later. This policy suits the interests of the public at large and the court's diary.

14. Furthermore, whilst one may speak of injustice leaving a successful defendant exposed to losses by way of unrecoverable costs, the paramount consideration must be whether the doors of justice should be closed to a poor plaintiff. I venture to suggest that a plaintiff need not be required to show a very high probability of success. It should suffice if on balance the plaintiff is likely to succeed. Nonetheless, in the present case, for the reasons I have given in the preceding paragraph, I find that the Plaintiff is highly likely to succeed.

15. I do not think the Walt Disney case and others of the same kind are really useful one way or the other. Inevitably, in cases where the court has to exercise its discretion the decision must be based on the particular circumstances of each case and there is always room for divergence of opinion among judges. In Bellenden v. Satterthwaite [1948] 1 All ER 343 at 345, Asquith, LJ said:-

"It is of the essence of .... A [judicial] discretion that on the same evidence two different minds might reach widely different decisions without either being appealable. It is only where the decision exceeds the generous ambit within which reasonable disagreement is possible, and is, in fact, plainly wrong, that an appellate body is entitled to interfere."

16. In conclusion, without coming to a firm view as to the effect of HKBOR on Order 23 r.1 and the correct approach on applying that Order, even on the present state of jurisprudence, this is not an appropriate case to order security for costs. The Defendant's summons was therefore dismissed with costs to the Plaintiff in any event.