TRONIC INTERNATIONAL PTE LTD (“Tronic”) v. TOPCO SCIENTIFIC CO LTD (“Topco”) AND OTHERS

CACV 235/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 235 OF 2013

(ON APPEAL FROM HCCT 54 OF 2011)

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J U D G M E N T

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Hon Barma JA:

1.  This is an application by the 1st, 2nd and 3rd defendants (the respondents to this appeal) seeking security from the appellant plaintiff for their costs of this appeal.  By its Notice of Appeal filed on 11 November 2013, the plaintiff appeals against the judgment of Au J dated 17 October 2013 dismissing the plaintiff’s application to set aside a Final Award given by the arbitral tribunal in an ICC arbitration between the plaintiff and the defendants.

2.  The arbitration was in respect of disputes that had arisen out of four agreements relating to a project for the development of a semi‑conductor chip manufacturing plant in Russia. Two of the agreements were made between the plaintiff and the 1st defendant, one was made between the plaintiff and the 2nd defendant, and one was made between the plaintiff and the 3rd defendant.  The arbitration resulted in the issue of two awards – a Partial Award dated 20 January 2010 determining issues of liability (by which the plaintiff’s claims were dismissed and the defendants’ counterclaims upheld), followed by a Final Award dated 10 October 2011 dealing with quantum and costs, by which the plaintiff was ordered to pay:

(1) damages of US$1,715,868 plus interest to the 1st defendant;

(2) damages of US$400,000 plus interest to the 2nd defendant;

(3) the fees and expenses of the tribunal and the administrative fees of the ICC in the sum of US$780,000; and

(4) costs and legal expenses of the defendants in the amount of HK$5,160,226.

3.  The plaintiff sought to set aside the Final Award, contending that it had been unable to present its case before the tribunal, because the tribunal had refused to allow it to inspect originals of documents and the equipment and materials on which the defendants’ counterclaims were based, and also because the tribunal had refused to stay the arbitration pending criminal proceedings in Taiwan against employees of the 1st and 2nd defendants for the use of forged documents.  It also argued that the Final Award dealt with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contained decisions that were beyond the scope of the submission to arbitration.  Each of these grounds was rejected by the judge below.

4.  For the purposes of this application, Mr Maurellet, for the defendants, indicated at the outset of his oral submissions that the court could proceed on the assumption that the plaintiff’s appeal was an arguable one.  For his part, Mr Ko, for the plaintiff, did not seek to suggest that the appeal was such a strong one that security should be refused on that ground alone.  I therefore proceed on the basis that the plaintiff’s appeal is arguable, and that the merits of the appeal are not a matter that determines the outcome of this application.

5.  This court’s jurisdiction to order security for the costs of an appeal arises under Rules of the High Court Order 59, rule 10(5), which provides that “the Court of Appeal may, in special circumstances, order that such security shall be given for the costs of an appeal as may be just”.

6.  Mr Maurellet submits that such special circumstances exist here because:

(1) The plaintiff is a company incorporated and carrying on business in Singapore, and does not have assets in Hong Kong, so that his clients are likely to encounter undue delay or will be put to undue expense in enforcing any order for costs in their favour.

(2) Further, there is a risk that the defendants may be unable to recover any costs that are ordered in their favour, and in support of this points to the fact that the plaintiff has so far failed to satisfy any part of the Final Award against it.

7.  In response, Mr Ko contends that:

(1) The argument as to difficulty of enforcement is not well founded, as there is a reciprocal enforcement regime in place as between Hong Kong and Singapore under the Foreign Judgments (Reciprocal Enforcement) Ordinance (Cap 319), in consequence of which it may be expected that a Hong Kong costs award can be enforced in Singapore with little difficulty.  There being no evidence from the defendants to suggest that enforcement in Singapore is likely to be attended with significant or undue delay or costs, it cannot be said that special circumstances exist so as to make it just to make an order for security on this ground.

(2)     As for the alleged risk of inability to recover costs ordered in favour of the plaintiff, it was not explicitly contended that the plaintiff was impecunious, and insofar as that was suggested to be the case simply on the basis that it had not to date paid the amounts awarded under the Final Award, it was the plaintiff’s position that there were amounts owing to it from the defendants in respect of deposits that had been paid under the contract which exceeded the total of the amounts under the Final Award.  Thus, it could not be inferred from the fact of non-payment that the plaintiff was impecunious.

8.  Mr Ko also submitted that, even if security should be ordered, the amount of security sought by the defendants (some HK$690,800) was far too high.

9.  The point relating to alleged difficulties of enforcement arising out of the fact that an appellant is a Singapore company has been considered in the context of security for costs of an appeal by Kwan JA in Atal Technologies Limited v Stratech Systems Limited (unreported, CACV 125/2011, 8 November 2011.  There, Kwan JA described the apparently straightforward process for enforcement of a Hong Kong costs award in Singapore by registering it as a judgment of the Singapore courts, pursuant to the Reciprocal Enforcement of Foreign Judgments Act, and observed that in the absence of any information as to the level of costs involved in that process, it was not possible to say that such additional costs as might be involved, over and above the costs of enforcement against an appellant based in (or with assets in) Hong Kong, would be such as to amount to undue additional cost.  Similarly, absent information as to the length of time required for enforcement in Singapore, it could not be said that there would be undue delay in having to take steps to enforce in Singapore any costs award made on the appeal.

10.  Here, although the fact that the availability of reciprocal enforcement is a matter that is (or should be) easily ascertainable, the defendants have not said any more than that additional time and costs would be needed to instruct lawyers to act for the them in Singapore to enforce a costs order there.  No indication is given as to how much more time or costs might be involved.

11.  Like Kwan JA, in the absence of any information as to the additional time and costs that might be involved, and given the apparently straightforward procedures involved, I am not satisfied that having to enforce a Hong Kong costs order in Singapore is likely to involve undue expense or delay, such as to amount to special circumstances that would merit the making of an order for security.  I therefore am not prepared to order security on this ground.

12.  Turning to Mr Maurellet’s second point, as to the risk of inability to recover costs, the only matter relied upon in support of this suggestion is the failure to satisfy the Final Award.  However, in relation to this, it is the case that on demand being made for payment of the amounts due under the Final Award, the plaintiff did reply to say that in its view, no net amount was actually due having regard to the deposits (said to total some US$5,926,464) held by the defendants, which should be returned to the plaintiff.  There is thus a dispute between the parties as to whether or not such deposits were in fact refundable, and whether or not they should be returned to the plaintiff.  The defendants say that this was not ordered by the tribunal in the arbitration, and that they never conceded that the deposits were refundable.  The plaintiff maintains that the defendants accepted that the deposits were refundable, and have commenced proceedings against the defendants in Hong Kong (HCAs 2315, 2316 and 2341/2012) seeking the repayment of the deposits.

13.  I do not think it necessary to attempt to express any views as to the merits of this dispute.  To my mind, its relevance lies not so much in its merits, as in the fact of the plaintiff’s claim, which cannot be said, on the material available, to be other than arguable.  The consequence is that the failure of the plaintiff to honour the Final Award cannot be said of itself to justify an inference that the plaintiff is unable to pay, since there is an explanation for the refusal to pay which cannot be dismissed as being wholly unmeritorious.  I therefore do not think that special circumstances in the form of impecuniosity on the plaintiff’s part have been shown to justify the making of an order for security on this ground either.

14.  As I am not satisfied that the necessary special circumstances exist that would make it just for security for the costs of appeal to be ordered, the defendants’ application is dismissed, with a costs order nisi that the defendants are to pay the plaintiff’s costs of this application, to be taxed on the party and party basis if not agreed.

15.  I would also add that even if I had been persuaded that an order for security should be made, the amount of security sought would seems much too high, even if costs were to be awarded on the indemnity basis in the event that the appeal is dismissed.  The appeal is not a complicated one, and it seems to me that an amount of around HK$300,000 would have provided an appropriate level of security for the plaintiff.