MONTGOMERY WARD and CO. v. EVERGO TRADING CO. LTD. and Another

IN THE COURT OF APPEAL

1996, No. 32
(Civil)

-------------------------------------

----------------------

J U D G M E N T

----------------------

Nazareth, V.-P.:

1. This is an appeal against the order of Sears J dismissing the application of the 2nd defendant, i.e. Evergo Holdings Company Limited, for the plaintiff to provide further security for the costs of the 2nd defendant.

2. The facts are as follows. The plaintiff is an Illinois corporation. In October 1992 together with a Delaware corporation known as Montgomery Ward Importing Inc as co-plaintiff, it obtained judgment in Illinois against the following parties:

(1) Evergo Trading Company, Limited f.k.a. [formerly known as] Evergo Industrial Enterprise, Limited, a Hong Kong corporation;

(2) Evergo Manufacturing of America, Inc, a Delaware corporation.

The judgment was for damages in the sum of US$1,146,312.06. The damages represent a refund for defective fans and kerosene heaters returned by Montgomery Ward to Evergo, and a small overpayment by Montgomery Ward.

3. On 8th March 1995, the very same plaintiffs commenced the present High Court action in Hong Kong against:

(1) Evergo Trading Company, Limited; and

(2) Evergo Holdings Company, Limited (formerly known as Evergo Industrial Enterprise, Limited).

In fact, it is Evergo Holdings Company, Limited and not Evergo Trading Company, Limited that was formerly known as Evergo Industrial Enterprise, Limited. I shall refer to the three Hong Kong companies as Evergo Holdings, Evergo Trading and Evergo Industrial respectively. Montgomery Ward Importing Inc has apparently been dissolved and has ceased to be a party to these proceedings. The sole plaintiff is suing on the Illinois judgment and has already obtained Order 14 summary judgment against Evergo Trading, the 1st defendant. The plaintiff is now proceeding against Evergo Holdings, the 2nd defendant, also in reliance upon the Illinois judgment; Evergo Holdings resists, contending that it was not a party to the Illinois proceedings and that the judgment was not against it.

4. On 24th July 1995 Master Wong granted security for its costs in the sum of HK$200,000 to Evergo Holdings. Since then, Evergo Holdings' costs have considerably exceeded that amount and on 14th December 1995, it applied for further security in the sum of HK$1,652,730. Sears J, before whom the application came, on 31st January 1996 dismissed it. The transcript of his oral Decision is as follows:

"This is an application for security by the 2nd Defendant. HK$200,000 has already been provided by the Plaintiff by a letter of undertaking and this summons seeks further security pursuant to Ord. 23 r. 1. I hope I will be forgiven if I do not set out all the standard authorities, or principles involved under Ord. 23.

I must have regard to all the circumstances of the case. First of all, this is a Plaintiff suing on a foreign judgment. This is not a foreign Plaintiff coming to Hong Kong and suing on an action here. A judgment has been obtained in the Illinois Court against both the 1st and 2nd Defendants who are closely associated, although again it is not necessary for me to identify all the matters between them. The Plaintiff has already obtained in Hong Kong judgment for the judgment sum against the 1st Defendant who was represented by the same firm of solicitors who now represent the 2nd Defendant. In my judgment on the evidence I have been shown they are closely connected. The matter, perhaps is most succinctly set out insofar as my discretionary power is concerned, at p. 419 of the Rules of the Supreme Court in the paragraph starting, 'The main and most important change ...' I have therefore had regard to this being a suit on a foreign judgment, and have looked at all the circumstances of this case. In my judgment, there should be no further security. In the exercise of my discretion, I therefore refuse further security.

I should also have added that as far as security is concerned, there is a judgment as I have said against the 1st Defendant. I make an order that the Plaintiff does not enforce that judgment against the 1st Defendant pending the conclusion of the hearing against the 2nd Defendant. That means that if the Plaintiff was to lose, the 2nd Defendant may well be able to utilize the judgment in some way as security for its own costs. I do not go into that in detail, but it was one of the factors I took into account."

5. Mr Benjamin Yu QC for Evergo Holdings submits that although the judge was exercising his discretion, a matter with which he recognises this Court is slow to interfere, he did so upon a misapprehension of fact in two serious respects. First, Mr Yu submits, he wrongly assumed the Illinois judgment was against both defendants, i.e. not only Evergo Trading but also Evergo Holdings.

6. The judge had in fact dealt with the matter of the Illinois judgment on previous occasions and on that very day, in a different context, and therefore should have been aware that Evergo Holdings was disputing the judgment as being against it. Nevertheless, it seems to me, looking at the judge's Decision, that the probability is that he did in addressing this matter regard the judgment as one against both defendants. Certainly, that possibility cannot be safely excluded. If he did so regard the matter, of course, it would vitiate the exercise of his discretion made upon that basis. And looking at the Decision, it does seem that the judge did so for he appears to assume that there was a strong case against the 2nd defendant on the basis of a foreign judgment. The material before us, and we are told there was even less before the judge, does not support that view. I would add that before us Mr Yu is content that we regard the possibility of success being open.

7. The second ground Mr Yu relies upon is the judge's reference to the two defendants, i.e. Evergo Trading and Evergo Holdings being closely connected. It can be seen from the last paragraph of his Decision how he used that consideration in declining to allow further security. It does not seem to me that even if the two defendants are closely connected, a judgment obtained outside the jurisdiction against one, can be used as the basis of denying security to the other and certainly not in the manner it has been done here. Again, therefore, I do not think the judge was entitled to rest the exercise of discretion upon this ground.

8. Finally Mr Yu questions the exercise of the discretion itself, contending that it was plainly wrong. The reasons for the exercise of the judge's discretion are not apparent from his Decision. Given that there are no proper factors weighing in favour of the foreign plaintiff or at least either way, it seems to me that his discretion plainly had to be exercised in conformity with the position set out in the judgment of Lord Denning in Aeronave SPA v. Westland Charters [1971]3 All ER 531 at 533 where he said this:

"I agree with the note in the Supreme Court Practice that the rule does give a discretion to the court. In 1984 in Crozat v Brogden Lopes LJ said that there was an inflexible rule that if a foreigner sued he should give security for costs. But that is putting it too high. It is the usual practice of the courts to make a foreign plaintiff give security for costs. But it does so, as a matter of discretion, because it is just to do so. After all, if the defendant succeeds and gets an order for his costs, it is not right that he should have to go to a foreign country to enforce the order."

9. Reverting to the position here, there appear to be no proper considerations or factors that would render it just not to order security. It is simply that an action has been brought by a foreign plaintiff. I do not find myself in a position to assess the strength or the weakness of the plaintiff's case. In those circumstances it seems to me that the discretion should plainly be exercised in the manner that is recommended in the judgment of Lord Denning. Applying Lord Denning's approach, it seems to me only just that security should be provided to Evergo Holdings the 2nd defendant, and that if successful, it should not have to go to America to recover its costs. Upon that basis, the discretion exercised by Sears J was plainly wrong.

10. According, I would allow the appeal and set aside his order. His discretion thus would fall to be exercised by this Court. In the exercise of that discretion, I would grant the application for further security and remit the matter to the High Court to determine the amount of the additional security to be provided as Miss Cruden, for the plaintiff, opposes the 2nd defendant's estimate.

Bokhary, J.A.:

11. This case has been very well argued: as cases always are when Mr Yu is on one side and Miss Cruden is on the other.

12. It seems to me that there are only three things which are clear in this case. First, the plaintiff is a foreign corporation. Secondly, if the second defendant were to win at the trial, it would be exposed to considerable inconvenience in recovering its costs if no security for them is in place. Thirdly, there is no evidence that an order for security would result in the action being stifled or even in hardship to the plaintiff.

13. In those circumstances, it seems to me that the only proper order is one granting security for the second defendant's costs.

14. I, too, would allow the appeal to make such an order, remitting the assessment of the amount to the High Court.

Godfrey, J.A.:

15. 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 : see O.23 r.1(1) of the Rules of the Supreme Court.

16. There is no inflexible rule that a foreign plaintiff will be ordered to give security for costs. The power to make such an order is entirely discretionary. But, as a matter of discretion, it is the general rule of the court to require the plaintiff to give security for costs; because it is, ordinarily, just to do so.

17. In the present case, the judge below, who refused the defendant's application, must have concluded that it would not be just to make an order for security for costs against the plaintiff. He said he had "looked at all the circumstances of the case". But he gave no acceptable reason for his conclusion. He appears, unfortunately, to have misapprehended the position. He says that "a judgment has been obtained in the Illinois Court against both the 1st and 2nd defendants who are closely associated". But there is a dispute, as the judge knew, which will fall to be decided, on an issue he had himself directed to be tried, as to whether in fact the 2nd defendant (whose application for security it was) was a party against whom a judgment had been obtained in the Illinois Court. It is perfectly plain, on reading the Illinois judgment, that it is made only against one Hong Kong corporation, not against two. But the plaintiff has already obtained judgment against the 1st defendant. This will give rise to questions of some complexity as to whether the action by the plaintiff against the 2nd defendant continues to be maintainable at all.

18. The judge went on to make a curious order to the effect that the plaintiff should not enforce its judgment against the 1st defendant pending the conclusion of the hearing against the 2nd defendant. The judge appears to have thought that would be, in some ways, a substitute for an order for security for costs. It was, he said :

"One of the factors I took into account."

19. I am afraid I fail to understand this.

20. The fact is that there is nothing in the present case to take it out of the ordinary. This is not a simple case of a foreign corporation suing a Hong Kong defendant on an unimpeachable foreign judgment, in which sort of case, although there is no special rule about it any longer, it may be thought to be unjust to order security for costs against the foreign plaintiff. It is a case in which some complex issues will need to be determined in the Hong Kong proceedings, and it is clearly a case in which security for costs ought to have been ordered. The judge was plainly wrong. We have to exercise our own discretion in the matter.

21. I would do so, following the general rule, in favour in making an order for security for costs here; and I would make consequential orders as indicated by my Lord, the Vice President and my Lord, Bokhary, J.A.