LESLIE JOHN WOOLCOCK v. COVICTORY INVESTMENTS LTD. AND OTHERS

H E A D N O T E

Security for costs - Plaintiff ordinarily resident overseas - Prima facie, therefore, proper inclination is to order security for defendants' costs unless a reasonable basis for withholding security can be seen.

More than one defendant to be secured - separate sums for each.

IN THE COURT OF APPEAL

1993, No. 111
(Civil)

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J U D G M E N T

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Bokhary, J.A.:

1. This is an interlocutory appeal. Like so many such appeals, it involves a need for us to be particularly circumspect in what we say: in order to avoid saying anything which might in any way prejudice the case in future.

2. What is appealed against is a refusal to order the plaintiff to give security for the defendants' costs. The plaintiff is an individual ordinarily resident in Australia. The 1st and 2nd defendants are Hong Kong companies; and the 3rd defendant is a Cayman Islands company.

3. The defendants sought an order that the plaintiff give security for their costs. The summons was taken out in the names of only the 1st and 2nd defendants. But Mr Stone who appears on behalf of all three defendants tells us: that the 3rd defendant also sought security; and that its application was proceeded with in the absence of any amendment to the summons, because nobody took the point that any such amendment was necessary.

4. Mr Barlow for the plaintiff did not appear in the court below. And he received no instructions to accept what Mr Stone tells us. Not surprisingly, however, he likewise received no instructions - and I very much doubt that he would readily accept such instructions if he were to receive any - to challenge the statement made by Mr Stone from the Bar. It is appropriate, therefore, to treat the application below as having been that of all three defendants.

5. The dispute between the parties is, shortly stated and in its commercial essence, over the ownership and control of the 1st defendant, which owns 80% of the shares in a Vietnamese company which is the vehicle for a joint venture between the 1st defendant and the Vietnamese government for the mining of gold in Vietnam.

6. On June 9 this year, Deputy Judge Yam refused to order security, giving his reasons in writing on the 16th of the month after that.

7. The defendants now appeal against such refusal, attacking those reasons.

8. Now, the first thing to come to grips with is the question of the fresh evidence which the defendants seek to introduce. Both counsel were content that such evidence be looked at de bene ease: so that Mr Stone's argument that such evidence should be admitted and Mr Barlow's argument that such evidence should be excluded could be looked at in context. We followed that course. For my own part, I do not think that the fresh evidence assists in the disposal of this appeal. And I, for my own part, have left the same out of consideration.

9. The learned judge refused to order security because - or at least in part because - he took the view that the plaintiff had sufficient assets in Hong Kong to meet any order as to costs which might be made against him.

10. What are the assets put forward by the plaintiff in that connection?

11. First, there are his shares in the 1st defendant. Secondly, there is a sum of money which he alleges - but the 1st defendant denies - he loaned to it.

12. The learned judge dealt with the loan. He said nothing about the shares. There is no evidence as to whether the mining venture is likely to be profitable. As far as the shares are concerned, therefore, there was no evidence upon which the learned judge could have formed the view that they amounted to substantial assets for present purposes. So it matters not whether he had those shares in mind or not.

13. As far as the loan is concerned, the learned judge said this:

"It would be inconceivable that CIL, [the 1st defendant] being a $100 company, did not spend anything leading up to the joint venture with Bong Mieu and the issuance of the mining licence. In fact the highest the Defendant could put their case apparently would be that the amount claimed by the Plaintiff would not be to the extent of US$300,000 as claimed by the Plaintiff. It is however not for me to decide at this stage the extent of his 'loan'."

14. It can be seen, therefore, that the learned judge did not know how much was owing and, to put it bluntly, did not care. That cannot be right. The question is not simply whether there are assets. Rather, it is whether there are substantial assets to meet an award of costs.

15. Other points have been taken by the defendants in regard to the inadequacy of the shares and of the loan allegation. But there is no need to go into those points because reliance on the shares and the loan falls at the first hurdle.

16. Mr Barlow says that the matter does not end there because, quite apart from his view on assets within the jurisdiction, the learned judge also thought, quoting from Mr Barlow's skeleton arguments, that:-

"(a) it would be harsh on the Plaintiff to allow [the application];

(b) 'on the case he presented to the Court'; and

(c) particularly so when the conduct of the applicants was suspicious and their evidence unsatisfactory;

i.e. the Plaintiff had presented a reasonably strong prima facie case against the Defendants, which was met by evidence which was unsatisfactory and therefore to order security might stifle that case unfairly."

17. What are the words of the learned judge relied upon in support of those submissions? After dealing with the question of assets and right at the end of his judgment, the learned judge said:-

"I do not consider the case before me is one fit and proper to order the Plaintiff to provide security to prosecute his claim otherwise it would be quite harsh on the Plaintiff on the case he presented to court. It is particularly so when the Asian Gold, the 2nd Defendant, said the transfer of the shares to the 3rd Defendant was for tax purpose but then later on the 2nd Defendant said that it has no control over the 3rd Defendant. There was no explanation as to what was the actual motive in such a transfer. Accordingly the Defendant's application for security for costs is hereby dismissed."

18. It is not at all clear that when the learned judge said that ordering security would be harsh on the plaintiff he meant that the plaintiff would find it impossible or even merely difficult to put up security. As we can see, he talked about the case which the plaintiff had presented to the court. And the primary case which the plaintiff presented to court was that there were substantial assets here. Certainly, there was no evidence that the plaintiff would find it difficult let alone impossible to give security as asked.

19. As far as the learned judge having formed an adverse view of the defendants' conduct is concerned, it is important to note what the learned judge said when dealing with the injunction application which he dealt with at the same time as the application for security. Mr Barlow relied on what the learned judge said when he was dealing with the injunction. And we see that in dealing with the injunction the learned judge said, among other things, this:-

"The Defendants in their Defence and Affidavits before the court denied many of the allegations of the Plaintiff. They also alleged that the Defendants had been misled by the Plaintiff in certain material aspects of the state of affairs of CIL, the gold mine and the financial arrangements. I would not go into detail of all these defences and allegations of the parties. It is suffice to say that in this application before me I am satisfied that there are serious issues to be tried."

20. There is no warrant for proceeding on the basis that the learned judge refused security on the basis of an adverse view of the defendants' conduct. Nor, on the whole of the evidence, would he have been justified if he had proceeded on the basis that one could at this stage say who had behaved rightly and who had behaved wrongly.

21. The fact of the matter is that this plaintiff is a foreign plaintiff. Prima facie, therefore, the proper inclination is (contrary to the argument advanced on behalf of the plaintiff here) to order security for the defendants' costs unless one can see some reasonable basis on which to withhold such security. The basis put forward has failed. And as far as the learned judge's judgment is concerned, the reasons which he gives for refusing security cannot be supported. There is no acceptable argument for supporting his refusal on other grounds. Therefore, there ought to be security.

22. In the court below, the defendants asked for HK$349,212 up to the close of pleadings; and both counsel and the learned judge thought along the lines of a single sum for all three defendants if there were to be security. Although in this case it may not really matter, it seems to me that it is appropriate to order separate sums for each defendant. One reason for separate sums would be this. Each company is a separate legal entity. If at some future time, they were to go into liquidation, and each were to have different sets of creditors dominating different committees of inspection behind different liquidators, it could be awkward if there were a single sum for all three companies. Why risk it? HK$349,212 divided by three gives HK$116,404. The last four dollars is not anything that anyone ought to be very concerned about.

23. Rounding down the sums, therefore, I would allow this appeal and order the plaintiff to give security for each defendant's costs in the sum of HK116,400 up to the close of pleadings. We have not heard any argument as to the mechanics. I imagine that counsel would agree that the proper course would be to order a stay of the proceedings if security is not provided, fixing a reasonable period within which it is to be provided. But, no doubt, we will receive assistance on those matters now.

24. It is my view that this appeal must be allowed and that security in the sums mentioned must be ordered.

Macdougall, V.-P.:

25. I agree with my Lord for the reasons which he has given that this appeal should be allowed and that the order which he proposes should be made.

Mortimer, J.A.:

26. I also would dismiss the application to adduce fresh evidence. This appeal concerned the exercise of discretion by the judge in circumstances in which he has a very wide discretion. This court is reluctant to interfere with the exercise of such a discretion unless it comes to the conclusion that the judge is plainly wrong and that justice requires this court to intervene.

27. For the reasons given by my brother Bokhary, I agree that it is necessary for the court to intervene. The judge was plainly wrong. I would also allow this appeal and make the order proposed.

[Following submissions on the form of the order for security, it was ordered that the security ordered be provided within 28 days by way of either payment into court or a bank guarantee in a form approved by a Master in the absence of agreement as to its form by the parties, the plaintiff's action to be stayed in default of compliance with the order for security.