CREDIT LYONNAIS BANK NEDERLAND N.V. v. CENTURY INSURANCE LTD.

1992, No.MP3812

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H E A D N O T E

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Bank resident outside Hong Kong obtained ex parte order under s.76 of Evidence Ordinance and Order 70 of Rule of the Supreme Court for examination of witnesses in Hong Kong and production of documents by them for purpose of overseas litigation - application by witnesses to discharge order still pending - witnesses applied for security for expenses and/or costs - Court's jurisdiction to order security arises under Order 23 Rule 1 and not s.52 of Supreme Court Ordinance - parties can be regarded as plaintiff and defendants in a proceeding - security ordered - security to cover only legal costs of application to discharge and not expenses and/or costs incurred in compliance with examination order.

1992, No.MP 3812

IN THE SUPREME COURT OF HONG KONG

MISCELLANEOUS PROCEEDINGS

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IN THE MATTER of the Evidence Ordinance Chapter 8 of the Laws of Hong Kong
and
IN THE MATTER of Order 70 of the Rules of the Supreme Court
and
IN THE MATTER of two civil matters now proceeding before the Superior Court of the State of California for the County of Los Angeles in the United States of America entitled as follows: Case No.BC028743

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R U L I N G

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1. This is an application by the Respondents Mr David Gunson, Mr Stephen Apedaile and Mr Raymond Au-Young for security for costs to be put up by the Applicant, Credit Lyonnais Bank Nederland N.V. (the Bank).

2. The Bank is presently involved in legal proceedings in the Superior Court of the State of California, U.S.A. against one Century Insurance Ltd. (Century) and other parties. Those proceedings relate to certain loans, guarantee bonds and other financial transactions, the details of which I need not go into. Suffice it to say that the claims and cross-claims amount to about US$175 million. The Respondents were employed or engaged in one way or another by Century in these transactions. In November 1992, the Bank applied ex parte to the High Court here in Hong Kong for an Order to obtain the oral evidence of these three Respondents and the production of certain documents by them for the purposes of the proceedings in California pursuant to a letter of request filed with the Superior Court of the State of California and signed by a judge thereof. On 27th November 1992, Master Pang made an order under s.76 (2) of the Evidence Ordinance, Cap.8 and Order 70 of the Rules of the Supreme Court requiring the three Respondents to attend for examination on 14th to 16th December 1992 and to produce certain documents. Having taken legal advice, they apply to discharge the said Order. On 10th December, the learned Master stayed his order until the determination of the Respondents' application to discharge. That application has yet to be heard.

3. On 11th December the solicitors for the Respondents wrote to the solicitors for the Bank asking for security for costs. There was no response and hence the present application before me. It is not disputed that the Bank is ordinarily resident abroad.

4. On behalf of the Respondents, counsel argued that the court had jurisdiction to make an order for security for costs since this case fell within O.23, r.1 of the Rules of the Supreme Court. The court also had jurisdiction to do so under the wide discretionary powers in s.52A of the Supreme Court Ordinance, Cap.4. He submitted that Hoffman J. in All and Fahd Shobokshi Group Limited v. Moneim (unreported, 6 February 1989 but partly set out in Mareva Injunctions and Anton Piller Relief, 2nd ed., by Steven Gee) not only made an order for security but also made it a condition for the continuance of the Mareva injunction in that case. Counsel further argued that when a foreigner came here to litigate, he had to put up security otherwise the Respondents could be afforded no protection if the foreigner simply abandoned the case. He said that the statutory provisions covered the expenses as well as the legal costs as a result of the Master's Order. Under s.76(5) of Cap.8, the Respondents were entitled to their expenses and costs and these, he argued, could be on an indemnity basis. In the interest of justice and for the protection of the Respondents, he said I ought to order the Bank to put up a security for such expenses and costs.

5. On the other hand, counsel for the Bank submitted that s.76(5) of Cap.8 did not confer on the Respondents any more benefit than an ordinary witness in Hong Kong proceedings and this led to s.52 of Cap.4. In view of the differences in the wordings of these provisions, the Respondents could only recover witness expenses which should not include any legal costs or charges for loss of time and/or for attending court. Counsel argued that the court did not have jurisdiction, under both s.52A of Cap.4 or O.23, r.1, to order for the security of the expenses or even legal costs alleged by the Respondents because the Bank and the Respondents were not in the positions of a plaintiff and defendants; and that there was no proceeding or lis between them. The Respondents were merely in the position of witnesses under a subpoena and O.23 had no application. Furthermore, the decision of Hoffman J. in the Ali and Fahd case did not create any alternative to O.23. Counsel argued that the costs of the Respondents to set aside the Order of the learned Master were not costs occasioned by it. It was also submitted that the Bank was an international bank and that there was no evidence to substantiate the Respondents' fear that the Bank would be unable to pay their costs if they were successful.

6. The Respondents' summons for security for costs seeks, inter alia, the following :-

"The Applicant (the Bank) do give security for the Respondents' expenses costs and loss of time of and occasioned by the order of Master Pang dated 27th November 1992 ..."

The marginal note to the summons refers to, apart from O.23, r.1 which is the general provision for security for costs, s.76(5) of Cap.8 and s.52 of Cap.4. S.76(5) of Cap.8 provides :-

"A person who, by virtue of an order under this section, is required to attend at any place shall be entitled to the like conduct money and payment for expenses and loss of time as on attendance as a witness in civil proceedings before the High Court."

This, as counsel for the Bank rightly pointed out, equates the position of a witness under the examination and production order pursuant to s.76 to that of a witness in any civil proceedings in the Hong Kong courts. This brings us to s.52 of Cap.4 which provides :-

"In any proceedings in the Supreme Court, a judge may order the reimbursement of a witness in respect of any expenses reasonably and properly incurred by that witness."

Notwithstanding the differences in these two provisions, it is clear that they relate only to the expenses and/or costs involved in acting as a witness. However, in my opinion, the scope of the summons is wide enough to cover not only such expenses and/or costs, but also the legal costs of the application to discharge the learned Master's Order. For if the Respondents are aggrieved or feel aggrieved by the said Order, the only logical thing they can do is to apply to set it aside. The costs of such application are clearly costs occasioned by the said Order. The Respondents' intention to include these costs is clear from their solicitors' letter dated 11th December. Hence, notwithstanding the deficiency in the marginal note, I take the view that two types of expenses and/or costs are being sought under the summons: first, the expenses and/or costs of being witnesses if the Respondents were to be examined and second, the legal costs of the application to discharge the Master's Order. I shall deal with them separately.

7. Do I have the jurisdiction to make an order for security in respect of the expenses and/or costs? Counsel for the Respondents referred me to s.52A of Cap.4 and O.23, r.1. With respect, I do not think these provisions give rise to two sources of jurisdiction for ordering a security for costs. Section 52A provides :-

"(1) Subject to the provisions of rules of court, the costs of and incidental to all proceedings ... in the High Court, ... shall be in the discretion of the Court, and the Court shall have full power to determine by whom and to what extent the costs are to be paid." (The emphasis is mine.)

Firstly, it is expressed to be subject to the provisions of rules of court and this brings us to O.23. In other words, s.52A may be subject to the provision of O.23. Secondly, s.52A(1) gives the court the full power to decide on who should bear the costs of the proceedings before the court and how much he should pay at the end of the day. It does not, however, deal with procedural matters during the course of the proceedings which are expressly left to be dealt with by the rules. Thirdly, security for costs is aimed at offering some kind of protection to a defendant against certain types of plaintiffs without trying to deter the plaintiffs from pursuing their lawful claims. Order 23 provides the procedure whereby a defendant can apply for security for his costs and confers upon the court the jurisdiction as well as the discretion to do so. In my view, the court's jurisdiction to make such orders is derived from O.23, r.1 and not s.52A.

8. In the present case, before the court's jurisdiction under O.23, r.1 can be invoked, the following criteria must be satisfied :

(1) there must be an action or other proceedings in the High Court between the parties;

(2) the parties must be in the position of plaintiff and defendant as the case may be in the action or proceeding in question; and

(3) the plaintiff is ordinarily resident out of the jurisdiction.

It is only when these three criteria are satisfied that the court would exercise its discretion having regard to all the circumstances of the case and whether it is just to make an order. I do not think the third criterion causes any problem since this is not disputed. It is the first two criteria which are subject to contention.

9. For the purpose of O.23, r.1, there must either be an action or a proceeding. Proceeding must be an action or in the nature of an action. (See The Supreme Court Practice, 1993, p.419).

10. In the present case, the Bank is not suing the Respondents in the overseas proceedings. But there is certainly a dispute or issue between the Bank and the Respondents in these Miscellaneous Proceedings MP 3812 of 1992. The Bank is seeking an order or relief against them in this M.P. action. The Bank alleges that they should be examined and be ordered to produce certain documents while the Respondents resist and claim that they should not. There is thus a proceeding within the meaning of O.23, r.1 between these two parties. The Bank can properly be regarded as a plaintiff and the Respondents the defendants in such proceeding. There is also a lis, to use the word of counsel for the Bank, between the two sides. A lis "implies the conception of an issue joined between two parties. The decision of a lis ... is the decision of that issue." (per Lord Greene M.R. in B. Johnson & Co. (Builders) v. Minister of Health (1947) 2 All ER 395, 399.) The learned Master's Order was made on the ex parte application by the Bank. The Respondents' Summons to discharge that Order is the first opportunity and indeed the first step they can take to resist the Bank's application. This Summons is part and parcel of the proceeding between the parties. I do not think it can be regarded as a counterclaim in which the Respondents are seeking any relief as plaintiffs against the Bank as a defendant.

11. For these reasons, I am of the opinion that the first two criteria are also satisfied, that the present case falls within the ambit of O.23, r.1 and that I have the jurisdiction to make an order for security for costs.

12. Incidentally, I do not think the decision of Hoffman J. in the Ali and Fahd case can assist the Respondents. In that case, the learned judge clearly had the jurisdiction to deal with the question of security. It was then a matter of how this could be implemented in order to give effect to a court order. The learned judge quite rightly held that the most effective way was to impose the security as a condition for continuing the Mareva injunction. That case does not confer a separate jurisdiction on the court and is distinguishable from the present case.

13. The next question is what sort of costs can be the subject matter of the order for security. In my view, it is vitally important not to confuse the nature of and the rationale behind the two different types of expenses and/or costs to which I have referred earlier.

14. The expenses and/or costs incidental to an order made under s.76 of Cap.8 are expenses and/or costs resulting from the attendance as a witness. The purpose is to reimburse the person claiming the expenses and/or costs for acting as a witness. The Bank is in litigation with other parties in an overseas court. That foreign court has requested for the assistance of the Hong Kong Court. Pursuant to that request, the Hong Kong Court makes an order under s.76 (2) requiring the Respondents to be examined as witnesses and to produce certain documents. The Respondents are entitled under s.76(5) to their expenses and/or costs "on attendance" as witnesses. There is nothing in that subsection as to who should be responsible for such expenses and/or costs. According to the letter of request, the Bank, that is the party applying for the examination order, is to be responsible initially for such expenses and/or costs. However, I should think that if the examination of these witnesses are to be conducted for the purposes of the overseas proceedings, it is an integral part of those proceedings and the question of who should ultimately bear such expenses and/or costs should be determined by the overseas court at the end of those proceedings.

15. The legal costs incidental to the application to set aside the s.76(2) order, although properly described as costs occasioned by that order, are quite different in nature from the expenses and/or costs arising from the compliance with that order. The legal costs arise from the dispute between the Bank and the Respondents as to whether the Respondents should be examined or not. They are based on s.52A(1) of Cap.4 and are the costs of the proceeding between the Bank and the Respondent. The expenses and/or costs in compliance with the examination order arise from the overseas litigation. They are a statutory entitlement based on s.76(5) of Cap.8 and s.52 of Cap.4. They are not the Respondents' costs of the proceeding here. I therefore do not think that any order for security in this proceeding should or could cover those expenses and/or costs.

16. When exercising my discretion, I have to have regard to all the circumstances of the case and to see whether it is just to make such an order. I am aware that I should consider, among other things, the merits of the Bank's case and its ability to pay the Respondents' legal costs should they be successful in setting aside the examination order. On the merits of the case, I need only say, at this stage and without expressing any finding on the matter, that the Respondents have an arguable case. As to the Bank's financial ability, I accept on the one hand that it is an international bank. But on the other hand there is no evidence that if it is asked to put up a security for costs, this would inhibit it from proceeding any further. I bear in mind that it is the usual ordinary or general rule of practice of the court to require a foreign plaintiff to give security for costs (see the Supreme Court Practice, 1993, p. 421). There is nothing to persuade me to depart from this rule.

17. In the exercise of my discretion, I would make an order that the Bank should put up a security for the Respondents' legal costs of the proceeding, that is to say, the application to set aside the learned Master's Order and not any other expenses and/or costs. I shall hear the parties on the amount of security and further directions.

(P. Chan)
Judge of the High Court