DANA SHIPPING AND TRADING SA v. SINO CHANNEL ASIA LTD

CACV 177/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 177 OF 2016

(ON APPEAL FROM HCCT NO. 47 OF 2015)

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REASONS FOR DECISION

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Hon Cheung JA (giving the Reasons For Decision of the Court) :

1. The respondent applied for security for costs of the appeal against the applicant who had lodged an appeal against the judgment of Mimmie Chan J dated 28 July 2016. We refused the application at the conclusion of the hearing and ordered the respondent to pay the applicant the costs of the application in any event on a party and party basis. These are the reasons for our decision.

Background

2.1.   On 3 February 2015 the applicant obtained an arbitral award in London for the sum of US$1.68 million plus interest and costs against the respondent. 

2.2.   On 16 November 2015, Mimmie Chan J made an order giving leave to the applicant to enforce the award (‘the Enforcement Order’).

2.3.   By summons dated 27 November 2015, the respondent appliedtodischargetheEnforcementOrder under section 89 of the Arbitration Ordinance (Cap. 609) (‘AO’), Order 73, rule 10 and the inherent jurisdiction of the Court (‘the 1^st Discharge Application’).

2.4.   On 8 January 2016, the applicant by summons sought security from the respondent under Order 73, rule 10A of US$1,680,404.15 plus interest as a condition of the further conduct of the 1^st Discharge Application.

2.5.   On 28 January 2016, the respondent applied to the English High Court to set aside the award.

2.6.  By a decision dated 14 March 2016, Mimmie Chan J determined the 1^st Discharge Application by ordering,

1)  security of 60% of the award amount to be put up by the respondent within 21 days failing which the application would stand dismissed; and

2)  if security was provided within time, there be liberty to apply after 3 months from 8 March 2016 as to whether the 1^st Discharge Application should be restored (‘the Security Order’).

2.7.   The respondent failed to put up security in accordance with the Security Order within the following 21 days, i.e. by 4 April 2016.  As a result, the Enforcement Order came into effect.

2.8.   On 8 April 2016, Mimmie Chan J granted a post arbitral award Mareva-type injunction against the respondent (‘the original Mareva’).

2.9.   On 28 April 2016, Mimmie Chan J granted the respondent extension of time to put up the security to 26 May 2016, together with a further stay on enforcement by the applicant.

2.10.   On 20 May 2016 the English High Court ordered the award to be set aside on the basis that the applicant could not prove that Mr Cai, with whom it had always dealt in connection with and on whom it had served notice of arbitration, had formal authority to receive such notice (‘the English judgment’).

2.11.   On 24 May 2016, the respondent filed another application to discharge the Enforcement Order (‘the 2^nd Discharge Application’).

2.12.   On 26 May 2016, the extended time for putting up security expired.  The respondent failed to put up security.

2.13.   On 28 July 2016, Mimmie Chan J, pursuant to the 2^nd Discharge Application, set aside the Enforcement Order.  At the same time, she granted the applicant a fresh Mareva injunction on pre judgment principles which remains in force (‘the 2^nd Mareva’).

2.14.   On 18 August 2016, the English Court of Appeal gave the applicant leave to appeal against the English judgment.

2.15.  On 27 August 2016, the applicant lodged its notice of appeal against the judgment of 28 July 2016.

Provision for security

3.1.   Under Order 59, rule 10(5) the Court of Appeal may, in special circumstances, order an appellant to furnish security for the costs of an appeal.  Examples of special circumstances include :

1)  difficulty or expense in enforcing a costs order; and

2)  insolvency or impecuniosity of the appellant.

3.2.  The respondent relied on both of these two factors.  In respect of the difficulty in enforcing a costs order, the respondent contended that the applicant is an overseas resident.  This is not disputed by the applicant.  

3.3.   In respect of the financial position of the applicant, it had disclosed its financial statements up to 2014 which showed that it has been suffering from substantial trading losses of US$2.2 million and US$3.3 million in 2013 and 2014 respectively.  It also owed nearly US$6 million in total to Captor Holdings S.A. and Dana (Singapore).  It is the position of the respondent that even discounting the US$6 million parent-subsidiary and related-company debts, the applicant only had net assets of US$627,287.  However, there is no sound basis to discount those debts in assessing the applicant’s financial ability to pay any adverse costs order.

Our view

4.1.  Even if the special circumstances are present, the Court still has a discretion not to order the security if the applicant can establish that there are countervailing factors.  We are satisfied that there are countervailing factors which militate against the ordering of security. This is because of the special nature of the enforcement proceedings of an international arbitral award.  Unlike the usual position under Order 23, where a foreign award creditor commences enforcement proceedings in Hong Kong and the award debtor resists, it is the award debtor, which is liable to provide security.  This includes substantive security, not merely security for the costs of the litigation : section 86(4)(b) of the AO and Order 73, rule 10A. 

4.2.   Further, as recognised by authorities, such as Gater Assets Ltd v NAK Naftogaz Ukrainiy [2007] 2 Lloyd’s Rep 588, even if there is jurisdiction in enforcement proceedings to order security for costs against any award creditor who brings enforcement proceedings, as a matter of principle, the Court should be reluctant, save in an exceptional case to order security for costs against the award creditor : see the judgment of Rix LJ at paragraph 75.  The discussion there was about application for security for costs at the first instance in the enforcement proceedings. Where the matter is before the Court of Appeal and an application for security is made, Kwan JA in Shandong Hongri Acron Chemical Joint Stock Co Ltd v Petrochina International (Hong Kong) Corporation Ltd (CACV 13/2011, 13 June 2011) (‘Shandong Hongri’) held that :

‘ 49. .... I am inclined to think that the same considerations militating against the ordering of security for costs against a foreign award creditor in the earlier stage of the enforcement of an award should also apply to the present stage, and this should be a sufficient countervailing factor against requiring Hongri [i.e. the foreign award creditor] to provide security. It would not be appropriate to impose a further condition on Hongri in its enforcement of the award by requiring it to provide security for costs on appeal.’

4.3.   Mr Roger Phang for the respondent attempted to distinguish Shandong Hongri on the basis that the applicant is impecunious.  However, it is of note that the respondent had never disclosed either in the present proceedings or in the London proceedings its defence to the applicant’s claim.  The basis of setting aside of the arbitral award in the English judgment was solely on defective service.  The impecuniosity of the applicant by itself is not sufficient to cause security to be imposed in the present case. 

4.4.   Although the applicant had further relied on the merits of its appeal as a further countervailing factor, we are not so persuaded. The grounds of appeal are reasonably arguable but not in the nature of strong ground which militates against the granting of security.

Conclusion

5. For these reasons the application was dismissed.