DMC Category Rating: Confirmed

This case note is contributed by Crump & Co, the International Contributors to the website for Hong Kong

Background
The Plaintiffs claimed against the Defendant for damage to a shipment of cargo from Moji, Japan to Yantian, China in July 2004. The claim was in the sum of Japanese Yen 3,826,500. The Defendant denied liability relying on the grounds that the damage was caused by the defective packing of the cargo and also by perils of the sea.

The first Plaintiff in this action was a Japanese Company with its address in Izumo-city, Japan and the second Plaintiffs were a Chinese company situated in Guangdong, China. The Defendant took out an application for security for costs in an amount put forward at HK$400,000 under O.23 r.1(1)(a) that is, on the sole ground that the Plaintiffs were foreign. The Plaintiffs opposed the application, arguing that it was discriminatory to distinguish between foreign and local plaintiffs. The fact that both Plaintiffs were foreign corporations was not by itself a sufficient reason for the court to order security for costs. Ordering security on this sole ground would contravene the Hong Kong Bill of Rights Ordinance and would result in inequality before the law.

The Plaintiffs that it was not their intention to strike down O.23 r.1(1)(a), as the rationale behind such sub-rule is a legitimate one in protecting the Defendant as to its costs position against a foreign plaintiff who has no assets within the jurisdiction. However, it was argued that there is no inflexible rule that the court must order security for costs against a plaintiff simply because it is a foreign corporation and to do so would be discriminatory. It was submitted that more reasons should be provided by the Defendant to justify the provision of security.

The Plaintiffs further argued that the approach in the case of Nasser v United Bank of Kuwait [2002] 1 WLR 1868 should be adopted. The rationale behind this English Court of Appeal case is that if there are considerable obstacles in enforcing judgment for costs against a particular foreign plaintiff or appellant, then ordering such party to provide security for costs would not be discriminatory but justified. The focus should be on the difficulty in enforcing a Hong Kong judgment in a foreign jurisdiction and not on the status of the particular plaintiff.

Judgment
In giving his decision, the judge accepted the principle enunciated in Nasser v United Bank of Kuwait and reiterated the importance of considering all the circumstances of each case in deciding whether to order security. The judge also found that the Hong Kong Courts should focus on the difficulties faced by a defendant in enforcing a Hong Kong judgment rather than on the status of a particular plaintiff.

In applying the principle to the present case, the Judge concluded that, as the legal systems in the Chinese Mainland and Japan are based on the civil law system, different from the common law system in Hong Kong, and as there were (at the time of the judgment) no reciprocal arrangements in place for the enforcement of a Hong Kong judgment in either Japan or the Mainland, delay and extra costs would be incurred in enforcing any judgment for costs in China and Japan. Difficulties would be compounded by the differences in culture and the language barrier. Consequently, the Defendant’s application was allowed and the Plaintiffs were ordered to provide security in the sum of HK$180,000.00.

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