Insurance Co of the State of Pennsylvania v. Grand Union Insurance Co Ltd and Another

CACV000029/1988

BETWEEN

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Coram: Hon. Cons, V.-P. and Clough, J.A.

Date of hearing: 19th May, 1988

Date of delivery of judgment: 27th May, 1988

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J U D G M E N T

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Cons, V.-P. delivered the judgment of the Court:

Order 23 rule 1(a) provides as follows -

"1. (1) Where, on the application of  a defendant to an action or other proceeding in the High Court, it appears to the Court :

(a) that the plaintiff is ordinarily resident out of the jurisdiction, or

……........................

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 or other proceeding as it thinks just."

1. The sole question in this appeal is whether the Plaintiff Company falls within the provision as being "ordinarily resident out of the jurisdiction". It is admitted that the Company was incorporated under the laws of the State of Pennsylvania and that its principal place of business is in New York, which is also the seat of its central management and control. Nevertheless the Company carries on business in many other places including Hong Kong. For nearly-25 years it has been registered here under Part XI of the Companies Ordinance Cap, 32; as being an overseas company which has established a place of business here, it has registered under the business Registration Ordinance Cap. 310, and more recently, after the enactment: of the Insurance Companies Ordinance Cap. 41 in 1983, it has been authorised to carry on various classes of insurance business thereunder.

In the court below Sears, J. said -

"    In my judgment, this American company carries out its insurance business in Hong Kong in its own name, but all the control, policies and decisions are vested in New York. its management is conducted, by a Hong Kong Company; that is why the affidavit is sworn by the Company Secretary of the managing agent. I do not consider this to be a 'branch office' as the term is commonly understood.

On the evidence which has been placed before me, the Defendants have satisfied me that the Plaintiffs as a matter of fact are ordinarily resident in New York."

2. The judge would seem to have been applying the criterion which has long been accepted as standard with regard to the residence of a limited company for tax purposes. The classic exposition is by Lord Loreburn L.C. in De Beers Consolidated Mines Ltd. v. Howe⁽¹⁾ -

"In applying the conception of residence to a company, we ought. I think to proceed as nearly as we can upon the analogy of an individual. A company cannot eat or sleep, but it can keep house and do business. We ought; therefore, to see where it really keeps house and does business. An individual may be of foreign nationality, and yet reside in the United Kingdom. So may a company. Otherwise it might have its chief seat of management and its centre of trading in England under the protection of English law; and yet escape the appropriate taxation by the simple expedient of being registered abroad and distributing its dividends abroad. The decision of Kelly C.B. and Huddleston 3. in the Calcutta Jute Mills v. Nicholson (1876) 1 Ex.D. 428 and the Censena Sulphur Co. v. Nicholson (1876) 1 Ex.D. 420, now thirty years ago, involved the principle that a company resides for purposes of income tax where its real business is carried on. Those decisions have been acted upon ever since. I regard that as the true rule; and the real business is carried on where the central management and control actually abides.''

3. Mr. Bleach for the 1st Defendants Company, contends that we are bound to adopt the same criterion as a matter of precedent; but should we be not so persuaded, then in any event the approach is appropriate in its own right. The basic concept behind the rule, so he suggests, is that a person's major assets are most likely to be where he is ordinarily resident, and so with a limited company, where its real business is. Whether that really is so in the case of a modern multi-national may be open to doubt; but it is plain that the object of the rule is to avoid difficulty in recovery, should a Plaintiff be unsuccessful in his action.

4. Mr. Barlow for the Plaintiff Company, rejects the tax authorities as confined only to that particular field of the law. He urges us instead to approach the question as a matter of jurisdiction. In that sense it is well settled that a company may be resident in more than one place at the same time: New York Life Insurance Co. v. Public Trustee(²). Even. for tax purposes unusual circumstances may perhaps still give rise to dual residency: Unit Construction Co. Ltd. v. Bullock;⁽³⁾.

5. An overseas company registered under Part XI of the Companies Ordinance is required to authorise one or more persons resident in Hong Kong to accept service on the company's behalf: Section 333(1)(c) and (d). To carry on business would also make the company amenable to service: per Lord Halsbury quoted in New York Life Insurance Co.⁽²⁾ –

"'It appears to me that as a consequence of these facts' - that is, carrying on business in this county - 'the appellants are resident here in the only sense in which a corporation can be resident - to use the phrase which Mr. Joseph Walton has, so constantly referred to, they are 'here'; and, if they are here, they may be served,"'

6. The underlying concept of Mr. Barlow's submission, as we understand it, is that he Plaintiff Company, having subjected itself to the jurisdiction in those two ways, should be treated in the same way as an ordinary Hong Kong resident; it is unfair that it should be saddled with the same liabilities, but denied the same benefits.

7. With every respect there appear to be two weaknesses in that submission. Firstly, liability to suit depends upon presence rather than residence. Mere presence does not necessarily equate with residence, let alone ordinary residence. Something more is necessary, and thus in particular cases a measure of uncertainty may creep in. Secondly, although it may be stating the obvious, a limited company is not the same as an individual. For example it cannot be made subject to Order 49B. If any comparison is to be made, it ought to be made with an ordinary Hong Kong company.

8. That brings us to Section 357 of the Companies Ordinance -

"357.     Where a limited company is plaintiff in any action or other legal proceeding, any judge having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the company will be unable to pay the costs of the defendant if successful in his defence, require sufficient security to be given for those costs, and may stay all proceedings until  the security is given."

The effect of this section, as Millet J. observed in DSQ Property Ltd. V. Lotus Ltd.(⁴), is that -

"In return for the privilege of limited liability conferred on it  by the Act, any such company suing in any court in the United Kingdom must concede the obligation to provide security for the defendant's costs if his assets appeared to be insufficient to meet them."

9. However the word "company" is restricted by Section 2 of our ordinance to "a company formed and registered under This Ordinance or an existing company''. "Existing companies" are those created under earlier ordinances. Thus Section 357 has no application to overseas companies. If Mr. Barlow's argument is correct the Plaintiff' Company is therefore not in the same position as a Hong Kong company, it is in a privileged" position. It does not have to maize the concession spelt out by Millet J. It could, if impecunious, bring proceeding's with impunity. We muse emphasize that we do not for one moment suggest that the Plaintiff Company is impecunious, indeed its apparent wealth and its responsibilities under the insurance Companies Ordinance will no doubt stand it in good stead should applications under the Rule be made in other actions (- the judge observed that there was "little argument" as to the exercise of his discretion in the present instance.)

10. Taking these disadvantages into account on the one hand and bearing in mind on the other that the alternative approach of Mr. Bleach is at the very least consistent with highest authority, we have come to the conclusion that so far as the application of Order 23 rule 1 to a limited company is concerned; the proper construction of "ordinarily resident" should be by reference to where the central management and control abides. We have to accept that this will not leave the situation entirely without anomaly. Mr. Barlow instanced the possibility of an overseas company with its central management and control in Hong Kong. However, that could, if it be thought appropriate, be removed by slight amendment to Section 357.

11. In our judgment the judge below approached the matter correctly and the appeal must be dismissed.

(1) [1906] A.C. 455

(2) [1924] 2 Ch. 101

(3) [1960] A.C. 351

(4) [1987] 1 W.L.R. 127 at 129

Representation:

Barrie Barlow (M/s Barlow Lyde & Gilbert) for Plaintiff/ Appellant

John Bleach (M/s Clifford Chance) for 1st Defendant/ Respondent