Arko Ship Leasing Ltd and Another v. Winsmart International Shipping Ltd and Another

HCAJ 213/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ADMIRALTY JURISDICTION NO 213 OF 2009

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J U D G M E N T

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1.There is before me an application by the 2^nd defendant for security for costs from both plaintiffs. These proceedings have arisen out of the sinking of the vessel Ying Gao 306 in Hong Kong on 30 April 2009. The background of the case is set out in a previous judgment of mine dated 22 January 2013 concerning adjournment of the trial and need not be repeated here.

2.The 1^st plaintiff is a company incorporated in the British Virgin Islands.  Having regard to the decision of the Court of Final Appeal in Akai Holdings Ltd v Ernst & Young (2009) 12 HKCFAR 376, there is no dispute that s 357 of the Companies Ordinance does not apply to it and that the only possible basis for obtaining an order for security for costs against it is Order 23 rule 1(1)(a), on the ground that it is “ordinarily resident out of the jurisdiction”.

3.The question whether a company is ordinarily resident outside Hong Kong in the context of Order 23 has come before the courts many times.  The principles are well established and I do not propose to rehearse them here.  They are referred to, for example, in the Court of Appeal’s decision in Hui Yin Sang v Tsoi Ping Kwan [2012] 2 HKLRD 1085. In essence, one has to look at the nature of the activities of the company, and on that basis determine where the company’s central management and control is located.  The burden lies on a defendant to show that the plaintiff is ordinarily resident out of the jurisdiction.

4.On the evidence available on this application, the 1^st plaintiff is a company engaged in the business of providing carriage service for containers between Hong Kong and ports in Mainland China. Its sole director, Mr Fu Chiu Wa, is a Hong Kong permanent resident and stationed in Hong Kong all the time.  Its general manager, Mr Leung Ka Yip, is also a Hong Kong resident.  They regularly make business decisions for the 1^st plaintiff in Hong Kong.  The 1^st plaintiff has a business address in Metroplaza Tower 2 in Kwai Fong, New Territories, which it apparently shares with the 2^nd plaintiff.  The 1^st plaintiff’s correspondence with the 1^st defendant in 2008 and the shipping order relating to the voyage in question show that the 1^st plaintiff had an address in Wan Chai at the time as well as Hong Kong telephone and fax numbers.  The 1^st plaintiff employs nine employees in Hong Kong (and ten in Guangzhou).  Two-thirds of its business comes from customers from Hong Kong.  There are documents suggesting the 1^st plaintiff dealt with Hong Kong-based companies as its customers.

5.Against this, there is virtually nothing adduced by the 2^nd defendant to show that the 1^st plaintiff is resident out of the jurisdiction, apart from the fact that it is a British Virgin Islands company.  But as Fok JA (as he then was) said in Hui Yin Sang at §44, the concept of residence of a company is entirely different from that of domicile.

6.Mr Alder who appears for the 2^nd defendant places reliance on the fact that the 1^st plaintiff is not registered under Part XI of the Companies Ordinance.  However it seems to me while it is true that s 333 requires a non-Hong Kong company that establishes a place of business in Hong Kong to apply for registration, it does not follow from the absence of registration that the 1^st plaintiff has no management or control in Hong Kong.  Whether or not the 1^st plaintiff is ordinarily resident outside Hong Kong is a question of fact to be determined on the evidence, not an issue that turns upon compliance with s 333.  As Mr Alder points out, the potential consequence of failure to comply with s 333 lies in the liability of the officers for penalty under s 340 of the Companies Ordinance. 

7.Mr Alder also criticises the 2^nd plaintiff’s evidence for the absence of documentary proof of the matters referred to in Mr Leung’s affirmation.  The authorities make clear that mere assertion of the location of a company’s central management and control is insufficient. There needs to be evidence of the primary facts: see Hui Yin Sang at §39.  Here however there is evidence given on affirmation of certain primary facts, and some relevant documentary evidence annexed to the witness statement of Mr Leung to which he makes reference in his affirmation.  I have no hesitation in saying that the plaintiffs’ evidence could be improved, but I also note that although Mr Leung’s affirmation was filed over nine months ago, the 2^nd defendant has not made any comment on it or requested documentary proof of any of the matters referred to therein until Mr Alder’s skeleton argument dated 12 December 2013.

8.In my judgment the available evidence leads to the conclusion that the 2^nd defendant has failed to show that the 1^st plaintiff is ordinarily resident out of the jurisdiction for the purpose of Order 23 rule 1(1)(a).  The summons therefore fails as against the 1^st plaintiff.  Insofar as there is a lacuna in the law that such a company is immune from liability to give security for costs whether under Order 23 or s 357, it is a matter to be addressed by legislation. 

9.In addition, even if I had found the 1^st plaintiff to be resident outside the jurisdiction, I would have accepted Mr Cheng’s alternative argument that no security should be ordered against it in favour of the 2^nd defendant on the ground that the 2^nd defendant is making a cross-claim that raises essentially the same issues as the 1^st plaintiff’s claim.  I shall deal with this argument further when I come to the 2^nd plaintiff below.

10.I turn to the application for security to be given by the 2^nd plaintiff which is a company incorporated in Hong Kong.  Security for costs is sought against it by the 2^nd defendant under s 357 of the Companies Ordinance.  The power to order security under that section arises “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”.

11.Initially a point was taken against by Mr Cheng for the 2^nd plaintiff, based on his reading of the amended statement of claim, that the 2^nd plaintiff has made no claim against the 2^nd defendant and that therefore it ought not to be required to provide security for the 2^nd defendant’s costs.  But he withdrew that submission during the hearing and confirmed that the 2^nd plaintiff does pursue a claim against the 2^nd defendant.  Presumably the claim is on the same basis as the 1^st plaintiff’s claim in the event that, contrary to the plaintiffs’ primary position, the 2^nd plaintiff is found to be the carrier instead of the 1^st plaintiff.  The prayer for relief in the amended statement of claim states that the 1^st and 2^nd plaintiffs claim relief against both the 1^st and 2^nd defendants jointly and severally.

12.Nevertheless, there remains the argument that the 2^nd plaintiff should not be required to pay security because the 2^nd defendant, who is a foreign corporation, has a counterclaim against both plaintiffs which constitutes not merely a defence of the action but a separate cross-claim. 

13.Having reviewed the pleadings, it seems to me there is some force in this point.  On the broadest level, in this action which has arisen from the sinking of the vessel, the plaintiffs represent the shipowners’ interests while the defendants the cargo interests.  The plaintiffs say that the vessel sank because it was overloaded as a result of misleading information about the cargo weight given by the defendants, whereas the defendants allege it sank because of the master’s and crew’s negligence.  No one suggests the vessel foundered from accidental cause without anyone’s fault.  The plaintiffs claim damages for the loss of the vessel and consequential loss of income, whereas the defendants claim damages for loss of the containers and indemnity for liability to the actual owners of the cargo.

14.In my view, both the 2^nd plaintiff and the 2^nd defendant may be said to be “attackers” against each other. 

15.The main issue of why the vessel sank is central to both the action and the counterclaims.  Even if the action is stayed, it seems to me clear from the plaintiffs’ Reply and Defence to the Counterclaim of the 2^nd defendant that the same principal factual issues will have to be determined on the counterclaims as to whether the sinking was caused by negligence on the part of the master and crew or overloading as a result of misleading information provided by the defendants.

16.The quantum of the plaintiffs’ claim for the loss of the vessel is RMB 3,660,000.  There is a claim for lost income.  At the hearing in January 2013 I was told that the plaintiffs’ claim in aggregate amounted to about HK$10 million.  For its part, the 2^nd defendant claims damages for lost or damaged containers and for compensation paid to actual cargo owners in the total sum of US$294,858.85, and also the costs and expenses (as yet unquantified) incurred in defending and settling a separate action (HCAJ No 252 of 2009) brought by the cargo owners in which the 2^nd defendant herein was the third party.  In the light of this although it seems that the 2^nd defendant’s claim will be unlikely to exceed the 2^nd plaintiff’s claim, there is no such disparity in the amounts as to suggest that the 2^nd defendant is not properly regarded as an attacker in its own right.  For all I know, even if the plaintiffs had not brought the action, the 2^nd defendant would have made a claim against them.  There is no suggestion, as there was in Winghing Investments Ltd v Lee Hoi Wing, CACV 378/2995, 28 February 2006, §22, that the counterclaim would not be proceeded with if the plaintiffs’ claim was dismissed.

17.In these circumstances, it seems to me that the costs incurred by the 2^nd defendant in defending the action might equally be regarded as costs which it had to incur to prosecute its counterclaim.  It would not be just to order security for costs in favour of the 2^nd defendant against the 2^nd plaintiff: BJ Crabtree (Insulation) Ltd v CPT Communication Systems Ltd (1993) 59 BLR 43, 53; Ai Zhong v Metrofond Ltd [2010] 1 HKLRD 213 §22; E-Global Ltd v Trenda Ltd [2012] 2 HKLRD 1211 §35. 

18.It follows that the application also fails as against the 2^nd plaintiff.

19.The summons must therefore be dismissed.  I make a costs order nisi that the 2^nd plaintiff is to have its costs from the 2^nd defendant.

Mr Bosco Cheng, instructed by Ho Tse Wai, Philip Li & Partners, for the 1^st and 2^nd plaintiffs

Mr Edward Alder, instructed by Ince & Co, for the 2^nd defendant