Smart Trike Mnf Pte Ltd and Others v. Chiu Sui Chun and Others
Read the full judgment text of HCA 847/2013 on BabelCite. This High Court CFI judgment was delivered on 2 April 2015.
1. By way of Inter Partes Summons dated 30 October 2014, all 6 defendants apply for security for costs against all 3 plaintiffs. The grounds of the application are that: -
Cites 7 cases
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HCA 847/2013 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE HIGH COURT ACTION NO 847 OF 2013
BETWEEN
_____________ D E C I S I O N Background 1.By way of Inter Partes Summons dated 30 October 2014, all 6 defendants apply for security for costs against all 3 plaintiffs. The grounds of the application are that: -
2.The defendants further apply for an order that in the event the plaintiffs do not give security for costs, their claims against the defendants be dismissed. 3.There is no dispute that the 1st plaintiff is a company incorporated in Singapore and the 3rd plaintiff is domiciled in Israel. 4.However, in opposing the defendants’ application, the plaintiffs raise the following issues: -
The 1st plaintiff 5.Order 23, rule 1(1)(a) of the Rules of the High Court provides that the court may order the plaintiff to give such security for the defendant’s costs of the action where it appears to the court that the plaintiff is ordinarily resident out of the jurisdiction and if, having regard to all the circumstances of the case, the court thinks it just to do so. 6.Moreover, section 905 of the Companies Ordinance, Cap 622, provides that the court may order security for the defendant’s costs where it appears by credible testimony that there is reason to believe the plaintiff company (including a company incorporated outside Hong Kong) will be unable to pay the defendant’s costs if the defendant succeeds in the defence. 7.The defendants do not seem to have relied on section 905 of the Companies Ordinance in their application against the 1st plaintiff, as inability to pay is not stated in the Inter Partes Summons as a ground for the application against the 1st plaintiff. Nevertheless, as the court has to consider all the circumstances of the case, ability or inability to pay is certainly a factor that the court should take into consideration. 8.It is correct to say that the ordinary residence of a limited company is to be decided by reference to the location of its central management and control (Hui Yin Sang v Tsoi Ping Kwan, supra). However, I do not agree with the plaintiffs that the defendants have failed to adduce sufficient evidence to show that the management and control of the 1st plaintiff are out of Hong Kong. 9.In the Affirmation of Chiu Sui Chun (the defendants’ supporting affirmation), the defendants have provided evidence that the 1st plaintiff is a company incorporated in Singapore and has its central management outside Hong Kong. In the OHIM search records of the registered community design (nos. 001648197-0001 and 000788666-0001) owned by the 1st plaintiff, it shows that the 1st plaintiff is trading through Singapore. In fact, the registered community design no. 000788666-0001 originally belonged to a Hong Kong unlimited company named Smart Baby Toys set up by the 3rd plaintiff but it was transferred to the 1st plaintiff on 4 February 2013. The search records show that the 1st plaintiff uses Singapore addresses (namely 20 Jalan Besar, #05-04 The Office Chambers, Singapore 208906 and 9 Penang Road, #07-15 Park Mall, Singapore 238459) as its correspondence addresses. This is prima facie evidence that the 1st plaintiff is operating and has its central management and control in Singapore. 10.No doubt the legal burden is on the defendants to prove the ordinary residence, including central management and control, of the 1st plaintiff, but when the defendants have produced such prima facie evidence as aforesaid, the evidential burden shifts to the 1st plaintiff to rebut the prima facie evidence. However, the 1st plaintiff produced no evidence at all about its present location of central management and control. The 1st plaintiff relies on the fact that it was previously run and operated by the 1st defendant in Hong Kong and as there is no evidence of any change of place of operation after the termination of the relationship between the parties, there is a presumption that the business continues to be operated in Hong Kong as before. I do not think that there could be such a presumption when the 1st plaintiff has clearly used Singapore addresses, not Hong Kong address, as its correspondence addresses. If the central management and control is still in Hong Kong, there is absolutely no reason to use Singapore addresses at all. There is also no evidence that the 1st plaintiff maintains any staff in Hong Kong to replace the 1st defendant in running the business. 11.The plaintiffs also rely on the defendants’ evidence that inward remittances received (eg purchase money from clients) would always be transferred to the 1st plaintiff’s account in Hong Kong within a short period of time after receipt. The plaintiffs alleges that the 1st plaintiff has maintained an active and satisfactory HSBC account in Hong Kong since 19 February 2010 showing both present and average balances in excess of €2,500,000.00 equivalent and the 1st defendant was at all material times aware of this account being used by the 1st plaintiff in conducting the business. This only shows where the 1st plaintiff has received the money. The use of the money can still be controlled outside Hong Kong. Thus, it would not rebut the defendants’ case. 12.The plaintiffs further allege that the 1st plaintiff has lent money and became lender and mortgagee of 2 properties in Hong Kong since 26 March 2012. However, this is only a bare assertion with no concrete evidence on the terms of the loan agreement, board minutes or loan payment records being produced. In any event, as submitted by the defendants, the situs of the loan would be the country in which the borrower “resides” (see Dicey, Morris & Collins, The Conflict of Laws, 14 ed, Vol 2 Rule 120 at paras 22R-023 and 22-026). Thus, it is not right to say that the 1st plaintiff resides in Hong Kong because it has lent money in Hong Kong. Although the situs of a mortgage of land is where the land is situated (see Dicey, supra at para 22-035), there is no evidence that the 1st plaintiff’s main business is in mortgage of land. It is hardly enough to show that the 1st plaintiff’s residence is in Hong Kong because of the mortgage of these 2 properties. 13.The plaintiffs also allege that the 1st plaintiff has maintained a showroom in Tsimshatsui for business, but this is only a bare allegation made in the plaintiffs’ Re-Amended Statement of Claim, which is denied by the defendants. No evidence is adduced to show that there is such a showroom at all. Thus, such a bare allegation cannot rebut the defendants’ case. 14.I am therefore satisfied that the defendants have discharged their legal burden in proving the ordinary residence, including central management and control, of the 1st plaintiff being in Singapore, rather than Hong Kong. 15.The plaintiffs then submit that the court should not exercise its discretion in ordering security even though it is satisfied that the 1st plaintiff is ordinarily resident out of Hong Kong because of the substantial counterclaim launched by the defendants in this action. 16.The plaintiffs submit that the main defence put forward by the defendants is on copyright subsistence and validity of the 1st plaintiff’s registered design. Thus, the defendants are not simply defending the infringement claim, but go on to attack the validity of the 1st plaintiff’s registered design and seek an order for the revocation of the registered design. The attack is substantial as the defendants rely on a large number of prior arts, which are also relied upon in attacking the originality of the 1st plaintiff’s copyright works. In the premises, the plaintiffs submit that the costs incurred by the defendants for the purpose of defending the copyright claim and the registered design infringement claim should be equally regarded as costs necessary to prosecute the counterclaim (see Ai Zhong v Metrofond Ltd [2010] 1 HKLRD 213 and Goal Setting Consulting Co Ltd v Unigraphics Solutions Asia/Pacific Inc, HCA 994/2003, unreported), and that the counterclaim to revoke the 1st plaintiff’s registered design is a cross action rather than a mere defence. The matters litigated in the infringement claims are also matters which will be raised and litigated in the counterclaim (see Ai Zhong v Metrofond Ltd, supra). 17.Nevertheless, I agree with the defendants that they are plainly not attackers. First of all, the fact that a defendant’s counterclaim arises out of the same matters as a plaintiff’s claim per se does not affect the court’s ability to order security for costs against the plaintiff (see Hong Kong Civil Procedure 2015, para 23/3/3 at p 533). In such cases, the court has to form a preliminary view of the substance of the dispute, ie as to who in substance is the attacker. The court must examine the situation as a matter of substance and not form (see Brand Farrar Buxbaum LLP v Samuel-Rozenbaum Diamond Ltd & Samuel-Rozenbaum HK Ltd (Claimant) (No 2) [2003] 1 HKLRD 600). 18.It is clear to me that the counterclaims for arrears of payment in the sum of US$386,148.40 under the Service Agreements and US$42,000.00 as storage costs for the plaintiffs’ uncollected product molds are only brought by the 6th and 4th defendants respectively and should not in any event prejudice the other defendants’ claim for security for costs in defending the action. Although the defendants’ counterclaim for a declaration that the registered design was not new on the date of registration, it is also clear to me that this is in the nature of a defence to the plaintiffs’ claims of infringement of copyrights. Obviously, if the plaintiffs had not brought the present action, the defendants would not bother whether the registered design is valid or not. 19.There are also many issues relevant to the plaintiffs’ claims but not the counterclaims, such as whether there was any infringement of the plaintiffs’ copyrights used in the design of the plaintiffs’ products, whether the plaintiffs imparted any confidential information to the defendants, whether each of the defendants owed any contractual, tortious or fiduciary duties to the plaintiffs and the breach thereof, whether there was a conspiracy to defraud or injure the 1st plaintiff’s business and whether there was any unlawful interference with the 1st plaintiff’s business. Thus, the issues raised in respect of the validity of the registered design are plainly not coterminous with the majority of the plaintiffs’ claims. 20.In any event, the defendants are prepared to undertake to the court that they will abandon their counterclaims in the event that the plaintiffs do not pay the security for costs so ordered and the plaintiffs’ claims are dismissed (see Dumrul v Standard Chartered Bank [2010] EWHC 2625). I think this is a further illustration that the defendants are not attackers and security should be ordered. I do not agree with the plaintiffs’ submission that the undertaking serves no real purpose, as the whole action including the counterclaims will be disposed of once the security so ordered is not paid. 21.As to the plaintiffs’ contentions that there is no evidence showing that the 1st plaintiff will be unable to pay the defendants’ costs because it has maintained an active and satisfactory HSBC account, and it has lent money and became lender and mortgagee of 2 properties in Hong Kong, I do not think that they could amount to any valid consideration in order to refuse security for costs. First of all, there is no evidence of the nature of the fund in the HSBC account and whether the 1st plaintiff is the real beneficial owner of the fund. Even if the fund belongs to the 1st plaintiff entirely, it just means that the 1st plaintiff can dispose of the fund easily. Money in bank accounts (even they are in Hong Kong) are not normally regarded as assets of a fixed and permanent nature because it can be moved away from Hong Kong at very short notice and provides scarce comfort for a party entitled to costs (see Hoogland Hendricus Antonius v Gino L Lin, HCA 657/2007, unreported). 22.The 1st plaintiff’s interest in the 2 mortgaged properties can only be enforced in the event of default of repayment. The 2 properties cannot be regarded as substantial assets of the 1st plaintiff. In fact, from the evidence, the borrower is controlled by the 1st plaintiff. The 1st plaintiff could easily procure the borrower to pay out all outstanding amounts under the mortgage and discharge the mortgage altogether. So the 2 properties would not amount to any protection to the defendants at all. 23.In the premises, I am satisfied that the 1st plaintiff is ordinarily resident out of jurisdiction and having considered all the circumstances, it is appropriate for me to exercise my discretion in ordering security for costs against the 1st plaintiff. The 2nd plaintiff 24.By virtue of section 905 of the Companies Ordinance, Cap 622, the 2nd plaintiff is liable to pay security for costs if by credible testimony that there is reason to believe the 2nd plaintiff will be unable to pay the defendants’ costs if the defendants succeed in their defence. 25.There seems to be no dispute that the 2nd plaintiff is a nominal plaintiff and will be unable to pay the defendants’ costs if ordered to do so. The contention raised in respect of the 2nd plaintiff is that the lack of assets and funds of the 2nd plaintiff was caused by the 1st defendant. From the evidence, it is clear that the 2nd plaintiff was a dormant company with very little assets even before the alleged breaches of the defendants occurred. It was in fact revived for the purpose of the present action. It is not the owner of any copyright or registered design. It was dormant during most of the period when the alleged breach of duties and infringement were taking place. It is difficult to see how the 2nd plaintiff could have suffered any real loss because of the defendants’ alleged actions. I do not accept that the 2nd plaintiff has made out a case that its lack of assets and funds was caused by the defendants at all. 26.The plaintiffs submit that as most of the claims do not have anything to do with the 2nd plaintiff, it should not be ordered to pay security for costs covering such causes of action. I cannot accept this submission at all. As a nominal and not a genuine co-plaintiff, there is more reason to order security against the 2nd plaintiff (see Hong Kong Civil Procedure 2015, Vol 1, para 23/3/5 at p 536). 27.Thus, the 2nd plaintiff should be ordered to pay security for costs to the defendants. The 3rd plaintiff 28.The 3rd plaintiff is clearly ordinarily resident out of the jurisdiction. The address provided by him in his affirmations is in Israel. The only contention by the plaintiffs in respect of him is that he is maintained in this action to prevent the defendants from taking the technical point that the 1st plaintiff is only the equitable owner of the copyright works but the legal title remains with the 3rd plaintiff. This simply cannot be a ground to refuse security at all. As aforesaid, a nominal plaintiff should in fact be ordered to pay security for costs. 29.Thus, I am satisfied that having considered all the circumstances, the 3rd plaintiff, as a foreigner, is liable to pay security for costs to the defendants pursuant to Order 23, rule 1(1)(a) of the Rules of the High Court. Quantum 30.Although the defendants originally apply for security for costs in the sum of HK$5,251,503.00 (which is for the whole action), it seems that they are prepared to accept security only up to the stage of exchange of witness statements and the sum is HK$2,046,870.00. 31.The plaintiffs submit that the sums requested are far too excessive. They contend that the sum of security for the stage up to exchange of witness statements should be HK$650,000.00. 32.First of all, I agree that security should be ordered only up to the stage of exchange of witness statements. This is without prejudice to the defendants in applying for further security later on if the case develops further. As to the amount, since I am not here to go through a taxation exercise, I do not think that it is necessary for me to discuss the arguments of the parties in details. Judging from the nature of this case and the works that have been done so far, I think the security should be in the sum of HK$1,000,000.00. Conclusion 33.I therefore order as follows: -
Mr Philips Wong, instructed by William K W Leung & Co, for the 1st to 3rd plaintiffs Mr Bernard Man, instructed by Wilkinson & Grist, for the 1st to 6th defendants | |||||||||||||||||||||||||||||||||||||||||
Cases cited in this judgment
Further hearings and rulings under HCA 847/2013