An undertaking by a non-party shareholder resident abroad will generally not be accepted as a substitute for security for costs in proceedings involving foreign companies without assets in Australia, because such undertakings are not enforceable as foreign judgments.
Later decisions that cite PS Chellaram & Co Ltd v China Ocean Shipping Company
Decisions cited by PS Chellaram & Co Ltd v China Ocean Shipping Company
P.S. CHELLARAM AND CO. LIMITED v. CHINA OCEAN SHIPPING COMPANY AND ANOR
S. 91/004
High Court of Australia
McHugh J.(1)
CATCHWORDS
HEARING
CanberraDECISION
McHUGH J. The respondents to an appeal pending in this Court seek an order that the appellant provide security in the sum of $8,250 for the costs of the appeal. The application arises out of an action, heard in the Supreme Court of New South Wales, in which the appellant obtained a verdict against the respondents in the sum of $188,686.14 for damages for the failure to deliver a container of blank cassette tapes. An appeal by the respondents to the Court of Appeal succeeded. This Court granted special leave to appeal against the judgment of the Court of Appeal on 22 May 1991.2. The application is made pursuant to the provisions of O.70, r.7 of the High Court Rules, s.1335 of the Corporations Law and the inherent jurisdiction of the Court. The ground of the application is that the appellant is a company incorporated in Hong Kong, has no assets in the jurisdiction and has a deficiency of shareholders funds of over $HK22,000,000.
3. The principal ground put by the appellant in opposition to the order is that one of its two shareholders has offered an undertaking to the Court that, if the order sought is refused, he will meet the costs of the appeal up to the sum of $8,250 in the event that the appeal should be unsuccessful. In determining the weight to be given to the offer of that undertaking, however, two questions of law must be considered. The first is whether the Court has jurisdiction to accept the undertaking; the second is whether such an undertaking can be enforced as a judgment under the Foreign Judgments (Reciprocal Enforcement) Ordinance (Hong Kong) ("the Ordinance").
4. The appellant also relies on other matters in support of its contention that it should not be ordered to provide security. First, it says that the action in the Supreme Court of New South Wales was commenced on 29 October 1986 yet the respondents made no application for security for the costs of the proceedings until the third day of the final hearing in February 1988, at which time the application was refused. The appellant says that that delay is relevant in considering whether an order for security for costs should be made in this appeal. Secondly, the appellant says that it is a small trader which is not insured in respect of the subject matter of the claim. Thirdly, it relies on an affidavit filed in these proceedings by the solicitor for the appellant in which he says that he is informed and verily believes that "an order for security for costs in favour of the respondents at this time would cause the appellant financial hardship in that in the current economic climate it does not have readily available funds to place on security". Fourthly, the appellant says that it would not be in its present financial position but for the respondents' actions which are the subject of these proceedings.
5. The appellant was incorporated in Hong Kong in 1970. An undated company search, which was made at some time after 7 November 1990, discloses that the appellant has a nominal capital of $HK5,000,000 divided into 500,000 shares of $10 each. Of these shares, 150,000 have been allotted to a Singapore-based company, Chellaram Investment Pte. Limited, and 100,000 have been allotted to Parshotam Shamdas Chellaram, a Hong Kong merchant. The company search also discloses that as at 7 November 1990 the appellant had a total indebtedness of approximately $HK637,000 secured by two mortgages.
6. At the hearing, however, Mr Street, counsel for the appellant, tendered, without objection, an auditor's report to the shareholders of the appellant. The report is dated 5 August 1991 and discloses a very different state of affairs from that revealed by the company search. The report states, among other things, that the appellant had incurred a loss of over $HK26,000,000 during the year ended 31 December 1990, had net liabilities of over $HK22,000,000 and "may be unable to continue trading". In addition to tendering the report, Mr Street said that he was "instructed to proffer to the Court an undertaking by the individual, P.S. Chellaram, an undertaking to this Court, to pay the amount referred to in the notice of motion". Later, Mr Street said that the undertaking was "one to pay an order by this Court by Mr Chellaram (of) the costs up to the amount identified in the notice of motion".
7. To make or refuse to make an order for security for costs involves the exercise of a discretionary judgment. That means that the court exercising the discretion must weigh all the circumstances of the case. The weight to be given to any circumstance depends not only upon its own intrinsic persuasiveness but upon the impact of the other circumstances which have to be weighed. A circumstance which may have very great weight when only two or three circumstances have to be weighed may be of minor significance when many circumstances have to be weighed. However, for over 200 years, the fact that a party, bringing proceedings, is resident out of the jurisdiction and has no assets within the jurisdiction has been seen as a circumstance of great weight in determining whether an order for security for costs should be made. Indeed, for many years the practice has been to order such a party to provide security for costs unless that party can point to other circumstances which overcome the weight of the circumstance that that person is resident out of and has no assets within the jurisdiction.
8. In the present case, not only is the appellant resident out of and without assets within the jurisdiction but the evidence establishes that it is hopelessly insolvent. Nevertheless, it does not necessarily follow that an order for security for costs should be made against it. Special leave to appeal is ordinarily not granted in this Court unless there is an arguable case that the decision below is erroneous and involves a question of public interest extending beyond the immediate interests of the parties. That seems to be the situation in the present appeal. In those circumstances, I would hesitate to make an order for security for costs if the effect of that order would be that the appeal could not be pursued because neither the appellant nor those who stand behind it could provide security for the costs of the appeal.
9. The appellant tendered no evidence concerning the financial position of Mr Chellaram or Chellaram Investment Pte. Limited or how its own costs are being financed. In Bell Wholesale Co. Ltd. v. Gates Export Corporation (1) [1984] FCA 34; (1984) 2 FCR 1, at p 4, the Full Court of the Federal Court said that a court was not justified in declining to order security on the ground that to do so would frustrate the litigation unless the company established that those who stand behind it and would benefit from the litigation if successful are also without means. As I have indicated, there is no evidence before me that the two shareholders in the appellant are not in a position to put the appellant in sufficient funds to provide the security sought. Moreover, Mr Chellaram has proffered an undertaking that he will meet any costs ordered to be paid by the appellant up to the amount of $8,250. That undertaking is some evidence that Mr Chellaram either presently has or within a reasonable time will have sufficient funds to pay $8,250 towards the respondents' costs.
10. In these circumstances, I see no reason why security for the costs of the appeal should not be provided either by the appellant itself with funds provided by those who stand to profit by the appeal if it is successful or, as Mr Street contends, by accepting the undertaking proffered by Mr Chellaram. The appeal to this Court is a new matter, initiated by the appellant, and the fact that the respondents did not make an application for security for costs in the Supreme Court until more than 15 months had elapsed after the action commenced in that Court is of no present moment. Mr Street conceded that "there has been no delay" in respect of the proceedings in this Court. The other matters relied on by Mr Street in opposition to the making of an order against the appellant are of insufficient weight to overcome the facts that the appellant is insolvent, is resident out of the jurisdiction and has furnished no direct evidence as to the means of its shareholders. Having regard to the relevant circumstances, therefore, an order for security for the respondents' cost should be made. The only question is what form it should take.
11. Order 70, r.7 provides that a Justice may at any time "order that the appellant" give security for the costs of an appeal. It is unnecessary for the purposes of this application to determine whether the express reference to "the appellant" in that rule precludes the Court from ordering a person who is not a party to the proceedings to give security (2) See, generally, Yandil Holdings Pty. Ltd. v. Insurance Co. of North America (1985) 3 ACLC 542, at p 546; Memutu Pty. Ltd. v. Lissenden (1983) 8 ACLR 364, at pp 365-366; Appleglen Pty. Ltd. v. Mainzeal Corporation Pty. Ltd. (1988) 79 ALR 634, at pp 635-636, where orders to provide security for a party's costs have been ordered against non-parties. Assuming that the Court has power to accept Mr Chellaram's undertaking that he will meet any order for costs against the appellant up to the sum of $8,250, it is evident that the difficulties of enforcing any undertaking given by him would be formidable. Mr Street contended that an order of this Court requiring Mr Chellaram to give an undertaking to pay the costs of the respondents up to the sum of $8,250 would be enforceable as a judgment under the Ordinance. But this contention misconceives the nature of an order or undertaking to a court to do an act or pay a sum of money. Breach of such an order or undertaking is a civil contempt of court enforceable by committal or sequestration of the contemnor's property. But it is a contempt of and, statute apart, enforceable only by the court which made the order or to whom the undertaking was given. Wide as the provisions of the Hong Kong Ordinance may be, they do not extend to the enforcement of orders or undertakings which are enforceable only by the institution of civil proceedings for contempt of court in a foreign jurisdiction. No point would be served in discussing the provisions of that Ordinance. It is enough to say that its principal object is to provide for the enforcement in Hong Kong of judgment debts obtained in the superior courts of any foreign country to which the Governor in Council has applied the provisions of the Ordinance. Any undertaking given by or on behalf of Mr Chellaram to this Court would not be enforceable in Hong Kong.
12. In the circumstances set out above, the acceptance of an undertaking that
Mr Chellaram pay any costs awarded against the respondents
up to the sum of
$8,250 cannot be regarded as a satisfactory alternative to an order that the
appellant itself provide security for
the costs of the appeal.
Order
13. I order that, within 28 days from the date of this order, the appellant provide security for the respondents' costs of the appeal in the sum of $8,250 in a form acceptable to the Registrar. The appellant must pay the costs of this application. I certify for counsel.
ORDER
Within 28 days from the date of this order, the appellant provide security for the respondents' costs of the appeal in the sum of $8,250 in a form acceptable to the Registrar.Appellant to pay the costs of this application.
Certify for counsel.