Server: Netscape-Commerce/1.12 Date: Wednesday, 31-Dec-97 20:27:53 GMT Last-modified: Tuesday, 30-Sep-97 02:06:24 GMT Content-length: 6487 Content-type: text/html SRT


       Newsletter   



An Introduction To The Hong Kong Basic Law
Stay of Proceedings - Application of Warsaw Convention, Choice of Law and Forum Considerations
Ship Finance: Financing of Hong Kong Flag Vessels
Security for Costs
Changes to the HK Arbitration Rules
Establishment of Trading Offices in Shanghai

Security for Costs

One risk of litigation is recovering sums awarded by a court or arbitrators. A significant part of this is the recovery of the costs of the proceedings. Indeed, costs may be the only sum awarded to the Defendant.

In most cases (particularly in trade and transport) the claimant will be a "foreign" litigant in a country where he is not resident, incorporated or where he has no place of business. In such cases the defendant may apply to the court or tribunal for security for the legal costs that he might incur. The rationale for ordering the plaintiff to provide the security for the defendant's costs is that the successful defendant can then easily enforce any costs award in his favour.

But this does not assist a defendant where the plaintiff is resident in the jurisdiction. However, a recent decision in London may change that situation in circumstances which may prove quite common for those in the trade and transport world.

In Abraham & anor v. Thomson & ors, the plaintiffs (based in England) brought an action against a number of defendants. The defendants suspected that the English resident plaintiffs' claim was being by an offshore company, and that the plaintiffs had little or no financial strength. They feared that a costs order in their favour, would be difficult if not impossible to enforce. The plaintiffs refused to disclose whether anyone was funding their action. Thus the defendants issued a summons for security for costs and an order for disclosure of who was the true plaintiff. The plaintiffs opposed on the grounds that the application for security fell outside any of the grounds set out in the Court rules (which give the court discretion to order security for costs) and the disclosure was not ancillary to any statutory power.

The court ordered disclosure of the party funding the litigation, finding that it had jurisdiction to stay proceedings on grounds relating to the way proceedings were being brought as this was part of the court's overall entitlement to protect its own procedures. The court could grant a stay based on the way the action was being financed and extended to by a third party who would not or could not accept liability to pay the successful defendant's costs. In this case, it was reasonable to infer that the plaintiffs' costs were funded from overseas and that the defendants would have difficulty in enforcing any costs order.

Point to Note

This decision may be of use in claims ostensibly brought by an insured, but in fact entirely funded by the insurer. Under English and Hong Kong law (and many other common law jurisdictions) the insurer who has paid his insured must seek to recover by suing in the insured's name. A typical example is of cargo interests recovering sums for damaged cargo from insurers and the insurer seeking to recover from the carriers.

The Abraham case may now permit the defendant who receives a claim in eg Hong Kong from an ostensibly Hong Kong cargo interest to force that security for costs be given by the overseas insurance company. Given that many underwriters (rather than brokers) are located in a different country to their insured, the decision may extend the ability of the defendant to ensure that if successful he will be not left out of pocket when paying his lawyer!

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