ANANDA TRADING (SINGAPORE) PTE. LTD. V. PALMERSTON HOLDINGS SDN. BHD.
HIGH COURT MALAYA, MELAKA
SURIYADI HALIM OMAR J
[CIVIL SUIT NO: 22-57-1996]
6 NOVEMBER 1996
 

CIVIL PROCEDURE: Costs - Security for costs - Plaintiff a foreign concern with no assets within jurisdiction - Moneys paid by plaintiff prior to agreement being rendered null and void more than ample to cover potential costs - Whether this amounts to assets which could defray any possible debts
CIVIL PROCEDURE: Costs - Security for costs - Plaintiff a foreign concern - Whether security for costs should be provided as of course - Whether security for costs ought to be provided in such circumstances
CIVIL PROCEDURE: Costs - Security for costs - Merits of plaintiff's case - Whether this is a crucial consideration in determining if security for costs ought to be provided

The issue in this case related to security for costs.

The defendants requested for security for costs pursuant to O. 23 r. 1(1)(a) of the Rules of the High Court 1980, i.e. on the ground that the plaintiff was a foreign based company.

Apart from this, and further to their application, the defendants contended that the plaintiff was without any assets within the jurisdiction.

The material events leading to this application are as follows.

The plaintiff entered into a sale and purchase agreement with the defendants to buy a certain property.

It was an implied condition precedent to the sale and purchase agreement that, since the plaintiff was a foreign based company, approvals from the Foreign Investment Committee (FIC) and the State Authority had to be obtained pursuant to s. 433B of the National Land Code 1965.

Applications were submitted to the relevant authorities and some progressive payments were made by the plaintiff to the defendant.

However, the FIC rejected the parties' application and therefore, the plaintiff alleged that the sale and purchase agreement had been rendered null and void.

This, it was contended, entitled them to a refund of all sums of money already paid to the defendants toward the purchase price of the property.

The defendants, on the other hand, wanted to forfeit 10% of the purchase price as compensation.

The Court noted that the amount already paid by the plaintiff was more than the 10% sought by the defendant.

Held:

[1]Order 23 r. 1(1) of the Rules of the High Court 1980 provides that the Court may order security for costs if, having regard to all the circumstances of the case, the Court thinks it just to do so.

[2] It is no longer an inflexible rule that a plaintiff resident abroad should provide security for costs. However, for practical reasons Courts generally still consider it appropriate to require that security.

[3] The question of merit is not really crucial to the ultimate outcome of an application for security for costs but the Court should consider this in plain and obvious cases.

[4] Due to the peculiar facts of this case, the relevancy of the properties of the plaintiff being made available within the jurisdiction takes some prominence for the Court's consideration.

It is not denied in this case that the plaintiff did not have any property or assets in the country.

However, deposits and progress payments had been made by the plaintiff to the defendants and after deducting the sum sought by the defendants as compensation, there still is a balance which is more than ample to cover any potential costs.

By this interpretation, it could not be said that the plaintiffs did not have any property or assets in Malaysia which could defray any possible debts.

[5] Ordering security for costs is justifiable, practical and appropriate in certain cases.

With Malaysia now entering a new phase in its development and with many investors making inroads here, a balance must be maintained in that while foreign investors are highly welcome and encouraged, the local citizens and entities dealing with them require some protection too.

It would be highly embarrassing if in the event of a litigation, the successful respondent will have to go to the shores of, say, Croatia, or even some far off land to recoup his losses.

In the process of so doing, not only will he suffer further administrative, social and language problems, he may even sink further in the quagmire of debts in the process of attempting to recover that initial loss. [Application for security for costs withdrawn.]

Cases referred to:

Ace King Pte. Ltd. V. Circus Americano Ltd. & Ors [1983] 2 CLJ 444 (Rep)
Kasturi Palm Products v. Palmex Industries Sdn. Bhd. Palm Products v. Palmex Industries Sdn. Bhd. [1986] 2 MLJ 310 (refd)
Faridah Begum bte Abdullah v. Dato' Michael Chong [1995] 2 CLJ 951 (refd)
Union UAP Insurance v. Fadara Yacht Sdn. Bhd. [1994] 2 CLJ 670 (refd)
Amar Hoseen Mohammed Revai v. Singapore Airlines Ltd. [1995] 1 SLR 77 (refd)
Porzelack KG v. Porzelack (UK) Ltd. [1978] 1 All ER 1074 (refd)
Sir Lindsay Parkinson & Co. Ltd. v. Triplan Ltd. [1973] 2 All ER 273 (refd)

Legislation referred to:

National Land Code 1965, s. 433B
Rules of the High Court 1980, O. 23 r. 1, 1(a), (b), (c), (d)

Others referred to:

Supreme Court Practice 1993, Vol. 1, para. 23/1-3/2

For the plaintiff - C.H. Chiew; M/s. Azam-Malek & So

For the respondent - Karen Chia; M/s. Nik Hussain & Partners

[Application for security for costs withdrawn.]
 

JUDGMENT

Suriyadi Halim Omar J:

Seven suits were filed originally at the Sessions Court Melaka by seven separate entities against the same defendants, i.e. Palmerston Holdings Sdn. Bhd. which is a locally based company.

Later on the application of the defendants, and consented by the plaintiffs, vide an order dated 11 July 1996 the seven cases were transferred to the High Court.

New case numbers were given for them and they are GS 22-57-96, GS 22-58-96, GS 22-59-96, GS 22- 60-96, GS 22-61-96, GS 22-62-96 and GS 22-63-96. At the opening stage of the hearing, both parties agreed to have one case as a test case with the other six to be bound by that decision.

The reasons for this compromise are clear in that there are similarities between them, inter alia:

1. the defendants are the same in all the cases;

2. the issue of each case relates to security for costs;

3. the plaintiffs are foreign based;

4. the plaintiffs were alleged to be without assets within the jurisdiction;

5. the transactions of these cases involved similar type sales and purchase agreements; and 6. the consent of the state authority and the Jawatankuasa Pelaburan Asing (FIC) was a pre-condition in the transaction.

Since parties had agreed to select one case to represent the rest, GS 22-57- 96 was thus taken up to be canvassed.

The relevant enclosure for this case is encl. 9 where the defendant has requested for security for costs on several grounds.

Before I touch on the grounds of this application which are provided in encl. 8, permit me to reproduce the relevant O. 23 r. 1 of the Rules of the High Court 1980 for easy reference.

This provision reads:

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 (b) that the plaintiff (not being a plaintiff who is suing in a representative capacity) is a nominal plaintiff who is suing for the benefit of some other person and that there is reason to believe that he will be unable to pay the costs of the defendant if ordered to do so; or (c) subject to para. (2), that the plaintiff's address is not stated in the writ or other originating process or is incorrectly stated therein; or (d) that the plaintiff has changed his address during the course of the proceedings with a view to evading the consequences of the litigation, 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.

Before proceeding with the substantive application both parties were kind enough to suggest their respective views as regards the amount in the event the Court allowed the application.

The learned Counsel for the plaintiff compromised at a sum of RM10,000 whilst the defendants suggested RM15,000 for each case.

The defendants' Counsel at the initial stage also agreed to limit her argument of the application merely on sub-para. 1(a) of O. 23 r. 1 of the Rules of the High Court 1980 and to disregard sub-paras. (b), (c) and (d). The defendants identified in particular encl. 6 whereat this enclosure affirmed that the plaintiff was foreign based.

Similarly it can be seen from the statement of claim that the plaintiff is a company that was incorporated in Singapore having its business address as 15 Scotts Road #03-03/04, Thong Teck Building, Singapura 228218.

From the bar table the plaintiff also admitted that her client was foreign based.

With regard to this issue the case of Shaik Ali V. Shaik Mohamed [1963] 1 LNS 122 came to mind immediately.

His Lordship Hill JA opined:

It is quite clear that the Court has a discretion in the matter.

It is also clear that in the case of a plaintiff, and the applicant should be treated as a plaintiff in the present circumstances, who is out of the jurisdiction land who has no property or assets in the country, that the discretion seems to be invariably exercised in favour of making an order for security for costs.

On the same tone His Lordship Zakaria Yatim J (as he then was) in Ace King Pte. Ltd. V. Circus Americano Ltd. & Ors [1983] 2 CLJ 444 (Rep) remarked:

Apart from security in lieu of undertaking as to damages, the second defendant also asked the Court for an order that the plaintiffs do provide security for costs in the sum of RM25,000.

Since the plaintiffs are resident out of the jurisdiction of the Court, I think it is appropriate that they provide security for costs.

The position shifted slightly in the case of Kasturi Palm Products v. Palmex Industries Sdn. Bhd. [1986] 2 MLJ 310 when Mohamed Dzaiddin J (as he then was) said:

Order 23 r. 1(i) provides that the Court may order security for costs "if, having regard to all the circumstances of the case, the Court thinks it just to do so", These words have the effect of conferring upon the Court the real discretion and indeed the Court is bound, by virtue thereof, to consider the circumstances of each case, and in the light thereof to determine whether and to what extent or for what amount a plaintiff may be ordered to provide security for costs.

It is no longer, for example, an inflexible or rigid rule that a plaintiff resident abroad should provide security for costs. (Supreme Court Practice 1985Vol. 1 p. 384).

This view which found a place at para. 23/1-3/2 of 1 Supreme Court Practice 1993 was also considered by Ariffin Zakaria J in the case of Faridah Begum bte Abdullah v. Dato' Michael Chong [1995] 2 CLJ 951; who in the process when referring to Kasturi Palm Products' case (supra) remarked:

The legal position with regard to security for costs in clearly stated in para. 23/1/3/2 of 1 Supreme Court Practice 1993 which reads:

Rule 1(1) provides that the Court may order security for costs if, having regard to all the circumstances of the case, the Court thinks it just to do so. These words have the effect of conferring upon the Court a real discretion, and indeed the Court is bound, by virtue thereof, to consider the circumstances of each case, and in the light thereof to determine whether and to what extent or for what amount a plaintiff (or the defendant as the case may be) may be ordered to provide security for costs.

It is no longer for example, an inflexible or rigid rule that a plaintiff resident abroad should provide security for costs.

And a little down the same page, it says:

Security cannot now be ordered as of course from a foreign plaintiff, but only if the Court thinks it just to order such security in the circumstances of the case.

This statement of the law was approved and adopted by Mohamed Dzaiddin J (as he then was) in Kasturi Palm Products v. Palmex Industries Sdn. Bhd. [1986]2 MLJ 310.

Some indication of the relevant circumstances to be considered may be drawn from what was said by Lord Denning MR in Sir Lindsay Parkinson & Co. Ltd. v. Triplan Ltd. [1973] QB 609 at p. 626; [1973] 2 All ER 273 at pp. 285- 286; [1973] 2 WLR 632 at p. 646 wherein he said:

The Court has a discretion which it will exercise considering all the circumstances of the particular case.

So I turn to consider the circumstances.

Counsel for Triplan helpfully suggests some of the matters which the Court might take into account, such as whether the company's claim is bona fide and not a sham and whether the company has a reasonably good prospect of success.

Again it will consider whether there is an admission by the defendants on the pleadings or elsewhere that money is due.

If there was a payment into Court of a substantial sum of money (not merely a payment into Court to get rid of a nuisance claim), that too would count.

The Court might also consider whether the application for security was being used oppressively - so as to try to stifle a genuine claim.

It would also consider whether the company's want of means has been brought about by any conduct of the defendants, such a delay in payment or delay in doing their part of the work.

No doubt it is no longer an inflexible rule that a plaintiff resident abroad should provide security for costs but for practical reasons Courts generally still consider it appropriate to require that security. I need only to refer to the case of Union UAP Insurance v. Fadara Yacht Sdn. Bhd. [1994] 2 CLJ 670 where at p. 673 Abdul Malek Ahmad J said:

As for the application for security for costs, it has been a matter of practice from the authorities on this point that a plaintiff out of the jurisdiction should give security for costs and in the consequence, I had granted the order in terms of the defendant's application for this with costs in the cause.

However, RM250,000 was to my mind excessive and I had instead fixed RM30,000 which I considered appropriate in the circumstances, to be deposited within three weeks of the said order.

Aside from it still being a matter of practice to order security for costs for some foreign based companies, certainly ordering security for costs is justifiable, practical and appropriate in certain cases.

With Malaysia now entering a new phase in its development and with many investors making inroads here a balance must be maintained in that while foreign investors are highly welcome and encouraged the local citizens and entities on the other hand dealing with them too require some protection.

It would be highly embarassing to say the least in the event of a litigation the successful respondent will have to go to the shores of, say, Croatia or even some far off land to recoup his losses.

In the process of so doing not only will he suffer further administrative, social and language problems but may even sink further in the quagmire of debts in the process of attempting to recover that initial loss.

For purposes of our case having regard to all the circumstances of this application what then are the other considerations which I should look into? Due to the peculiar facts of this case the relevancy of the properties of the plaintiff being made available within the jurisdiction takes some prominence for my consideration.

This is not a novel point as much earlier it was already touched on by Hill JA in Shaik Ali V. Shaik Mohamed[1963] 1 LNS 122. It is not denied in this case as admitted by the plaintiff's Counsel that the plaintiff certainly did not have any property or assets in the country (I shall return to this issue later).

As against this probable inability to retrieve the cost of a proceeding by the defendants in the event the plaintiff's case were to be dismissed, a new dimension was added to the legal arena by the case of Amar Hoseen Mohammed Revai v. Singapore Airlines Ltd. [1995] 1 SLR 77, which was brought to my attention by the learned Counsel for the plaintiff. K.S. Rajah JC viewed the legal position by stating inter alia:

In exercising the discretion under O. 23 r. 1(1) the Court must have regard to all the circumstances of the case.

It is no longer an inflexible and rigid rule that a resident abroad should provide security for costs and security cannot now be ordered as a matter of course from a foreign plaintiff but only if the Court thinks it just to order such security in the circumstances of the case.

A major matter for consideration is the likelihood of the plaintiff succeeding.

Where the chances of the plaintiff succeeding and the defendant failing is strong, the Court may refuse the defendant any security for costs: where it may be a denial of justice to order a plaintiff to give security for the costs of the defendant who has no defence to the claim.

Regarding this point I am in total agreement with the view of Arifin Zakaria J in Faridah Begum Bte. Abdullah v. Dato' Micheal Chong (supra)[1995]2CLJ951 that the question of merit is not really crucial to the ultimate outcome of this application but should only consider it in plain and obvious cases. (See the comments of Sir Nicolas Browne-Wilkinson VC in Porzelack KG v. Porzelack (UK) Ltd. [1978] 1 All ER 1074 at 1077). During the hearing I was informed that all the applications by the separate plaintiffs to the Jawatankuasa Pelaburan Asing (FIC) had been rejected.

Strangely enough out of this seven cases four of the applications had been rejected by the State authority whilst the other three were successful.

The successful applications were GS 22-59-96, GS 22- 62-96 and GS 22-63-96 whilst the unsuccessful ones were GS 22-57-96, GS 22-58-96, GS 22-60-96 and GS 22-61-96.

It is expedient that I reproduce part of the guidelines of the Jawatankuasa Pelaburan Asing which can throw some light into the role of the Jawatankuasa Pelaburan Asing in this case.

The guidelines read:

Garis Panduan Jawatankuasa Pelaburan Asing Mengenai Perolehan Hartanah Oleh Kepentingan Asing

1. Pendahuluan

Garis panduan ini adalah untuk menjelaskan peraturan-peraturan baru mengenai perolehan hartanah oleh kepentingan asing* yang diterimapakai di peringkat Persekutuan dan Negeri seperti yang diumumkan oleh Yang Amat Berhormat Timbalan Perdana Menteri pada 23 Jun 1995.

2. Garis Panduan Umum 2.1 Semua perolehan hartanah oleh kepentingan asing memerlukan kelulusan Jawatankuasa Pelabur Asing (FIC) tanpa mengira nilainya; 2.2 Kepentingan asing tidak dibenarkan memperolehi semua jenis hartanah yang bernilai RM250,000 ke bawah kecuali tanah industri; 2.3 Semua hartanah yang diperolehi oleh kepentingan asing tidak dijual semula dalam tempoh tahun dari tarikh kelulusan FIC.

Nota:

Kepentingan asing ditakrifkan sebagai:

(i) warganegara asing;

(ii) syarikat yang diperbadankan di luar Malaysia;

(iii) syarikat yang diperbadankan di Malaysia tetapi dimiliki lebih 50% oleh (i) dan/atau (ii) di atas.

Despite the application of the plaintiff to the Jawatankuasa Pelaburan Asing, it was rejected on 13 January 1994, though strangely allowed by the Melaka State Authority on 24 July 1995.

But how is the Jawatankuasa Pelaburan Asing involved with this case? Everything began with the sales and purchase agreement dated 3 January 1994 whereby the plaintiff agreed to purchase and the defendants to sell to the plaintiff one unit of condominium known as Parcel No. #19-03, Storey No. 19, Seaview Tower, Ocean Palms to be erected on Master Title held under Lot No. 94, Geran No. Pendaftaran 12002 and Lot No. 95, Geran No. Pendaftaran 12003, Pekan Klebang Seksyen 1, Melaka (hereinafter referred to as 'the property') at a purchase price of RM279,000 and subject to the terms and conditions contained in the sales and purchase agreement.

It is an implied condition precedent to the sales and purchase agreement that approvals from the Jawatankuasa Pelaburan Asing and the Melaka State Authority pursuant to s. 433B of the National Land Code 1965 for the acquisition of the property were required as the plaintiff was foreign based.

In view of the abovementioned rejection by the Jawatankuasa Pelaburan Asing the plaintiff had alleged that the sales and purchase agreement had been rendered null and void and the plaintiff thus was entitled to the refund of all sums of money paid to the defendants toward the purchase price of the property.

And of course the defendants have requested security for costs for the sake of their own welfare.

Returning to the issue of the plaintiff's inability to pay the defendants' cost in the event of the latter's success in the substantive action, (in the course of hearing) and tied up with the requirements of the Jawatankuasa Pelaburan Asing and the permission of the State authority I found that there were certain moneys which were in the hands of the defendants' allegedly due to the plaintiff.

Although the allegation of the defendants was correct in that the plaintiff had no property or assets deposited in banks or in any financial institution here, the defendants could not deny that in relation to the four unsuccessful applications, deposits and progress payments had been made for them.

In fact for this case the defendants were in possession of RM125,550 of the plaintiff's progressive payments.

The defendants on the other hand only wanted the sum of RM27,900 to be forfeited as compensation in the event of being unsuccessful in obtaining the specific performance.

This means after deducting that sum there still is left a balance of RM107,650, more than ample to cover any potential costs.

By this interpretation it could not be said that the plaintiff did not have any property or assets in Malaysia which could defray any possible debts. (See Sir Lindsay Parkinson & Co. Ltd. v. Triplan Ltd. [1973] 2 All ER 273 discussing in some length on this point). Perhaps it is in this kind of predicament that the view of K.S. Rajah JC would be useful.

It was only after highlighting these salient points to the defendants did they agree to withdraw the application for cases GS 22-59-96, GS 22-62-96 and GS 22-63-96 without costs for all seven cases.

As for the other four I still had to make the necessary orders. I thereafter ordered RM10,000 for each of these cases as security for costs with the plaintiff having to furnish banker's guarantees within two months from the date of my order.