Merck Kgaa v Xtalic Corporation (WA-24IP-11-07/2018)

This is a security for costs application in relation to an appeal against the decision of the Registrar of Trade Marks. 2

The Plaintiff is a private limited company incorporated in Germany involved in the business of pharmaceutical, chemical and life sciences.

The Defendant is a company incorporated in Massachusetts, United States of America involved in the business relating to nanostructured materials.

By an originating summons dated 2 July 2018 (“OS”), the Plaintiff is appealing against the decision of the Registrar of Trade Marks dismissing the Plaintiff’s opposition to the Defendant’s trademark application made to MyIPO under Trade Mark Application no. 090111990 for the mark “Xtalic” in class 2.

By a letter dated 23 July 2018, the Defendant via its solicitors issued a letter to the Plaintiff’s solicitors requesting for payment of security for costs of RM80,000.00 in respect of defending the OS on the basis that the Plaintiff is a foreign private company incorporated in Germany. The Plaintiff however rejected the Defendant’s request.

Consequently, the Defendant on 6 August 2018 filed this application (enclosure 6) (“Application”) for security for costs accordingly. 3

The affidavits that were filed for purposes of the Application are as follows:

Defendant’s affidavit in support of Christopher Adam Hemme affirmed on 1 August 2018;

(ii) Defendant’s notice of intention to use affidavit for the affidavit in reply of Christopher Adam Hemme affirmed on 30 July 2018;

(iii) Defendant’s affidavit in reply of Christopher Adam Hemme affirmed on 30 July 2018;

(iv) Plaintiff’s affidavit in reply of Asya Avagyan and Vahe Movsisyan affirmed on 7 December 2018; and

Defendant’s affidavit in reply of Christopher Adam Hemme affirmed on 25 January 2019.

After having read the cause papers and written submissions filed by the parties, I heard oral arguments of counsel on 18 February 2019. 4

I thereafter allowed the Application for security for costs of RM25,000.00 to be deposited with the Defendant’s solicitors and costs of RM4,000.00.

I now furnish below the grounds of my decision.

The Defendant’s Application is premised on Order 23 Rule 1(a) of the Rules of Court 2012. Order 23 reads as follows: “23. Security for costs

Security for costs of action (O. 23 r. 1)

Where, on the application of a defendant to an action or other proceedings in the Court, it appears to the Court-

that the plaintiff is ordinarily resident out of the jurisdiction;

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;

subject to paragraph (2), that the plaintiff's address is not stated in the writ or originating summons or is incorrectly stated therein; or

that the plaintiff has changed his address during the course of the proceedings with a view to evading the consequences of the litigation, 5 then, if, having regard to all the circumstances of the case, the Court thinks it just to do, it may order the plaintiff to give such security for the defendant's costs of the action or other proceedings as it thinks just.

The Court shall not require a plaintiff to give security by reason only of subparagraph (1)(c) if he satisfies the Court that the failure to state his address or the misstatement thereof was made innocently and without an intention to deceive.

Where, on the application of a defendant to an action or other proceedings in the Court, it appears to the Court that-

a party, who is not a party to the action or proceedings (which is referred to as a "non-party"), has assigned the right to the claim to the plaintiff with a view to avoid his liability for costs; or

the non-party has contributed or agreed to contribute to the plaintiff's costs in return for a share of any money or property which the plaintiff may recover in the action or proceedings, and the non-party is a person against whom a costs order may be made, then, if, having regard to all the circumstances of the case, the Court thinks it just to do so, it may order the non-party to give such security for the defendant's costs of the action or other proceedings as the Court thinks just.

An application for an order under paragraph (2A) shall be made by a notice of application, which shall be served on the non-party personally and on every party to the proceedings.

A copy of the supporting affidavit shall be served with the notice of application on every person on whom the notice of application is required to be served.

The references in the foregoing paragraphs to a plaintiff and a defendant shall be construed as references to the person (howsoever described on the record) who is in the position of plaintiff or defendant, as the case may be, in the proceedings in question, including the proceedings on a counterclaim.

Manner of giving security (O. 23 r. 2) Where an order is made requiring any party to give security for costs, the security shall be given in such manner, at such time, and on such terms, if any, as the Court may direct. 6

Saving for written law (O. 23 r. 3) This Order is without prejudice to the provisions of any written law which empowers the Court to require security to be given for the costs of any proceedings.”

In this respect, the Defendant also relied on the case of Luminous Crossroads Sdn Bhd v Lim Kong Huat Construction [2002] 5 CLJ 100 where Low Hop Bing J (later JCA) held as follows: “It is trite law that under O. 23 and s. 351, the court has a discretion which must be exercised after considering all the circumstances of the particular case: Sir Lindsay Parkinson & Co Ltd v. Triplan Ltd [1973] 2 All ER 273. In addition, this discretion is a judicial discretion which must be exercised according to established judicial principles. In Sir Lindsay Parkinson & Co Ltd v. Triplan Ltd, supra, Lord Denning, MR set out some factors which the court might take into consideration in exercising its discretion on whether or not to award security for costs, as follows:

whether the company's claim is bona fide and not a sham;

whether the company has a reasonably good prospect of success;

whether there is an admission by the defendants on the pleadings or elsewhere that money is due;

if there was payment into court of a substantial sum of money (not merely a payment into court to get rid of a nuisance claim);

whether the application for security was being used oppressively - so as to try and stifle a genuine claim;

whether the company's want of means has been brought about by any conduct of the defendants, such as delay in payment or delay in doing their part of the work. 7 The factors listed by Lord Denning, MR, above have been applied by the Australian Courts eg, in Michael Bickley Pty Ltd v. Westinghouse Electric Australasia Ltd [1983] 1 ACLC 967; and MA Productions Pty Ltd v. Austrama Television Pty Ltd [1982] 1 ACLC 404 (see also p. 74 "Security For Costs" by Jim Delany, 1989 published by The Law Book Company Limited). In my view, these factors are not intended to be exhaustive but merely provide general guidelines for consideration...” Additionally, the Defendant relied on the case of S & S Power Switchgear Ltd v Toprank Corp Sdn Bhd [2005] 2 MLJ 69 where Wan Adnan Muhamad J (later JCA) held as follows: “9 Adalah jelas bahawa mahkamah mempunyai budi bicara sama ada untuk membuat perintah mengenai kos jaminan, sama ada melayan atau menolak permohonan pemohon. Pada pendapat saya budi bicara hendaklah digunakan dengan mengambilkira hal keadaan keseluruhan. Jadi, bukan suatu kepastian bahawa bila mana membabitkan tuntutan oleh plaintif asing yang menetap di luar bidangkuasa, mahkamah hendaklah menentukan suatu jumlah untuk kos jaminan. Dalam kes Kasturi Palm Products v Palmex Industries Sdn Bhd [1986] 2 MLJ 310, mahkamah memberi kos jaminan bukan atas asas plaintif adalah syarikat asing (sila lihat kes Salchi SPA v Ler Cheng Chye (No 2) [2000] 1 MLJ 556). 10 Adalah suatu prinsip nyata bahawa permohonan kos jaminan harus ditolak jika sekiranya ia adalah 'oppressive' (sila lihat kes Gateway Land Pte Ltd v Turner (East Asia) Pte Ltd [1988] 1 MLJ 416; Quality Tractors (M) Sdn Bhd v United Asian Bank Bhd [1980] 1 MLJ 95). 11 Mahkamah hendaklah juga mengambilkira berkemungkinan plaintif berjaya dalam tuntutannya (sila lihat kes Porzelack KG v Porzelack (UK) Ltd [1987] 1 All ER 1074). 12 Adalah wajar mahkamah memberi pertimbangan kepada kemungkinan besar defendan gagal dalam pembelaannya (sila lihat kes Crozat v Brogden (1894) 2 QB 30).” 8

In summary, the Defendant contended that it has a meritorious application because the Plaintiff is ordinarily resident out of the jurisdiction of this Court. Since Germany is not one of the countries under the Reciprocal Enforcement of Judgment Act 1958, the Defendant contended that it would face difficulty in enforcement of its costs against the Plaintiff in Germany should the OS be dismissed and costs awarded to the Defendant. Moreover the Defendant has good prospects in defending the OS by reason it is an appeal and not a fresh originating application. The Defendant has already succeeded in the originating forum before the Registrar of Trade Marks. In other words, the Defendant has better prospects of success over the Plaintiff.

The Plaintiff in opposition of the Application contended that the order for security of costs is not obtainable as a matter of right against a foreign plaintiff and the Plaintiff relied on the case of Goldquest International Ltd v Teh Leong Kiat [2003] 2 CLJ 402 where Abdul Malik Ishak J (later JCA) held as follows: “It is entirely within the domain and the discretion of the court to order security by taking into account all the circumstances of the particular case in order to achieve a balance between ensuring that protection is afforded to the defendant and at the same time to avoid injustice to the plaintiff by unnecessarily shutting the plaintiff out or stultifying the plaintiff in the conduct of its litigation.” 9 The Plaintiff also relied on the case of Kasturi Palm Products v Palmex Industries Sdn Bhd [1986] 2 MLJ 10 where Mohamed Dzaiddin J (later CJ) held as follows: “Admittedly under Rule 1(i), security for costs cannot now be ordered as of right from a foreign plaintiff but only if the Court thinks it just to order depending on the circumstances of the case.”

The Plaintiff hence contended that the Defendant’s application is not bona fide because the Defendant delayed in filing the Application which should have been initiated when the dispute hearing took place before the Registrar of Trade Marks pursuant to regulation 48(1) of the Trade Marks Regulations 1997 which reads as follows: “48(1) Where a party giving notice of opposition under regulation 37 or a counter-statement under regulation 39 neither resides nor carries on business in Malaysia, the Registrar may require him to give security, in such form as the Registrar may deem sufficient, for the costs or expenses of the proceedings, before him, for such amount as the Registrar may deem fit, and at any stage in opposition proceedings he may require further security to be given at any time before giving his decision in the case.” According to the Plaintiff, the trademark opposition was launched by the Plaintiff against the Defendant on 4 May 2011 but between then and 3 May 2018 when the Registrar of Trade Marks made the decision, the Defendant did not make any application under the aforesaid regulation 48(1). In The Co-Operative Central Bank 10 Ltd v YM Raja Tan Sri Aznam Raja Hj Ahmad & Anor [2004] 5 CLJ 375, Abdul Malik Ishak J (later JCA) held as follows: “It is trite law that an application for security for costs should be made as promptly as possible. There must be some measure of promptitude.”

That aside, the Plaintiff contended that the Defendant failed to show any hardship that may be encountered in enforcing its costs order if the Defendant is successful in defending the Plaintiff’s appeal in the OS. According to the Plaintiff, the fact that the Plaintiff is an entity incorporated in Germany does not necessarily mean that it is impossible to enforce a Malaysian judgment there. The Plaintiff relied on the Singapore Court of Appeal case of BMI Building Material International GmBH v Roberto Building Material Pte Ltd [1999] 2 SLR 39 wherein Tan Lee Meng J held as follows: “[17] The fact that Germany is presently not a country to which the reciprocal Enforcement of Foreign Judgment Act can only mean that there is no equivalent legislative machinery in Germany for the enforcement of Singapore judgments by means of registration. It does not follow that the respondents will have no redress under German law in the event that they are successful in their counterclaim. On the contrary, Campbell, Enforcement of Foreign Judgments (1997) at pp 195-197 and Platto, Enforcement of Foreign Judgments Worldwide

at pp142-153 both indicate that in the absence of bilateral and multilateral treaties on reciprocal enforcement of foreign judgments, the German courts have a general power to recognise and enforce foreign judgments under the German Code of Civil Procedure if certain conditions are met. 11 [18] As for delay in enforcing a Singapore judgment in Germany, such delay may be expected in the context of international sales. What is relevant is that the respondents have not established that the delay in enforcing the Singapore judgment in Germany will be so great as to make in an exceptional circumstance to warrant a stay of execution of the judgment against them for failing to honour the bill of exchange.” The Plaintiff pointed out that this case has been adopted in the case of Satchi Spa v Ler Cheng Chye (No 2) [2000] 1 MLJ 556 in respect of security for costs.

The Plaintiff finally contended that the sum of RM80,000.00 by the Defendant is exorbitant and oppressive. That notwithstanding, the Plaintiff further contended that the Plaintiff had been active in Malaysia since 1999 and had incorporated a local company named Merck Sdn Bhd. The Plaintiff nonetheless has in any event the financial ability to pay the costs ordered as seen from its recent payout to the Defendant of interlocutory costs of RM3,000.00 and RM2,000.00 pursuant to enclosures 9 and 14 respectively.

It plain and trite that the order of security for cost is discretionary and must be exercised in accordance with settled judicial principles. In Adarsh Pandit v Viking Engineering Sdn Bhd [1996] MLJU 594, Zainun Ali JC (later FCJ) held as follows: “In the present case, there is not even the presence of a co-plaintiff resident in these parts, who could be relied upon should the need arises to meet claims, if any. 12 It is undisputed that the Plaintiff has no property within jurisdiction. As case laws such as Shaik Ali v Shaik Mohamed [1983] MLJ 310 and Ace King Ltd v Circus American Ltd & Ors [1985] 2 MLJ 75 have shown, Courts are more likely to order security for costs to be given to the Defendant in such circumstances, since it is clear as illustrated by Lord Denning M R in Aeronave SPA & Westland Charters [1971] 1 WLR 1146 that: "It is the usual practice of the Courts to make a foreign plaintiff give security for costs. But it does so, as a matter ofdiscretion, because it is just to do so. After all, if the defendant succeeds and gets an order for his costs, it is not right that he should have to go to a foreign county to enforce the order." Even assuming the Plaintiff has property within jurisdiction, it is not sufficient ground for this Court to disallow security. Moreover the mere fact of Plaintiff owning property in a country which has reciprocal enforcement of judgment agreement with Malaysia, is not also a ground for the Court refusing to order security, since the enforcement is not automatic. This point is illustrated in the case of Faridah Begum [1995] 2 MLJ 404 and Ng Hui Lip [1951] MLJ 57, which is distinguished from Coldham v Rant Australia Gold Mining Co [1940] MLJ 50. The Plaintiff in the present case, made much of the Defendant's apparent tardiness which he said manifested the Defendant's disinterest in the matter. Surely this should not or could not form the basis of Plaintiff's reason to resist the order for security. The Defendant had stated that the reasons for the delay was grounded on the intervening application of Order 14 and the winding-up. Lest it be forgotten, the Defendant had applied for the security for costs in 1988 but intervening events prevented it from being heard earlier. The Plaintiff made much also of the nature of this application, stating that it is oppressive to him and would suppress his claim which is said to be genuine. This question though relevant, does not arise here. In any case, the question of oppression alone even if it exists, is not sufficient reason not to grant the order.”

In my view, the Defendant has plainly satisfied the threshold requirement of Order 23 Rule 1(a) of the Rules of Court 2012 that the Plaintiff is ordinarily resident outside the jurisdiction of this 13 Court. It is irrelevant that the Plaintiff has a related company in the name of Merck Sdn Bhd in Malaysia since they are separate legal entities. It might have been different if the Plaintiff is a foreign company that has a registered branch here pursuant to s. 562 of the Companies Act 2016.

Moreover, I am of the view that the Plaintiff did not satisfactorily convince me that it has good prospect of success in the OS too. As contended by the Defendant, the OS is in fact an appeal and the fact the Plaintiff is appealing prima facie demonstrated that it did not have good prospects on the merits of the dispute in the first instance.

As to the Plaintiff’s contention that the Defendant lacked bona fides by not having initiated an application for security for costs before the Registrar of Trade Marks, I am of the view that the contention is itself frivolous. The fact that there was no application made by the Defendant pursuant to regulation 48(1) of the Trade Marks Regulations 1997 is irrelevant because that is applicable to and concerned a different forum. It has nothing to do with any consequential appeal to the High Court. The Defendant is entitled to make a separate and distinct application to this Court after the OS is filed pursuant to Order 23 of the Rules of Court 2012 and it is plain that there is no statutory prohibition to do so for not having made a similar application earlier before the Registrar of Trade Marks. I have reviewed the timing of the filing of the Application 14 and noticed that it was made within a month plus after filing of the OS. This has undoubtedly in my view been done with promptitude.

Moving on to the Plaintiff’s contention of hardship, I find that the Plaintiff’s reliance on the Singapore Court of Appeal case of BMI Building Material International GmBH v Roberto Building Material Pte Ltd (supra) which concerned a stay of execution of judgment but adopted in Satchi Spa v Ler Cheng Chye (No 2) (supra) is misplaced or misconceived. Instead I prefer to follow the English Court of Appeal case of Aeronave SPA and another v Westland Charters Ltd and others [1971] 3 All ER 531 wherein Lord Denning MR held as follows: “It is usual practice of the courts to make a foreign plaintiff give security for costs. But it does so, as a matter of discretion, because it is just to do so. After all, if the defendant succeeds and gets an order for his costs, it is not right that he should have to go to a foreign country to enforce the order. It is to be noted that Italy is not within the provisions of the Foreign Judgments (Reciprocal Enforcement) Act 1933. But even if it were, Kohn v Rinson & Stafford (Brod) Ltd shows that it is not a ground for refusing security. The ordinary rule still remains, that is a matter of discretion.”

In respect of the Plaintiff’s financial ability, I find that there are no cogent materials particularly the Plaintiff’s current balance sheet and cash flow statements that were adduced in the affidavit evidence before me. In the premises, I cannot make any finding on the Plaintiff’s financial solvency and ability to pay the Defendant’s costs. As to the requested amount of RM80,000.00 by the Defendant, I do share the Plaintiff’s view that it is rather exorbitant 15 and oppressive for an originating summons case based on affidavits. But that does not mean that the Application would be outright dismissed. A reasonable amount should instead be substituted for it. Based on the trend of recent past costs awards of originating summons cases in this Court, I hold that the sum of RM25,000.00 is fair.

On the totality of the circumstances before me, I conclude that the Defendant has made out a meritorious application.

It is for the foregoing reasons that I allowed the Application as so ordered. Dated this 27 February 2019 t.t. LIM CHONG FONG JUDGE HIGH COURT KUALA LUMPUR 16 COUNSEL FOR THE PLAINTIFF: NAJIHAH BINTI ROZLAN (TIMOTHY JOSEPH DASS WITH HER) SOLICITORS FOR THE PLAINTIFF: MIRANDA & SAMUEL COUNSEL FOR THE DEFENDANT: TEO BONG KWANG (BOO MIN LEE WITH HIM)