DCCJ 5717/2021
[2024] HKDC 1256
IN THE DISTRICT COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
CIVIL ACTION NO 5717 OF 2021
-------------------------
BETWEEN |
| | CORNELIS PIETER ALEXANDER VAN DE RIET | Plaintiff |
| | and | |
| | KD CONCEPT LIMITED | 1st Defendant |
| | CHAN PAK KIM MARCO | 2nd Defendant |
--------------------------
| Before: | Deputy District Judge Joseph Vaughan in Chambers |
| Date of Hearing: | 30 July 2024 |
| Date of Decision: | 2 August 2024 |
--------------------------
DECISION
--------------------------
Introduction
1. By summons dated 31 January 2024, the defendants applied for security for costs pursuant to Order 23 rule 1(1)(a) of the Rules of the District Court, Cap 336H (“RDC”) to be provided by the plaintiff in the sum of HK$814,060 (“the Security Summons”).
2. Subsequently, the defendants issued another summons on 12 July 2024 seeking leave to amend the Security Summons to the effect that the plaintiff’s claims will be dismissed forthwith in the event that the plaintiff fails to pay the security that may be ordered, without having the need to restore the proceedings before applying to dismiss the plaintiff’s claims. The defendants submitted that the automatic dismissal of the claims upon non-compliance with the order for security is a conventional order, as was endorsed by Ribeiro PJ in Sunchase International Group (China) Ltd and Others v Vincor Group of Companies (Investment) Ltd and Others, FAMV 21 of 2004, 22 February 2005[1]. Mr Phillip Georgiou, solicitor advocate for the plaintiff has fairly indicated that the plaintiff consents to this application. In the circumstances, I allowed the application.
3. As for the Security Summons, there is no dispute that the plaintiff is a Dutch national who is resident in Thailand. The plaintiff has not provided any evidence of his assets in Hong Kong. The defendants submitted that he should not be allowed to mount a claim against the defendants without providing security, as otherwise the defendants would be exposed to a risk that any costs ordered against the plaintiff in the event his claim fails would be irrecoverable.
The parties’ cases
4. The plaintiff commenced this action against the defendants on 15 December 2021. According to the pleaded case of the plaintiff, by a contract made partly orally and partly in writing between 18 October 2019 and 25 November 2019 (“the Agreement”), the plaintiff had agreed to purchase 8,000 shares in the capital of the 1st defendant for US$100,000. The parties agreed that the shares would be registered in the name of the plaintiff immediately or shortly after receipt of payment of the consideration. At all material times, the issued share capital in the 1st defendant consisted of 10,000 ordinary shares with a total paid up capital of HK$10,000. The 10,000 shares have at all material times been held by the wife of the 2nd defendant, Madam Wong Sze Wan Linda (“Madam Wong”).
5. The plaintiff’s case is that the sum representing the consideration for the shares was duly paid to the 1st defendant by two instalments on 11 November 2019 and 3 February 2020 respectively. In breach of the Agreement, the 1st defendant did not issue or allot any shares to the plaintiff. The 1st defendant is therefore liable to repay the consideration to the plaintiff or, alternatively, for damages for breach of the Agreement.
6. The plaintiff says that at all the material times the 2nd defendant was the ultimate controller of the 1st defendant having knowledge of the investment by the plaintiff in the 1st Defendant. His case against the 2nd defendant is that the 2nd defendant had induced the 1st defendant to breach the Agreement by procuring the latter to refrain from issuing or allotting any shares of the 1st defendant to the plaintiff. The plaintiff therefore says that the 2nd defendant is also liable to him for damages.
7. The defendants allege that there was an oral agreement between the plaintiff and the 2nd defendant in around April 2019 for them to use the 1st defendant as a corporate vehicle to operate a café business. To facilitate the business, it was agreed that each of the parties would invest an amount of US$100,000 into the 1st defendant. However, in around September to October 2019, the plaintiff and the 2nd defendant had agreed to postpone launching the intended café business to the 1st quarter of 2020 due to social unrest.
8. According to the defendants, instead of operating a café business, the plaintiff and the 2nd defendant orally agreed in or around March 2020 to use the 1st defendant as a corporate vehicle to purchase medical gloves from factories in Southeast Asian countries. The gloves would then be re-sold to potential purchasers with a US$0.20 mark-up per unit on the manufacturing price. A commission equivalent to the US$0.20 mark up, minus expenses, would be shared by the plaintiff and the 2nd defendant equally (“Gloves Agreement”).
9. The defendants’ case is that in around July 2020, the 2nd defendant asked the plaintiff to source factories to manufacture the gloves and obtain the manufacturing prices of the gloves. According to the defendants, on or about 4 August 2020, the plaintiff represented to the 2nd defendant that the factories requested for the information of the potential purchaser. The plaintiff then agreed that he would not disclose the information to third parties or contact the potential purchaser, and that he would ensure the factories would not contact the potential purchaser either. Given the plaintiff’s promises, the defendants say that the 2nd defendant then informed the plaintiff of the name of the potential purchaser, its contact details, and the type of products the purchaser was looking for.
10. The 2nd defendant says he later discovered that the plaintiff had breached his promise, and that he had contacted the purchaser’s representative directly and arranged for a limited company by the name of Smartbook GmbH to enter into a separate agreement with the purchaser, whereby 2 million boxes of medical gloves were sold by the former to the latter at US$16.50 per box for a total contract price of US$33,000,000. The 2nd defendant therefore counterclaims for his share of the commission which he would have been entitled to be paid had this transaction been entered into by the 1st defendant, in the amount of US$200,000, being allegedly the 2nd defendant’s half share of the total commission of US$400,000 that would have been receivable by the 1st defendant.
11. In his Reply and Defence to Counterclaim, the plaintiff admits that he had inquired whether he could invest in the café with the 2nd defendant, and that there had been a meeting in around April 2019 where he and the 2nd defendant had discussed using the 1st defendant as the corporate vehicle to operate the café. However, he denies that any agreement had been made. Whilst accepting there had been discussions and negotiations between him and the 2nd defendant in or about March 2020 concerning a possible business venture involving the purchase and supply of personal protective equipment, he also denies the existence of the Gloves Agreement.
12. The plaintiff admits that the 2nd defendant had indeed asked him to source factories to manufacture gloves and to obtain their manufacturing prices, and that the 2nd defendant had provided him with the information relating to the identity of the purchaser, its contact details and the type of products the purchaser was looking for. He also admits that he had contacted the purchaser’s representative on or around 29 October 2020 but that was at the 2nd defendant’s request to discuss matters concerning the potential supply of protective equipment. However, the plaintiff denies that any agreement was entered into by Smartbook GmbH as alleged by the defendants, or at all.
The applicable principles
Matter of discretion
13. The legal principles on security for costs are well established and there is little dispute between the parties on the law. Mr Zenith Chan for the defendants referred to Wang Hsuan Han v Cathay Pacific Airways Ltd, HCA 1019 of 2022, 30 January 2024; [2024] HKCFI 386 where DHCJ Herbert Au-Yeung (as he then was) stated:
“5. The applicable legal principles on security for costs have been summarised by B Chu J in Hannelore de Lasala-Debring v Ernest Ferdinand Perez de La Sala (HCMP 1029/2013, unreported, 8 July 2015), as follows:
‘5. Order 23 rule 1 RHC provides, among other things, that where a plaintiff is ordinarily resident out of the jurisdiction, then if, having regard to all circumstances of the case, the court thinks just to do so, it may order the plaintiff to give such security for the defendant’s costs of the action as it thinks just.
6. The court’s powers under Order 23 rule 1 RHC are discretionary. It has been said that where a plaintiff is ordinarily resident out of the jurisdiction and has no fixed assets in the jurisdiction, the court would be inclined towards making an order to provide for security for the costs of the defendant.
7. It was further held in Tagliani v Lee Wai Ying Elvis [2006] 2 HKC 194 by Deputy Judge Muttrie that: ‘it is prima facie unjust that a foreign plaintiff, who is more or less immune against costs if he is unsuccessful, should be allowed to proceed without making funds available within the jurisdiction, against which any costs order against him may be executed’.
8. Although the merits of a plaintiff’s claim may be a relevant consideration in deciding whether security should be ordered, this is to be approached in a broad-brush manner. It is not the function of the court to make a preliminary run at deciding the ultimate success or failure of the claim and parties shall not attempt to go into the merits of the case unless it can be clearly demonstrated that the plaintiff has a high degree of probability of success.
9. In Lim Yi Shen v. Wong Yuen Yee [2012] 3 HKLRD 505, Recorder Horace Wong SC has cautioned against forming any view on the merits simply on paper, especially if the facts are likely to be sensitive to oral evidence, and he held that the threshold of demonstrating probability of success in the context of a security for costs application is ‘very high’, and that the practice of going into the merits of the case in such application is ‘to be deplored’ unless the merits are clear.
10. Similarly, although the Court will also consider whether the defendant has an arguable defence, this should also be approached in a broad-brush manner rather than embarking on an assessment exercise as though it were considering an application for summary judgment.
11 In cases of impecuniosity, and where the plaintiff asserts that an order for security would stifle the claim, the onus is also on the plaintiff to show that it is unable to raise the amount of security from other sources or by other means.
12. In exercising its discretion to order security for costs under Order 23 rule 1(1) RHC where the plaintiff is ordinarily resident out of the jurisdiction, the court will also take into account matters like the ease of registration and enforcement of a costs order in the foreign jurisdiction.
13. As regards quantum of security, the court has unfettered discretion to order such amount as it thinks just taking into account all circumstances of the case and adopting a ‘broad-brush’ approach and not by a line by line evaluation of the bill of costs.’”
14. Mr Georgiou has also referred the court to the case of Dimitrios Koutsolioutsos and Another v Lai Kar Yan (Derek) and Yip Wa Ming (Ben), Joint and Several Liquidators of FF Group Sourcing Ltd (in Creditors' Voluntary Liquidation), HCMP 1083 of 2023, 18 June 2024; [2024] HKCFI 1646 setting out generally the same principles. He further relied on Li Xiuhua v FT Electronic Co Ltd and others, HCA 1783 of 2021, 18 July 2023; [2023] HKCFI 1828 where DHCJ Jenkin Suen SC stated:
“43. The principles on security for costs are trite, and Mr So has summarised them on behalf of P (which Mr Wong does not quarrel with).
44. To begin with, the Court has broad discretion and it should be exercised in light of all the circumstances. It is certainly not a rigid rule that an overseas plaintiff should be ordered to provide security. The Court may take into account the merits of the case, and [where] the plaintiff's claim is "genuine and strong" no order for security would be granted: Hong Kong Civil Procedure 2023 Vol 1, §23/3/3.
45. The burden however is and always remains on the defendant to demonstrate that it is just to order security. In Lim Yi Shenn v Wong Yuen Yee [2012] 3 HKLRD 505, Recorder Horace Wong SC stated at §58:
"The burden is upon the defendants to satisfy me that it is just to make an order for security for costs. It is accepted, as indeed is well-settled, that there is no inflexible rule to order a foreign plaintiff to provide security for costs, although, as mentioned above, the approach of the court is to order security unless there is anything to show that it is not just to so order. It might be said that there is an evidential burden on the plaintiff to adduce some evidence to displace the initial inclination to order security (described by Godfrey J as the prima facie position in Walt Disney Co v Disney Property Agency, supra[2]), but the legal burden rests always with the defendant making the application to satisfy the Court that it is just to make the order." [Emphasis added] ”
15. In summary, the Court should aim to strike a balance between what would be too oppressive for the plaintiff and what would give the defendant a measure of security. The Court should in exercising its discretion take into consideration of the nature of the claim and, in particular, any element of overlap between the claim and the counterclaim – see Hong Kong Civil Procedure 2024, Vol 1, paragraph 23/3/3.
Difficulty in enforcing a costs order in a foreign jurisdiction
16. The defendants further submitted that, as explained in the case of Wang Hsuan Han above, the ease with which a costs order made by the court in Hong Kong can be enforced in the domicile jurisdiction of the foreign plaintiff is a relevant consideration in deciding whether to order security. The defendants pointed out that enforcement in Thailand of a costs order of the court here will likely be difficult, since there is no reciprocal enforcement of judgments between Hong Kong and Thailand under the Foreign Judgments (Reciprocal Enforcement) Ordinance, Cap 319. In this respect, the plaintiff has understandably not taken any specific issue.
Delay in making the application
17. Further, there is no dispute between the parties that delay in making an application for security for costs is also a relevant consideration to be taken into account when the court exercises its discretion. This may be an important factor particularly where the plaintiff suffers prejudice, for example where the delay has led, or may have led the plaintiff to act to his detriment, or may cause him hardship in the future conduct of the action – see Hong Kong Civil Procedure 2024, Vol 1, paragraph 23/3/31.
18. Further, in Chen Mei Huan v Silver Faith Holdings Ltd and Others, HCCW 111 of 2014, 17 October 2017; [2017] HKEC 2205, DHCJ Marlene Ng (as she then was) explained at paragraphs 75-77:
“75. Timing of application An application for security can be made at any stage of the proceedings. In Croft Leisure Ltd (in liq) v Gravestock & Owen[3], Staughton LJ said as follows:
"…… it is often a difficult decision when to make a substantive application before trial. If one makes it too early one is reproached because one cannot forecast accurately how long the trial will take or how much it will cost. If one makes it too late, one is said to have led the plaintiffs up the garden path ……"
76. Delay per se is not a bar to an application for security for costs. But delay is a relevant consideration, particularly when it causes prejudice to the plaintiff. In Keary Developments Ltd v Tarmac Construction Ltd & Anor[4], Peter Gibson LJ said as follows:
7. "The lateness of the application for security is a circumstance which can properly be taken into account …… But what weight, if any, this factor should have and in which direction it should weigh must depend upon matters such as whether blame for the lateness of the application is to be placed at the door of the defendant or at that of the plaintiff. It is proper to take into account the fact that costs have already been incurred by the plaintiff without there being an order for security. Nevertheless it is appropriate for the court to have regard to what costs may yet be incurred."
77. In that case, whilst it was proper to take into account the lateness of the application, it was held that in the balancing exercise the tribunal should also take note of the substantial costs that had already been incurred on both sides, and the fact that an even larger sum by way of costs was yet to be incurred.”
19. Additionally, the plaintiff highlighted Stone J’s observations in Anbest Electronic Ltd v CGU International Insurance Plc, HCCL 82 of 2000, 22 December 2006; [2006] HKEC 2353 as follows :
“58. …Yet it is only at this stage [when the action had proceeded for some 6 years since the issue of the writ], when the plaintiff wishes to set down for trial, that this application for security for costs has been mounted, and this despite the fact that the matters prayed in aid by the defendant in support of this application are most certainly not new revelations, but are likely to have been known to the plaintiff for a considerable period, if not indeed from the outset.
59. Viewed thus, even had the defendant succeed in discharging its burden (which in my view it has not) I should have been disinclined on this ground alone to have exercised the court's discretion in favour of the defendant in this application.
60. To mount such an application for security in the sum of in excess of $3.5 million at this very late stage, within the context of a not overly complex marine insurance claim, strikes me as opportunistic to say the least, if not obviously a tactical ploy.”
Identifying the “attacker”
20. It is also well established that security can only be sought against the “attacker” in an action. As Ma J (as he then was) explained in Brand Farrar Buxbaum LLP v Samuel‑Rozenbaum Diamond Ltd and Others [2003] 1 HKLRD 600 at paragraphs 17-18, in deciding which party is the “attacker”, the court will have regard to substance over form. Thus, the fact that a party is named plaintiff is not by itself determinative of the question. A counterclaiming defendant may in some circumstances be required to provide security for costs.
21. In Ai Zhong and Another v Metrofond Ltd [2010] 1 HKLRD 213, Yam J laid down the following helpful summary of the general principles concerning circumstances where the defendant with a counterclaim makes an application for security for costs against the plaintiff:
“22. It has been said that when a defendant counterclaims, there is a chance that an application by the defendant for security of costs against the plaintiff would be refused. It is useful to set out the various rules concerning the importance of who is the "real attacker" in a proceeding before I consider the arguments from counsel of both sides:
(1) The court has a discretion in all applications for security for costs, and it is not a question of merely considering whether the claim and counterclaim arise out of the same issue of fact but a question of "what is fair and just in all the circumstances". (Hutchison Telephone (UK) Limited v Ultimate Response Limited [1993] BCLC 307, per Dillon LJ)
(2) Application for security for cost should be refused if it will prevent the plaintiff from pursuing its claim but in the course of defending the counterclaim all the same matters would be canvassed as would be canvassed if the plaintiff were to pursue its claim. (Goal Setting Consulting Company Limited v Unigraphics Solutions Asia/Pacific Incorporated, HCA 994/2003, citing BJ Crabtree (Insulation) Ltd v GPT Communication Systems Ltd, 59 BLR 43)
(3) Application should also be refused when the cost incurred by the defendant for the purposes of the defence might equally and perhaps preferably be regarded as costs necessary to prosecute the counterclaim. (Goal Setting, citing Crabtree)
(4) The existence of a counterclaim out of the same matters as that in the plaintiff's claim per se does not affect the court's ability to order security for costs against the plaintiff. (Winghing Investments Ltd v Lee Hoi Wing & Another (unreported, CACV 378/2005)
(5) It is pertinent to ask whether in the particular case the counterclaim is a cross-action or operates as a defence, that is to say merely operates as a defence. (Hutchison, per Dillon LJ)
(6) In determining the question in (5), the most important factor to consider is whether "the claim by the plaintiffs and the cross-claim by the defendants -- raise essentially the same issues and are going to be fully litigated anyway so far as one can tell". (BJ Crabtree (Insulation) Ltd v GPT Communication Systems, per Bingham LJ at p.54)
(7) In determining the question in (5), the marked discrepancy in size between the amount claimed in the action and the very much greater amount claimed by the cross claim is also a relevant factor. (Hutchison, per Dillon LJ)
(8) A defendant should not be required to give security for costs if he is only defending himself from the plaintiff's claim. (Hutchison, per Bingham LJ)
(9) When both the plaintiff and defendant can be viewed as attackers, the treatment of both parties in security for costs should be the same. (Samuel J Cohl Co v Eastern Mediterranean Maritime Ltd (The Silver Fir)[1980] 1 Lloyd's Rep 371, cited with approval by Ma J in Brand Farrar Buxbaum LLP v Samuel-Rozenbaum Diamond Ltd and Others [2003] 1 HKLRD 600)”
22. I shall bear in mind the above principles when considering the circumstances of this case.
Discussion
23. First and foremost, the defendants submit that they are subject to considerable irrecoverable costs exposure as the plaintiff is resident outside the jurisdiction, and there is no evidence to suggest that the plaintiff has any assets in Hong Kong. Such circumstances would lead the Court to be inclined towards ordering the payment of security. It would be unjust to the defendants if the plaintiff is allowed to proceed without making funds available within the jurisdiction, against which any costs order against him may be executed.
24. The defendants submitted that there is no evidence that an order for security would stifle the plaintiff’s claim. The defendants say that even on the plaintiff’s own evidence, there is no allegation that he would be unable to comply with an order to pay security, save for a financial strain that may be levied upon him in the event he was ordered to pay security. In any event, the plaintiff has not adduced any evidence of his own financial means.
25. The plaintiff has no dispute that he is resident outside the jurisdiction. However, the he does not say he is impecunious and does not assert that his claim would be stifled if he is ordered to pay security for costs. To the extent the plaintiff asserts a financial burden caused by an order for security for costs it is in the context of the defendants’ delay in pursuing the application as will be discussed below.
26. The grounds relied on by the plaintiff to oppose the defendants’ application are threefold:
(i) the plaintiff’s claim has a high degree of probability of success;
(ii) the 2nd defendant’s counterclaim and/or defence of set-off give rise to factual assertions and legal arguments that must be proven by the 2nd defendant independently of the plaintiff’s claim; and
(iii) the defendants delayed in bringing the application for security for costs, thereby prejudicing the plaintiff.
Whether the plaintiff’s case has a high probability of success
27. Firstly, it is submitted by the plaintiff that the court’s discretion should be exercised against ordering security for costs on the ground that the plaintiff’s case has a high degree of probability of success. Mr Georgiou submitted this conclusion can be reached by adopting a broad-brush approach[5] by reading the parties’ respective pleadings, and on the basis of the undisputed facts.
28. The plaintiff says the 1st defendant has asserted no meaningful defence to the case against it. There is no dispute the plaintiff had paid to the 1st defendant the consideration. The 1st defendant did not allot and issue 8,000 shares of the company to the plaintiff as agreed. The plaintiff says the 2nd defendant has failed to plead any facts that explain why the shares were not allotted and issued to the plaintiff. According to the plaintiff, the 2nd defendant as the ultimate controller of the 1st defendant has complete control of the US$100,000 received from the plaintiff, yet he has put up no defence against the allegations of procuring breach of contract by failing to allot and issue the 8000 shares. As such, the plaintiff says his case based on breach of contract against the 1st defendant and procuring breach of contract against the 2nd defendant has a high prospect of success.
29. On the other hand, the defendants submitted that the plaintiff’s reliance on the purported strength of his claim is misplaced. As explained in Wang Hsuan Han, the parties should not attempt to go into the merits of the case, especially when the merits are fact-sensitive and subject to the credibility of the witnesses’ oral evidence.
30. It is the defendants’ pleaded case that on 20 February 2020, the 2nd defendant had informed the plaintiff that Madam Wong who was holding the shares of the 1st defendant had completed and filed a Return of Allotment (Form NSC1) to the Companies Registry by ordinary prepared post. According to Madam Wong[6], after posting the Return of Allotment, she did try to call the government departments to enquire about the allotment status, but despite her efforts, no response had been received, as she understood that due to the recent pandemic, a lot of government departments were either closed or only provided limited service.
31. I agree with the defendants in this respect. As a starting point, the court should not delve into the substantial merits of the case when considering such applications. Given the imminence of the trial, which will commence on 15 January 2025, I consider that it may not be appropriate for me to go into the substantive merits of the case here, including both the plaintiff’s claim and the 2nd defendant’s counterclaim (and thus his defence of set-off). This is especially so where the credibility of the witnesses, including Madam Wong, will be a highly sensitive consideration for the trial judge.
32. Also, considering the fact that both the claim and counterclaim arise out of a composite set of factual circumstances pertaining to the discussion and execution of the alleged joint business plans of the parties involved, I think it would not be just and fair to consider the merits of plaintiff’s claim on a stand-alone basis for this application.
33. Given the above considerations, I am of the view that the court should not delve into the substantial merits of the case in this application.
The 2nd defendant’s counterclaim
34. Whilst the plaintiff accepts that he is the “attacker” in the original claim, the plaintiff nevertheless submitted that the 2nd defendant is clearly the “attacker” with respect to the allegations in support of its counterclaim. However, as correctly pointed out by the defendants, security can only be sought against the “attacker” in an action, which is not the situation vis-à-vis the 2nd defendant as no such application has been made against him. In any event, it is only the 2nd defendant who has a counterclaim in this case against the plaintiff.
35. Additionally, the plaintiff stressed that the court should be slow to exercise its discretion to order security against the plaintiff where to do so would effectively be tantamount to providing security to the 2nd defendant for the prosecution of his counterclaim – see Ai Zhong, supra, and Hong Kong Civil Procedure, Vol 1, paragraph 23/3/3.
36. Mr Georgiou further referred me to Goal Setting Consulting Co Ltd v Unigraphics Solutions Asia/Pacific Incorporated, HCA 994 of 2003, 25 October 2004; [2005] HKEC 20 where Sakhrani J said:
“48. In BJ Crabtree (Insulation) Ltd v GPT Communication Systems Ltd 59 BLR 43 where there was a counterclaim by the defendant which exceeded the plaintiff's claim, it was held on the facts of that case that it would not be fair and just to order the plaintiff to give security for costs. This was because:
(a) to do so would prevent the plaintiff from pursuing its claim but in the course of defending the counterclaim all the same matters would be canvassed as would be canvassed if the plaintiff were to pursue its claim; and
(b) the cost incurred by the defendant for the purposes of the defence might equally and perhaps preferably be regarded as costs necessary to prosecute the counterclaim.
49. As Bingham LJ said at page 53:
"It may in some cases be fair and just to make such an order even though the defendant is himself counterclaiming, but I am persuaded that it would be wrong to do so here because the costs that these defendants are incurring to defend themselves may equally, and perhaps preferably, be regarded as costs necessary to prosecute their counterclaim."
50. In Hutchinson Telephone (UK) Ltd v Ultimate Response Ltd [1993] BCLC 307 it was held that underlying all applications for security for costs was a discretion in the court to do what was fair and just in all the circumstances. In that case the defendants had, in addition to pleading a very full defence, pleaded an extensive counterclaim in which the damages claimed appeared to exceed by a very substantial margin those claimed by the plaintiff and in which additional substantial claims for malicious falsehood were made and in which the ambit of the action was very substantially enlarged and thereby the defendant had clearly crossed the boundary which divided an aggressive defence from an independent counterclaim.”
37. The plaintiff submitted that the 2nd defendant’s counterclaim of US$200,000 is double the amount of his claim for US$100,000. Moreover, it is submitted that the evidentiary complexities introduced into these proceedings have been created by the 2nd defendant’s counterclaim and essentially give rise to allegations against the plaintiff that are independent of the plaintiff’s case. In the circumstances, the plaintiff says that this is clearly a case where the 2nd defendant is the real attacker and the application for security for costs should be dismissed on this basis.
38. The defendants on the other hand submitted that the fact that the 2nd defendant has a counterclaim against the plaintiff does not excuse him from providing security. In any event, the court is reminded that this argument would not apply to the 1st defendant.
39. Given the factual allegations on both sides, I do not think the fact that the counterclaim exceeds the original claim by US$100,000 is a significant consideration on its own. This is because, as I have mentioned above, whilst the counterclaim is based upon separate allegations of facts from that of the original agreement for allotment, both the claim and the counterclaim arise out of a composite set of facts showing the progressive discussion and execution of the alleged business plans. There is no doubt the court will have to consider the evidence of the witnesses in the overall context of the case.
40. In the circumstances, I do not think that it is just and fair to refuse this application on the ground that the 2nd defendant has a counterclaim. At the most, given there is some independent factual and legal issues to be determined in respect of the counterclaim, it would be a matter of apportionment of the security to be provided.
Allegation of substantial delay
41. The third ground relied on by the plaintiff in opposition is the allegation of substantial delay by the defendants in making the application. The plaintiff submitted that the defendants would have known that the plaintiff would be the only or main witness who would be giving an account of the circumstances of this case at trial. In the circumstances, the defendants were reasonably able to request security following the filing of the Defence and Counterclaim on 25 May 2022. The plaintiff also raised the point that a request need not have been one for security for costs for the entire proceedings but might have been limited up to a stage of the proceedings that the defendants reasonably could have estimated at that time.
42. In any event, the plaintiff also submitted that the defendants could have made the request for security at least immediately after the mediation concluded without a settlement being achieved on 28 July 2023, when it would have been apparent that the proceedings would continue. However, the defendants waited five months before making the request for security on 29 December 2023, and further delayed for another month before issuing the Security Summons on 31 January 2024.
43. The plaintiff thus says that the defendants’ application is nothing more than a “tactical ploy” given the lateness of the application, not made until the time when the proceedings were advanced to the point of being set down for trial. The plaintiff says the purpose of the tactical ploy is to cause prejudice to the plaintiff by placing additional financial pressure at a crucial time when he is allocating resources to fund his own legal fees for the trial. Accordingly, the plaintiff submitted that the defendants’ application should be dismissed on the basis of the substantial delay in making the application
44. On the other hand, the defendants submitted that there has been no delay on their part in applying for security. Even though the plaintiff had commenced this action on 15 December 2021, witness statements were only exchanged on 25 October 2023. It was only after the exchange of witness statements that the defendants’ solicitors could properly estimate the length of the trial and hence the costs of the trial.
45. The defendants say it was only two months after witness statements were exchanged that the defendants’ solicitors had already written to the plaintiff’s solicitors asking for security. The defendants therefore say that they had acted expeditiously in seeking security from the plaintiff once the defendants’ solicitors were able to estimate the likely costs of the trial.
46. Mr Chan referred me to Croft Leisure Limited (In Liquidation) v Gravestock & Owen (A Firm) [1993] BCLC 1273. In that case, the plaintiff argued, among other things, that the defendant had delayed in taking out the security application. The English Court of Appeal rejected the argument and ordered the plaintiff to pay security. As Staughton LJ observed:
“As Hirst L J pointed out, it is often a difficult decision when to make a substantive application before trial. If one makes it too early one is reproached because one cannot forecast accurately how long the trial will take and how much it will cost. If one makes it too late, one is said to have led the plaintiffs up the garden path.”
47. The court is also referred to Eric Edward Hotung and Another v Ho Yuen Ki and Others, HCA 857 of 2011, 27 April 2016 at paragraphs 32-34 where Chow J (as he then was) observed that:
“32. I would not, however, be disposed to order the plaintiffs to provide further security because of the defendants’ delay in making the applications. The defendants were aware that the plaintiffs were granted leave to set the action down for trial on 26 November 2014, and that trial dates were fixed on 5 February 2015. They did not, however, make the present applications until 16 December 2015. Delay in making an application for security for costs, particularly where there is no good explanation for the delay, is itself sufficient to deny the application…
33. In the present case, I do not consider that any good reason has been given by the defendants for their delay in making the applications in December 2015, many months after the setting down of this action for trial. The fact that the present applications are not the first time that the defendants seek security for costs do not seem to me to provide a good reason for delaying the applications.
34. The defendants refer to the observation of Deputy High Court Judge Muttrie in his decision in Midland Realty International Ltd v Wise Surplus Limited, HCA 3065/2001 (21 June 2005), at paragraph 19, to the effect that the decision on the timing of an application for security involves a balancing act between applying too early (because one cannot forecast accurately how long the trial will take and how much it will cost) and applying too late (because one may be said to have led the plaintiff up the garden path). However, once leave to set an action down for trial is given, and certainly once the trial dates have been fixed, all interlocutory steps should have been completed and only the costs of the trial will be outstanding. I am unable to see why there should be any difficulty in estimating the reasonable and probable costs of the trial at that stage.”
48. The defendants submitted that they have acted reasonably, and without delay as alleged by the plaintiff. Having considered the progress of the proceedings, I am with the defendants on this point. It could not be said that there had been any substantial delay on the part of the defendants in taking out this application. I am also not persuaded that the defendants ought to have applied for security up to a particular stage of the proceedings only, given that this case does not involve extensive and complex issues that would take a long time for the proceedings to lead up to a lengthy trial. What the defendants have done in terms of seeking security cannot be said to have amounted to substantial or unreasonable delay. I am not persuaded either that the application was made as a “tactical ploy” solely for the purpose of prejudicing the plaintiff financially prior to the trial.
Conclusion
49. For the foregoing reasons, I allow the amended Security Summons, save that as I have mentioned in paragraph 40 above, I consider it fair that there should be an apportionment of the security to be provided. I say this even given the fact that Mr Georgiou has indicated that in the event the Security Summons was allowed, the plaintiff would have no qualms with the amount sought. Applying a broad-brush approach when considering the skeleton bill of estimated costs provided by the defendants, I order that the plaintiff do provide security for the 1st and 2nd defendants’ costs up to and including the trial in the sum of HK$540,000, by paying the said sum into court within 60 days from the date of this decision.
50. I also make an order nisi that the plaintiff shall pay the defendants the costs of their application, with Certificate for Counsel, to be summarily assessed on paper. I direct that the defendants shall lodge with the court and serve their statement of costs on or before 9 August 2024, and the plaintiff shall lodge and serve his objections on or before 16 August 2024, whereupon there will be summary assessment within 7 days thereafter.
51. Lastly, I would like to thank both Mr Georgiou and Mr Chan for their helpful assistance in this matter.
| | ( Joseph Vaughan )
Deputy District Judge |
Mr Phillip Georgiou, Solicitor Advocate, of Georgiou Partnership LLP, for the plaintiff
Mr Zenith Chan, instructed by DeHeng Law Offices (Hong Kong) LLP, for the 1st and 2nd defendants
[1] At paragraph 6.
[2] HCA 7289 of 1992, 15 March 1993, Godfrey J.
[3] [1993] BCLC 1273.
[4] [1995] 3 All ER 534.
[5] Referring to Wai Shun Construction Co Ltd (in liq.) v Fitzroya Finance Co Ltd [2007] HKEC 2433 per Recorder P Fung SC at paragraph 12.
[6] See paragraph 12 of her Witness Statement dated 22 October 2023.