Civil Action2025

ETERNAL INTERNATIONAL HOLDINGS LTD v. LO KON KI AND ANOTHER

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[2026] HKCFI 1477-EN-2026-03-11

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HCA 600/2025

[2026] HKCFI 1477

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 600 OF 2025

_________________________

BETWEEN
	ETERNAL INTERNATIONAL HOLDINGS LIMITED	Plaintiff
	and
	LO KON KI	1 ^st Defendant
	LO & FUNG (A Firm)	2 ^nd Defendant

_________________________

Before:

Master James Kwan in Chambers (Open to Public)

Date of Decision on costs:

11 March 2026

_________________________

DECISION ON COSTS

_________________________

INTRODUCTION

1. By summons filed on 29 August 2025, D1 made an application for security for costs under Order 23 rule 1 of the Rules of the High Court (“RHC”) and section 905 of the Companies Ordinance (“Summons”). On 19 January 2026, I made an Order by consent that:

(a)     There be no order as to §§1 to 4 of the Summons;
(b)     The costs of the Summons be determined on paper;
(c)     D1 be excused from attending the hearing fixed on 21 January 2026 at 2:30 pm;
(d)     D1 to lodge and serve his written submissions on costs within 5 days from the date hereof; and
(e)     P to lodge and serve its written submissions on costs within 5 days thereafter.

2. I have reviewed D1’s submissions dated 26 January 2026 and P’s submissions dated 2 February 2026. This is my decision on costs.

BACKGROUND

3. D1 and P (at §9 of P’s submissions) have set out a helpful chronology which I have summarised below.

4. On 14 August 2025, D1’s solicitors wrote to P’s solicitors requesting confirmation by 22 August 2025 that P would pay HK$1,000,000 into Court as security for costs.

5. On 22 August 2025, Mr Chiu Yung (“Mr Chiu”) as vendor and P as purchaser entered into an Agreement for Sale and Purchase (the “SPA”) in respect of the property known as Flat E on the 69^th Floor of Tower 3 of The Victoria Towers, No 188 Canton Road, Kowloon (“Property”).

6. D1 issued the Summons on 29 August 2025, having received no reply to the letter of 14 August 2025.

7. On 3 September 2025, P’s solicitors sent a “Without Prejudice Save As To Costs” letter to D1’s solicitors, stating that P was “contemplating that a property belonging to [Mr Chiu], estimated to have a current market value of at least HK$20,000,000, be transferred to [P] as soon as possible” and proposing that D1’s Summons be withdrawn with costs in the cause of the Action. The letter did not make any reference to the SPA.

8. On 5 September 2025, the first call-over hearing of D1’s and D2’s Summonses took place before Mr Registrar S Kwang. Just prior to the hearing, P’s solicitors provided a copy of the SPA to D1’s and D2’s solicitors for the first time.

9. P’s (Mr Chiu’s) Affirmation in opposition to D1’s and D2’s Summonses was filed on 2 October 2025.

10. On 20 October 2025, Mr Chiu and P executed an Assignment in respect of the Property (“Assignment”).

11. On 27 October 2025, the 2^nd Affirmation of Mr Chiu was filed, which exhibited a copy of the Assignment.

12. On 5 November 2025, D1 sent a “Without Prejudice Save as to Costs” letter to P stating that D1 was agreeable to there being no order as to D1’s Summons §§1-4, if P undertook in writing to hold the legal and beneficial interest in the Property to the end of the Action, and not to mortgage, charge, enter into an agreement for sale and/or trust arrangement in respect of, assign, or otherwise encumber and/or dispose of its interest in the Property.

13. D1’s Affirmation in reply was also filed on 5 November 2025.

14. On 7 November 2025, the second call-over hearing of D1’s and D2’s Summonses took place.

15. On 14 November 2025, P’s solicitors wrote to D1’s and D2’s solicitors, stating that as D1 and D2 refused to withdraw their security for costs applications, P would hold them liable for all costs incurred on an indemnity basis if any or all of the Summonses failed.

16. On 9 December 2025, P wrote to D1 (and D2) proposing an undertaking that the Property would not be sold, transferred, or mortgaged until the conclusion of the proceedings, unless P gave a 42-day prior written notice to D1 and D2, and that D1’s and D2’s Summonses be withdrawn with no order as to costs.

17. On 17 December 2025, D1 requested that the notice period be extended to 56 days (“Undertaking”), and that P pay D1’s costs of D1’s Summons incurred up to and including the date of the Undertaking, to be summarily assessed if not agreed.

18. On 23 December 2025, P informed D1 that P agreed in principle to the Undertaking, and asked D1 to cease incurring further costs.

19. On 2 January 2026, P confirmed its formal agreement to the final wording of the Undertaking, but that P would pay only HK$20,000 to D1 in full and final settlement of costs arising from D1’s Summons.

20. On 9 January 2026, D1’s solicitors wrote to P’s solicitors, requesting P to pay D1 HK$180,000 as costs of D1’s Summons incurred up to the date of the letter.

21. On 13 January 2026, P’s solicitors wrote to D1’s solicitors agreeing that the costs of D1’s Summons be determined on paper. No counteroffer was received in respect of D1’s costs of D1’s Summons.

ANALYSIS

22. P has referred to the relevant legal principles on costs of interlocutory proceedings which are summarised in Sir Elly Kadoorie & Sons Ltd v Bradley (No 4) [2025] 6 HKC 421 (CFI) at §§75-77:

“75. Order 62 r 3(2A) of the RHC provides that:
‘If the Court in the exercise of its discretion sees fit to make any order as to the costs of or incidental to any interlocutory proceedings, it may, subject to this Order, order the costs to follow the event or make such other order as it sees fit.’
76. It is now well established that, in the post-CJR era, ‘costs follow the event’ is just one of the options in an interlocutory application, but it is no longer treated as the general rule or the usual order. The court is entitled to take into account all the circumstances of the case, including those set out in O 62 r 5 of the RHC.
77. In Melvin Waxman & Anor v Li Fei Yu & Anor [2013] 6 HKC 424, To J held that:
‘19. Summing up on the post-CJR position, I think the court has much wider discretion as to costs in interlocutory proceedings. Unlike other proceedings, the general rule of costs following the events do not apply. The court is entitled to take into account all the circumstances of the case, including those set out in rule 5, to make such order as it thinks fit. In the exercise of its discretion, the court may take the issue-based approach or may take into account merit of the parties’ case or the possible outcome of the action. The circumstances of interlocutory proceedings are so numerous that it is impossible to make any general rule. Costs to follow the event and costs be to the successful party’s costs in the cause are obvious options.
20. As for the onus of proof, I think it is the same post-CJR as it was pre-CJR. It must be the successful party’s burden to satisfy the court as to the type of costs order it is entitled. To begin with, the successful party is assisted by the general rule of costs to follow the event. By the mere fact of being successful, the successful party has discharged the evidential burden of showing it is entitled to costs. Thus, effectively, the evidential burden is on the unsuccessful party to adduce sufficient evidence or argument that some other or lesser order is appropriate, such as no order as to costs, costs be to the successful party’s costs in the cause or costs to the unsuccessful party. In the absence of evidence or convincing argument to the contrary, the successful party would also have discharged the legal burden. Costs to follow the event would be the appropriate order to make. If the unsuccessful party is able to discharge that evidential burden, it will be the legal burden of the successful party to show that he is entitled to the costs order which he seeks. In reality, having heard the interlocutory application, it would be quite obvious to the court what costs order would best serve the justice between the parties without relying on the burden of proof.’ ”

23. P submitted (at §48) that the Court should adopt the four-step approach set out in Wan Hin and Co v Chung Chun Keung [2024] HKCFI 292 at §17:

1.     Who was the successful party in the Summons?
2.     Has the unsuccessful party adduced sufficient evidence or argument that some other or lesser order is appropriate than costs following the event ?
3.     Are there any other special matters to take into consideration in the exercise of the Court’s discretion?
4.     What is the quantum of costs?

24. I now consider these issues below.

1. Who was the successful party in the Summons?

25. D1 did not obtain the order he sought for security for costs of HK$1,098,335 in D1’s Summons. P did not obtain a dismissal of D1’s Summons. Instead, the Parties agreed that there was to be no order as to §§1-4 of D1’s Summons.

26. I made the following findings in D2’s application for security for costs in Eternal International Holdings Ltd v Lo Kon Ki and anor[2026] HKCFI 579at §§ 35 and 43: (i) P is ordinarily resident out of the jurisdiction. P’s counsel submitted on behalf of P that P is “offshore and out of the jurisdiction” during the call over hearing of D1’s and D2’s Summonses before Registrar S Kwang on 5 September 2025 (§9.2 of the 2nd Affirmation of Fung Jan); and (ii) P is a shell company. P’s counsel confirmed in a call-over hearing for the Summons before Registrar S Kwang on 5 September 2025 that P is a “paper company” which “used to have very little assets.” (§8.2 of the 4th Affirmation of Fung Jan).

27. P was willing to give the same Undertaking as set out above to D2. I observed in Eternal International Holdings Ltd at §§49 to 57 that despite the proposed Undertaking offered, there can still be dissipation of the Property (with the 56 days’ notice), which would necessitate an application for an injunction. I saw no reason as to why D2 should be exposed to this sort of risk. This is all against the background of P being a foreign corporation and so is prima facie liable to be ordered to give security for costs, with no assets for enforcement within Hong Kong other than the Property, or at all.

28. It was D1 that proposed the Undertaking on 5 November 2025, after the asset injection by Mr Chiu on 20 October 2025. On 2 January 2026, P confirmed its formal agreement to the final wording of the Undertaking.

29. I accept D1’s submissions that courts have consistently emphasized that short-term or last-minute “asset injections” intended to defeat a security for costs application are no answer to a properly grounded application. In this regard, I refer to the observations of Master Leong in Sunny Securities Investment Ltd v Benelux Manufacturing Ltd [2013] HKCFI 1588 per Master Leong at §§21 to 23, and Success Leading Investment Ltd v Sze Kin Yu[2025] HKDC 799 per DDJ Val Chow at §23.

30. D1 was entitled to insist on security and based on the above, if P had not accepted the Undertaking, I would have ordered P to provide security.

31. In my view, D1 was the successful party in substance. P also recognises this by offering HK$20,000 to D1 in full and final settlement of costs arising from D1’s Summons.

2. Has the unsuccessful party adduced sufficient evidence or argument that some other or lesser order is appropriate than costs following the event ?

32. P submitted that some other or lesser order is justified, in light of the merits of P’s case.

33. P has again devoted a lot of time to the merits of the application for security as submitted in Sections C and D of its submissions (at §§12 to 45). I have already observed in my decision in Eternal International Holdings Ltd. at §26 that it is not the function of the Court, when faced with an application for security for costs, to make a preliminary run at deciding the ultimate success or failure of the claim (per Rogers VP in Sunchase International Group (China) Ltd & others v Vincor Group of Companies (Investment) Ltd & others [2004] 1 HKLRD 731 at 733D - E). I also found in Eternal International Holdings Ltd. that this is not the type of case where it can be readily said that P has demonstrated a high degree of success, nor am I prepared to say that D2 does not have a bona fide defence to P’s claim (at §33). This same reasoning applies to P’s claims against D1.

34. I observed at §30 that D1 was entitled to insist on security and if P had not accepted the Undertaking, I would have ordered P to provide security. The merits of P’s case in the Action are irrelevant on the issue that some other or lesser order is appropriate than costs following the event in respect of D1’s Summons for security for costs.

3. Are there any other special matters to take into consideration in the exercise of the Court’s discretion?

35. P submitted there are specific considerations to be taken into account when the Court exercises its discretion. P submitted that discretion should be exercised in favour of P for the following reasons:

(a)     It was unreasonable for D1 to raise or pursue security for costs. D1’s application would likely fail if fully argued, suggesting it was mainly intended to delay proceedings. Therefore, D1 should be denied costs even if partially successful in obtaining P’s Undertaking.
(b)     D1’s conduct prior to this case was notably unsatisfactory. P initiated HCMP 148/2025 against D2 on 27 January 2025 under Order 106, rule 3, requesting delivery of bills, invoices, and receipts for the Transaction. D1, the responsible solicitor at D2, left no written retainer, attendance notes, or client instructions in D2’s files in D2’s files. P submitted that D1’s poor record keeping fell beyond professional standards.
(c)     Regarding any “without prejudice save as to costs” or other admissible settlement offers for security for costs applications, discretion should favour P because P acted reasonably and D1 did not.
(d)     As of 5 November 2025, the date when D1 made their proposal, D1 should have known that Mr Chiu purchased the Property from third parties for HK$25,800,000 in 2017. Later, P bought the same Property from Mr Chiu for HK$19.9 million.
(e)     It is important to note that D1’s proposal, presented in its original form in D1’s letter dated 5 November 2025 and lacking a “notice period”, is both unreasonable and unfair to P or Mr Chiu. Requiring an undertaking on the Property valued at HK$19.9 million as security for costs of only HK $1 million, without any “notice period”, is clearly disproportionate in value, since the Property’s value is 20 times greater than the amount claimed as security for costs.
(f)     P then acted reasonably by sending a letter to D1 on 9 December 2025, suggesting a notice period of 42 days.
(g)     P and D1 ultimately settled on a 56-day written notice process.
(h)     In the course of these proceedings, P conducted themselves in a manner that promoted fairness between the parties and supported the resolution of disputes, consistent with the underlying objectives outlined in Order 1A, rule 1 of RHC.

36. In my view, D1’s Summons was a reasonable and necessary response to P’s financial position, with no assets for enforcement within Hong Kong other than the Property, or at all. D1 acted reasonably in proposing the undertaking on 5 November 2025 in the without prejudice save as to costs letter as a result of the asset injection in P. P only confirmed its formal agreement to the Undertaking on 2 January 2026. Even when P wrote to D1 (and D2) on 9 December 2025 proposing a 42-day written notice period for the undertaking that the Property would not be sold, transferred, or mortgaged until the conclusion of the proceedings, all affirmation evidence had been filed, and costs incurred. Based on my judgment in Eternal International Holdings Ltd (at §§55 to 59) and my observations above at §30, D1’s Summons would have been successful if P had not accepted the Undertaking with the 56-day notice period.

37. Regarding P’s allegation that D1’s conduct prior to this case was unsatisfactory in that D1, the responsible solicitor at D2, left no written retainer, attendance notes, or client instructions in D2’s files, this is irrelevant to the determination of costs for the Summons for security for costs. P can take this up in the cross examination of D1 at the substantive hearing and also make appropriate submissions.

38. I also take into account the following factors when exercising my discretion in deciding the issue of costs:

(a)     The first proposal of the undertaking was provided by D1 on 5 November 2025 in D1’s “Without Prejudice Save as to Costs” letter;
(b)     On 2 January 2026, P confirmed its formal agreement to the final wording of the Undertaking – only at the door of the court before the scheduled hearing on 21 January 2026 and after the submission of affirmation evidence; and
(c)     D1 was entitled to insist on security. Based on the above, if P had not accepted the Undertaking, I would have ordered P to provide security.

39. Given the above, the appropriate order as to costs is that P pays D1 its costs of the Summons to be summarily assessed.

4. What is the quantum of costs?

40. I have reviewed D1’s Statement of Costs dated 26 January 2026 and P’s List of Objections dated 2 February 2026. I adopt a broad-brush approach to the summary assessment of D1’s costs. I order and direct that HK$159,771.44 be paid by P to D1 forthwith.

DISPOSITION

41. For all the reasons above, I order and direct that P pays to D1 HK$159,771.44 forthwith.

42. I thank counsel for their helpful submissions to the court.

(James Kwan)
Master of the High Court

Mr Hectar Pun SC and Mr Edward T C Chan, instructed by Messrs Yick & Chan, for the Plaintiff

Messrs PC Woo & Co, for the 1^st Defendant

[2026] HKCFI 579-EN-2026-01-26

ETERNAL INTERNATIONAL HOLDINGS LTD v. LO KON KI AND ANOTHER

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HCA 600/2025

[2026] HKCFI 579

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 600 OF 2025

________________________

BETWEEN

	ETERNAL INTERNATIONAL HOLDINGS LIMITED	Plaintiff
	and
	LO KON KI (羅幹淇)	1^st Defendant
	LO & FUNG (羅馮律師事務所) (A FIRM)	2^nd Defendant

________________________

Before:

Master James Kwan in Chambers (Open to Public)

Date of Hearing:	21 January 2026
Date of Decision:	26 January 2026

________________________

DECISION

________________________

INTRODUCTION

1. Before me is the 2^nd Defendant (“D2”)’s Amended Summons re-filed on 7 November 2025 for an application under Order 23 rule 1 (“O 23 r 1”) of the Rules of the High Court (“RHC”) and section 905 of the Companies Ordinance, among other things, that the Plaintiff (“P”) do provide security for costs of D2 in defending the claim of P up to and including the exchange of factual witness statements in the amount of HK$1,774,363 or such other amount as the Court deems appropriate, by way of payment into court within 14 days from the date of the order to be made herein (“Summons”).

2. In support of the Summons, D2 filed the 1^st, 2^nd, 3^rd and 4^th Affirmations of Fung Jan, the sole proprietor of D2, dated 4 August, 28 October, 12 November, and 26 November 2025 respectively. P filed the 1^st and 2^nd Affirmations of Chiu Yung, the director of P, dated 2 and 27 October 2025 respectively.

P’s Claims

3. P is a company incorporated in the BVI with its registration address at the office of CCS Trustees Ltd in the BVI. Mr Chiu Yung (“Mr Chiu”) is the sole shareholder and director of P.

4. The 1^st Defendant (“D1”) was a consultant of D2 until January 2025, holding the title of “Senior Consultant Solicitor” of D2.

5. D2 is a sole proprietor law firm in Hong Kong. Mr Jan Fung was and is the principal of D2.

6. According to P, on or around 6 June 2024, D1 solicited Mr Chiu’s interest in acquiring another company in the insurance broking business known as the Legacy Group Ltd (“Legacy”).

7. Mr Chiu gave some parameters to D1 to negotiate on his behalf with the sellers of the shares of Legacy, being Blackrock Tenent Corporation (“Blackrock”). D1 was the sole representative of P on those negotiations.

8. Mr Chiu further instructed P would be used as the Purchaser of the shares in Legacy and according to P, entrusted D1 to work on the documentation on behalf of P.

9. As a result of the negotiations between D1 on behalf of Mr Chiu and P on the one hand and representatives of Blackrock and Legacy on the other, P and Blackrock entered into a Sale and Purchase Agreement (“SPA”) for the transaction (“Transaction”). The Completion Date was stated to be 31 December 2024 for the Transaction.

10. In performance of P’s obligations under the SPA and in particular clause 2.2 thereof, on or about 19 June 2024, P paid by way of cheque of HK$1 million to D2 as deposit to the escrow account for such funds to be released to Blackrock. On or about 21 June 2024, P also paid by way of cheque of HK$60,000 to D2 for legal fees.

11. Before the Completion Date, P paid for the various expenses of Legacy and injected funds.

12. According to P, P started to procure three companies to introduce various clients to Legacy who duly applied for the purchase of various insurance policies with commissions received in respect of (i) approved policies; and (ii) policies pending approval by insurers.

13. On 16 December 2024, Blackrock, via Messrs Haldanes, Solicitors for Blackrock and Legacy, issued a letter to P that Blackrock and Legacy were not going to proceed with the sale and purchase of the shares of Legacy (“16 Dec 2024 Letter”).

14. P alleges that D2 has committed wrongful acts. From the contemplation of the Transaction to early/mid December 2024, P retained D2 as legal advisor for the Transaction, with the service delivered by D1.

15. There was no written retainer between P and D2. P alleges that the retainer with D2 was formed by conduct of P and D2. The retainer contained implied terms which D2 breached. D2, their servants or agents or independent contractors acted in breach of the retainer and/or negligently in breach of their duty of care owed to P. It is also alleged that D1 misappropriated funds in the escrow account of D2, thereby causing the failure of completion of the Transaction or depriving P the opportunity to complete the Transaction. As a result of the above, P suffered loss and damage in the sum of HK$42,701,462.21.

D2’s Defence

16. D2 was engaged by P for the limited scope of receiving funds from P and distributing the same pursuant to Blackrock’s payment directions. D2 was not engaged to provide any advice on the Transaction of any kind to any party. D2 further denies that it provided any legal services to Mr Chiu and that Mr Chiu relied on any legal services provided by D2. D2 also denies that D1 was the Firm’s servant, agent, or contractor in respect of the Transaction for matters he conducted as the arranger. D2 further denies any alleged connection or vicarious liability in respect of D1’s acts as the arranger and any breaches by D2. Any alleged solicitation or negotiations carried out by D1 in relation to the Transaction were clearly not legal services.

17. According to D2, Blackrock and Legacy had serious doubts about the legality of P’s request for referral fees, as well as the activities to be carried out in the name of Legacy after P assumed control of Legacy. It appeared to Blackrock and Legacy that P intended to acquire Legacy to pursue an illegal objective. Accordingly, Blackrock and Legacy had determined not to proceed with the Transaction.

18. In respect of the alleged loss, given the reasons for Blackrock’s and Legacy’s refusal to complete the Transaction contained in the 16 Dec 2024 Letter, any alleged breaches by D2 (which are denied) were not causative of the non-completion of the Transaction or P’s alleged loss. P commenced HCA 2516 of 2024 (“Blackrock Action”) seeking among other things, specific performance. Further or in the alternative, in the event Blackrock and Legacy are found not entitled to not complete the Transaction, any alleged loss suffered by P in relation to the non-completion of the Transaction was caused by Blackrock’s and Legacy’s unlawful failure to complete the Transaction, and not by any alleged breaches by D2 (which are denied).

DISCUSSION

19. O 23 r 1(1)(a) RHC provides:

“Where, on the application of a defendant to an action or other proceeding in the Court of First Instance, it appears to the Court:-
(a) that the plaintiff is ordinarily resident out of the jurisdiction; …
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.”

20. Section 905(1) of the Companies Ordinance provides that:

“(1)  This section applies where—
(a)  a company is a plaintiff in an action or other legal proceedings; and
(b)  it appears, by credible testimony, to the court having jurisdiction in the matter that there is reason to believe the company will be unable to pay the defendant’s costs if the defendant succeeds in the defence.” (my emphasis)

21. Under section 905(2), without limiting the powers of the court under any other Ordinance, the court may—

(a) require sufficient security to be given for those costs; and
(b) stay all proceedings until the security is given.

22. This section applies to a company incorporated outside Hong Kong such as P.

23. The Court approaches an application for security for costs on the basis of a two-stage test: (1) the “jurisdiction stage” under O 23 r 1 or “unable to pay stage” under section 905(1)(b) of the Companies Ordinance; and (2) the “discretion stage.” If D2 can show the court has jurisdiction under O 23 r 1(1)(a) RHC or under section 905(1)(b) of the Companies Ordinance, then I will proceed to consider whether it is appropriate in the circumstances to exercise its discretion to make an order for security.

24. The burden is upon D2 to satisfy me that it is just to make an order for security for costs under O 23 r 1(1), and there is reason to believe P will be unable to pay D2’s costs if D2 succeeds in the defence under section 905(1)(b) of the Companies Ordinance. It is accepted that there is no inflexible rule to order a foreign plaintiff to provide security for costs, although, the approach of the court is to order security unless there is anything to show that it is not just to so order.

Prospects of success

25. Mr Pun addressed me extensively on the merits of P’s case.

26. I make the following observations regarding the issue of merits. It is not the function of the Court, when faced with an application for security for costs, to make a preliminary run at deciding the ultimate success or failure of the claim (per Rogers VP in Sunchase International Group (China) Ltd & others v Vincor Group of Companies (Investment) Ltd & others [2004] 1 HKLRD 731 at 733D - E)

27. Unless it can be readily demonstrated that the case of a party has a high degree of success, it is generally not right for the Court to judge the merits of the case on paper. Judging the merits of a case merely on paper can be dangerous, for what may appear strong on paper may turn out to be unconvincing upon fuller investigation; and what at first sight may raise eyebrows might turn out to be perfectly understandable after the witnesses have been seen and heard: Lim Yi Shenn v Wong Yuen Yee [2012] 3 HKLRD 505 per Recorder Horace Wong, SC at §14.

28. The Court should therefore exercise great care, particularly in cases where the facts are likely to be sensitive to oral evidence, in forming any view on the merits of a case based simply on paper. In some simple cases where it is clear that the material facts can be readily ascertained from documents, this may sometimes be possible: Lim Yi Shenn at §15.

29. The Court will not embark on determining whether a case is genuine and strong if that case is not straightforward and not amenable to ready assessment of the prospects of a party’s case being made out at trial.

30. This is not a straightforward case for the court to have a preliminary view as to the merits of the case. I note there is no written retainer and/or engagement letter which sets out the scope of services to be provided by D2. Mr Pun took me to a copy of the business card of D1 which shows his title as “Senior Consultant Solicitor” of D2 and submitted that D1 was doing the work of a solicitor. He also referred me to some unusual features of the Transaction, including a cheque of HK$490,000 made payable to Gudong International Trading Ltd (“Gudong”). D1 is the sole director and shareholder of Gudong. Ms So also referred me to D2’s invoice dated 21 June 2024 for HK$10,000. This was for the escrow agreement. I also note from the official receipt dated 20 June 2024 for the sum of HK$1 million being stakehold money that this was for the escrow agreement.

31. I was also referred to the Client Statement List of D2 dated 20 June 2024 which shows a balance of HK$500,000 as stakehold money, which was received from Gudong. That still sits in D2’s trust account. By a letter dated 2 June 2025, Messrs MinterEllison LLP, Solicitors for D2 wrote to Yick & Chan, Solicitors for P, stating among other things that:

“given the above circumstances, our client is concerned that the Balance in the Account (being the HK$500,000), may not belong to your client, but rather may belong to either Blackrock, Zhu Tingting or Gudong. Accordingly, we would be grateful if your client would explain why your client considers it is legally entitled to the Balance and why Blackrock, Zhu Tingting or Gudong do not have any claim to the Balance. … Please note, our client does not assert any claim to the Balance. Our client is ready to immediately transfer the Balance to your client, as soon as there is sufficient evidence to support your client’s entitlement to the Balance.”

32. Given the reasons for Blackrock’s and Legacy’s refusal to complete the Transaction contained in the 16 Dec 2024 Letter, which included more than the shortfall of the Down Payment under clause 2.2 of the SPA, it is also D2’s case that any alleged breaches by D2 (which are denied) were not causative of the non-completion of the Transaction or P’s alleged loss.

33. This is not the type of case where it can be readily said that P has demonstrated a high degree of success. Nor am I prepared to say that D2 does not have a bona fide defence to the P’s claim.

P is ordinarily resident out of the jurisdiction: O 23 r 1(1)(a) of RHC

34. The place of incorporation of a company is but one of the factors to be taken into account in consideration of whether P is ordinarily resident out of the jurisdiction.

35. For this part, what persuaded me to find that P is ordinarily resident out of the jurisdiction is P’s own representations to the court concerning this same application. P’s counsel submitted on behalf of P that P is “offshore and out of the jurisdiction” during the call over hearing of D1’s and D2’s summonses before Registrar S. Kwang on 5 September 2025 (§9.2 of the 2^nd Affirmation of Fung Jan).

36. P is a non-trading BVI company. In Hui Yin Sang v Tsoi Ping Kwan [2012] 2 HKLRD 1085 (CA), Cs were offshore BVI non-trading investment holding companies that were no registered under Pt XI of the Companies Ordinance and the Business Registration Ordinance (Cap 310). Fok JA (as he then was) and Bharwaney J observed that in applying the location of its central management and control test to a non-trading company, it might be more important to have regard to the nature of the company’s corporate activities – where it kept house, to correctly decide where the company’s central management and control was located.

37. In that case, the evidence of the plaintiffs was that (at §19):

“ [12]. Hui claims that the shares in Shanghai Consultants are held by himself and his elder sister, and accepts that Shanghai Consultants’ only activity is to hold the investment in the Project. Hui claims that he controls and manages Shanghai Consultants in Hong Kong, and that all the board resolutions of Shanghai Consultants were passed in Hong Kong. Its books and statutory records are kept by Hui in Hong Kong. Its corporate secretary is a Hong Kong company, with a Hong Kong address at Lippo Centre. Meetings of the shareholders of Shanghai Consultants are conducted by Hui and his sister in Hong Kong.
… …
[14]. Wong claims that Direct Properties is solely managed by him in Hong Kong. The only function and activity carried on by Direct Properties is to hold the investment in the Project. According to Wong, Direct Properties is controlled and managed by him in Hong Kong. All directors’ resolutions are passed in Hong Kong. The books and statutory records of Direct Properties are kept by Wong in Hong Kong, with the same company secretary as Shanghai Consultants. According to Wong, meetings of the shareholders of Direct Properties are conducted by Wong and Lai in Hong Kong.”

38. Fok JA (as he then was) and Bharwaney J observed that mere assertion of the location where it is said the company’s central management and control is situated is insufficient. Evidence of primary facts on which such a contention is based is required. They referred to the primary facts by reference to the evidence of P1 and P2 as referred to above.

39. Regarding where P’s central management and control was located, at §7 of his 1^st Affirmation, Mr Chiu states that “[a]s the sole shareholder and director of P, I am the one managing and controlling P at all material times.” Mr Chiu also states that he is “the person who has funded P should there be any such need(s). I am a businessman running an insurance broking business in Hong Kong, and I have business and staff in Hong Kong.”

40. In my view, the evidence adduced by P falls short of the evidence that the plaintiffs provided in Hui Yin Sang. Here, there is no evidence of the following:

(a) whether the board resolutions of P were passed in Hong Kong, with exhibits of board resolutions; and
(b) whether the books and statutory records were kept in Hong Kong.

41. Further, Mr Chiu’s actions of running an insurance broking business in Hong Kong and he has business and staff in Hong Kong is separate from P’s corporate activities – where it kept house, such as where the board resolutions are passed, and where the books and statutory records are kept. P could have adduced evidence detailing where it kept house. Mere assertion of the location where it is said P’s central management and control is situated and Mr Chiu’s own business activities are insufficient.

42. For completeness, I note that in Blackrock Action, P admitted liability to pay security for costs and it did not contest that it is residing out of the jurisdiction. It was ordered to make payment into Court as security for Blackrock’s costs. However, I have not factored this into consideration of my determination of whether P is ordinarily resident out of the jurisdiction.

Exercise of my discretion

43. P is a shell company. P’s counsel confirmed in a call-over hearing for the Summons before Registrar S. Kwang on 5 September 2025 that P is a “paper company” which “used to have very little assets.” ( §8.2 of the 4^th Affirmation of Fung Jan).

44. It is common ground that P’s only asset within the jurisdiction is the property at Flat E, 69^th Floor, Tower 3, The Victoria Towers, No 188 Canton Rd, Kowloon (“Property”). This was transferred from Mr Chiu to P pursuant to a sale and purchase agreement dated 22 August 2025, for a consideration of HK$19.9 million. The completion took place on 20 October 2025. This is only a recent transaction after the filing of the Summons.

45. No evidence as to how P obtained the funds to purchase the Property is provided. I note that solicitors for D2 Messrs. MinterEllison LLP, wrote to Yick & Chan Solicitors, solicitors for P by a letter dated 23 October 2025 to inquire whether P incurred liabilities in connection with the Property Transaction but received no response. In the same letter, Messrs MinterEllison LLP enquired how P financed the Property Transaction, whether the Property would be subject to any encumbrances after completion, and sought P’s latest audited and unaudited financial statements.

46. I note the following in respect of the Property Transaction:

(a)  it was not an arms-length transaction;
(b)  P has never disclosed any records suggesting that money changed hands;
(c)  whether the purchase of the Property by P required funding;
(d)  whether P will hold the Property on a transient basis and before the conclusion of the proceedings, which includes satisfaction of all costs orders against P;
(e)  it is open for Mr Chiu to cause P to transfer away, or charge, the Property later on after this application for security. As mentioned in Messrs MinterEllison LLP’s letter of 7 January 2026, that defeats the whole purpose of security; and
(f)  Mr Chiu could cause P to enter into a new sale and purchase agreement later to “sell” the Property back to himself or another buyer.

47. By way of analogy, in Lin Man Yuan v Kin Ming Holdings International Ltd (HCA 216/2008, [2013] HKEC 1901) as referred to in Hong Kong Civil Procedure 2026 at §23/3/6, the court also found that a cash deposit in a Hong Kong bank would not suffice as assets of a fixed and permanent nature, due to the ease in operating the account as and when the account holder desires. Similarly, Mr Chiu, being the sole director and shareholder of P, could cause P to enter into a new sale and purchase agreement later to “sell” the Property back to himself or another buyer as and when he desires.

48. In Hoogland Hendricus Antonius v Gino L. Lin (unrep, HCA 657/2007, 29 May 2008), Chung J at §21 observed that “the burden rests with the plaintiff to show that the assets “can certainly be available for costs”, judged from a common sense point of view: Hong Kong Civil Procedure 2008, Vol 1, para 23/3/6. He has failed to discharge that burden.” Mr Pun submitted that this case is distinguishable given the two residential properties in Hoogland Hendricus Antonius had a total purchase price of $1.6 million and were subject to a mortgage debt of $800,000. However, that does not address the ease of disposal of residential property as can be seen from Mr Chiu’s own conveyance to P. Chung J further observed at §22 that “[r]esidential properties in Hong Kong, despite being described as real properties, are relatively easy to be sold off. The conveyance process is relatively simple and short.”

49. The Parties tried to resolve the provision of security by way of P’s proposed undertaking in Messrs Yick & Chan’s letter dated 9 December 2025 that the Property will not be sold, transferred or mortgaged until the conclusion of the proceedings (which is defined as HCA600 of 2025) unless P gives a 42 day written notice of any such sale, transfer or mortgage in advance (“Proposed Undertaking”). Messrs MinterEllison LLP proposed changes to the Proposed Undertaking by a letter dated 17 December 2025 which were not accepted by P.

50. P and D1 have agreed on the wording of an undertaking to be given by P as follows:

(a) “1. P, i.e. Eternal International Holdings Limited, as the sole legal and beneficial owner of the Property, undertake to D1 and the Court in writing that it shall hold the legal and beneficial interest of the Property to the end of this action (including but not limited to the resolution of any disputes as to costs) and shall not mortgage, charge, enter into an agreement for sale and/or trust arrangement in respect of, assign, or otherwise encumber, dispose of and/or diminish the value of its interest in the Property unless P gives a 56-day notice in writing of such mortgage, charge, agreement for sale, trust arrangement, assignment, encumbrance, disposal and/or diminishment of the value of the interest in the Property (“P’s Undertaking”); and
(b) 2. Mr Chiu Yung as the sole shareholder and director of P shall undertake to D1 and the Court in writing that he shall cause and/or procure P to comply with the P’s Undertaking.”

51. P is willing to give the same undertaking as set out above to D2. D2 insists on a different form of undertaking, which P refuses.

52. Mr Pun submitted that the Court has a wide discretion as to whether, in what sum, and the means by which security should be provided. Where two different forms of security would provide equal protection to D2, the Court should, all ease being equal, order the form which is least onerous to the claimant: Recovery Partners GB Ltd. v Rukhadze [2018] 1 WLR 1640 at §17.

53. P’s Undertaking is different to the undertakings which have been regarded as acceptable by the court:

(a)  “Ps would not dispose of, deal with or otherwise diminish the value of the 16,783 CSI shares which they beneficially own and are unencumbered until trial of this Action and the satisfaction of costs orders made against Ps herein (if any)  or further Order of this Court.”: Li Ming v Liu Yiu Keung[2023] HKCFI 884 at §48;
(b)  “not to withdraw [cash] without the court’s leave”: Eric Edward Hotung v Ho Yuen Ki (unreported judgment of Registrar Lung, HCA 857/2011, 13 December 2013)  at §27; and
(c)  “[P] would not encumbrance the properties until trial and the plaintiffs have satisfied all orders as to costs which might be made in favour of the defendants in these proceedings.” Peconic Industrial Development Ltd v Yu Ka Hong Paul HCA 4555/2001 (unreported judgment of Yam J, 22 March 2007)  at §18.

54. I have taken into account the offer of P’s Undertaking in my overall exercise of discretion to order security. Mr Pun accepted that with P’s Undertaking, there can still be dissipation of the Property (with the 56 days’ notice), but D2 can apply for an injunction.

55. I see no reason as to why D2 should be exposed to this sort of risk. I do not think this is satisfactory as the burden would then shift to D2 to satisfy the court of the test to freeze P’s assets within 56 days’ notice. This is all against the background of P being a foreign corporation and so is prima facie liable to be ordered to give security for costs, with no assets for enforcement within Hong Kong other than the Property, or at all. P also represented to the Court that it is a “paper company” which “used to have very little assets.”

56. I have also taken into account when exercising my discretion the following:

(a)  the circumstances in which P came to be the owner of the Property. The Property Transaction was in direct response to the Summons. I refer to the observations of Master Leong in Sunny Securities Investment Ltd v Benelux Manufacturing Ltd [2013] HKCFI 1588 at §22:
“It is an easy escape otherwise: any plaintiff company may frustrate the defendant’s application if assets with relatively high liquidity (e.g. cash)  are injected at the time of the application, only for them to be “siphoned off” in secret later, and those controlling the company can still enjoy the option to “abandon ship” or “stay aboard” for any eventualities.”;
(b)  that P requested more time to comply with the security request of HK$1 million in the Blackrock Action;
(c)  all payments of P for the Transaction were made by way of cheques issued by Noah’s Ark Academy Center Ltd rather than directly by P; and
(d)  even if Mr Chiu has financially supported P, that does not mean that he will financially support P in the event there are adverse costs orders against P in the Action. In this regard, I refer to the observations of Master Leong in Sunny Securities Investment Ltd at §17:
“On one end of a spectrum, a pure “shelf” company is no more than a generic company “taken off the shelf” that has no substantive value to anyone and can easily be replaced. In such a case, the court must consider that there is reason to believe that those controlling the company will “abandon” ship when faced with a big legal fee as the loser, whilst enjoying the luxury of an option to “stay aboard” if the company turns out to be the winner. This is clearly unfair to the defendant.”

57. Accordingly, I am satisfied that it is just for me to exercise my discretion to order security for costs in this case.

Section 905(1) of the Companies Ordinance

58. I consider there is reason to believe that P will be unable to pay D2’s costs if the D2 succeeds in its defence for the following reasons:

(a)  P is a shelf company. According to Mr Chiu, P is an investment holding company (§7 of 1^st Affirmation of Mr Chiu).
(b)  In a call-over hearing for the Summons before Registrar Kwang on 5 September 2025, P represented to the court that P is a “paper company” which “used to have very little assets.”
(c)  Besides the Property which I have referred to above, no evidence has been adduced as to P’s assets (or liabilities), despite Messrs MinterEllison LLP requesting P to do so, and P’s latest audited and unaudited financial statements.

59. I note that according to the sale and purchase agreement dated 22 August 2025 in respect of the Property Transaction, P purchased the Property at a consideration of HK$19.9 million. In exercising my discretion to order security, I take into account the circumstances in which P acquired the Property in response to the Summons. I also refer to the reasons provided at §§43 and 53 above.

Quantum of security for costs

60. I have considered the draft skeleton bill of costs prepared by D2’s solicitors which contains a breakdown of the estimated costs up to and including the exchange of factual witness statements. I have also considered P’s List of Objections dated 18 January 2026. I have adopted a broad-brush approach in the assessment of quantum up to and including the exchange of witness statements. I hereby order security in the sum of HK$900,000 to be provided.

Order

61. I formally make an order in terms of §§1-4 of D2’s Summons, save the following changes in §1: HK$1,774,363 be changed to HK$900,000.

62. I make a costs order nisi that the costs of the Summons be paid by P to D2, to be taxed if not agreed.

63. I thank Ms So and Mr Pun for their helpful submissions.

	(James Kwan)
	Master of the High Court

Mr Hectar Pun SC and Mr Edward T C Chan, instructed by Messrs Yick & Chan, for the Plaintiff

Ms Natalie So instructed by Messrs MinterEllison LLP, for the 2^nd Defendant