In civil proceedings, the Hong Kong Courts can order a Plaintiff (or a party who finds itself in the position of a plaintiff e.g. a counter-claiming Defendant) to make a payment into Court as security for the Defendant’s costs. While a Plaintiff can actively choose whether to commence an action or not, a Defendant, on the other hand, is compelled to participate. The rationale for a security for costs order is essentially to protect the interests of the Defendant in case the Plaintiff loses the action and cannot afford to pay the Defendant’s costs. This article will review when a Defendant should make an application for security for costs and highlight the Court’s complete discretion in granting security.  

Grounds for Application

A Defendant can apply for security for costs if: -

1. The Plaintiff is ordinarily resident outside of the jurisdiction;
2. The Plaintiff is a nominal Plaintiff suing for the benefit of another and there is reason to believe that the Plaintiff does not have the means to pay;
3. The Plaintiff’s address is incorrectly or not stated in the writ, unless the Plaintiff satisfies the court that the failure to do so or the misstatement was innocent and without any intention to deceive; or
4. The Plaintiff has changed addresses during the proceedings with a view to evade the consequences of the litigation.[1]

Court’s Discretion

Whilst the Defendant may have successfully proved one of the above scenarios, it is not mandatory for the Court to order security to be given. Instead, the Court will exercise its discretion having regard to all the circumstances of the case as it thinks just to do so. In exercising its discretion, the Court will balance the potential injustice to the Plaintiff if he is prevented from pursuing a legitimate claim by an order of security, against the injustice to the Defendant if no security is ordered and the Defendant cannot recover his costs.

In considering whether to grant an application for security for costs, the Court will usually have regard to the following factors: -

1. A Plaintiff’s prospect of success. Typically, the more likely the Plaintiff is to succeed in the action, the less likely it is that the Court will order security to be given; [2]
2. Whether the Defendant has an arguable defence to the Plaintiff’s claim;
3. The Plaintiff’s impecuniosity;
4. Whether an order for security (if granted) would stifle the Plaintiff’s claim; and
5. Whether there was any delay in making the application.

No factor is considered in isolation and neither is conclusive per se, rather the Court in exercising its discretion will take into account the cumulative effect of the various factors to ascertain whether to make an order for security of costs.

Plaintiff is a Limited Company Incorporated in Hong Kong

The Court can also make an order for security to be given by a Hong Kong limited company if it appears to the Court, by way of a credible testimony, that there is reason to believe that the company is unable to pay the costs of the Defendant.[3] An applicant must be able to show that the company would not be able to meet its debt when an order for costs is made against it, as opposed to may not be able to.

Amount of Security

Similarly, the amount of security that is awarded is discretionary. In exercising its discretion as to the quantum of security to be ordered, the Court shall give regard to all the circumstances of the case as it thinks just and, particularly where the security is sought at a very early stage of the proceedings, the Court will take into account the prospects of the parties reaching a settlement.[4] Moreover, security for costs is not exclusively confined to future costs and can also include costs that have already been incurred by the respondent.

To assist the Court to decide on quantum of security, it is the applicant’s duty to provide materials to the Court, usually by way of a statement of costs or bill of costs, that will enable the Court to come to a view as to the amount of security to be given. A failure to do so can result in no order as to security for costs being made, notwithstanding that the applicant had successfully established a right to the same.[5]

Conclusion

It is advisable that the applicant should write to the respondent to make a request for security before making an application and, if the request is declined, he is encouraged to make an application for security for costs as promptly as possible. If the Court orders security to be given, the proceedings will usually be stayed pending the provision of security. In the event that the respondent fails to give security within the prescribed time, the Court can also dismiss the proceedings.

For any enquiries related to this article, please contact  Rio Lau at (rio@robertsonshk.com).