High Route Ltd v Wong Chung Kai
Court of First Instance
High Court Action No 320 of 2019
Master Anthony HK Chan in Chambers
24 July, 8 August 2019

Civil procedure — security for costs — application for order against plaintiff under Companies Ordinance (Cap. 622) s. 905 — counterclaim by defendant — whether unjust to order security because claim and counterclaim raised same issues and defendant’s costs necessary to prosecute counterclaim

P, a company, was acquired by property investors to purchase a company from D under a provisional sale and purchase agreement (“PASP”). P brought proceedings against D for breach of the PASP, seeking the return of the deposit of $24 million paid to D’s solicitors as stakeholder (the “Deposit”) and liquidated damages of $24 million. D denied being in breach and counterclaimed for declarations that P had repudiated the PASP by failing to complete and D was entitled to forfeit the Deposit. D applied for security for costs against P under s. 905 of the Companies Ordinance (Cap. 622) on the ground that P was a $100 company without a business or office and had adduced no evidence of assets or funds to meet D’s costs. P opposed the application, relying on its payment of the Deposit and its offer of $300,000 as security; and arguing that it would be unjust to order security given that its claim and D’s counterclaim raised the same issues, such that D’s costs of defending would also be incurred in prosecuting its counterclaim. 

Held, dismissing the application, that:

1) On the evidence, the statutory threshold for s. 905 of the Ordinance was met and the Court’s jurisdiction was engaged. Inter alia, evidence of P’s past ability to pay and its offer of security was not necessarily evidence of P’s present ability to pay D’s costs (Daniel Isaac Henri Mimourn v Dragon Concept HK Ltd (HCCW 434/2012, [2015] HKEC 1659), Redoak Capital Ltd v Standard International Co Ltd (HCA 1625/2017, [2018] HKEC 3904) applied; Success Wise Ltd v Dynamic (BVI) Ltd [2006] 1 HKC 149 distinguished). (See paras. 2–5.)
2) P’s claim and D’s counterclaim were grounded on the same set of facts raising largely similar issues, which would have to be litigated anyway on D’s counterclaim even assuming P’s claim was dismissed for default in paying security. As regards the Deposit held by D’s solicitors as stakeholder, both sides should be regarded as attackers and therefore D’s costs of defending could equally and perhaps preferably be regarded as costs necessary to prosecute its counterclaim (BJ Crabtree Ltd v CPT Communications Systems Ltd (1993) 59 BLR 43, Winghing Investments Ltd v Lee Hoi Wing (CACV 378/2005, [2006] HKEC 2600), Arko Ship Leasing Ltd v Winsmart International Shipping Ltd (HCAJ 213/2009, [2013] HKEC 2039) applied). (See paras. 9–11.)
3) However, in respect of P’s claim for liquidated damages, while it may be said that P could be regarded as the attacker since it was claiming a substantial sum which exceeded D’s claim, D’s defence to this additional claim and its counterclaim were the same, ie P was in breach. Accordingly, the better view was that D’s costs of defending the liquidated damages claim should equally be regarded as costs necessary to prosecute its counterclaim (Hutchison Telephone (UK) Ltd v Ultimate Response Ltd [1993] BCLC 307, Ai Zhong v Metrofond Ltd [2010] 1 HKLRD 213 considered). (See paras. 13–14.)

Application

This was an application by the defendant for security for costs against the plaintiff in an action for breach of a provisional sale and purchase agreement. The facts are set out in the judgment.

Jurisdictions: 

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