D3 applied for security for costs against P, a Cayman Islands company now in liquidation. P had been listed in Hong Kong, but trading in its shares had long been suspended. It resisted the application on two grounds, namely: (a) that its claims against D3 had a high probability of success (Ground 1); and (b) that D3’s position was already sufficiently protected by an after-the-event insurance policy (ATE policy) which P had taken out (Ground 2).
The court, ordering $4 million security for D3’s costs, held that:
Ground 1 failed for the following reasons. Both sides had arguable contentions which could only be resolved at trial. It was not possible to reach a clear view on the merits one way or the other. P had a bona fide claim with some degree of probability of success. But the degree was not so high as to become a factor against an exercise of discretion to order security for costs. (See para.27.)
Ground 2 failed for the following reasons. This appeared to be the first time in Hong Kong that an ATE policy was relied upon as an answer to an application for security for costs. The English position was that, depending on its terms and the circumstances, an ATE policy could be such an answer. In the present case, there were ample grounds for the insurers to avoid the ATE policy. So one could not be satisfied that it provided D3 with sufficient protection. There was no evidence that P’s claims would be stifled by an order for security for costs. So there was no reason why the discretion to order such security should not be exercised to so order (dicta of Mance LJ in Nasser v United Bank of Kuwait  1 WLR 1868, Monarch Energy Ltd v Powergen Retail Ltd 2006 SLT 743, Gaelic Seafoods (Ireland) Ltd v Ewos Ltd 2009 SCLR 417, Michael Phillips Architects Ltd v Riklin  BLR 569, Premier Motorauctions Ltd (In Liquidation) & Another v PricewaterhouseCoopers LLP & Another  1 WLR 2955, Hotel Portfolio II UK Ltd (In Liquidation) v Ruhan  Costs LR 205 applied; Geophysical Service Centre v Dowell Schlumberger (ME) Inc 147 Con LR 240 considered). (See paras.30, 42–44, 69.)
In the circumstances, $4 million security for D3’s costs appeared appropriate. (See paras.70–77.)
This was an application by the third defendant for security for costs against the plaintiff.
Editorial Note: This appears to have been the first time in Hong Kong that an ATE policy was relied upon as an answer to an application for security for costs. The Master considered the English cases on such reliance.