SECURITY FOR COSTS APPLICATION AGAINST A FOREIGN PLAINTIFF

A defendant to an action or proceedings in the Court of First Instance can apply for such security of the defendant's costs where it appears to the Court that the plaintiff is ordinarily resident out of the jurisdiction.  In making the order, the Court will have regard to all the circumstances of the case and if it thinks it is just to do so (Order 23 rule 1(1)(a) of the Rules of the High Court).

Order 23 rule 1(1) ("the said Order") is exhaustive as to the circumstances in which the Court's jurisdiction to order security for costs may be exercised.  Under the said Order, the onus is on the defendant to prove that the plaintiff is "ordinarily resident out of the jurisdiction". 

The test for ascertaining the ordinarily resident of a plaintiff company is by reference to where its central management and control lies.  According to the decided cases, there are 3 propositions :-

(a) The mere assertion as to where the company's central management and control is located is not sufficient.  The primary fact on which the assertion is based is required.

(b) The circumstances in which the company carries on its business will be taken into account by the Court.  The weight to be applied to each factor will obviously differ from case to case.  These factors include but not limited to the objects clause of the company, the place of incorporation, the place where the company operates and carries on trading, the place where the company's administration is carried out.

(c) In considering a non-trading company, it is important to have regard to the nature of the company's corporate activities.

However, Order 23 rule 1(1)(a) is not an inflexible rule.  In exercising its discretion, the Court will have regard to all the circumstances of the case, it thinks just.

As a matter of discretion, the Court usually requires a non-resident plaintiff to give security for costs because it is prima facie unjust that a foreign plaintiff who by virtue of his foreign residence is more or less immune to the consequences of an order for costs against him, should be allowed to proceed without making funds available within the jurisdiction against which such an order can be executed.

However, security will not be required from a person or company permanently residing out of the jurisdiction if he has substantial property, whether real or personal, within the jurisdiction.  But the property must be of a fixed or permanent nature which can be made available for costs.  Therefore, it has been held that shares in a private company did not amount to substantial assets, as it is difficult to ascertain its value or to find a buyer of these shares easily.

The mere fact that the plaintiff is a very large company is not sufficient to resist an order for security for costs, if it has no substantial assets within the jurisdiction.  The successful defendant should not be required to go outside Hong Kong to recover the costs.

The Court will also consider the merits of the case in exercising its discretion.  If the Plaintiff's case is genuine and strong, no order for security will be granted.

Lastly, the Court will take into account the Plaintiff's financial position.  Before refusing to order security on the ground that it will unfairly stifle a valid claim, the Court must satisfy that, in all circumstances, it is probable that the claim will be stifled.  There may be cases when this can be properly inferred without direct evidence.  The Court shall consider not only whether the plaintiff company can provide security out of its own resources to continue the litigation, but also whether it can raise the fund needed from its directors, shareholders, backers or interested parties.  It is for the Plaintiff to satisfy the Court that it will be prevented by an order for security from continuing the litigation.

It is noteworthy that Section 357 of the Companies Ordinance, Cap.32 provides an alternative ground for security for costs application against a limited company where there is reason to believe that the company will be unable to pay the costs of the defendant if successful in his defence.

Albert Lam
November 2011