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Foreign Plaintiff with no Assets in Hong Kong Avoids Security for Cost Order
17 August 2023

To maintain fairness as to legal costs between the parties, a defendant may apply to the Court under the Rules of High Court (“RHC”) for the plaintiff to pay a certain sum of money into Court to ensure that the defendant can secure the amount of legal costs that he will be entitled to recover from the plaintiff if the defendant eventually wins the case. This application ensures that the interests of a successful defendant can be protected by being compensated for at least a portion of his legal costs.

Case Background
A recent appeal decision in XY, LLC v Jesse Zhu (also known as Jia-Bei Zhu and Jessie Jia-Bei Zhu) and Grand Network Technology Limited [2023] HKCFI 1317 sheds some light on the updated views of the Hong Kong Courts on an application for security for costs against a foreign plaintiff. The Plaintiff is a Delaware company carrying on business relating to sex sorting technology. On the other hand, the 1st Defendant herein (“Zhu”) is a Canadian businessman who was the ultimate majority owner of Jingjing Genetics Inc (in British Columbia), whereas Grand Network Technology Limited (“GNT”), the 2nd Defendant is a BVI company holding an account in HSBC Hong Kong (“HK account”). There were multiple legal proceedings between the Plaintiff, Zhu, GNT and others in Canada and Hong Kong. It is the Plaintiff’s case that Zhu is the beneficial owner of GNT and its assets. The Defendant applied for security for costs which was dismissed by Master Dick Ho on 29 December 2022. The Defendant appealed against the decision (the “Appeal”).

Grounds of Application
The Defendant’s application for security for costs against the Plaintiff under Order 23 rule 1(1) of the Rules of the High Court was on the ground that the Plaintiff is a foreign company with no asset or presence in Hong Kong. Generally speaking, a defendant may rely on various grounds for an application for security for costs which includes the following :-
1. The plaintiff resides out of the jurisdiction.
2. The plaintiff does not have any assets in Hong Kong.
3. The plaintiff is an insolvent company, or if there is reason to believe that the company will be unable to pay the defendant‘s costs if the defendant wins the case.
4. The plaintiff is only a nominal plaintiff suing the benefit of another or there is no way the plaintiff can pay the defendant’s costs.
5. The plaintiff’s address is incorrectly stated in the Writ of Summons
6. The plaintiff has changed its address in the process of the legal action to evade the result of the action.

Court’s Discretion under Order 23
It is acknowledged by the Judge in the Appeal that the Court is required to consider all the circumstances of the case in the exercise of its discretion under RHC.

In a security for costs application, the Court will take into account all the circumstances by considering diverse factors in determining whether it should grant an order for security for costs against the plaintiff. For instance :-
1. Whether the plaintiff has high prospects of success.
2. Whether the defendant has an arguable defence.
3. Whether the order for security for costs will stifle the plaintiff’s claim if it is granted.
4. The strength of the plaintiff’s case.
5. Whether there is any delay in making the application for security for costs.
6. The plaintiff’s impecuniosity.

The Court will try to strike a balance between the potential injustice to the plaintiff if he is prevented from pursuing a legitimate claim by an order of security for cost against the injustice to the defendant if no security is ordered and the defendant becomes unable to recover his costs.

The Court stressed that the threshold on the plaintiff to demonstrate the probability of success is “very high indeed”. However, the Court clearly indicated that it will not conduct a “mini-trial” or to make a “preliminary run” at deciding the eventual result.

Outcome of the Appeal
In the end, the Court dismissed the Appeal on the following grounds :-
1. The Plaintiff has a high probability of success against GNT in the Action. The merits of the Plaintiff’s case against GNT have been thoroughly analysed by the Hong Kong Court of First Instance and the Hong Kong Court of Appeal respectively in the decisions made in November 2015 and December 2016. In the former decision, the Court clearly found a good arguable case that GNT’s assets were beneficially owned and controlled by Zhu as submitted by the Plaintiff. In the later decision, the Court of Appeal further affirmed the Plaintiff’s submission that there was a good arguable case that the funds in GNT’s HK Account are held beneficially for Zhu.

2. The Plaintiff’s position is enforced by the substantial costs order granted in favour of the Plaintiff against GNT in the proceedings where a Mareva Injunction was obtained by the Plaintiff in April 2014. It is estimated that the total amount of the costs that the Plaintiff was entitled to was at least HK$1.5 million (“Outstanding Costs Orders”). The Court was of the view that the Outstanding Costs Orders are available for a set-off, in the event that costs is awarded to the Defendant in this action.

The decision is unusual in that the Plaintiff has no assets or presence in Hong Kong.

The Plaintiff’s success in opposing the application for security for costs by the Defendant may be considered as a sign of the Court’s deviation from the usual principle that a foreign plaintiff with no asset or presence within the Hong Kong jurisdiction will usually have to give security for costs. When a defendant makes an application for security for cost, he should consider if the plaintiff can show high prospects of success of his case and if he, as the defendant, has good merits.

Our Litigation and Dispute Resolution team has extensive experience acting for international and domestic clients in complex corporate, contractual and commercial disputes and arbitration in the Greater China region especially those of a cross border nature. If you have any questions on the above eNews or relating to litigation and / or arbitration matters, experienced dispute resolution lawyers in our firm would be happy to assist you.

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