CHEN ZHIRUI v. HUIYUAN COWINS TECHNOLOGY GROUP LTD (Formerly known as MAYER HOLDINGS LTD)

HCA 706/2024

[2026] HKCFI 1797

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 706 OF 2024

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D E C I S I O N

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A.  INTRODUCTION

1.  This is a claim by a former employee, the Plaintiff (“Mr Chen”), against his former employer, the Defendant (“Huiyuan”), for arrears of directors’ emoluments.

2.  Huiyuan seeks security for costs against Mr Chen in the sum of HK$219,408.65 on the ground that Mr Chen does not reside in Hong Kong. A Master ordered Mr Chen to pay $170,000 into Court by 10 February, failing which the action shall be dismissed (the “Order”).

3.  Mr Chen did not pay. He appeals against the Order.

B.  BACKGROUND

4.  Mr Chen was an urban renewal consultant for construction and redevelopment projects. He was employed by Huiyuan as an executive director pursuant to a written employment agreement dated 29 November 2019, whereby Huiyuan agreed to pay him HK$35,000 per month as director’s pay. Huiyuan failed to pay this monthly sum from 1 January 2020 to 8 November 2023, resulting in arrears of salary in the sum of HK$1,619,333.33. Huiyuan terminated Mr Chen’s employment and removed him as a director on 8 November 2023 without notice. Mr Chen therefore seeks 1 month’s salary in lieu of notice, making a total claim of HK$1,654,333.33.

5.  Huiyuan has two broad defences to Mr Chen’s claim.

6.  Firstly, Huiyuan asserts that it had entered into an oral agreement (“the Oral Agreement”) with Mr Chen in December 2019 whereby the parties agreed:

(1)  That眾樂 (香港) 新城市控股集團有限公司 (“Happy HK”) or its subsidiary, instead of Huiyuan, would pay Mr Chen’s remuneration as a director. The alleged reason for this variation was that Happy HK indirectly owned a 49% equity interest in the project company responsible for the Zhuhai urban renewal project on which Mr Chen was working;

(2)  That Mr Chen’s remuneration would only be paid after the project was completed, rather than on a monthly basis.

7.  Secondly, Huiyuan alleges that Mr Chen breached the fiduciary duties he owed to Huiyuan as one of its executive directors, in particular, in failing or refusing to deliver accounting and other documents of Happy HK and of the project to Huiyuan. It caused Huiyuan to fail to submit satisfactory accounting documents to the Hong Kong Stock Exchange and eventually to be suspended from trading.

8.  The Defendant seeks security for costs on the ground that the Plaintiff is resident out of Hong Kong.

9.  Mr Chen, however, submits that his claim is well supported by documents and the Oral Agreement was made up by Huiyuan. He also claims that his financial resources are limited, as he is 50 years old and has to support his family. An order for security for costs will stifle his claim.

10.  Huiyuan submits that since Mr Chen has not yet put in security and the time for doing so expired on 10 February 2026, his action has been dismissed.

C.  LEGAL PRINCIPLES

11.  Order 23, rule 1 of the Rules of the High Court, Cap 4A (“RHC”) confers power on the Court to order security for costs on a defendant’s application at any stage of the proceedings, if it appears to the Court, amongst others, that the plaintiff is ordinarily resident out of the jurisdiction, and that, having regard to all the circumstances of the case, the Court thinks it just to do so: Hong Kong Civil Procedure (2026) at §23/0/2.

12.  The court’s powers under Order 23 rule 1 RHC are discretionary. In general,

(1)  Where a plaintiff is ordinarily resident out of the jurisdiction and has no fixed assets in the jurisdiction, the court would be inclined towards making an order to provide for security for the costs of the defendant.

(2)  Although the merits of a plaintiff’s claim and whether the defendant has an arguable defence may be relevant considerations, these are to be approached in a broad-brush manner. The court shall not attempt to go into the merits of the case unless it can be clearly demonstrated that the plaintiff has a high degree of probability of success. The court should caution against forming any view on the merits simply on paper, especially if the facts are likely to be sensitive to oral evidence.

(3)  Where the plaintiff asserts that an order for security would stifle the claim, the onus is on him to show that it is unable to raise the amount of security from other sources or by other means.

(4)  Where the plaintiff is ordinarily resident out of the jurisdiction, the court will also take into account matters like the ease of registration and enforcement of a costs order in the foreign jurisdiction.

See Wang Husan Han v Cathay Pacific Airways Ltd [2024] HKCFI 386, DHCJ H Au-Yeung (as he then was), §5.

13.  An appeal against a Master’s decision is by way of rehearing. A judge is not bound by the Master’s decision or reasoning.

D.  APPLICATION TO ADDUCE NEW EVIDENCE

14.  Mr Chen has applied to adduce new evidence on this appeal. I have disallowed it as the evidence was available and could and should have been adduced before the Master. I therefore dismissed the application. Mr Chen should pay costs of $1,040 to the Defendant.

E.  ANALYSES

15.  Although Mr Chen has not sought “relief from sanction”, it would be too draconian to deny him an appeal against the Order as his appeal was brought within time.

16.  Mr Chen does not deny that he does not reside in Hong Kong. In fact, he has put forth 5 addresses in this case: (a) the one stated in the Statement of Claim was not a residential address but was a restaurant; (b) he changed to a second address which was an office occupied by a company not apparently related to him; (c) in a letter dated 26 February 2025, he gave an address in Guangdong; (d) he changed his address for service to one in North Point; (e) he gave an address in Fanling, without filing any notice of change of address, when he filed the present notice of appeal.

17.  I am satisfied that Mr Chen is ordinarily resident outside Hong Kong and that Order 23 rule 1 is engaged.

18.  The plaintiff’s case is not overwhelming on the merits. Huiyuan’s defence is arguable. The existence of the Oral Agreement depends on oral evidence and the issue of whether or not Mr Chen was in breach of his employment agreement should be tested at trial. I will not set aside the Order on the merits of the Plaintiff’s case.

19.  The assertion that an order for security will stifle his claim is not supported by financial evidence from Mr Chen.

20.  However, my greater concern in this case is the procedural injustice to an employee claimant. Mr Chen commenced his claim in the Labour Tribunal in February 2024, which has jurisdiction over salary disputes. The case was transferred to the CFI in May 2024 at the request of Huiyuan, as there were related CFI actions brought by Huiyuan against Mr Chen, namely (i) HCA 1607/2023, for breach of directors’ duties; and (ii) HCA 1738/2023 for breach of a sale and purchase agreement. There was also HCA 758/2024 brought by another Huiyuan director against the company for arrears of salary.

21.  For 22 months since the transfer, Huiyuan has not taken any action to consolidate the various proceedings. Pleadings have been separately filed in this action. In fact, as shown in the Timetabling Questionnaire filed on 23 December 2025, Huiyuan adopted a wait-and-see approach to consolidation of the proceedings pending outcome of this application for security for costs. It also took the view that HCA 1738/2023 and another HCA 1836/2023 involve business sale and purchase disputes. To date, Huiyuan has not taken any action to consolidate the proceedings and has no counterclaim in the present action.

22.  Huiyuan submits that its argument that Mr Chen breached his fiduciary duties brings the present action outside the scope of the Labour Tribunal’s jurisdiction, which only covers claims arising from the Ordinances specified in the Schedule to the Labour Tribunal Ordinance Cap 25 (“LTO”) and does not cover claims arising generally from tort, contract, or equity (Section 7, LTO).

23.  With respect, in this action, Huiyuan has no claim or counterclaim against Mr Chen in tort, contract or equity. The issue of Mr Chen’s breach of directors’ duties was only raised by Huiyuan as a defence. The claim falls squarely within the Labour Tribunal’s jurisdiction. Both lines of defence put forth by Huiyuan could have been dealt with by the Labour Tribunal.

24.  Had there been no transfer, the costs to be incurred by the parties at the Tribunal (where lawyers are not allowed) would be nowhere close to $170,000. As the pleadings now stand, pursuing this case in the CFI imposes an unnecessary, disproportionate and oppressive costs burden upon an employee claimant.

25.  Having regard to all the circumstance of this case, it is not just to order security.

26.  For the sake of completeness, while the Labour Tribunal has the power to grant security for costs, that is not the business of the CFI. Even if the CFI can take into account the Tribunal’s power to grant security under s.30(4) of the LTO, none of the conditions there have been satisfied.

F.  CONCLUSION AND COSTS

27.  I therefore allow the appeal and set aside the Order.

28.  Costs of the summons here and below shall be paid by the Defendant to Mr Chen, summarily assessed at HK$2,500 inclusive of hearing times (at a conversion rate of 1 RMB: 1.13 HKD).

29.  Such costs should be set off against the $1,040 which the Plaintiff should pay the Defendant. The Defendant shall pay a net sum of $1,460 to Mr Chen.

30.  I thank Ms Chu for her assistance.