ETERNAL INTERNATIONAL HOLDINGS LTD v. LO KON KI AND ANOTHER

HCA 600/2025

[2026] HKCFI 1477

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 600 OF 2025

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DECISION ON COSTS

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INTRODUCTION

1.  By summons filed on 29 August 2025, D1 made an application for security for costs under Order 23 rule 1 of the Rules of the High Court (“RHC”) and section 905 of the Companies Ordinance (“Summons”).  On 19 January 2026, I made an Order by consent that:

(a)     There be no order as to §§1 to 4 of the Summons;

(b)     The costs of the Summons be determined on paper;

(c)     D1 be excused from attending the hearing fixed on 21 January 2026 at 2:30 pm;

(d)     D1 to lodge and serve his written submissions on costs within 5 days from the date hereof; and

(e)     P to lodge and serve its written submissions on costs within 5 days thereafter.

2.  I have reviewed D1’s submissions dated 26 January 2026 and P’s submissions dated 2 February 2026.  This is my decision on costs. 

BACKGROUND

3.  D1 and P (at §9 of P’s submissions) have set out a helpful chronology which I have summarised below. 

4.  On 14 August 2025, D1’s solicitors wrote to P’s solicitors requesting confirmation by 22 August 2025 that P would pay HK$1,000,000 into Court as security for costs.

5.  On 22 August 2025, Mr Chiu Yung (“Mr Chiu”) as vendor and P as purchaser entered into an Agreement for Sale and Purchase (the “SPA”) in respect of the property known as Flat E on the 69^th Floor of Tower 3 of The Victoria Towers, No 188 Canton Road, Kowloon (“Property”).

6.  D1 issued the Summons on 29 August 2025, having received no reply to the letter of 14 August 2025. 

7.  On 3 September 2025, P’s solicitors sent a “Without Prejudice Save As To Costs” letter to D1’s solicitors, stating that P was “contemplating that a property belonging to [Mr Chiu], estimated to have a current market value of at least HK$20,000,000, be transferred to [P] as soon as possible” and proposing that D1’s Summons be withdrawn with costs in the cause of the Action.  The letter did not make any reference to the SPA.

8.  On 5 September 2025, the first call-over hearing of D1’s and D2’s Summonses took place before Mr Registrar S Kwang. Just prior to the hearing, P’s solicitors provided a copy of the SPA to D1’s and D2’s solicitors for the first time.

9.  P’s (Mr Chiu’s) Affirmation in opposition to D1’s and D2’s Summonses was filed on 2 October 2025.

10.  On 20 October 2025, Mr Chiu and P executed an Assignment in respect of the Property (“Assignment”).

11.  On 27 October 2025, the 2^nd Affirmation of Mr Chiu was filed, which exhibited a copy of the Assignment. 

12.  On 5 November 2025, D1 sent a “Without Prejudice Save as to Costs” letter to P stating that D1 was agreeable to there being no order as to D1’s Summons §§1-4, if P undertook in writing to hold the legal and beneficial interest in the Property to the end of the Action, and not to mortgage, charge, enter into an agreement for sale and/or trust arrangement in respect of, assign, or otherwise encumber and/or dispose of its interest in the Property. 

13.  D1’s Affirmation in reply was also filed on 5 November 2025. 

14.  On 7 November 2025, the second call-over hearing of D1’s and D2’s Summonses took place. 

15.  On 14 November 2025, P’s solicitors wrote to D1’s and D2’s solicitors, stating that as D1 and D2 refused to withdraw their security for costs applications, P would hold them liable for all costs incurred on an indemnity basis if any or all of the Summonses failed.

16.  On 9 December 2025, P wrote to D1 (and D2) proposing an undertaking that the Property would not be sold, transferred, or mortgaged until the conclusion of the proceedings, unless P gave a 42-day prior written notice to D1 and D2, and that D1’s and D2’s Summonses be withdrawn with no order as to costs.

17.  On 17 December 2025, D1 requested that the notice period be extended to 56 days (“Undertaking”), and that P pay D1’s costs of D1’s Summons incurred up to and including the date of the Undertaking, to be summarily assessed if not agreed.

18.  On 23 December 2025, P informed D1 that P agreed in principle to the Undertaking, and asked D1 to cease incurring further costs. 

19.  On 2 January 2026, P confirmed its formal agreement to the final wording of the Undertaking, but that P would pay only HK$20,000 to D1 in full and final settlement of costs arising from D1’s Summons.

20.  On 9 January 2026, D1’s solicitors wrote to P’s solicitors, requesting P to pay D1 HK$180,000 as costs of D1’s Summons incurred up to the date of the letter.

21.  On 13 January 2026, P’s solicitors wrote to D1’s solicitors agreeing that the costs of D1’s Summons be determined on paper.  No counteroffer was received in respect of D1’s costs of D1’s Summons.

ANALYSIS

22.  P has referred to the relevant legal principles on costs of interlocutory proceedings which are summarised in Sir Elly Kadoorie & Sons Ltd v Bradley (No 4) [2025] 6 HKC 421 (CFI) at §§75-77:

“75. Order 62 r 3(2A) of the RHC provides that:

‘If the Court in the exercise of its discretion sees fit to make any order as to the costs of or incidental to any interlocutory proceedings, it may, subject to this Order, order the costs to follow the event or make such other order as it sees fit.’

76. It is now well established that, in the post-CJR era, ‘costs follow the event’ is just one of the options in an interlocutory application, but it is no longer treated as the general rule or the usual order. The court is entitled to take into account all the circumstances of the case, including those set out in O 62 r 5 of the RHC.

77. In Melvin Waxman & Anor v Li Fei Yu & Anor [2013] 6 HKC 424, To J held that:

‘19. Summing up on the post-CJR position, I think the court has much wider discretion as to costs in interlocutory proceedings. Unlike other proceedings, the general rule of costs following the events do not apply. The court is entitled to take into account all the circumstances of the case, including those set out in rule 5, to make such order as it thinks fit. In the exercise of its discretion, the court may take the issue-based approach or may take into account merit of the parties’ case or the possible outcome of the action. The circumstances of interlocutory proceedings are so numerous that it is impossible to make any general rule. Costs to follow the event and costs be to the successful party’s costs in the cause are obvious options.

20. As for the onus of proof, I think it is the same post-CJR as it was pre-CJR. It must be the successful party’s burden to satisfy the court as to the type of costs order it is entitled. To begin with, the successful party is assisted by the general rule of costs to follow the event. By the mere fact of being successful, the successful party has discharged the evidential burden of showing it is entitled to costs. Thus, effectively, the evidential burden is on the unsuccessful party to adduce sufficient evidence or argument that some other or lesser order is appropriate, such as no order as to costs, costs be to the successful party’s costs in the cause or costs to the unsuccessful party. In the absence of evidence or convincing argument to the contrary, the successful party would also have discharged the legal burden. Costs to follow the event would be the appropriate order to make. If the unsuccessful party is able to discharge that evidential burden, it will be the legal burden of the successful party to show that he is entitled to the costs order which he seeks. In reality, having heard the interlocutory application, it would be quite obvious to the court what costs order would best serve the justice between the parties without relying on the burden of proof.’ ”

23.  P submitted (at §48) that the Court should adopt the four-step approach set out in Wan Hin and Co v Chung Chun Keung  [2024] HKCFI 292 at §17:

1.     Who was the successful party in the Summons?

2.     Has the unsuccessful party adduced sufficient evidence or argument that some other or lesser order is appropriate than costs following the event ?

3.     Are there any other special matters to take into consideration in the exercise of the Court’s discretion?

4.     What is the quantum of costs?

24.  I now consider these issues below. 

1.      Who was the successful party in the Summons?

25.  D1 did not obtain the order he sought for security for costs of HK$1,098,335 in D1’s Summons.  P did not obtain a dismissal of D1’s Summons.  Instead, the Parties agreed that there was to be no order as to  §§1-4 of D1’s Summons.

26.  I made the following findings in D2’s application for security for costs in Eternal International Holdings Ltd v Lo Kon Ki and anor [2026] HKCFI 579at §§ 35 and 43: (i) P is ordinarily resident out of the jurisdiction.  P’s counsel submitted on behalf of P that P is “offshore and out of the jurisdiction” during the call over hearing of D1’s and D2’s Summonses before Registrar S Kwang on 5 September 2025 (§9.2 of the 2nd Affirmation of Fung Jan); and (ii) P is a shell company.  P’s counsel confirmed in a call-over hearing for the Summons before Registrar S Kwang on 5 September 2025 that P is a “paper company” which “used to have very little assets.”  (§8.2 of the 4th Affirmation of Fung Jan).  

27.  P was willing to give the same Undertaking as set out above to D2.  I observed in Eternal International Holdings Ltd at §§49 to 57 that despite the proposed Undertaking offered, there can still be dissipation of the Property (with the 56 days’ notice), which would necessitate an application for an injunction.  I saw no reason as to why D2 should be exposed to this sort of risk.  This is all against the background of P being a foreign corporation and so is prima facie liable to be ordered to give security for costs, with no assets for enforcement within Hong Kong other than the Property, or at all. 

28.  It was D1 that proposed the Undertaking on 5 November 2025, after the asset injection by Mr Chiu on 20 October 2025.  On 2 January 2026, P confirmed its formal agreement to the final wording of the Undertaking. 

29.  I accept D1’s submissions that courts have consistently emphasized that short-term or last-minute “asset injections” intended to defeat a security for costs application are no answer to a properly grounded application.  In this regard, I refer to the observations of Master Leong in Sunny Securities Investment Ltd v Benelux Manufacturing Ltd [2013] HKCFI 1588 per Master Leong at §§21 to 23, and Success Leading Investment Ltd v Sze Kin Yu [2025] HKDC 799 per DDJ Val Chow at §23.

30.  D1 was entitled to insist on security and based on the above, if P had not accepted the Undertaking, I would have ordered P to provide security. 

31.  In my view, D1 was the successful party in substance.  P also recognises this by offering HK$20,000 to D1 in full and final settlement of costs arising from D1’s Summons.

2.      Has the unsuccessful party adduced sufficient evidence or argument that some other or lesser order is appropriate than costs following the event ?

32.  P submitted that some other or lesser order is justified, in light of the merits of P’s case.

33.  P has again devoted a lot of time to the merits of the application for security as submitted in Sections C and D of its submissions (at §§12 to 45).  I have already observed in my decision in Eternal International Holdings Ltd. at §26 that it is not the function of the Court, when faced with an application for security for costs, to make a preliminary run at deciding the ultimate success or failure of the claim (per Rogers VP in Sunchase International Group (China)  Ltd & others v Vincor Group of Companies (Investment)  Ltd & others [2004] 1 HKLRD 731 at 733D - E).  I also found in Eternal International Holdings Ltd. that this is not the type of case where it can be readily said that P has demonstrated a high degree of success, nor am I prepared to say that D2 does not have a bona fide defence to P’s claim (at §33).  This same reasoning applies to P’s claims against D1. 

34.  I observed at §30 that D1 was entitled to insist on security and if P had not accepted the Undertaking, I would have ordered P to provide security.  The merits of P’s case in the Action are irrelevant on the issue that some other or lesser order is appropriate than costs following the event in respect of D1’s Summons for security for costs. 

3.      Are there any other special matters to take into consideration in the exercise of the Court’s discretion?

35.  P submitted there are specific considerations to be taken into account when the Court exercises its discretion.  P submitted that discretion should be exercised in favour of P for the following reasons:

(a)     It was unreasonable for D1 to raise or pursue security for costs.  D1’s application would likely fail if fully argued, suggesting it was mainly intended to delay proceedings.  Therefore, D1 should be denied costs even if partially successful in obtaining P’s Undertaking.

(b)     D1’s conduct prior to this case was notably unsatisfactory.  P initiated HCMP 148/2025 against D2 on 27 January 2025 under Order 106, rule 3, requesting delivery of bills, invoices, and receipts for the Transaction.  D1, the responsible solicitor at D2, left no written retainer, attendance notes, or client instructions in D2’s files in D2’s files.  P submitted that D1’s poor record keeping fell beyond professional standards. 

(c)     Regarding any “without prejudice save as to costs” or other admissible settlement offers for security for costs applications, discretion should favour P because P acted reasonably and D1 did not.

(d)     As of 5 November 2025, the date when D1 made their proposal, D1 should have known that Mr Chiu purchased the Property from third parties for HK$25,800,000 in 2017.  Later, P bought the same Property from Mr Chiu for HK$19.9 million.

(e)     It is important to note that D1’s proposal, presented in its original form in D1’s letter dated 5 November 2025 and lacking a “notice period”, is both unreasonable and unfair to P or Mr Chiu. Requiring an undertaking on the Property valued at HK$19.9 million as security for costs of only HK $1 million, without any “notice period”, is clearly disproportionate in value, since the Property’s value is 20 times greater than the amount claimed as security for costs.

(f)     P then acted reasonably by sending a letter to D1 on 9 December 2025, suggesting a notice period of 42 days.

(g)     P and D1 ultimately settled on a 56-day written notice process.

(h)     In the course of these proceedings, P conducted themselves in a manner that promoted fairness between the parties and supported the resolution of disputes, consistent with the underlying objectives outlined in Order 1A, rule 1 of RHC.

36.  In my view, D1’s Summons was a reasonable and necessary response to P’s financial position, with no assets for enforcement within Hong Kong other than the Property, or at all.  D1 acted reasonably in proposing the undertaking on 5 November 2025 in the without prejudice save as to costs letter as a result of the asset injection in P.  P only confirmed its formal agreement to the Undertaking on 2 January 2026.  Even when P wrote to D1 (and D2) on 9 December 2025 proposing a 42-day written notice period  for the undertaking that the Property would not be sold, transferred, or mortgaged until the conclusion of the proceedings, all affirmation evidence had been filed, and costs incurred.  Based on my judgment in Eternal International Holdings Ltd (at §§55 to 59) and my observations above at §30, D1’s Summons would have been successful if P had not accepted the Undertaking with the 56-day notice period.  

37.  Regarding P’s allegation that D1’s conduct prior to this case was unsatisfactory in that D1, the responsible solicitor at D2, left no written retainer, attendance notes, or client instructions in D2’s files, this is irrelevant to the determination of costs for the Summons for security for costs.  P can take this up in the cross examination of D1 at the substantive hearing and also make appropriate submissions.

38.  I also take into account the following factors when exercising my discretion in deciding the issue of costs:

(a)     The first proposal of the undertaking was provided by D1 on 5 November 2025 in D1’s “Without Prejudice Save as to Costs” letter;

(b)     On 2 January 2026, P confirmed its formal agreement to the final wording of the Undertaking – only at the door of the court before the scheduled hearing on 21 January 2026 and after the submission of affirmation evidence; and

(c)     D1 was entitled to insist on security.  Based on the above, if P had not accepted the Undertaking, I would have ordered P to provide security. 

39.  Given the above, the appropriate order as to costs is that P pays D1 its costs of the Summons to be summarily assessed.

4.      What is the quantum of costs?

40.  I have reviewed D1’s Statement of Costs dated 26 January 2026 and P’s List of Objections dated 2 February 2026.  I adopt a broad-brush approach to the summary assessment of D1’s costs.  I order and direct that HK$159,771.44 be paid by P to D1 forthwith.

DISPOSITION

41.  For all the reasons above, I order and direct that P pays to D1 HK$159,771.44 forthwith.

42.  I thank counsel for their helpful submissions to the court.