SUCCESS LEADING INVESTMENT LTD v. SZE KIN YU

DCCJ 6723/2020

[2025] HKDC 799

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 6723 OF 2020

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BETWEEN

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DECISION

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A. Introduction

1.  This is the plaintiff’s appeal against a Master’s order dated 17 February 2025 (the “Order”) where he:

(1) acceded to the defendant’s security for costs application by summons dated 19 August 2024 (“Security Summons”) and ordered the plaintiff to pay into court a sum of HK$278,000 as security for the defendant’s costs; and

(2) dismissed the plaintiff’s summons dated 10 February 2025 to adduce new evidence in respect of the Security Summons (“New Evidence Summons”).

B. Background

2.  In short, the background is as follows:

(1) The plaintiff is a tenant of a certain residential unit located at Laguna City, Kwun Tong. The defendant is the registered owner of the unit directly above the plaintiff’s flat;

(2) The plaintiff claims that the defendant was in breach of the relevant Deed of Mutual Covenant by (i) occupying the common areas of the block and causing noise nuisance to the plaintiff. The said allegations are denied by the defendant.

C. Appeals from Master’s decisions

3.  It is well-established that appeals from Masters’ decisions are dealt with by way of rehearing. The application is treated as though it came before the court for the first time, see: Hong Kong Civil Procedure 2025, vol.1, §58/1/2.

D. The Security Summons - General Principles

4.  It is trite that the analysis of whether to grant security under section 905 of the Companies Ordinance (Cap 622) involves a 2-stage test.

(1) At the first stage, the court must be satisfied that the statutory threshold, namely whether the defendant has established by credible evidence that there is reason to believe that the plaintiff company will not (as opposed to may not) be able to pay the costs of the defendant if it is successful in its defence;

(2) Whilst the burden of showing the plaintiff’s impecuniosity lies with the defendant, the defendant cannot be expected to produce conclusive and incontrovertible proof of the plaintiff’s lack of means. It is sufficient for the defendant to point to the surrounding circumstances and adduce some credible evidence to support the belief;

(3) It is then up to the plaintiff to adduce such evidence as he thinks fit to demonstrate his means or to contradict the defendant’s evidence. If the plaintiff wish to avoid an order for security for costs, it then takes on the evidential burden to demonstrate that it does in fact have some assets or some form of business against which the orders for security for costs may be enforced and therefore those matters should be taken into account in its favour;

(4) The exercise requires the court to make a judgment of the risk that the corporation would be unable to pay based on the ordinary experience of the daily life of a reasonable person;

(5) A relevant factor for the court to consider is the value of the company to those owning it, so that if the litigation turns bad, whether there is reason to believe that those owning the company will simply “abandon ship” rather than funding the costs. The court needs to look at all the circumstances concerning the value of a company to those owning it, for example, whether the company is currently holding valuable assets? Is it running a proper and viable business? Is the company associated with any “goodwill”? Is it no more than a shelf company incorporated for a certain transaction or purpose, and thus can be replaced easily?

(6) Where the statutory threshold is met at the first stage, the Court would then have to consider whether it is just in the circumstances to grant security. However, the court should not delve into the respective merits of the parties’ case unless it can be clearly demonstrated one way or the other that there is a high probability of success or failure.

See: T&T Global Trading Ltd v BOE (HK) Group Co Ltd [2022] 4 HKLRD 234 at §12 (referring to Concorde Enterprises Ltd v Anthony Motors (Hutt) Ltd (No 2) [1977] 1 NZLR 516 at 519) per Cheung JA; King Field Shipyard Limited v Tai Pak Sea-food Restaurant Limited [2025] HKCFI 560 at §§60-61 per Coleman J; Winko Foundation Ltd v Ho Chi Hung Terence & Others [2015] 5 HKC 497 at §§13-16, 21-22 per Deputy High Court Judge Manzoni SC; Lancom Limited v Capxon International Electronic Company Limited [2022] HKCFI 381 per Au-Yeung J at §26.

E. Stage 1 – Inability to Pay

5.  To begin with, I am satisfied that the defendant has adduced sufficiently credible prima facie evidence to show that the plaintiff has no operating businesses:

(1) It is not disputed the plaintiff only had a nominal paid-up capital of HK$100.00;

(2) Based on the evidence of the plaintiff’s solicitors from their site inspection and the photographs taken on the exterior of the plaintiff’s registered address in Tai Po (“Registered Address”), there was no signage showing the name of the plaintiff. It is apparent from the photos that a restaurant bar and a hotel operated at or about the Registered Address. Based on the inquiries made there, the staff at the bar and the hotel had no knowledge of the plaintiff;

(3) Although the parties disputed the meaning of the code “Corp” in the description of the nature of the plaintiff’s business in its Business Registration Certificate, it is clear from the said certificate that there is no indication of what type of business the plaintiff was and is engaged in.

6.  In the affidavit evidence of Mr Larry Yeung (“Mr Yeung”), the sole director and majority shareholder of the plaintiff, he claimed that the plaintiff had been involved in genuine business. However, apart from making vague claims that the plaintiff had conducted “business through web or online rather than on the floor” and that it had another business premises located in Sheung Shui (“Sheung Shui Premises”), Mr Yeung hardly gave any information or elaboration as to what actually was the plaintiff’s business and the scale and nature of such business.

7.  In the circumstances, I am not satisfied that the plaintiff has any operating business at all:

(1) In my view, Mr Yeung’s reluctance to disclose information and documents about the plaintiff’s business is striking. It is puzzling why Mr Yeung could hardly disclose any information or document about the nature of the plaintiff’s online business (e.g. even a website) or the business conducted at the Sheung Shui Premises;

(2) In her skeleton submissions, Ms Wong, counsel for the plaintiff, claimed that the plaintiff was entitled not to provide any information due to commercial secrecy. However, no such explanation was given by Mr Yeung in his affidavit evidence. In any event, it is difficult to see how it would be reasonable for the plaintiff to withhold even general information of its business (e.g. type of business, number of employees or any publicly available information). The plaintiff could also produce its internal documents and records with sensitive and/or irrelevant details redacted[1];

(3) There is also no suggestion from Mr Yeung that the bar and the hotel at the Registered Address were the plaintiff’s businesses. The plaintiff produced in evidence two monthly bank statements of the plaintiff addressed to the Registered Address (with all transaction amounts and account balances redacted). With respect, such bank statements are hardly evidence showing any operating business of the plaintiff at the Registered Address (if at all);

(4) In relation to the Sheung Shui Premises, again Mr Yeung gave no explanation as to what business was being run there. The only piece of supporting evidence he was able to produce were documents showing that electricity was supplied to the Sheung Shui Premises under an account in the name of the plaintiff and that the monthly electricity fee was between $82.00 to $222.00 in about September to October 2024. In the absence of any explanation, the small sums of electricity charges rather suggest a lack of activity at the Sheung Shui Premises;

(5) Accordingly, in the absence of any explanation and cogent supporting evidence, I do not accept the bare assertions made by Mr Yeung concerning the plaintiff’s alleged businesses.

8.  The next material factor is the evidence on the assets held by the plaintiff. In this regard, the plaintiff placed heavy reliance on a piece of land held in the name of the plaintiff located in Yuen Long (“Yuen Long Property”). According to the land register of the Yuen Long Property, the plaintiff purchased the Yuen Long Property under a Memorandum of Agreement for Sale and Purchase dated 4 June 2024 at a consideration of $2.5 million. The Yuen Long Property is also subject to certain rights of way under a deed dated 6 June 2018 and a court order dated 9 September 2024. The Yuen Long Property is not otherwise subject to any encumbrance.

9.  In the circumstances, I am not satisfied that the ownership of the Yuen Long Property is sufficient to show that the plaintiff has substantial assets readily available to meet any potential adverse costs orders in this action if the defendant is ultimately successful.

10.  First, I am unable to satisfy myself that the Yuen Long Property has substantial market value simply by accepting without question the consideration of HK$2.5 million paid by the plaintiff as representing the market value of the Yuen Long Property.

11.  The plaintiff has not provided any evidence on the valuation of the Yuen Long Property. On the other hand, the defendant has produced a surveyor’s valuation report prepared on the Yuen Long Property.

12.  Although I have reservations on how the surveyor arrived at his valuation of HK$148,000 given the lack of reference to comparables, it is not seriously disputed that the Yuen Long Property only consists of a paved cement road. Given the rights of way which were granted over the Yuen Long Property, I agree with the view expressed in the report that it is highly unlikely that the Yuen Long Property would have any potential for development. In turn, there will be real difficulty in finding a willing buyer in the market in the event that the Yuen Long Property would need to be sold to satisfy a cost order.

13.  Second, I am not satisfied that the Yuen Long Property will be readily available to meet any potential costs obligations of the plaintiff:

(1) In assessing whether a piece of asset held in the name of a corporate plaintiff is of a permanent or long term nature, the purpose of acquisition is one of the matters that the court can properly take into account;

(2) Mr Yeung has not provided any explanation in evidence as to the purpose of acquiring the Yuen Long Property and its intended use. In the circumstances, it would also seem unlikely any business operations can actually be carried out there given its condition;

(3) In considering whether the stage 1 requirement is satisfied, the court is also entitled to consider whether the purported assets of the plaintiff can be easily transferred away so that they would not be available to satisfy any adverse costs order, see: Redoak Capital Limited v Standard Industrial International Company Limited [2018] HKCFI 2835 at §§12, 45(5) and 45(7)(d) per Wilson Chan J. Compared to premises which were used for actual long-term business operations, there is obviously a greater risk that the Yuen Long Property (which appears at most to be an investment asset) could be transferred away with relative ease. It is also unlikely that such transfer would attract significant stamp duty liability under the current applicable rates.

(4) In considering the matter, the court’s inquiry is also not limited to the market value of the assets being put forward but may also include examining the net asset position of the company after taking into account any liabilities, see: Redoak Capital Limited (supra) at §45(5);

(5) Even though the Yuen Long Property itself was not subject to any mortgages, I have also not lost sight of the fact that, the plaintiff has not disclosed any financial information including audited financial statements which show its financial position including its assets and liabilities. Hence, I cannot accept at face value the bare assertion of Mr Yeung that the plaintiff had no loans or liabilities.

14.  Having considered the totality of the evidence before me and for the reasons set out above, I am of the view that the statutory threshold at stage 1 of the analysis is met.

F. New Evidence Summons

15.  It is convenient at this juncture to also deal with the New Evidence Summons as the new evidence that the plaintiff sought to adduce was related to its ability to pay costs at the stage 1 analysis.

16.  By order of Master Ross Li dated 4 October 2024 upon parties’ consent, the Security Summons was initially adjourned for filing of evidence and substantive argument and the hearing for substantive argument was to be held on 17 February 2025.

17.  In accordance with the said order, the plaintiff filed the affidavit in opposition to the Security Summons on 30 October 2024. This is followed by the defendant’s affirmation in reply which was filed on 27 November 2024.

18.  It was on 10 February 2025 (i.e. 5 working days before the substantive hearing) that the plaintiff issued the New Evidence Summons to seek leave to adduce the 12^th Affidavit of Mr Yeung where he deposed that:

(1) On 20 January 2025, the plaintiff purchased a 50% interest of the ground floor and garden of a property located in Kau Liu Ha, Tai Po (“Tai Po Property”) for a consideration of HK$1.9 million;

(2) According to Mr Yeung, the purchase price for the Tai Po Property was funded by Mr Yeung as a gift to the plaintiff. In other words, the plaintiff did not have to take out any loan for the purchase and the Tai Po Property was not subject to any encumbrance;

(3) The Tai Po Property was acquired “in the course of business” of the Plaintiff as the present premises of the Sheung Shui Premises were not big enough for the plaintiff’s business;

(4) In respect of the marketability and value of the Tai Po Property, Mr Yeung exhibited an extract of transaction records of other properties in Kau Liu Ha from 2021 to 2025 downloaded from the website of a real estate agent.

F1. General principles on adducing new evidence

19.  Where an interlocutory application has been adjourned for substantive argument (as in the present case), O32 r16A(4) of the Rules of the District Court (Cap 336H) applies. In short, the party seeking to adduce new evidence would need to demonstrate exceptional circumstances making it desirable that the further evidence should be adduced.

20.  It is not disputed that the Ladd v Marshall rule is relevant to the court’s exercise of discretion in this regard, see: Jose Miranda Da Costa Junior & Another v Lorenzo Yih, also known as Yu Chuan Yih & Others HCA 156/2010 (unreported, 28 April 2014)[2] at §12 per Deputy High Court Judge Le Pichon.

F2. New Evidence Summons - Analysis

21.  In my judgment, the plaintiff had failed to use reasonable diligence to seek leave to adduce the new evidence expeditiously:

(1) As indicated above, the plaintiff only sought to adduce the new evidence 5 working days before the date of the substantive hearing which were known to the parties since 4 October 2024;

(2) Such attempt to introduce new evidence at a time close to the date of the hearing is seriously prejudicial to the defendant:

(i) The defendant is put in a dilemma of having to decide whether to seek an adjournment which would detail the hearing or to live with it and to do what was possible within the limited time available, see: Jose Miranda Da Costa Junior (supra) at §18;

(ii) The lateness in introducing the new evidence also deprives the defendant from having a fair opportunity to properly investigate the new evidence, e.g. in retaining a surveyor to conduct a valuation of the Tai Po Property;

(iii) The introduction of new evidence at this late stage would cause unavoidable disruption to the defendant’s legal team in their preparation for the hearing.

(3) Further, I am not satisfied that the plaintiff has explained why it could not have issued the New Evidence Summons earlier. To some extent, the lateness appears to be self-induced. There is no explanation why Mr Yeung, the sole director and majority shareholder of the plaintiff and apparently the person in charge of the plaintiff’s conduct of this litigation, decided to suddenly make a gift to the plaintiff (but not earlier);

(4) The plaintiff could also have given advanced notice about the intended purchase to the defendant at an earlier stage but inexplicably failed to do so. According to Mr Yeung, the purchase was made on 20 January 2025. There is no explanation whatsoever as to why the plaintiff took 3 weeks to issue the New Evidence Summons on 10 February 2025.

22.  On account of the matters set out above, I would have dismissed the New Evidence Summons.

23.  For completeness, I also have serious doubt as to whether the new evidence would have an important influence on the outcome of the Security Summons:

(1) Given the lack of explanation by the plaintiff as to its business and specifically what kind of business was intended to be run on the Tai Po Property, I am not satisfied that the Tai Po Property was intended to be used for long term business operations;

(2) There is significant uncertainty over the valuation of the Tai Po Property:

(i) As the new evidence was introduced without any opportunity for the defendant to adduce evidence in reply, the plaintiff’s claim of the value of the Tai Po Property would have to be approached with caution;

(ii) The plaintiff relies upon records of other property transactions in the area posted on the website of a property agent as evidence of the value of the Tai Po Property. However, it is not clear to me whether they are proper comparables at all as the plaintiff only not provided sufficient information concerning the Tai Po Property and the alleged comparables for the court to properly assess the matter.

(3) As noted in Sunny Securities Investment Limited v Benelux Manufacturing Limited HCA1801/2005 (unreported, 26 September 2013), the court would need to be vigilant against attempts to frustrate a security for costs application by injecting assets into the company only to be siphoned off later. Even if I accept the consideration of HK$1.9 million as the market value of the Tai Po Property, as in the case of the Yuen Long Property, the relatively low rate of applicable stamp duty means that the property can be transferred out at low cost;

(4) Finally, as I have analysed in §13(4)-(5) above, in the present case it is insufficient for the plaintiff to put forward the Tai Po Property without providing any information as to the net asset/liability position of the entire company.

G. Stage 2 – Exercise of Discretion

24.  Having considered the overall circumstances, I am of the view that the balance lies in favour of granting security for the reasons explained below.

25.  As I have confirmed with Ms Wong during the hearing, it is not the plaintiff’s case that its claim would be stifled if security is granted.

26.  Further, I do not consider the substantive merits of the claim to be so obvious in this case that it would amount to a material factor in my exercise of discretion.

27.  In light of my findings at stage 1, the defendant may suffer serious prejudice if it is ultimately successful in its defence as there is reason to believe that it will not be able to enforce any costs orders made in its favour against the plaintiff.

28.  In her submissions, Ms Wong relied heavily on the defendant’s delay in making the security for costs application. I am not satisfied that the delay amounts to a sufficiently strong countervailing factor in the present case:

(1) In considering the effect of delay on the exercise of discretion in whether to grant security, the proper question to ask is whether such delay has caused or will cause hardship and prejudice to the plaintiff or otherwise so as to make delay a material factor, see: Sunni International Ltd v Kao Wai Ho Francis & Another [2021] 1 HKLRD 841 at §44 per Peter Ng J;

(2) In the present case, although the delay is substantial and not properly explained, the Security Summons was issued before the deadline as specifically directed by Master J Chow in her order dated 5 August 2024;

(3) More fundamentally, I am not satisfied that the plaintiff has suffered any real prejudice from the delay. No milestone date has been affected by the delay. The trial dates have not been fixed. In the meantime, the plaintiff’s interests are protected by an interim injunction to restrain the defendant from causing nuisance to the plaintiff.

29.  I am also not satisfied that the Security Summons was a tactical move by the defendant to delay these proceedings. The defendant has in fact filed its witness statements by now so it cannot be said that the Security Summons was taken out with a view to delay the setting down of the case for trial. I also cannot see how the application amounts to any attempt to put illegitimate pressure on the plaintiff.

H. Quantum of security

30.  The plaintiff has not advanced any real challenge against the amount of $278,000 in security granted below. Having considered the defendant’s Bill of Costs, I do not see any reason to disturb the sum ordered by the learned Master.

I. Costs Order Below

31.  In view of my findings above, there is no reason to disturb the costs order made below.

J. Disposition

32.  Accordingly, the appeal is dismissed.

33.  I make an order nisi that the plaintiff do pay to the defendant the costs of the appeal (with certificate for counsel), to be taxed if not agreed.

34.  It remains for me to thank counsel for their helpful assistance.