AHS DEVICE HONGKONG LTD v. VT ZERO LTD

HCA 197/2022

[2026] HKCFI 642

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 197 OF 2022

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DECISION

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Introduction and Relevant Background

1.  This is an application by the Plaintiff (“P”) for security for costs for P’s defence to the counterclaim in the sum of HK$1,773,500 by Summons dated 21 October 2025 (“the Summons”).

2.  By an order of Au Yeung J dated 27 November 2025 (“the Order”), the Summons is to be placed before a judge for paper disposal. The Summons has now been placed before me.

3.  Pursuant to the Order, P filed two affirmations in support of the Summons and Skeleton Submissions.

4.  On 22 December 2025, solicitors for the Defendant (“D”) indicated that D takes a neutral stance. D has not filed any affirmation nor skeleton submissions notwithstanding directions given for the filing of such by the Order.

5.  A brief factual background of this case suffices for present purposes.

6.  P and D are both limited liability companies incorporated in Hong Kong.

7.  Pursuant to a Sales Agent Agreement (“the Sales Agent Agreement”), D acted as P’s agent for pre-owned mobile phones (“the Goods”).

8.  D sold the Goods via an online platform called Back Market (“Back Market”).

9.  According to P, most of the Goods have been sold but D had not properly accounted for the sums due to P:

(1)  For the sold Goods, D failed to account for: (a) net sale proceeds of HK$26,255,598.59 (“Outstanding Net Proceeds”); and (b) the relevant late remittance payment (“Late Remittance Payment”); and

(2)  For the unsold Goods (“Unsold Goods”), D failed to pay the buy-out price of HK$389,623.10.

10.  D’s case in gist is as follows:

(1)  The records which P rely for the Outstanding Net Proceeds and Late Remittance Payment are not correct. According to the true records, the net balance due was only HK$5,723,681.94 as of 31 October 2023;

(2)  There are no Unsold Goods; and

(3)  P breached P’s quality assurances in the Goods supplied as a result of which D’s accounts with Back Market were ultimately suspended between 2020 and 2022. D has been prevented from selling goods on Back Market and suffered loss of profits and goodwill.

11.  D further allege (but this is denied by P) that in around 2020, P and D reached an oral agreement (“the Oral Agreement”) that:

(1)  In order to maintain and/or improve the (already deteriorating) rating of D’s seller accounts on Back Market, D would procure new units of mobile phones (and accessories) of Xiaomi and other brands and certified refurbished products of Apple (mainly iPhones) from suppliers for sale through the 6 seller accounts on Back Market; and

(2)  Since the low rating of D’s accounts was caused by P, P agreed to reimburse D all expenses, loss and damages incurred by D in such action which totalled HK$5,913,198.59.

Applicable Principles

12.  The legal principles governing an application for security under s.905 of the Companies Ordinance, Cap. 622 (“CO”) were set out in Sunni International Ltd v Kao Wai Ho Francis [2021] 1 HKLRD 841 at §§20-24 by Peter Ng J:

(1)  The court’s jurisdiction under s.905 of CO is engaged once it has been established that the plaintiff company will be unable to meet an adverse costs order. The court has a discretion under s.905, just as under O.23, r.1 of the Rules of the High Court, Cap.4A, whether to order security for costs having regard to all the circumstances of the case;

(2)  Security for costs may be ordered if there is credible testimony that there is reason to believe that the plaintiff company will be unable to pay the defendant’s costs if the defendant succeeds in the defence. The fact that a plaintiff is in liquidation is prima facie evidence that it is unable to pay such costs, unless evidence to the contrary is given;

(3)  While the Court may have regard to all the circumstances of the case, including merits, it is not the function of the Court to make a “preliminary run” at deciding the ultimate success or failure of the claim. The court should not delve into the respective merits of the parties’ case unless it can clearly be demonstrated one way or other that there is a high probability of success or failure. The threshold of demonstrating the probability of success is very high; and

(4)  Other circumstances which might be taken into account in deciding whether or not to grant security for costs include, inter alia, whether the application is being used oppressively e.g. so as to stifle a genuine claim, whether the plaintiff’s want of means has been brought about by the defendant’s conduct and delay in making the application.

13.  Whilst s.905 CO refers to a “plaintiff”, as held by Ma J (as he then was) in Brand Farrar Buxbaum LLP v Samuel-Rozenbaum Diamond Ltd & Another (No.2) [2003] 1 HKLRD 600 at §§17-18, in determining whether a party is to be regarded as a plaintiff, the court must examine the situation as a matter of substance and not form. The fact that party is named as the plaintiff is not by itself determinative of the question and in some circumstances a counterclaiming defendant may be required to provide security for costs. See also Perpetual Wealth (Hong Kong) Ltd v Be Solutions Co Ltd [2022] 2 HKLRD 546 at §§18-20 per Keith Yeung J.

14.  Yam J in Ai Zhong v Metrofond Ltd [2010] 1 HKLRD 213 held that where there was a counterclaim and an application for security for costs, it is important to ascertain who is the “real attacker” and he identified some general principles at §22:

(a)  The Court has a discretion in all applications for security for costs, and it is not a question of merely considering whether the claim and counterclaim arise out of the same issue of fact but a question of “what is fair and just in all the circumstances”. (Hutchison Telephone (UK) Ltd v Ultimate Response Ltd [1993] BCLC 307, per Dillon LJ.)

(b)  Application for security for cost should be refused if it will prevent the plaintiff from pursuing its claim but in the course of defending the counterclaim all the same matters would be canvassed as would be canvassed if the plaintiff were to pursue its claim. (Goal Setting Consulting Co Ltd v Unigraphics Solutions Asia/Pacific Inc (unrep., HCA 994/2003, [2005] HKEC 20), citing BJ Crabtree (Insulation) Ltd v GPT Communications Systems (1993) 59 BLR 43.)

(c)  Application should also be refused when the cost incurred by the defendant for the purposes of the defence might equally and perhaps preferably be regarded as costs necessary to prosecute the counterclaim. (Goal Setting Consulting Co Ltd v Unigraphics Solutions Asia/Pacific Inc, citing BJ Crabtree (Insulation) Ltd v GPT Communications Systems.)

(d)  The existence of a counterclaim arising out of the same matters as that in the plaintiff’s claim per se does not affect the Court’s ability to order security for costs against the plaintiff. (Winghing Investments Ltd v Lee Hoi Wing (unrep., CACV 378/2005, [2006] HKEC 378.)

(e)  It is pertinent to ask whether in the particular case the counterclaim is a cross-action or operates as a defence, that is to say merely operates as a defence. (Hutchison Telephone (UK) Ltd v Ultimate Response Ltd, per Dillon LJ.)

(f)  In determining the question in (e), the most important factor to consider is whether “the claim by the plaintiffs and the cross-claim by the defendants -- raise essentially the same issues and are going to be fully litigated anyway so far as one can tell”. (BJ Crabtree (Insulation) Ltd v GPT Communications Systems, per Bingham LJ at p.54.)

(g)  In determining the question in (e), the marked discrepancy in size between the amount claimed in the action and the very much greater amount claimed by the cross-claim is also a relevant factor. (Hutchison Telephone (UK) Ltd v Ultimate Response Ltd, per Dillon LJ.)

(h)  A defendant should not be required to give security for costs if he is only defending himself from the plaintiff’s claim. (Hutchison Telephone (UK) Ltd v Ultimate Response Ltd, per Bingham LJ.)

(i)  When both the plaintiff and defendant can be viewed as attackers, the treatment of both parties in security for costs should be the same. (Samuel J Cohl Co v Eastern Mediterranean Maritime Ltd [1980] 1 Lloyd’s Rep 371, cited with approval by Ma J in Brand Farrar Buxbaum LLP v Samuel-Rozenbaum Diamond Ltd [2003] 1 HKLRD 600.)

15.  Whilst Yam J was dealing with a situation where the counterclaiming defendant had applied for security for costs against the plaintiffs, the same considerations apply where the plaintiff applies for security against a counterclaiming defendant: see e.g. Perpetual Wealth (Hong Kong) Ltd, §§21-28.

Analysis and Disposition

16.  Applying the above principles to the present case, I am satisfied that D can be viewed as a real attacker notwithstanding the counterclaim arises out of the same transaction as the claim. By raising a claim based on the Oral Agreement, D is not simply defending but “launching a cross-claim with an independent vitality of its own” (adopting the language of Bingham LJ in Hutchison Telephone (UK) Ltd v Ultimate Response Ltd [1993] BCLC 307 which was quoted in Perpetual Wealth (Hong Kong) Ltd at §24). Whether or not P succeeds in P’s claim, D would have to incur costs to prosecute its counterclaim. There is no suggestion that if P dropped its claim against D, that D would not pursue its counterclaim.

17.  I am also satisfied that it appears by credible testimony that there is reason to believe D will be unable to pay P’s costs of the defence to counterclaim if P succeeds. The evidence filed by P (which has not been refuted by D) shows:

(1)  D is a limited company with just a nominal share capital of HK$10,000;

(2)  D’s sole shareholder is a BVI company with just a nominal share capital of US$2;

(3)  D’s indirect shareholder (Cybernaut) had net current liabilities totaling RMB32,228,000 as of 30 June 2025;

(4)  The directory boards at the lobby and the entrance of D’s registered office do not show D’s name; and

(5)  There is limited information about D’s business.

18.  As for the exercise of my discretion, I do not consider any delay in making the present application should prevent P from obtaining an order for security for costs. According to the evidence filed, the recent deterioration of the financial status of Cybernaut was only publicized in late August 2025. P’s current solicitors were only instructed on or about 15 August 2025 and obtained a full set of papers in late October 2025. Thus any delay has been explained. No evidence has been adduced by D to support that it has suffered any real prejudice arising from the delay. Nor is there any evidence before me that the present application is being used oppressively so as to stifle a genuine claim or D’s lack of means has been brought about P’s conduct. I will not delve into the respective merits of the parties’ case as is not clearly be demonstrated one way or other that there is a very high probability of success or failure. In the overall circumstances, I would exercise my discretion in favour of ordering security against D.

19.  As for quantum, it is well-established that the court has a discretion and will fix a sum as it thinks just having regard to all the circumstances of the case. It is not the practice to order security on a full indemnity basis. Furthermore, the court will adopt a relatively broad brush approach in determining the amount of security and will not engage in a line by line evaluation of the estimated costs put forward to justify the claimed security: see Delco Participation BV v HWH Holdings Limited [2021] HKCFI 250 per Coleman J at §§18 and 35-36.

20.  Having considered the skeleton bill, bearing in mind P’s case in respect of D’s counterclaim is essentially to deny the existence of the Oral Agreement such that the amount sought appears to be on the high side, and given that it is not the practice to order security on a full indemnity basis, I am not satisfied that the amount of security sought is proportionate and justified. Adopting a broad brush approach, I would order security in the amount of HK$1,000,000 up to trial.

21.  Accordingly, I make an order in terms of the draft Order save that sum to be paid into court shall be HK$1,000,000.

22.  I see no reason why costs should not follow the event. P has already lodged and served a Statement of Costs. D shall lodge a list of objections limited to 2 pages on or before 6 February 2026 and there shall be a summary assessment by me on paper.