CHUNG YING BUILDING MATERIALS COMPANY LTD (in Liquidation) v. CHOW WAI LAM, WILLIAM AND OTHERS

HCA 656/2019

[2025] HKCFI 2480

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 656 OF 2019

_________________

________________

________________

JUDGMENT

________________

Introduction

1.  By summonses dated 8 April 2024, the 1^st, 2^nd, 3^rd and 6^th Defendants applied for security for costs of these proceedings up to and including the trial against the Plaintiff in the sum of HK$6,500,000 and the 4^th Defendant applied for the same in the sum of HK$1,500,000 (collectively “Defendants”). The ground of the applications is that the Plaintiff has been wound up and there are reasons to believe it will be unable to pay the Defendants’ costs if they succeed in their defence.

2.  The Plaintiff opposes the applications on 3 grounds, namely (i) there has been substantial, inexplicable and inexcusable delay on the part of the Defendants in making the applications, causing prejudice to the Plaintiff, (ii) the insolvency and the winding up of the Plaintiff was caused by the Defendants’ misconduct, and (iii) the strong merits of the Plaintiff’s claim and its good prospect of success against the Defendants.

3.  The trial has been fixed to commence on 26 January 2026 with 10 days reserved.

Background

4.  The Plaintiff was a Hong Kong incorporated limited company previously engaging in the business of selling building materials and the trading of floorings. It was wound up on 24 April 2013 upon the petition dated 3 January 2013 of Mr Mohammad Saleem (“Saleem”) in HCCW6/2013.

5.  Saleem is a judgment creditor for employees’ compensation awarded to him in DCEC1558/2010 on 22 December 2011 for injuries sustained at an industrial accident (“DCEC Judgment”). He is also a judgment creditor in a personal injury claim in HCPI914/2011 dated 14 June 2017 (“HCPI Judgment”). The sum awarded in favour of Saleem was HK$853,506 in the DCEC Judgment and HK$1,944,385 in the HCPI Judgment respectively.

6.  The Plaintiff and the Defendants were all related to one another:

(1)  The 1^st Defendant was a director and 75% shareholder of the Plaintiff.

(2)  The 2^nd Defendant was a director of the Plaintiff and is the sister of the 1^st Defendant.

(3)  The 3^rd Defendant is a company incorporated in Hong Kong on 5 January 2012 which was less than 1 month after the DCEC Judgment was awarded and about 1 month after the writ in HCPI 914/2011 was issued. It was at all material times solely owned and controlled by the 1^st Defendant who was its sole shareholder and director.

(4)  The 4^th Defendant is a company incorporated in Hong Kong which is owned and controlled by two Mr Lau who are relatives of the 1^st and 2^nd Defendants. The mother of the two Mr Lau is the 5^th Defendant.

(5)  It is the case of the 1^st, 2^nd, 3^rd and 6^th Defendants that the 3^rd and 4^th Defendants used to have business transactions with the Plaintiff on building materials.

(6)  The 5^th Defendant is the sister of the 6^th Defendant and used to be an employee of the Plaintiff.

(7)  The 6^th Defendant held 25% shareholding in the Plaintiff. She is the mother of the 1^st and 2^nd Defendants. It is the Plaintiff’s case that she was one of the persons who had de facto control over the Plaintiff and was responsible for accounting matters of the Plaintiff.

Plaintiff’s case

7.  It is the Plaintiff’s case that from April to December 2012, 18 payments totalling HK$6,376,000 were made by the Plaintiff to the 3^rd to 6^th Defendants (“18 Payments”). Out of the 18 Payments, a total sum of HK$5,070,000 was paid to the 3^rd Defendant alone in April and May 2012. The 18 Payments were allegedly caused or allowed to be made by the 1^st and 2^nd Defendants from the Plaintiff’s Bank Account to the 3^rd to 6^th Defendants, in breach of trust and/or their fiduciary duties owed to the Plaintiff. In particular, the total amount of the 18 Payments exceeded the gross income of the Plaintiff for the period 1 April 2012 to 24 April 2013 in the sum of HK$6,026,260.20. In the Statement of Affairs on 24 April 2013, the Plaintiff had a deficiency of HK$6,165,936.43. Further evidence from the Plaintiff’s audited financial statements for the year ended on 31 March 2012 shows it suffered a loss of HK$2,904,151.67, and its total net liabilities were HK$4,681,084.53. The Plaintiff was therefore balance sheet insolvent as at 31 March 2012, prior to the 18 Payments.

8.  It is the Plaintiff’s case that the 18 Payments were made not for any legitimate or genuine commercial purposes but for the purpose of diverting the Plaintiff’s assets to enrich the 3^rd to 6^th Defendants. They were made when the 1^st and 2^nd Defendants anticipated that the Plaintiff would not satisfy the DCEC Judgment or the anticipated HCPI Judgment and thus would be placed into liquidation. This was in complete disregard of the interests of the Plaintiff’s creditors, to jeopardise their interest and to put the assets of the Plaintiff beyond their reach.

9.  There is no suggestion by the Defendants that the Plaintiff’s case is not genuine, although understandably they do not accept it has a good prospect of success, just that it raises triable issues.

10.  In this Action, the Plaintiff also relies upon (1) unjust enrichment contending that the 3^rd to 6^th Defendants had provided no consideration for the 18 Payments, (2) unfair preference to the 3^rd to 6^th Defendants (on the basis that they were creditors of the Plaintiff) and (3) dispositions to defraud creditors under section 60 of the Conveyancing and Property Ordinance, Cap 219.

Defendants’ case

11.  The Defence of the 1^st, 3^rd and 6^th Defendants is simple: they primarily contend that the 18 Payments were all legitimate and genuine business transactions between the Plaintiff and the relevant Defendants. There was no breach of fiduciary duties as alleged. They further rely on the limitation defence and seek relief under sections 902 to 904 of the Companies Ordinance Cap 622 (“CO”).

12.  The 2^nd Defendant contends that despite being a director, she was not involved in the daily operations of the Plaintiff - she was an actress with TVB. She had no knowledge of the 18 Payments except for Payments 7 and 8 which were her directors’ remuneration but were paid to the 1^st Defendant to settle a pre-existing loan between the 1^st and 2^nd Defendants. In addition, the 2^nd Defendant relies upon the limitation defence and seeks relief under sections 902 to 904 of CO.

13.  The 4^th Defendant contends that the relationship between it and the Plaintiff was one of supplier and purchaser. In respect of Payments 1, 10, 11, 13, 14, 15 and 16, there were genuine commercial transactions underpinning them. The 4^th Defendant denies that the transactions were fictitious and/or inflated, or that they were made without consideration or for the purpose of diverting the Plaintiff’s assets. The 4^th Defendant further relies on the limitation defence.

Deliberation

The Principles

14.  The legal principles governing applications for security for costs under s 905 of CO are well-established.

15.  First, the Court’s jurisdiction under s 905 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 RHC O 23 r 1, whether to order security for costs having regard to all the circumstances of the case: Hong Kong Civil Procedure 2025 Vol 1 para 23/3/14 at p 682; Sir Lindsay Parkinson & Co Ltd v Triplan Ltd [1973] 1 QB 609, 625E-626F.

16.  Second, 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. Putting it in another way, where a company is in liquidation, there is a presumption that it is insolvent and unable to pay the defendant’s costs, which presumption the liquidator must rebut in order to resist the application for security: Re Grand Pacific Hotel Limited [2004] 1 HKLRD 1015 at [9] per Kwan J (as she then was); Wing Hong Construction Limited (in Compulsory Liquidation) v Hui Chi Yung & Ors unrep, HCA 1423 of 2015, 18 August 2017, Recorder Pow SC at [10].

17.  Third, 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: Sunchase International Group (China) Ltd v Vincor Group of Companies (Investment) Ltd [2004] 1 HKLRD 731. As Rogers VP put it at [5],

“… 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. The judge has approached this on the basis that the plaintiffs have a bona fide claim. He has also approached it on the basis that the defendants have a bona fide defence. Mr Wong today says that the judge should have come to the additional conclusion that the plaintiffs had a substantial chance of success. I do not see that was the judge’s function in a case like this. In a simple case that may be so, but here the defendants are contesting the plaintiffs’ claim and there is no way that the judge could resolve that contest at this stage.” (emphasis added)

18.  The Court should not delve into the respective merits of the parties’ case unless it can clearly be demonstrated one way or the other that there is a high probability of success or failure. The threshold of demonstrating the probability of success is very high: Wing Hong Construction Limited (in Compulsory Liquidation) v Hui Chi Yung & Ors at [12].

19.  Fourth, 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 eg 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: Sunni International Ltd v Kao Wai Ho Francis [2021] 1 HKLRD 841 at [24].

20.  Fifth, a late application for security for costs may be refused if there is no reasonable explanation for the delay. The proper test of lateness is whether the defendants were dilatory after they had obtained the information on the company’s financial position which enabled them to apply: BBMB Finance (Hong Kong) Ltd v China Underwriters and General Life Insurance Co Ltd (in liq.) [1991] 1 HKLR 617, 626G-H per Fuad VP.

21.  Although an application for security for costs may be made at any stage of the proceedings, it should be made as promptly as possible and it should not be made too late or too close to the trial, since unless there is a reasonable explanation for the delay, it may be refused: BBMB Finance (Hong Kong) Ltd v China Underwriters and General Life Insurance Co Ltd (in liq.) 626I-J per Fuad VP.

22.  Whilst delay itself is not a bar to an application for security for costs, it is a relevant consideration, particularly when it causes prejudice to the plaintiff: Chen Mei Huan v. Silver Faith Holdings Ltd and Ors, unrep, HCCW 111/2014, 17 October 2017 at [76] per DHCJ Marlene Ng (as she then was).

23.  Sixth, in refusing a late application for security, the Court is entitled to take into account the fact that the defendant has indicated in its timetabling or listing questionnaire that no further interlocutory applications would be taken out: Waddington Ltd v Chan Chun Hoo Thomas unrep, HCA 3291/2003, 7 May 2013 at [34] – [36] per DHCJ Lok (as he then was); Haifa International Finance Company Ltd v Concorde Strategic Investments Ltd unrep, HCA 4442/2003, 7 March 2014 at [8] per Q Au-Yeung J.

24.  In Waddington Ltd v Chan Chun Hoo Thomas at [34] – [35], the learned Judge observed:

“34. Further, late application for security for costs, in particular when the trial is imminent, per se constitutes very real prejudice to a plaintiff, since the plaintiff is being put in a position of having little or no choice but to put up the security in order not to abandon and waste all the work done and costs incurred in preparing for trial. In these circumstances, the application should be refused (see: BBMB Finance (Hong Kong) Ltd v China Underwriters Life and General Insurance Co Ltd [1991] 1 HKLR 617, 626-628 per Fuad VP; Tsang Yee Mui v Personal Representatives of Mak Chik Wing, deceased, unreported, HCA 2606/2006 (decision on 21 July 2008 at §§34-38 per Chu J.)

35. … In his Timetabling Questionnaire filed on 28 January 2011, the 1^st defendant stated that he intended to apply for security for costs within 28 days after the close of pleadings and even sought directions to that effect. No further reference to seeking security was made in his Listing Questionnaires filed on 20 September 2011 and 19 March 2012. Instead, the 1^st defendant confirmed, in his 2^nd Listing Questionnaire, that he agreed not to take out any further interlocutory applications save for those which ought to be made to the listing judge or master.” (emphasis added)

25.  In Haifa International Finance Company Ltd v Concord Strategic Investments Ltd at [8], Q Au-Yeung J was even more directly to the point:

“8. Secondly, the defendant confirmed in its listing questionnaire dated 11 June 2013, that it does not intend to take out any other interlocutory applications. A party should be bound by such confirmation.”

Grounds of application and opposition

26.  It is undisputed that the Plaintiff has been wound up and is therefore presumed to be unable to pay such costs, unless the Liquidators provide evidence to the contrary. The evidence provided in the 1^st Affidavit of John Lees (“Lees 1”), one of the former Liquidators, is that the Plaintiff was suffering from a deficiency in its assets of around HK$5.8 million, on the basis of a Statement of Affairs declared by the 1^st Defendant, as of 24 April 2013. It is also the evidence in Lees 1 that the Plaintiff is and has always been funded in this Action by the Employees Compensation Assistance Fund Board (“ECAFB”), a major creditor of the Plaintiff. ECAFB had made statutory relief payments out of public funds to the injured employee for unpaid common law damages, for which the Plaintiff is liable as the primary tortfeasor under the HCPI Judgment.[1]

27.  The fact that ECAFB is the funder of these proceedings does not ease the Defendants’ concern of their inability to recoup their legal costs from the Plaintiff should they succeed at the trial. Hence, their perceived need to proceed with the applications to the end.

28.  In the present case, the Plaintiff opposes the applications on 3 grounds as stated earlier in this Judgment. This court shall first deal with the most substantial ground ie the Defendants’ substantial and inexcusable delay in making the applications, causing serious prejudice to the Plaintiff. If that ground succeeds, there is no need to dwell on the other 2.

Delay and prejudice ground

29.  The Plaintiff’s submissions go like this.

30.  First, the Writ of Summons was served in March 2020[2]. The Defendants first filed and served their Defences in September 2020. As well known to the Defendants, the Plaintiff has always been a company in liquidation since the issue of the Writ. No applications were taken out by Defendants to seek security for costs until early April 2024, after leave to set the case down for trial had been granted on 14 March 2024. Nor any hint that such applications would be taken out until days before or on 14 March 2024 at the CMC.

31.  Second, the applications are a complete volte-face to the Defendants’ representations in their previous Timetabling Questionnaires and Listing Questionnaires (“Questionnaires”) filed in Court.

(1)  The 1^st to 3^rd and 6^th Defendants previously confirmed in their Timetabling Questionnaires dated 29 October 2021, 4 January 2023 and 31 May 2023 that they had no intention to apply for security for costs against the Plaintiff. The 4^th Defendant made a similar confirmation in its Timetabling Questionnaires dated 1 November 2021, 4 January 2023 and 1 June 2023; and

(2)  In all the Defendants’ earlier Questionnaires, they did not mention any intended application for security for costs when giving information on outstanding interlocutory applications.

32.  The 1^st to 3^rd and 6^th Defendants’ first indication of any possibility to make these applications was in their Listing Questionnaire on 4 March 2024. The reason given was:

“By a letter dated 26^th January 2024, the Plaintiff’s liquidators informed the 1^st Defendant that they have tendered their resignation as Joint and Several Liquidators and proposed the appointment of a panel of new liquidators as Joint and Several Liquidators of the Company. …The 1^st to 3^rd and 6^th Defendants would like to take out applications, including discovery applications, etc. to look into the funding arrangement(s) in between, and how the interest of the aforesaid Defendants are to be protected, for example, when the identities of liquidators are changed...There could be other application(s), including security for costs…” (emphasis added)

33.  No such indication was even given by the 4^th Defendant in its Listing Questionnaire on 4 March 2024, although Counsel for the 4^th Defendant submits in his skeleton that the 4^th Defendant had orally indicated its intention to do so at the CMC on 14 March 2024.

34.  Third, the Defendants have all along been legally represented by solicitors and junior counsel[3]. They have failed to provide any credible explanation to account for this substantial delay.

35.  The 1^st to 3^rd and 6^th Defendants purport to attribute the timing of the applications to (i) the resignation tendered by the Liquidators viz Mr John Lees and Mr Mat Ng in January 2024, (ii) their proposal to appoint new Liquidators viz Ms Anita So Kit Yee and Ms Lau Wun Man, both of Ernst & Young, in their place and (iii) the failure to appoint the new Liquidators as a result of the lack of quorum of the meetings of contributories first held on 23 February 2024 and adjourned to on 1 March 2024. This court notes that the 2 contributories were none other than the 1^st and the 6^th Defendants (who had by then been adjudicated bankrupt and had no capacity to give instructions to her proxy viz the 2^nd Defendant).[4]

36.  What the 1^st Defendant said at para 16 of his 1^st affirmation (“Chow 1”) is that the above events prompted the Defendants “to review the situation and come to have huge concerns over the Plaintiff’s ability to repay the Applicant’s costs should [the Defendants] succeed in the Action”.

37.  In his 2^nd affirmation (“Chow 2”), the 1^st Defendant tried to elaborate and provide more details in answer to inter alia the delay ground set out in Lees 1. The material parts of Chow 2 have been contained in the skeleton of Senior Counsel for the 1^st to 3^rd and 6^th Defendants referred to below. The only additional matter this court would note is that at para 21 of Chow 2, the 1^st Defendant explained why his side decided to engage Senior Counsel shortly before the applications.

38.  In the 1^st affirmation of Li Sau Ping (“Li 1”), a director of the 4^th Defendant, at para 10, a similar reasoning was adopted by the 4^th Defendant, stating that “[A]fter learning from my lawyers about the resignation of the Plaintiff’s former liquidators, we became seriously concerned about the Plaintiff’s ability to pay [D4’s] costs…I have reasons to believe that the Plaintiff’s financial supporter(s) are running low on funds, which led to the resignation of the former liquidators”. (emphasis added)

39.  It is unclear what those reasons were since Ms Li did not see fit to set them out.

40.  In the 2^nd affirmation of Li Sau Ping (“Li 2”), Ms Li, like the 1^st Defendant, tried to elaborate and provide more details in answer to inter alia the delay ground set out in Lees 1. One particular interesting point of view given by Ms Li is in para 15 which is reproduced below:

“15. It is true that the 4^th Defendant did not take out the Security Application until April 2024. The reason for this is that the 4^th Defendant had the full expectation and honest belief that after the filing of the defence, or after discovery of documents and the filing of witness statements on behalf of the 4^th Defendant, the Plaintiff would discontinue the case against the 4^th Defendant. We were advised that the Plaintiff had discontinued its case against the 7^th and 8^th Defendant. We simply did not believe the Plaintiff would continue its claim against us when we had full documents to support our defence in relation to the seven transactions.” (emphasis added)

41.  The 4^th Defendant first filed its Defence in September 2020. The Plaintiff obtained leave to discontinue the Action against the 7^th and 8^th Defendants in July 2022. It is unclear what took the 4^th Defendant so long to realise that the Plaintiff would not discontinue the case against it.

42.  In their skeleton, Senior Counsel for the 1^st to 3^rd and 6^th Defendants submits that the 1^st Defendant has in Chow 1 and Chow 2 explained why the applications were not taken out earlier than April 2024. In brief, the reason was due to the fact that the 1^st to 3^rd and 6^th Defendants have always aspired to settle the dispute with the Liquidators. Hence, they desisted from taking out the applications to avoid incurring what the 1^st Defendant described as further “substantial” legal costs in Chow 2 at para 18. Later, they became alerted to the possibility that the Plaintiff would not be able to pay costs when there was the proposed change of Liquidators and the Plaintiff’s solicitors did not answer their question on the funding arrangement for this litigation. The letter from Messrs YT Szeto & Co seeking discovery of all documents concerning the funding arrangement was dated 1 March 2024 while the letter of reply from Messrs Gallant was dated 7 March 2024[5]. It is the case of the 1^st to 3^rd and 6^th Defendants that they did not know that the present litigation was funded by ECAFB.

43.  In his skeleton, Counsel for the 4^th Defendant submits in gist that its application was taken out on 8 April 2024 while the Trial was fixed to be heard on 26 January 2026 ie the application was taken out around 21 months before the Trial. It thus cannot be said that the application was made too close to the Trial and the Plaintiff was prejudiced as a result.

44.  This court has given serious consideration to the Defendants’ submissions and the reply submissions of Senior Counsel for the Plaintiff. Suffice it for this court to explain below why it rejects the Defendants’ purported reasons for the late applications.

45.  To start with, whether or not there was a change of Liquidators in early 2024, the status of the Plaintiff as a company in liquidation with a substantial deficit remained the same and had been known to the Defendants all along – the 1^st Defendant was its major shareholder and director and made a declaration with respect to the Plaintiff’s Statement of Affairs upon its winding up. Such knowledge did not change in January 2024 as a result of and would not be affected by the proposed change of Liquidators. While all the Defendants assert that the proposed change of Liquidators caused them “concern” about their ability to recoup their legal costs should they succeed at trial, they have not provided any rational basis of their “concern”.

46.  Next, the Defendants’ explanations for not making the applications much earlier are unconvincing. In Chow 2, the 1^st Defendant said at para 15 that “I pinned hope of resolving the dispute by mediation.” Mediation however only took place on 4 August 2023[6]. In Li 2 at para 15, Ms Li made the interesting point set out above that the 4^th Defendant expected the Plaintiff to discontinue the claim against it.

47.  The said explanations cannot withstand scrutiny and this court is simply unable to accept them as a rational basis for not making the applications much earlier. This court notes the absence of any reasonable basis of hoping that mediation would resolve the present disputes in Lam 2 and the equal absence of any reasonable basis for the expectation that the Plaintiff would discontinue its claim against the 4^th Defendant any time soon in Li 2. In addition, these explanations cannot explain why the Defendants repeatedly indicated in their Questionnaires that they had no intention to seek security for costs from the Plaintiff.

48.  Even accepting these hopes and expectations were genuine, there was nothing to stop the Defendants from applying earlier. This is especially so when the legal costs of making a simple security for costs application against a company in liquidation need not be substantial if made promptly. This can be seen from the way the present applications were contested by the Plaintiff – its primary ground of opposition was the substantial and inexplicable delay causing serious prejudice to the Plaintiff.

49.  Further, the proposed change of Liquidators was due to entirely legitimate reasons, as explained in Lees 1. One of the Liquidators Mr Mat Ng chose to resign because he had left Ernest & Young. The other Liquidator Mr Lees chose to resign because of his age (79 in August 2024) which led him to reduce his involvement in his liquidation practice. These reasons had been provided to the Companies Court in the Liquidators’ Report. Notwithstanding the scepticism of the Defendants about these reasons, to which Mr Lees had already adequately responded in the 2^nd affidavit of Mr Lees (“Lees 2”) in para 18, the Official Receiver had expressed no objection or comment on the proposed replacement appointment. The Court had since approved the change of liquidators on 13 November 2024. The new Liquidators, as proposed, are Ms Anita So and Ms Lau Wun Man, both of Ernest & Young.

50.  It thus can be seen that the reasons for the proposed change of Liquidators had nothing to do with issues concerning the funding of this litigation. There is thus no basis, but merely unfounded suspicion, that the proposed change of Liquidators was due to the fact that the Plaintiff’s financial supporter ie ECAFB is running low on funds[7]. Mr Lees has also confirmed in Lees 2 at para 18 that “the funding of these proceedings has been and will be operating as planned.”

51.  Upon reading Lees 1 and Lees 2, one would have thought the Defendants would seriously reconsider their alleged earlier concern triggered by the proposed change of Liquidators and decide to negotiate an amicable withdrawal of the applications instead of fighting to the end. But that did not happen.

52.  Fourth, the Defendants’ delay is not just substantial and inexcusable, it would cause serious prejudice to the Plaintiff should substantial security for costs be granted at this late stage.

53.  The prejudice caused by these late application has been succinctly set out in Lees 1.

“19. Without waiving any privilege over the matter, substantial costs funded by public money (in the nature of levy on the premium of employees’ compensation insurance policies) had already been incurred by the Plaintiff in bringing these proceedings to its current status such that these proceedings are now ready to be set down for trial. These include both liquidation expenses and the Plaintiff’s legal costs.

20. At the commencement and throughout the course of these proceedings, ECAFB has from time to time communicated to me that the funding for this action would need to be reconsidered if a security for costs application is taken out by any of the Defendants against the Plaintiff. As such, the Defendants’ repeated representation(s) in their numerous questionnaires that they did not intend to seek any security for costs, coupled with the fact that no such applications were taken out until recently, has given rise to a legitimate expectation on the part of the Plaintiff (and ECAFB as the funding party) that no application for security for costs would be made.

21. I verily believe that had these applications been taken out earlier (such as after the close of pleadings), ECAFB would have had the proper chance to reconsider the issue of funding, especially since public funds are involved. For this reason, the Defendants’ inaction, delay, false representations of their intention and sudden change of position have deprived the Liquidators and ECAFB the proper chance to reconsider funding issues and continuation of these proceedings in good time. Now the case has progressed to this advanced stage of proceedings, to only require the Plaintiff to pay security in hefty amounts is thus unfair and highly prejudicial to the Plaintiff. The Plaintiff would be left with a hard choice between abandoning the significant amount of work done and costs incurred to date in progressing the matter to trial and furnishing the substantial security sought.

22. The Court can note that the Plaintiff’s claim herein is for the recovery of the sum of HK$6,376,000 from the Defendants. The amount of security sought under the Applications (totalling HK$8,000,000) already exceed the entire claim by the Plaintiff and thus is clearly excessive.

23. Further, up till now in these proceedings, the Defendants were not represented by Senior Counsel. While it is a matter of choice for the Defendants to decide which Counsel to instruct, it is apparent that the 1^st, 2^nd, 3^rd and 6^th Defendants’ sudden change of mind to instruct Senior Counsel only at this late stage (for the trial and for the Applications) appears to be a tactical move driven by a desire to stifle the Plaintiff’s claim by requiring the Plaintiff to pay an inflated amount of money into court as security to avoid this action from proceedings to trial.” (emphasis added)

54.  It seems to this court there is considerable force in what Mr Lees has deposed to.

55.  This is especially so with regard to the very cogent observation that the Plaintiff would be left with a hard choice between abandoning the significant amount of work done and costs incurred to date in progressing the matter to trial and furnishing the substantial security sought. This is one of the well-recognised forms of prejudice that may persuade a court to refuse granting security for costs.

56.  A similar sentiment was expressed by the plaintiff and accepted by Chu J in Tsang Yee Mui v Personal Representatives of Mak Chik Wing unrep, HCA 2606/2006, 21 July 2008 at [37] in relation to a late application for security for costs:

“…Effectively, [the plaintiff] has little or no choice but to put up the security, if an order were made against her, in order not to abandon and waste all the work done and costs she had incurred for the action. As observed by Sir John Donaldson MR (as he then was) in A Co. v. K Ltd [1987] 1 WLR 1655, 1657 and approved by our Court of Appeal in the BBMB Finance (Hong Kong) Ltd case, supra, at 628, it will amount to potential injustice.”

57.  Fifth, this court might add that it is particularly troubled by (i) the quantum of the security sought compared to the amount of the claim, and (ii) the suggestion by Mr Lees that the present applications are a tactical ploy to stifle the Plaintiff’s genuine claim.

58.  This court has no doubt that Senior Counsel for the 1^st to 3^rd and 6^th Defendants, without or without a junior, is more than competent to handle this Action and it is a matter of choice which counsel the Defendants decide to instruct. But judging from their Draft Skeleton Bill, the claim for future costs to trial of HK$5.7 million does give rise to a serious concern that the present applications are intended to put pressure and deter, if not stifle, the Plaintiff from proceeding with its claim.

59.  In this regard, the observation of DHCJ Lok (as he then was) in Waddington Ltd v Chan Chun Hoo Thomas unrep, HCA 3291/2003, 7 May 2013 at [36] is again apposite:

“36. It was only shortly before the PTR that the 1^st defendant issued the Security for Costs Summons. … substantial costs had already been incurred by the parties in the conduct of this action. If the 1^st defendant is genuinely seeking to ask the plaintiff to provide security to cover his costs, one would expect the 1^st defendant to have made such application at a much earlier time. By reason of the substantial delay, I have reason to believe that the application is only a tactical move by the 1^st defendant to put undue pressure on the plaintiff to raise substantial fund in the limited time before the trial.” (emphasis added)

60.  The pressure put on the Plaintiff is particularly undue since ultimately this Action is supported by public funds. Those who manage ECAFB, while having a large accumulated surplus at their disposal, would have to very seriously balance the costs and benefits of continuing with the Plaintiff’s claim in deciding whether to provide security for costs if ordered. The relevance of public funds in the present context is that the use of public funds (as opposed to private funds provided by a financially-capable and self-interested creditor) is that it would be subject to regular monitoring and reporting by public or quasi-public servants conscious of the need for accountability in the use of public funds. If so, their consideration is more than simply an assessment of the merits of the Plaintiff’s claim – it is more akin to a costs and benefits analysis.

61.  In this respect, the present case is distinguishable from Sunni International Ltd in that the plaintiff there was not funded by public money. The present case is also distinguishable from Sunchase International Group (China) Ltd where Rogers VP observed:

“8. …To say that a plaintiff might have discontinued the action because he was being asked to put up money in respect of a claim which he was making but would have abandoned that claim when he was asked to put money where his mouth was seems to me to be entirely wrong. If the plaintiffs have a good claim, it makes no difference whether the security for costs is asked for at the beginning or later on.”

62.  This court would certainly not disagree with Rogers VP for his general observation above. However, there is no indication in the Judgment that the plaintiff in that case was similarly funded by public money. Indeed, the opposite appears to be the more reasonable inference since there was no mention of the use of public funds as even a relevant factor, which they certainly would be, in the Judgment.

63.  The 1^st to 3^rd and 6^th Defendants have put forward 3 paras in their skeleton to respond to the delay ground. Most of them have already been dealt with above but this court would wish to add the following.

64.  First, Mr Lees, in Lees 1 at para 20, did not say ECAFB would not have funded these proceedings had the applications been taken out earlier. Para 20 of Lees 1 has been quoted above for all to see. All he said was that funding for this Action would need to be reconsidered by ECAFB.

65.  Second, this court accepts Mr Li SC’s submission that the ECAFB does have a self-interest in the present Action since it is the Plaintiff’s largest creditor. However, the most significant distinguishing factor between the present case on the one hand and Sunchase International Group (China) Ltd and Sunni International Ltd on the other is not just the funder’s self-interest, but the funder’s considerations in deciding whether or not to come up with security for costs. This court cannot emphasise more that the considerations for ECAFB would likely be more complicated than a pure assessment of the merits.

66.  For all the above reasons, in this court’s firm view, the delay ground in itself is sufficient to dispose of the applications in the Plaintiff’s favour. There is no need to and in the interest of time this court shall not dwell on the other 2.

67.  In the exercise of its discretion, this court is not minded to grant the Defendants’ applications for security for costs.

Disposition and costs order nisi

68.  This Court hereby makes the following Orders:

(1)  The Defendants’ applications for security for costs are hereby dismissed.

(2)  There shall be an order nisi that the costs of and occasioned by the applications be to the Plaintiff, to be taxed if not agreed, and paid by the Defendants forthwith, certificate for two counsel.