ZHANG RUI KANG AND ANOTHER v. TUNGHSU GROUP CO LTD

HCA 1391/2021

[2026] HKCFI 954

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1391 OF 2021

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BETWEEN

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REASONS FOR DECISION

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Nature of appeal

1.  On 23 April 2025, the Defendant took out a summons seeking an order that the Plaintiffs do provide security for costs in favour of the Defendant in the sum of HK$1,967,172, or such sum as the court may direct by way of payment into court, pursuant to Order 23, rule 1 of the Rules of the High Court. Retrospective leave was sought and granted to file and serve such summons pursuant to Order 3 rule 5 of the Rules of the High Court.

2.  On 31 July 2025, the Defendant’s application came before Master M Lok, who granted it with costs to the Defendant.

3.  On 13 August 2025, the Plaintiffs lodged an appeal against the aforesaid decision of Master M Lok. The hearing of the Plaintiffs’ appeal took place on 18 December 2025.

4.  At the conclusion of the hearing, I allowed the appeal and ordered the declaration sought, that the Order of the Master be set aside. I also ordered that the Defendant’s Summons be dismissed, that the security paid into Court and interest accrued thereon be returned to the Plaintiffs forthwith, and that the costs of this appeal be payable to the Plaintiffs forthwith. Following further submissions on costs of the hearing before the Master, I also order that such costs be payable to the Plaintiffs forthwith, in the amount I have summarily assessed below.

Background facts

5.  I thank the parties for their respective skeletons and oral submissions, from which I have extracted a summary of the underlying facts.

6.  The Plaintiffs are investors in an investment instrument (defined below as the Notes). The Defendant is a judgment debtor of the Plaintiffs. The underlying proceedings concern the enforcement by the Plaintiffs of a monetary default judgment handed down by the Supreme Court of the State of New York (“NYSC”) on 1 September 2021 against the Defendant in the total sum of approximately USD 86 million, with post-judgment interest continuing to accrue thereon at 9% per annum (“NY Judgment”). The NY Judgment was obtained on the basis of significant unpaid debts under the investment instrument, being 7.0% Senior Guarantee Notes (“Notes”) issued by Tunghsu Venus Holdings Limited and guaranteed by the Defendant in favour of the Plaintiffs. There appears to be no serious dispute that the issuer and Defendant have defaulted in respect of the debt due under the Notes.

7.  There was an original judgment handed in February 2021 and the NY Judgment incorporates amendments to the original judgment, but the Plaintiffs represented that the amendments are not material to these proceedings, and the Defendant did not disagree. The defined ‘NY Judgment’ refers to the amended version.

8.  Pertinently, it is undisputed that there has been no attempt by the Defendant to set aside the NY Judgment in New York, which it was submitted anecdotally by the Plaintiffs would follow a similar procedure to that which would be followed here in Hong Kong under Order 13 of the Rules of the High Court.

9.  Meanwhile, the Defendant resists enforcement of the NY Judgment in Hong Kong, which proceedings commenced on 14 September 2021, and in that context, brought the present claim for security for costs.

10.  As to quantum, the Plaintiffs assert that the amount of security claimed is inflated by the Defendant and must be substantially reduced.

Applicable principles

11.  It is undisputed that the Plaintiffs are ordinarily resident out of the jurisdiction, such that the court’s jurisdiction to make an order for security for costs against them is triggered under Order 23 Rule 1 of the Rules of the High Court, and the court then has broad discretion, having regard to all the circumstances of the case, to make such an order if it thinks it just to do so.

12.  There is also no real dispute that the court has discretionary power, and the exercise of discretion, taking into account all the circumstances of the case, is a fact sensitive exercise.

13.  One of the factors that the court may take into account in deciding whether to order the Plaintiffs to give security is the Plaintiffs’ prospects of success in the action. There is no dispute as to the relevant approach being that of whether the Plaintiffs have a bona fide or genuine claim, which is to be determined on a broad brush basis: see Dracco Netherlands B.V. v Simba Toys GmBH & Co. KG (unrep., HCA 304/2014, 5 October 2016). Counsel for the Plaintiffs clarified that this authority was the subject of an appeal, and the Court of Appeal decision was handed up to me ([2018] HKCA 75), but it was ultimately not in dispute that the contents of the appellate decision do not materially affect the applicable test here.

14.  A plaintiff who is a judgment creditor warrants special treatment, since it is the defendant who is effectively the claimant and bears the burden of proof, such that security for costs would not normally be appropriate: see Relational LLC v Robert Adrian Hodges [2011] EWCA Civ 774 at paragraphs 24-25. Although the parties disagree as to its precise application in the circumstances, this is likewise the position in Hong Kong: Desarrollo Inmobiliario Y Negocios Industriales De Alta Technologia De Hermosillo SA De CV v Kader Holdings Co Ltd [2014] 1 HKLRD 419 at paragraphs 45, 47 and 50.

15.  In particular, the parties are in dispute as to whether the above position applies with the same force in the situation of a default judgment as opposed to a vigorously contested judgment: see Desarrollo (above) and Yip Lai Fong v Sin Tung Hing [2024] HKCFI 1390.

The Plaintiffs’ position in summary

16.  The Plaintiffs’ position is that the court should exercise its discretion against an order for security for costs, and in support of that position, Mr Yeung relied upon the following arguments as articulated in his skeleton and in oral submissions:

(1) That the Plaintiffs have a strong case on the merits, in circumstances where the ‘merits’ here concern technical or legal objections to enforcement to which the Plaintiffs say most of the defences are “in fact impermissible”. These defences were addressed in turn, and I hope I will be forgiven for not reproducing them in full, but suffice to say they concerned:

(a) improper service and lack of locus standi, which the Plaintiffs say are decided matters by the NYSC and thus res judicata;

(b) two allegations of fraud, which the Plaintiffs say are disguised complaints of errors of law and fail; and

(c) public policy, in that the NY Judgment contravenes a PRC debt restructuring plan, which the Plaintiffs say is neither binding on them nor relevant to the question of Hong Kong public policy.

(2) That in the situation where the Plaintiffs are foreign judgment creditors, it is the Defendant who bears the burden of resisting the present application to enforce the NY Judgment, and that because the Defendant has not provided any reasons why this special treatment rule should be displaced, that is sufficient to dispose of the matter;

(3) That the Defendant can readily enforce any costs order against the 1^st Plaintiff in Singapore, a jurisdiction with a reciprocal enforcement regime with Hong Kong under the FJREO (Foreign Judgments (Reciprocal Enforcement) Ordinance (Cap.319)), where the 1^st Plaintiff has citizenship and substantial assets;

(4) That the unexplained delay by the Defendant in bringing the present application provides an additional cogent reason to refuse security for costs.

17.  Mr Yeung further explained, in reliance on a US law expert opinion procured by the Plaintiffs, that despite the emphasis placed by the Defendant on the NY Judgment being a judgment in default, the NY Judgment was nonetheless treated as a judgment on the merits. The said opinion states that “New York law does not distinguish between default judgments and judgments entered into after a contested proceeding in relation to enforcement of judgment proceedings”. He submitted that the delta between a judgment that is vigorously contested and one that is recognized as a contested judgment, is not as wide as it seems.

18.  He submitted that Desarrollo applied therefore, and that the Plaintiffs being judgment creditors in this case can be said to have a “strong prima facie case”, and that it was “unreasonable” for the Defendant who was “indebted” to the Plaintiffs to seek security for costs “when he could repay himself if necessary”.

The Defendant’s position in summary

19.  The Defendant placed significant emphasis on the fact that the NY judgment has not been “substantively contested” and therefore constitutes a breach of natural justice.

20.  Nonetheless Mr Fan accepted that:

(1) the Defendant has taken no steps to seek to set aside the NY judgment; and

(2) there is no contrary evidence to the conclusion drawn in the US law expert opinion adduced by the Plaintiffs that the NY Judgment is no different to a judgment on the merits.

21.  As to the merits, Mr Fan disagreed that the decisions as to service and locus standi have the effect of res judicata, and maintained these defences. He also maintained the defences relating to fraud and, although accepting that successful reliance on this ground is “exceptional” (see: Dicey, Morris & Collins, The Conflict of Laws (15th Ed) at para 14-149), public policy.

22.  On enforcement in Singapore, Mr Fan appeared to accept the significant value of the Singapore asset at play, but advanced various arguments around how it was the place of residence, as opposed to citizenship or nationality, that was relevant even in the exercise of my discretion, albeit he accepted that the court is entitled to take citizenship or nationality into account as well, and that none of the authorities before me were the same as the present circumstances.

23.  He also argued that the ease of enforcement in Singapore was relevant, and that there would be extra costs required to instruct lawyers in Singapore.

24.  As to delay, Mr Fan submitted that whilst it is a relevant consideration (rather than a bar) to making an application for security, that there was no inordinate delay given the steps that still remain in the underlying proceedings, and in any event no prejudice was caused.

Discussion

25.  I note again for completeness that there is no dispute that Order 23 Rule 1 of the Rules of the High Court are triggered, and the question for me is how to exercise my discretion as to the grant of security for costs. Although there was mentioned at various points the contents of the proceedings before the Master, the parties accept, and it is clear, that I am not bound by that decision and my consideration of this appeal is de novo.

26.  So far as the merits are concerned, where the defences are those of technical and legal nature, or analogous thereto, and some of which are exceptional and involve serious allegations for the Defendant to prove, I find that the Plaintiffs have satisfied the test that there is a bona fide or genuine claim. The defences advanced by the Defendant do not cast any real doubt on the Plaintiffs’ satisfaction of the test. This is reinforced by the undisputed fact that no steps are being pursued to set aside the NY Judgment.

27.  I proceed on the basis that no attempt was made to distinguish the US law position that the NY Judgment has the same effect as that of a contested judgment and am thus satisfied that the authorities of Relational and Desarrollo are applicable so as to warrant the Plaintiffs such special treatment.

28.  I accept the Plaintiffs’ analogy drawn with Order 23/3/5 (see White Book at para 23/3/5) such that the emphasis in this application was predominantly upon the 1^st Plaintiff.

29.  As to the fact that the Plaintiffs are foreign, I proceed on the basis that the Plaintiffs’ position that the 1^st Plaintiff is a Singapore citizen with property of significant value in Singapore was not seriously or successfully contested by the Defendant. Against that, the question of ordinary residence is therefore neither here nor there, and its significance over citizenship in the factors that contribute to my discretion is not clear, and in any event it is for the Defendant to address this matter to my satisfaction, which it did not. Equally, the Defendant did not (persuasively) suggest that the redactions in the valuation report of the Singapore property cast any doubt on the above or were in any way relevant or material to my decision.

30.  Although enforcement would take place outside of the jurisdiction, there is no dispute that there exists a reciprocal enforcement regime between Hong Kong and Singapore, and I accept the Plaintiffs’ position that there is no real concern that enforcement in Singapore of a Hong Kong decision would create any unduly burdensome additional hurdles, whether by way of time, costs or otherwise. Again, it is for the Defendant in discharge of its burden to prove otherwise, which it did not.

31.  In this situation of enforcement of the NY Judgment, I accept that the starting point is that the Plaintiffs, having been adjudicated by a competent court as judgment creditors, warrant special treatment, such that the starting point is that security for costs is not normally appropriate, and that the authorities cited above do put the position of a judgment creditor in a different status and that, together with the factors above, weigh in the direction of not granting security for costs.

32.  As to delay, it is but one more factor that I consider relevant to the exercise of my discretion that significant time has lapsed since the commencement of these proceedings and since the Defendant coming to know that the Plaintiffs are out of the jurisdiction. In such circumstances, and noting that the parties agree that the latest point at which time should start to run for delay is that of the close of pleadings, being 14 days from 7 October 2024 which was the date of filing of the unamended reply (pursuant to Order 18 rule 20 of the Rules of the High Court), I find that there is no satisfactory explanation for the delay and in fairness to the Plaintiffs who are incurring costs in these proceedings, they were entitled to know earlier of this application being made by the Defendant. This is another factor that contributes to the entire set of factors that I have considered in exercising my discretion.

33.  I therefore granted the relief sought by the Plaintiffs, that (1) this appeal be allowed and the Order of Master Lok be set aside, (2) the Summons of the Defendant dated 23 April 2025 be dismissed, and (3) security in the sum of HKD1,598,072 paid into court and the interest accrued thereon, if any, be returned to the 1^st and 2^nd Plaintiffs forthwith.

34.  The parties made no oral submissions on quantum, although I have their written skeletons which do address this. However, in the light of my decision above, I do not consider it necessary to expressly address quantum.

35.  In reaching my decision, I have taken into account all the arguments advanced by the parties (as supported by authorities and evidence), and I hope I will be forgiven for not restating each of them, or each of them in full, in these reasons for decision.

Costs

36.  On the costs of this hearing, having heard the parties’ positions, and in particular the observations of the paying party, taking a broad brush approach and bearing in mind general rule that costs follow the event, I summarily assessed the costs sought in the amount of HK$119,872 as reasonable and proportionate, and thus fully recoverable and payable to the 1^st and 2^nd Plaintiffs forthwith. Despite Mr Fan’s arguments on the Plaintiffs’ statement of costs around the number of hours and seniority of team being excessive, I consider my order appropriate in the circumstances as I note that the matters addressed in this hearing are complex and involve legal arguments that cannot be said to be simple, and Mr Fan himself accepted that the proceedings are complicated.

37.  So far as costs of the application before the Master are concerned, the Defendant seeks relief that the costs of the Defendant’s Summons, including the hearing on 31 July 2025, be paid by the Defendant to the Plaintiffs. As the parties did not address me on this aspect, I invited the parties to comment in writing on their respective positions. The Plaintiffs noted in their submissions that the general rule was that costs follow the event, and that the Defendant did not dispute this at the hearing before me. The Plaintiffs cite the Hong Kong Civil Court Practice 2025 at §59.10.17 to support the proposition that “The general rule that costs follow the event (see r 3) applies on appeal, with the result that the Court of Appeal will normally allow a successful appellant the costs of the appeal as well as the costs below.”

38.  The Defendant submitted in reply (having sought and been granted an extension of time to file its responsive submissions) that as the Plaintiffs “failed to seek costs of the Master Hearing at the end of the appeal hearing on 18 December 2025 such that the issue of the costs of the Master Hearing could not be dealt with in one go in the appeal hearing” that “discretion should be exercised to disallow Ps’ costs of the Master Hearing” and that in the alternative, the Plaintiffs’ “allowable costs should be deducted to discourage Ps’ improper conduct”.

39.  Having considered both parties’ written submissions on this point, I am of the view that there is no reason to depart from the general rule that costs follow the event, which as cited above, extend in the situation of an appeal to the costs of the hearing below, in this case, the hearing before the Master. Although the Defendant describes the Plaintiffs’ omission as “improper conduct”, I do not consider that the abovementioned omission renders the Plaintiffs’ conduct improper, and I do not consider there to be sufficient reason to depart from the general position. I consider separately below the Defendant’s alternative position which relates to the quantum of the costs of the hearing before the Master.

40.  As to the quantum of these costs, having considered the respective submissions made by the parties, taking a broad brush approach and bearing in mind the general rule as well as the Defendant’s specific comments on the Plaintiffs’ Statement of Costs, I consider that a discount of HK$50,000 be applied to the sub-total of Items D1, D2 and D3, and summarily assess that costs sought in the amount of HK$255,215 are reasonable and proportionate, and thus fully recoverable and payable to the 1^st and 2^nd Plaintiffs forthwith.

41.  It remains for this court to express its gratitude to the counsel who have ably assisted the court by way of their written skeletons, oral argument and subsequent submissions.