Introduction
Background
Decision
Comment


Introduction

In Sun Hing Ginza Ltd v Chan & Ors,(1) the Court of First Instance of the High Court cautioned that an application for security for costs should be confined to the costs attributed to the applicant party and the amount of such security should not exceed the applicant's estimated costs. Failing this, the courts have a discretion to dismiss an application for security for costs or, adopting a broad-brush approach, to reduce the amount of the security considerably.

Background

In this case, the third defendant (the defendant) in the main action commenced third-party proceedings against the third parties, seeking a contribution and/or an indemnity in the event that the defendant was found liable to the plaintiff in the main action. The main proceedings between the plaintiff and various defendants had commenced in 2012 and the defendant commenced the third-party proceedings in 2016 – by which time it had long gone into liquidation.

Three of the third parties (the third parties) applied for security for costs in 2022. The application sought security for costs from the defendant on the ground that it was a company in liquidation and there was credible evidence that it would be unable pay the third parties' costs at trial if ordered to do so.(2) During the course of the third parties' application, it became apparent that they were seeking security for costs for themselves and for the costs of the first and second defendants, who were stated to be represented by the same legal team and to have shared a substantially overlapping position. There appears to have been no apportionment between the amount of security for costs sought by the third parties and on behalf of the first and second defendants.

The principles for the grant of security for costs are the same whether the applicant is a defendant in a main action or a defendant in a third-party action. In either case, the party that commences the action is the "attacking party" – the other party is the "defending party" and can obtain security for costs provided that a ground for security exists and the court exercises its discretion to grant security.

In this case, the third parties applied for security for costs with respect to the trial in the sum of approximately HK$10.5 million – the majority of which appears to have been in respect of their barrister's (advocate's) fees.

There does not appear to have been much dispute that there was a ground for granting security for costs arising out of the defendant's liquidation. The following issues fell to be determined according to the Court's discretion:

  • whether the defendant, as against the third parties, was the "attacking party" – for example, had it done more than try to defend the main action and sought more than consequential relief in the third-party proceedings;
  • whether the third parties had inexcusably delayed their application for security for costs given that the defendant's third-party action had commenced in 2016 and the application had not been made until 2022; and
  • whether the amount (quantum) of the security for costs sought by the third parties was excessive.

Decision

The Court granted the third parties' application for security for costs but only for the period from when they first wrote to the defendant seeking security up to and including the trial. The Court ordered security in the sum of HK$1.5 million – therefore, only approximately 15% of the amount sought. In doing so, the Court also ordered that there be no order for costs as regards the application – while security for costs had been ordered, the Court considered that the amount sought had (on the facts) been "clearly inappropriate".(3)

"Attacking party"
The Court held that in the third-party proceedings, the defendant had gone further than a need to protect itself in the main action and was seeking more than "consequential" relief.(4) Therefore, for the purpose of security for costs in the third-party proceedings, the defendant was the "attacker". The rationale for such security was to offer costs protection to the "defending party" and no other party, irrespective of whether the third parties and the first and second defendants were represented by the same legal team and shared a substantially overlapping position.(5)

Delay
The Court found that there had been significant delay with the third parties' application for security for costs.(6) The defendant had commenced the third-party proceedings in 2016 but the application for security for costs had only been taken out in 2022. However, on the facts, the delay had not been fatal. The Court does not appear to have been persuaded that the delay had caused the defendant substantial prejudice. The Court considered that the increased activity in the case in 2022 helped explain the timing of the third parties' application. The Court also noted that at the time of the third parties' application, the bulk of the costs (for an estimated 24-day trial) had yet to be incurred and concerns as to delay could be alleviated to some extent by restricting the security for costs to the period after the third parties had first given notice to the defendant of their intention to apply for security for costs.

Quantum (amount of security)
Adopting a conventional broad-brush approach, the Court determined that the amount of the security for costs should be in the amount of HK$1.5 million.(7)

Comment

Security for costs applications are common in commercial litigation, including more than one application in the same proceedings. An applicant for security for costs is referred to as the "defending party" and a respondent as the "attacking party" in the litigation. In Sun Hing Ginza Ltd v Chan & Ors, the defendant was in the position of an "attacking party" once it commenced third-party proceedings for reliefs that were (for example) more than consequential to the main action.

On an application for security for costs, the courts' discretion often focuses more on the amount of the security. The discretion is wide and Sun Hing Ginza Ltd v Chan & Ors is a good illustration of this – in particular, the adoption of what is often referred to as a broad-brush approach both as regards the courts' discretion (once a ground for security has been established) and the amount of the security for costs.

There are two takeaways from this case. First, the costs claimed in a bill of costs in support of an application for security for costs should be confined to those costs attributed to the applicant party only. Second, the amount of security for costs granted should not exceed an applicant's estimated costs.

For further information on this topic please contact Jacky Darsono or Antony Sassi at RPC by telephone (+852 2216 7000) or email ([email protected] or [email protected]). The RPC website can be accessed at www.rpc.co.uk.

Endnotes

(1) [2022] HKCFI 2893, 19 September 2022.

(2) Section 905 of the Companies Ordinance (Cap 622).

(3) Supra note 1, at paras 54 and 62.

(4) Supra note 1, at para 33.

(5) Supra note 1, at paras 51 and 54.

(6) Supra note 1, at para 40.

(7) Supra note 1, at paras 23 and 60.