Applications for security for costs are a common feature of civil litigation before the first-instance courts in Hong Kong. Sometimes liability for security for costs and the amount can be agreed between the parties. On other occasions, while the liability of a plaintiff to give security for a defendant's costs may not be disputed, a more contentious issue is the amount and form of the security. Such was the case in the recent admiralty action in Dunham-Bush Industry Sdn Bhd v KLN Container Line Ltd.(1) One observation to be drawn is that while the courts have a wide principle-based discretion in deciding whether to order security for costs, such security must be proportionate to, for example, the amount at stake and the complexity of the case.
In this case the Malaysian plaintiff company was pursuing a simple cargo claim for a relatively modest sum against the defendant container line. Being a foreign entity that had commenced court proceedings in Hong Kong, the plaintiff was prima facie liable to provide some security for costs – a sum to represent part of the defendant's costs should the matter proceed to trial and the defendant succeed with its defence.
Such security for costs is not a determination of the merits of a plaintiff's claim, but a recognition that a foreign plaintiff coming to Hong Kong to commence court proceedings may be required to pay some security because a defendant will have more difficulty in recovering its legal costs if the foreign plaintiff has no or insubstantial assets in the jurisdiction.
In this case the plaintiff was pursuing a claim of approximately HK$740,000, although it conceded that a limitation provision applied which meant that the maximum recovery it could achieve was HK$260,000.
Despite the modest sum involved, the defendant sought HK$344,000 as the first grant of security for costs up to the stage of discovery of documents in the case. That amount was supported by the defendant's skeleton bill of costs (a standard feature of security for costs proceedings). Therefore, the amount of security sought exceeded by some margin the amount of the plaintiff's principal claim.
Given that the plaintiff's liability to give security for costs was not in dispute, the issue for the court's determination was the amount and the form of security.
In a short judgment the admiralty judge considered that the amount of the security sought by the defendant was "wholly excessive".(2) The court ordered that the amount be reduced to HK$130,000.
As for the form of the security for costs, the court noted that while a payment into court was a common method by which to give security, it was by no means the only one. Other methods included an undertaking to pay, a bond, a bank guarantee or a charge.(3) In this case, the court considered that the plaintiff's solicitors' letter of undertaking was an acceptable form of security. That letter had properly been put in evidence before the court. The precise wording of the letter could be left to the parties' legal representatives to settle.
The general principles that underpin security for costs in the first-instance courts in Hong Kong are well established and will be familiar to lawyers in other common law jurisdictions. However, while the rules of court make it clear that the court has a wide discretion when ordering security for costs, there are few reported cases which provide practical guidance in terms of the amount and form of security, and how such orders correlate with the overriding principles of the civil justice reforms. The judgment does not seek to deprive a defendant of its entitlement to security for costs when facing a claim pursued by a foreign plaintiff, but attempts to provide much-needed guidance on the exercise of the court's discretion.
In respect of the form of security, payment into court is the most obvious and commonly used method, but this case demonstrates that payment into court is not the only form of security that will be ordered. While provision of a letter of undertaking may not be as common, it may be appropriate in certain cases and can be ordered as an adequate form of security, even if a defendant does not agree. In this regard, many practitioners had presumed that agreement between the parties was required if an alternative form of security was to be ordered other than a payment into court.
In terms of quantum, the court will not order security for costs for a nominal amount. However, the judgment makes it clear that the quantum and overall merits of the case should be taken into consideration when determining the level of security, in light of the overriding principles of the civil justice reforms.(4) A plaintiff with a meritorious case should not be dissuaded from pursuing its claim by being forced to pay into court a disproportionately large sum of money as security for costs.
For further information on this topic please contact Andrew Horton or Steven Wise at Smyth & Co in association with RPC by telephone (+852 2216 7000) or email ([email protected] or [email protected]). The RPC website can be accessed at www.rpc.co.uk.
(1) HCAJ 60/2015, October 12 2016.
(2) Supra note 1 at paragraph 5.
(3) Hong Kong Civil Procedure 2017, 23/3/27-30.
(4) Rules of the High Court, Order 1A ("underlying objectives"), which came into effect in April 2009.