Security for costs is an important tool for defendants (or a party in the position of a defendant) in Hong Kong. It serves to ensure that a successful defendant is compensated for at least a portion of his legal costs.
Hong Kong courts can order a plaintiff to provide security where there is a risk that if the claim is ultimately unsuccessful, the plaintiff would not be able to satisfy the costs orders. For example, if the plaintiff is ordinarily resident outside Hong Kong and has no presence or assets in Hong Kong, or if the plaintiff is an insolvent company or if there is reason to believe that the plaintiff company will be unable to pay the defendant’s costs if the defendant succeeds.
Factors considered by the Court
The power to grant security for costs is discretionary, and in exercising their discretion, the courts will consider factors such as the plaintiff’s prospects of success, whether the plaintiff has any assets in the jurisdiction, whether the order would stifle the plaintiff’s claim, and whether there was any delay in making the application, and so on.
Application Process
The application is made by summons supported by affidavit evidence setting out the grounds. The normal practice is to first demand security for costs by letter before making the application. The demand and any response from the plaintiff should be exhibited to the affidavit together with a statement of costs.
Amount of Security
The amount of security is again discretionary. It is not always the court’s practice to order security on a full indemnity basis and the amount is generally fixed for the probable amount of the defendant’s costs for defending the action. It is usually awarded in stages rather than for all costs up to trial.
Typically, an order will provide that the sum ordered be deposited with the court or that the plaintiff supply a bank guarantee in the like amount.
Consequences of not providing Security
The order will usually provide that the proceedings be stayed until the provision of security for costs and that the action be dismissed if the plaintiff cannot deposit the security for costs within the prescribed time.
Contact:
Ashima Sood, Senior Associate
Tel +852 3405 7628
ashimasood@gallhk.com
