Security for costs – application for order against plaintiff under s. 905 – whether unable to pay costs if claim failed – effect of delay in applying for security
P, a building contractor, brought proceedings against D for breach of a construction contract. D applied for security for costs against P under s. 905 of the Companies Ordinance (Cap. 622), arguing that P was insolvent and, following a restructuring of its parent company (“CCCH”), would no longer fund P if faced with an adverse costs order. It was likely that P relied on funds from related companies within the group to carry on business, but had six projects in hand and was actively tendering for new projects. D’s application was heard two working days before the start of the trial.
Held, dismissing the application, that:
- D had not adduced credible evidence to invoke the Court’s jurisdiction under s. 905 of the Ordinance. A tight cash flow did not necessarily equate to an inability to meet a costs order against P. The recent award of two substantial contracts spoke of P’s financial strength. Further, the Court had considerable doubts that P or CCCH would not pay D’s costs of approximately HK$60 million if it was ultimately successful and thereby P was exposed to winding-up proceedings.
- There was no reasonable explanation for the delay in this application. One day of trial preparation time had been wasted. While delay per se was insufficient to deny a security for costs application, none of the authorities cited involved a delay which hampered the Court’s (and P’s) preparation for trial. Disruptive and unjustified interlocutory applications should be dealt with appropriately. Had it been necessary, the Court would have dismissed this application on the ground of lateness.
- (Obiter) D’s delay could deprive it of protection from past costs. If the Court were wrong to dismiss this application, it would limit security to future costs only in the sum of HK$15 million.
