Hong Kong litigation lawyers- Security for costs
As a Hong Kong litigation lawyer, we often need to expain to explain to a client what is meant by security for costs. When the client is a non-Hong Kong resident or company which is a plaintiff in a lawsuit, one of the problems immediately arises after filing a lawsuit is that the court may, upon the defendant’s application, requires the plaintiff located overseas to provide security for the defendant’s legal costs. If there the plaintiff refuse to pay such security for the Defendant’s legal costs, the plaintiff’s claim may be stayed or dismissed.
Why the Plaintiff need Pay Security for Costs?
A plaintiff has liberty to instigate a civil action and a defendant is compelled to participate in a litigation. Being sued by a plaintiff, the defendant would usually need engage lawyers (depending on the case, to further engage barrister as well) to defend in the litigation. Under common law system, when the court finally decide on the merit of the Plaintiff’s claim, it will also deal with costs. The court would usually make an order that costs follow the event and therefore the losing party pays the litigation costs (mainly including the fees of solicitors, barristers and expert witness, etc.) spent by the winning party. Therefore, the losing party will not only need to pay its own legal expenses, but also need to pay the legal expenses of the winning party spent for the litigation. However, if the losing party cannot afford to pay the winning party’s legal expenses at the end, even if the winning party wins, it may be futile to enforce an empty judgment to get back the legal expenses and ended up to bear the expensive legal expenses.
A Plaintiff may conduct investigations about the financial condition of a defendant before instigation of a litigation to see if the defendant is able to pay the judgment sum and costs. If the defendant does not have sufficient financial capacity, the plaintiff may choose not to go ahead with a litigation or apply for a case to be withdrawn. However, there is no choice for a defendant because the defendant is compelled by the plaintiff to be involved into the litigation. Even if the Plaintiff’s claim lacks of merit, the defendnat have to defend so that the Plaintiff’s claim can be dismissed, for which the defendant will inevitably need engage solicitor and incur legal expenses. Therefore, even if the court finally adjudicate that the defendant win the case, the defendant will has already spent legal expenses and suffered from financial losses.
Therefore, in order to ensure that a winning defendant can actually recover the legal expenses in a civil litigation, and to avoid a plaintiff’s abuse of legal procedures to initiate unreasonable litigation, the rules of Hong Kong civil litigation stipulates that under certain circumstances, a defendant can apply to the court for an Order that a plaintiff shall provide security for the defendant’s legal costs before any substantive legal procedures can be taken by the plaintiff (Order for Security for Costs). In such circumstances, unless the plaintiff provides security for costs in compliance with the court order, the litigation instigaed by the plaintiff will be stayed or dismissed.
The Common Law History of Security for Costs
Security for costs stemmed from the British common law system. As early as in the seventeenth century, the United Kingdom began to use its inherent jurisdiction to regulate the operation of legal procedures by ordering the parties to provide security for costs in a litigation. In the early eighteenth century, the United Kingdom advocated that everyone had the right to bring litigation in court. Therefore, regardless of whether the plaintiff was rich or poor, whether he was a local or an overseas person, unless the court decided that it was necessary to order him to provide a security for costs based on the specific circumstances of the case, in most
cases, the plaintiff will not be obstructed from proceeding by being required to provide security for costs.
But by the end of the eighteenth century, the British court in Pray v Edie case for the first time required the plaintiff to provide security for costs as the plaintiff lived overseas and not to be bound by the British laws. If the plaintiff loses the case, the defendant will not be able to implement the procedure for enforcing the costs order in the United Kingdom and will need to go through the relevant legal procedures in overseas jurisdictions before the costs can be recovered. Hence, a plaintiff is required to provide security for costs. It was not until 1885 that the British Parliament enacted legislation on security for costs. In 1964, the British Parliament amended the law on security for costs so that its provisions are roughly the same as today’s regulations.
Circumstances where the plaintiff needs to provide security for costs
The general situations a plaintiff is required to pay security for costs include:
1. The plaintiff’s place of residence is outside Hong Kong.
If the plaintiff’s place of residence is outside, even if the defendant wins the case, the defendant will not be able to obtain compensation for litigation costs through Hong Kong legal procedures. However, if the defendant is not familiar with the legal process to request litigation fees through legal procedures outside Hong Kong, he
will lose the opportunity to successfully recover litigation fees. Therefore, when the plaintiff chooses to file a lawsuit in a place other than his place of residence, the court has the power to require the plaintiff to pay a security deposit for litigation costs. However, the defendant bears the burden of proof for the fact that the plaintiff lives outside the jurisdiction.
2. A Nominal Plaintiff
A nominal plaintiff refers to a person who is named as the plaintiff in an action, but who has no interest in it, having assigned the cause or right of action to another, for whose use it is brought. For example, after an insolvent person transfers all of his properties to the trustee, since the proceeds he obtains from the litigation are part of his property, he will be treated as a nominal plaintiff in the litigation. However, it is generally opined that the plaintiff in the following situations is not the nominal plaintiff: (1) the bankruptcy trustee filed a lawsuit in his capacity (2) the guardian for a mentally incapacitated person.
3. The plaintiff did not specify or did not specify its address correctly
It may be the case that when a plaintiff fails to specify his or her address or gives an incorrect address, he or she has a purpose to avoid or hinder the defendant from enforcing the costs order in a litigation when the defendant wins the case. But if the plaintiff can convince the court that he or she did not intentionally specify or gave a wrong address or deceive the court, then the court may also consider not to make an order for the plaintiff to pay security for costs.
4. Changing the address during the legal proceedings
The plaintiff’s purpose of changing the address during the legal proceedings may also be to avoid or hinder the defendant’s execution of the costs order in the litigation when the defendant wins. However, if the plaintiff has already stated his address in the writ and has to move out of the address due to poverty or misfortune, the court may consider not allowing the plaintiff to pay the security deposit for litigation costs.
5. Inability of a Hong Kong limited company to pay the defendant’s litigation costs
If the plaintiff is a limited company established in Hong Kong, the court has the power to order the company to pay the defendant’s security for litigation costs if there is reasonable belief that the company will be unable to pay the defendant’s litigation costs when the defendant wins the case. The defendant needs to submit evidence to the court to prove that the plaintiff’s company will be unable to pay the defendant’s litigation costs if the defendant wins the case. If the plaintiff’s company is in a state of liquidation, this can be used as preliminary evidence that the plaintiff will be unable to pay the defendant’s litigation costs.
Court’s considerations
However, even in the circumstances described above, the court may not necessarily rubber stamp the defendant’s application for the plaintiff to pay security for costs. The court has the absolute discretion, after considering the whole circumstances, to decide whether to order a plaintiff to pay security for costs or not. When making a decision, the judge needs to consider if the plaintiff’s case was prima facie strong
(high probability of victory), the plaintiff’s financial ability, and whether the defendant may recover the litigation costs if he or she wins. In general, the judge must take into consideration that on the one hand, the plaintiff will not be prevented from pursuing a strong case due to the inability to provide security for costs, and on the other hand, the Judge has to consider if a defendant can get back his or her legal expenses if he
or she wins the case and not to incur monetary losses.
For any issue regarding civil litigaiton in Hong Kong, you are welcome to contact our litigation lawyer for a consultation by write to our email [email protected]