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21 January 2020
In re Zadeh v Registrar of Companies,(1) the Court of First Instance held that an application by an overseas company to intervene as a party in existing proceedings in Hong Kong did not expose it to a liability to provide security for costs and that, even if the court did have jurisdiction to order security for costs, it would not have ordered the intervener to do so.
The background circumstances were justifiably described by the court as "confused".(2)
The overseas company (the prospective intervener) commenced an arbitration in London against a Hong Kong company. It lost, however, and was ordered to pay a sum of money and costs. It complied with the award but later discovered that, after the arbitration had begun, the Hong Kong company had applied to be deregistered and, indeed, was eventually dissolved.
On learning of the company's dissolution, the overseas company sued to recover the money paid to the Hong Kong company's lawyers.
The action then shifted to Hong Kong when one interested party issued proceedings seeking to restore the Hong Kong company to the register,(3) and another interested party issued proceedings to rectify or to remove the deregistration application.(4)
The overseas company asked the court for an order permitting it to intervene in both sets of proceedings. Its purpose in doing so appears to have been solely to provide evidence and otherwise assist the court in determining whether to restore the Hong Kong company's registration.
At that point, and plainly as a defensive step, the party that had commenced the Hong Kong proceedings to rectify the deregistration application (and that had also taken over the pursuit of the restoration proceedings) applied for security for costs. He (the applicant) did so on two grounds:
In a robust ex tempore judgment, the court dismissed the application.
First, as a matter of jurisdiction, the court did not consider that the application to intervene amounted to the type of proceeding in respect of which security for costs could be ordered. While the court's jurisdiction was wide,(7) it did not extend to ordering security for an interlocutory application.
Second, the jurisdiction to order security for costs is concerned with plaintiffs, or parties in the position of a plaintiff – essentially, the 'attacking' party.
In this case, however, the overseas company was neither a plaintiff nor an attacker. Rather, the attacker was the applicant himself (along with the other interested party). The overseas company had done no more than apply to intervene for the purpose of providing material that might assist the court in determining whether to restore the Hong Kong company or rectify the register. In fact, the overseas company had not sought any relief in the substantive proceedings at all.
In short, there was no basis to order security for costs against the overseas company on either of the grounds put forward by the applicant.(8)
For good measure, even if the court had had jurisdiction to order security for costs, it would still have refused to do so. For example, the argument that the overseas company might be unable to pay the applicant's costs if ordered to do so was inconsistent with the evidence. More generally, the court appears to have been unimpressed by the confused picture surrounding the Hong Kong company's dissolution and the identities of its shareholders.
The ability of a defendant to obtain security for costs against overseas or dubiously solvent plaintiffs is a useful procedural tool in civil litigation, particularly given the international nature of Hong Kong as a disputes centre. Security for costs can place considerable financial pressure on claimants.
This case, however, demonstrates some of the procedural limits. Security for costs is not available against parties that are not in the position of plaintiffs (ie, that are not attackers) and it cannot be used in the context of interlocutory applications.
The court, moreover, has a broad discretion whether to grant security at all and, if so, for what amount. That was a significant factor here where the confused picture concerning the circumstances of the Hong Kong company's dissolution, soon after arbitration proceedings were started against it, appears to have been unhelpful with respect to the application for security for costs.
For further information on this topic please contact Charles Allen or Jonathan Crompton at RPC by telephone (+852 2216 7000) or email (email@example.com or firstname.lastname@example.org). The RPC website can be accessed at www.rpc.co.uk.
(4) Section 42 of the Companies Ordinance. Supra note 1, HCMP 76/2019. The overseas company was permitted to be joined as a party to both sets of proceedings. The application to restore the company and to rectify the register were dismissed, with costs awarded on an indemnity basis against the applicant in each action.
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