This decision concerns an appeal against a Master’s order requiring two foreign plaintiffs to provide almost HK$2 million in security for costs in proceedings to enforce a substantial New York default judgment. The plaintiffs had obtained a US$86 million judgment in the New York Supreme Court arising from unpaid 7% Senior Guaranteed Notes guaranteed by the defendant. The defendant had never attempted to set aside the New York judgment, yet resisted enforcement in Hong Kong and sought security for costs on the basis that the plaintiffs were resident abroad.
Deputy High Court Judge Ahuja KC allowed the appeal and set aside the security for costs order, directing that the security already paid into court be returned. In doing so, the Court took into account the following factors.
First, although the plaintiffs were resident outside the jurisdiction, they were foreign judgment creditors, and therefore enjoyed a special status: the starting point is that security for costs is ordinarily inappropriate because the defendant bears the burden of proof in resisting enforcement. The Court held that the plaintiffs, who were judgment creditors of a foreign default judgment, were entitled to the same “special treatment”, accepting expert evidence that under New York law, a default judgment is treated no differently from a contested judgment for enforcement.
Second, the Court also found that the defendant had failed to discharge its burden of showing any real difficulty in enforcing a Hong Kong costs order abroad. The first plaintiff was a Singapore citizen with substantial assets in Singapore, a jurisdiction with a reciprocal enforcement regime with Hong Kong. The defendant’s arguments about residence, redactions in valuation reports, and speculative enforcement difficulties were rejected as unpersuasive.
Third, the Court also took into account the plaintiffs’ genuine and strong case on the merits, holding that the defendant’s defences were technical, legal and exceptional. This was a relevant factor in the Court’s exercise of discretion to refuse security for costs.
Finally, the Court held that the defendant’s delay in bringing the security for costs application – despite knowing the plaintiffs were foreign for a considerable period since the close of pleadings – was unexplained and unfairly prejudicial. This was an additional factor weighing against the grant of security.
Key Takeaways
- Foreign judgment creditors enjoy a special status in security for costs applications. This case reaffirms the legal principle that when a plaintiff sues as a judgment creditor, the defendant is generally the party which bears the burden of proof in resisting enforcement of the foreign judgment. In these circumstances, judgment creditors have special treatment and security for costs is “not normally appropriate”.
- The burden lies squarely on the defendant to show real enforcement difficulty. If a foreign plaintiff has meaningful ties to a jurisdiction with a mutual enforcement regime (such as Singapore under the Foreign Judgments (Reciprocal Enforcement) Ordinance (Cap. 319)), the defendant bears the burden of demonstrating evidence of difficulties in enforcing a costs order in due course, often by way of expert evidence. Mere assertions about residence, inconvenience, or speculative costs will not suffice.
- Delay can be fatal to a security for costs application. Unexplained delay – especially where the defendant has long known the plaintiff is foreign – may be one of the factors relevant to refusing a security for costs application. Practitioners should advise clients to apply promptly and avoid the risk that delay becomes a relevant discretionary factor.
Read the Judgment here: https://legalref.judiciary.hk/lrs/common/ju/ju_frame.jsp?DIS=177335&currpage=T
Mr Joshua Yeung, instructed by Ribeiro Hui, for the 1st and 2nd Plaintiffs.
