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  • Writer's pictureMichael Poon

Death knell for security for costs orders against Mainland plaintiffs?

Since the enactment of the Reciprocal Enforcement Ordinance (REO) on 29 January ‘24, the recognition and enforcement of judgments in Hong Kong and in the PRC have been broadened. The impact of the REO on the requirements for security for costs concerning cross-border disputes in Hong Kong and in the PRC, however, remains to be seen -- as held in Du Guorong v Bank of China International Limited -- despite the REO's recent enactment.



Author: Michael Poon, Associate Solicitor



Under the Mainland Judgments in Civil and Commercial Matters (Reciprocal Enforcement) Ordinance (“REO”), which came into force on 29 January 2024, the scope of recognition and enforcement of judgments in civil and commercial matters between Hong Kong and the PRC has been broadened [see foot note 1]. To the extent that the broadened scope of recognition and enforcement of judgments applicable under the REO translates to easier and more straight-forward enforcement of a Hong Kong judgment in the PRC rendering unnecessary the need for a defendant (or a party in the position of a defendant) to obtain security against a plaintiff in the PRC was a matter addressed in Du Guorong v Bank of China International Limited [see foot note 2].


In Du Guorong, the Court held that for the purposes of a security for costs application against a foreign plaintiff in the PRC, the extent to which there may be little or any difficulty at all in enforcement of a Hong Kong costs order in the PRC is only one of various other considerations for the Court, and that as a matter of practice, the position of the Hong Kong Courts that there is difficulty in enforcement of Hong Kong court orders in the PRC remains unchanged.


Plaintiff’s position: additional security for costs unnecessary


The background to this case arises from the plaintiff’s opposition, on both liability and quantum, to further security for costs requested by the defendant in the amount of HK$12mn for the period up until the end of trial. Despite the plaintiff having already provided security for costs twice in the proceedings, among the plaintiff’s main argument to dispute liability for a further HK$12mn was that there would be little difficulty in enforcement of a Hong Kong costs order in the PRC under the REO’s broadened scope of recognition and enforcement of judgments in Hong Kong and the PRC, rendering unnecessary security for costs for the defendant, should the plaintiff not be able to satisfy any cost orders against it.


Court’s finding: REO detailed rules not yet available, plaintiff's argument rejected


While at the date of the Court’s decision, the REO had yet to be implemented, the Court found that the plaintiff’s argument and the Court’s decision on that argument warranted publication of a written decision.


The Court held that unlike in common law jurisdictions, with which Hong Kong Courts are familiar, where a judgment of another common law jurisdiction may simply be registered in the Court and then enforced, detailed rules of the REO had yet to be flushed out.


On the proposition that where a defendant fails to prove difficulty in enforcement of the costs order in the foreign jurisdiction, the Court should refuse an order for security for costs, the Court distinguished enforcement of a judgment in common law countries and the PRC.


Where the enforcement of a Hong Kong costs order is in a foreign jurisdiction, such as Singapore, pursuant to the Reciprocal Enforcement of Foreign Judgment Act, the Hong Kong Court is well acquainted with the registration process, the time, and the costs incurred with doing so. Where the foreign jurisdiction concerned is the PRC, however, the Hong Kong Courts have as a matter of practice taken the position that there would be difficulty in enforcement of a Hong Kong court order. Consequently, without details of how recognition and enforcement of a Hong Kong costs order would be implemented under the REO, and without appropriate evidence on that matter, the Court rejected the plaintiff’s argument in granting security for costs for the defendant.


REO now in place, Court's position may change, to be seen


Bearing in mind that Du Guorong was decided prior to the implementation of the REO, the extent of the Court’s position relating to security for cost applications against a plaintiff in the PRC, where that reason for resisting liability relates to the ease or the difficulty of enforcement of a Hong Kong judgment in the PRC, after the implementation of the REO remains to be seen.


While the Court’s position towards the PRC – for the purposes of a security for costs application relating to applicable judgments under the REO – may change, this case serves as a forewarning to parties that before the Hong Kong Courts will exercise its discretion to order security against a party, it will have regard to all the circumstances of the case, and not only the ease or the difficulty of enforcement of a Hong Kong judgment in the PRC, despite the broadened scope of applicable judgments under the REO.


[2] [2022] HKCFI 2777.


 

Disclaimer: Whilst every effort has been made to ensure the accuracy of this article, it is general in nature and does not constitute legal advice of any kind. You should seek your own personal legal advice before taking legal action. We accept no liability whatsoever for loss arising out of the use or misuse of this article.


For specific advice about your situation, please contact:


Associate Michael Poon

Associate

+852 2388 3899

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