Golden House Ventures Ltd v. Kwek Leng Seng

HCA 1991/2023

[2025] HKCFI 4681

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1991 OF 2023

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BETWEEN

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DECISION

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Introduction and Undisputed Background

1.This is an appeal by the Defendant (“D”)  against the Order of Master YW Hew dated 28 April 2025 (“Master’s Order”), dismissing D’s application for security for costs.

2.P is a BVI incorporated company.  It is wholly owned by Shin Hwa World Limited (“Shin Hwa”), a company incorporated in the Cayman Islands whose shares are listed on the Main Board of the Stock Exchange of Hong Kong Limited, with its registered office and principal place of business in Bermuda and Hong Kong.

3.D is a resident in Singapore.

4.In gist, P’s claim is that:

(1)  D signed a promissory note (“PN”)  in favour of P;

(2)  Pursuant to the PN, as further evidenced by a Statement signed by D (“the Statement”), a loan in South Korean Won equivalent to HK$16,526,114 was advanced to D in around December 2018;

(3)  As evidenced by a Confirmation of Received Wire Transfers (“the Confirmation”), between 24 January 2020 and 6 August 2020, D partially repaid HK$5M;

(4)  HK$11,526,114 (“the Remaining Liability”)  remains unsettled by D despite repeated demands by P;

(5)  Accordingly, P claims the Remaining Liability together with contractual interest.

5.On the other hand, D’s case, in gist, is as follows:

(1)  D was unduly procured to sign the PN in blank;

(2)  D denies ever having advanced or borrowed monies or loans in cash under the PN but only received gambling chips at a casino operated by Landing Entertainment Korea Co Ltd (“Landing”), a subsidiary of Shin Hwa;

(3)  The PN and the advancement pursuant thereto is invalid, void and null on ground of illegality under the law of South Korea; and

(4)  D counterclaims against P for the return of the HK$5M repayment.

6.In P’s Reply and Defence to Counterclaim, it is denied that there was any undue persuasion, that gambling chips were advanced and that the PN was illegal under Korean law.  It is P’s case that the casino was operated by a company in the same group of companies as P but it has no part in the subject transaction and the subject loan was not subject to any specific or limited purposes of gambling.

7.At today’s hearing, Mr Lai and Mr Tsang, counsel, appeared for D.  Mr Lau and Ms Kwok, counsel, appeared for P.

Applicable Principles

8.It is trite that an appeal from a master to a judge in chambers is dealt with by way of an actual rehearing of the application which led to the order under appeal, and the judge treats the matter as though it came before him or her for the first time: see Hong Kong Civil Procedure 2025, Vol.1, §58/1/2.

9.As for an application for security for costs by the defendant to an action, O.23, r.1(a)  of the Rules of High Court, Cap. 4A (“RHC”)  provides where the plaintiff is ordinarily resident out of the jurisdiction, then if, having regard to all the circumstances of the case, the court thinks it just to do so, it may order the plaintiff to give such security for the defendant’s costs of the action or other proceedings as it thinks just.

10.As explained in Hong Kong Civil Procedure 2025, Vol.1, §23/3/3, even if a plaintiff is ordinarily resident out of Hong Kong, the court has a real discretion to consider the circumstances of each case, whether and to what extent and for what amount security should be ordered.

11.As for the residence of a limited company, the court is to have reference to the location of its central management and control:

(1)  The mere assertion of where the company’s central management and control is located is unsatisfactory.  What is needed is evidence of the primary facts on which that assertion is based;

(2)  All the circumstances in which the company carries on its business should be taken into account, though the weight to be applied to each factor will differ from case to case.  Those factors include: (a)  the provisions of the company’s objects clause;  (b) the place of incorporation; (c)  the place where the company’s real trade and business is carried on; (d)  the place where the company’s books are kept; (e)  the place where the company’s administration is carried out; (f)  the place where the directors with power to disapprove of local steps or to require different ones to be taken themselves meet or are resident; (g)  the place where its chief officer is or where the company secretary is to be found; and (h)  the place where its most significant assets are; and

(3)  In applying the test to a non-trading company, it may be more important to have regard to nature of the company’s corporate activities.

See: Hui Yin Sang v Tsoi Ping Kwan [2012] 2 HKLRD 1085 at §§14, 39-42.

12.Moreover, it is important to bear in mind that in the context of O.23 of RHC, the purpose of ordering security for costs against a plaintiff ordinarily resident outside of the jurisdiction is to ensure that a successful defendant will have a fund available within the jurisdiction of this court against which it can enforce the judgment for costs.  It is not, in the ordinary case, in any sense designed to provide a defendant with security for costs against a plaintiff who lacks funds: see ibid, §46.

Discussion

Re: whether P is ordinarily resident out of the jurisdiction

13.Despite the assertion in the Affirmation of Ng Wai Kei (“Ng”), filed on behalf of P in opposing to the security for costs application, that P’s central management and control is in Hong Kong, I accept as submitted by Mr Lai, the objective evidence shows that P did not carry on any business in Hong Kong:

(1)  P has not been registered as a non-Hong Kong company which is required under s.776 of the Companies Ordinance, Cap. 622, if P has a place of business in Hong Kong;

(2)  P has not applied for a business registration certificate which is required under s.5(1)  of the Business Registration Ordinance, Cap. 310, if P carries on business in Hong Kong;

(3)  P’s place of incorporation/ registration and business is stated to be in the BVI in Shin Hwa’s 2023 Annual Report (“the Annual Report”); and

(4)  The PN shows P’s BVI address as the only address.

14.Whilst Ng asserted that P currently has no active business operations and is managed by Shin Hwa’s employees on a day-to-day basis, such that the fact it does not have a valid business registration is neutral, there is no suggestion that it previously held such a licence in Hong Kong when it did carry out business operations.  Clearly, at the material time giving rise to the present action, P had carried on business of money-lending.  The PN refers to D as its “Customer”, it is a pre-printed standard form and could not have been a one-off instance of lending money by P.   As to currently, whether P carries out any business operations, the assertion of Ng is contrary to: (1)  the Annual Report which stated that P was a subsidiary which principally affected the results for the year or formed a substantial portion of the net assets of the Group, P’s principal activities was marketing (as opposed to holding asset or property); and (2)  Ng stated that he received debtor balance information periodically as financial controller.

15.I also accept that there is basis to believe that P had carried on its money lending business in South Korea or at least not in Hong Kong:

(1)  There is evidence which demonstrate that P’s business is closely connected with Landing: they share the same business logo, the Statement was issued on Landing’s letterhead and in Landing’s capacity, the Confirmation was issued by Landing on its letterhead on behalf of P but stating P to be a subsidiary of Landing, and the membership number was stated in both the PN and Statement;

(2)  The loans to be advanced to its “Customer” on the PN is pre-printed to be denominated in South Korean Won; and

(3)  P had engaged a South Korean expert to give legal opinion in this action which was addressed to P at its registered address in BVI.

16.Furthermore, as to the other factors referred to in Hui Yin Sang, I accept Mr Lai’s submissions that;

(1)  P has not adduced its articles to show the objects of P;

(2)  P is incorporated in BVI;

(3)  The fact that Shin Hwa, P’s parent company, is listed in Hong Kong bares no necessary relationship to the issue of where P’s central management and control is located;

(4)  There is no documentary evidence apart from mere assertion that P’s accounting records are kept in Hong Kong even leaving aside whether as a matter of BVI law, the corporate registers of P shall be kept at the office of the registered agent in BVI;

(5)  Although P’s board of directors comprise of two directors, one resident in Hong Kong and the other is not, at best it is a “tie”. There is no evidence where the directors meet to transact business;

(6)  Ng, although resident in Hong Kong, as financial controller of P is not said to perform any managerial function apart managing and reviewing the accounting records of P; and

(7)  There is no evidence to show where P maintains its assets, let alone has assets within Hong Kong.

17.On balance, based on all the evidence I have been shown and submissions of counsel, I am satisfied that D has made out its case that P is ordinarily resident outside of Hong Kong.

Re: whether the discretion should be exercised in favour of ordering security

18.The court should not delve into the respective merits of the parties’ case unless it can be clearly demonstrated one way or the other that there is a high probability of success or failure.  Counsel accepted that this is not a case which P or D can demonstrate clearly a high degree of success in the merits of their respective case and that the court should be slow to embark on a preliminary assessment on the merits of the claim and/or defence.   I would therefore not consider the merits for present purposes.  However, I will consider what is fair and just in all the circumstances of this case.

19.Essentially, the only ground relied upon by Mr Lau was the overlapping claim and counterclaim such that all if not most of the issues between the parties would have be litigated in any event, as the basis for why the discretion should be exercised against ordering of security.

20.The applicable principles where security is sought against a plaintiff against whom the defendant has made a counterclaim was helpfully summarised by Yam J in Ai Zhong v Metrofond Ltd [2010] 1 HKLRD 213 at §22:

(a)  The Court has a discretion in all applications for security for costs, and it is not a question of merely considering whether the claim and counterclaim arise out of the same issue of fact but a question of “what is fair and just in all the circumstances”. (Hutchison Telephone (UK)  Ltd v Ultimate Response Ltd [1993] BCLC 307, per Dillon LJ.)

(b)  Application for security for cost should be refused if it will prevent the plaintiff from pursuing its claim but in the course of defending the counterclaim all the same matters would be canvassed as would be canvassed if the plaintiff were to pursue its claim. (Goal Setting Consulting Co Ltd v Unigraphics Solutions Asia/Pacific Inc (unrep., HCA 994/2003, [2005] HKEC 20), citing BJ Crabtree (Insulation)  Ltd v GPT Communications Systems (1993)  59 BLR 43.)

(c)  Application should also be refused when the cost incurred by the defendant for the purposes of the defence might equally and perhaps preferably be regarded as costs necessary to prosecute the counterclaim. (Goal Setting Consulting Co Ltd v Unigraphics Solutions Asia/Pacific Inc, citing BJ Crabtree (Insulation)  Ltd v GPT Communications Systems.)

(d)  The existence of a counterclaim arising out of the same matters as that in the plaintiff’s claim per se does not affect the Court’s ability to order security for costs against the plaintiff. (Winghing Investments Ltd v Lee Hoi Wing (unrep., CACV 378/2005, [2006] HKEC 378).)

(e)  It is pertinent to ask whether in the particular case the counterclaim is a cross-action or operates as a defence, that is to say merely operates as a defence. (Hutchison Telephone (UK)  Ltd v Ultimate Response Ltd, per Dillon LJ.)

(f)  In determining the question in (e), the most important factor to consider is whether “the claim by the plaintiffs and the cross-claim by the defendants - raise essentially the same issues and are going to be fully litigated anyway so far as one can tell”. (BJ Crabtree (Insulation)  Ltd v GPT Communications Systems, per Bingham LJ at p.54.)

(g)  In determining the question in (e), the marked discrepancy in size between the amount claimed in the action and the very much greater amount claimed by the cross-claim is also a relevant factor. (Hutchison Telephone (UK)  Ltd v Ultimate Response Ltd, per Dillon LJ.)

(h)  A defendant should not be required to give security for costs if he is only defending himself from the plaintiff’s claim. (Hutchison Telephone (UK)  Ltd v Ultimate Response Ltd, per Bingham LJ.)

(i)  When both the plaintiff and defendant can be viewed as attackers, the treatment of both parties in security for costs should be the same. (Samuel J Cohl Co v Eastern Mediterranean Maritime Ltd [1980] 1 Lloyd’s Rep 371, cited with approval by Ma J in Brand Farrar Buxbaum LLP v Samuel-Rozenbaum Diamond Ltd [2003] 1 HKLRD 600.)

21.Applying those principles to the present case, I am satisfied in the circumstances of the present case, that it is not fair and just to make an order for security for costs where as far as I can tell the counterclaim raises the same issues as the claim and will be litigated anyways, the counterclaim is not greater (but less)  than the claim, as such both P and D can be viewed as equal attackers, and as P and D both are not resident in Hong Kong, the treatment of both should be the same.

22.Whilst D sought to overcome the effect of it being an attacker, by referring to a recent letter dated 4 August 2025 from D’s solicitors that D would stay (or withdraw)  the counterclaim if P’s claim is stayed or dismissed if P is ordered but fails to provide security, I agree with Mr Lau that no adequate undertaking has been given as D had not agreed to the dismissal of the counterclaim or if withdrawn, did not undertake no further claims will be taken in subsequent action for the HK$5M.  Otherwise, there could still be “one-sided litigation” where if P successfully defends the counterclaim, he would be debarred from ever securing judgment on P’s claim which is unfair.  See: Dumrul v Standard Chartered Bank [2010] EWHC 2625 (Comm)  §§13-20.

Re: Quantum

23.Given my conclusion above, the issue of quantum does not come into play.

Disposition

24.Accordingly, the appeal against the Master’s Order should be dismissed.

25.I see no reason why costs should not follow the event.  D should pay P’s costs of this appeal to be summarily assessed by me on paper.

Mr Martin Lau and Ms Valerie Kwok, instructed by Messrs Y.S. Lau & Partners, for the Plaintiff

Mr Adrian Lai and Mr Nyon Tsang, instructed by Messrs Christine M Koo & Ip Solicitors & Notaries LLP, for the Defendant