Miumi International Food Company Ltd v. Chan Ka Chung and Others

HCA 1952/2021,

HCA 1348/2021 and

HCA 1664/2021

(Consolidated)

[2025] HKCFI 5970

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1952 OF 2021 and 1348 OF 2021 and 1664 OF 2021

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(Consolidated by the Order of Master Kent Yee dated 25 October 2023)

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D E C I S I O N

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Introduction and Relevant Background

1.This is an appeal by the 6^th and 7^th Defendants (“D6&D7”) against the Order of Master Maurice Lam (“the Master”) dated 2 June 2025 dismissing their application for security for costs of their costs in this action up to and including trial in the sum of HK$4,787,625 against the Plaintiff (“P”).

2.A brief background of this case suffices for present purposes.

3.P is a food trading company that provides wholesale and retail services. It is wholly owned by Angliss Hong Kong Food Services Limited and an indirect subsidiary of Bid Corporation Limited.

4.According to P, it is a victim of a fraud perpetrated by its former employees and/or directors.

5.Between 2016 and 2021, P purportedly purchased various food products from food suppliers including D6&D7 but they were fictitious and did not result in any actual delivery of goods to P. The 1^st Defendant (“D1”), a former director of P, allegedly confessed to P in July 2021 that he had misappropriated P’s goods of around HK$80 to 90 million and to prevent his wrongdoing from being discovered by P, fabricated transactions with fictitious customers in P’s book and records by issuing false delivery notes and false invoices.

6.On P’s own investigation, it was revealed that each of the Defendants had played a part in the fraudulent scheme perpetrated by D1. Essentially, P’s case is that D1 and/or his associates procured P to pay funds to the purported suppliers, who were connected to D1 and/or his associates, under the guise for paying for fictitious goods that did not exist and used part of those funds to pay fictitious sales of goods. In respect of D6&D7 specifically, they were parties to 9 purported transactions with P (“Purported Transactions”) in which they allegedly sold and delivered goods to P. P claims: (a) the costs and expenses incurred in the investigation of the Defendants’ wrongful acts; (b) the costs and expenses occasioned by P in defending the claims mounted by them. P also seeks a declaration that P is not liable pursuant to the Purported Transactions.

7.By the latest amendments to its pleadings in the Re-Re-Amended Statement of Claim (“RRASOC”) filed on 29 August 2025, P has made clear that no damages are claimed for the alleged conspiracy against D6&D7. The position was also made clear at the hearing before Master, according to Mr Ho, together with Mr Cheung, counsel who appeared for P today. Mr Ho submitted that the re-re-amendments were to put to rest any confusion about the scope of P’s case against D6&D7 given that D6&D7 had read the Re-Amended Statement of Claim (“RASOC”) as claiming against them all losses suffered arising from the conspiracy. At the hearing before the Master, the Master took the view that counsel for D6&D7’s reading of paragraphs 41 and 47 of RASOC that P claimed that D6&D7 were responsible for the claim raised by P against the other defendants was out of context and not reasonable. As recorded in the Master’s Decision, Mr Ho had confirmed during the hearing that the Master’s reading is also the reading of P.

8.As explained by Mr Leung, solicitor advocate who appeared today for D6&D7, who took me through the RASOC in particular paragraph 52 which pleaded that P had suffered loss and damages for which “the Defendants are joint and severally liable” and despite the particulars at the table in paragraph 52(1) and the Schedules 1 to 6 did not concern D6&D7, it was pleaded that the loss and damage included but was “not limited to” those set out therein. However, any ambiguity is now put beyond doubt by the filing of the RRASOC.

9.As for D6&D7’s case, in gist, they allege that P has failed to settle overdue invoices regarding the Purported Transactions where they sold and delivered goods to P and counterclaims for a total sum of HK$14,466,912.62 (as particularized in Schedule B of D6&D7’s Amended Defence and Counterclaim). They deny any involvement with the alleged fraud.

Applicable Principles

10.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. The judge is entitled to give the weight it deserves to the previous decision of the master but he is in no way bound by it. See Hong Kong Civil Procedure 2025, Vol.1, §58/1/2 and Ip Yin Ping & Ors v Ip Anne [2003] 2 HKC 595 at §10(b) per DHCJ Johnson Lam (as he then was).

11.As for the legal principles governing application for security under s.905 of the Companies Ordinance, Cap. 622 (“CO”), these were set out in Sunni International Ltd v Kao Wai Ho Francis [2021] 1 HKLRD 841 at §§20-24 by Peter Ng J:

(1)  The court’s jurisdiction under s.905 of CO is engaged once it has been established that the plaintiff company will be unable to meet an adverse costs order. The court has a discretion under s.905, just as under O.23, r.1 of the Rules of the High Court, Cap.4A, whether to order security for costs having regard to all the circumstances of the case:

(2)  Security for costs may be ordered if there is credible testimony that there is reason to believe that the plaintiff company will be unable to pay the defendant’s costs if the defendant succeeds in the defence. The fact that a plaintiff is in liquidation is prima facie evidence that it is unable to pay such costs, unless evidence to the contrary is given;

(3)  While the Court may have regard to all the circumstances of the case, including merits, it is not the function of the Court to make a “preliminary run” at deciding the ultimate success or failure of the claim. The court should not delve into the respective merits of the parties’ case unless it can clearly be demonstrated one way or other that there is a high probability of success or failure. The threshold of demonstrating the probability of success is very high;

(4)  Other circumstances which might be taken into account in deciding whether or not to grant security for costs include, inter alia, whether the application is being used oppressively e.g. so as to stifle a genuine claim, whether the plaintiff’s want of means has been brought about by the defendant’s conduct and delay in making the application.

Discussion

12.Mr Ho confirmed that P does not make any submissions disputing that there is credible evidence that there is reason to believe P will not be able to pay D6&D7’s costs if they succeed in their defence.

13.Rather, as I understood it, the main battleground was whether D6&D7 are to be regarded as the true attackers in this action and whether discretionary factors such as delay in making this application and litigation tactics should be taken into account.

14.As indicated to the parties at the outset, I take the view that this is plainly not a case that I should go into the merits as given the allegations of fraud raised (for which usually there is no direct evidence and would need to be inferred from the surrounding circumstances which is facts sensitive) and the threshold of demonstrating the probability of success is very high.

Whether D6&D7 are the true attackers?

15.As held by Ma J (as he then was) at §§17-18 in Brand Farrar Buxbaum LLP v Samuel-Rozenbaum Diamond Ltd & Another (No.2) [2003] 1 HKLRD 600, in determining whether a party is to be regarded as a plaintiff, the court must examine the situation as a matter of substance and not form. The fact that party is named as the plaintiff is not by itself determinative of the question and in some circumstances a counterclaiming defendant may be required to provide security for costs.

16.The applicable principles where security is sought against a plaintiff against whom the defendant has made a counterclaim were conveniently 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.)

17.It has also been held that security for costs “generally will not be ordered to be provided by a party who has been put into the position in which he or she has had to sue in order to defend himself or herself against the other party’s prior attack; such as where a person has been forced to bring proceedings to protect their property from statutory acquisition or forfeiture.” However, it has to be borne in mind that “there are no hard and fast rules and that whether or not to order security for costs should be made is a matter of discretion, to be exercised as the interests of justice require in the circumstances of the particular case.” See Mabrouk Holdings Pty Ltd v Mabrouk Minerals Pty Ltd [2008] WASC 132 at §26 and Westgem Investments Pty Ltd v Commonwealth Bank of Australia Ltd (No 7) [2024] WASC 224 at §§8-17. See also Bulova Corporation & Anor v San Ma Industrial Limited (unrep) HCA 1831/2013, HCA 1912/2013 at §§21 and 24 per DHCJ Lok (as he then was).

18.Mr Leung submitted inter alia that D6&D7 were not the true attackers: (1) the factual basis of P’s claims against D6&D7 was that they were involved in the alleged fraudulent scheme whereas D6&D7’s claims are contractual; and (2) P’s claim are substantially more extensive in scope (involving eleven other defendants and issue of “fake delivery” etc) and quantum (for the conspiracy claim being about HK$800M). He also complained of the various versions of the amendments to P’s Statement of Claim and now the “dwindling” (or making small) of P’s claim as against his clients as a disguise or “litigation gamesmanship” to evade or to defeat their application for security for costs and “turning victims into fraudsters”.

19.On the other hand, Mr Ho disagreed that the quantum of P’s claim against D6&D7 (costs of investigating and defending against their claims) is greater than D6&D7’s counterclaim against P (totalling HK$16M).

20.He further relied on the fact that P has offered to drop its claim against D6&D7 if they are willing to abandon their counterclaims against P (which was offered before the Master and maintained now) as a forensic point to show who is the real attacker when Mr Leung or his clients are unwilling to accept the undertaking. At today’s hearing, Mr Leung was adamant that his clients were genuine creditors and P was genuine debtor and could not accept the undertaking when they genuinely supplied and delivered goods which they paid for to P.

21.I accept from the stance maintained by D6&D7 by refusing to forego their counterclaims against P and the procedural history that plainly P’s claim against D6&D7 in these proceedings is defensive only and D6&D7 are at least equal attackers:

(1)  It was D6&D7 that first demanded payment by two “Balance Confirmation Letters” dated 15 July 2021 from P for a total of approximately HK$14.5M in respect of 9 invoices;

(2)  In around October 2021, D6&D7 issued statutory demands for the 9 invoices against P, totalling HK$15,527,771.32;

(3)  On 16 November 2021, P applied for injunctive relief in HCMP 1819/2021 to restrain D6&D7 from presenting a winding-up petition based on the statutory demands;

(4)  On 19 November 2021, the Court granted an injunction on an interim-interim basis and adjourned the application for substantive argument. It was only days before the adjourned application that D6&D7 gave an undertaking not to pursue any winding up petition pending resolution of HCA 1952/2021, that led to leave being granted to P to discontinue HCMP 1819/2021 with costs to be in the cause of P’s claims against D6&D7 in HCA 1952/2021;

(5)  Whilst subsequently, D6&D7 gave an undertaking not to pursue any petition to wind-up P or act further upon the statutory demands pending the resolution of these proceedings, and HCMP 1819/2021 has now been resolved by consent, it is plain that the arena has now moved to HCA 1952/2021. By making the counterclaim, D6&D7 have claimed for the exact same debts underlying the statutory demands.

22.Furthermore, I am satisfied that as far as I can tell the counterclaim raises the same issues as P’s claim and will be litigated anyways. Whilst I accept P’s claims are broader and involve other defendants, as between P and D6&D7, in defending D6&D7’s counterclaim, all the same issues would have to be litigated:

(1)  D6&D7’s counterclaim in these proceedings seeks recovery of HK$14M odd plus interest, relying on the very invoices for the Purported Transactions that are at the heart of this dispute (and other purported suppliers who also initiated separate actions against P: D8-9 commenced HCA 1348/2021 on 6 September 2021, and D5 followed with HCA 1664/2021 on 3 November 2021, will be heard together with this action);

(2)  In adjudicating D6&D7’s counterclaim, the Court will necessarily have to decide the core question of whether the Purported Transactions were (a) genuine, thereby entitling D6&D7 to the amounts claimed; or (b) fictitious, thus supporting P’s case that D6&D7 conspired with other Defendants to perpetrate the alleged fraud.

23.In the circumstances of the present case, it is not fair and just to make an order for security for costs where both P and D6&D7s can be viewed as equal attackers. Furthermore, the costs incurred by D6&D7 for the purposes of their defence would equally and preferably be regarded as costs necessary to prosecute the counterclaim as it is plain from the clear stance of D6&D7 that their counterclaim will be litigated in any event. This is a significant factor which weights against the granting of security of costs: see e.g. Qinhe Energy Holdings Limited v Peng Fei Investment International Limited [2023] HKCFI 1872 at §§92-95.

Delay

24.As DHCJ Yuen held in Yip Lai Fong & Anor v Sin Tung Hing & Ors [2024] HKCFI 1390 at §25.2, an application for security for costs may be made at any time, but that does not excuse egregious, unexplained delay. Although the rules do not stipulate a time to apply for security for costs, the proper test of lateness is whether the defendants were dilatory after they obtained information of the matter which enabled them to apply for security. See also BBMB Finance (Hong Kong) Ltd v China Underwriters Life and General Insurance Co Ltd [1991] 1 HKLR 617 at 626H (per Fuad VP, as he then was).

25.In D6&D7’s evidence filed in support of the security of costs application, reliance was made on P’s audited report for 2020, which came to their notice by 16 November 2021 when it was exhibited to an affirmation filed by P in support of their injunction application in HCMP 1819/2021. However, the application for security for costs was issued by Summon only on 13 March 2025. No good explanation for this lengthy delay has been provided by D6&D7 (whether by way of affirmation or otherwise) save the complaint that P has made numerous versions of its Statement of Claim[1].

26.The fact that in 2024, P re-amended its Amended Statement of Claim, the 8^th and 9^th Defendants (“D8&D9”) made an application for security of costs against P in January 2025 and D6&D7 relied upon the 2^nd Affirmation of Li Ying Hua filed in support of D8&D9’s application for security for costs to show that P would not be able to pay their costs, are not in my view a good explanations for the delay. Besides, these were not the explanations set out in the 4^th Affirmation of Ng Ji Man which expressly responded to the delay complaint by P in opposing the security for costs application but only came from Mr Leung’s submissions from the Bar table. Mr Ho, having taken me through P’s case at the time of the injunction application and as pleaded in RRASOC, I agree that the substantive case or core case of P has not changed by the re-amendments.

27.Furthermore, it is not necessary to adduce actual evidence that delay had resulted in prejudice. Litigants are entitled to know at an early stage of the proceedings whether they would have to give security for the other side’s costs. A requirement late in the proceedings to source additional funds for security for the other side’s costs must be real prejudice. See Yip Lai Fong at §25.4, citing BBMB Finance (Hong Kong) Ltd at 628B, and Chung Ying Building Materials Company Limited v Chow Wai Lam, William & Ors [2025] HKCFI 2480 at §§55-56 per Ng J.

28.I accept that P has suffered prejudice from the belated application by D6&D7 as considerable costs have already been incurred in preparing pleadings, witness statements, and responding to various interlocutory applications which would be wasted if the action was to be stayed pending the payment of security and its claim dismissed if P defaults in payment: see Waddington Ltd v Chan Chun Hoo Thomas (Unrep) HCA 3291/2003, 7 May 2013 at §34 per DHCJ Lok: “a late application for security for costs, in particular when the trial is imminent, per se constitutes very real prejudice to a plaintiff, since the plaintiff is being put in a position of having little or no choice but to put up the security in order not to abandon and waste all the work done and costs incurred in preparing for trial. In these circumstances, the application should be refused…”.

29.The unexplained delay is another factor in the overall exercise of my discretion for refusing the application for security for costs.

Quantum

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

Disposition

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

32.I see no reason why costs should not follow the event.

[Submissions on costs]

33.Having considered P’s Statement of Costs and Mr Leung’s objections, adopting a broad brush approach, I have summarily assessed P’s costs of this appeal at HK$300,000 to be payable by D6&D7 forthwith.

Mr Martin Ho and Mr John Cheung, instructed by DLA Piper Hong Kong, for the Plaintiff

Mr William Leung, Solicitor Advocate, of William K W Leung & Co, for the 6^th and 7^th Defendants