Introduction

The legal principles governing security for costs applications are well-settled. However, the Court's discretion extends beyond conventional considerations – such as the plaintiff's place of residence or financial means – to encompass a broader assessment of whether an order would be just in the circumstances. This judgment is of particular significance to employment practitioners, illustrating how the Court will scrutinise the procedural conduct of a defendant employer which has procured the transfer of an employment claim from the Labour Tribunal to the High Court.

Facts and background

The employee, Mr Chen, issued a claim in the Labour Tribunal to recover his salary entitlement as an executive director of Huiyuan in the sum of HK$35,000 per month. Huiyuan did not pay any part of this remuneration for the period from 1 January 2020 to 8 November 2023 and terminated Mr Chen’s employment without notice. Mr Chen claimed against Huiyuan for his unpaid salary and payment in lieu of notice totalling HK$1,654,333.33.

Huiyuan’s defence was essentially that:-

1. an oral agreement was reached that a third-party entity would pay Mr Chen's remuneration as a lump sum upon completion of the relevant project rather than by Huiyuan monthly; and
2. Mr Chen had breached his fiduciary duties by failing to deliver accounting and other documents, which caused Huiyuan to be suspended from trading on the Hong Kong Stock Exchange.

Mr Chen’s claim was transferred to the High Court on Huiyuan's application, to be consolidated with two other High Court actions which Huiyuan was pursuing against Mr Chen for breach of director’s duties and breach of a sales and purchase agreement. Huiyuan then applied for security for costs totalling HK$219,408.65 on the ground that Mr Chen did not ordinarily reside in Hong Kong. The Court ordered Mr Chen to pay HK$170,000 into court, failing which the action would be struck out. Mr Chen appealed against the order.

Legal principles

Under the Rules of the High Court, the Court has discretion to order a foreign plaintiff to make a payment into court as security for the defendant’s costs. Such discretion is guided by a number of well-established principles as summarised below:

1. Where a plaintiff resides outside the jurisdiction and holds no fixed assets within it, the Court will generally be inclined to order security for costs.
2. The merits of the claim and any defence may be considered, but only broadly. The Court should not examine the merits in detail unless the plaintiff can show a high probability of success, and should be cautious about assessing merits on paper alone, particularly where oral evidence may be significant.
3. If the plaintiff contends that an order for security for costs would stifle the claim, the burden falls on the plaintiff to demonstrate that the required sum cannot be raised from other sources.
4. Where the plaintiff resides abroad, the Court will also consider how easily a costs order could be registered and enforced in that foreign jurisdiction.

The Court's analysis

The Court accepted that Mr Chen was ordinarily resident outside Hong Kong, noting that the multiple addresses he had furnished in the course of the proceedings did not credibly demonstrate that he maintained a residence in the territory. The Court considered that Mr Chen's claim did not present an overwhelmingly strong case on its face. It acknowledged that Huiyuan's defence, particularly given the alleged oral agreement, had sufficient merit to require testing at trial. Mr Chen further failed to demonstrate that an order for security would stifle his claim, having provided no adequate financial evidence. On the conventional factors, the balance favoured Huiyuan.

Nevertheless, the Court's principal concern was the procedural injustice suffered by Mr Chen as an employee pursuing a wages claim. Mr Chen had originally commenced proceedings in the Labour Tribunal, which has jurisdiction over monetary disputes arising out of a breach of an employment contract. The case was transferred to the High Court at Huiyuan's request, yet in the 22 months following the transfer, Huiyuan had taken no steps to consolidate the three sets of proceedings, instead adopting a 'wait-and-see' approach pending the outcome of its security for costs application.

The Court observed that Huiyuan’s allegation of breach of fiduciary duties was merely a defence in the wages claim and Huiyuan had not made any independent claim or counterclaim in tort, contract, or equity. The wages claim therefore plainly fell within the Labour Tribunal's jurisdiction, and the Tribunal would have been capable of adjudicating Huiyuan's defence. Had the matter remained in the Tribunal, the parties' costs exposure would have been far lower, given that legal representation is not permitted there; it was Huiyuan's own transfer application that generated the substantial costs burden which necessitated the security order.

The Court concluded that the transfer had placed an “unnecessary, disproportionate and oppressive costs burden” on Mr Chen as an employee claimant and that a security for costs order would accordingly be unjust. The Court further dismissed as irrelevant the suggestion that the Tribunal itself had power to grant security for costs, noting that in any event none of the prescribed conditions had been satisfied.

Key takeaways

• Evidence matters, but justice prevails. Parties seeking or opposing security for costs must substantiate their positions with adequate evidence; bare assertions will not suffice. While the conventional factors remain relevant (including the plaintiff's residence outside the jurisdiction, the merits of the claim and defence, and the risk of stifling proceedings), the Court retains a discretion to refuse security where the overall circumstances make it unjust. Procedural history, proportionality and the manner in which the case came before the Court will all be taken into account.
• Labour Tribunal's jurisdiction depends on claims, not defences. A defendant cannot seek a transfer of a claim out of the Labour Tribunal merely by raising a defence grounded in tort, contract or equity without an independent claim or counterclaim on that basis. Parties contemplating transfer applications should carefully consider whether the issues genuinely require High Court jurisdiction.
• The party who procures a transfer from the Labour Tribunal must act consistently. Following a transfer from the Labour Tribunal on the basis of related High Court proceedings, the successful applicant should seek consolidation of its other claims promptly and in good faith. Huiyuan’s delay of 22 months whilst pursuing security for costs was criticised by the Court and treated as evidence of procedural unfairness. Such inconsistency may lead the Court to question whether the transfer was justified and to resist applications that compound the opposing party's costs burden.

CHEN ZHIRUI (陈志睿) v HUIYUAN COWINS TECHNOLOGY GROUP LIMITED (慧源同創科技集團有限公司) (Formerly known as MAYER HOLDINGS LTD. (美亞控股有限公司)) [2026] HKCFI 1797 – judgment available here.