Security for Costs Application in Hong Kong (order 23, S905 Companies Ordinance & S56 Arbitration)

A security for costs application is the principal procedural mechanism by which a defendant in Hong Kong litigation asks the court to require the plaintiff to deposit money or provide a guarantee as protection against the risk of an unrecoverable costs order. The jurisdiction is governed primarily by Order 23 of the Rules of the High Court (Cap. 4A), section 905 of the Companies Ordinance (Cap. 622) for company plaintiffs, and section 56 of the Arbitration Ordinance (Cap. 609) where disputes straddle arbitration and court proceedings.

With cross-border commercial filings and arbitration-related set-aside applications continuing to rise in Hong Kong, security for costs in Hong Kong has become a routine tactical consideration for in-house counsel and litigators on both sides of the courtroom. This guide sets out the statutory tests, quantum methodology, forms of security, arbitration interplay, and practical checklists practitioners need in 2026.

Key Takeaways, Read This If You Need to Decide in 10 Minutes

• When ordered. Security is most commonly ordered against plaintiffs ordinarily resident outside Hong Kong, against nominal or insolvent plaintiffs, or against limited companies unable to pay an adverse costs order (s905).
• Statutory tests. Order 23, rule 1(1) of the Rules of the High Court lists the grounds. Section 905 of the Companies Ordinance creates a separate, standalone power for company plaintiffs. Section 56 of the Arbitration Ordinance governs tribunal-ordered security but does not permit an order based solely on foreign nationality.
• Quantum. Courts typically estimate the defendant’s party-and-party costs through the next significant procedural stage. Orders commonly range from HK$200,000 to HK$2,000,000 or more, depending on the complexity and value of the claim.
• Forms of security. Payment into court (cash), an irrevocable bank guarantee, a solicitor’s undertaking, or (less commonly) an insurance bond.
• Arbitration interplay. In set-aside and enforcement proceedings before the Court of First Instance, Order 23 and s905 apply to the court action itself. The arbitral tribunal’s own s56 powers operate separately during the arbitration.
• Consequences of non-compliance. Failure to provide ordered security leads to a stay and ultimately dismissal of the action, often with indemnity costs.

When Hong Kong Courts Order Security for Costs, Order 23 Tests

Hong Kong courts will order security for costs when the defendant establishes one of the recognised statutory grounds and the court exercises its discretion in favour of protection. The power is interlocutory: the court balances the risk to the defendant against the plaintiff’s right of access to justice.

Order 23, Rule 1(1) of the Rules of the High Court, Statutory Triggers

Under Order 23 of the Rules of the High Court (Cap. 4A), the court may order security where it is satisfied, having regard to all the circumstances, that it is just to do so. The recognised triggers include:

• Out-of-jurisdiction plaintiff. The plaintiff is ordinarily resident outside Hong Kong. This is the most frequently invoked ground in cross-border commercial disputes.
• Nominal plaintiff. The plaintiff is suing not for its own benefit but for the benefit of another, and there is reason to believe the plaintiff will be unable to pay the defendant’s costs if ordered to do so.
• Plaintiff’s address misstated or omitted. The plaintiff’s address is not stated in the writ or is incorrectly stated, raising enforcement concerns.
• Change of address. The plaintiff has changed address after commencement of the action with a view to evading the consequences of the litigation.

It is important to note that mere residence outside Hong Kong does not automatically result in an order. The court retains a discretion and will consider whether enforcing a costs order abroad would face practical difficulty, whether the plaintiff has substantial assets within the jurisdiction, and whether the claim has arguable merit.

Procedural Form, Demand, Summons and Affidavit Evidence

The typical procedural sequence is as follows:

1. Pre-application demand letter. The defendant writes to the plaintiff’s solicitors requesting voluntary provision of security, specifying the amount and form. This step is not strictly mandatory but is expected as a matter of good practice and can affect costs.
2. Summons (interlocutory application). If the plaintiff does not comply, the defendant issues a summons supported by an affidavit setting out the ground relied upon, the evidence of the plaintiff’s status or inability to pay, and a reasoned costs estimate.
3. Affidavit evidence. The supporting affidavit should exhibit: (a) evidence of the plaintiff’s residence or domicile; (b) a search of any Hong Kong assets; (c) a detailed estimate of the defendant’s likely party-and-party costs; and (d) any prior correspondence.
4. Hearing. The application is heard by a Master or Judge in chambers. Both sides may file evidence. The court may order security in full, in a reduced amount, or refuse the application altogether.

Practice Points, Timing, Stay and Dismissal

Defendants should apply early, ideally before filing the defence or, at latest, before discovery. Courts look unfavourably on late applications that appear tactical, and delay may lead to refusal. An order for security typically provides the plaintiff a fixed period (often 14 to 28 days) to comply, failing which the action is stayed. If the plaintiff remains in default after a further period, the defendant may apply to strike out the claim.

Section 905 of the Companies Ordinance, Security for Costs Against Company Plaintiffs

Section 905 of the Companies Ordinance (Cap. 622) empowers the court to order security for costs where it appears, by credible testimony, that there is reason to believe a company plaintiff will be unable to pay the defendant’s costs if the defendant succeeds. This is a standalone power that does not require the plaintiff to be resident outside Hong Kong.

Who Section 905 Covers and What “Reason to Believe” Requires

Section 905 applies to any company, whether incorporated in Hong Kong or elsewhere, that is a plaintiff in proceedings before the court. The threshold is a “reason to believe” standard, which is lower than the balance of probabilities. The defendant must produce credible testimony (typically affidavit evidence) that gives rise to a reasonable belief that the company cannot pay costs. This may include:

• Recent financial statements showing negative net assets or persistent losses.
• A Companies Registry search disclosing unfiled annual returns, winding-up petitions, or charges over assets.
• Evidence that the company is a special-purpose vehicle with no trading activity and minimal capitalisation.
• Correspondence in which the company’s directors acknowledge funding difficulties.

Evidence Checklist, Proving Impecuniosity Under s905

• Latest audited accounts and management accounts.
• Companies Registry company search (Form NAR1, charges, winding-up petitions).
• Bank statements or evidence of assets within and outside Hong Kong.
• Details of the company’s shareholders and any parent guarantee or group backing.
• Evidence of after-the-event insurance or third-party litigation funding.

Where a company plaintiff demonstrates that it has sufficient assets or that a funder stands behind the claim, the court may decline to order security or accept an alternative form of assurance. Practitioners should note that security for costs impecuniosity is assessed at the date of the application, not at the date of the writ.

Recent Judicial Approach

The Court of First Instance has applied s905 actively in recent years, particularly in arbitration-related set-aside proceedings where the applicant company has limited Hong Kong presence. Industry observers expect this trend to continue as cross-border disputes funnel through Hong Kong’s arbitration ecosystem and generate ancillary court applications.

Quantum, How Courts Calculate the Amount of Security for Costs

The amount of security is not a fixed statutory figure. Courts estimate what the defendant would reasonably recover on a party-and-party taxation if successful, assessed up to the next procedural milestone. The security for costs application must include a credible, itemised costs estimate.

Methods of Calculation

Hong Kong courts typically adopt a staged approach:

1. Stage-by-stage estimation. The defendant’s solicitors prepare a costs budget broken down by phase: interlocutory applications, discovery, witness statements, expert reports, and trial. The court may order security up to a particular stage (e.g., up to and including discovery) and allow the defendant to apply for further security later.
2. Percentage discount. The court generally applies a discount to the defendant’s estimated solicitor-and-own-client costs to approximate the party-and-party recovery rate, which is typically around 60–70% of actual costs.
3. Proportionality check. The court cross-checks the proposed amount against the value of the claim, the complexity of the issues, and the number of parties and experts involved.

Worked Example

Consider a commercial dispute where the claim value is HK$10 million. The defendant estimates its total costs through trial at HK$3 million on a solicitor-and-own-client basis. Applying a 65% party-and-party recovery rate yields approximately HK$1.95 million. The court may order security of HK$800,000 to cover costs up to and including discovery, with liberty to apply for further security before trial. The actual order depends on the court’s assessment of merits, proportionality, and whether the plaintiff has offered partial security or alternative protection.

Adjustment Factors

• Strength of the claim. If the plaintiff’s case appears strong on the merits, the court may reduce the quantum or decline to order security altogether.
• Stifling effect. If the order would effectively prevent the plaintiff from continuing the action, the court considers whether the plaintiff has genuinely been unable to find security rather than simply unwilling to do so.
• Funding undertakings. A credible undertaking from a solvent funder or parent company may reduce or eliminate the need for cash security.

Forms of Security, Cash, Bank Guarantee, Bond and Surety

The security for costs application must propose a form of security acceptable to the court. In Hong Kong practice, four principal forms are used. The choice affects liquidity, cost, and the speed of enforcement.

Comparison of Accepted Forms of Security

Drafting Mechanics and Order Wording

A typical order for security provides:

• The amount to be provided (e.g., “The Plaintiff do provide security for the Defendant’s costs of the action in the sum of HK$800,000”).
• The form of security (e.g., “by payment into court or by provision of an irrevocable and unconditional bank guarantee from a licensed bank in Hong Kong”).
• The time limit for compliance (e.g., “within 21 days of the date of this order”).
• A stay provision (e.g., “In default of compliance, all further proceedings in this action be stayed until the security is provided”).
• Liberty to apply for variation or further security.

Where a bank guarantee for security of costs is used, the guarantee must typically be irrevocable, unconditional, and payable on first demand to the defendant or its solicitors upon production of a taxed or agreed costs certificate. Practitioners should circulate draft guarantee wording with the summons to avoid subsequent disputes over the instrument’s terms.

Arbitration Security for Costs in Hong Kong, Section 56 and Court Interplay

Arbitration security for costs Hong Kong raises distinct issues because the power is split between the arbitral tribunal (during the arbitration) and the court (in ancillary or supervisory proceedings).

Section 56 of the Arbitration Ordinance, Tribunal Powers

Section 56 of the Arbitration Ordinance (Cap. 609) empowers an arbitral tribunal to order a claimant to provide security for the costs of the arbitration. However, s56(2) expressly prohibits the tribunal from ordering security solely on the ground that the claimant is a national of, or habitually resident in, a country or territory outside Hong Kong. The tribunal must instead point to other factors, such as the claimant’s financial position, the existence of assets that could satisfy a costs award, or the merits of the claim, before ordering security.

Limits on the Tribunal

• The tribunal cannot order security against a respondent (who is defending, not claiming).
• The tribunal’s order is enforceable through the court under Part 10 of the Arbitration Ordinance, but the tribunal itself has no power to stay or dismiss for non-compliance in the way a court can.
• If the arbitration agreement is silent on security, the tribunal derives its power from s56 (unless institutional rules provide otherwise, e.g., HKIAC Administered Arbitration Rules).

Court Powers in Arbitration-Related Proceedings

When a party commences court proceedings related to an arbitration, for example, an application to set aside an award under section 81 of the Arbitration Ordinance, or to enforce an award under section 84, those court proceedings are governed by the Rules of the High Court. This means Order 23 and s905 apply in the ordinary way to the court action. The court treats the applicant in set-aside proceedings as a “plaintiff” for security purposes.

The practical sequence is as follows:

1. Arbitration phase. Tribunal may order security under s56 during the arbitration itself.
2. Award issued. The tribunal becomes functus officio; its security powers expire.
3. Court phase (set-aside or enforcement). The party resisting the award (or seeking enforcement) commences an originating summons. The opposing party may then file a security for costs application under Order 23 or s905 in the court action.
4. Court decides. The court applies the standard Order 23 / s905 tests to the court proceeding, not to the underlying arbitration. Early indications suggest that courts are willing to order security in set-aside proceedings where the applicant company is foreign-incorporated, thinly capitalised, or has no Hong Kong assets.

This dual-track framework means that a single dispute can generate security applications at both the arbitral and the court level, each governed by different statutory provisions and different decision-makers.

Practical Strategy and Tactical Checklist, For Applicants and Defenders

For Defendants Seeking Security

1. Investigate early. Run a Companies Registry search, Land Registry search, and any available asset-tracing checks before filing the defence. Identify the plaintiff’s place of incorporation, registered office, and any Hong Kong assets.
2. Send a pre-action demand. Write to the plaintiff’s solicitors requesting voluntary security within 14 days, specifying the amount and proposed form. This demonstrates reasonableness and strengthens a later costs argument.
3. Prepare a detailed costs estimate. Break down estimated costs by phase (pleadings, discovery, interlocutories, trial preparation, trial, and post-trial). Present both solicitor-and-own-client and estimated party-and-party figures.
4. File promptly. Issue the summons and supporting affidavit as early as possible, ideally before or simultaneously with the defence. Delay weakens the application.
5. Draft proposed order wording. Attach a draft order specifying amount, form, compliance period, stay, and liberty to apply. Circulate draft bank guarantee wording if a guarantee is the proposed form.

For Plaintiffs Resisting Security

• Demonstrate assets within jurisdiction. Exhibit evidence of Hong Kong bank accounts, property, receivables, or enforceable guarantees.
• Show the claim’s strength. File evidence on the merits (without conducting a mini-trial) to persuade the court that the claim is strong and that ordering security would be disproportionate.
• Offer alternatives. Propose a solicitor’s undertaking, a parent-company guarantee, or partial security in stages to reduce the stifling effect.
• Challenge quantum. Scrutinise the defendant’s costs estimate for inflated figures, duplicated work, or costs attributable to the defendant’s own counterclaim.
• Argue delay. If the defendant waited until late in the proceedings to apply, submit that the application is tactical and should be refused.

Sample Affidavit Paragraphs

For the defendant (applicant):

“I am advised and verily believe that the Plaintiff is a company incorporated in [jurisdiction] with no registered office, assets, or employees in Hong Kong. A search of the Companies Registry conducted on [date] (exhibited hereto as Exhibit ‘A’) discloses that the Plaintiff is not registered as a non-Hong Kong company. The Defendant estimates its party-and-party costs through discovery at HK$[amount], as set out in the costs schedule exhibited as Exhibit ‘B’.”

For the plaintiff (resisting):

“The Plaintiff maintains a Hong Kong dollar bank account at [bank] with a balance of approximately HK$[amount] as at [date] (exhibited hereto as Exhibit ‘C’). The Plaintiff is also prepared to provide a solicitor’s undertaking from [firm], a Law Society-regulated firm in Hong Kong, to hold the sum of HK$[amount] in its client account pending the outcome of this action.”

Variation, Discharge, Enforcement and Consequences of Non-Compliance

A security order may be varied or discharged if circumstances change materially, for example, where the plaintiff acquires substantial Hong Kong assets after the order, or where the case settles in part and the remaining costs exposure drops significantly. The party seeking variation must apply by summons with supporting evidence.

If the plaintiff fails to provide security within the time specified, the action is automatically stayed. The defendant may then apply, usually after giving reasonable notice, to dismiss the action for want of prosecution. Courts regularly award indemnity costs to defendants in these circumstances. On appeal, the Court of Appeal reviews the lower court’s exercise of discretion and will only interfere if the judge applied the wrong test, took into account irrelevant matters, or reached a decision that was plainly wrong.

Conclusion, Practical Next Steps for a Security for Costs Application

A well-timed and properly evidenced security for costs application remains one of the most effective tools available to defendants in Hong Kong commercial litigation. Whether the proceedings arise from a cross-border contract dispute, a shareholder claim against a thinly capitalised company, or an arbitration-related set-aside application, the framework under Order 23 of the Rules of the High Court, section 905 of the Companies Ordinance, and section 56 of the Arbitration Ordinance provides clear, well-established tests that reward early preparation and thorough evidence.

• Investigate the plaintiff’s domicile, assets, and financial position as soon as proceedings are commenced or anticipated.
• Send a pre-application demand letter promptly.
• Prepare a detailed, stage-by-stage costs estimate and draft order wording before issuing the summons.
• If you are a plaintiff facing a security application, assemble asset evidence, assess alternative forms of security, and consider whether a funded undertaking or partial payment can defeat the application.
• In arbitration-related court proceedings, remember that both the tribunal (under s56) and the court (under Order 23 / s905) may have jurisdiction, plan strategically across both forums.

For tailored advice on a security for costs application in Hong Kong, whether you need to obtain, resist, or enforce an order, consult an experienced Hong Kong commercial litigation and arbitration practitioner through our lawyer directory.

Sources

1. Hong Kong e-Legislation, Rules of the High Court (Cap. 4A), Order 23
2. Companies Registry, New Companies Ordinance (Cap. 622) Highlights, Part 20
3. Arbitration Ordinance (Cap. 609), Consolidated Text (WIPO Lex)
4. Hong Kong Judiciary, Judgments & Practice Material
5. Hong Kong Legislative Council, Companies (Amendment) Bill