In the recent judgment of P1 and Another v. D [2024] HKCU 4819, the Court held that it should adhere to the general rule of practice under RHC Order 23 that security for costs may be ordered against a plaintiff ordinarily residing outside Hong Kong. The arbitral approach that prevents a tribunal from ordering security for costs against a foreign plaintiff is not applicable to set aside applications, which is a court proceedings to challenge the determination in an arbitral process.

In P1 v. D, the two plaintiffs and the defendant are, respectively, the two respondents and the claimant in an arbitration administered by the Hong Kong International Arbitration Centre. On 6 April 2023, the arbitral tribunal issued an award in favour of the defendant. The plaintiffs subsequently applied to set aside the arbitral award in the High Court. The defendant, amongst other applications, applied for security for costs under RHC Order 23, rule 1(1)(a) on the basis that P1 is ordinarily residing outside Hong Kong.

Whilst there is no dispute between parties that RHC Order 23 is applicable to an appellant seeking to set aside an arbitral award, they fundamentally disagree on what is the proper approach for an application made pursuant to it in the context of a Hong Kong seated arbitration-related court proceedings.

In the judgment, the Court affirmed the decision of Mimmie Chan J in SA v. BH [2024] 3 HKLRD and shed light on the interplay between Section 56 of the Arbitration Ordinance (AO) and RHC Order 23.

It is well established that arbitral tribunals and courts adopt different approaches in applications for security for costs. Under Section 56 AO, an arbitral tribunal must not order security for costs only because the claimant ordinarily resides outside Hong Kong. On the other hand, RHC Order 23, rule 1 provides that being ordinarily resident outside Hong Kong is a ground for the court to order security for costs against the plaintiff. Such difference reflects the policy consideration behind Section 56 AO of not to make foreign entities susceptible to a security for costs application in arbitration, so to encourage foreign entities to choose Hong Kong as the seat of arbitration.

In P1 v. D, the Court made a distinction between (i) the phase of determining parties’ mutual rights and obligations, and (ii) the phase of challenging such determination. The former is a matter for the arbitrators to decide, while the latter is for the court. The Court acknowledged the consideration of promoting Hong Kong as an arbitration centre, but it also noted that under Section 81 AO, challenges against arbitral awards should be of an exceptional nature. The Court took into account the legislative intent of Section 56 AO and concluded that the statutory framework of arbitration in Hong Kong did not intend the Court to consider its power to order security for costs in the same way as an arbitral tribunal.

The Court is of the view that the principle in relation to security for costs in arbitration should not be applied to set aside applications in court, (i.e. the challenge phase). With Section 56 AO, foreign and domestic parties are already in a fair position in the determination phase of an arbitral proceeding, as foreign parties are not "discriminated" or susceptible to security for costs solely because they are ordinarily residing outside Hong Kong. However, if the same principle is also applied to set aside applications in court, this will create an environment whereby the challenge of an arbitral award is made easier and more accessible, which is inconsistent with the Hong Kong Court's approach of upholding arbitral autonomy. The Hong Kong Court took into account the distinct legislative choices under the AO and the Civil Procedure Rules (Order 23, rule 1) and did not following the Singapore court's approach.

Accordingly, the Court held that the principles under RHC Order 23 should still be followed when considering whether to order security for costs against a foreign plaintiff challenging an arbitral award made in Hong Kong.

Although Hong Kong's arbitration law alleviates the burden on foreign plaintiffs to provide security for costs, foreign parties are still susceptible to security for costs in subsequent set aside application in courts. This approach does not contradict Hong Kong's policy of upholding arbitral autonomy and highlights that a foreign party would not have an advantage over a local party in invoking the jurisdiction of the Hong Kong Court in challenging an arbitral award.

Acknowledgements to Trainee Solicitor Jasper Cao for research and contribution to this article.