3Q RESOURCES (M) SDN BHD v 1. ) MAGNUM CONSORTIUM SDN BHD 2. ) SOLIDWIN PROPERTY SDN BHD 3. ) HONG YEAM WAH 4. ) TEOH HAI HIN 5. ) KHAW TIEW CHAI 6. ) CHEN MUN HENG 7. ) Lee Chai Seng

Case Significance

Confirms that security for costs against a corporate plaintiff under section 580A of the Companies Act 2016 is not granted as of course: the applicant must adduce credible, cogent evidence of the company's likely inability to pay, and speculation drawn from financial statements will not suffice.

This High Court decision at Penang concerns two applications for security for costs against a corporate plaintiff, and the evidential burden that a defendant must discharge to obtain such an order. The plaintiff, a company, was pursuing a claim against a group of corporate and individual defendants, who had counterclaimed. Two sets of defendants applied for security for costs — one application by the first and third defendants, the other by the second and fourth — each seeking an order that the plaintiff furnish security of RM150,000 in respect of both the plaintiff's claim and the defendants' counterclaim. The applications were made under section 580A of the Companies Act 2016 and Order 23 of the Rules of Court 2012.

The court set out the statutory test. Section 580A(1) permits the court to order a company that is a plaintiff to give security for costs where it appears, by credible testimony, that there is reason to believe the company will be unable to pay the defendant's costs if the defence succeeds. The court stressed that this requires cogent evidence of the plaintiff's inability to meet a potential costs order; mere assertions, or inferences drawn from the plaintiff's corporate filings without more, are inadequate to discharge the evidential burden the section places on the applicant. On the material before it, the court found no cogent evidence that the plaintiff's assets were insufficient to satisfy any costs order the defendants might obtain.

The court held that the defendants had not discharged the burden of justifying an order for security for costs and dismissed both applications, with costs of RM3,000 for each. The judgment illustrates that security for costs against a corporate plaintiff is not granted as a matter of course: the applicant must adduce credible, cogent evidence of the company's likely inability to pay, and speculation drawn from financial statements will not suffice.