Personal Liability for Costs: When Hong Kong Courts Pierce the Corporate Veil

(A) Introduction
 
The Court has jurisdiction and the discretion to order costs against a non-party under Section 52A(1)-(2) of the High Court Ordinance (Cap.4) [1] and Order 62, rule 6A of the Rules of the High Court (Cap. 4A) [2]. Such an order is exceptional and will only be made if it is just to do so in all the circumstance of the case.
 
In the context of corporate litigations, the Court's discretion is exercised cautiously, given the fundamental principle of corporate limited liability, which protects company directors and shareholders from personal liability for corporate debts.
 
This article analyzes two recent Hong Kong cases which reached divergent outcomes on substantively similar applications for non-party costs orders. In Billion Well Construction Engineering Company Limited v Long Faith Engineering Limited and others  (HCA 805/2021, HCCW 466/2021 and HCCW 32/2022, date of judgment: 27 December 2024), [3] the application for costs against the company's directors and shareholders failed. In contrast, in Target Insurance Company Ltd (in compulsory liquidation) v Nerico Brothers Ltd (CACV 223/2022, date of judgment: 17 November 2025), [4] the application for costs against the company's director succeeded. By comparing these judgments, we can identify the critical factors that the Courts weigh when deciding whether to pierce the corporate veil in the context of costs.
 
(B)  Facts
 
Case 1: Billion Well Construction Engineering Company Limited v Long Faith Engineering Limited and others  (HCA 805/2021, HCCW 32/2022 and HCCW 466/2021, date of judgment: 27 December 2024)
 
The dispute arose out of a winding-up petition presented by the Petitioner against Billion Well Construction Engineering Company Ltd (“BW”). [5] BW was a sub-contractor of a construction project undertaken by the Petitioner.  Koo and Chu were (and still are) the only shareholders and directors of BW. [6]
 
The Petitioner’s winding-up petition against BW was heard on 25 July 2022. At the hearing, the Court granted a winding-up order against BW and ordered that the costs of the Petition to be taxed and paid out of the assets of BW. [7]
 
At that time, the Petitioner’s Counsel did not seek a costs order against Koo and Chu, nor did they reserve the right to do so later, despite being aware of BW's insolvency. [8]
 
Subsequently, on 21 September 2022, the Petitioner applied to seek costs against Chu and Koo personally. This application was made: (i) 2 months after the Court made a usual winding-up order against BW; (ii) 7 months after the costs order made in HCCW 32/2022; and (iii) one month after the Petitioner had obtained an order for security for costs against BW. [9] The Court joined them as parties for the purpose of costs only on 1 November 2022. [10]
 
At a hearing on 18 April 2023, the Court raised the concern whether it was open to the Petitioner to re-open the question of costs of the Petition when it had the opportunity to ask the court to depart from the usual costs order and give directions for the purpose of ordering costs against third parties. The Petitioner’s Counsel could not provide a substantive response. [11]
 
The Petitioner advanced the following grounds in support of its application for costs against Chu and Koo: [12]
 
(1) Koo/Chu are the “real parties behind the proceedings”, given that BW had no funds in its bank accounts and they must have funded the Proceedings;
 
(2) The proceedings were conducted for Chu and Koo’s personal benefit;
 
(3) The manner by which Chu/Koo conducted the proceedings was “improper, dishonest, and oppressive in the sense that the defences put forward were all obviously bound to fail or not of sound legal basis”;
 
(4) The “singular objective” by Chu/Koo was to delay the Petitioner's enforcement of the judgment while continuing to run BW for their benefit as shareholders; and
 
(5) BW was clearly insolvent throughout this period. 
 
Case 2: Target Insurance Company Ltd (in compulsory liquidation) v Nerico Brothers Ltd (CACV 223/2022, date of judgment: 17 November 2025)

Nerico Brother Ltd (“NB”) was wound up by the Court under an order dated 3 May 2022 (the “Winding Up Order”) based on the winding-up petition presented by the Petitioner. [13] After that, NB filed a Notice of Appeal dated 30 May 2022 to appeal against the Winding Up Order. By then, Mr. Lee Cheuk Fung Jerff (“Mr. Lee”) was the sole director of NB. [14]
 
On 15 July 2022, the Petitioner applied to strike out the Notice of Appeal on the ground that the appeal disclosed no reasonable ground of appeal, and/or was an abuse of process as it was frivolous or vexatious. [15] 

Pursuant to the Judgment dated 13 April 2023, the Court of Appeal struck out the Notice of Appeal as it disclosed no reasonable ground of appeal or was an abuse of process. [16]
 
The Petitioner applied for a non-party costs order against Mr. Lee. Pursuant to the judgment dated 28 December 2023, the Court of Appeal ordered that Mr. Lee be joined as a party for the purposes of costs only, and directed that a further hearing should be fixed to finally determine the incidence of costs liability on the part of Mr. Lee. [17]
 
(C) Decisions

Same Legal Principles

In both cases, the Courts applied the same well-established legal principles governing non-party costs orders against company directors. These principles, which have been set out in Dymocks Franchise Systems (NSW) Pty Ltd v Todd [2004] 1 WLR 2807 and summarized by Coulson LJ in Goknur v Aytacli [2021] 4 WLR 101 at [40] ‑ [41] as follows:

“40 Without in any way suggesting that these authorities give rise to a sort of mandatory checklist applicable to a company director or shareholder against whom a section 51 order is sought, I consider that the relevant guidance can usefully be summarised in this way:

  (a) An order against a non-party is exceptional and it will only be made if it is just to do so in all the circumstances of the case (Gardiner, Dymocks, Threlfall).

  (b) The touchstone is whether, despite not being a party to the litigation, the director can fairly be described as ‘the real party to the litigation’ (Dymocks, Goodwood, Threlfall).

  (c) In the case of an insolvent company involved in litigation which has resulted in a costs liability that the company cannot pay, a director of that company may be made the subject of such an order. Although such instances will necessarily be rare (Taylor v Pace), section 51 orders may be made to avoid the injustice of an individual director hiding behind a corporate identity, so as to engage in risk-free litigation for his own purposes (North West Holdings). Such an order does not impinge on the principle of limited liability (Dymocks, Goodwood, Threlfall).

  (d) In order to assess whether the director was the real party to the litigation, the court may look to see if the director controlled or funded the company’s pursuit or defence of the litigation. But what will probably matter most in such a situation is whether it can be said that the individual director was seeking to benefit personally from the litigation. If the proceedings were pursued for the benefit of the company, then usually the company is the real party (Metalloy). But if the company’s stance was dictated by the real or perceived benefit to the individual director (whether financial, reputational or otherwise), then it might be said that the director, not the company, was the ‘real party’, and could justly be made the subject of a section 51 order (North West Holdings, Dymocks, Goodwood).

  (e) In this way, matters such as the control and/or funding of the litigation, and particularly the alleged personal benefit to the director of so doing, are helpful indicia as to whether or not a section 51 order would be just. But they remain merely elements of the guidance given by the authorities, not a checklist that needs to be completed in every case (SystemCare).

  (f) If the litigation was pursued or maintained for the benefit of the company, then common sense dictates that a party seeking a non-party costs order against the director will need to show some other reason why it is just to make such an order. That will commonly be some form of impropriety or bad faith on the part of the director in connection with the litigation (Symphony, Gardiner, Goodwood, Threlfall).

  (g) Such impropriety or bad faith will need to be of a serious nature (Gardiner, Threlfall) and, I would suggest, would ordinarily have to be causatively linked to the applicant unnecessarily incurring costs in the litigation.

41 Therefore, without being in any way prescriptive, the reality in practice is that, in order to persuade a court to make a non-party costs order against a controlling/funding director, the applicant will usually need to establish, either that the director was seeking to benefit personally from the company’s pursuit of or stance in the litigation, or that he or she was guilty of impropriety or bad faith. Without one or the other in a case involving a director, it will be very difficult to persuade the court that a section 51 order is just. Mr Benson identified no authority in which a section 51 order was made against the director of a company in the absence of either personal benefit or bad faith/impropriety. Conversely, there is no practice or principle that requires both individual benefit and bad faith/impropriety on the part of the director in order to justify a non-party costs order. Depending on the facts, as the authorities show, one or the other will often suffice.” (emphasis added)

Different Outcomes

Despite this common legal framework, the outcomes diverged due to the application of these principles to the facts.
 
Case 1: Billion Well Construction Engineering Company Limited v Long Faith Engineering Limited and others  (HCA 805/2021, HCCW 32/2022 and HCCW 466/2021, date of judgment: 27 December 2024)
 
The Court dismissed the Petitioner’s application for non-party costs orders against Chu and Koo on the following grounds:
 
(1) Inexcusable Delay and Lack of Warning: The Court found the Petitioner’s delay in seeking costs against the directors was “inexcusable”. [18] The application was filed around 2 months after the winding-up order. The Petitioner failed to warn the directors of its intention at the hearing for the Petition on 25 July 2022 or to ask the Court to reserve the question of costs. This delay deprived the directors of a reasonable opportunity to conduct the litigation differently and was contrary to the “exceptional” nature of the jurisdiction.
 
(2) Invalid Claim for Costs: The Court found that, even if the Petitioner’s delay was excused, the Petitioner had no valid grounds to seek the costs occasioned by the application for security for costs in HCA 805 after the winding-up order was made. [19] This is because the winding-up order triggered an automatic stay of HCA 805, and the Petitioner could not proceed with the application without obtaining leave from the Court.
 
(3) Failure to Prove Personal Benefit: The Petitioner failed to show that Chu and Koo were the “real parties” litigating for their personal benefit. The Court held that the evidence, at its highest, showed the proceedings were conducted for the benefit of BW. [20] The Petitioner’s argument that the directors likely benefited from company funds was speculative, and the Court noted that any such misappropriation was a matter for the liquidators to pursue, not a basis for a non-party costs order.
 
Case 2: Target Insurance Company Ltd (in compulsory liquidation) v Nerico Brothers Ltd (CACV 223/2022, date of judgment: 17 November 2025)
 
The Court allowed the Petitioner’s application for a non-party costs order against Mr. Lee on the following grounds:
 
(1) Lack of Bona Fide Belief in the Appeal’s Merits: The Court found that Mr. Lee could not have held a genuine belief that the appeal had any arguable merit. [21] This was because the grounds of appeal directly contradicted NB's consistent prior position, advanced by Mr. Lee himself, that the debt was due and payable. The Court rejected Mr. Lee’s claimed reliance on legal advice was not credible.
 
(2) Failure to Consider Creditors’ Interests: The Court found that Mr. Lee could not have a bona fide belief that it was in the best interests of NB to pursue the appeal. [22] As the director of an insolvent company, he had a duty to consider the interests of creditors. There was no evidence to show that he considered the interests of the Petitioner, NB's largest creditor, when deciding to file the appeal. His actions were for an improper purpose and not in the best interests of NB.
 
(3) Lack of Warning Not Determinative: The Court held that the Petitioner’s failure to give an early/timely warning to Mr. Lee did not render the costs order unjust. [23] There was no evidence to show that Mr. Lee would have acted differently had he been warned.
 
(D) Key Takeaways
 
The contrasting outcomes in the above cases provide helpful guidance for litigants and company directors:

(1) For Applicants: Timing is Important: An unexplained delay in applying for a non-party costs order can be fatal. The Court views this jurisdiction as exceptional and will not allow a successful party to re-open costs issues long after the fact. Further, to strengthen its position, a successful party should warn the director at the earliest opportunity and, if necessary, asking the Court to reserve the question of costs at the main hearing.

(2) For Applicants: Evidence of Impropriety Trumps Speculation: The Court will not pierce the corporate veil based on mere suspicion. Applicants must provide sufficient evidence to demonstrate that the director's conduct involved serious impropriety or that the litigation was pursued for their personal benefit, rather than for the benefit of the company.

(3) For Directors: Act in the best interests of the Company/ Creditors: The shield of limited liability is not absolute. When a company is insolvent or near insolvent, a director’s duty shift to acting in the interests of its creditors. A director who can demonstrate a genuine belief in the merits of the litigation and that it serves the interests of the company and/or its creditors is likely protected from personal costs orders. However, reliance on legal advice is not an absolute defence if the case is plainly unarguable. Pursuing litigation that harms company and/or its creditors for the benefit of the shareholders or the directors themselves constitutes serious impropriety and will attract personal liability for costs. 

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[1] https://www.elegislation.gov.hk/hk/cap4?xpid=ID_1438403154629_002

[2] https://www.elegislation.gov.hk/hk/cap4A?xpid=ID_1438403276590_001

[3] https://legalref.judiciary.hk/lrs/common/ju/ju_frame.jsp?DIS=165308

[4] https://legalref.judiciary.hk/lrs/common/ju/ju_frame.jsp?DIS=174496

[5] Billion Well Construction Engineering Company Limited v Long Faith Engineering Limited and others (HCA 805/2021, HCCW 32/2022 and HCCW 466/2021, date of judgment: 27 December 2024), §2

[6] Ibid, §3

[7] Ibid, §11

[8] Ibid

[9] Ibid, §35

[10] Ibid, §15

[11] Ibid, §16

[12] Ibid, §20

[13] Target Insurance Company Ltd (in compulsory liquidation) v Nerico Brothers Ltd (CACV 223/2022, date of judgment: 17 November 2025), §1

[14] Ibid, §2

[15] Ibid, §3

[16] Ibid, §4

[17] Ibid, §5

[18] Billion Well Construction Engineering Company Limited v Long Faith Engineering Limited and others (HCA 805/2021, HCCW 32/2022 and HCCW 466/2021, date of judgment: 27 December 2024), §36

[19] Ibid, §39

[20] Ibid, §40

[21] Target Insurance Company Ltd (in compulsory liquidation) v Nerico Brothers Ltd (CACV 223/2022, date of judgment: 17 November 2025), §29-35

[22] Ibid, §36-40

[23] Ibid, §44