The court established that a plaintiff company must present credible evidence affirming its financial ability to pay costs; otherwise, ordering security for costs could be unjust.

[1] This is an interlocutory application (Enclosure 31) commenced pursuant to s 351 of the Companies Act, 1965 ('C/A') and/or under the inherent jurisdiction of the Court for inter-alia the following orders:

(1) That the Plaintiff, within 7 days, give security for costs to the Defendants in the sum of RM 200,000.00;

(2) That all proceedings in this matter be stayed until the above security for costs is furnished by the Plaintiff;

(3) If the Plaintiff fails to furnish the security for costs to the Defendants within the prescribed time, this proceedings be struck out forthwith with costs; and

(4) Costs of and incidental to this application be borne by the Plaintiff.

Grounds In Support of Enclosure 31

(1) Based on a company search on the Plaintiff with the Companies Commission of Malaysia ('CCM'), the Plaintiff was a dormant company whose liabilities exceeded its total assets. Hence, it was technically insolvent and impecunious.

(2) The Defendants had a credible defence to the Plaintiff's claim as reflected in the defence and counter-claim of the 1st Defendant.

(3) The Defendants had refused to accede to the Plaintiff's request to provide security for costs in the sum of RM 200,000.00.

(4) Considering the circumstances of the case the quantum of security applied for is reasonable.

The Law Applicable

[2] Section 351 (1) of the C/A which governs security for costs to be given by a plaintiff company in any legal proceeding or action provides that:

"Where a company is plaintiff in any action or other legal proceeding the Court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the company will be unable to pay the costs of the defendant if successful in his defence, require sufficient security to be given for those costs and stay all proceedings until the security is given."

[3] In Haidakota (M) Sdn Bhd v. Tan Tiam Chai and Anor Appeal, , a leading authority on this aspect of the law, the Court of Appeal held, inter alia, that s 351 conferred a very wide discretion on the High Court and laid down the guidelines upon which that discretion ought to be exercised, Gopal Sri Ram, JCA (as His Lordship then was) in delivering the judgment of the Court pronounced that:

" Section 351 of the Companies Act 1965 ('the Act') confers a very wide discretion on the High Court to order a company to provide security for costs in an action brought by it or against it. There are settled guidelines upon which the discretion falls to be exercised. Firstly, the application for security for costs must be made with reasonable promptitude after the issue of the writ. Delay is a good reason for the Court to exercise discretion against the parties applying for security. Secondly, an order under s 351 of the said Act should generally not be made where the making of it would be oppressive. This is particularly so in a case where the company has an arguable case. Thirdly, security for costs should not be ordered where there is absence of any mala fide on the part of the plaintiff company in bringing its claim. Special attention should be paid to the balance that should be drawn between exposing an innocent defendant to the expense of defending a claim against the risk of shutting out a plaintiff from ventilating a genuine grievance."

[4] According to an earlier judgment of the Court of Appeal by the same learned Judge in Skrine & Co v. MBF Capital & Anor, , under s 351, C/A, a two-stage inquiry is required to be carried out in the process of deciding whether security for costs should be ordered in an action where the plaintiff is a registered company. It was held that:

" Section 351 (1) of the Companies Act 1965 provides for a two stage inquiry in the process of arriving at the conclusion as to whether security for costs