Beijing Hua Xin Liu He Investment (Australia) Pty Ltd v Lu

Federal Court of Australia|2022-11-04|Before: Jackson J, McKerracher J, Moshinsky JJ, Smith J

Rule 40.13 of the Federal Court Rules 2011 (Cth) be dispensed with.
The first respondent pay the applicants' costs of and incidental to the interlocutory application for summary judgment filed 30 July 2021 on a party and party basis in accordance with orders 3 to 5.
Those costs be assessed on a lump sum basis.
The matter be referred to a registrar to fix the sum resulting from order 3.
The first respondent pay the sum fixed in accordance with order 4 forthwith. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

BANKS-SMITH J: 1 On 17 February 2022 I dismissed a second application for summary judgment brought by the first respondent, Mr Lu: Beijing Hua Xin Liu He Investment (Australia) Pty Ltd v Lu (No 3) [2022] FCA 108 (SJ reasons). 2 Mr Lu sought leave to appeal from the orders dismissing the application, but leave was refused: Lu v Beijing Hua Xin Liu He Investment (Australia) Pty Ltd (No 2) [2022] FCA 654 (Jackson J). 3 I then made directions as to the costs of the unsuccessful summary judgment application. I required Mr Lu and the first applicant, Beijing Hua Xin Liu He Investment (Australia) Pty Ltd, to each file a concise statement setting out their submissions and disclosing their position as to the quantum of potential costs awards on different bases, and indicating the costs orders they respectively sought. I requested the parties provide submissions as to likely quantum prior to any formal costs assessment in order to enhance the potential for agreement without further costs being incurred, as regrettably this matter has already absorbed significant Court resources and, no doubt, significant resources of the respective parties. That aim was perhaps overly ambitious having regard to the history of this litigation. Despite my earlier optimism, I must now turn to determine the question of costs of the application. 4 For context I also observe that Mr Lu previously brought another summary judgment application. That first application was brought in 2017 and initially allowed by the primary judge: Beijing Hua Xin Liu He Investment (Australia) Pty Ltd v Lu [2017] FCA 319 (McKerracher J). The decision was overturned on appeal: Beijing Hua Xin Liu He Investment (Australia) Pty Ltd v Lu [2017] FCAFC 186 (Gilmour, Jagot and Moshinsky JJ). The Full Court considered that the circumstances were such that the contractual claims underlying the proceedings were not amenable to summary dismissal: at [17]-[18].

Why summary judgment application failed 5 These reasons assume a familiarity with both the SJ reasons and the reasons of Jackson J refusing leave to appeal. 6 In short, I dismissed the summary judgment application because there were a large number of areas of conflicting facts which would require testing and determination at trial. For ease of reference, I set out the relevant paragraph from the SJ reasons: [93] Areas of conflicting facts include the following: (a) whether or not any oral agreement was formed during conversations in Singapore, and if so, its terms; (b) what was meant (if anything of substance) by the use of different expressions such as 'report' (to Mr Tu), 'plans', 'proposals', and 'acquisitions', noting that some of the evidence has been translated and there may be subtleties that will be addressed or disclosed by oral evidence including cross-examination; (c) the 9 May 2011 email is not conclusive for this reason - it is not apparent whether as a 'report' it is intended to report on future options or justify a past acquisition, although I acknowledge that on its face it provides some support to Mr Lu; (d) whether Mr Tu 'directed' Mr Lu to apply funds against debts of Biostarch prior to 15 August 2011 - there is a clear conflict of evidence as to this matter and the documentary evidence does not clearly resolve such conflict; (e) whether Mr Lu was involved in instructing the external accounting firm as to the preparations of Beijing's accounts and to what extent, a matter of direct conflict between Mr Lu's evidence and that of Ms Chen; (f) the basis upon which the various invoices and payments in the accounts were described and at whose direction, having regard also to the involvement of external accountants, and their legal status; (g) whether or not Mr Zheng was able to make cash payments to Mr Tu, having regard to geographical limitations and if so, when; (h) whether cash payments were made and received, an issue that may require credibility findings; (i) issues relating to the invoices touched on by the Full Court (see [32] above), some of which remain unexplained but no doubt will otherwise be tested at trial; (j) the fact that ambiguities and conflict still remain as to the effect and terms of the 15 August 2011 email, and such ambiguity is not removed by other unambiguous or persuasive documentary evidence; (k) the content of a conversation between Mr Zheng and Mr Lu after Mr Zheng had a discussion with Mr Tu about a proposal to buy shares in Zeus and the purchase price; (l) the conflicting evidence as to why the signed transfer form was provided; (m) the content of a conversation between Mr Zheng and Mr Lu about the transfer form after the Singapore meeting; and (n) the content of conversations between Ms Chen and Mr Lu about the share transfer form. 7 In addition, I did not consider that the documents relied upon by Mr Lu were of such probative force as to justify summary dismissal of Beijing's claim. 8 However, one of the more influential factors in my decision was delay. I said as follows: [102] I am also concerned as to the timing on the part of Mr Lu in bringing this second application and have taken this into account in reaching my decision. The reasons why Mr Lu now submits Beijing's claim against it should be dismissed could have been made the subject of an application long before the parties embarked on their trial preparation. I note in particular that Mr Lu says that he stumbled across the ANZ letters in April 2018 (prior to the hearings before me in September 2018 and October 2018 - Beijing (No 2)). As I have noted above, EFT documents relating to those payments were discovered by Mr Lu in 3 February 2020 and the financial and tax records of Beijing were discovered in December 2018. I acknowledge that Mr Lu chose to commission a forensic report as to the 9 May 2011 email, but that course could have been undertaken earlier. Instead of bringing his application based on such documents earlier, he waited until the parties had undertaken trial preparation, and when after many years of skirmishes the matter was for all intents and purposes otherwise ready for trial. Bringing a summary judgment application in such circumstances is to be discouraged. The resources of the parties and the Court could have been utilised in hearing and determining the trial. The trial has been deferred by this application, and further resources must inevitably be expended. [103] The question of delay may be less significant in a case where there are strong grounds for summary judgment, but that is not this case. 9 And so it is apparent that Mr Lu's conduct in bringing the summary judgment application close to trial weighed against its success. Such conduct is relevant to the question of costs. I will return to this.

Principles - costs on interlocutory application and indemnity costs 10 The ordinary rule is that costs of an interlocutory proceeding cannot be taxed until the determination of the proceeding: Federal Court Rules 2011 (Cth) r 40.13. 11 The rule may relevantly be departed from where a party has engaged in unreasonable behaviour which has caused the other party to incur additional expenditure that would have not have been incurred if the other party had acted with competence and diligence: Capic v Ford Motor Company of Australia Limited (Costs Forthwith) [2019] FCA 1065 at [18]. It is also relevant to take into account the length of time between when the costs order is made and when the costs might finally be taxed after trial and judgment. 12 As to the basis of any award of costs, the Court has a broad discretion: Federal Court of Australia Act 1976 (Cth) s 43. Costs ordinarily follow the event and are awarded on a party and party basis unless there are particular or special circumstances which would warrant the Court making a special costs order, including an order that costs be assessed on an indemnity basis: Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225 at 232-234. 13 Examples identified in Colgate-Palmolive of the circumstances which may warrant the exercise of the discretion to award indemnity costs include: evidence of particular misconduct that causes loss of time to the court and the other parties; the fact that proceedings were commenced for some ulterior motive; the fact the proceedings were commenced in wilful disregard of known facts or clearly established law; the making of allegations that ought never to have been made; or the undue prolongation of a case by groundless contentions. 14 The circumstances where indemnity costs might be ordered extend to the bringing of a manifestly misconceived summary judgment application: Watson v Kriticos (Costs of Summary Judgment Application) [2021] FCA 917 at [15] (Perram J). See also Young v Wyllie (No 2) [2010] FCA 616 (Moore J). 15 In each case the fundamental question is whether the particular facts and circumstances warrant the making of an order other than on a party and party basis. 16 Where costs are awarded, a lump-sum order may be made. The Court's preference, wherever it is practicable and appropriate to do so, is to make a lump-sum order to finalise the costs issue: Costs Practice Note (GPN Costs) at [3.3] and [4.1].

Mr Lu 17 In short, Mr Lu contends that the costs of the application should be in the cause, or, in the alternative, the determination of liability for costs should be reserved until after trial. He submits that if neither of those courses are accepted by the Court, then any assessment and payment of costs by him should be deferred until after trial. 18 Mr Lu recites in his submission dissatisfaction with the manner in which Beijing has conducted the litigation, such as the fact that it amended its case after the first summary judgment application and appeal, and in effect asserts that Beijing's entitlement to costs should be reduced having regard to its own conduct. Many of Mr Lu's complaints are not of any persuasive relevance to the particular question of costs with which I am concerned, but I will summarise those that were put most forcefully. 19 Mr Lu asserts that the trial programming orders assisted Beijing to hide behind orders regarding the non-disclosure of evidence about contentious matters, orders that permitted it to avoid revealing such matters on the summary judgment application. This is a reference to relatively standard case management orders that were made for lay evidence to proceed by affidavit, save as to evidence about contentious matters (such as conversations that are in issue). Outlines of the contentious evidence that it was expected would be given were to be exchanged between the parties, but not provided to the Court. At the time of the summary judgment application, affidavits had been filed and outlines exchanged as anticipated. It was entirely appropriate that the contentious evidence outlines were not disclosed to the Court on the summary judgment application. They did not constitute evidence. Ultimately there may or may not be evidence consistent with the outlines given at trial. Beijing did not hide behind this process, but complied with the Court orders. The criticism of it on this front is not well-directed. 20 Mr Lu also submits that the trial programming orders are a reason to defer determination of costs as contentious evidence will be revealed at trial and might support his position. He might be right that such evidence ultimately supports his case and that any credibility contests are determined in his favour. That does not persuade me that the determination of costs should be deferred. The likely absence of such evidence on the summary judgment application was a relevant factor to be addressed by Mr Lu in considering whether it was appropriate to seek to have the matter resolved summarily. 21 Mr Lu also says that Beijing may abandon its current case, and such conduct should have an effect on costs orders. One might speculate that any of the parties might seek to further amend their case prior to trial, or the evidence may not support the case pleaded - but the summary judgment application fell to be determined at the time it was brought and on the basis of the respective cases at that time and the evidence before the Court. There is no reason costs should be deferred on the off-chance that some conduct in the future might be seen to colour Beijing's entitlement to costs on the application that was actually run. Mr Lu's summary judgment application has been finally determined and leave to appeal from it has been refused. 22 Mr Lu also asserts that 'Mr Tu has form for playing games with Superior Courts', citing a decision of the Ontario Superior Court of Justice. I was not directed to any relevance to this proceeding of the Ontario decision. Even if it were true that there had been some criticism of Mr Tu by another court, it might be that Mr Tu has learned from that experience and now conducts himself in a different manner. I do not propose to say anything further about this speculative submission, a submission that I consider should not have been made. 23 Mr Lu makes a number of other submissions that in essence constitute criticism of my reasons for dismissing the summary judgment application, my decision to decline to grant him leave to rely on an affidavit filed out of time (late affidavit) and Beijing's responsive conduct in issuing a notice to produce documents. He submits that if the difficulties with his summary judgment application were so obvious, then Beijing should not have spent so much money defending the application. Whilst I understand that Mr Lu is aggrieved at my decision to dismiss his application, he has had the opportunity to seek to appeal from it and has taken that opportunity. I do not see value in re-agitating his points of grievance. Nor do I consider it appropriate to do so.

Beijing 24 Beijing contends that it is entitled to costs of the summary judgment application on an indemnity basis. It makes three substantive points. 25 First, it refers to my findings in the SJ reasons referred to above at [6]-[8]. It submits that it was always clear that there were factual controversies that must be resolved at trial, and that there was a large amount of disputed material. 26 Second, it submits that Mr Lu wasted Beijing's time and money by attempting to rely on the late affidavit without seeking leave in a timely manner. 27 Third, it invites the Court to infer that Mr Lu delayed bringing the application until late in the day for the ulterior purpose of disrupting the orderly progression of this matter to trial. It points to Mr Lu's unconvincing explanation that delay in bringing the application was caused by his efforts to secure an expert report (see [60] of the SJ reasons). 28 Beijing submits that the lack of an adequate explanation for the timing of the application combined with the lack of strong grounds for summary judgment meant that the application was doomed to fail.

Determination 29 Beijing is entitled to be compensated for the costs incurred in defending the ill-fated summary judgment application. Nothing in Mr Lu's submissions points to conduct on the part of Beijing which would deny or diminish its entitlement to costs of the application. Mr Lu should pay Beijing's costs of and incidental to his unsuccessful application. That is an orthodox outcome. 30 The real questions for consideration are whether those costs should be paid either immediately or after the determination of the proceedings, and whether they are to be paid on an indemnity basis. 31 In my view the summary judgment application was ill-conceived. I am concerned as to the timing of the application, brought when the matter was otherwise on track for hearing in February 2022. It is no longer on track. The parties have not committed to when the trial might proceed. At the moment it may proceed in April 2023 or June 2023, but the position is uncertain. 32 These matters justify an order that costs be paid now by Mr Lu, rather than be held in abeyance in the cause, or left to be determined after trial. Otherwise there will be a significant delay before Beijing receives the benefit of any payment by way of compensation for costs incurred, in circumstances where its entitlement to such compensation is clear. 33 The more difficult question is whether the conduct of Mr Lu in pursuing the summary judgment application was such that he should pay costs on an indemnity basis. 34 Although it is finely balanced, I have decided that Mr Lu's conduct was not so egregious as to require him to pay the costs of the summary judgment application on an indemnity basis. He was clearly acting on legal advice but failed to properly understand the purpose and effect of the orders that programmed the lay evidence to trial. He held a misplaced confidence in the probative value of certain documents when viewed in isolation. However, I do not consider there are sufficient grounds for me to infer that the bringing of the application was an abuse of process. Rather it appears to have been a badly designed plan to bring the litigation to a close, based on a misunderstanding of the complexities in play. Mr Lu clearly does not believe much or any of what the Beijing witnesses say about events. But those disputed matters, particularly those that give rise to questions as to credibility of evidence, must ultimately be determined by the Court after trial and were not amenable to summary determination. Although a party acting prudently would not have brought the application, particularly in light of its proximity to trial, I would not describe the application as undoubtedly hopeless. His conduct has not been so unreasonable as to warrant departure from the usual party and party basis of costs assessment. Further, some of the work undertaken by Beijing in resisting the application will have served the purpose of assisting it to refine its arguments at trial. This is apparent from, for example, the dispute that was aired as to the tax treatment of invoices: SJ reasons at [71]-[77], [95]. 35 Having regard to all of the circumstances, I consider that the appropriate costs order that fairly reflects the outcome of the application is that Mr Lu must pay Beijing (and the applicant parties) their costs of and incidental to the summary judgment application on a party and party basis, as assessed on a lump sum basis by a registrar of this Court, and payable forthwith. 36 Mr Lu should proceed on the basis that any further applications of this nature prior to trial may well be seen as an abuse of process. 37 There will be orders accordingly. I certify that the preceding thirty-seven (37) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Banks-Smith.

Federal Court Rules 2011(Cth)r 40.13, r 40.13.

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