Castel Electronics Pty Ltd v TCL Air Conditioner

IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 1044 OF 2012

JUDGE: TRACEY J DATE: 26 FEBRUARY 2013 PLACE: MELBOURNE

REASONS FOR JUDGMENT 1 This is the return of an application by the respondent ("Castel") to three appeals which are pending in the Court for orders that the appellant ("TCL") provide security for its costs of the appeals. 2 The appeals have been brought from a judgment of Murphy J in which he dealt with three related applications. Those applications arose from arbitral awards which ruled on commercial disputes between the parties. 3 The awards were made against TCL. It refused to pay the awards. In two of the proceedings TCL sought to set aside the awards. In the third Castel sought to enforce the awards. Murphy J dismissed TCL's applications and upheld Castel's: see Castel Electronics Pty Ltd v TCL Air Conditioner (Zhongshan) Co Ltd (No 2) [2012] FCA 1214. His Honour's judgment was delivered on 2 November 2012. TCL filed a notice of appeal on 10 December 2012. On 5 February 2013 Gray J ordered that, subject to any direction of the Full Court, the three appeals should be heard together. The appeal hearings have been fixed for the May appeal sittings of the Court. 4 The Court's power to order that an appellant give security for costs is conferred by s 56(1) of the Federal Court of Australia Act 1976 (Cth) ("the FC Act"). Rule 36.09 of the Federal Court Rules empowers a party to an appeal to apply to the Court for such an order. 5 It is necessary that I say something, briefly, about the underlying disputes between the parties and the course of the litigation in which they have engaged. TCL is a Chinese company which manufactures air conditioners. Castel is an Australian company which marketed TCL air conditioners pursuant to a distribution agreement. Castel complained that TCL had breached the distribution agreement in a number of ways. These claims were submitted to a commercial arbitration. The arbitrators made an award in Castel's favour in the amount of $2,874,870 on 23 December 2010. They made a further costs award on 27 January 2011. Castel's solicitors sought payment of these amounts. No payment was made. 6 In or about February 2011 Castel sought to enforce the awards in proceedings commenced in the Zhongshan Intermediate Peoples Court. TCL objected to the jurisdiction of the Court. The Court ruled that it had jurisdiction. TCL appealed and the higher court held that TCL did not have a right to object to jurisdiction. TCL then commenced a series of proceedings against Castel in China including an application for a retrial of the original proceeding. 7 On 19 November 2012 Murphy J ordered that there be judgment for Castel against TCL in respect of the final award, including interest, in the sum of $3,744,887.88, and his Honour further ordered that there be judgment for Castel against TCL in the sum of $864,580.79, again inclusive of interest, in respect of the costs award. Castel's solicitors immediately requested payment by TCL of $4,621,787.02. No payment has been made. 8 On 13 December 2012 Castel's solicitors wrote to TCL's solicitors. They requested that TCL provide security for Castel's legal costs of the pending appeals. This request was refused. 9 Castel's solicitors have caused various enquiries and searches to be made. These have revealed that TCL has no grant or registrations for personal property or securities in Australia, that TCL holds no title to property in Australia, that TCL has no registered corporate presence in Australia and that it is not a resident in the jurisdiction. TCL did not seek to dispute these assertions, nor did it seek to suggest that it had any other assets in the jurisdiction which might be called on in the event that its appeals were unsuccessful and costs orders were made against it by the Full Court. 10 Castel relied on a report, prepared by Ms Margaret Vine, a costs consultant in which she estimated Castel's legal costs in defending the three appeals would be of the order of $65,425.00. I regard her estimate as being a conservative one. 11 Section 56 confers a wide discretionary power on the Court which must, of course, be exercised judicially: see Energy Drilling Inc v Petroz NL (unreported, Gummow J, 3 May 1989). 12 Security for costs will not be ordered against a party simply because that party resides outside the jurisdiction: see CBS Records Australia Ltd v Telmak Teleproducts (Aust) Pty Ltd (1987) 72 ALR 270 at 284-5. In a particular case, however, justice may require that such an order be made in order to protect a respondent against the risk that it will be unable to recover any costs awarded by the Full Court should it be successful in resisting the appeal: see Kent Heating Limited v Cook-on Gas Products Pty Ltd (1984) 59 ALR 277 at 279. Such a risk may arise if the party against whom the order for security is sought has no assets in the jurisdiction and uncertainty attends any prospect of the successful party enforcing costs orders in the country where the appellant is resident. 13 TCL did not seek to suggest that any costs order would be enforceable against it in China pursuant to any international arrangements between Australia and China. Nor did it advance any evidence to suggest that, were an order for security for costs to be made, this would have the effect of stifling its capacity to prosecute the appeals. 14 It argued that Castel was aware when it elected to pursue its claims in the jurisdiction of the matters to which I have already referred. It also argued that given the closeness of the appeal hearing, there was no likelihood of Castel sustaining any greater detriment than it has already incurred by reason of the fact that Murphy J's orders have not been complied with. 15 The evidence suggests that TCL has operated an international business successfully over many years. Its interests during the arbitral and curial proceedings in Australia have been placed in the hands of a large international firm of solicitors. I infer that that TCL has been prepared to and has transferred funds to Australia for legal costs and disbursements incurred on its behalf by its solicitors. 16 TCL has not, however, been prepared to pay to Castel the sums awarded by the arbitrators or required to be paid pursuant to Murphy J's orders. It has not sought or obtained a stay of these awards or orders. 17 In all of these circumstances I consider that it is appropriate to make the orders sought by Castel, save that I consider that there should be an allowance as against the prospect that on taxation the amount estimated as being payable to Castel, should it be successful in resisting the appeals, would be discounted to some extent, but not to the normal extent by reason of the conservative nature of the estimate. There is, in my opinion, a substantial risk that Castel may not, were judgment be given in its favour by the Full Court, be reimbursed in full for its taxed costs. I certify that the preceding seventeen (17) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Tracey.