These proceedings arise out of a claim by the plaintiff, Mr Yongqing Chen, to an interest in a property located at Bickell Road, Mosman (the "Mosman property"). The first defendant is Golden Land Enterprises Pty Limited ("Golden Land"). It is the owner of the property and acts as trustee of a unit trust called the Golden Land Unit Trust ("the Trust"). The second defendant is Ms Huixia Chen, who, despite the common name, is no relation of the plaintiff.
There are two interlocutory matters for determination. The first concerns the costs of an application by Mr Chen for leave to amend his statement of claim. The second concerns two separate applications for security for costs filed by Golden Land and Ms Chen.
[2]
Background and procedural history
Golden Land was incorporated in May 2017. The directors of the company upon incorporation were Ms Min Li and Mr Hong Cao (the then husband of the second defendant, Ms Chen). Ms Hong Luo and Mr Bingjiang Feng have also been directors of the company since 31 July.
According to Mr Chen, in early May 2017 he was approached by Ms Li, Mr Feng, Ms Chen and Mr Cao, who explained that, together with a number of other investors, they were going to purchase the Mosman property. The exact legal structure of the investment was yet to be determined, but they told Mr Chen that investors would receive an interest in the property proportionate to their contribution to the purchase price. Mr Chen agreed to invest around $50,000 on this basis.
Mr Chen, who at all relevant times has lived in China, did not invest his money directly with Golden Land. He alleges that around May 2017, he, Ms Chen and Mr Cao entered into an agreement on terms that he would pay his investment contribution to Ms Chen, who would then transfer it, together with $100,000 which she was investing herself, to Golden Land. Ms Chen was to arrange for a broker to exchange Mr Chen's investment contribution from Chinese yuan to Australian dollars and then transfer those funds to Australia for the purpose of the investment.
Mr Chen says that on 10 May, Ms Chen directed him to make two payments. The first was for an amount of ¥120,692 (around $24,000), which was to be deposited into a Chinese bank account held by Huobao Zhong, a representative of the exchange broker nominated by Ms Chen. The second was for an amount of ¥142,658 (around $28,000), which was to be deposited into a Chinese bank account held personally by Ms Chen. Mr Chen made the payments as directed. He was advised by Mr Cao and Ms Chen on 12 May that his contribution had been received by Golden Land and transferred into the trust account of its legal representatives, CMI Legal.
On 19 May, a contract was entered into by Golden Land for the purchase of the Mosman property at a price of $5.8 million. On 31 July, in anticipation of the contract being completed, the Trust was established as a unit trust, with Golden Land as trustee.
Mr Chen was not a signatory to the Trust Deed and was not issued units in the Trust in his own name. He alleges that around this time, he was told that his interest would be held on his behalf by Ms Luo, who was a director of the company and who had been issued units in the Trust.
The purchase of the Mosman property settled in late November 2017, at which time Golden Land became the registered proprietor. Mr Chen alleges that following this, he was treated as an investor. He was included in WeChat groups concerning the management of the property and made payments to Golden Land for expenses relating to the property.
In April 2021, Golden Land entered into a contract to sell the property to a third party. It was sold on 16 July for a price of $6.7 million.
As I will explain in further detail below, Mr Chen's claims against Golden Land and Ms Chen have evolved over the course of the proceedings. However, in broad terms he claims that he should be recognised as being entitled to a beneficial entitlement of 0.84% of the net proceeds of sale. He says that his payments to Ms Chen represented 0.84% of the original cost of acquiring the property.
These proceedings were commenced by way of summons on 5 July last year, shortly before the sale of the Mosman property was to complete on 16 July. At that stage, Golden Land was the only defendant and Mr Chen sought an urgent injunction restraining it from distributing 0.84% of the net proceeds of sale.
The proceedings came before Robb J, sitting in the Duty List, on 6 July. His Honour granted the injunction and also ordered that the proceedings continue on pleadings. Mr Chen was to file his statement of claim by 20 July, and Golden Land was to file its defence by 3 August. Mr Chen filed his statement of claim on 22 July, at which point Ms Chen was joined as second defendant.
In his original statement of claim, Mr Chen sought a declaration that either Golden Land or Ms Chen held 0.84% of their interest in the Mosman property on trust for him, and that they were estopped from denying to the contrary. He sought orders that either Golden Land or Ms Chen pay him 0.84% of the net proceeds of sale, or alternatively, damages.
On 31 July, Golden Land filed a notice of motion seeking security for costs pursuant to r 42.21(1)(a) of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"). It seeks an initial amount of $36,000 up to, but not including, the hearing. Ms Chen filed a similar notice of motion on 30 August. She seeks an order for security in the amount of $51,000.
To date, neither Golden Land nor Ms Chen has filed a defence. However, in July 2021, Ms Luo filed an affidavit in Golden Land's case which, at least in broad terms, indicates its defence. In effect, Golden Land denies that it ever received Mr Chen's investment contribution. There were no equivalent affidavits filed on behalf of Ms Chen, and at this stage, her defence is unclear.
The proceedings came before me on 12 October to deal with the defendants' applications. At the hearing, it became clear that there were significant problems with Mr Chen's pleaded case, particularly against Ms Chen. I explained to counsel for Mr Chen, who at that stage was Mr Rizk, that if the claim against her were to continue, he would need to amend his statement of claim to make it clear exactly what the cause of action against her was. I directed that Mr Chen serve a proposed amended statement of claim by 22 October, with the defendants to indicate whether they consented or objected to the amendments by 26 October.
Thereafter, Mr Chen served an amended version of his pleading, to which counsel for Ms Chen raised several objections. The matter was re-listed before me on 27 October. At the hearing, I explained to counsel for Mr Chen that there were still problems with the pleaded case as against both Golden Land and Ms Chen. I decided to give counsel an opportunity to serve another proposed amended statement of claim. I directed that he do so by 10 November, with the defendants to indicate whether they consented or objected to the amendments by 15 November.
Mr Chen did not serve his further proposed amended statement of claim until after close of business on 12 November. Counsel for Ms Chen filed submissions raising various objections to the amendments and the matter was listed before me for hearing on 17 November. By that point, Mr Rizk had been replaced as counsel for Mr Chen by Mr Condon SC. There was a suggestion by counsel that the statement of claim might require further surgery still, and I stood the matter over to allow that to happen.
The matter returned before me on 29 November, by which point counsel for Mr Chen had circulated a further proposed amended statement of claim. I adjourned the proceedings to 6 December to hear brief oral submissions on the grant of leave and costs, after which I reserved my decision.
As a result of the proposed amendments, Mr Chen's claims against both defendants, but particularly Ms Chen, have changed substantially. His original claim against Ms Chen was one arising out of estoppel. He alleged that she had made representations to him that he would be the beneficial owner of 0.84% of Golden Land's interest in the property and that she would hold that interest on trust for him. In reliance on these representations, Mr Chen made the investment. He claimed that Ms Chen was estopped from denying that she held his interest on trust for him, and sought a declaration to that effect.
In written submissions however, counsel for Ms Chen pointed out that the pleading was silent as to the nature and scope of any trust between his client and Mr Chen. When this was raised with counsel for Mr Chen, he indicated that the facts gave rise to an express trust. But by the time of the first proposed amended statement of claim, that allegation had been abandoned and replaced with a claim that Ms Chen held Mr Chen's interest on "resulting or constructive trust for [him]". It was still, however, unclear what the subject matter of the trust was, or could be; the pleaded interest was one in the Mosman property itself, but that property had been sold by Golden Land on 16 July. In circumstances where there was no claim for tracing or equitable compensation, the declaratory relief sought was clearly insufficient.
There was also a claim against Ms Chen for moneys had and received in respect of the two payments made by Mr Chen in May 2017 (see [7] above). Specifically, Mr Chen sought an order that Ms Chen "is liable to the plaintiff for monies had and received in the sum of $55,000 being equivalent to CNY 263,350". However, counsel for Ms Chen raised a jurisdictional issue; the claim could only relate to the transfer of Chinese yuan within China between Chinese residents. In counsel's submission, neither transaction had any nexus to Australia and any legal rights attaching to them were rights which accrued under Chinese law.
In addition to the problems raised by counsel for Ms Chen, at the hearing on 27 October I raised a further issue. Mr Chen's proposed pleading sought a declaration that "of Ms Chen's holding of 2.5% of the units in the Trust", 0.84% was held on resulting or constructive trust for him. That would, of course, be contingent on Mr Chen first establishing that Ms Chen actually held 2.5% of the units in the Trust, but that had not been pleaded.
There were also issues with the pleaded claims against Golden Land. The statement of claim tended to recount the evidence, without making it clear what the allegations of material fact were. What Mr Chen was in effect seeking was an enforcement of the initial alleged agreement with Golden Land that he would receive a share in the property or the net proceeds of sale. But that was not the way it had been articulated in the pleading.
By the end of the hearing on 27 October, I was not satisfied that there was any cause of action disclosed against Ms Chen, and the pleading against Golden Land was inadequate as it lacked a critical element of the claim.
Mr Chen's second proposed amended statement of claim, which was served on 12 November, sought to rectify some of these issues. Counsel for Golden Land did not object to the amendments, but counsel for Ms Chen did. After further debate, counsel for Mr Chen indicated that there were further amendments he wished to make.
The third proposed amended statement of claim, which was served on 26 November, is the most recent version of the pleading. As against Golden Land Mr Chen alleges that in breach of their agreement, the company has failed to pay him any part of the monies which represents 0.84% of the net proceeds. He seeks damages for breach of contract, equitable compensation, and a declaration that the company is estopped from denying it received his investment contribution and that it caused units to be issued which were beneficially owned by him.
Golden Land denies that it ever received Mr Chen's investment contribution. If that is indeed correct, then Mr Chen alleges that the only explanation for this is that Ms Chen failed to transfer the money. As against her, he seeks an order that she specifically perform the agreement as referred to at [6] above. Alternatively, he seeks damages for breach of contract, equitable compensation and an account of profits. There is also a claim against her for damages or compensation pursuant to ss 236 and 243 of the Australian Consumer Law for misleading or deceptive conduct.
The third proposed amended statement of claim is a vastly different document to the first iteration of the pleading. Not only have the claims against Golden Land been substantially re-worked, but there are now entirely different claims levelled against Ms Chen. Of course, these amendments were necessary given the deficiencies in the original statement of claim. But in circumstances where Mr Chen is now seeking effectively to start his claim over, the question is whether he should be required to pay an amount to the defendants now as recompense for the fact that they have incurred unnecessary costs in responding to multiple proposed amendments.
[3]
Costs of amendments
Counsel for Golden Land and counsel for Ms Chen did not oppose the final form of the proposed amendments. But they contended that Mr Chen should pay their costs thrown away as a result of the amendments, and that those costs should be assessable and payable forthwith. They also contended that the proceedings should be stayed until payment is made.
In the course of the argument, I indicated that if I were to conclude that costs should be assessable forthwith, I would instead make an order for payment of a lump sum on account of the costs liability. I have taken this approach in a number of recent cases in order to avoid the distraction and potential duplication associated with a separate assessment of interlocutory costs (see Omutta Pty Ltd v Wilson (No 2) [2019] NSWSC 401; Moustapha v Nelson (No 3) [2020] NSWSC 1263; Mete Corporation Group Pty Ltd v Sarina [2020] NSWSC 1304; Rhino Rack Australia Pty Ltd v Hub Computing Services Pty Ltd [2021] NSWSC 231; Salmon v Albarran (No 3) [2021] NSWSC 1200).
Counsel for Mr Chen accepted that his client would have to pay the costs thrown away, but resisted an order for immediate payment of a lump sum. This was for two reasons. First, counsel submitted, there was no reason for the Court to depart from the usual rule that costs of interlocutory steps are payable at the conclusion of proceedings: see UCPR, r 42.7(2). Second, requiring payment as a condition of leave would, or would likely, have the effect of stultifying the proceedings, given Mr Chen's precarious financial position. I will deal with each submission in turn.
[4]
Immediate payment of costs
Three particular factors have emerged in the authorities as justifying the immediate assessment of an interlocutory costs order (see, for instance, the Chief Judge's summary in Wang v Cai (No 2) [2021] NSWSC 1268 at [23]-[24]). Those factors are: (1) the interlocutory issue was a discrete and severable one; (2) the party against whom costs have been ordered has behaved unreasonably; and (3) the proceedings have some distance to run, so as to make it proper that the successful party should receive some immediate recompense for the costs incurred.
In the end, it is a matter of discretion and there are no fixed rules. But I think it is fair to say that the factors which I have mentioned, or at least some of them, can be discerned in the present case.
In my judgment, the amendments made to the statement of claim have been so extensive that, for practical purpose, the plaintiff's claim has started again from scratch. The costs thrown away have been wholly wasted. The plaintiff is responsible for this. And the result is that the case remains in its infancy; defences have not yet been filed (fortunately, as that would only have increased the waste of costs); the issues between the parties have therefore not even been formally identified.
For these reasons I consider that this is prima facie a proper case for an order for a lump sum payment on account of the costs thrown away by the amendment. I turn now to the question of stultification.
[5]
Stultification
In an affidavit affirmed 6 October, Mr Chen deposed that he has no assets in Australia, one property in China with a net value of $40,000, and savings totalling $15,000. He was employed from February 2017 (in China) with a Sydney immigration company, earning $20,000 per annum, but was made redundant in August this year due to the economic impact of COVID-19. He has not been able to secure new employment.
Counsel for Mr Chen submitted that in these circumstances it was likely that if Mr Chen were required to meet the defendants' costs before proceeding with his claim, the proceedings would be stultified. Counsel accepted that ordinarily, Mr Chen's straitened circumstances would carry little weight. But this case, in counsel's submission, is different.
I think that counsel was, with respect, wise to concede that ordinarily Mr Chen's financial circumstances would not be an answer to the defendants' applications. In Rozenblit v Vainer (2018) 262 CLR 478 an interlocutory costs order was made against the plaintiff, and it was ordered that the costs be assessed forthwith and the proceedings be stayed until the costs were paid. The evidence was that the stay would stultify the claim, which had reasonable prospects of success.
The High Court set the stay aside. But the Court specifically stated that it would have been legitimate to make the grant of leave to make amendments conditional on the payment of costs thrown away (see at 490 [34] and 494 [47]).
A further feature of the decision was that the order for immediate assessment of the plaintiff's costs liability was left untouched. Presumably, if the plaintiff truly did lack the means to meet the costs ordered, this would eventually have resulted in him being bankrupted anyway. This feature of the case was not referred to in the judgment. Perhaps the Court considered that bankruptcy was not to be equated with stultification, as the claim could have been pursued by the plaintiff's trustee in bankruptcy. At all events, the result shows that the making of an order for immediate assessment of costs against an impecunious plaintiff is not itself objectionable.
Counsel submitted that this case is different because Mr Chen was faced with a situation in which it was unclear who exactly was obliged to account for his money, Golden Land or Ms Chen. As a result, he had effectively been forced to propound alternative claims against two defendants. Counsel submitted that Mr Chen had a strong case for recovery of his investment from one defendant or the other. In the end he would receive a costs order in his favour against at least one of the defendants, and in all probability if one of the defendants proved successful, that defendant's costs would be the subject of a Bullock or Sanderson order.
I think it may be going too far to say that Mr Chen had no choice but to proceed by bringing claims against both Golden Land and Ms Chen. In hindsight he could have framed his case differently.
On the face of it Mr Chen had (and has) a straightforward claim that Ms Chen received his money (including the money paid at her direction) as trustee, for the purpose of investing it in the Mosman property. On that case Ms Chen would be obliged to account to Mr Chen for a unit entitlement corresponding with his investment. It would be no answer for her to say that she had not in fact used his money to acquire her units. In effect, as I understand it, this is the claim Mr Chen now seeks to make against Ms Chen in the latest version of his statement of claim.
Such a claim could have been pursued without Mr Chen making any claim against Golden Land at all. If in fact Ms Chen had paid Mr Chen's money over to Golden Land and Golden Land was not acknowledging receipt of it, it would have been up to Ms Chen to prove that, and to seek appropriate relief in the interests of Mr Chen, by way of discharge of her duty as trustee. An alternative approach for Mr Chen would have been to have brought an application for preliminary discovery to determine where exactly his money went, and then formulating his substantive claims. In either case Mr Chen would not have found himself litigating inconsistent claims against two defendants without full information about the relevant facts.
In these circumstances I think the Court cannot be certain that Mr Chen will, no matter what the result of the litigation may be, receive a Bullock or Sanderson order in his favour. But in my view that does not really matter anyway. Even if the costs of proceeding against one of the defendants are fairly attributable to the other, that would not extend to costs thrown away by reason of amendments to the claim which should have been unnecessary. It is hard to see how those particular costs could ever be the subject of a Bullock or Sanderson order. They are costs which, on any view, should be borne by Mr Chen.
These proceedings concern a dispute over $60,000. It is very disturbing that so much interlocutory effort has already been expended over a sum which would hardly appear to justify full-scale litigation in this Court against two separate defendants. But in the end, this is a matter for Mr Chen and his lawyers. The risk of stultification if costs are awarded and made payable forthwith is in my view self-inflicted. Having decided to join two defendants, and having not pleaded his case against either properly, it is, I think, entirely appropriate that Mr Chen be required to pay a lump sum to each defendant now on account of that defendant's costs thrown away. I also propose in each case to make the grant of leave to amend conditional upon the payment of that sum. I will not, however, stay the proceedings completely, at least at this stage.
I should note that Mr Chen's claim of impecuniosity is not necessarily accepted by the defendants. Counsel for Golden Land tendered a Chinese search which revealed that Mr Chen is the sole shareholder of a company that has registered share capital of ¥2 million (around $440,000). But given the conclusions I have reached, it is not necessary to determine the issue one way or another.
[6]
Quantum
In an affidavit affirmed 5 December, Golden Land's solicitor, Chenzi Yang, quantified the costs thrown away as $32,120. Ms Yang deducted fifty per cent of the costs for the appearance on 12 October which, at least in part, concerned Golden Land's security for costs application. She then applied a further discount of thirty per cent. In total, Golden Land seeks $18,600.
Ms Chen's solicitor, David Rundle, filed a similar affidavit on 29 November. Mr Rundle calculated the second defendant's costs thrown away as $19,200. He too applied a discount of fifty per cent for the appearance on 12 October, and a further discount of thirty per cent, seeking a total of $13,000. Unlike Ms Yang however, Mr Rundle annexed to his affidavit invoices which detailed the specific items of costs related to Mr Chen's amendment application.
Counsel for Mr Chen submitted that the Court should make an order for no more than $5,000 for each defendant. He argued that neither affidavit filed by the defendants directly identified the costs incurred which were specifically referable to the amendment application, save for some items of costs identified on Ms Chen's behalf.
In the case of Golden Land, I am inclined to agree with counsel for Mr Chen. The affidavit filed by Ms Yang did not annex any invoices or identify any specific items of costs related to the plaintiff's application. In the circumstances, it is difficult to see how the figure of $32,120 was calculated. Furthermore, even applying the discounts, $18,600 seems somewhat excessive given the fact that the bulk of the plaintiff's amendments related to the claims against Ms Chen, not Golden Land. I am not satisfied that more than $5,000 is justified.
The case for Ms Chen is different. As I have mentioned, the bulk of the amendments were directed towards the claims against her, and the invoices annexed to Mr Rundle's affidavit show that a significant amount of time and money was spent responding to them. These are costs which could have been entirely avoided had the plaintiff's case been more targeted from the outset. In the exercise of my judgment I fix the sum to be paid on account of Ms Chen's costs thrown away at $12,000.
[7]
Security for costs
Counsel for Mr Chen accepted that because his client is ordinarily resident outside Australia, the threshold for security under UCPR, r 42.21(1)(a) is met. However, counsel argued that it was inappropriate to make such an order given Mr Chen's precarious financial position and the risk of stultification: see r 42.21(1A)(c). Counsel also submitted that because the plaintiff has reasonable prospects of success against at least one defendant, it was likely he would obtain a Bullock or Sanderson order, which was a factor that weighed against an order for security. Counsel submitted that the case was on all fours with my decision in Union Steel Pty Ltd v Union Steel Investments Pty Ltd [2020] NSWSC 1511, where I refused an application for security because I was not satisfied that the defendant had any substantial defence: see at [121].
Counsel for both Golden Land and Ms Chen put on detailed written submissions concerning the question of security. However, much of these submissions pre-dated the various amendments that followed the hearings before me.
In the circumstances I propose to defer deciding the security applications by each defendant until Mr Chen has paid the figure I have fixed for that defendant's costs thrown away and amended his statement of claim (if that is what he does), and the defence has been filed. At that point I will be better placed to deal with the issues of liability to provide security, and quantum, which ultimately arise. I will adjourn the security applications to a date in late February to allow for the pleadings to be finalised, but the parties may adjust this date by arrangement with my Associate.
[8]
Orders
The orders of the Court in the substantive proceedings are:
1. Grant leave to the plaintiff to amend his statement of claim substantially in the form of the document provided to the Court on 26 November 2021, conditional upon:
1. in the case of the first defendant, payment of the sum of $5,000 on account of the first defendant's costs thrown away by reason of the amendments; and
2. in the case of the second defendant, payment of the sum of $12,000 on account of the second defendant's costs thrown away by reason of the amendments.
The orders of the Court on the first defendant's notice of motion filed 30 July 2021 are:
1. Adjourn the motion to 9.30 am on 24 February 2022 or such other time and date as may be arranged with my Associate.
The orders of the Court on the second defendant's notice of motion filed 30 August 2021 are:
1. Adjourn the motion to 9.30 am on 24 February 2022 or such other time as may be arranged with my Associate.
[9]
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Decision last updated: 18 January 2022