Chen v Golden Land Enterprises Pty Ltd

Supreme Court of NSW|2022-05-31|Before: Parker J, Cole J, Act J

Background and procedural history

The case concerns a $50,000 investment made by the plaintiff, Mr Chen, in a property investment venture which resulted in the first defendant ("Golden Land") acquiring a property at Mosman as trustee for a unit trust ("the Trust"). The proceedings have been commenced in this Court because proprietary claims are made on Mr Chen's behalf.
The factual background to the case is summarised in J1 at [3]-[11]. Mr Chen contributed his money in May 2017, after Golden Land had been incorporated but before the Trust had been established and the Mosman property had been acquired. Mr Chen lives in China. He agreed to invest in the venture, he says, as a result of an agreement with the second defendant, Ms Chen (no relation), and her then husband, Mr Hong Cao, who was one of the directors of Golden Land. Mr Chen paid his money to two nominated bank accounts in China on the understanding that the monies would be amalgamated with monies being contributed by Ms Chen and invested in the project.
Mr Chen says that he contributed 0.84% of the total cost of buying the property, and was treated as an investor in the venture. Ms Chen was issued with units in the Trust but no units were issued or transferred to Mr Chen. The property has been sold at a profit and the proceeds are held by Golden Land pending the outcome of the dispute. Mr Chen's claimed interest is worth about $60,000.
The procedural history up until the end of last year is summarised at J1 [12]-[30]. Applications for security were made on behalf of Golden Land and Ms Chen in July and August respectively. They prompted a recognition on the part of Mr Chen's legal advisors that his statement of claim needed to be amended. After several iterations an extensively amended statement of claim was filed in late November (see J1 [28]).
In my January judgment I ordered Mr Chen to pay to Golden Land and Ms Chen the respective sums of $5,000 and $12,000 on account of their costs occasioned by the amendment. Both of those sums have now been paid. Defences have been filed on behalf of both defendants to the amended statement of claim.

Applications for security

The security applications are made under the Uniform Civil Procedure Rules 2005, r 42.21(1)(a), which empowers the Court to make an order for security for costs against a plaintiff who is "ordinarily resident outside Australia". Counsel for Mr Chen accepted that, as he lives in China, the power under r 42.21(1)(a) is enlivened in the present case. But counsel submitted that it should not be exercised in either defendant's favour.
Counsel's first point in opposition to the security applications was to emphasise that an order for security is a matter of discretion. The ultimate question is always "how justice is to be served" (Yara Australia Pty Ltd v Oswal (2013) 41 VR 245 at [116]).
Counsel relied on the decision of Morling J in Barton v Minister for Foreign Affairs (1984) 2 FCR 463. The plaintiff in those proceedings was, at the time the proceedings were brought, living in London. Mr Barton sought judicial review against a decision of the Minister for Foreign Affairs to not issue him with an Australian passport. It would have been open to the Minister, if he obtained an order for costs against Mr Barton, to register the costs judgment in the United Kingdom and enforce it there. In Mr Barton's case, however, this would have been of limited practical benefit, as Mr Barton was an undischarged bankrupt.
Morling J referred to the general rule that security will not be regarded against a plaintiff who is an individual because "poverty is no bar to the litigant". If the Minister were to obtain a costs order and register it, he would be in the same position as he would have been in if Mr Barton were an Australian resident. His Honour commented (at 469): … it would be an odd result if an impecunious plaintiff was ordered to give security merely because he was ordinarily resident outside Australia, although his absence from Australia had little, if any, prejudicial effect on the respondent's prospects of recovering his costs. In the end, his Honour did award security. But the security was limited to the cost of registering any costs judgment the Minister might obtain.
It might have been argued, based on the comment by Morling J, that it is illogical to order security against an individual foreign plaintiff in any case where, were the plaintiff resident in Australia, security would not be required. But counsel did not go so far. Counsel did however contend that, when combined with other factors, this should lead the Court to decline security in the present case.
In identifying those other factors, counsel first pointed to evidence from Mr Chen that he had little or no assets and uncertain earning capacity. Counsel submitted that if security were ordered, the proceedings would probably be stultified.
In this context, counsel submitted that I could, and should, take the strength and merits of the plaintiff's claims into account. Counsel pointed out that the defence of each defendant (and their submissions on this application) involved pointing the finger at the other defendant as being responsible to the plaintiff. Counsel submitted that there was unlikely to be any real issue about whether Mr Chen would succeed; the only real question was whether he would succeed against Golden Land, or Ms Chen, or both. Even if Mr Chen failed against one of the defendants, it was likely that the unsuccessful defendant would, as a result of a Bullock order or a Sanderson order, ultimately bear the successful defendant's costs.
Finally, counsel pointed out that the security claimed by each defendant was, on its own, comparable with the total amount claimed by the plaintiff. The suggestion, as I understood it, was that the Court should not award security in the proceedings for an amount which was disproportionate to the amount at stake in them.
At J1 [16] and [29], I recorded that Golden Land had denied that it had received the money from Mr Chen. At the time, Golden Land had not filed a defence and I may not have fully understood its position. Golden Land now admits that on or shortly after 10 May 2017 it received a sum of $150,000, which apparently included the $50,000 contributed by the plaintiff. But Golden Land's position is that in return for the $150,000 it issued units in the Trust of equivalent value to Ms Chen and to Ms Hong Luo (a director of Golden Land). Even if Mr Chen in part contributed to those monies, Golden Land owes no trust obligations directly to him.
Counsel for Golden Land reminded me that it acquired and held the Mosman property as trustee. Counsel submitted that Mr Chen's real claim appeared to be a claim to units held by Ms Chen. Had the claim been pursued in that way, Golden Land could have entered a submitting appearance (or, perhaps, not been joined at all). But the plaintiff had articulated a separate claim against Golden Land and Golden Land had no choice but to defend that claim on its merits.
Counsel for Golden Land also submitted that the evidence did not actually establish that Mr Chen was unable to meet the costs of the litigation. Counsel referred me to searches which suggested that Mr Chen had holdings in a number of Chinese companies, the value of which was left unclear by the evidence.
For his part, counsel for Ms Chen emphasised the circumstance that Mr Chen's money had gone in the end to Golden Land. Counsel submitted that Ms Chen owed no obligation to Mr Chen; or, if she did, that obligation had been discharged by paying the money on to Golden Land.
In the course of the hearing, I indicated to the parties that, subject to any contrary argument, if I was to make any orders for security for costs, those orders would follow the form of the order which I made in Kupang Resources Ltd v Elias [2018] NSWSC 1553. That order provided for security to be provided in two tranches. The first tranche was to be provided immediately and the second once the proceedings had been set down for trial. The order also required the defendant, in advance of the date for provision of the second tranche, to file an affidavit setting out the costs incurred to that point and the estimated future costs of completing the trial. This would permit either party to apply to vary the amount of the second tranche accordingly.
All of the parties fell into line with this approach. Counsel for Golden Land sought the sum of $20,000 for the first tranche and $38,730 for the second. Counsel for Ms Chen sought $15,000 for each tranche. Counsel for the plaintiff raised little objection to these figures, beyond pointing out that the estimate on which Golden Land's figures were based had allowed $10,000 in costs for the discovery task, which seems unlikely at this stage to be anything that extensive.

General principles

UCPR r 42.21(1)(a) reflects a procedural principle which has a long history. Originally, the principle was reflected in an unwritten rule of practice. Later it was embodied in a rule of court in England, and in other common law jurisdictions such as Australia. While the wording of the rule may differ slightly from jurisdiction to jurisdiction the common element is that the plaintiff is an overseas resident. I will, for convenience, refer to such a plaintiff as a "foreign plaintiff".
The rationale for the rule is clear. The plaintiff is not in the jurisdiction to be answerable for the defendant's costs if the claim fails. Enforcement of a costs order in favour of the defendant in the plaintiff's home jurisdiction, if available at all, will require enforcement proceedings which are likely to be cumbersome and expensive. But the defendant is fully exposed to liability (and to paying the plaintiff's costs) if the claim succeeds. There is an asymmetry of risk which may operate oppressively against the defendant.
Originally, the English courts treated residents of Scotland and Ireland as foreign plaintiffs for the purposes of the rule. Even though Scotland and Ireland were part of the United Kingdom, they operated under distinct legal systems. They were in no different position from other overseas jurisdictions: fresh proceedings in the foreign jurisdiction were necessary to enforce an English costs judgment.
This approach changed after 1868, when the Judgments Extension Act (31 & 32 Vict c 54) established a summary method of enforcement of judgments by registration between England, Scotland and Ireland. In Raeburn v Andrews (1874) LR 9 QB 118, it was held that plaintiffs in English proceedings who lived in Scotland or Ireland were not required to give security for costs. The rationale for doing so had disappeared.
The rule however remained applicable in its full rigour when the plaintiff was ordinarily resident outside the United Kingdom. This is illustrated by the decision of Denning J (as his Lordship then was) in Kohn v Rinson & Stafford (Brod) Ltd [1948] 1 KB 327, where a plaintiff who lived in Palestine, then a territory administered by the United Kingdom subject to a League of Nations mandate, brought proceedings against a defendant in England.
His Lordship stated (at 330-31) The law on the matter is plain, that it is in the discretion of the court to order security for costs, but it does so as a matter of course when a plaintiff is out of the jurisdiction and there are no assets of the plaintiff which can be reached within the jurisdiction … the reason being that if a judgment is thereafter obtained by the defendant against the plaintiff for costs such an order cannot be enforced by the direct process of the English court. In order to enforce a judgment in the old days a party had to sue on the judgment in the foreign country, and, having obtained his judgment, had then to enforce it.
Counsel for the plaintiff pointed out that, since Raeburn had been decided, a statutory system had been established for the reciprocal enforcement of judgments between England and other countries and territories. Under the Administration of Justice Act 1920 the system applied to British dominions and mandated territories, including Palestine. Under the Foreign Judgments (Reciprocal Enforcement) Act 1933 the system applied to specified foreign countries which provided reciprocal enforcement of English judgments. This too applied to Palestine.
His Lordship however considered that the fact that an English judgment for costs would be enforceable in Palestine made no difference. The process of registering a judgment under the 1868 Act was automatic. The reciprocal enforcement system established by the 1920 and 1933 Acts was "very different". It involved an application to a judicial officer, which might "be the subject of dispute and even in some cases of trial". The reasoning in Raeburn therefore did not apply to British dominions, mandated territories and foreign countries which satisfied the requirements of the 1933 Act, and the "old rule" that security was ordered as a matter of course where the plaintiff was a foreign plaintiff and had no assets in the jurisdiction continued to apply.
When Kohn was decided, the relevant English rule had been embodied in RSC O 62, r 6B. In 1962, that rule was replaced with a newer version which stated expressly that the Court had power to award security "if, having regard to all the circumstances of the case, the Court thinks it just to do so". This amendment resulted in a change in the English practice; an order for security was no longer made as a matter of course in the case of a foreign plaintiff with no assets in the jurisdiction. Instead the court was required to consider all relevant circumstances in deciding whether to award security and if so how much.
In New South Wales, however, the relevant rule (NSW RSC O XV r 1) remained in the same form as the former English rule. In Demag-Lauchhammer Maschinenbau und Stahlbau GmbH v John Holland (Constructions) Pty Ltd [1966] 2 NSWR 3, counsel for the foreign plaintiff submitted that the discretion was to be exercised in accordance with the modified English practice. This submission was rejected by Macfarlan J. His Honour stated (at 5) the practice under the former English rule continued to prevail.
When the Rules of the Court were re-enacted in 1970, Order XV r 1 was replaced by Part 53, r 2(1)(a) of the new Rules. For present purposes, there was no significant change of wording. Nevertheless, Rath J took a different view of the scope of the rule in Connop v Varena Pty Ltd [1984] 1 NSWLR 71. The plaintiffs were ordinarily resident in New Zealand but had conducted some business in New South Wales. The first and second defendants applied for an order that the plaintiffs give security for their costs.
The "old rule" that security was awarded as a matter of course if the plaintiff had no assets in the jurisdiction was not mentioned by Rath J and neither the judgment of Denning J in Kohn nor the judgment of Macfarlan J in Demag appears to have been cited. Instead Rath J emphasised that the rule gave the Court a discretion whether to order security or not, and how much to order.
Rath J observed that New Zealand legislation (the Reciprocal Enforcement of Judgments Act 1934 (1934, No 11)) would allow for registration of any costs order the first and second defendants might obtain as a judgment in New Zealand. There would be "no difficulties of any substance" with the registration proceedings; a registered judgment might be set aside in some circumstances, but none of those circumstances would apply.
His Honour stated (at 74, citation omitted): I see no difference in regard to the costs of the first and second defendants between the circumstances of this case and those of a similar case where a plaintiff is not ordinarily resident outside the State. With only minor reservations, a judgment for costs will be as effective against the plaintiffs here as it would be in the case of a plaintiff who did not ordinarily reside outside the State. In these circumstances, his Honour ordered the plaintiffs to give security for costs, limited to the costs of registration and execution in New Zealand of a judgment for costs in the defendants' favour.
I return now to the decision of Morling J in Barton, which is the next in chronological sequence. The application was made under s 56 of the Federal Court of Australia Act 1976 and O 28, r 3(1)(a) of the Federal Court Rules 1979, which was in substantially the same terms as the applicable rule of this Court in Connop.
The relevant Federal Court rule, and the rule of this Court which Rath J had applied in Connop, both stated that the court "may" grant security. But counsel for the Minister pointed out that the English rule in force at the time Denning J decided Kohn was in the same form. Counsel submitted that, in context, the word "may" imported a duty to award security rather than a mere discretion. Thus, the Federal Court rule preserved the "old rule" of English practice. In effect, Morling J was asked to take the same view which Macfarlan J had taken in Demag.
His Honour declined to do so. He considered that, even if the English courts adopted, or had in the past adopted, an inflexible rule (and his Honour expressed some scepticism about that) there was no need for Australian courts to do the same. Inflexibility could work a real injustice, for instance, in cases where plaintiffs had a strong claim and their impecuniosity had been caused by the defendant's conduct.
Turning to the exercise of discretion, Morling J referred to the principle that poverty is no bar to the litigant. This was followed by the observation about how it would be an odd result if a plaintiff were required to give security although his absence from Australia had little if any prejudicial effect on the defendant's ability to recover costs (quoted at [12] above). Morling J expressed his agreement with the limited order made by Rath J in Connop.
Morling J added that he thought that justice would be best served by making a limited order of that type. If security were ordered in a much larger amount the result might well be that Mr Barton would be effectively barred from prosecuting his claim. Mr Barton had left his native Hungary as a young man three decades before and for most of his life had lived in Australia. He had been issued with an Australian passport in 1979 on the assumption that he was an Australian citizen. His wife was an Australian citizen. In these circumstances the loss of his citizenship would be a very grave matter for him.
Five years later, the applicable principles were further considered by Gummow J, then in the Federal Court, in Energy Drilling Inc v Petroz NL (1989) ATPR 40-954. The case arose out of a dispute about a contract which allegedly contained a right of first refusal to purchase a ship. The plaintiff was a company incorporated in the Republic of Liberia. The shipowners sought security against it as a foreign plaintiff.
Gummow J referred (at 50,419-50,420) to the pre-1962 "old rule" of practice in England, but noted that the Australian rules had been interpreted as conferring a discretion, nor did they exclude the inherent discretionary power to award security. His Honour did not however refer to the decision of Macfarlan J in Demag.
Gummow J concluded (at 50,422, citations omitted, emphasis added): The purpose of ordering security against an applicant ordinarily resident outside the jurisdiction is to ensure that a successful respondent will have a fund available within the jurisdiction of this Court against which it can enforce the judgment for costs, so that the respondent does not bear the risk as to the certainty of enforcement in the foreign country and as to the time and complexity of the action there which might be necessary to effect enforcement. On the other hand, the mere circumstance that an applicant is resident outside the jurisdiction does not necessarily invite an exercise of discretion in favour of ordering security, the question being how justice will best be served in the particular case. In support of the highlighted proposition his Honour cited the decision of Morling J in Barton and the decision of Bowen CJ in CBS Records Australia Ltd v Telmak Teleproducts (Aust) Pty Ltd (1987) ALR 270 (referred to below).
Turning to the particular circumstances of the case, Gummow J noted that the plaintiff had no assets in Australia and there were no arrangements between Australia and Liberia which would allow a costs judgment to be enforced. It had not been suggested that the security application was being brought to stifle the proceedings. His Honour therefore made an order for security.
CBS Records, referred to by Gummow J, was a passing-off case. The first plaintiff was an Australian company, but the other three plaintiffs, which were it seems part of the same multinational group, were foreign companies. The defendant applied for security against the three foreign plaintiffs.
The application appears to have been dealt with somewhat summarily. Bowen CJ did not refer to authority, or refer in any detail to the circumstances of the case. His Honour dealt with the application as follows (at 285): [the discretion] is a discretion to be exercised upon rational grounds and any party applying for security carries the onus of establishing a case showing that security should be granted. The fact that an applicant is ordinarily resident outside Australia is a precondition to an application under that part of the rule but is not sufficient in itself, in my view, to induce the court to exercise its discretion to make an order, particularly in circumstances such as the present. No evidence was given to assist the court in relation to the amount which might be required for security.
In PS Chellaram & Co v China Ocean Shipping Co (1991) ALJR 642 McHugh J, sitting as a single judge of the High Court, dealt with an application by the respondent to an appeal that the appellant give security. The appellant was a company incorporated in Hong Kong.
McHugh J acknowledged that the power to order security was discretionary. Nevertheless (at 643): … for over 200 years, the fact that a party, bringing proceedings, is resident out of the jurisdiction and has no assets within the jurisdiction has been seen as a circumstance of great weight in determining whether an order for security for costs should be made. Indeed, for many years the practice has been to order such a party to provide security for costs unless that party can point to other circumstances which overcome the weight of the circumstance that that person is resident out of and has no assets within the jurisdiction.
In dealing with the circumstances of the case, his Honour noted that, the appellant having obtained special leave, the appeal arguably involved a point of public importance. That would make the Court hesitate to order security if the effect of the order for security would stifle the appeal. But there was no evidence that those who stood behind the appellant were unable to meet the order. Therefore security should be ordered.
In Farmitalia Carlo Erba SrL v Delta West Pty Ltd (1994) 28 IPR 336, Heerey J of the Federal Court dealt with an application for security against a foreign plaintiff in a patent infringement action. The plaintiff in that case was a company incorporated in Italy. Its counsel pointed out that Italy was a party to the reciprocal judgments enforcement system. A costs order made in favour of the defendant would be enforceable in the Italian courts. Accordingly, so counsel argued, the defendant was under "no great disadvantage" as a result of the commencement of proceedings against it in Australia. There was no need for an order for security, or at least for an order for security of the defendants' whole costs of the proceedings.
Heerey J (at 342) agreed with the conclusion of Morling J in Barton that the award of security was discretionary, rather than obligatory as under the "old rule" of English practice. But it was not suggested that the plaintiff had any assets in Australia which would be available to meet an order for costs. As to the point about the enforceability of a costs judgment in the Italian courts, his Honour stated (at 342): ... that seems to me to be quite insufficient to meet the prima facie case established for the application of O 28 r 3(1)(a). There is no evidence that Farmitalia has assets available in Italy or in some other country or countries or that, if it did, an Australian judgment registered in Italy would be enforceable in such other country or countries. While there is no suggestion that Farmitalia is insolvent, this is a case where security for costs has been at issue between the parties for some time and Farmitalia has chosen not to put forward any evidence as to what its assets are and where they are located. I do not see any good reason for not exercising the power conditioned by the rule. The practical consequence of accepting Farmitalia's argument would be that a litigant ordinarily resident outside Australia would be able to resist any application under O 28 r 3(1)(a) merely by showing, that he, she or it was ordinarily resident in one of the countries specified in the Foreign Judgments Regulations. I do not think the Foreign Judgments Act or the Regulations should be treated in this way as an amendment, sub silentio, of 0 28 r 3(1)(a).
His Honour's conclusion was that Farmitalia could not "point to any circumstances which would weigh against the making of an order" (at 342). Security was therefore awarded, calculated by reference to the defendants' costs of the proceedings.
I was also referred by counsel to the decision of Madgwick J in the Federal Court in Soh v Commonwealth of Australia [2006] FCA 575. The plaintiff, Mr Soh, was detained as an illegal immigrant ("unlawful non-citizen"). Later he was deported to South Korea. In the proceedings before Madgwick J he claimed damages for alleged wrongful imprisonment. His contention was that his detention had been unconstitutional. The Commonwealth applied for security for costs. Mr Soh asserted that if an order for security was made for a sum greater than $1,000, he would be unable to pursue his claim and that would not in the public interest.
Counsel for Mr Soh pointed out that the reciprocal judgment enforcement system applies between Australia and South Korea. In the end, there was no dispute about this. There was evidence, based on what Mr Soh's Australian solicitor had been told by a Korean lawyer, that the costs of enforcement of an Australian judgment would be less than $1,000. Counsel for the Commonwealth argued that little weight could be given to this evidence because the form in which it was presented did not demonstrate that the Korean lawyer had relevant specialised knowledge, or the factual assumptions upon which the lawyer had relied upon reaching his or her conclusion. The admissibility of the evidence, however, does not appear to have been challenged (although it is now clear from Dasreef Pty Ltd v Hawchar (2011) 243 CLR 588 that such a point goes to admissibility as well as weight). The Commonwealth led no contrary evidence.
Counsel for Mr Soh submitted that, in view of the nature of the claims made in the proceedings, it would not be in the public interest if they were stifled by an order for security. His Honour considered, however, that this did not outweigh the "strong presumption" in favour of an order for security arising from the fact that Mr Soh was an overseas plaintiff with no assets in the jurisdiction (see [27]). The strength or otherwise of his contentions was unclear, as was the likelihood of his obtaining a significant amount of compensation.
There appears to have been no dispute that Mr Soh lacked the financial resources to provide security for the Commonwealth's costs. Counsel for the Commonwealth argued that this was a "significant factor" in favour of the security application, as it demonstrated that the Commonwealth would be unable to recover its costs if successful in the proceedings. On the other hand, counsel for the applicant submitted, relying on Barton and other authorities that where a foreign plaintiff is living in a jurisdiction where reciprocal enforcement of judgments is available, the amount of any security was to be limited to the costs of any enforcement in the other jurisdiction.
At an earlier point in the judgment (at [10]), Madgwick J referred to what Heerey J had said in Farmitalia about reciprocal enforcement not of itself being an answer to an application for security. But Madgwick J distinguished the decision on the ground that before Heerey J "there was apparently no evidence … regarding Italian laws for the enforcement of foreign judgments in Italy" whereas in the present case the evidence showed the judgment would be enforceable in South Korea (see at [11]).
Madgwick J did not expressly endorse counsel's submission that the amount of any security was to be limited to the costs of enforcing the judgment in South Korea. But he did state that the Commonwealth had "no valid claim to be put in a better position than if Mr Soh were present in Australia" (at [28]). His Honour relied on the statement by Morling J in Barton about it being an odd result if an impecunious foreign plaintiff were ordered to give security even if that would have little, if any, prejudicial effect on the defendant's prospects of recovering costs.
This conclusion would ordinarily have led Madgwick J to order that security be given for the costs of registering a judgment in South Korea, as had been done in Connop and Barton. Counsel for the Commonwealth submitted that the evidence on quantum was unconvincing, and Madgwick J was inclined to agree. But his Honour said that this was something which the Commonwealth could have avoided by itself leading evidence on the question. In the end, his Honour professed himself unable to say whether there would be any substantial additional cost and dismissed the application in its entirety (at [33]). In doing so, he relied on a decision in this Court dismissing an application for security from a New Zealand plaintiff where the cost of registering judgment in New Zealand would have been minimal in the scheme of the litigation (Swain Investments Ltd v Danumet Pty Ltd (unreported), Supreme Court of NSW, Cole J, 5 May 1989).
In Li v State of New South Wales [2013] NSWCA 165 an appeal from an order for security in District Court proceedings made under UCPR r 42.21(1)(a) reached the Court of Appeal. The plaintiffs sued the State for damages for assault and wrongful imprisonment in the course of his arrest by members of the NSW Police. He was living in China, having been deported as an illegal immigrant. He asserted, and it appears to have been accepted, that he would be unable to provide security for the State's costs. Balla DCJ nevertheless made an order for security.
On appeal, counsel for the plaintiff argued that Balla DCJ had treated the circumstance that the plaintiff was unable to meet the security in the wrong way. Her Honour had treated it as a factor which supported the State's application for security, on the ground that the State would be unable to recover its costs if successful. In truth, counsel argued, it was a factor against the application as it would result in the proceedings being stultified. Counsel also embraced a wider argument that because the plaintiff was unable to pay the costs, the fact that he was outside the jurisdiction was irrelevant (see at [6]).
The judgment of the Court of Appeal was given by Ward JA (as her Honour then was). Her Honour concluded that Balla DCJ had not misunderstood the significance of the plaintiff's inability to provide security, and had properly weighed in the balance as a factor against the State's application. Ward JA also quoted the passage from the judgment of McHugh J in Chellaram which I have quoted above and stated that where the plaintiff is resident abroad that is a very significant factor in favour of the grant of security. Balla DCJ had been entitled to take it into account and to give it decisive weight in spite of the possibility that the plaintiff's claim would or might be stultified as a result. The appeal was dismissed.
Ward JA did not deal expressly with counsel's broader argument that foreign residence becomes irrelevant if the plaintiff is unable to meet the defendant's costs. But implicitly she must be taken to have rejected that argument.
A similar issue arose in estate proceedings in the Supreme Court of South Australia in Re Liu [2020] SASC 143. The plaintiff, who lived in China, was claiming an entitlement by way of constructive trust over some of the deceased's property. She also made a family provision claim.
It appears to have been accepted that the plaintiff was unable to provide security for the defendant's costs. Stanley J took this into account. But his Honour also cited the passage from the judgment of McHugh J in Chellaram and stated that where the plaintiff had "no or few assets within the jurisdiction" that was a "powerful consideration" in favour of the grant of security. An order for security was made.
I return now to the circumstances of this case, and to counsel's emphasis on the "unfettered" (Livingspring Pty Ltd v Kliger Partners (2008) 20 VR 377 at [65]) power of the Court to order, or refuse to order, security.
The first thing which emerges from the authorities is that an attempt to engraft onto the Australian rules of court the "old rule" of English practice, whereby an order for security was made as of course when the plaintiff was overseas and had no assets in the jurisdiction, has not found favour. The decision of Macfarlan J in Demag, although never expressly repudiated, has been ignored. The Court has a discretion, but not an obligation, to order security where the plaintiff is an overseas resident.
For a time, it seemed that the pendulum would swing to the point where the fact that the plaintiff was outside the jurisdiction was no more than a qualifying factor, and a defendant needed to go on and establish, in every case, affirmative reasons to exercise the discretion in favour of ordering security. The statement of principle which comes closest is that decision which gives greatest support to such a view is that of Bowen CJ in CBS Records. But it is hardly a strong authority for that view. There was no discussion of principle or previous authority. His Honour's observations were obiter, as the stated basis for the decision was that there was no evidence of how much security would be required. It also should be noted that security was sought against only some of the plaintiffs and it is far from clear what additional costs the defendant would have incurred solely as a result of their joinder.
It is true that Gummow J cited CBS Records with apparent approval in Energy Drilling. The second sentence of the passage quoted at [44] above, read on its own, appears to support the view that the defendant may need to establish something more merely than that the plaintiff is resident overseas. But in the context of the decision of the judgment as a whole, I do not think that his Honour was saying that. The actual decision was to award security and the plaintiff's absence from the jurisdiction was a critical part of that.
Furthermore, the statement of principle by McHugh J in Chellaram represented a clear swing away from the view expressed by Bowen CJ. McHugh J's formulation of principle makes two things quite clear. The first is that ordinarily the plaintiff's residence overseas of itself is a good reason to order security. The second is that, as a matter of long-standing practice, it is then up to the plaintiff to put forward countervailing considerations if a security order is not to follow. His Honour's formulation has been applied in subsequent cases: see, for example, Logue v Hansen Technologies Ltd (2003) 125 FCR 590 at [38]-[39]; Mothership Music Pty Ltd v Flo Rida [2012] NSWCA 344 at [12]. See also Li and Liu discussed above at [63] and [66].
Over time there was a similar fluctuation in judicial opinion about the Court's power to award security in cases where a corporation was the plaintiff and there was reason to believe that the corporation would be unable to meet the defendant's costs if the defendant was successful in the proceedings. One approach emphasised the court's discretion; the other emphasised that the rationale for the rule was to avoid defendants being exposed to potentially oppressive claims by impecunious companies. In Pearson v Naydler [1977] 1 WLR 899, Megarry VC encapsulated the latter view by saying that the inability of the plaintiff company to pay the defendant's costs "is a matter which not only opens the jurisdiction but also provides a substantial factor in the decision whether to exercise it". That view has now clearly prevailed in this State: Idoport Pty Ltd v National Australia Bank Ltd [2002] NSWCA 271 at [40].
I think it is now clear that the analogous approach to applications for security against foreign plaintiffs, represented by what McHugh J said in Chellaram, has prevailed. Certainly, I think the decision of the Court of Appeal in Li means that it has done so in this State.
Accordingly I will proceed on the basis that the fact that Mr Chen is resident in China not only enlivens the Court's power to make an order for security under UCPR r 42.21(1)(a) but provides a good reason to make such an order. If Mr Chen is to resist the making of such an order it is up to him to identify factors which would induce the Court to exercise its discretion in the other way.
One way in which foreign plaintiffs may discharge this onus is, of course, if they can point to assets that they have in the jurisdiction which they can make available to meet the defendant's costs. In principle, and as Heerey J implicitly accepted in Farmitalia, the same must be so for plaintiffs who can show that they can make assets available in some other foreign jurisdiction in which a costs order in favour of the defendant will be enforceable. The question which arises from Connop and Barton is whether, and to what extent, the existence of a means of enforcement in the plaintiff's home jurisdiction (even if it may prove barren) is also an answer to a security application.
I have reservations about the submission apparently accepted by Madgwick J in Soh that where a reciprocal enforcement of judgments applies the defendant can only obtain security for the costs of registration of any costs judgment which they might obtain. If it is supposed to be a general rule, it is apparently contradicted by Farmitalia.
With respect, I do not think the ground on which Madgwick J distinguished Farmitalia is convincing. The passage which I have quoted from Heerey J's judgment speaks of assets in overseas jurisdictions other than Italy. As I read his Honour's judgment, his Honour accepted that a costs judgment in favour of the defendant could be registered against Farmitalia in Italy. In that sense, Farmitalia was available, for what it was worth, in Italy. But clearly his Honour considered that that was not enough to avoid an order for security.
In my view, the decisions in Connop and Barton are best seen as cases in which the foreign plaintiff was able to persuade the court that, in the circumstances of the case, the defendant's entitlement to security would be sufficiently satisfied by ordering security in an amount necessary to register a costs judgment, rather than the full defence costs. Whether that will always be the case, irrespective of the type of litigation involved and the closeness of the foreign legal system involved, does not have to be determined in the present case. On any view, however, if it is suggested that some lesser sum than full security for the defendant's costs will do justice in the particular case, the onus is on the plaintiff to prove the necessary facts. If Madgwick J intended to suggest to the contrary in Soh then, with respect, I do not agree.
It follows I think that it is potentially confusing to say (as was submitted to Madgwick J in Soh, and was said on appeal in Li to have been the view adopted by Balla DCJ) that if it is established that the plaintiff is impecunious, that is a factor in favour of the application of security. In order to invoke the rule, the defendant needs only to demonstrate that the plaintiff is overseas. It is no part of the plaintiff's case for security to go further and canvass the plaintiff's ability to meet the defendant's costs. That factor is relevant, if at all, to an argument by the plaintiff in opposition to an order for security that such an order would stifle the proceedings. I return to this issue below.
I turn now to the circumstances of the present case. If Mr Chen's claim succeeds he will have property in Australia in the form of a share, or an entitlement to a share, in the proceeds of sale of the property. But counsel for Mr Chen made it clear that he did not suggest that this sum of money would be available to meet the costs of the defendants if they are successful. Presumably, this is because Mr Chen's solicitors would have the benefit of a lien over any sum recovered (Firth v Centrelink (2002) 55 NSWLR 451 at [35(b)]) which would take priority over Mr Chen's unsecured liability for the defendants' costs.
In Li, both Balla DCJ and the Court of Appeal were referred to a journal article which suggested that enforcement of a costs order made in the defendant's favour would not be possible in China. In Liu, there was expert evidence on the issue and Stanley J reached the same conclusion. Counsel for Mr Chen did not contend differently in this case. Counsel accepted that there is no reciprocal enforcement arrangement between Australia and China. There was no suggestion that any costs order in the present case would be enforceable against him. I therefore proceed on the basis that the defendants have established a good prima facie case for orders for security for the full amount of their defence costs.

Stifling of proceedings

I have already mentioned that counsel for Mr Chen did not take Morling J's "odd result" comment in Barton so far as to submit that security cannot be obtained in any case against an individual foreign plaintiff who would be unable to meet the defendant's costs if the defendant succeeded in the proceedings. Such an argument was raised but rejected, at least implicitly, by the Court of Appeal in Li. As Heerey J noted in Farmitalia, accepting it would in effect rewrite the text of the rule.
UCPR r 42.21(1A) contains a non-exhaustive list of factors to which the Court "may have regard" in considering whether to make an order for security under rule 42.21(1) (which of course includes an order for security under (a) on the ground that the plaintiff is out of the jurisdiction). That includes in subparagraph (1A)(f): Whether an order for security for costs would stifle the proceedings.
It may however be asked whether this consideration is, or is always, of any great significance, in an application under subrule (1)(a). The possibility of the proceedings being stifled was considered in Chellaram, Li and Liu. But in none of those cases was it given any decisive weight.
The principle that poverty should be no bar to a litigant reflects a belief that individuals who live under the Australian legal system should have access to it. The same logic does not necessarily apply to every foreign resident in every class of case.
In Barton, Morling J did rely on the likelihood of the proceedings being stifled as a factor reinforcing the conclusion that the amount of security should be limited to the amount required to registering a costs judgment in Britain. But it is unclear whether that was a necessary element in the decision (the possibility of the proceedings being stifled was not mentioned by Rath J in Connop, the decision which Morling J saw himself as following; Rath J seems to have approached the question as being purely one of what the proper level of security was to protect the defendant). It is also notable that Morling J did not have to consider whether the application should be refused entirely because Mr Barton would be unable to meet an order even for the reduced amount of security.
Barton also had some very special features. The subject matter of the proceedings was Mr Barton's entitlement to a passport, and indirectly, his citizenship. And because it was an application for judicial review of a ministerial decision, it is difficult to see what alternative Mr Barton had but to launch proceedings in Australia as a foreign resident. It would not have been possible for him to challenge the Minister's decision in the English courts and then have the judgment enforced in Australia. Even if Mr Barton was not, or at least was not indisputably, an Australian citizen, he had strong ties to Australia. In these circumstances, there was every reason to invoke in his favour the principle that poverty should be no bar to a litigant.
The present case is quite different. Mr Chen is not an Australian citizen or resident, nor does he seek to become one. His claim arises out of transactions he entered into in China. The only connection with Australia is that his money has found itself into an investment here.
Morling J's "odd result" comment was based on a comparison with what would happen if the plaintiff, rather than being resident overseas, were resident here. It is easy to see why that comparison was made in Barton. But in my view it is somewhat unreal in the present case. The nature and form of the dealings which have given rise to Mr Chen's claims may well have been shaped by the need to get his money out of China and into Australia. I do not think it is meaningful to speculate on what his case would have looked like (or even if he would have had a case at all) if he had been living in Australia at the time.
Furthermore, Mr Chen is seeking to establish an entitlement to a sum of money in Australia. It is a claim which is commercial in nature, albeit on a small scale. To my mind it is only right that in litigation of this type the courts pay particular attention to the potential for oppression of the defendant because of the asymmetry of financial risk between the parties.
For these reasons I do not think that the allegation that an order for security would stifle the proceedings is of any great weight in the present case. But in case I am wrong in this view I will go on to consider the facts of the issue.
The stifling of proceedings is frequently used as a ground for resisting an order for security against an impecunious corporate plaintiff. But in that context it is well established that the corporate plaintiff must demonstrate affirmatively that all those who stand behind it are themselves without means: Bell Wholesale Co Ltd v Gates Export Corp (1984) 2 FCR 1 at 4. This principle has been applied in cases involving foreign plaintiffs: Chellaram at 643.
Similarly, the observations I made in Union Steel Pty Ltd v Union Steel Investments Pty Ltd [2020] NSWSC 1511 at [89] should also apply where a foreign plaintiff resists an order for security on the ground that it may stifle the proceedings. The plaintiff will usually need to explain how it is that the litigation is to be funded. If the plaintiff lacks the means to fund the litigation to completion, then there is no point in refusing security on the grounds of stultification only to find that the proceedings collapse in due course. On the other hand, if the plaintiff is able to fund the litigation to completion, that raises the question whether, particularly in commercial litigation of the present type, the plaintiff should be permitted to conduct the litigation on the basis that the plaintiff's lawyers will be paid if the plaintiff succeeds but the defendant will not be able to recover costs if the case goes the other way.
In the present case I find the evidence on this issue opaque and unsatisfactory. I do not think that Mr Chen has demonstrated affirmatively that he will be unable to provide the security if it is ordered. And there is no evidence about how Mr Chen is funding the litigation at all.
One factor of particular significance is that counsel for Mr Chen previously argued, in opposition to the making of an order for payment of costs on account, that the making of such an order would stultify the proceedings. But in fact the order was made and the payment was provided. I am not satisfied that an order for security will stultify the proceedings.

Prospects of success, and proportionality

This brings me to the submission that the plaintiff is overwhelmingly likely to succeed against one defendant or the other, and the successful defendant's costs are likely to be covered by the unsuccessful defendant.
On the evidence, Mr Chen's money, or most of it, eventually found its way into the purchase of the Mosman property. I am prepared to accept that prima facie he is likely to succeed in a proprietary claim against one or other of the defendants. Nor is Golden Land's status as trustee of the trust an answer to the claim. The money was paid by Mr Chen, and received by Golden Land, before the Trust was constituted. If, as a result of Mr Chen's dealings with officers or agents of Golden Land before the establishment of the Trust, Golden Land subjected itself to proprietary obligations in his favour, then those obligations will prevail over its obligations as trustee.
But the fact remains that Mr Chen's case must either be that he provided the money to Ms Chen for her to invest on his behalf, in which case his proprietary rights attach to units held by her in the trust, or that he is owed direct proprietary obligations by Golden Land, attaching to the property itself. Counsel for Mr Chen accepted that these are true alternatives and success on one necessarily excluded success on the other.
Counsel submitted however that this was not necessarily an end to the matter. The proprietary claims are true alternatives, but there are also personal claims. Mr Chen might, for instance, succeed on a proprietary claim against Ms Chen, thereby failing on his proprietary claim against Golden Land, but nevertheless succeed in a misrepresentation claim against Golden Land.
I find it hard to see in those circumstances how there would be any damage recoverable from Golden Land but it is not necessary to go into that question any further. What is clear is that Mr Chen will not necessarily succeed against both defendants. And if Mr Chen succeeds against one defendant and fails on the alternative claim against the other, the unsuccessful defendant will not necessarily be ordered to pay the costs. Bullock or Sanderson orders are not made as a matter of course, but requires consideration of the particular circumstances of the case, in particular whether the unsuccessful defendant did anything to invite the plaintiff to sue the successful defendant: Gould v Vaggelas (1984) 157 CLR 215 at 229-30 per Gibbs CJ; 260 per Brennan J.
There is also a practical problem. Which defendant would I deprive of the benefit of an order for security? In his initial submissions, counsel for Mr Chen suggested I would allow security for only one set of costs but the difficulty with this is that, on the evidence, I do not know which party's application should succeed and which should fail.
There appears to have been complicated tripartite arrangements between the parties. The proper characterisation of the plaintiff's rights may ultimately depend upon the precise language which was used by the parties, and the difference between success and failure could depend upon subtle variations of wording. But in the end, Mr Chen was party to those tripartite arrangements and he has chosen to make inconsistent claims arising out of them.
As to proportionality, the costs incurred collectively by the three parties to the proceedings will clearly exceed, probably by a large margin, the value of Mr Chen's claim. That is a matter which the Court and the parties must take into account in managing the conduct of the litigation. But I do not see that it has any real relevance for the purpose of the current application.
It has not been suggested that the defendants' estimated costs are excessive. That is not surprising, as, to a large extent, the costs of defending the claims made by the plaintiff would be the same whether the value of his stake in the property was worth $60,000 or $6 million. The fact that there will be two sets of defence costs is a consequence of the way in which the plaintiff has chosen to bring the proceedings. No doubt the plaintiff has his reasons for deciding to pursue the claim, and for pursuing it in the way which he has. But I do not think that it is open to the plaintiff to complain if the defendants take up the challenge which he has thrown down to them.

Conclusions

For these reasons, I consider that I should make orders for security in favour of both the defendants. Given that the amount of the security can be revisited when the matter is fixed for hearing, the quantum of the tranches which I order now can be fixed with the broadest of brushes. In the exercise of my judgment I fix the security for Golden Land as $20,000 per tranche. For Ms Chen I fix the security as $10,000 for the first tranche and $20,000 for the second.
Both security applications have succeeded, over Mr Chen's opposition. Mr Chen will be ordered to pay both defendants' costs of their respective motions.

Orders

The orders of the Court on the first defendant's motion (filed 30 July 2021) are: 1. The plaintiff provide security for the first defendant's costs in the following tranches: 1.1. $20,000 to be paid within 28 days; 1.2. A further $20,000 to be paid within 42 days of the court setting the matter down for trial. 1. Order that security be paid by payment into Court or such other form as may be agreed with the Registrar or between the parties. 2. Order that the proceedings be stayed against the first defendant in the event of failure to make any of the payments for security provided for under this order. 3. Direct that within 7 days of the Court setting the matter down for trial the first defendant file and serve an affidavit setting out the costs incurred to date and an estimate of the further costs to be incurred to the completion of the proceedings. 4. Grant liberty to either party within a further 14 days to apply to the Court to vary the amount to be provided in the second tranche of security. 5. Order that the plaintiff pay the first defendant's costs of the motion.
The orders of the Court on the second defendant's motion (filed 30 August 2021) are: 1. The plaintiff provide security for the second defendant's costs in the following tranches: 2.1. $10,000 to be paid within 28 days; 2.2. A further $20,000 to be paid within 42 days of the court setting the matter down for trial. 1. Order that security be paid by payment into Court or such other form as may be agreed with the Registrar or between the parties. 2. Order that the proceedings be stayed against the second defendant in the event of failure to make any of the payments for security provided for under this order. 3. Direct that within 7 days of the Court setting the matter down for trial the second defendant file and serve an affidavit setting out the costs incurred to date and an estimate of the further costs to be incurred to the completion of the proceedings. 4. Grant liberty to either party within a further 14 days to apply to the Court to vary the amount to be provided in the second tranche of security. 5. Order that the plaintiff pay the second defendant's costs of the motion.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 22 July 2022

Judgment

Two applications for security for costs, made on behalf of separately represented defendants, have come back before the Court. The applications initially came before the Court last year, resulting in amendments to the statement of claim which raised costs issues. In January this year I delivered judgment on those costs issues (Chen v Golden Land Enterprises Pty Ltd [2022] NSWSC 19) and held the resolution of the security applications over until the costs orders I made had been complied with. That has now occurred, and this judgment now deals with those applications.
This judgment assumes familiarity with my January judgment, to which I will refer as "J1". The same abbreviations are used.

At a glance

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Cases Cited (17)

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