Chen v Keddie

Xi (Cissy) Chen (Plaintiff) Russell Keddie (First Defendant) PARTIES : Tony Barakat (Second Defendant) Scott Roulstone (Third Defendant) David Marocchi (Fourth Defendant)

COUNSEL : A Black (Plaintiff) R Seton SC and D A Lloyd (Defendants)

SOLICITORS : Stacks/Goudkamp (Plaintiff) HWL Ebsworth Lawyers (Defendants)

• 3 - IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

JUDGMENT 1 This is an application for security for costs by the Defendants. 2 The Plaintiff is a former client of the firm of Keddies of whom the first three Defendants are partners and the fourth Defendant was at material times an employee. They acted for her in relation to a motor vehicle accident which occurred on 29 May 2003 in Sydney. The Plaintiff is a Chinese national who was visiting Australia in 2003. She has since returned to China. 3 The motor vehicle proceedings were settled for the sum of $150,000 inclusive of costs and of this sum the Plaintiff received $50,000. 4 The proceedings that she brings against the solicitors are for breach of retainer in settling the proceedings without her instructions for the amount of $150,000, for negligence in a number of respects relating to the investigation and preparation of the proceedings and for negligence in having settled the proceedings in the way they did. 5 The application is brought in reliance on Part 42.21(a) Uniform Civil Procedure Rules which provides: "(1) If, in any proceedings, it appears to the court on the application of a defendant: (a) that a plaintiff is ordinarily resident outside New South Wales, … the court may order the plaintiff to give such security as the court thinks fit, in such manner as the court directs, for the defendant's costs of the proceedings and that the proceedings be stayed until the security is given." 6 In KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 at 197 Beazley J (as her Honour then was) set out what she described as well established guidelines which the Court typically takes into account in determining any such application: "(1) That such applications should be brought promptly. …

(2) That regard is to be had to the strength and bona fides of the applicant's case are relevant considerations. …

(3) Whether the applicant's impecuniosity was caused by the respondent's conduct subject of the claim. …

(4) Whether the respondent's application for security is oppressive, in the sense that it is being used merely to deny an impecunious applicant a right to litigate. … Guidelines numbered (5) and (6) dealt exclusively with corporations and guideline (7) is not relevant to the present application. 7 The Plaintiff has sworn an affidavit (in Canada, and I shall return to that presently) where she describes the injuries that she suffered in the accident. She says that shortly after the accident she returned to China where she has remained as she had been unable to obtain a visa to return to Australia. She says that she cannot work because of her injuries - she is in constant and unremitting pain, particularly because of her severe leg injuries. She says that she has exhausted the $50,000 funds she received from the settlement. 8 She then says: "10. I have no income, I do not receive a government pension (as the accident occurred in Australia and not China) and my only financial support is from my mother. She gives me money to survive."

That paragraph is the entirety of the evidence about the Plaintiff's financial position. 9 The Defendants say that it is the third and fourth guidelines in Beazley J's judgment that are relevant. They do not assert that there is other than a bona fide case brought by the Plaintiff. 10 In relation to the third guideline, the Defendants say that the Plaintiff's impecuniosity was not caused by their conduct. They suggest that it is clear from the evidence that the Plaintiff's present position has been brought about by the driver of the motor vehicle against whom the proceedings were brought. It was the negligence of that person that has prevented the Plaintiff from working again and gave rise to the need for the care that she does. 11 In relation to the fourth guideline, the Defendants accept that the question of the stultification of the Plaintiff's claim is a relevant consideration on the application but suggest that there are other factors which outweigh any stultification that might result from the ordering of security. 12 In relation to the issue of stultification, the Defendants point first to what Gaudron J said in Singer v Berghouse [1993] HCA 35; (1993) 114 ALR 521; (1993) 67 ALJR 708 as follows: "[5] It may well be that, in the absence of special circumstances and in a case where costs follow the event, the need to bring action in a foreign court to enforce an order for costs will weigh very heavily in favour of an order under O.70 r.7 (1) … Even so, decisions under O.70 r.7 involve a discretionary judgment of a very broad kind made by reference to the circumstances of the particular case and not by reference to a rule or rules which direct a decision one way or the other." 13 Order 70 r. 7 of the then High Court Rules was only in general terms as follows: "(1) The Court or a Justice may, at any time on the application of a respondent to an appeal, order that the appellant give security, within a time to be limited by the order and in such amount as the Court or a Justice may fix, for the prosecution of the appeal without delay and for the payment of such costs as may be awarded by the Court to the respondent.

There were no specific grounds as are contained in Part 42.21 UCPR. 14 The Plaintiff argues that security should not be ordered because the result would be that she would not be able to pursue the proceedings given her impecunious state and says that is a significant matter to be weighed in the discretionary balance. The Plaintiff further submits that there is further powerful consideration in that the Defendants were perfectly content to accept the Plaintiff as their client notwithstanding that she lived in China. It is not appropriate, the Plaintiff says, for the Defendants to seek to hide behind the rule that enables them to seek security for costs for a Plaintiff residing outside the jurisdiction. 15 The Plaintiff points to the correspondence attached to the affidavit of Thomas Goudkamp sworn 31 July 2009 to show the strength of the case concerning the claim that the Defendants settled the proceedings contrary to the instructions of the Plaintiff. In particular, the Plaintiff points to a letter written by the Defendants to the Plaintiff dated 16 January 2006 which refers to a telephone conversation on that day where it is said the Plaintiff provided the Defendants with oral instructions to accept the insurance company's offer of $150,000 inclusive of costs. By contrast, they point to the terms of settlement providing for a settlement of $150,000 where the date under the solicitor's signature is 11 January 2006, some five days earlier. 16 In circumstances where the Defendants do not suggest that the claim brought against them is not made bona fides, it is inappropriate on the small amount of evidence available concerning the claim adduced in this application for me to come to any view about the strength of the Plaintiff's case or to do other than accept that the claim is made bona fides. The documents annexed to Mr Goudkamp's affidavit were not admitted as the proof of the matters contained in them but only that they constituted communications between the parties or were prepared at or about the dates that appear on them. There is certainly no evidence that, although the date 11 January 2006 is typed on the Terms of Settlement, that is the date when the solicitor affixed his signature to that document. 17 In my opinion, it is appropriate that some security be ordered in the present case for the following reasons. 18 First, this is a case where ordinarily costs would follow the event. The result would be that if the Defendants won the case, the only way they could enforce their costs order would be to attempt to bring action in a foreign court: Singer v Berghouse at [5]. In this regard, the Defendants point to an article entitled "Recognition and Enforcement of Foreign Judgments in China" by Blazey and Gillies published by Macquarie University where the authors say (at 11): "Enforcement of foreign judgments in the PRC [People's Republic of China] is ineffective. This alone would not be unusual - as noted foreign judgments are typically difficult to enforce even in States with developed legal systems such as Australia. But unusually, the ineffective enforcement of foreign judgments is paralleled by the ineffectiveness of the Chinese court system in enforcing purely domestic decisions in its civil jurisdiction. This general ineffectiveness reflects broader factors - the lack of resources given to, and status accorded to the courts in China in the respect of civil litigation. To sum up, the civil courts in China have in practice very limited reach." 19 Secondly, in the light of Gaudron J's judgment in Singer v Berghouse a Plaintiff needs to show special circumstances to overcome the great weight which should be given to the principle that a party resident out of the jurisdiction with no assets within the jurisdiction should provide security for costs: PS Chellaram & Co Ltd v China Ocean Shipping Co (1991) 102 ALR 321 at 323 per McHugh J. 20 Thirdly, the evidence of the Plaintiff about her financial position is inadequate in two respects. First, the only evidence is that she has no income and that she had used the $50,000 she received already. There is no evidence about her assets, no explanation of how, for example, she was able to afford to travel to Australia for holiday or subsequently travel to Canada, the place where her affidavit on this present application was sworn. The absence of adequate financial evidence in that regard is a relevant factor: Chellaram at 323. 21 The other way the absence of financial information is relevant concerns the absence of any evidence about any relationship between the Plaintiff's financial position and the alleged acts and omissions of the Defendants. It was not asserted by the Plaintiff in the present case that there was any such link. 22 In Perform (NSW) Pty Ltd v Mev-Aus [2008] NSWSC 1329 McDougall J said: [21] In my view, Perform has not shown that, but for the matters of which it complains in these proceedings (which, as I have said, I am prepared to accept for the purpose of argument) it would have been able to pay any costs that might have been ordered against it. …

[22] In any event, I think, the more fundamental and appropriate question is whether (on the assumption governing these parts of my reasons) Mev-Aus was the cause of Perform's impecuniosity. On the assumption to which I have referred Mev-Aus was undoubtedly a substantial contributor to the present extent of that impecuniosity. But even putting aside the notional or hypothetical contribution of Mev-Aus, Perform has simply not shown that but for the matters of complaint it would have been in a sound or adequate financial position." 23 By contrast in the present case, there is no evidence to suggest that the Defendants are the cause of, or contributors to, the Plaintiff's present impecuniosity. The result must be, as McDougall J said in Perform at [23]: "[T]here is no discretionary consideration of the kind with which this issue is concerned which would require, or even suggest, that the admittedly enlivened discretion to order security for costs should not be exercised". 24 Finally, and as McHugh J pointed out in Chellaram, a person suing from outside the jurisdiction was regarded in a different position when the question of impecuniosity and stultification was considered. So, in Fiduciary Ltd v Morningstar Research Pty Ltd [2004] NSWSC 664 Austin J said: [47] In Cowell v Taylor (1885) 31 Ch D 34, 38, Bowen LJ said: "The general rule is that poverty is no bar to a litigant, that, from time immemorial, has been the rule at common law, and also, I believe, in equity."

[48] That statement, and similar observations by Baggallay LJ (at 37), appear to identify a strict rule, subject to specific exceptions identified by their Lordships, rather than a guideline for the exercise of discretion. The rationale for rule (sic) appears to be a public policy requiring the defendant to accept the risk that the plaintiff might not be able to satisfy an order for costs, so as to ensure that the doors of the court are not barred to a resident plaintiff simply because he or she is impecunious: Harpur v Ariadne Australia Ltd [1984] 2 Qd R 523, 530 per Connolly J. … Nowadays, however, the "rule" may be less absolute than the formulations in Cowell v Taylor would suggest …" (emphasis added) 25 I note in passing that in Melville v Craig Nowlan & Associates Pty Ltd (2001) 54 NSWLR 82 at [101] Hayden JA (as he then was) also suggested that the "general rule" referred to by Bowen LJ was less absolute than the formulations would suggest even for individual plaintiffs within the jurisdiction. This adds some weight to the suggestion that the poverty of a plaintiff outside the jurisdiction with the resultant possibility of stultification of the proceedings constitutes much less than the special circumstances that Gaudron J suggests should be found, and will not be sufficient to overcome the "great weight" that McHugh J suggests should be given to the general principle associated with the plaintiff being resident outside the jurisdiction. 26 In my opinion, the mere fact that the Defendants were content to accept the Plaintiff as their client although she was a resident out of the jurisdiction cannot be a determining factor nor can it amount to special circumstances if, as Gaudron J suggests, that is the requirement for a plaintiff resident out of the jurisdiction to establish to resist the security for costs order. In most cases, the fact that a defendant was seeking security for costs against a plaintiff resident out of the jurisdiction would be because the defendant has dealt with the plaintiff in some contractual way that might at some stage give rise to proceedings within the jurisdiction. That factor has never been held to be of significant weight within the discretion given to the Court under the Rule or even in its inherent jurisdiction. 27 In relation to the amount of security the Defendants rely on an affidavit of Christopher Bruce Brierley sworn 29 April 2009. Mr Brierley is an experienced litigation solicitor who frequently acts in defence of claims made against solicitors. 28 Mr Brierley has provided details of charge-out rates at his firm, a summary of the preparation that he considers will be necessary, and an assessment of what the work in defence of the claim will approximate. The total of his estimate is $55,690 including counsel and expert witnesses. The Defendants seek $50,000 by way of security. 29 When providing security for costs the Court does not set out to provide a complete indemnity to a defendant is respect of her or his costs: Brundza v Robbie and Co (No. 2) (1952) 88 CLR 171 at 175. In the amount to be provided the Court should have regard to the effect of the order on a plaintiff's ability to continue the litigation. 30 I am mindful of the evidence, although somewhat sparse, about the Plaintiff's claimed inability to meet any order for security. For that reason I think it is appropriate to order security in stages in an attempt to minimise, if possible, the risk that any order will prevent the Plaintiff from continuing the claim. I am also mindful of that matter in the total amount I intend to order. It is always open to a defendant to make further application if it is appropriate to do so at a later stage. However, in determining the total figure I have done so bearing in mind that further applications are to be avoided as far as possible to minimise the incurring of further costs. 31 The proceedings are at a very early stage. The Statement of Claim was filed on 21 January 2009 and no defence has yet been filed. Both counsel seemed to think that it was likely to be about 18 months before there would be a hearing in the matter and that if security was to be ordered in stages I should have regard to that sort of period. 32 In my opinion, the Plaintiff should provide security in the sum of $40,000 on the following basis: (a) the sum of $10,000 is to be provided on or before 31 October 2009; (b) a further sum of $10,000 is to be provided on or before 30 April 2010; (c) a further sum of $10,000 is to be provided by 31 August 2010; (d) the balance of $10,000 is to be provided by 30 November 2010.

The proceedings will be stayed in each case until the due payment is made. 33 In relation to the costs of the application, I have read the correspondence from each of the solicitors which warns that a failure to agree to the position put forward by that party will be used as a basis for obtaining an indemnity costs award on the hearing of the application should the party be successful. I do not consider it appropriate to award indemnity costs on this application. Neither party's arguments were so lacking in cogency that it could be said one or the other acted unreasonably by not accepting the other party's position set out in the correspondence. 34 In my opinion, the appropriate costs order is that the costs of the application should be the Defendants' costs in the cause. That reflects the fact that the Plaintiff has been unsuccessful in resisting an order for security but means that if the Plaintiff is ultimately successful in her claim against the Defendants, the Defendants will not be entitled to receive their costs of this application. 35 The parties should bring in Short Minutes of Order to reflect these reasons and to deal with the form of the security.

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