Chung-Yi Pty Ltd v Chang

Supreme Court of NSW|2020-03-17|Before: Stevenson J, Ball J

Counsel: C N Bova SC with B A Ng (Plaintiffs/Cross-Defendant on First Cross-Claim/Cross-Claimants on Second Cross-Claim) G McDonald (Defendant/Cross-Claimant on First Cross-Claim/Cross-Defendant on Second Cross-Claim)

Solicitors: Watson Mangioni Lawyers (Plaintiffs/Cross-Defendant on First Cross-Claim/Cross-Claimants on Second Cross-Claim) Gavin Parsons and Associates (Defendant/Cross-Claimant on First Cross-Claim/Cross-Defendant on Second Cross-Claim)

Solicitors: Watson Mangioni Lawyers (Plaintiff) Gavin Parsons and Associates (First Defendant) Goodwin & Co Lawyers (Second Defendant) Mack Lions Lawyers (Third Defendant) File Number(s): 2016/24917; 2019/391498 Publication restriction: Nil

Judgment

On 20 July 2018, after a hearing of some twenty days, Ball J delivered judgment in this matter: Chung-Yi Pty Ltd v Justin Chih-Yang Chang (No 2) [2018] NSWSC 1112.
To give effect to those reasons, on 15 August 2018 Ball J entered judgment in favour of Chung-Yi Pty Ltd against Mr Chang in the sum of $8,410,957.15.
On 3 December 2018, by consent, Ball J ordered that Mr Chang pay Chung-Yi's costs of the proceedings in the sum of $2.8 million.
On 4 February 2020, without notice or explanation, Mr Chang paid into court $9 million in substantial satisfaction of his obligations under Ball J's judgment and order.
By 21 February 2020, Mr Chang had paid Chung-Yi the balance owing by reason of Ball J's judgment and order; some $232,000.
Chung-Yi now seeks an order that Mr Chang pay its costs, on an indemnity basis of: 1. a notice of motion it filed in these proceedings, which I will call the "Freezing Order Motion"; 2. two notices of motion filed in these proceedings by Mr Chang, which I will call the "Variation Motion" and the "Notice to Produce Motion"; and 3. separate proceedings it commenced against Mr Chang, his wife and her nephew seeking relief under s 37A of the Conveyancing Act 1919 (NSW) (which I will refer to as "the s 37A Proceedings").
Chung-Yi also seeks an order that such costs be fixed at a gross sum pursuant to s 98(4)(c) of the Civil Procedure Act 2005 (NSW). It is common ground that I should defer that question until determining the matters in [6] above.
In his written outline of submissions, Mr McDonald, who appeared for Mr Chang, sought orders that Chung-Yi pay Mr Chang's costs of the motions and proceedings referred to at [6] above. Mr McDonald abandoned that application at the conclusion of his oral submissions.
Because Mr Chang has now paid the judgment debt, there has been and will be no determination, on the merits, of the motions and proceedings referred to at [6].
Usually, in the absence of a determination of a case on its merits, the Court is not in a position to decide who should pay costs.
However, in some cases the Court can do so; for example where one party appears almost certainly to have succeeded, where one party has in effect capitulated or where there is a marked difference in the reasonableness of the actions taken by the parties in the case: Re Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622 at 624-625 (McHugh J); Nichols v NFS Agribusiness Pty Ltd (2018) 97 NSWLR 681; [2018] NSWCA 84 at [25]-[30] (Payne JA).
In Nichols, Basten JA said at [8]: "…although it is possible to make an order for costs against one party if it can be shown that it has invited the litigation by its unreasonable behaviour, or has unreasonably pursued the litigation, such an order should only be made where that judgment is manifest by reference to known circumstances, not in dispute between the parties. If the question cannot be answered without reviewing large swathes of evidence and resolving, on a tentative basis, disputed questions of fact, the task should not be embarked upon."
Many of the authorities dealing with this area concern situations where the parties have settled their dispute otherwise than in respect of costs and where one party seeks an order that the other pay costs.
That is not this case.
In this case Chung-Yi succeeded against Mr Chang in bitterly contested litigation and obtained a very substantial judgment. Thereafter, Chung-Yi was obliged to take steps to compel Mr Chang to pay the judgment. Having delayed doing so for some 15 months, and having resisted during that period Chung-Yi's efforts to compel payment, Mr Chang found the means to pay by borrowing funds from a company controlled by his children. Then, without notice or explanation, paid into Court almost all the funds needed to satisfy the judgment.
In those circumstances, I find that Chung-Yi has made out a basis for a costs order in relation to the bulk, although not all, of the costs it seeks.
To explain my decision, it is necessary to consider the course of events since Ball J's judgment and order.
In doing so, and bearing in mind Basten JA's exhortation (see [12] above), I will not seek to resolve any disputed questions of fact.
It has, however, been necessary for me to consider several folders of material that Mr Bova SC, who appeared with Ms Ng for Chung-Yi and Mr McDonald took me to.

Events since December 2018

Out the outset, Mr Chang through his solicitor stated that he proposed to pay the judgment debt "as soon as possible".
Between 21 December 2018 and 5 February 2019, Mr Chang paid Chung-Yi some $2.2 million in three instalments. These funds were the proceeds of the sale of two properties owned by Mr Chang and the proceeds of a loan Mr Chang obtained from a relative.
However, negotiations for the payment of any further amount on account of the judgment and costs order broke down at the end of February 2019.
By his solicitor's letter dated 17 December 2018, Mr Chang said that he would pay the balance of the judgment debt and costs, over and above the amounts to be paid by February 2019, upon settlement of the sale of a property in Brisbane owned by a company he controlled, Jemcorp Pty Ltd. The solicitor stated that settlement of that sale was expected to take place by 30 April 2018.
Jemcorp exchanged contracts to sell the Brisbane property on 26 March 2019 for $23.5 million. Settlement took place on 31 May 2019. Notwithstanding his solicitor's statement on 17 December 2018, Mr Chang did not cause Jemcorp to pay any part of the proceeds of sale of the property to Chung-Yi. Some $7 million of the proceeds were remitted by Jemcorp to accounts located overseas.
On 6 May 2019 Mr Chang transferred his interest in a property in Fisher Street Balgowlah Heights (the matrimonial home) to himself and his wife as joint tenants for a stated consideration of $1.
Mr Chang has offered no explanation for that transfer. It became the subject of the s 37A Proceedings to which I will return.
On 11 June 2019, Chung-Yi caused a bankruptcy notice addressed to Mr Chang to be issued pursuant to s 41(2) of the Bankruptcy Act 1966 (Cth). The bankruptcy notice was served on Mr Chang on 10 July 2019.
On 31 July 2019, Mr Chang filed an application in the Federal Circuit Court of Australia seeking to set aside the bankruptcy notice. That application is now listed for hearing in the Federal Circuit Court in June 2020.
In that application, Mr Chang propounded an offsetting claim said to arise from proceedings he commenced in Taiwan against his siblings (who are the second to fifth plaintiffs and shareholders in Chung-Yi) on 15 October 2018; that is between the time Ball J entered judgment on 15 August 2018 and made the consent costs order on 3 December 2018. In those proceedings, Mr Chang sought orders that his siblings (not Chung-Yi) pay him an amount equal to any sum he paid Chung-Yi by reason of Ball J's judgment and order.
On 2 September 2019, the Taiwanese Public Prosecutor General decided not to prosecute the proceedings on the basis that Taiwanese judicial authorities had no jurisdiction over the defendants to the proceedings.
On 9 October 2019, the Taiwanese High Prosecutors Office dismissed an appeal from the decision on the basis that the appeal was "vexatious".
On 1 November 2019, Mr Chang filed what appears to be an appeal from that decision.
The fate of that appeal is not known.
I express no view about the merits of the Taiwanese proceedings. The relevant point is that Mr Chang has used them as a basis to set aside the bankruptcy notice and thus resist enforcement of the judgment and order made in these proceedings.

The 26 September 2019 freezing order

On 26 September 2019, Chung-Yi filed the Freezing Order Motion.
On the same day, Hammerschlag J made a freezing order against Mr Chang enjoining him from disposing of, dealing with or diminishing his assets up to an amount of $9 million, being approximately the amount then due under the judgment and costs orders. The order stated that it would cease to have effect if Mr Chang paid $9 million into Court. Mr Chang did so on 4 February 2020. I will return to that.
On the first return date of the Freezing Order Motion, 2 October 2019, Mr Chang without admissions consented to the freezing order being extended until further order.

The Variation Motion

On 23 October 2019, Mr Chang's solicitors proposed that the freezing order be varied to permit Mr Chang to sell six properties (including the Fisher Street property) and to pay the net proceeds of sale, estimated to be $3 million, into Court "for the benefit of his unsecured creditors".
On 15 November 2019, Mr Chang filed the Variation Motion seeking orders to the effect of those proposed in his solicitor's letter of 23 October 2019.

The Notice to Produce Motion

On 13 November 2019, Chung-Yi served a notice to produce on Mr Chang seeking documents in relation to, amongst other things, amounts said to be secured over the six properties that Mr Chang had proposed be sold.
On 5 December 2019, Mr Chang filed the Notice to Produce Motion seeking to set aside that notice to produce.

The s 37A Proceedings

On 12 December 2019 Chung-Yi commenced the s 37A Proceedings.
In those proceedings, Chung-Yi sought orders pursuant to s 37A of the Conveyancing Act 1919 (NSW) setting aside the transfer by Mr Chang of his interest in the Fisher Street property to himself and his wife as joint tenants on the basis that Mr Chang made the transfer with the intention of defrauding Chung-Yi; and to appoint receivers with power to sell Fisher Street for the purpose of satisfying the outstanding judgment.
Chung-Yi also sought to have set aside a security granted by Mr Chang to Mrs Chang's nephew, Shih-Chen Lin over the Fisher Street property.

The 16 December 2019 hearing before me

The Variation Motion and the Notice to Produce Motion were listed for hearing before me on 16 December 2019.
On that occasion, Chung-Yi sought to amend the Freezing Motion to include orders that receivers be appointed to the six properties that Mr Chang proposed to sell.
In the result, the Variation Motion and the Notice to Produce Motion were adjourned for directions until 7 February 2020.
I also ordered that Mr Chang and the other defendants to the s 37A Proceedings file the Commercial List Response to those proceedings by 5 February 2020.

The payment into Court

On 4 February 2020, the day before Mr Chang and the other defendants to the s 37A Proceedings were due to serve their Response, Mr Chang paid $9 million into Court.
The Freezing Order thereby ceased to have effect.
The source of the $9 million was an advance made to Mr Chang by Winyin Property Pty Ltd pursuant to a Facility Agreement dated 31 January 2020.
Winyin was incorporated on 8 August 2019. Its directors and shareholders include Mr Chang's children and their partners. Its registered office is the Fisher Street property.
There is no other evidence before me concerning Winyin; nor any evidence concerning the negotiation of the 31 January 2020 Facility Agreement.
On 11 February 2020, the $9 million was paid out of Court to Chung-Yi.
That payment was not quite enough to satisfy Ball J's judgment and order. As I said at [5], Mr Chang paid the balance, some $232,000, by 28 February 2020.
On 7 February 2020, Chung-Yi discontinued the s 37A Proceedings against Mrs Chang and Shih-Chen Lin, but not Mr Chang, with the consent of all parties and with no order as to costs.

The judgment and costs order are now satisfied

The result is that Mr Chang has now, belatedly, satisfied his obligations under Ball J's judgment and order.
Initially, Mr Chang's position was that he would satisfy the judgment and order by reason of an orderly realisation of assets.
Then, evidently, he changed his mind and resisted steps taken by Chung-Yi to enforce its rights.
That caused Chung-Yi to bring the Freezing Order Motion.
In my opinion it was reasonable of Chung-Yi to bring the Freezing Order Motion when it did. By then, Mr Chang had had more than a year to take steps to satisfying Ball J's judgment and some nine months to satisfy the costs order. And he was taking steps, in the Federal Circuit Court, to resist payment.
Although there is now no need finally to determine the Freezing Order Motion, nor the directly related Variation Motion, Chung-Yi has in substance now achieved success on the Freezing Order Motion.
Chung-Yi obtained the freezing order in the first place. Mr Chang consented to its continuation until further order. And, now, Mr Chang has paid into Court the amount the order was expressed to protect.
Another way of looking at what has happened is that Mr Chang has in relation to the Freezing Order Motion and the Variation Motion capitulated by paying the amount due.
These are sufficient reasons, in my opinion, to order that Mr Chang pay Chung-Yi's costs of the Freezing Order Motion and the Variation Motion.
I see the Notice to Produce Motion and the s 37A Proceedings as being in a different position.
Mr Bova submitted that those matters were connected to and part of the same overall dispute and that the costs of those matters should follow the "event" of the outcome of the Freezing Order Motion and Variation Motion.
There is of course some connection between the Freezing Order Motion and the Variation Motion, on the one hand, and the Notice to Produce Motion and the s 37A Proceedings on the other.
But I see no basis on which I could predict the likely outcome of those matters, let alone conclude that Chung-Yi was likely to have succeeded.
Looking in particular at the s 37A Proceedings, I am not in a position to reach any conclusion about whether Mr Chang's transfer of his interest in the Fisher Street property to himself and his wife as joint tenants was with intent to defraud Chung-Yi; let alone to draw any like conclusion about Mr Chang's entry into the transaction with Shih-Chen Lin.
Further, the fact of the transfer was a matter of public record once the transfer was registered in May 2019 and yet it was only on 12 December 2019 that the s 37A Proceedings were commenced.
The appropriate order concerning the Notice to Produce Motion and the s 37A proceedings is that there be no order as to costs.

An indemnity costs order?

Chung-Yi seeks an order that the costs order in its favour be on an indemnity basis.
Indemnity costs may be ordered where a party's conduct of proceedings has been "delinquent" or "unreasonable". The authorities were recently summarised by Walton J in Goldsmith v Kang [2019] NSWSC 981 at [42]-[50].
Ultimately, the question to be asked is whether there is some special or unusual feature of the case that justifies an order for indemnity costs so as to fully compensate the aggrieved party for the costs it has incurred: e.g. see Ly v Dong [2018] NSWSC 122 at [45]-[46] (Slattery J).
In my opinion, this case warrants an order for indemnity costs.
Mr Chang's conduct in delaying payment of the amounts due under Ball J's judgment and order, in resisting Chung-Yi's efforts to enforce the judgment and order and to then, without notice or explanation, procure a loan from a company controlled by members of his family to discharge his obligations was delinquent and unreasonable conduct such as to warrant an order for indemnity costs.

Conclusion

I make the following orders.
In proceedings 2016/24917 I order that: 1. the first defendant's notice of motion filed on 15 November 2019 is dismissed; 2. the first defendant's notice of motion filed on 5 December 2019 is dismissed; 3. the first defendant pay the first plaintiff's costs of the following notices of motion on an indemnity basis: 1. the first plaintiff's notice of motion filed on 26 September 2019; 2. the first defendant's notice of motion filed on 15 November 2019. 1. there be no order as to the costs of the first defendant's notice of motion of 5 December 2019; and 2. the first plaintiff have leave to file a notice of motion seeking a gross sum costs order in respect of the costs referred to in order (3) under s 98(4)(c) of the Civil Procedure Act 2005 (NSW), such notice of motion to be made returnable in the motions list on 3 April 2020.
In proceedings 2019/391498 I order that: 1. the plaintiff be granted leave to discontinue the proceedings against the first defendant; 2. there be no order as to costs.
I grant liberty to the parties to apply in relation to the form of these orders, such liberty to be exercised by 5:00pm on 20 March 2020. 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: 19 March 2020

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