Cong v Shen

(1) The Defendants' Proceedings/Subpoenas Dismissal Motion of 19 June 2018

1. The plaintiffs submit that they were successful on this motion, with a qualification that their 1 and 5 June 2018 subpoenas have been read down to narrow the scope of the documents sought. But the plaintiffs say that those concessions were made in their written submissions, so that the defendants' continued opposition to the subpoenas should be at the defendants' costs.
2. In reply, the defendants submit that the Court's reasoning in the first judgment shows that they had some success in having the subpoenas limited in scope by a process of amendment, inspection and culling.
3. But the defendants submit the main burden of this motion was an application for dismissal of the proceeding, or to strike out the pleadings as they then stood. The defendants contend that the motion to strike out the pleadings was overtaken by a series of proposed amendments in which the plaintiffs in substance conceded the deficiencies complained of in the defendants' original motion.
4. The modification of the subpoenas that has occurred in this case is not an uncommon result of motions to set aside subpoenas, resulting in some modification of the final form of subpoena. It is often appropriate in such cases, that each party bear their own costs of the contest. The subpoenas were in a considerable measure justified. But limits upon them were required. The Court will not make a costs order either way on this issue.
5. In relation to striking out the pleadings, the defendants are correct that their motion was substantially overtaken by the proposed amendments. But the plaintiffs are also correct that at the hearing on 27 September 2019 they successfully defended the final iteration of the pleading and that it should have been accepted by the defendants once it was propounded. A costs order must be crafted to accommodate this outcome. In my view, an appropriate costs order to cover this is that the plaintiffs will pay the defendants' costs thrown away by the amendment of the pleading. But the costs ordered to be so paid will not include any broader costs associated with the argument on the motions that took place on 27 September, which will be provided for by a separate order.
6. A little under half of the argument on 27 September concerned amending the pleadings, an issue on which the defendants were not successful and the plaintiffs were. It is an issue that had the defendants conceded on the last iteration of the pleadings would never had have to be argued. As will be seen it is difficult to determine success either way on many of the other issues, so an appropriate order in the circumstances is that the defendants should pay 50 per cent of the plaintiffs' costs incurred on that day on this motion and on the plaintiffs' 18 April 2019 Amendment and Procedural Motion that dealt with overlapping pleading amendment issues. But that is not all that was argued on that day. This order will be adjusted (see below) to be combined with the costs effect of other issues argued on these motions.
7. A supplementary issue arises on this motion. The defendants submit that prayers 1 and 3 of this motion (prayers that claimed that the proceedings were being conducted oppressively or were an abuse of process) have not yet been decided by the Court. The defendants contend that these were not merely pleading points but were the main burden of the motion.
8. As a result of the Court's determination of all the other pleading issues, much of the thrust of these prayers for relief fell away. But the defendants are correct: these prayers for relief were not expressly decided in the first judgment. But if the defendants wish these issues to be decided, the Court is not persuaded of the defendants' arguments and would not have dismissed the proceedings on that ground.
9. The Court is not persuaded that the proceedings were being conducted oppressively or were an abuse of process. The plaintiffs' claim has now been clearly pleaded. The plaintiffs are represented by senior and junior counsel, who have articulated their case with clarity. There is no basis for the case to be dismissed on grounds of delay in light of the recent progress that has been made. The Court is satisfied it is now being advanced satisfactorily. The defendants also articulate an oppression claim against the plaintiffs based on Reid v Howard (1995) 184 CLR 1; HCA 40 ("Reid v Howard"). This is dealt with later in these reasons.
10. Thus, there is no basis for a costs order in the plaintiffs' favour based upon the determination of prayers 1 and 3 of that motion. But this is another issue argued on 27 September on which the defendants were unsuccessful, which will be taken into account when the Court makes costs orders on this motion and the 18 April 2019 motion.

(2) The Plaintiffs' Freight Solutions Motion of 14 December 2018

1. The defendants submit that there should be no order as to costs of this motion. The Court made orders amending the subpoena and providing for a regime of inspection. The motion will be otherwise dismissed.
2. The subpoena was issued before the other motions had been decided and whilst the pleadings were still being revised. The proper result therefore should be that there should be no order for costs on this motion, as the defendants submit. It was largely overtaken by the amendments. The plaintiffs' submissions do not show good reasons for making any other order.

(3) The Plaintiffs' Amendment and Procedural Motion of 18 April 2019

1. In relation to the plaintiffs' amendment and procedural motion of 18 April 2019, the plaintiffs make two main points. All the proposed amendments to the Statement of Claim have been allowed over the defendants' extensive opposition to amend. The plaintiffs say the Court should depart from the ordinary position that a successful applicant seeking an indulgence, such as an amendment, pays the unsuccessful respondents' costs, because the opposition to the amendments is unreasonable or "adds unnecessarily to the costs of the application": Chahwan v Euphoric Pty Limited t/as Clay & Michael and Another (2009) 73 ACSR 252 at [43]. Here, the numbers of unsuccessful objections to the plaintiffs' proposed amendments have added unnecessarily to the costs of the application. Some costs orders should be made against the defendants on this motion. The precise form of order that the Court will make has been foreshadowed earlier and takes account of this argument.
2. In relation to the other part of this motion, the plaintiffs submit that their application to appoint Ms Goodwin to represent the estate of the deceased and to appoint the first and second plaintiffs as representatives of Laurence Cong's estate, were successful. They submit that this success was not diminished by the Court's order that the plaintiffs should indemnify Ms Goodwin in respect of her costs of representing the deceased's estate.
3. The defendants advance strongly contrasting costs contentions on this motion. They contend that the plaintiffs have had some success (and the defendants less success) on this motion but that appropriate orders should now be fashioned as follows. An order for costs thrown away by reason of the permitted amendments having been made already, an order for the defendants' costs of the proceedings in the whole period up to 18 April 2019 should now be made in their favour. The defendants further argue that this order is justified because they have twice been put to the task of preparing evidence before the amendments were ultimately propounded. The defendants say they have been required to consider a series of draft amendments. And now their evidence will have to be reconsidered in light of the amendments made and any additional evidence which the plaintiffs adduce. The defendants say they have, in substance, to start the case again.
4. Moreover, the defendants submit there is reason to think that the costs in question will never be paid by the plaintiffs and that they should be made assessable forthwith and the plaintiffs should be ordered to pay a fixed amount of $100,000 within 28 days on account of those costs as a condition of the proceedings being allowed to continue.
5. There are several difficulties with these arguments. The defendants will not have to "start again". Much of the plaintiffs' evidence already filed is likely to be of use in the proceedings. The extent to which there may be any wastage of evidence would only be known at the end of the proceedings. If the defendants have fears that their costs might never be paid, that may lead to a security for costs application in limited circumstances, but none has been made here nor has a basis on which it could possibly be made been clearly articulated. And to the extent that the defendants have had to consider amended pleadings, they should have accepted and consented to the last amended pleading the plaintiffs proffered.
6. The defendants also submit that no order for costs should be made on this motion until after another aspect of the motion is considered: this relates to whether or not the plaintiffs are "pursuing an unpleaded charge of fraud and criminal tax evasion in their current pleadings". The defendants suggest there is such an unpleaded charge that the plaintiffs have used as a threat to induce the plaintiffs to give up defending the proceedings, which also constitutes an abuse of process or oppression.
7. The way that the defendants put this is that they suffer unfair prejudice in the way this case is unfolding because of an alleged accumulation of matters: the plaintiffs' unstated charges of fraud against Ms Shen, scandalous material in their affidavits, insinuations about the character of Ms Shen, the continuation of the freezing orders and unformulated particulars.
8. None of these matters make these proceedings oppressive or an abuse of process. The pleadings are clear and plead causes of action well known to the law. In the first judgment the Court has already found there is evidence to support some of the serious allegations that the plaintiffs have made. Whether that evidence holds up at trial is another question.
9. But the defendants take their oppression argument further in two ways. First, they say that if the proceedings are allowed to go forward, service of any further affidavits in the defence case should be deferred until the close of the plaintiffs' case at trial. They seek to apply the principles stated in Halpin v Lumley General Insurance Ltd (2009) 78 NSWLR 265; [2009] NSWCA 372 ("Halpin"): that a Court may order the withholding of defence evidence, particularly evidence that may not in itself advance the plaintiffs' case, if there is a risk that it may be used by the plaintiffs to help tailor their case.
10. This case is not an obvious candidate for the making of a Halpin order. There is no allegation of serious dishonesty against the plaintiffs. Even if it were such a case, in the Court's view, that is a matter which would ordinarily be addressed once the plaintiffs have put on the balance of their evidence in their newly re-pleaded case. It does not need to be decided now.
11. The second way the defendants take their oppression argument further is to invoke Reid v Howard to resist any discovery orders. The Court's reasons in the first judgment only rather obliquely referred to the point the defendants made concerning Reid v Howard. That case stands for the principle (stated at p 17) that "it is inimical to the administration of justice for a civil court to compel self-incriminatory disclosures, while fashioning orders to prevent the use of the information thus obtained in a court vested with criminal jurisdiction with respect to the matters disclosed".
12. But to raise the principle is not to demonstrate that it automatically applies in this case. As the Court's first judgment said (at [117]), "the discovery sought is not primarily to support a charge of tax evasion but to advance a theory about a mechanism by which the estate's cash was used to acquire the properties, a theory which is already partly supported by the plaintiffs' existing oral evidence". There is no pleaded case of tax evasion or tax fraud against Ms Shen in the Amended Statement of Claim which has been filed pursuant to the Court's orders of 29 November 2019. Propounding such a case against her is not permissible on the pleadings.
13. So far as the pleadings and the evidence go, they tend to suggest that the deceased may have been involved in tax fraud. But the pleaded case against Ms Shen is that she was involved in a breach of trust by misapplying the proceeds of sale of one of the properties (paragraphs [74] - [76] of the pleadings), that she engaged in equitable fraud by entering into the June 2016 transactions with the deceased (paragraphs [77] - [103]), and that a transfer of another property to her mother was a voluntary alienation to defraud creditors within Conveyancing Act 1919, s 37A. Finally, the plaintiffs allege that Ms Shen was a trustee de son tort of Laurence Cong's estate and was in breach of the fiduciary duties she owed to that estate by reason of her dealings with various estate assets (paragraphs [114] - [149]). There is no allegation of common law fraud, which appears likely to overlap with criminal conduct here and no allegation of tax fraud.
14. The defendants' Reid v Howard point is not persuasive for these reasons. The discovery orders that the Court has made will stand. If the disclosure of particular documents raises a potential self-incrimination issue for the defendants that is not obvious on the pleadings, the defendants are at liberty to apply for orders exempting those documents from the disclosure orders.
15. This is another aspect of the combined arguments on the 19 June 2018 motion and the 18 April 2019 motion on which the defendants have been successful. As a result of that combined result, the Court will order the defendants to pay two-thirds of the plaintiffs' costs of these two motions.

(4) The Plaintiffs' Particulars - Notice to Produce Motion of 26 July 2018

1. The plaintiffs submit that there should be no order as to the costs of the plaintiffs' motion of 26 July 2018, seeking compliance with the plaintiffs' notice to produce dated 3 November 2017. This motion also sought to postpone the giving of particulars by the plaintiffs until after compliance with the Notice to Produce. The plaintiffs subsequently amended that Notice to Produce. These amendments then became the subject of the 18 April 2019 motion, so no time was spent in Court dealing with the original Notice to Produce.
2. Instead of pressing the Notice to Produce, the 18 April 2019 motion sought discovery in categories. As the Court's first judgment observed (at [117]), the detail of the Amended Statement of Claim neutralises the suggestion that the original Notice to Produce was just an exercise in "trawling" for a possible case.
3. Little time was spent on this motion in Court. Neither side wished to proceed with it. The ordinary rule is that costs should lie where they fall on a claim that neither party wish to argue any longer, unless it could be demonstrated that one or other party was guilty of unreasonable conduct or was almost certain to succeed: Re Minister For Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622 at 624-5; 71 ALJR 533; 143 ALR 1 at 3; HCA 6; Australian Securities Commission v Aust-Home Investments Ltd (1993) 44 FCR 194; 116 ALR 523; 11 ACSR 136; FCA 585 at 530.
4. Neither of those conditions is fulfilled here. Therefore the Court's order in relation to this motion will be that each party shall bear their own costs upon its dismissal.

The 12 December 2019 Motion

1. The plaintiffs applied within time pursuant to Uniform Civil Procedure Rules 2005 ("UCPR"), r 36.16 to vary Order 4 of the orders the Court made on 29 November 2019. This order required the plaintiffs to indemnify Ms Goodwin in respect of her expenses of acting as a representative of the deceased's estate.
2. The plaintiffs' argument for the variation was that the estate is a necessary party to the plaintiffs' claim for family provision orders under Succession Act 2006, Part 3. The plaintiffs submit that the other beneficiaries of the deceased's estate are Ms Shen, the first defendant, who was otherwise before the Court and her children, for whose interests Ms Shen can speak. The plaintiffs contend that because Ms Shen is challenging the validity of the deceased's will on the basis he lacked testamentary capacity, the estate may well be joined as a defendant to her Cross Claim.
3. Against that background the plaintiffs submit that their indemnity of Ms Goodwin should only cover her expenses incurred in defending the plaintiffs' family provision claim against the estate. They submit that Ms Goodwin's expenses, if any, on behalf of the estate in defending any matters alleged in the Cross Claim should in the first instance be borne by the first defendant.
4. Ms Shen submits in reply that the orders the plaintiffs seek in the 12 December 2019 motion are contrary to the Court's reasoning, revoking the order appointing Ms Shen to represent the estate: first judgment, at [86] - [87].
5. Ms Shen further submits that the need for the indemnity arises out of the plaintiffs seeking relief on behalf of the estate and in the name of the estate. Ms Shen accepts that she seeks in lieu of an order for general administration, a declaration that the deed is void and that this is only a defensive Cross Claim, because of the plaintiffs' attempts to enforce the deed.
6. Ms Shen submits that there is no basis on which she should now be required to provide an indemnity to Ms Goodwin, in part because the proposed indemnity is likely to create confusion. And she should not have to fund Ms Goodwin's costs of defending Ms Shen's Cross Claim.
7. The Court fully explained in its first judgment (at [88] - [96]) why Ms Goodwin should be indemnified. That reasoning need not be revisited. But the plaintiffs' articulated fear that they will be required to indemnify the costs of Ms Goodwin for defending Ms Shen's Cross Claim is more illusory than real. Even if she is not indemnified in that respect, she does not have to do anything to defend that Cross Claim. If the estate does not file a Defence to that Cross Claim, the parties should all proceed on the basis that nothing is admitted on behalf of the estate. Beyond possibly filing a Defence to the defendants' Cross Claim, it presently seems to the Court that everything else that Ms Goodwin might do to defend that Cross Claim on behalf of the estate will be done by other parties in the proceedings acting in a similar interest to the estate. If something that is not presently foreseeable has to be done by Ms Goodwin on behalf of the estate in defence of the defendants' Cross Claim, the Court can be approached to resolve any issues that arise. Liberty to apply will be given.
8. Indeed, apart from the positive obligations that Ms Goodwin may have in defending the family provision claim as the Court said in the first judgment (at [95]), the best course she may be advised to take is to file a submitting appearance. For these reasons, the Court will not make orders that the defendants indemnify the estate in relation to non-family provision matters.
9. The Court's existing Order 4 made on 29 November 2019 will stand. The plaintiffs' motion of 12 December 2019 will be dismissed. But the motion has been very useful in leading the Court to make a notation in the orders that reflects the additional reasoning in this judgment for the benefit of Ms Goodwin. So the Court will make no order as to costs on this motion.

Conclusion and Orders

1. Accordingly, the Court makes the following orders and directions: 1. The Court notes that pursuant to orders made by Ward CJ in Eq on 3 December 2019: 1. the time for filing the Amended Statement of Claim was extended to 10 December 2019; 2. the existing freezing orders will continue until 5:00pm on 16 March 2020. 1. The Court grants leave to the plaintiffs pursuant to s 64(1) of the Civil Procedure Act 2005 (NSW) to amend the subpoenas issued on 1 June 2018 to Westpac Banking Corporation, National Australia Bank Limited, Commonwealth Bank of Australia and Australia and New Zealand Banking Group so that the schedule to those subpoenas requires production of the documents identified in annexure A hereto. 2. The Court grants leave to the plaintiffs pursuant to s 64(1) of the Civil Procedure Act 2005 (NSW) to amend the subpoenas issued on 5 June 2018 to Westpac Banking Corporation, National Australia Bank Limited, Commonwealth Bank of Australia and Australia and New Zealand Banking Group so that the schedule to that subpoena requires production of the documents identified in annexure B hereto. 3. The Court grants leave to the plaintiffs pursuant to s 64(1) of the Civil Procedure Act 2005 (NSW) to amend the subpoena issued on 3 December 2018 to Freight Solutions (Vic) Pty Ltd so that the schedule to that subpoena requires production of the documents identified in annexure C hereto. 4. Grant the defendants first access to the documents produced in answer to the subpoenas referred to in orders 2, 3 and 4 above with a view to the defendants ascertaining whether documents complying with the amended schedules of those subpoenas can be isolated and, if so, grant the plaintiffs access to the documents produced in compliance with the respective subpoenas as amended pursuant to orders 2, 3 and 4 above. 5. Order that the timeframe set for the defendants to inspect the documents produced under the subpoenas is within seven days of the making of these orders, namely on 28 May 2020, and the defendants shall notify the plaintiffs by 1 June 2020 as to whether there is any objection to access of the limited category of documents complying with the respective subpoenas as amended pursuant to orders 2, 3 and 4 above and, if there is no objection made, then the plaintiffs are permitted to have access to those documents (including photocopying access) on and from 3 June 2020. 6. The defendants' notice of motion (to dismiss the proceedings and to set aside subpoenas) filed on 19 June 2018 is dismissed, noting that costs orders in respect of this motion and the plaintiffs' motion of 18 April 2019 are made together in Order (17) below. 7. The plaintiffs' notice of motion (concerning compliance with their notice to produce) filed on 26 July 2018 is dismissed with no order as to costs to the intent that each party will bear his or her own costs of that motion. 8. The defendants' notice of motion (to set aside the subpoena to Freight Solutions (Vic) Pty Ltd) filed on 14 December 2018 is dismissed with no order as to costs to the intent that each party will bear his or her own costs of that motion. 9. Pursuant to r 21.2(1)(a) of the Uniform Civil Procedure Rules 2005, the defendants shall give discovery of the documents specified in the Notice to Produce which constitutes annexure D hereto. 10. Order the plaintiffs pay the defendants' costs thrown away by the filing of the Amended Statement of Claim. 11. Rescind order 1 of the orders made on 24 August 2017. 12. Order pursuant to Uniform Civil Procedure Rules 2005 ("UCPR"), r 7.10 that until the conclusion of these proceedings and only for the purposes of these proceedings, Ms Tamara Goodwin is appointed to represent the estate of the late Zi Li Cong, who died on 28 July 2016, but such appointment will only take effect seven days after the plaintiffs undertake to the Court to indemnify Ms Goodman in respect of her liabilities for acting in that capacity. 13. The Court notes with respect to the appointment made in Order 13 that Ms Goodwin is only expected to have active duties as a defendant to the plaintiffs' claim and further noting that such undertaking will be without prejudice to the plaintiffs' rights to seek contribution from other beneficiaries of the estate to meet their obligations to indemnify Ms Goodwin. 14. Order pursuant to UCPR, r 7.10 that the first and second plaintiffs be appointed, for the purposes of these proceedings, as representatives of the estate of the third plaintiff, the late Laurence Cong, who died on 15 July 2018. 15. The plaintiffs' motion filed on 18 April 2019 is otherwise dismissed. 16. Order that the defendants pay two-thirds of the plaintiffs' costs of the plaintiffs' motion filed on 18 April 2019 and of the defendants' motion filed on 19 June 2018. 17. Grant to all parties photocopy access to the documents produced in answer to the subpoenas issued by the plaintiffs to various banks on 6 August 2019. 18. The plaintiffs' motion of 12 December 2019 is dismissed with no orders as to costs to the intent that each party will bear his or her own costs of that motion. 19. Grant liberty to apply. 20. Annexures Not Published

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: 21 May 2020