David v Kazal

The relevant US legislation

1. The California Civil Code provides, by s1708.7(c): "A person who commits the tort of stalking upon another is liable to that person for damages, including, but not limited to, general damages, special damages, and punitive damages pursuant to Section 3294."
2. The California Civil Code provides, by s3294(a): "In an action for the breach of an obligation not arising from contract, where it is proven by clear and convincing evidence that the defendant has been guilty of oppression, fraud, or malice, the plaintiff, in addition to the actual damages, may recover damages for the sake of example and by way of punishing the defendant."

The relevant NSW legislation

1. Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 42.21 relevantly provides: "42.21 Security for costs (1) If, in any proceedings, it appears to the court on the application of a defendant - (a) that a plaintiff is ordinarily resident outside Australia, or … 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."

Consideration

1. In exercising the Court's jurisdiction under the Civil Procedure Act 2005 (NSW) (the Act) and the UCPR, it is necessary to recall that the overriding purpose of the Act and rules is to "facilitate the just, quick and cheap resolution of the real issues in the proceedings": s 56(1) of the Act. There is, at most, one issue in the proceedings: whether the punitive damages awarded to the plaintiff against Tony and Adam Kazal can be included in a judgment of this Court or whether there is a penal element such that they ought not be included. There is another issue which, although not "in" the proceedings, affects them: the outcome of the appeal in the United States.
2. The parties' submissions on the stay application can be briefly summarised. Mr McComish, who appeared on behalf of the defendants, submitted that as the question whether judgments ought be ordered in this Court turned principally (subject to one matter referred to below) on the fate of the appeal in the United States, this Court ought adopt an approach which he described as "wait and see", pending the determination of the appeal. He contended that this approach was orthodox and had been adopted in XPlore Technologies Corporation of America v Tough Corp Pty Ltd [2008] NSWSC 1267 (Rothman J). He submitted that the proceedings ought be stayed because of the prospect that the US Judgments will be overturned on appeal, thereby rendering the proceedings futile.
3. No available defence to the plaintiff's claim in this Court was articulated in the defendants' written submissions. In the course of oral submissions, an exchange occurred which elicited at least the possibility that Tony and Adam Kazal would argue that the punitive damages which had been awarded to the plaintiff were "penal" in a sense which would prevent their forming part of the judgment ordered by this Court: Attorney-General (United Kingdom) v Heinemann Publishers Australia Pty Ltd (1988) 165 CLR 30 at 43-57 (Mason CJ, Wilson, Deane, Dawson, Toohey and Gaudron JJ); [1988] HCA 25. The exchange was as follows: "HER HONOUR: Just in terms of the plaintiff's action for the judgment in this Court, is there any dissent to that or is this all about the appeal? MCCOMISH: It's all about the appeal, your Honour. HER HONOUR: So in other words, if the appeal is dismissed, the defendants will not oppose judgment being entered in this Court. Is that right? MCCOMISH: I think that that's so. I mean, I've had to have a red hot think about the punity of damages but the issue before your Honour and the substance of the matter is of course what there a properly entered US judgment and that's a matter for the American court."
4. Mr Hogan-Doran, who appeared with Mr Mawassi on behalf of the plaintiff, contended that the "wait and see" approach might be "quick and cheap" but would achieve neither an appropriate, nor a just, balancing of the parties' interests since it would accord decisive weight to the defendants' interests in not spending money in costs and not being subject to a judgment in Australia as long as the US appeal was pending. He submitted that, as an appeal was no defence to a claim, and the defendants had raised no other defence, any stay ought be granted on condition of entry of judgment or payment into court of the judgment sum. He submitted that the only potential defence which had been foreshadowed hypothetically was that the punitive element of the damages was "penal". He contended that there was no merit to that proposed defence in light of the authorities summarised in Surgibit IP Holdings Pty Limited v Ellis (No 2) [2017] NSWSC 1379 and, in particular, Benefit Strategies Group Inc v Prider (2005) 91 SASR 544; [2005] SASC 194 at [73] (Bleby J, Vanstone and Anderson JJ agreeing).

Whether a stay ought be granted

1. The legal principles for the grant of a stay are set out in Alexander v Cambridge Credit Corporation (1985) 2 NSWLR 685 at 693-694. These were adopted and applied in the context of a foreign judgment in JP Morgan Chase Bank N.A. v PT Indah Kiat Pulp and Paper Corporation [2012] NSWSC 1279.
2. It was not suggested, subject to the "penal" issue raised belatedly by the defendants, that the US Judgments were not capable of recognition and enforcement at common law or that there was any jurisdictional question which would impede this Court ordering judgment for each of them. As the plaintiff commenced the proceedings in this Court by summons the defendants have not been required to file a defence. It was accepted that it was not a defence to the registration and enforcement of a foreign judgment that it is subject to appeal. An application for registration and enforcement of a foreign judgment does not involve an examination of the merits of the action or the prospects of any appeal.
3. It was common ground that, if the appeal were allowed, any judgments ordered in this Court against Tony and Adam Kazal could not be enforced and would have to be either set aside (as in Benefit Strategies Group Inc v Prider (2007) 211 FLR 113; [2007] SASC 250) or permanently stayed.
4. As referred to above, the evidence established, and it was common ground, that the defendants could obtain a stay of the US Judgments in the United States by paying 150% of the judgment sum into court.
5. Subject to the penal argument, the defendants accept that they have no defence to the plaintiff's claim. It is not presently clear whether they propose to raise the penal argument at all. If they do not, it is common ground that the defendants have no defence to the plaintiff's claim. However, it is also common ground that the plaintiff would not be entitled to obtain or retain judgments in this Court, except against Charif Kazal, if the US Appeal were allowed.
6. On the basis of Ms Hunt's estimates, it is likely that the oral argument for the appeal will be listed at some time between April 2020 and December 2020. Given the estimates for the time for judgments, the judgment could reasonably be expected to be delivered, at the earliest, in July 2020 and, at the latest, December 2021.
7. I do not consider that it is appropriate for this Court, its jurisdiction having been properly invoked, simply to "wait and see" what happens in a foreign jurisdiction, when the determination of the appeal may be two years away. Such a course would not, as Mr Hogan-Doran submitted, take adequate account of the plaintiff's rights to have this Court enter judgment on the basis of judgments obtained in his favour in the United States. Thus, I am not persuaded that it would be appropriate to order an unconditional stay. However, it would not accord sufficient weight to the right of Tony and Adam Kazal to prosecute their appeal (which is accepted to be arguable) to allow judgment to be entered in favour of the plaintiff without protection being given to the interests of the defendants.
8. Although Rothman J in XPlore Technologies Corporation of America v Tough Corp Pty Ltd was prepared to take the course of staying the proceedings before judgment had been ordered, other courts have been more protective of a plaintiff's rights in this jurisdiction. For example, in Lewis v Lamb [2004] NSWSC 322, Hamilton J stayed the execution of a judgment which was the result of registration of a judgment in the High Court of New Zealand pursuant to the Foreign Judgments Act. In JP Morgan Chase Bank N.A. v PT Indah Kiat Pulp and Paper Corporation, Sackar J ordered judgment on the basis of a judgment of the US District Court, which was the subject of an appeal, but stayed the proceedings. Sackar J concluded at [39]: "For the above reasons I consider the appropriate course is that judgment should be recognised in Australia and entered accordingly for the amount specified. I also regard it as appropriate that an order be made staying those proceedings until the determination of the appeal in the Seventh Circuit Appeals Court, or in any motion for a re-hearing filed in that court. If the appeal is ultimately successful then I consider it would be appropriate for this Court to grant a permanent stay."
9. Mr McComish insinuated that I ought place less weight on Sackar J's judgment because it was delivered ex tempore rather than reserved. I do not accede to this submission. All that an ex tempore judgment indicates is that the judicial officer was prepared to decide the matter and give reasons at the conclusion of the hearing. Judgments may be reserved for various reasons, including that there are other parties in the courtroom waiting to be heard, that the judge wishes to check an authority or reread submissions or transcript, or that the gravity of the matter requires reasons which might be more detailed and better expressed than if they were to be given ex tempore. That a judgment is given ex tempore does not indicate that it was not the subject of sufficient consideration.
10. I regard the approach taken by Sackar J in JP Morgan Chase Bank N.A. v PT Indah Kiat Pulp and Paper Corporation as an appropriate one in the present case. The plaintiff, subject to determination of the penal objection, is entitled to judgment in this Court on the basis of the US Judgments. However, in order to protect the defendants' rights in the event that their appeal is successful, any judgment ordered by this Court ought not, without security being given, be executed. It is not to the point that no conditions were imposed on the stays granted in Lewis v Lamb or JP Morgan Chase Bank N.A. v PT Indah Kiat Pulp and Paper Corporation since the plaintiffs in those cases, unlike in the present case, already had the benefit of a judgment in their favour.
11. Further, I do not consider that it advances the "just, quick and cheap resolution of the real issues" to permit the defendants to withhold the answer to the question whether they propose to argue that the punitive damages ought not form part of the judgment of this Court. Although they are not obliged to file a defence to a summons, the Court is entitled to know whether they propound a substantive defence to part of the plaintiff's claim. I note that the plaintiff's solicitors wrote to the defendants' solicitors on 13 August 2019 asking for "details as to the basis of opposition relied upon by each defence to our client's application". The response, dated 16 August 2019, did not address this request.
12. Given the few matters in issue and the potential time before the US appeal is determined, I am not persuaded that the proceedings ought be stayed. In my view, the defendants ought be required to inform the Court whether they propound a substantive defence that the punitive damages ought be excluded from a judgment of this Court on the grounds that they are penal. As this is the only defence, judgment can be entered in the whole amount if they indicate that they do not propound this defence. If they do propound this defence, then the plaintiff could apply for summary judgment or the substantive hearing could take place and would, in my view, take less than a day. This course would ensure that the plaintiff is not prejudiced by the delay occasioned by the appeal. It does not cause prejudice to the defendants because the enforcement of the judgment could be stayed pending determination of the appeal. The only prejudice to the parties would be that they might be obliged to pay costs to litigate an issue (whether the punitive damages are penal) on which nothing will turn, if the appeal is allowed. I doubt that such costs will be substantial given what is in issue.

Whether security for costs ought be ordered

1. It is common ground that the plaintiff is ordinarily resident in the State of California and that therefore there is a basis for security for costs to be ordered. The plaintiff submitted that he is a man of considerable means and does not lack the wherewithal to meet a costs order against him if he were to fail in these proceedings. The defendants have established, by conducting searches of the register maintained by the NW Land Registry Services and the ASIC (Australian Securities and Investment Commission) register that the plaintiff has no recorded interest in any real property in New South Wales. Nor does he own any shareholding in an Australian company. He is a director of a company subject to an application for deregistration by ASIC. The defendants also seek to rely on admissions made by the plaintiff in other proceedings, including that he was not resident in Australia and had no assets (presumably in Australia) and that his total assets were in the order of $60,000, less any credit card liabilities.
2. Mr Hogan-Doran submitted that security for costs ought not be ordered in circumstances where the defendants had not yet identified any defence to the plaintiff's claim. While it is true, as a matter of law, that the fact of the defendants' appeal (or the prospect that it may succeed) does not amount to a defence to the plaintiff's claim, it is common ground that, if the appeal is allowed in full, the plaintiff will not be entitled to judgment against Tony or Adam Kazal. If judgment has been entered, it could not be enforced and would have to be set aside or permanently stayed. If it has not been entered, the proceedings would, presumably conclude with the dismissal of the amended summons. In these circumstances, there is a real prospect that the defendants will have incurred costs in these proceedings which, if they are successful on appeal in the United States, they will seek to recover by way of a costs order in their favour in this Court. In this event, there could be significant difficulties in recovering any such amount because of the plaintiff's residence in the United States. The plaintiff did not submit that an order for security would stultify the proceedings.
3. In my view, an order for security for costs is appropriate in the present case for the reasons given above. The defendants ought not be put to the trouble and expense of enforcing in the United States a costs order made by this Court.
4. There is a significant issue about the quantum of the security required. The plaintiff and the defendants have filed evidence from their solicitors as to the approximate costs which would be incurred by the defendants in the proceedings. The defendants' solicitor's affidavit estimates the costs, including the costs of the application for a stay and preparation of defence and the hearing of the matter as amounting to a sum in the order of $124,000. The plaintiff's solicitor's estimate (which does not include the costs of the present notice or motion or the costs of a "defence") is in the order of $15,000.
5. I regard the defendants' estimates as inflated, in part because the defendants have chosen to instruct solicitors and counsel from Melbourne, with the consequence that every directions hearing in this Court is said to require a day's fees, together with the cost of flights and accommodation. The defendants are entitled to instruct who they wish but it is not appropriate that security for costs be granted in a sum which reflects costs which are, in effect, voluntarily incurred. It could not reasonably be supposed that there are no local counsel who have expertise in this area. The cost of local counsel and solicitors would be considerably less.
6. Further, the defendants' estimates include costs in respect of which I am not persuaded that security ought be ordered. I do not consider that the amount for security for costs ought cover past costs such as those incurred in the present notice of motion. I note that, as the proceedings were commenced by summons, there is no need for a defence to be prepared or filed. The question whether there is a defence is a matter which will be the subject of directions. Whether there is the requisite penal element is largely a matter of law. If the penal defence is raised, the final hearing will, in my view, be able to be completed in a day. If it is not raised, the need for any such hearing will be obviated.
7. Although there is some justification for ordering security in two tranches to provide for this contingency, this would introduce an unwarranted element of specificity into the assessment of an appropriate amount for security. I consider that security in an amount of $20,000 is appropriate.

Costs

1. The parties invited me to reserve the question of the costs of the notice of motion to provide them with an opportunity to address me, in writing or orally, on the appropriate costs order. There is some attraction in an order that there be no order as to the costs of the motion as both parties have had some success. However, this is merely a preliminary view about a matter about which the parties ought have an opportunity to make submissions.

Further directions

1. As referred to above, I propose to direct the first and second defendants to notify the Court and the plaintiff whether they propose to rely on the foreshadowed defence that the punitive damages are penal and ought not be included in the judgment sought to be ordered in this Court. The matter can then be brought back before the Court for directions, which I expect will make provision for submissions and a hearing date, if any such defence is to be pressed, or for judgment, there being, as I understand it, no other substantive defence raised.

Orders

1. For the reasons given above, I make the following orders: 1. Order the plaintiff to provide security for costs by paying into Court or by another method acceptable to the defendants the sum of $20,000. 2. If security is not provided as directed by 23 December 2019, stay the proceedings from 24 December 2019. 3. Otherwise dismiss the defendants' notice of motion filed on 16 August 2019. 4. Reserve the costs of the motion. 5. Direct the first and second defendants on or before 31 January 2020 to notify the plaintiff and the Registrar in writing whether they propose to rely on any argument that the judgment sum ordered by this Court on the basis of the judgments in favour of the plaintiff in the United States ought not include the amounts of punitive damages awarded. 6. List the matter for further directions before the Registrar, or, on application to my Associate, before me, on 10 February 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: 11 December 2019