Hip Wo Pacific v Sun-Forbes

DECISION : (1) The plaintiff is to provide security for costs of the defendant in the sum of $45,000 in the form acceptable to the Registrar within 28 days otherwise the proceedings are to be stayed until such sum is paid; (2) Costs are reserved.

CATCHWORDS : Strike out statement of claim - security for costs - particulars

LEGISLATION CITED : Rules 13.4(1), 14.28(1) & 42.21 UCPR

Idaport Pty Limited v National Australia Bank Limited [2000] NSWSC 744 CASES CITED : Yorke v Lucas (1985) CLR 661

Hip Wo Pacific Herbal Company Pty Limited (ACN 094 667 302) (Plaintiff) PARTIES : Lijia Sun-Forbes (Defendant)

Mr Anthony Britt (Plaintiff) COUNSEL : Mr Mark Lawson (Defendant)

Truman Hoyle Lawyers (Plaintiff) SOLICITORS : Heazlewoods Bushby International (Defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

20181/2005 - HIP WO PACIFIC HERBAL COMPANY PTY LIMITED (ACN 094 667 302) v LIJIA SUN-FORBES

JUDGMENT (Strike out statement of claim - security for costs - particulars) 1 HER HONOUR: By notice of motion filed 10 October 2005 the defendant seeks firstly, an order that the statement of claim be struck out on the grounds that there is no reasonable cause of action due to questions of law pursuant to Rule 13.4(1) of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) or Rule 14.28(1) of the UCPR; secondly, in the alternative, an order that the plaintiff provide security as to costs in the event that the plaintiff's claim is unsuccessful; and thirdly an order that the plaintiff to properly answer the request for further and better particulars furnished on the plaintiff on 30 June 2005. 2 The plaintiff is Hip Wo Pacific Herbal Company Pty Limited (ACN 094 667 302). It did not rely upon any affidavit evidence. The defendant is Lijia Sun-Forbes. The defendant relied on three affidavits of Leigh Marian Turner sworn 10 October 2005, 2 November 2005 and 8 November 2005.

Strike out application 3 Rule 13.4(1) of the UCPR provides that the court may dismiss the proceedings generally or in relation to any claim for relief in three situations. These are if the proceedings are frivolous or vexatious, or no reasonable cause of action is disclosed, or the proceedings are an abuse of the process of the court. 4 Alternatively, Rule 14.28(1) of the UCPR provides that the court may at any stage of the proceedings strike out the whole or any part of the pleading in three situations. These include: firstly, discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading, secondly, has a tendency to cause prejudice, embarrassment or delay in the proceedings, or thirdly, is otherwise an abuse of the process of the court.

The statement of claim 5 The plaintiff in its statement of claim filed 3 June 2005 seeks damages in excess of $1,000,000 for representations allegedly made by Lijia Sun-Forbes (Sun-Forbes) to Wei Hung Cheung (Cheung) a director and shareholder of the plaintiff, Hip Wo Pacific Herbal Company Pty Limited (Hip Wo). It is pleaded that Sun-Forbes was an employee of Cathay Herbal Laboratories Pty Limited (CHL) at the time that the alleged representations were made. On 12 March 2003 (after these representations were made) Sun-Forbes became a director of CHL 9para 5 S/C0. 6 Until 13 March 2003 Peter Pearson Ryan (Ryan) was the managing director of and majority shareholder in CHL. Ryan's first language was English. He spoke no Chinese. Cheung is a director of and shareholder in Hip Wo and on 14 November 2000 he became a director of CHL. His first language is Cantonese and his second language is Mandarin. He speaks no English. HWPH is a shareholder in CHL. 7 Sun-Forbes speaks both English and Mandarin. Thus Sun-Forbes was the conduit by which Cheung and Ryan communicated. 8 At paragraphs 9 and 10 of the statement of claim it is pleaded that from about 9 January 2002 Sun-Forbes acted as translator to the plaintiff and Cheung. The representations are then pleaded between paragraphs 12 and 28 of the statement of claim. These paragraphs do not specifically plead that the representations were made by Sun-Forbes solely in her role as translator.

The first representation 9 It is pleaded that in or about May 2002 Sun-Forbes reported to HWPH and Cheung in a telephone conversation that CHL was doing well, in that it was performing well financially and had a great future but had temporary cash flow difficulties and needed the sum of $100,000 to overcome those difficulties. In August 2002 the plaintiff lent CHL the sum of $100,000.

The second representation 10 Between 9 January 2002 and January 2003 Sun-Forbes reported to HWPH and Cheung in telephone conversations that CHL was performing well financially. On 1 February 2003 Sun-Forbes told HWPH that CHL had a great future but that it need an additional $300,000 to resolve its immediate financial problems.

The third representation 11 In February 2003 during further telephone conversations Sun-Forbes told HWPH and Cheung that CHL required an additional $300,000 to resolve its immediate financial problems.

The fourth representation 12 On 28 February 2003 in further telephone conversations Sun-Forbes told HWPH and Cheung that CHL needed a further $300,000 and that Sun-Forbes and Jeremy Mitcham (Mitcham) could run CHL successfully if Ryan was removed from CHL as both managing director and majority shareholder. 13 It is alleged that the representations are in contravention of s 42 of the Fair Trading Act 1987 (NSW) and are negligent. It is also pleaded that on 13 March 2003 in reliance upon and induced by the representations of Sun-Forbes, Hip Wo acquired from Ryan his majority shareholding in CHL and lent CHL moneys. Hip Wo pleads that because contraventions it has suffered loss and damage. It has invested more than $300,000 in CHL to keep CHL trading. (S/C 27 & 28) 14 The defendant's counsel referred to answer 33 to in the request for particulars dated 30 June 2005. On 19 September 2005 the plaintiff answered the defendant's request for particulars. On 22 September 2005 the plaintiff amended its answers to particulars. 15 Particular 33 asked: "33. If it is alleged that the "report" or "reports" referred to in paragraph 19 was, or were, given by way of translation of information furnished by a third party: for whom did the Defendant translate; to whom did she translate; from what language did she translate the information; and, into what language is it alleged that she translated." 16 The amended answer reads: "33. The defendant translated as an employee and agent of CHL to Cheung. The plaintiff is nor aware of either what source documents, if any, the defendant used, nor what language they were in. The defendant spoke in, and translated into, the Mandarin dialect." [deletion by plaintiff] 17 The defendant's counsel referred to a passage Yorke v Lucas (1985) CLR 661 at 666 where Mason ACJ and Wilson, Deane and Dawson JJ made the following observation: "It is, of course, established that contravention of that section does not require an intent to mislead or deceive and even though a corporation acts honestly and reasonably, it may nonetheless engage in conduct that is misleading or deceptive or is likely to mislead or deceive … That does not, however, mean that a corporation which purports to do no more than pass on information supplied by another must nevertheless be engaging in misleading or deceptive conduct if the information turns out to be false. If the circumstances are such as to make it apparent that the corporation is not the source of the information and that it expressly or impliedly disclaims any belief in its truth or falsity, merely passing it on for what it is worth, we very much doubt that the corporation can properly be said to be itself engaging in conduct that is misleading or deceptive." 18 Certainly if Sun-Forbes was merely translating what Ryan said in English into Mandarin, then it would be difficult for Hip Wo to establish that Sun-Forbes's conduct was misleading and deceptive. However, if one looks at the fourth representation, it is most unlikely that Ryan being the principal of CHL would have said (to Cheung) that Sun-Forbes and Jeremy Mitcham could run CHL successfully if he (Ryan) was removed from CHL as both managing director and majority shareholder. 19 It is my view that the issue of whether the representations made were made or whether they were purely translations, or representations made by Sun-Forbes's in her own interest, can only be determined at trial. The claims pleaded are not hopeless and the pleading should be permitted to go to trial.

Security for costs 20 Rule 42.21 of the UCPR provides: "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 New South Wales, or

(b) that the address of a plaintiff is not stated or is mis-stated in his or her originating process, and there is reason to believe that the failure to state an address or the mis-statement of the address was made with intention to deceive, or

(c) that, after the commencement of the proceedings, a plaintiff has changed his or her address, and there is reason to believe that the change was made by the plaintiff with a view to avoiding the consequences of the proceedings, or

(d) that there is reason to believe that a plaintiff, being a corporation, will be unable to pay the costs of the defendant if ordered to do so, or

(e) that a plaintiff is suing, not for his or her own benefit, but for the benefit of some other person and there is reason to believe that the plaintiff will be unable to pay the costs of the defendant if ordered to do so,

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.

(2) Security for costs is to be given in such manner, at such time and on such terms (if any) as the court may by order direct.

(3) If the plaintiff fails to comply with an order under this rule, the court may order that the proceeding on the plaintiff's claim for relief in the proceedings be dismissed. ...." 21 Ms Leigh Turner the defendant's solicitor estimates that the trial will take five days. She estimated the defendant's legal costs at $70,000. Five days seems to be a fair estimate. In cross examination Ms Turner stated that $70,000 represented costs calculated on an indemnity basis. The plaintiff's profit and loss statement for the year ending 30 June 2004 showed nil activity. The balance sheet as at 30 June 2004 showed its nett assets to be $10.00. Unsecured loans to CHL totalled $885,061.55 and the shares in CHL were in the sum of $700,001 (Ex A). There are no other significant entities in the balance sheet. The plaintiff did not put on any evidence. From the last accounts there is reason to believe that the plaintiff will not be able to pay the defendant's costs if ordered to do so. 22 Both parties in their submissions referred to the principles to be considered in determining whether the plaintiff should be ordered to provide security for costs and referred to Idaport Pty Limited v National Australia Bank Limited [2000] NSWSC 744 in detail. I do not intend to reproduce those principles here. 23 The defendant's application for security for costs has been brought promptly. But is the financial position of the plaintiff is directly due to its investment in the CHL and should security for costs be ordered? While the balance sheet's assets and liabilities to CHL, no one from the plaintiff has given evidence that the plaintiff's financial position is directly due to its investment in CHL. The plaintiff may be a vehicle used by Cheung to invest in CHL. There is no evidence from Cheung (who is likely to benefit from the litigation) as to whether he is prepared to provide necessary security. Cheung has not offered any personal undertaking as to costs. It is difficult to predict the chances of success on a reading of the pleading alone, as the outcome of these proceedings will largely depend upon the credibility of the evidence of Mr Cheung and the defendant. After taking all of these factors into account it is my view that the plaintiff should provide security for costs in the sum of $45,000. The reduction from the defendant's estimate of $70,000 is because I have estimated the amount of costs on a party/party basis rather than an indemnity basis. 24 I make an order that the plaintiff is to provide security for costs of the defendant in the sum of $45,000 in the form acceptable to the Registrar within 28 days, otherwise the proceedings are to be stayed until such sum is paid.

Particulars 25 The defendant seeks answers to particulars numbered 12, 17, 28, 31, 37, 41, 44, 50, 56 and 61 contained within the requested dated 30 June 2005. The answer given to all those questions are that they are matters for evidence. I agree. These questions have been properly answered. 26 Costs are reserved.

(1) The plaintiff is to provide security for costs of the defendant in the sum of $45,000 in the form acceptable to the Registrar within 28 days otherwise the proceedings are to be stayed until such sum is paid.

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