In the matter of Elsmore Resources Ltd; Elsmore Resources Ltd v Ashley Grant Howard

Judgment 1The third defendant, Mr Harry Fung, has applied by notice of motion filed on 13 November 2014 for the following relief: 1 Pursuant to r 42.21(3) of the Uniform Civil Procedure Rules, the plaintiff's claim for relief against the third defendant be dismissed. 2 The plaintiff pay the third defendant's costs of the proceedings. 2UCPR 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 ... (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 ... 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 ... (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. 3Mr Fung's application is therefore that the plaintiff's claim against him should be dismissed because the plaintiff has failed to comply with an order that it provide security for Mr Fung's costs. 4That order was made by Black J on 1 September 2014 when, in In the matter of Elsmore Resources Ltd [2014] NSWSC 1247, his Honour made the following orders: 1 The Plaintiff provide security for the Third Defendant's costs of the proceedings in such form as may be agreed between the parties, or otherwise in a form to be determined by a Registrar, in two tranches: (a) the amount of $40,000 within 28 days; and (b) the amount of $40,000 no later than 21 days prior to the date allocated for the commencement of the final hearing of the proceedings. 2 The proceedings be stayed if security is not provided when due in accordance with Order 1 above. 5The plaintiff has not provided the $40,000 security for costs required by order 1(a) made by Black J, either within 28 days of the making of the order, or at all. Accordingly, the effect of order 2 is that the plaintiff's proceedings against Mr Fung are now stayed. 6It will be appropriate to record briefly the history of these proceedings. The plaintiff is Elsmore Resources Ltd. It commenced these proceedings by originating process filed on 24 February 2014. The only other party to the originating process was Mr Ashley Grant Howard. The plaintiff made the application under ss 180, 181, 182, 184 and 1324 of the Corporations Act 2001 (Cth). The plaintiff claimed that Mr Howard held, or controlled, share subscriber fees in the amount of $2,209,000, which under the terms of an agreement between the plaintiff and Periwinkle Investments Pty Ltd were to be held in trust for the plaintiff, and were to be remitted to the plaintiff immediately upon the listing of the plaintiff. The plaintiff was listed with the ASX on 23 December 2013. The plaintiff alleged that the funds have not been paid to the plaintiff. The plaintiff sought an order that Mr Howard pay to it the share subscriber fees in the amount of $2,209,000. 7On 20 March 2014 the plaintiff filed an amended originating process in which it joined Periwinkle Investments Pty Ltd as a second defendant, and made a claim against that company based upon the allegation that it was in breach of trust for failing to pay the share subscriber fees to the plaintiff. 8Mr Fung was not joined to the proceedings as third defendant until the plaintiff filed a further amended originating process on 12 May 2014, which also joined a fourth respondent. It appears that this amendment to the originating process followed a mediation that occurred on 11 March 2014, when Mr Fung was not a party to the proceedings. In essence the plaintiff alleged that all four defendants had entered into a deed of settlement dated 12 March 2014, under which Mr Fung and the fourth defendant guaranteed the obligations of the first two defendants to the plaintiff under the deed. 9On 14 July 2014 in In the matter of Elsmore Resources Ltd; Elsmore Resources Ltd v Ashley Grant Howard [2014] NSWSC 953 Brereton J dismissed an application by the plaintiff for summary judgment against Mr Fung. 10On 28 July 2014 Brereton J made directions for the future conduct of the proceedings, including by order 2 that the matter continue on pleadings, and by order 3 that the plaintiff file and serve a statement of claim by 15 August 2014. 11The plaintiff has not yet filed a statement of claim. I was informed during the hearing of Mr Fung's application that, when Mr Fung's application for security of costs was being heard by Black J the plaintiff circulated a draft statement of claim, which has not been filed. I was told that the draft statement of claim was not limited to an attempt to enforce Mr Fung's alleged obligations as guarantor under the deed of settlement, but made more extensive claims against him on the basis that he was personally liable to the plaintiff arising out of the circumstances in which the share subscriber fees were held and not remitted to the plaintiff. 12On 10 November 2014 Black J gave Mr Fung leave to file and serve any application for dismissal of the proceedings by reason of the plaintiff's failure to provide security for costs by 4 PM on 12 November 2014, and made the motion returnable in the Corporations Motions List at 9:45 AM on 17 November 2014. The plaintiff was represented before Black J when he made this order. As I have noted above, the notice of motion was filed on 13 November 2014. 13When Mr Fung's notice of motion was called before Black J on 17 November 2014, his Honour referred the matter to me for hearing. 14On 17 November 2014 the plaintiff was represented by Mr E Cox, and Ms C Amato appeared for Mr Fung. 15Mr Cox made an application that I adjourn the hearing of Mr Fung's application. I rejected the adjournment application. The plaintiff did not put before the Court any evidence to support its application. Mr Cox informed me that it appeared that the plaintiff had assumed that, on the return date of Mr Fung's notice of motion, directions would be made for the preparation of the matter for hearing. Mr Cox said that he had been briefed to appear for the plaintiff only shortly before the matter was called on for hearing. He said that he understood that the plaintiff hoped that it would be in a position to provide the first tranche of security that was ordered by Black J within 2 to 3 weeks, although he was in no position to vouch for the likelihood that the plaintiff's aspiration would be realised. 16On the hearing of Mr Fung's application Mr Cox's principal submission was that the application should be dismissed because the dismissal of the plaintiff's case would not give rise to a res judicata against it, and if it found itself in sufficient funds to initiate new proceedings against Mr Fung, there would be no bar to it doing so, provided it first paid any legal costs that it was liable to reimburse Mr Fung, and provided the required security for costs. Mr Cox suggested that in this eventuality the present dismissal of the plaintiff's case against Mr Fung would be wasteful. 17Ms Amato relied principally on an affidavit affirmed by Mr Fung on 12 November 2014. That affidavit provides cogent evidence that the continuation of the proceedings is prejudicial to Mr Fung's reputation. Mr Fung annexed an extract from an article by Pierpoint in the Australian Financial Review on 3 October 2014 which included: Elsmore returned to litigation, adding HF Global Financial Solutions and Harry Fung to the parties it was suing for return of the $1.9 million. 18Mr Fung said that since these proceedings were commenced he has not been able to obtain any employment in the corporate financial services sector. 19In September 2014 Mr Fung applied for personal finance to assist him with his legal fees and personal living expenses. Mr Fung tendered a letter from a financier in which an application for personal finance was rejected "due to the current circumstances with your Supreme Court proceedings in NSW". Mr Fung said that, as he has not been able to obtain finance, he has had to borrow money from friends and family. Furthermore, Mr Fung wishes to visit his elderly father in China and his family in Hong Kong, but he has not been able to do so because he has had to devote a significant amount of time to the preparation of these proceedings. 20I accept that Mr Fung has demonstrated that the continuation of these proceedings against him is likely to cause continuing damage to his reputation. 21The legal principles that I am required to apply are sufficiently set out in the judgment of Tobias JA in Porter v Gordian Runoff Ltd (No 3) [2005] NSWCA 377, as follows: [21] I therefore turn to the Notices of Motion which have been filed by the respondents seeking the dismissal of the appeal pursuant to r 42.21(3) of the UCPR for failure of the opponent to comply with the order of Hodgson JA to provide security for costs. That rule provides as follows: 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. ... [24] In Idoport at first instance ( [2002] NSWSC 18), Einstein J (at [24]) accepted as correct the defendant's submission in that case that the following five factors were required to be taken into account in determining whether the Court should exercise its discretion to dismiss proceedings (at first instance) for failure to comply with an order for the payment of security for costs. Those factors were: (a) The period that has elapsed since the security was ordered; (b) The fact that the plaintiff has been on notice of the application for dismissal; (c) The seeming inability of the plaintiff to further fund the proceedings; (d) The prejudice to the defendant; and (e) The position of the Court. [25] His Honour (at [24]) accepted that those five matters were appropriate to be taken into consideration in the exercise of the relevant discretion. Nevertheless, he also acknowledged that that list was by no means exhaustive and that all the relevant circumstances were required to be taken into account including the Court's straining wherever practicable consistently with the interests of justice to avoid taking the radical step of denying a plaintiff its day in Court. The proper exercise of the Court's discretion required all relevant factors to be weighed in balance, the ultimate decision reflecting the interests of justice. [26] On appeal from the decision of Einstein J, Mason P, with the agreement of Stein and Giles JJA, rejected a submission that Einstein J had erred in the exercise of his discretion in giving weight or undue weight to the first four of the factors identified above. The President then observed (at [51]): There is no minimum period established by legislation, rules or practice within which an application for dismissal might be made following default in compliance with an order for payment of security. No judicial discretion is uncontrolled, but it is common ground that the discretion to dismiss conferred by rule 4 is a broad one, unfettered by any express limitations ... There is no written or unwritten minimum time, although I would accept that something more than a technical reduction or accidental default is required. 22In the present case, on my calculation, the plaintiff was required to provide the first tranche of security by 29 September 2014. About 48 days elapsed after that date before Mr Fung's notice of motion came on for hearing. The plaintiff, through its legal representative, gained notice that Mr Fung might make an application for the dismissal of its claim on 10 November 2014. I infer that Mr Fung's application was served on the plaintiff on about 13 November 2014. The plaintiff has therefore only had about four day's notice of Mr Fung's application. 23Mr Cox did not specifically rely, when he made his adjournment application, on the shortness of the notice that the plaintiff had received, and he did not mention that Black J on 10 November 2014 ordered that Mr Fung should file and serve his application by 12 November 2014. If the notice of motion was filed on 13 November 2014, then it must have been served after the time prescribed by Black J. I did not have this fact in mind when I declined to grant the application for an adjournment. 24I have borne in mind the observation made by Mason P, referred to by Tobias JA at [26], that there is no minimum period established by legislation or rules of practice within which an application for dismissal might be made following default in compliance with an order for payment of security. 25However, I note also the observation in [25] to the effect that the Court strains wherever practicable, consistently with the interests of justice, to avoid taking the radical step of denying a plaintiff its day in Court. 26In the present case Mr Fung has demonstrated that he is likely to suffer continuing prejudice within factor (d) referred to by Tobias JA in [24]. However, in relation to factor (a), only a relatively short time has elapsed since the plaintiff failed to provide the first tranche of the security. In relation to factor (b), the plaintiff has only had a matter of days' notice of Mr Fung's actual application, and Mr Fung did not comply with the timetable for service fixed by Black J. There is no evidence before the Court concerning factor (c) in relation to the ability of the plaintiff to further fund the proceedings. In the present case the position of the Court, referred to in factor (e) appears to be neutral. 27Notwithstanding that there is no minimum time that must elapse before a defendant can move the Court for an order dismissing a plaintiff's claim for failure to provide security for costs in accordance with an order made by the Court, I have a serious qualm about the appropriateness of the Court's taking the extreme step at this stage of making an order dismissing the plaintiff's claim. Ordinarily, the prejudice that the plaintiff suffers when it does not provide the security in accordance with the order is that its proceedings are stayed. The Court will, however, in the exercise of its discretion, after consideration of the factors referred to by Tobias JA, and any other circumstances that are relevant, dismiss the plaintiff's case under UCPR r 42.21(3). 28As a result of the failure of Mr Fung to serve his application in accordance with Black J's order, I am sympathetic to the failure of the plaintiff to serve any evidence in opposition to Mr Fung's application before his notice of motion was heard on 17 November 2014. As a result of the short period that the plaintiff was given to respond to the notice of motion, there is a risk that it made a misjudgment as to what would happen on the return date of the notice of motion. 29In the circumstances, in the exercise of my discretion, I have decided that it is not appropriate at this time to make the order for dismissal sought by Mr Fung of the plaintiff's claim against him. However, the prejudice that he is suffering is real, and it would equally be inappropriate to dismiss his notice of motion. The qualms that I have that flow from the inadequate notice that was given to the plaintiff, and the possibility that the lack of notice contributed to any misjudgment made by the plaintiff may be resolved if I make orders that give the plaintiff a short additional time to provide the first tranche of the security for costs. 30Mr Cox informed me, as I noted above, that the plaintiff hoped to be able to provide the required security within 2 to 3 weeks. The appropriate course is to give the plaintiff a little more time to provide the security, if it can, although it is desirable for Mr Fung's application to be dealt with before the end of the Court term. In saying this I am mindful of the continuing damage to Mr Fung's reputation that he is suffering. On the one hand, it is not appropriate that I extend the time for the plaintiff to provide the security. On the other hand, it would be premature for the Court to make a prescriptive order at this stage, or to make an order now that, if the security is not provided by a specified date, then the plaintiff's claim against Mr Fung will be dismissed. I will only say that, if the security is not provided before the date to which I will adjourn Mr Fung's notice of motion, and no satisfactory explanation is provided, it is my present intention to make an order on the next occasion that the plaintiff's claim be dismissed against Mr Fung. 31In the circumstances the first order that I will make is an order that Mr Fung's notice of motion be adjourned for further hearing on 16 December 2014 at 9:30 AM. The time that the Court can devote to this matter on that date may be constrained by other matters before the Court. 32If the proceedings are to be dismissed, there are apparently unresolved disputes as to the orders for costs that should be made in the proceedings. I direct the parties to provide short written submissions (no more than 3 pages) concerning outstanding costs issues to my associate by 12 December 2014.