Jiang v Han

Supreme Court of NSW|2022-08-15

Judgment

HER HONOUR: This matter involves a notice of motion seeking security for costs and provides answers to particulars.
The plaintiff is Zhao Qing Jiang. The first defendant/first cross-claimant is Kairan Han. The second defendant/second cross-claimant is Fortune New City (Yarraville) Development Pty Ltd. W Muddle SC appeared with R Tregenza for the plaintiff and cross defendant. R Ratman appeared for the defendant and cross-claimant. The parties relied on a Court book (Ex A). The plaintiff relied upon the affidavit of Si Zhang dated 15 August 2022. The defendant also relied upon Exhibit 1, a loan agreement between Pepper and the first defendant.
By way of amended notice of motion filed 1 April 2022 the plaintiff relevantly seeks: 1. The cross-claimants provide security for the cross-defendant's costs of the cross-claim in the sum of $281,743, pursuant to rules 42.21(1)(a), 42.21(1)(d) and 42.21(1)(f) of the Uniform Civil Procedure Rules 2005 (NSW) and/or section 1335 of the Corporations Act 2001 (Cth), within 14 days, by way of: 1. Payment of $281,743, into Court; or 2. Unconditional guarantee in favour of the cross-defendant from an authorised deposit-taking institution within the meaning of the Banking Act 1959 (Cth); or 1. The cross-claim be stayed until payment of the security referred to in order 1. 2. If security is not provided in accordance with order 1, the cross-claim be dismissed, or alternatively permanently stayed. 3. … 4. Pursuant to UCPR r 15.10, the cross-claimants provide, within seven 7 days, answers to further and better particulars requested of its cross-claim filed on 8 December 2021 in the letters from the solicitors for the cross-defendant to the solicitors for the cross-claimants, dated 23 December 2021, 16 February 2022 and 16 March 2022. 5. In the alternative to order 5 above, the cross-claim filed 8 December 2021 be struck out or otherwise dismissed.
I firstly will consider the relevant factors set out in UCPR 42.21(1) to determine whether it is appropriate to make a threshold order that Mr Han give security for costs, as well as refer to the matters set out in r 42.21(1A). Following this, I will address the guidelines set out by Beazley J at pages 196 - 198 in KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 ("Meltglow") to assist in coming to a determination as to whether the court will order that Mr Han provide security for costs.

The pleading framework

By statement of claim the plaintiff claims against the defendants $5,357,297 together with interest and costs pursuant to a written agreement dated 31 March 2016 ("the agreement"). The agreement related to the entitlement to acquire the beneficial interests in certain land in Melbourne in connection with a large property development. By the terms of the agreement, upon certain conditions being satisfied, the first defendant was to pay to the plaintiff $6,500,000 after a certain period and the defendants would pay a further total of $12,000,000 after certain periods.
A total of $13,142,703 (together with an agreed GST refund), has been paid by the defendant/cross-claimants, leaving the balance due of $5,357,297 due.
On 24 September 2021, the proceedings were commenced in New South Wales because the plaintiff/cross-defendant is resident in New South Wales and the first defendant has returned to live in China. The second defendant is a company of which the first defendant is sole director and company secretary.
The cross-claimants are defendants to the action brought by the cross-defendant as plaintiff.

The agreement dated 31 March 2016

The parties including a company, Fortune Property Group Pty Ltd (Fortune Property Group) entered into an agreement on 31 March 2016 (March 2016 agreement). The terms of that agreement are construed differently in some respects by one another. It is likely that there will be a construction argument as to the operative effect of the agreement at trial.
The March 2016 agreement recorded a number of terms and acknowledgments which are summarized as follows: 1. On 14 August 2015, the cross defendant/plaintiff through Fortune Property Group executed an agreement with a number of vendors for the purchase of various parcels of land located in Yarraville, Victoria (Yarraville Land) for the purchase price of $165,000,000 (acquisition agreement); 2. Fortune Property Group Pty Ltd (not a party to these proceedings) intended to purchase, develop and re-sell the Yarraville land (Project). 3. Subsequent to the execution of the Acquisition Agreement, on 3 November 2015 the cross defendant/plaintiff (Zhao Qing Jiang) and first cross-claimant (Kairan Han) in their own personal capacities signed an agreement (November 2015 Agreement). Relevantly under this agreement Mr Jiang and Mr Han agreed that they both would have obligations under the acquisition agreement and project and ownership of the project by a 40% and 60% apportionment respectively. Mr Jiang held a 40% interest and Mr Han held the 60% interest. Further, they both agreed under the November 2015 agreement that a new entity, namely the second cross-claimant/second defendant, Fortune New City (Yarraville) Development Pty Ltd (New City) would be incorporated. New City was to be incorporated so that Fortune Property Group could transfer all benefits and entitlements under the acquisition agreement and upon the transfer New City would assume all rights, interests and obligations under the acquisition agreement and the project. They each also agreed that upon incorporation of New City, Mr Jiang would hold 40% of the shares in New City and Mr Han would hold the remaining 60%. The transfer in respect of the acquisition agreement from Mr Jiang and Fortune Property Group to New City had to occur by 31 March 2016 and for free of charge. 1. At various times, both Mr Han and Mr Jiang had made financial contributions, by payments to the vendors of the Yarraville Land. 2. At various times, Mr Jiang did not honor his obligations to pay his 40% contribution. Accordingly, Mr Han made payments to the Vendors for the benefit of Mr Jiang. 3. In those instances where Mr Jiang did not contribute his 40% share, those payments made for Mr Jiang were treated as loans (totalling at that point $9,344,764) (Loan). As security for Mr Jiang's obligation to repay the loan which was due to be repaid by 15 May 2016, the plaintiff agreed to transfer his 40% interest in New City and the Project to Mr Han (plaintiff's interests). 1. In circumstances where Mr Jiang did not: 1. repay the Loan by 15 May 2016; and 2. make a further contribution (being $7,700,000; 40% of the sum of $19,250,000) due to the Vendor by that date); then Mr Han could cause for the sum of $7,700,000 to be paid to the vendors and retain permanent and unconditional ownership of the plaintiff's Interests. In those circumstances, Mr Han would be the sole owner of New City and the Project and Mr Jiang would cease to have any ownership in the stake (plaintiff's exit). 1. In circumstances of the plaintiff's exit, there only existed the following entitlements: 1. Mr Jiang was entitled to receive from New City the sum of $6,500,000 (refund) plus a GST contribution of $490,000 (GST refund); 2. Fortune Property Group was entitled to receive from New City a "return" on the "earning" that was "fixed" at $12,000,000, which was an entitlement of the share of profit made out of the Project (return). In total, upon the occurrence of the matters referred to below, Mr Jiang would be entitled to the sum of $18,990,000 (plaintiff's total entitlement). 1. The GST refund was payable immediately when the GST was refunded to New City. 2. The refund was not payable until the end of the first year after completion of the project (that is, completion of the sale of the land following its re-development). 3. Mr Han guaranteed the refund (refund guarantee). 4. The return was payable by way of annual payments of $4,000,000 from the second to fourth year after completion of the project (that is, completion of the sale of the land following its re-development).
On 24 September 2021, the proceedings were commenced and on that day Johnson J made a freezing order ex parte enjoining the defendants from removing from Australian or reducing their asset below the sum of $5,658,262, being the principal and interest claimed to that date. That amount has since been paid into Court, and in doing so satisfied the freezing order.

The defence and cross-claim

On 8 December 2021, the defendants filed their defence and cross-claim against the plaintiff (First Cross-Claim; Statement of Cross-Claim) (cross-claim).
The defendants plead by their defence that the outstanding loan amount would be claimed by way of cross-claim. The defendants asserted that to the extent any money was owing to the plaintiff or becomes payable to him, the amount payable to the plaintiff is to be set off against the loan advances and by their defence, the defendant/cross-claimants contend that in the event they are liable as the plaintiff alleges notwithstanding a number of pleaded denials, then the defendants/cross claimants assert that several representations were made by the plaintiff/cross-defendant that were misleading and deceptive prior to the entry into the March 2016 agreement in a number of ways.
The defendant/cross-claimants say by their defence that they relied upon the representations in entering into the March 2016 agreement and they have suffered loss and damage. They further assert by the defence that the March 2016 agreement in those circumstances is liable to be set aside or determined unenforceable.
In the cross-claim, the cross-claimants assert two primary causes of action, they are:
First, an order setting aside the whole of the Agreement or refusing to enforce it, on the grounds of misleading and deceptive conduct in breach of the Australian Consumer Law s 18 ("ACL"), the material facts of which are at paragraphs 4-12 and read: "[8] Prior to entering into the March 2016 Agreement, the cross-defendant represented to the cross-claimants that: (a) the Project defined by the development application would generate a profit of $600 million, derived from $400,000 profit from total sales of 1,500 dwellings; (b) given that profit, the payment of a Return in the event of the Cross Defendant's Exit was reasonable notwithstanding the cross-defendant's continual failure to contribute his 40% share to costs, and was one that the cross-claimants could afford and should agree to; (c) he had exercised reasonable care in calculating the profit for the Project and it could safely be relied upon; (d) the development application was ready for submission and was in terms which meant it would be approved very quickly; (e) the construction costs of the development could be funded by deposits from presales of the dwellings to be constructed. PARTICULARS The representation in (a) was express, and given orally and in writing. The representation in (d) was express and given orally. The representation in (b), (c) and (e) were implied from the express representations and the surrounding circumstances."
Secondly, repayment of the $13,142,703 already paid by the defendants, on the basis that they were loans, together with at an interest rate of 25%. The material facts are alleged at paragraphs 13-16 of the cross-claim. They read: "[13] In about March 2017 and again in the period between about January 2018 and June 2021, the cross-defendant requested Mr Han to loan monies to him (Loan Requests). [14] Pursuant to the Loan Requests, and further or alternatively in accordance with the March 2016 Agreement, Mr Han advanced or otherwise caused for the following tranches of funds to be advanced to the cross-defendant or his nominees at the applicable rate of 25% per annum from the date of advance: (a) late March 2017 the sum of $2,050,000; (b) between 13 January 2018 and 23 June 2021 the sum of $11,092,703."
The defendants/cross-claimants contend that Mr Jiang did not make contributions as he had promised in respect of the acquisition agreement. This resulted in Mr Han making several payments for Mr Jiang which were not expected when they had agreed to the 40/60% apportionment and Mr Jiang did not repay the loan or make his contribution due by 15 May 2016.
By reason of the factors said to comprise the plaintiff's exit, the cross-claimants took steps to complete on the acquisition agreement and New City became the sole beneficial owner of the Yarraville Land.

Transfers

The plaintiff/cross defendant contends by his statement of claim that a series of transfers were made to him by New City, or persons or entities on behalf of New City and Mr Han in the order of $13,142,703 between the period 3 January 2017 to 23 June 2021 (2017 to 2021 transfers).
The parties are in dispute as to the characterisation of the 2017 to 2021 transfers. The plaintiff asserts that the said transfers were made in respect of the plaintiff's total entitlement. It now contends by reason of those transfers the balance of the plaintiff's total entitlement remains due and payable in the sum of $5,357,297 (18,990,000, less 13,142,703 (2017 to 2021 Transfers) & $490,000 (payment of the GST refund).
On the other hand, the defendants do not admit the reason for the transfers as contended by the plaintiff but admits the making or causing for the sums the subject of the 2017 to 2021 transfers. The basis of the transfers as contended by the defendants arises from loan advances made pursuant to loan requests by Mr Jiang. Those advances as contended have not been repaid and as such remain due and owing.

Relevant legislation

The plaintiff relies on Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") rr 42.21(1)(a), 42.21(1)(d) and 42.21(1)(f). They read: 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 … (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 … (f) that there is reason to believe that the plaintiff has divested assets with the intention of avoiding the consequences of the proceedings, 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 (the threshold issue).

Security for costs

The Court can order security for costs within its inherent jurisdiction and under UCPR rule 42.21 (Mitchell v Roads and Maritime Services (now known as Transport for NSW) [2022] NSWSC 500, Ball J at [6]) and also pursuant to s 1335 of the Corporations Act 2001.
Security for costs may be ordered for the cross-claim pursuant to UCPR 42.21 where the cross-defendant is ordinarily resident outside Australia and that there is reason to believe that, in this case the second cross-claimant, being a corporation, will be unable to pay the costs of the defendant if ordered to do so. There is also an inherent power in the Supreme Court to make an order that security be posted. It is common ground that the first cross-claimant resides in Beijing, Peoples Republic of China (Zhang Affidavit 28/2/2022 at [13]).
The plaintiff also relies on s 1335 of the Corporation Act 2001 (Cth) that is in similar terms: Costs (1) Where a corporation is plaintiff in any action or other legal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his, her or its defence, require sufficient security to be given for those costs and stay all proceedings until the security is given.
Pursuant to UCPR 42.21(1)(d), the Court must be satisfied that there are reasons to believe that the cross-claimants will be unable to pay the cross-defendants costs if ordered to do so ("the threshold issue"); and that the Court should exercise its discretion to order security for costs having regard to a range of factors, as summarised by Beazley J in Meltglow.
In Meltglow, Beazley J stated at pp 196 - 198: "The law is now settled that the discretion to order security for costs is unfettered and should be exercised having regard to all the circumstances of the case without any predisposition in favour of the award of security.... Notwithstanding the broad unfettered discretion with which the court approaches an application for security for costs, there are a number of well-established guidelines which the court typically takes into account in determining any such application. They are: 1. That such applications should be brought promptly... 2. That regard is to be had to the strength and bona fides of the applicant's case are relevant considerations... As a general rule, where a claim is prima facie regular on its face and discloses a cause of action, in the absence of evidence to the contrary, the court should proceed on the basis that the claim is bona fide with a reasonable prospect of success… 3. Whether the applicant's impecuniosity was caused by the respondent's conduct subject of the claim... 4. Whether the respondent's application for security is oppressive, in the sense that it is being used merely to deny an impecunious applicant a right to litigate... This factor is related to the next, namely: 5. Whether there are any persons standing behind the company who are likely to benefit from the litigation and who are willing to provide the necessary security... 6. An issue related to the last guideline is whether persons standing behind the company have offered any personal undertaking to be liable for the costs and if so, the form of any such undertaking ... 7. Security will only ordinarily be ordered against a party who is in substance a plaintiff, and an order ought not to be made against parties who are defending themselves and thus forced to litigate."

The plaintiff's submissions

It is common ground that Mr Han, the first defendant, is a resident of China. He has no current visa to travel to Australia for entry into Australia. The second defendant/cross-claimant, being a corporation without the mandatory resident director, is no longer the proprietor of the development site (Zhang Affidavit 28 February 2022 at [18]). The second defendant/cross-claimant company continues to operate in blatant violation of the requirement for a resident director contained in section 201A of the Corporations Act.
It is accepted that the fact that the first cross-claimant has an encumbered property within Australia is a relevant factor. However, the degree of comfort which the Court might otherwise take from that is offset by a number of factors in this case.
The plaintiff's privately held property in Victoria may be disposed of without the plaintiff's knowledge. The development site which gave rise to these proceedings was sold by the second defendant without it being apparently advertised on any online sale listings (Jiang Affidavit affirmed 23/9/2021 at [44] - [45], and pp 107-120 and 168 - 169 of Exhibit ZQJ-1). The comfort which the court might derive from that fact of property ownership, is dependent on an assumption of probity. However, in the present case the first defendant is unlawfully the sole director of the second defendant in open defiance of s 201A of the Corporations Act 2001 (Cth). He is evidently not too fussy about complying with Australian law. As a resident of mainland China, he is beyond the reach of Australian law.
Further, through his solicitor, the first cross-claimant has openly rejected the possibility of raising funds or securing a bank guarantee, over that property, so as to provide security in the only form accepted by the court. Instead, he openly offers a "negative pledge". He and his company's flagrant and continuous breach of the Corporations Act and the spurious character of the cross-claim not only indicate that such an offer could not safely be accepted, but further, that the calculated making of such an offer instead of simply providing security in the usual form (which actually provides security rather than a personal promise from a person beyond the reach of Australian law) is to be viewed with some suspicion.
In relation to the appropriate form of the security for costs, it is well established that the usual form of security is by way of payment of money, or by way of an unconditional bank guarantee. The purpose for the provision of security for costs is to ensure that a successful respondent to a claim will have the funds available within the jurisdiction of the court against which the respondent, if successful in defence, can enforce a judgment for costs in the respondent's favour: Commissioner of Taxation v Vasiliades [2016] FCAFC 170 at [72].

Undertaking by Mr Han (first defendant/first cross-claimant)

If the above submissions are rejected, then it is contended that the undertaking offered by the first cross-claimant (Mr Han) ought to be accepted.
Mr Han owns a property located at 8/1 Kristina Road, Glen Waverley Victoria 3150 (Kristina Road Property). He is the only sole registered proprietor.
The evidence discloses that the Kristina Road Property was valued at $1,130,000 as at 27 April 2022. On 29 July 2022, it has been valued at $1,000,000.
It is presently encumbered by mortgage to Pepper Finance Corporation Ltd.
There is a loan facility attached to the mortgage in respect of the property. The evidence discloses that the loan balance as at 1 August 2022 is $670,894.72.
The property is not offered as collateral security. The equity position of the property on the arithmetic above amounts to $329,105.28.
Mr Han is prepared to undertake not to further encumber the Kristina Road Property and will give an undertaking to be liable for any adverse cost order. The undertaking will also provide that the First Defendant if required to do so, will sell the Kristina Road Property and the equity in the property will be made available to pay any adverse cost order. The plaintiff/cross-defendant offers no good reason why the undertaking is not adequate or otherwise acceptable in the above circumstances.
Mr Han has offered an undertaking. Such an undertaking in that form is a serious and genuine offer. There is an assertion by the motion that there is reason to believe that the cross-claimants have divested assets with the intention of avoiding consequences of the proceedings. There is no credible evidence to support that allegation and to the extent it is maintained it ought be rejected.

The defendants/cross-claimants submissions

The first defendant/cross-claimant is an individual, Kairan Han.
The second cross-claimant/second defendant, Fortune New City (Yarraville) Development Pty Ltd (New City) was a special purpose corporate vehicle set up for the purpose of acquiring land, developing land and selling property. Its function has concluded. That in itself is no reason to believe that it will be unable to pay the costs of the cross-defendant should an adverse order be made.
The defendant relied on Concrete Constructions Pty Ltd v Dalma Formwork Pty Ltd (Administrator Appointed) [1999] NSWCA 16 at [15], where Sheppard AJA (with whom Mason P and Handley JA agreed) referred to the situation where there is overlap between a plaintiff's claims and a cross-claim as a "very important consideration", as to whether security for costs should be ordered, Sheppard AJA stated: "[15] … His Honour then came to the question whether substantially the same facts were likely to be canvassed in determining the action and the cross-action. Rolfe J began his discussion of this matter by saying: "In circumstances where the claim and the cross-claim arise out of the same, or essentially the same, factual matrix this, in my opinion, is a very important consideration. It has been frequently and consistently said by Judges sitting in this Division that an order for security will not generally be made in such circumstances, in the exercise of the Court's discretion. It would, in my view, be quite wrong to preclude a party from litigating matters by way of a defence to a cross-claim merely because that party has been the initial institutor of the proceedings. The conduct of the other party may have forced the allegedly impecunious party to take the litigious initiative, whilst not constituting misconduct. Put simply if [Concrete] seeks to recover any part of the debt the issues raised by Dalma in its claim would be available to it as a defence, and there has never been any suggestion that a party could be precluded from defending proceedings, where the defence is bona fide, by reason of impecuniosity. It is, therefore, a somewhat arid exercise to be considering an application for security for costs if the plaintiff can be cast in the role of a defendant and can litigate the very matters the subject of its claim by way of defence." In finding that Rolfe J was not in error in refusing security, his Honour went on to say the following at [24]: "During the oral argument which took place on the hearing of this matter, there was discussion about the significance of this matter. Neither counsel seemed anxious to come to grips with the reality of the true nature of the case. They appeared to be concentrating on what I would regard as a comparatively minor question concerning the meaning and effect of the indemnity. But as Rolfe J said in the paragraphs from his judgment which I have quoted, the fact that a claim and a cross-claim arise out of the same, or essentially the same, factual matrix is a very important consideration. He added that it would be quite wrong to preclude a party from litigating matters by way of defence to a cross-claim merely because that party was the initial institutor of the proceedings. I entirely agree with what Rolfe J has said. He concluded this part of his judgment by saying that it was a somewhat arid exercise to be considering an application for security for costs if the plaintiff could be cast in the role of a defendant and could litigate the very matters the subject of its claim by way of defence. Plainly he would have taken a different view if there had been an undertaking given on behalf of Concrete not to prosecute its cross-claim. One can readily understand the reasons for this but no such undertaking has been given."
The discretion to order security for costs ought not be exercised given that the proceeding is essentially defensive in nature. Furthermore, any costs attributed towards the cross-claim would be minimal given the commonality of issues on both pleadings (defence and cross-claim). It is relevant to note at this point, the plaintiff's evidence makes no attempt to acknowledge the substantial commonality of issues on both the defence and cross-claim. There is no discernable part of the cross-claim that does not serve a defensive purpose.
As the cross-claim is defensive, and Mr Han and New City are properly viewed as defending itself from attack. The cross claimants submit that, in these circumstances, they should not be required to provide security.
The cross-claimants resist the making of any security for costs order. They assert firstly and secondly that the cross claim is defensive in character and that the undertaking offered by the first cross-claimant is adequate.
The basis on which Mr Han resists an order for security for costs is his contention that Mr Jiang is, in substance, the "attacking party" in these proceedings and that Mr Han's cross-claim is, in substance, defensive in nature: Bevwizz Group Pty Ltd v Transport Solutions Pty Ltd [2008] NSWSC 1399 at [18]-[19] (Brereton J, as his Honour then was).
Examples of what may be characterised as defensive proceedings have been given in Meltglow at 199-202; John Arnold's Surf Shop (in liq) v Heller Factors Pty Ltd [1979] 22 SASR 20; (1979) 4 ACLR 492 and Interwest Ltd v Tricontinental Corporation Ltd (1991) 5 ACSR 621.
Counsel for the plaintiff/cross-defendant argued that Mr Han's $13,142,704 cross-claim for debt following Mr Han's initial claim of $5,357,297 is not defensive in nature. Rather, it can be separated from any initial claims for debt.
In my opinion, Mr Han can be seen as the "attacking party" in these proceedings. The retaliatory nature of his cross-claim, the large quantum and the lack of alleged lack of genuineness of the claim shows that the cross-claim is not merely defensive in nature.
For these reasons, I am not persuaded that this factor is a reason not to order security.

Genuineness of the cross-claim

The circumstances give rise to a justified suspicion that the cross-claim is not genuine. The parties carried on a substantial enterprise governed by a written agreement. The defendants had made substantial payments in accordance with that agreement. Only after the plaintiff sued for the balance, did the cross-claimants alleged that the were misled by unparticularized oral representations and that the precise amount of those payments already made, were in fact separate loans pursuant to unparticularized requests which, unlike the previous dealings, are completely unrecorded. The repeated failure to respond properly to requests for particulars is telling.
If any credence were to be given to the cross-claimants' assertions that they would not have entered into the Agreement had the alleged misrepresentations not been made, then the alleged loans were made at a time when the cross-claimants must have considered the cross-defendant to have been guilty of misleading and deceptive conduct. That is objectively improbable.
The alleged misrepresentations are predominantly oral. Some are said to also be in writing, and others to arise from the circumstances. Particulars of when and where the conversations occurred have not been provided. Similarly, the writing and the relevant circumstances have not been identified.
As to the remedy claimed in the cross-claim, damages pursuant to s 236 of the ACL are not sought. Rather a declaration of invalidity or a refusal to enforce the agreement is sought, presumably pursuant to s 237.
However, it is condition precedent for s 237 relief that the claimant has suffered or is likely to suffer loss or damage because of the conduct (subs 237(1) line (a)).
There is no such allegation in the cross-claim. Nothing is pleaded in the cross- claim concerning any loss or damage that the cross-claimants has allegedly suffered or is likely to suffer. Such a pleading is relation to a development from which the cross-claimants were expecting to make over half a billion dollars ($600 million, according to the pleading) cannot have been too difficult, if the claim were genuine. In any event, absence such an allegation, there is no possibility of the cross-claim enjoying any success.

Impecuniosity and attribution to opponent

Neither has even asserted that they are impecunious, much less that such condition is due to the conduct sought to be prosecuted on the cross-claim. There is no such allegation in the pleading. In that any order for security will not stymie the proceedings.

Is the cross-claim defensive in character?

In respect of the alleged but unparticularized loans, they are clearly not defensive. These are separate causes of action being raised by the cross-claimant and stand alone. The claim in paragraph 17 of the cross-claim to set one off against the other does not change its character. In any event, the plaintiff sues for the balance of monies due after he admits that he received the $2,050,000 and $11,092,703 which form the basis of the alleged loans (see paragraphs 15 - 18 of the statement of claim). The alleged loans cannot be off-set because the cross-defendant has already set them off. As previously stated, the loan claims are therefore not defensive in character.
In respect of paragraphs 8-12 of the cross-claim, the allegation would be partly defensive except that, as there is no allegation of loss or likelihood of loss, the claim is hopeless. Viewing the cross-claim as a whole, in the absence of any allegation of loss, it is tolerably clear that the ACL allegation is merely a device to allow the unparticularised loan claims to be brought and to provide an excuse for why the defendant has in fact already paid the majority of the moneys due under the written agreement on which the plaintiff sues.
Further, there is another fundamental defect in the ACL cross-claim. The first cross-claimant obtained a substantial benefit as a result of the agreement he seeks to set aside, namely having transferred to him the shares held by the cross-defendant in the second cross-claimant. At that time, the second cross-claimant had been nominated pursuant to contracts to purchase land in Victoria as the purchaser and this entitlement was received by the first cross-claimant by virtue of his ownership of the 40% of shares in that company previously held by the cross-defendant.
The cross-claim lacks any offer to restore to the cross-defendant to their position prior to the Agreement. The benefit of the 40% shareholding in the second cross-claimant, was previously held by him and was transferred to the first cross-claimant pursuant to the Agreement. The value of the shares in the second cross-claimant were rights to purchase land in Victoria (being the development site). The land which the second cross-claimant had been nominated to purchase has since been sold. It is therefore unimaginable, that the Court would, in any circumstances, set aside the Agreement, but do nothing to restore to the plaintiff the value of the land transferred to the defendants, and sold by them. The obvious answer to this would be instead to make an award of damages to the cross-claimants, but none are sought because the cross-claimant is unable even to articulate an allegation of loss or damage.
Finally, by simple arithmetic, the cross-claim is not substantially defensive. The plaintiff claims the balance due of $5.3 m. The cross-claim seeks to avoid that liability entirely and then claims a further amount of $13.1m.

Has there been an admission or payment into Court?

Prima facie the payment of $13,142,703 by the defendants to the plaintiffs is a substantial admission by the cross-claimant that the Agreement was not brought about by misleading and deceptive conduct. There is no explanation to the contrary in any evidence led on the motion. Nor is there even a pleading seeking to explain away the admission.
Further, the defendant made a payment into Court to satisfy the freezing order.
Pursuant to r 42.21(1)(a), Mr Han ordinarily resides outside Australia. Mr Han has not returned to Australia since late 2019 or early 2020 and is now residing in the People's republic of China. There is a reasonable chance that Mr Han does not intend to return to Australia, which may create practical difficulties in enforcing Mr Jiang's debt in China: (CB 49). Following the commencement of the proceedings, Mr Han moved to live in his residence in the Henan province in China and there is reason to believe that the change was made by the plaintiff with a view to avoiding the consequences of the proceedings (CB[50]).
Considering r 42.21(1)(d), there is reason to believe that New City will be unable to pay the costs of the defendant if ordered to do so. Mr Han argued that New City was a special purpose company set up for the purpose of acquiring land and that the winding up of the company is not a sufficient reason to conclude that he would be unable to provide costs to Mr Jiang if an adverse order is made against him. Mr Jiang argued that Mr Han's cross-claim was retaliatory in character and that the undertaking offered by him is an inadequate form of security.
Mr Jiang did not honour his obligations to pay his 40% contribution to the shares in New City. In the instances where Mr Jiang did not contribute his 40% share, those payments made for Mr Jiang were treated as loans totalling $9,344,764. Mr Jiang transferred his 40% interest in New City to Mr Han as security for these loans and the money owing to Mr Jiang was set off against the loan advances. Finally, Mr Han argued that misleading and deceptive representations were made by Mr Jiang prior to entry into the March 2016 agreement (CB 19-20).
However, the circumstances give rise to a justified suspicion that Mr Han's cross-claim is not genuine, pursuant to r 42.21(1A)(b). The parties carried on a substantial enterprise governed by a written agreement. Mr Han had made substantial payments in accordance with that agreement. Only after the plaintiff sued for the balance, did Mr Han allege that he was misled by unparticularized oral representations and that the precise amount of those payments already made, were in fact separate loans pursuant to unparticularized requests which, unlike the previous dealings, are completely unrecorded.
Pursuant to r 42.21(1)(f), a relevant factor for the Court to consider is whether Mr Han has divested assets with the intention of avoiding the consequences of the proceedings. Fortune Property Group entered into four contracts by which it would purchase certain parcels of land in Francis Street, Yarraville. On 2 September 2021, Mr Han had sold the land he had purchased through private sales. On the records of the Land and Registry Office of Victoria, the searches displayed that a caveat had been lodged on the four parcels of Land by Minter Ellison and that the caveator had an interest as purchaser under contracts of sale dated 24 August 2021.
Mr Han did not inform Mr Jiang of the sale of the land made by New City, a company in which Mr Han is the sole director and secretary. The shareholder of New City was Yarraville Group Pty Ltd and the ultimate shareholder was Mr Han. The actions of Mr Han and the company structure he is a part of, provides reason to believe that Mr Han has divested these assets with the intention of avoiding payment of the unpaid balance of at least $5,357,297 to Mr Jiang. The concern for Mr Jiang is that the sale proceeds from these assets may be unable to be recovered if they are otherwise out of Australia (CB 48).
As parcels of land were previously sold by New City and Mr Han privately without public advertising, the security that these properties provide are dependent on Mr Han notifying Mr Jiang and the Court if he chooses to sell the property. However, the fact that Mr Han is unlawfully the sole director of the second defendant in contravention of s 201A of the Corporations Act 2001 (Cth) does not speak well for his regard for compliance with Australian law.
An important issue of fact in this cost's decision is whether Mr Han's undertaking to sell his Kristina Road Property in the event of an adverse costs order against him is sufficient as security to pay Mr Jiang. The ordinary rule is that where a plaintiff is a foreign resident, security for costs is required to be given, especially if the plaintiff has no property situated in the jurisdiction: Demag-Lauchhammer Maschinenbau und Stahlbau BmbH v John Holland (Contructions) Pty Ltd [1966] 2 NSWR 3. A foreign defendant who makes a cross-claim is subject to the same rules as to security for costs as a foreign plaintiff: Sykes v Sacredoti (1885) 15 QBD 423.
Mr Han is the sole registered proprietor of the Kristina Road Property. The house was valued between $1,000,000 on 29 July 2022 and $1,130,000 on 27 April 2022. The Kristina Road property is encumbered by a mortgage to Pepper Finance Corporation Ltd. The equity position of the property is $329,105.28. Mr Han has offered to provide an undertaking, which he states is a serious and genuine offer. The issue is whether the above constitutes an adequate form of security to justify not ordering that money be paid into court.
Mr Han offered to provide an undertaking in lieu of raising funds or securing a bank guarantee, over that property, to provide security for the Court. In comparison to orthodox forms of security such as a payment of money or an unconditional bank guarantee, Mr Han's undertaking is not a sufficient form of security, to be safely accepted by this Court. It cannot be guaranteed that Mr Han will have funds available within the jurisdiction of this court, which the cross-defendant can enforce if they are successful in their defence. The undertaking to offer the Kristina Road Property is insufficient security for the purposes of pursuing the cross-claim. Therefore, the threshold issue has been satisfied in relation to security for costs.
I will now turn to the discretionary matters set out by Beazley J in Meltglow. First, Mr Han has delayed in bringing his cross-claim. Second, in the light of the above analysis pursuant to UCPR 42.21, it is unlikely that Mr Han has a bona fide cause of action with reasonable prospects of success. Third, Mr Han has not argued that Mr Jiang has caused him to be impecunious.
Fourth, there is no evidence to suggest that Mr Jiang's application for costs is oppressive to Mr Han. Fifth, Mr Han is standing behind the company, New City, and seeks to benefit from the cross-claim by seeking to extinguish Mr Jiang's claim for the unpaid balance of at least $5,357,297. Sixth, Mr Jiang has offered to provide an undertaking to sell the Kristina Road Property in the event of an adverse costs order. However, this was held not to be sufficient form of security, as discussed above.

Quantum of the security sought

The amount estimated for the cross-defendant of $281,743 for a commercial case estimated to run for at least three days, and having regard to discovery and reviewing the necessary documents, is an appropriate estimate that should be accepted. The respondents to the motion have led no independent evidence questioning the accuracy of the applicant's estimate of costs.
The affidavit of the cross-claimants' solicitor is of limited value and unpersuasive for a number of reasons, which may be shortly stated: 1. He has relatively limited experience and is certainly not an expert; 2. His "comments" are argumentative in character and inappropriate for an affidavit; 3. Even if paragraph 29 is admitted, what he modestly titles "appropriate reduction" is nothing more than an assertion of what "I would allow". What he would do, is not relevant to a fact in issue. Moreover, what passes for his reasons, are nothing more than bald idiosyncratic assertions of a conclusion.

The defendant's submissions

It is not uncommon for solicitors on security for costs applications to give their opinions on the likely costs to be attributed to the proceedings. After all, Ms Si Zhang for the cross-defendant has given such evidence herself for her client on that very basis. There is no good reason offered by the cross-defendant to depart from the usual course of having regard to solicitor's opinions on costs of proceedings on security for costs applications.
It is suggested Mr Wu does not have the experience and is not an expert (CDOS at 35) to opine to the matters he does. That submission lacks any foundation especially in circumstances where Ms Zhang has the same level of experience as Mr Wu. No submission is made here as to Ms Zhang's experience and certainly no objection is taken to her evidence.
Mr Wu's evidence is not argumentative and is nothing more than evidence of his expression of his opinion of what appropriate assessment he considers should be taken into account if the Court were to have regard to assessing quantum. It ought to be noted that Mr Wu has diligently taken a fair and reasonable approach in his assessment and has largely accepted a number of items of charges factored into Ms Zhang's costing.
Given the material overlap and the defensive characteristics of the cross-claim there is no substantive costs that can be isolated in respect of the cross-claim. The costs and attendances incurred in responding to the defence will ultimately effect and inform the relief sought in the cross-claim.
The cost items identified in Ms Zhang's affidavit of 28 February 2022 are not separate items that would constitute separate attendances not otherwise incurred in responding to the defence. Those items are clearly matters that fall within the pleaded case contended by the defence.

Resolution - Quantum

The plaintiff/cross-defendant seeks $158,103 for solicitors costs and $123,640 for disbursements including counsels' fees, inclusive of GST for preparation of the hearing of the proceedings. The total of the costs, counsels fees and disbursements amounts to $281,743. This estimate is calculated on the basis that they were reduced by 25% for costs in these proceedings. The solicitor for the plaintiff/cross-defendant's estimate was $281,743. The difference between the plaintiff and defendant on costs is $66,438, which all relates to the plaintiff/cross-defendant's solicitor's charges to reflect the chance that the proceedings may not go to trial. In the exercise of my discretion, I will assess the amount of security for costs at the lower sum of $213,305.

The plaintiff's submissions

The cross-claimants plead that loan requests by the cross-defendant were oral or by text messages but they have not particularised when or how it is alleged that those loan requests were made. No texts messages have been identified or provided by the cross-claimants (Zhang 28/2/2022, Annexures J, K, L at pp. 81-910).
The second cross-claimant, being a company, at paragraphs 13-17, pleads loans by the first cross-claimant to the cross-defendant of sums of $2,050,000.
On 26 November 2021 the Registrar ordered that the cross-defendant make any request for further and better particulars in relation to the defence and cross-claim by 23 December 2021. Particulars were requested by email on 23 December 2021 (Zhang 28 February 2022, annexure J at pp 81-87). The responses were received by letter from the cross-defendant's solicitors on 8 February 2022 (Zhang Affidavit 28 February 2022 pp 88-89; Annexure K).
It is trite that the cross-defendant is entitled to have identified the conversations and writings relied upon by the cross-claimants in both the defence (at paragraph 15) and cross-claim (paragraph 13). The request sought appropriate particulars in relation to those paragraphs (the reference in the defence was to paragraph 13 by mistake, but the defendants responded to it as if the reference was to paragraph 15).
A subsequent request for particulars was made on 16 March 2022 (Zhang Affidavit affirmed 1 April 2022, Annexure A at pp 4-10), seeking particulars of the cross-claim in relation to the alleged misrepresentations made at paragraph 8 of that document and further clarifying the details of the loan requests at paragraph 13 of the cross-claim.
It is unacceptably unclear which of the alleged representations the cross-claimants allege were representation of current fact on the one hand, and which are alleged to have been representations as to future matters on the other. Again, it is trite that a pleading must clearly delineate alleged representations as to a future matters, where a cross-defendant has the onus of showing that he had reasonable grounds to the make any such representations (ACL, s 4). The cross-defendant and the court should not be left to guess.

Resolution

The cross-claimant alleged that on or about January 18 June 2021, the cross-defendant requested Mr Han to loan moneys to him. Mr Han has failed to provide sufficient particulars of this oral loan request. The WeChat text message communications made available in the court book do not contain a request or agreement for the said loans.
Paragraph 13 of the cross-claim statement of claim reads as follows (CB[31]): "In about March 2017 and again in the period between about January 2018 and June 2021, the cross-defendant requested Mr Han to loan monies to him (Loan Requests)."
The plaintiff/cross-claimant has outlined a period of four and a half years from which the cross-defendant has requested Mr Han to loan monies to him. The plaintiff/cross defendant has failed to identify when the oral request took place.
In correspondence from Mr Si Zhang of Sunfield Chambers Solicitors & Associates to Mr Payne Wu of Hiways Lawyers on 23 December 2021, Mr Zhang attached a document requesting further and better particulars. Paragraph 13 of that document reads as follows: "Please particularise details of the Loan Requests (as defined in paragraph 13 of your clients' cross-claim), including the parties to the alleged loan when the alleged loans were requested and advanced. Was the alleged Loan Requests written or oral (or partly written and partly oral)? If written, please identify: i. the document/s and provide us with a copy; and ii. where in the document it is alleged the loan is recorded. If oral, please identify the conversation/s which your clients allege gave rise to the loan (including the participants, time and location) and please indicate the words which your clients allege were said, and by whom, in support of the alleged loan. If partly written and partly oral, please answer both."
On 8 February 2022, Mr Wu responded to the request for further and better particulars. Paragraphs 13 and 15 of the table reads: Paragraph 15(c) This is a matter for evidence. However, the requests were made orally or via text messages. … Paragraph 13 We refer to the Defence at 15 and the response above.

Result

The defendant/cross-claimant has failed to provide sufficient detail identifying when, where and how the loans were allegedly agreed or any other circumstances in which the loan was made. The loans are alleged to have been made orally or via text messages. In order for the plaintiff to know the case it has to meet, the defendant/cross-claimant is required to answer the plaintiff's request for particulars dated 23 December 2021 and is to be answered within 14 days. The want of particulars evidencing the existence of the loan requests demonstrates the likely weakness of the cross-claim. Therefore, in the absence of further detail, Mr Han's claim for $13,142,704 cannot be said to have arisen out of the same factual matrix as any previous claims in these proceedings.

Costs

Costs are discretionary. Costs normally follow the event. The cross-claimants to pay the cross-defendant's costs of this notice of motion.

The Court Orders: 1. Pursuant to r 42.21(1) of the Uniform Civil Procedure Rules 2005 (NSW), the cross-claimants (the first and second defendants in the proceedings) are to provide security for the plaintiff/cross defendant's costs of the cross-claim in the sum of $215,305.00 within 28 days, such security to be provided by way of an unconditional bank guarantee, in a form acceptable to the plaintiff/cross-defendant, or payment into court. 2. In the event that the security ordered in order (1) above is not provided within the time specified, order that the cross-claim be stayed until further orders. 3. The defendant/cross-claimant is to answer the plaintiff's request for particulars dated 23 December 2021 within 14 days. 4. The cross-claimants to pay the cross-defendant's costs of this notice of motion.

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: 18 October 2022

Civil Procedure Act 2006(NSW)s 67

Corporation Act 2001(Cth)

At a glance

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Judgment (23 paragraphs)

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