This is an application for security for costs by the first defendant against the plaintiff.
The proceedings concern three payments allegedly made by the plaintiff to the second defendant between May 2008 and May 2009 and which totalled approximately $1.1 million.
The principal way in which the plaintiff puts his case is that the payments were made by way of loan to both the first defendant, Ms He, and the second defendant, which was a company apparently associated with her. There are alternative bases to the claim which I will refer to briefly at a later point.
The first defendant's principal defence is limitation. The payments in question were made between eight and nine years ago and the first defendant contends that as loans repayable on demand they are statute barred.
These proceedings were commenced in March 2017. By that time the second defendant had been deregistered. An application was made which came before Brereton J on 2 June to have the second defendant reinstated. His Honour refused that application. He said:
[I]t seems to me that the plaintiff's claim in proceeding 83339 [the proceeding currently before the Court], at least as presently pleaded, is one that cannot succeed in light of the limitation defence. In those circumstances, there is no utility in reinstating the company. If the case changes in the future, then a further application for reinstatement is not precluded; but at this stage the case for reinstatement of the company is not made out.
His Honour dismissed the application and ordered that the plaintiff pay the costs of the defendants to that application, who were the Australian Securities and Investments Commission, the first defendant and the second defendant.
The first defendant now applies for an order that the plaintiff provide security for the costs of the proceedings against her. The ground for the application is that the plaintiff is not a resident of Australia and has no assets in Australia.
The plaintiff was originally Chinese, although he has now adopted a Japanese name. He has apparently been living in Japan for more than 20 years. It is accepted by his counsel that he has no assets in this country. His contention is, however, that he has ample assets in Japan to meet any order for costs which may be made against him in these proceedings.
In Maxim's Caterers Ltd v Magnona Pty Ltd (No 1) [2010] FCA 450 a defendant in proceedings in the Federal Court applied for security for the costs of the proceedings against it on the ground that the plaintiff was a Hong Kong company with no assets in Australia. Jagot J referred to a number of authorities addressing the circumstances in which the Court grants security in such cases and the rationale for doing so. Her Honour said that the principal purpose of the power to order security in such circumstances (at [6]):
…is protective; to ensure that there is no "unacceptable disadvantage" to the respondent by reason of the applicant's foreign residence.
In that case, there was evidence presented by the plaintiff of the practical steps that would be required to obtain enforcement of a costs order made in the Federal Court in the courts in Hong Kong, including estimates from Hong Kong solicitors of the costs involved. On the strength of that evidence, her Honour made an order for security which was limited to an estimate of the costs of enforcement of a costs order in Hong Kong. The amount awarded was $15,000 but the plaintiff was required to undertake not to seek security for its costs of Hong Kong enforcement proceedings as a condition of the relief being so limited.
In Dense Medium Separation Powders Pty Ltd v Gondwana Chemicals Pty Ltd [2011] NSWCA 84 the Court of Appeal had to consider an application for leave to appeal against an order at first instance in a case where the plaintiff was a South African corporation. Apparently, the parties had previously agreed by way of consent order for an order for security for costs but an application had been made for additional security in the sum of $50,000 and that had been granted by the Trial Judge.
Young JA, who gave the leading judgment, said (at [32]):
There are a series of cases which suggest that ordinarily, and that is probably a word that must not be forgotten, where one has an application for security for costs based on the fact that the applicant is outside New South Wales, the security for costs that ought to be ordered is the additional costs of realising the costs order in a foreign country as opposed to Australia.
His Honour referred to a number of authorities, including the decision in Maxim's v Magnona. The decision contains some discussion of the difficulties or otherwise of enforcing a judgment for costs in South Africa. However, it is not clear from the terms of the judgment whether those factors were decisive.
His Honour did say (at [38]):
The reason for giving the Court power to make orders for security for costs is to make sure, as much as can be done, that an Australian citizen is not prejudiced because he or she is being sued by an overseas individual and there might be barriers put in the way of collecting the successful order for costs.
He went on to say (at [39]):
If one gets to the situation where one has to debate whether or not there are barriers and how significant the barriers are, it seems to me the Court does not decide that, but just says that the plaintiff is entitled, having been sued by a foreign person, to have some certainty that he or she will collect their costs. Accordingly an order for costs of the type made by Einstein J [the Trial Judge] is justified.
His Honour evidently considered the position with respect to enforcement in South Africa did involve a matter of debate and leave was refused.
In Donald-Oates v Donald [2011] NSWSC 1391, Bryson AJ was considering an application for security for costs where the plaintiff was an Australian citizen but had been resident in Hong Kong. Bryson AJ referred to the judgment of the Court of Appeal in the Dense Medium v Gondwana case. He said (at [50]-[51]):
To my observation the Court of Appeal did not endorse an ordinary rule, and there was no occasion to do so as leave was refused.
As such decisions are discretionary, to dispose of them by applying an ordinary rule would depart from the Court's duty to exercise its discretion on the facts of the instant case.
His Honour concluded on the facts that although the plaintiff had assets in Hong Kong, they were "highly mobile bank accounts" and the defendant would not be adequately protected by merely being provided with security for the costs of registering a judgment in Hong Kong: at [53].
The first defendant presented evidence in the form of an estimate of her costs of defending the proceedings. The total estimate given based on an estimated trial of three days was approximately $110,000. No allowance appears to have been made for the costs of registering a costs judgment in Japan. The first defendant originally sought security in the amount of $140,000 but later amended the notice of motion so as to claim $70,000.
Counsel for the plaintiff justifiably criticised the form of the evidence given. It was no more than a summary and no explanation was provided as to where the estimates of the amount of time required and the rates of charge had come from.
Having said that, the proceedings are at a very early stage. The plaintiff has indicated that it is likely that the Statement of Claim will be amended and at present the issues before the Court and the nature of the factual questions that will arise cannot be clear.
The plaintiff pointed out that Japan is party to the reciprocal enforcement arrangements under the Foreign Judgments Act 1991 (Cth) and there is no dispute about this.
The solicitor for the plaintiff put into evidence extracts from the Japanese Code of Civil Procedure and the Japanese Civil Execution Act which had been obtained from an internet website which the solicitor described as "Japanese Law Translation". The solicitor also gave the following evidence on information and belief concerning the plaintiff's means:
8. I am instructed by the plaintiff that he is the owner and president of Umino Trading Co., Ltd, a company incorporated in Japan, which conducts a business trading in non-ferrous metal, iron and steel. The plaintiff has instructed me that he has been doing this business in Japan very successfully over the past 25 years, and his business includes the sourcing from Japan and exporting of non-ferrous metal, iron and steel to customers in South East Asia and China.
9. I am instructed by the plaintiff that he owns real estate in Japan located at Unit [an address is given] which he purchased on 25 May 2014 for ¥66,951,000.00 Japanese Yen equivalent to $761,451.62 Australian Dollars and is used as his primary place of residence with his wife.
The plaintiff's first submission is that no security should be ordered at all. As I understood the submission, counsel contended that the first defendant had received a substantial amount of money from the plaintiff which she had not accounted for but which had apparently been used to purchase property in Australia. It was suggested that the application was merely a tactic to try to delay the plaintiff in pursuit of his claim.
In an application such as this, it is frequently said that the Court does not make a preliminary analysis of the likelihood that the defendant will succeed in the proceedings. Security is awarded on the hypothesis that the plaintiff fails. While there is no absolute rule against the Court considering the strength of the claim, it must be a rare case that the Court will attempt to make some sort of prediction about the result. I certainly do not feel able to do so in this case.
The first defendant asserted that the claim was weak because it was statute-barred and pointed to the decision of Brereton J concerning the claim against the company. In response, counsel for the plaintiff suggested that the claim against the first defendant, or at least a potentially available claim against the first defendant which could be made clearer following amendments to the Statement of Claim, was wider and was not merely a claim for debt; it was said that equitable claims might be available in relation to the property which had been acquired with the moneys.
Counsel invited me to accept that there was an arguable claim and pointed to the fact that the first defendant had not made any application to have the proceedings dismissed summarily. I accept that and will act on it. But just as I will not go into the strength of the claim for the purposes of determining whether it is sustainable at all, I will not go into the strength of the claim for the purposes of determining whether it can be characterised as merely having reasonable prospects or as being overwhelmingly strong.
Just as the first defendant has not made an application for a summary dismissal of the proceedings, the plaintiff has not made an application for summary judgment. I proceed on the basis that there is a maintainable claim but that it is appropriate to acknowledge the possibility that the claim will fail and, in that event, that substantial costs will have been incurred. Having regard to the protective principle to which Jagot J referred, I think that this opens the door to an order requiring the plaintiff to provide at least some security in the proceedings.
The next question is how much that security should be and, in particular, whether it should be limited to the costs of enforcement of a costs order in Japan. I was not referred to any authority which directly addresses the question of where the onus lies in establishing what the costs of enforcement would be. However, in Maxim's v Magnona, Justice Jagot, adopting the words of McHugh J in an earlier case, said that the plaintiff could "point to other circumstances which overcome the weight of the circumstance that that person is resident out of and has no assets within the jurisdiction": at [13]. This formulation suggests that once it is established that a plaintiff is out of the jurisdiction, then, having regard to the protective purpose for which security is ordered, the onus may lie on the plaintiff to establish that something less than security for the whole of the costs of the Australian proceedings (and, presumably, the costs of enforcement) is appropriate.
As I have mentioned, the first defendant presented no evidence on the costs of enforcement. Nor did the plaintiff. The plaintiff's evidence on the subject was limited to what I have already summarised. In my view, it leaves a number of matters unclear. In the first place, while there is some evidence of Japanese law, there is no evidence from a Japanese lawyer to explain how the rules work in Japan and what the costs would be of enforcing an Australian costs order.
As I have mentioned, in Maxim's v Magnona there was not only evidence of the cost but also evidence describing the procedures that would be followed and how straightforward they were. For all the Court knows, there are other provisions of Japanese law which may create difficulty in obtaining a judgment against the plaintiff pursuant to an Australian costs order, or in proceeding to execution on that judgment.
Art 118 of the Japanese Code of Civil Procedure appears to impose a number of requirements before a final and binding foreign judgment may be registered in Japan. One of these is that:
(ii) the defeated defendant has been served (excluding service by publication or any other service similar thereto) with the requisite summons or order for the commencement of litigation, or has appeared without being so served;
Another is that:
(iii) the content of the judgment and the litigation proceedings are not contrary to public policy in Japan;
While it may be that these requirements are satisfied in the case of a judgment created by the registration of a costs assessor's certificate under our Legal Profession Uniform Law, there is no actual evidence from a Japanese lawyer that that is so. Furthermore, Art 24 of the Japanese Civil Execution Act provides for what is described as "compulsory execution" but there is no evidence before me about what that procedure entails, what its cost is and what obstacles, if any, there might be to using such a procedure to obtain execution against the plaintiff's assets.
In this regard, I note that the plaintiff has referred to a corporate entity through which he apparently conducts his business, but there is no evidence before me which would identify how assets held by that corporate entity could be compelled to be made available for personal debts of the plaintiff.
So far as the plaintiff's home unit is concerned, there is no evidence about whether there are any encumbrances on the unit and whether it could be taken in execution, given that it is apparently a matrimonial property used by both the plaintiff and his wife.
Finally, I should observe that there are some foreign legal systems, of which Hong Kong is one, which are relatively familiar to our legal system because of the shared British origin of the systems. Japan, however, stands outside common law tradition. I do not think it can simply be assumed that because in this country we would have no hesitation in enforcing a costs order made against an Australian who engaged in unsuccessful litigation overseas, that the same is necessarily so of the Japanese system, or at least that enforcement would necessarily be quick and cheap. To use the language of McHugh J, I am not satisfied that in this case the plaintiff has successfully pointed to other circumstances which overcome the weight of the circumstance that he is resident out of, and has no assets in, Australia.
Having said that, the evidence for the first defendant, as I have mentioned, is very thin. While precision is impossible, a defendant in such circumstances should ordinarily be expected to provide more detail of an estimate if the Court is to act on it.
Balancing the relevant circumstances, I have concluded that the appropriate course is to make an order that the plaintiff provide security in the sum of $40,000.
The first defendant raised a number of other points which I will deal with briefly in case I am wrong in the conclusions that I have reached.
First, it was said by the first defendant that the claim was a weak one and was statute-barred. I have already pointed out, however, that the Court will not go into that sort of issue once satisfied, as I am, that there is a maintainable claim, especially in circumstances where no attempt has been made to obtain summary dismissal.
Secondly, the first defendant pointed to the fact that the costs order made against the plaintiff in the reinstatement proceedings has not been satisfied. However, this is of minimal weight. The order was only made relatively recently. There is no evidence that formal assessment procedures have begun. So far as the evidence before me is concerned, all the first defendant has done is to send copies of invoices to the plaintiff and ask for payment. Counsel for the plaintiff demonstrated convincingly that it could hardly be considered at this stage that the amount claimed would necessarily be recovered on assessment. I do not draw anything for the purposes of the present application from the fact that that costs order has not been satisfied.
Accordingly, I do not find the additional points raised by the first defendant persuasive but, for reasons I have given, I nevertheless propose to order security in the amount which I have identified.
The orders of the Court are:
Order that the plaintiff provide security for the first defendant's costs of the proceedings and of enforcement of any costs order in the sum of $40,000, such security to be provided in a form satisfactory to the Registrar.
Order that the security be provided within 28 days of today's date failing which the proceedings are to be stayed.
Order that the costs of the application for security be costs in the cause.
[2]
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Decision last updated: 06 November 2017