Li v State of New South Wales

Court of Appeal (NSW)|2013-06-03|Before: Macfarlan JA, Ward JA, Gleeson JA, MacFarlan JA

Background 7Mr Li is ordinarily resident in China. He came to Australia in 2008 on a visa that permitted him to accompany his daughter who had come to study in Australia. In May 2010, Mr Li was involved in an incident with two police officers following a complaint that had been made as to an altercation between Mr Li and his then employer at premises in Moorebank. As at the time of his arrest in May 2010, Mr Li was an illegal immigrant. After his acquittal on various counts relating to use of an offensive weapon, common assault and resisting an officer in the execution of his duty, Mr Li was deported. He is prohibited from returning to Australia. 8Mr Li commenced proceedings against the State of New South Wales and against his former employer in the District Court in March 2011, seeking exemplary, aggravated and other damages. Against the State, the claim was for alleged assaults and/or battery and/or trespass to the person by the police officers. It is alleged that there was a use of excessive and unreasonable force in the course of the arrest. A defence was filed for the State in November 2011. 9The solicitor acting for the State first became aware that Mr Li was living in China in January 2012. By letter dated 13 June 2012, an application for security for costs was foreshadowed in correspondence with Mr Li's solicitor but the application was not filed until 17 August 2012. 10In the period between January 2012 and June 2012 (when notification of an intention to make such an application was first made), there was some correspondence between the respective solicitors as to whether arrangements could be made for Mr Li to be cross-examined via an audio-visual link when the matter was listed for hearing and some medical evidence was served on behalf of Mr Li (comprising, as I understand it, evidence from a psychiatrist at the Villawood Detention Centre - said not to be relevant to the issues in the proceedings - and medical certificates from China). 11The security for costs application was brought pursuant to Rule 42.21(a) on the basis (which is not disputed) that Mr Li is ordinarily resident outside New South Wales.

Primary judgment 12As the threshold question for the exercise of the power under the Rules was satisfied, it was a matter in the discretion of the Court as to whether to make an order for security for costs. Her Honour noted that this is an unfettered judicial discretion to be exercised in order to achieve a balance between ensuring that adequate and fair protection is provided to the defendant and avoiding injustice to an impecunious plaintiff by unnecessarily shutting him out or prejudicing him in the conduct of the proceedings. 13Her Honour expressly noted that, in deciding whether to make such an order, it was necessary that she take into account all of the relevant facts, matters and circumstances and listed the matters that had been taken into account by her in this regard: the strength and bona fides of Mr Li's case; the impecuniosity of Mr Li; whether the effect of the proposed order would be oppressive as stultifying the litigation; delay on the part of the State in bringing the application; and the enforceability in China of any costs order that might ultimately be made in the State's favour. As to the last matter, her Honour invited written submissions as to the position with respect to enforcement of Australian judgments in China and these were provided by the State after the hearing of the application. Mr Li does not cavil with those submissions. 14Of the respective factors considered by the primary judge, her Honour: proceeded on the basis that the claim was bona fide with a reasonable prospect of success; accepted Mr Li's evidence and found that he was impecunious, but declined to find that the State had caused his impecuniosity; accepted that Mr Li said he could not afford to pay (or borrow) the amount sought as security for costs (and seems thereby to have accepted that the proposed order would or would be likely to stultify the proceedings); found that there was a delay between January and August 2012 in the bringing of the application, in which period Mr Li would have incurred legal costs; and noted that a party seeking to enforce an Australian judgment in China would need to re-litigate its case on the merits in that jurisdiction. 15Her Honour considered that the findings made as to the bona fides and reasonable prospects of the claim and as to delay were matters that weighed in favour of Mr Li. Her Honour considered that the finding of impecuniosity weighed in favour of the State because it meant that it was unlikely that the State would recover any costs order made in its favour. Her Honour separately noted the submission that Mr Li's impecuniosity meant that any order would be oppressive as it would operate to stultify the proceedings. On a fair reading of her Honour's judgment it is clear that stultification of the proceedings was considered to be a matter weighing in favour of Mr Li and that the difficulty of enforcement in China of an Australian costs judgment was a matter weighing in favour of the State. 16Her Honour made reference to dicta of McHugh J in PS Chellaram & Co Ltd v China Ocean Shipping Company [1991] HCA 36; (1991) 65 ALJR 642 and Gaudron J in Singer v Berghouse [1993] HCA 35 in relation to security for costs orders against non-residents, and concluded that an order for security for costs in the sum of $50,000 should be made. In so doing, her Honour stated: I have made some findings in favour of the plaintiff. However I am not persuaded that these amount to the special circumstances so that I should exercise the discretion in favour of the plaintiff. 17Her Honour's reference to "the special circumstances" in the passage extracted above must be read, in context, as a reference to the statement by Gaudron J in Singer v Berghouse that: It may well be that, in the absence of special circumstances and in a case where costs follow the event, the need to bring action in a foreign court to enforce an order for costs will weigh very heavily in favour of an order under O 70, r 7.1. Even so, decisions under O 70, r 7 involve a discretionary judgment of a very broad kind made by reference to the circumstances of the particular case and not by reference to a rule or rules which direct a decision one way or the other. (my emphasis) 18In the China Ocean Shipping case, McHugh J had earlier said: To make or refuse to make an order for security for costs involves the exercise of a discretionary judgment. That means that the court exercising the discretion must weigh all the circumstances of the case. The weight to be given to any circumstance depends not only upon its own intrinsic persuasiveness but upon the impact of the other circumstances which have to be weighed. A circumstance which may have very great weight when only two or three circumstances have to be weighed may be of minor significance when many circumstances have to be weighed. However, for over 200 years, the fact that a party, bringing proceedings, is resident out of the jurisdiction and has no assets within the jurisdiction has been seen as a circumstance of great weight in determining whether an order for security for costs should be made. Indeed, for many years the practice has been to order such a party to provide security for costs unless that party can 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. (my emphasis) 19Her Honour had also been referred to Chen v Keddie [2009] NSWSC 762, where Davies J referred to Gaudron J's judgment in Singer v Berghouse (at [5]) in the context of his Honour's recognition that enforcement of a costs order in China would generally be ineffective for the reasons set out in an article by Blazey and Gillies, "Recognition and Enforcement of Foreign Judgments in China", Macquarie University, to which article this Court was also taken.

Relevant legal principles 20In Idoport Pty Limited v National Australia Bank Limited; Idoport Pty Limited & Market Holdings Pty Limited v Donald Robert Argus; Idoport Pty Limited "JMG" v National Australia Bank Limited [2001] NSWSC 744, Einstein J accepted the submission that the jurisdiction to award security for costs should be seen as protecting the efficacy of the exercise of the jurisdiction to award costs and that the discretion should be exercised with the same rationale in mind (namely that, to the extent it can be avoided, the court should not permit a situation to arise where a party's success is pyrrhic), noting (at [52]) that "[t]he purpose of a security for costs order is therefore a protective jurisdiction to ensure that the primary purposes for having costs orders themselves, can be achieved". 21Dal Pont, Law of Costs, 2nd edn, at [29.63], considering the historical background to the jurisdiction to order security for costs, notes that by 1894 an order for security where the plaintiff was resident out of the jurisdiction had become an inflexible rule such that the extent of the plaintiff's means or assets out of the jurisdiction assumed no relevance and nor did the strength or weakness of the plaintiff's case (referring to Crozat v Brogden [1894] 2 QB 30 at 35 per Lopes LJ). Dal Pont goes on to note: To this end, it has been said that the real origin of the jurisdiction to order security for costs was to cater for the case of a non-resident plaintiff who, in seeking to take advantage of the jurisdiction of domestic courts, should be required to provide security for the payment of the costs of the party within the jurisdiction who is sued, in case the action should fail. The apparent concern was that a non-resident, particularly one without assets in the jurisdiction, could avoid liability for an adverse costs order precisely because his or her non-residency would make it difficult if not impossible to enforce the order. 22It is noted by Dal Pont that the object of such an order is to have a fund available within the jurisdiction against which a judgment for costs can be enforced if the plaintiff is ultimately unsuccessful in the proceedings. (Mr Romaniuk, appearing for Mr Li, submits that such an objective presupposes that a fund can be made available, i.e. that there are assets available to the plaintiff or others on his behalf. That, however, seems to confuse the objectives of an order for security and whether compliance therewith is likely.) 23The authorities to which the primary judge referred (as noted earlier) point to the weight that is to be accorded, in the exercise of the discretion to order security for costs, to the fact that the plaintiff is not ordinarily resident in the jurisdiction. 24While there remains a discretion to be exercised having regard to all the circumstances of the particular case, Dal Pont comments (at [29.69]) that the trend of the cases (referring there to Jalfox Pty Ltd v Motel Association of New Zealand Inc [1984] 2 NZLR 647 at 649; Nasser v United Bank of Kuwait [2001] EWCA Civ 556; [2002] 1 All ER 401 at 419-420) is that the ease and convenience of enforcement procedures in the plaintiff's country of residence will ordinarily be a primary consideration and that, conversely, the fact that a judgment would be simple to enforce is a powerful factor against the making of such an order (there referring to Knott v Signature Security Group Pty Ltd [2001] NSWIRComm 12; (2001) 104 IR 84 at 94-5).

Misdirection as to correct legal principles? 25The basis on which it is contended that her Honour misdirected herself as to the correct legal principles to apply is that it is said that, in Singer v Berghouse, Gaudron J did not set out a "special circumstances" test to be applied when considering the factors to be taken into account on a security for costs application involving a non-resident plaintiff. It is thus contended that the primary judge erred in applying such a test to the relevant factors there before her. It is further submitted that even if Gaudron J was there positing a special circumstances test it was confined to the situation where there was a non-impecunious plaintiff (as Mrs Singer was) who was resident outside the jurisdiction in a case where costs would ordinarily follow the event (in which case one would need to show some special circumstance to avoid the making of an order for security for costs). 26Mr Romaniuk sought to distinguish both Singer v Berghouse and the China Ocean Shipping case on the basis that in those cases the non-resident plaintiff, or (in the China Ocean Shipping case) those who stood to benefit from the proceedings, was (or were not shown to be) impecunious. 27It is certainly the case that in Singer v Berghouse there was a finding that the plaintiff was not impecunious. There, the special circumstance that led to security not being ordered was that the claim was one brought under the then applicable Family Provision legislation, the effect of which was that it was by no means certain that, even if unsuccessful, the plaintiff would be ordered to pay the costs of her appeal. 28As for the China Ocean Shipping case, there was a finding that the corporate plaintiff was hopelessly insolvent but no evidence before his Honour that the shareholders in the company were not in a position to provide the plaintiff with sufficient funds to enable provision of the security that had been sought. 29Complaint was not made by Mr Romaniuk as to the use by the primary judge of the words "special circumstances" but, rather, to the suggestion that this was the test by which all of the relevant factors were to be measured (i.e., that those factors were tested by reference to whether they amounted to special circumstances to overcome the great weight ordinarily to be accorded to the fact that a non-resident plaintiff has no assets in the jurisdiction). It is contended that as a result of misdirection as to the legal principles to be applied in the exercise of the discretion the exercise of discretion has miscarried in the House v The King (1936) 55 CLR 499 sense. 30In that regard, the argument for Mr Li does not in my opinion place sufficient weight on her Honour's reference to McHugh J's observation as to the great weight to be accorded to the fact that a party is resident out of the jurisdiction with no assets in the jurisdiction on an application such as the present. That observation was not restricted to the case where the non-resident had assets outside the jurisdiction (i.e., to the case where there was a non-impecunious non-resident plaintiff). His Honour's judgment made it clear that it was not known whether or not the corporate shareholders had funds that would enable them to provide security for costs. 31In that regard, I note that the China Ocean Shipping decision was applied by Warren J (as her Honour then was) in Hotline Communications Ltd v Hinkley [1999] VSC 74; (1999) 44 IPR 445 in circumstances where there was no evidence as to the assets out of the jurisdiction of the natural persons who were the second to sixth plaintiffs (the first plaintiff, being a company, had some money in a bank account in Canada). Her Honour treated McHugh J's judgment in China Ocean Shipping as the starting point and considered that there was no evidence to lead to her exercising the discretion other than to adhere to the principle in that case. An order for security for costs was made against all of the non-resident plaintiffs. It was not there suggested that the rationale for a security for costs order against a non-resident (namely, that the defendant if successful should not be forced to seek to exercise rights in a foreign jurisdiction where there was no reciprocity of judgments) would not apply if the non-resident in question had no assets outside the jurisdiction. 32Read as a whole, I am not persuaded that her Honour's judgment indicates that her Honour misdirected herself as to the correct test to be applied. Her Honour correctly appreciated that the question was one of balancing the injustice that would be occasioned to an impecunious plaintiff by unnecessarily shutting him out or prejudicing him in the conduct of the proceedings, on the one hand, and ensuring on the other hand that the defendant be adequately and fairly protected (against the risk that it would not be able to enforce a costs judgment against the plaintiff). 33Her Honour took into account the relevant factors in this regard and that great weight was historically given to the fact that a party was not resident, and had no assets, in the jurisdiction. The reference to "special circumstances" in her Honour's reasons at AB9 must be read in that context.

Incorrect exercise of discretion? 34The second basis on which it is said her Honour erred was in the exercise of the discretion to order security for costs. It is contended that impecuniosity was not a factor that weighed in favour of the defendant; rather, that it was a factor that weighed in favour of the plaintiff as it meant that the making of an order for security would stultify the proceedings. 35Turning first to the other factors considered by her Honour, it has not been demonstrated that there was any error in the balancing exercise there undertaken. 36As to the strength and bona fides of the plaintiff's claim, her Honour determined this in favour of Mr Li. While Mr Romaniuk sought to persuade this Court that the prospects of success of Mr Li's claim (based on the cross-examination of the relevant police officer during the criminal proceedings) were higher than "reasonable", an examination of the transcript of that cross-examination does not establish that her Honour erred in going no further than a finding that there were reasonable prospects of success. 37As to delay, this is not an automatic bar to the making of the order for security for costs (Commonwealth v Cable Water Skiing (Aust) Ltd (1994) 14 ACSR 760). The relevant question when considering delay in such an application is the length of the delay and the reasons for it. Consideration must be given to what has taken place in the interim. 38This is because the relevance of the promptness with which a party acts to seek security is that a plaintiff is entitled to know its position in relation to the security before it embarks to any real extent to its litigation and before it is allowed to commit substantial sums of money towards litigating its claim (see Buckley v Bennell Design & Construction Pty Ltd (1974) 1 ACLR 301 per Moffitt P; Bryan E Fencott & Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 per French J, as his Honour then was). 39Thus the further a plaintiff has proceeded in an action, and the greater the costs it has been allowed to incur without steps being taken to apply for an order for security for costs, the more difficult it will be to persuade the Court that such an order is not, in the circumstances, unfair or oppressive. 40Here, her Honour noted the delay and, relevantly, found that it was for the whole of the period from the discovery by the defendant that Mr Li was resident overseas in January 2012 and the filing of the application for security in August 2012, even though the defendant had notified Mr Li's solicitors in May 2012 of instructions to make such an application (and hence at least from May 2012 it could not be said that Mr Li had been allowed to continue to incur costs oblivious to the prospect of such an application). Her Honour's finding on delay was therefore more favourable to Mr Li than it might otherwise have been expected to be. 41Her Honour took the fact of delay into account as weighing in Mr Li's favour on the application. In circumstances where the only costs that it is suggested were incurred in the relevant period related to communications seeking (unsuccessfully) to make arrangements for his cross-examination at the hearing to be taken by audio-visual link and to the production of medical evidence (either unrelated to the District Court proceedings or in the form of medical certificates), her Honour could not be said to have erred in attaching relatively little weight to the fact of delay (if that is what she did) or, as is evident from the ultimate outcome, in not finding that it outweighed or contributed to outweigh other matters tending towards the grant of security. 42While it is submitted by Mr Romaniuk that the effect of an order for security for costs was that the value of the legal services provided to the date of the order would be lost because of the stultification of the proceedings that would be caused by the making of the order, it was conceded that there was no evidence as to what those costs were or the prejudice occasioned by the delay. 43As to the difficulty of enforcement of a costs judgment in China, it was not disputed that the State would be likely to have difficulty (and would inevitably incur additional costs) in attempting to enforce in China any costs judgment it might obtain against Mr Li. Therefore her Honour did not err in treating this as a factor in favour of the grant of security. Indeed, on the dicta in China Ocean Shipping, this was a factor to be accorded great weight. 44This leaves the related questions of impecuniosity and stultification of the proceedings as a result of such impecuniosity. In passing I note that in KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189; 13 ALC 437, the manner in which impecuniosity was referred to on this kind of application by Beazley JA, as her Honour then was, as a relevant factor was as to whether the plaintiff's impecuniosity has been caused by the defendant's conduct the subject of the claim (a conclusion that the primary judge in the present case declined to find) and as to whether the application for security was "being used to deny an impecunious plaintiff the right to litigate" (which might suggest that the motivation underlying the application, as opposed to effect of such an order, would be of relevance). 45The onus of establishing that making of a security for costs order would unduly stultify the plaintiff's ability to pursue proceedings rests on the party asserting it (Bell Wholesale Co Ltd v Gates Export Corporation [1984] FCA 34; (1984) 2 FCR 1 at [4]). Here, her Honour did not make a finding as to stultification, as such, but appears to have accepted the submission by Mr Li's Counsel that the proposed order would deny the plaintiff his right to litigate (on the basis that her Honour accepted that Mr Li said that he could not afford to pay the sum sought and could not borrow it). 46The stultification of proceedings is recognised to be a powerful factor to be taken into account in deciding whether an order for security is appropriate (Idoport; KP Cable; Yandil Holdings Pty Ltd v Insurance Co of North America (1985) 3 ACLC 542). In the China Ocean Shipping case, McHugh J adverted to this, when saying that he would hesitate to make an order for security for costs If the effect of that order would be that the appeal could not be pursued (because neither the appellant nor those who stood behind it could provide security for the costs of the appeal). 47Nevertheless, impecuniosity of a natural person has been recognised as not operating as an absolute barrier to an order for security for costs (Jeffery & Katauskas Pty Ltd v SST Consulting Pty Ltd [2009] HCA 43; (2009) 239 CLR 75, per Heydon J at [91]). In Jeffery, his Honour implicitly recognised that the fact that there was a non-resident plaintiff was a situation in which security for costs orders might be made against impecunious natural persons, when noting that "there are instances additional to those listed in r.42.21(1)(a)-(c) and (e) where it can be done" (my emphasis). 48For Mr Li, it is contended that her Honour incorrectly treated his impecuniosity as a factor in favour of a grant of security (when it was a factor that should have been appreciated was in his favour due to the consequent stultification of the proceedings) and that her Honour failed to accord sufficient weight to the fact that such an order would stultify the proceedings. 49As to the first, it can be seen that impecuniosity is relevant both to the oppressiveness of an order for security and to the prejudice to which the defendant will be exposed (by way of the inability to recover its costs of the litigation). Therefore, in the way in which her Honour balanced the respective factors, it was not an error to consider the impact of the plaintiff's impecuniosity on the defendant's position. 50Her Honour did not fail to take into account the plaintiff's impecuniosity on his ability to prosecute his claim. What her Honour did was to weigh those competing considerations. Properly understood, Mr Li's complaint is to the outcome of that balancing exercise. However, that was a matter within her Honour's discretion and it was one with which an appellate court should be slow to interfere. It is not to the point that this Court might have come to a different conclusion when weighing those factors. Mr Li must show that her Honour was plainly wrong in the exercise of the discretion such that it miscarried. I am not persuaded that he has done so. 51Her Honour has taken into account the relevant considerations and was not satisfied that the considerations in favour of refusing the application for security outweighed the considerations for such an order. In doing so, her Honour clearly placed great weight on the fact that Mr Li was not resident in the jurisdiction and has no assets in the jurisdiction. That was a conclusion that was open to her Honour. 52Therefore, even if her Honour placed incorrect weight on the reference to "special circumstances" in Singer v Berghouse or proceeded on a wrong principle (namely, that it was necessary for the plaintiff to establish special circumstances to outweigh the fact that Mr Li was not resident in the jurisdiction and did not have assets in the jurisdiction), her Honour did in fact carry out the balancing process required in the exercise of the discretion to award security for costs and it is apparent from her Honour's reasons that she would have reached the same result, without regard to the statement of Gaudron J in Singer v Berghouse, by reference to the emphasis placed on the dicta of McHugh J in China Ocean Shipping. 53I am not satisfied that the conclusion her Honour reached was plainly wrong and therefore it should not be disturbed.

Conclusion 54For the above reasons, I would grant leave to appeal but would dismiss the appeal with costs. I would therefore order as follows:

Grant leave to appeal in respect of the orders made by Balla DCJ on 9 October 2012 on the application of the defendant for security for costs.
Direct that a notice of appeal in terms of the notice of appeal contained in the White Book be filed within fourteen days.
Dismiss the appeal with costs. 55GLEESON JA: I agree with Ward JA.

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Application for leave 4For Mr Li, it is contended that leave should be granted as the questions involved on this appeal concern the correct principles to be applied in the exercise of power to order security for costs where a plaintiff is ordinarily resident out of the jurisdiction. 5Leave to appeal from an interlocutory decision of this kind should be granted only where there are there are substantial reasons to allow an appellate review (Johnson Tiles Pty Ltd v Esso Australia Ltd [2000] FCA 1572; (2000) 104 FCR 564), such as where there the decision is attended with sufficient doubt to warrant its reconsideration or there is an error of principle which would result in substantial injustice if leave were not granted (Minogue v Williams [2000] FCA 125; (2000) 60 ALD 366; BHP Petroleum Pty Ltd v Oil Basins Ltd [1985] VR 756; Niemann v Electronic Industries Ltd [1978] VR 431; Darrell Lea (Vic) Pty Ltd v Union Assurance Society of Australia Ltd [1969] VR 401). Where there is no question of principle and there is only a small amount in dispute, leave to appeal will usually be refused (Jaycar Pty Ltd v Lombardo [2011] NSWCA 284; Zelden Sewell Henamast Pty Ltd [2011] NSWCA 56). 6In the present case, there was an issue of principle as to the import, on an application for security for costs under Rule 42.21(a), of the lack of assets outside the jurisdiction of an impecunious non-resident. That issue of principle arises because it is arguable that the concern to which Rule 42.21(a) is addressed is the difficulty of enforcement of costs orders against a non-resident who has invoked the jurisdiction of the Court without making a fund available out of which an adverse costs order might be satisfied. If the non-resident has no assets outside the jurisdiction, then arguably the disadvantage to the defendant in that regard is no greater than the disadvantage that the defendant would have if defending proceedings commenced by an impecunious plaintiff resident in the jurisdiction. Such an argument was not directly raised by the applicant's draft Notice of Appeal, though such a proposition was embraced in the course of argument by Counsel for Mr Li (Mr Romaniuk). Nevertheless, given that the grounds of appeal at least potentially raise issues of principle relating to security for costs orders against non-residents, and the determination of the security for costs application is likely to bring an end to the proceedings as a whole, I would grant leave to appeal in this case.

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