HER HONOUR: This is an application for security for costs by way of notice of motion filed on 21 July 2021 by the second defendant, Liping Wang. The application is brought pursuant to r 42.21 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) and/or s 1335 of the Corporations Act 2001 (Cth) (Corporations Act) and/or the inherent jurisdiction of the Court.
Additionally, the notice of motion seeks an order in prayer 2 that the proceedings against the second defendant be stayed until such security is provided by the plaintiff and by prayer 3, in the alternative, that the proceedings be dismissed for want of prosecution pursuant to r 12.7 of the UCPR if security for costs is not provided within 180 days of the making of prayer 1.
The application is supported by an affidavit sworn 21 July 2021 by Stefan Psaltis, the solicitor for the second defendant with day-to-day carriage of the matter.
In that affidavit Mr Psaltis, among other things, deposes to the costs already incurred by the second defendant (which appear to be in the order of roughly $26,000 or $27,000), and to his estimate as to the fees that will be incurred between the time of swearing the affidavit and the completion of the proceedings (those being $76,175). It would seem, as I understand it from the affidavit, that that is on a solicitor/client basis and not on a party/party basis.
The context in which the application is brought is that these proceedings were commenced back in 2018 and the claim is now as pleaded in the fifth further amended statement of claim dated 14 January 2021 which was filed on 10 February 2021. The plaintiffs claim that the second defendant executed two documents in the capacity as guarantor on 9 November 2016 and is liable for moneys advanced pursuant to those documents.
The first defendant is a company. The third defendant, I understand, is the husband of the second defendant who is now bankrupt (and I am told has been unable to be located).
The fourth defendant is a Mr Oliver Pang, an accountant trading as O Pang & Co, and I understand that Mr Pang's signature purportedly appears on the execution page of the relevant loan agreements, purportedly as witness.
There is a live dispute between the parties as to whether the second defendant executed the document in question; and on this application the second defendant places no little weight on an expert report filed 22 October 2018 of a handwriting expert, Ms Melanie Holt, in which the expert deposes to her opinion that the evidence provides strong support for the hypothesis that someone other than the writer of the specimen signatures wrote the questioned signature on the loan agreements.
The state at which the current proceedings have reached is that: the pleadings have closed; evidence has been filed; there has been no expert evidence adduced by the plaintiffs in response to the expert report of Ms Holt; and the matter has been listed for a six day hearing commencing in November this year.
It is also relevant, in terms of the chronology of events, to note that a security for costs application was made by the fourth defendant some time earlier, as I understand it, by motion filed on 22 July 2020 and that orders for the provision of security were made by Lindsay J on 26 November 2020 in the sum of $50,000. (This was additional to an earlier sum of $50,000 provided by the plaintiffs in March 2019, pursuant to consent orders made on 21 March 2021 for security for the fourth defendant's costs.) Therefore, some $100,000 in two separate tranches has been deposited into court as security for costs upon the request of the fourth defendant.
As I noted earlier, the second defendant has relied on the affidavit sworn on 21 July 2021 by her solicitor, Mr Psaltis. The plaintiffs rely on an affidavit sworn 10 September 2021 by Mr Jonathan Lee, the first plaintiff, who is also the director of the second plaintiff.
In his affidavit Mr Lee has deposed to the payment into court of the sums I have already mentioned. Mr Lee has deposed that has paid his solicitor's bills and invoices as they have fallen due. Mr Lee has also deposed (and I read this only as an assertion) that the plaintiffs are solvent and able to pay their debts as and when they fall due.
Mr Lee has then deposed (at [11]) that the amount spent by him to date in legal costs and disbursements is over $400,000, for which he has deposed he has had to obtain bank overdrafts Mr Lee also deposes that he has, to date, arranged his financial affairs on the basis that he would not be ordered to provide security for costs to the second defendant.
Mr Lee has deposed that he has already been awarded a costs order on 14 September 2018 by Rees J in relation to costs from 26 March 2018 to 5 September 2018. Those costs, as I understand it, relate to circumstances in which a default judgment was entered against the second defendant (at a time before the second defendant had entered an appearance in relation to the matter). There is no evidence as to the amount of the costs likely to be recoverable pursuant to that costs order.
Finally, Mr Lee has deposed (at [18]) that he is currently having extreme difficulties in gathering the costs for his legal representatives and may have to borrow money to pay for those fees and that he has not yet been able to put money into his solicitor's trust account for the final hearing; and to the impact of the current COVID-19 pandemic on his business.
The matters to which the plaintiffs point in support of the application for security for costs may be summarised as follows. First, that the first plaintiff is not resident in Australia and is domiciled in Singapore. There is no dispute about that. Second, that the second plaintiff (a company) is not resident in Australia and is domiciled in Taiwan. Again, there does not seem to be a dispute about that.
Mr Psaltis has deposed (at [13]) to searches carried out from which he says it appears that the plaintiffs do not have any assets within Australia.
Complaint is made that despite requests, the plaintiffs have not, at least since February 2019, provided any financial disclosure as to their assets within Australia or outside Australia. It is apprehended that the first plaintiff and potentially the second plaintiff have insufficient funds to meet an adverse costs order in the event that the second defendant is successful in the proceedings.
The second defendant accepts that there has been delay in the bringing of this application. I have referred above to the orders for security in respect of the fourth defendant's costs. The evidence of Mr Psaltis is that the second defendant decided against incurring the expense of bringing an application for security for costs following the response by the plaintiffs to the second defendant's letter on 26 February 2019 (which had raised the question of security for costs) (at [34]). In that response, the plaintiffs had included a copy of a bank statement showing funds of Mr Lee in a Commonwealth Bank account that could satisfy an adverse costs order of $50,000.
Mr Psaltis has deposed that the second defendant accepted the representations made by the plaintiffs that they were capable of meeting an adverse costs order. What seems then to have occurred is that there was a mediation that was unsuccessful on 21 May 2021.
Following that unsuccessful mediation the second defendant again raised the question of security for costs, and a letter was sent in that regard on 23 June 2021 requesting provision of information to enable the second defendant to satisfy herself as to the plaintiffs' ability to satisfy an adverse costs order.
No such financial information was provided. The response to that, by letter dated 6 July 2021, was that the plaintiffs' solicitors noted that the second defendant had known from the outset of the proceedings that the plaintiffs were not normally resident in the jurisdiction and decided not to pursue an application for security for costs and had waited until shortly before the hearing to raise the issue.
The plaintiffs' solicitors took issue with the proposition that Ms Holt's expert report was conclusive evidence that the second defendant had not executed the loan agreement.
Following the 6 July 2021 letter the present motion was filed on 21 July 2021.
[2]
Submissions
The second defendant refers to the authorities in relation to applications for security for costs, noting the considerations referred to in, amongst others, KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 (KP Cable v Meltglow) at 197-198 per Beazley J, as Her Excellency then was. While noting that there is a broad unfettered discretion with which the court approaches security for costs applications, her Honour there noted that there are well-established guidelines of the matters that the court typically takes into account on such applications, including: the promptness of the application; the strength and bona fides of the applicant's case; whether the applicant's impecuniosity was caused by the respondent's conduct the subject of the claim; whether the application is oppressive, in the sense that it is being deployed in an attempt to deny an impecunious applicant their ability to litigate; where the respondent is a company, whether there are persons standing behind the company that may benefit from the litigation and are capable of providing security; in relation to that last guideline, whether the persons standing behind the company have offered a personal undertaking to be liable for costs; and finally, that security will ordinarily only be ordered against a party who is in substance a plaintiff. (Those factors are replicated in the UCPR.)
The second defendant submits that in the present matter the plaintiffs' lack of funds has not been caused or contributed to by the conduct of the defendants (referring to Lynnebry Pty Ltd v Farquhar Enterprises Pty Ltd (1997) 3 ACLR 133 and O'Keefe v Seafresh Holdings Pty Ltd t/as Westmore Seafoods [2009] NSWSC 1090).
The second defendant further says that the making of an order for security for costs would not unduly stultify the plaintiffs' ability to pursue the proceedings. It is noted that a corporation seeking to rely on the stultification factor must demonstrate that those standing behind it are likely to benefit from the litigation and are also without means to satisfy an adverse costs order.
The plaintiffs' submissions in response take issue with the second defendant's submissions as to the strength of the plaintiffs' case and maintain that the plaintiffs' case is brought bona fides and raises real issues for determination in the proceedings.
It is submitted that in those circumstances the prospects of success or failure do not militate strongly one way or another in the making of an order for security and reference is made to what was said by McClellan CJ at CL (with whom Mason P agreed) in Jazabas Pty Ltd v Haddad (2007) 65 ACSR 276; [2007] NSWCA 291 (Jazabas) at [83]:
[83] Her Honour said that she was not persuaded that the claimants had "any real likelihood" of success in the main proceedings. To my mind this was not the correct test to be applied (Equity Access Ltd v Westpac Banking Corp (1989) ATPR 40-972 at 50,636 per Hill J). The question which must be asked is whether the claimants' case is bona fide and raises real issues to be tried. Unless obviously hopeless the prospect of success or failure is of little relevance. This must especially be the case where, as in the present matter, the issues to be litigated are complex and where it may be thought the law is developing.
The substance of the plaintiffs' response to the present application is on the basis of delay; that delay being in two contexts, delay in seeking the security for costs and delay in the proceedings generally, and I will come to those shortly.
The plaintiffs accept that they are normally resident outside Australia. They accept that, as such, the second defendant is entitled to approach the Court seeking security (and they note that in fact that is what the fourth defendant did; and that the second defendant was on notice of the fact that the fourth defendant had done so).
In relation to delay, as to the conduct of the proceedings generally, it is noted that the statement of claim in the proceedings was filed on 12 January 2018 and was served personally on the second defendant on 22 January 2018.
Default judgment was entered as against the first defendant company by Pembroke J on 25 May 2018 and proceedings were then commenced by the plaintiffs to wind up the first defendant.
On 15 August 2018 the first defendant went into administration. The plaintiffs subsequently filed a motion seeking default judgment as against the second and third defendants as guarantors, neither of those having yet filed an appearance in the proceedings at that time.
The matter was mentioned before Parker J on 28 August 2018 and at that time a solicitor appeared for the second defendant, although no formal appearance was put on the record. Parker J made orders that the second defendant be given leave to file a defence out of time and ordered that that be filed by 31 August 2018.
The matter was listed for a further directions hearing on 6 September 2018 and the hearing for default judgment was fixed for 14 September 2018. No defence was filed in accordance with the leave that was given.
When the matter came back before Parker J on 6 September 2018 a different firm of solicitors, the solicitors now on the record, appeared for the second defendant and entered a formal notice of appearance.
The plaintiffs say that an application to file a defence out of time was refused on that occasion by his Honour on the basis that leave had already been granted to file out of time and those orders had been breached. The orders made by his Honour were to extend the time for the second defendant to file an affidavit annexing a proposed defence to the plaintiff's claim to 10 September 2018.
On 14 September 2018, the matter came before Rees J and her Honour gave leave to file a defence but made the costs orders that I have referred to above.
The complaint made by the plaintiffs in this regard is that the second defendant has caused significant delay in the proceedings, in particular having taken some nine months to file a defence from the date of personal service. It is submitted that, but for that delay, the proceedings would likely have been completed by now.
The delay in seeking security relates to the fact that the second defendant has been aware from at least February 2019, if not earlier, that the plaintiffs were ordinarily resident outside of Australia and were aware that security had been provided by the plaintiffs on the fourth defendant's application and that the second defendant did not seek to agitate the matter on either occasion.
Emphasis is placed on the fact that, by the time this application has been heard, there is a rapidly approaching hearing date, and reliance is placed on the fact that the delay in seeking security for costs has, on the plaintiffs' evidence, prejudiced the plaintiffs in the sense that a timely application in order to obtain funds for such security to be provided has not been brought.
Reliance is placed on the proposition (which is not I would have thought contentious) that applications for security for costs should be made promptly (reference being made to Crypta Fuels Pty Ltd v Svelte Corporation Pty Ltd (1995) 19 ACSR 68 at [71] per Lehane J; and Staff Development & Training Pty Ltd v Commonwealth [2005] FCA 1643 at [13] per Spender J where it is said that if such applications are not made promptly a party exposed at a later stage to an order for security for costs will or may have been lulled into expending money in prosecuting its claim).
It is submitted that, absent a proper explanation for the delay (and the plaintiffs say there has not been a proper explanation for the delay) the Court is entitled to assume that the second defendant delayed in filing the application for tactical reasons, and that this of itself can cause (and they say here does cause) the plaintiffs prejudice (reference being made to Attorney-General (Botswana) v Aussie Diamond Products Pty Ltd [2009] WASC 299 at [15]-[16] per Martin J as his Honour then was).
[3]
Determination
There is no doubt that the application for security for costs has properly been brought within the Court's jurisdiction. It is apparent that the plaintiffs are ordinarily residents outside Australia (and it is not suggested otherwise) and, for the purposes of s 1335 of the Corporations Act, it would appear to me sufficient on the basis of Mr Lee's affidavit evidence to conclude that there is reason to believe that the plaintiff corporation may not be able to meet an adverse costs order in the proceedings.
The kinds of factors that the Court takes into account in relation to the exercise of the discretion as to security for costs are set out in KP Cable v Meltglow (summarised above) and encapsulated in r 42.21(1A).
Rule 42.42(1A)(a) calls, first, for consideration of the prospects of success or merits of the proceedings.
In Live Board Holdings Ltd v Cody Live Pty Ltd [2017] NSWCA 302 at [101] it was noted that the rules expressly permit regard to be had to the apparent prospect of success. It was also said in Jazabas that consideration of the prospects of success inevitably requires satisfaction that the claim is made in good faith and appears at least to be reasonably arguable.
As I have noted, the second defendant places great weight on the expert report of Ms Holt, and the fact that there is no expert report in answer to that.
I accept that it is inappropriate at this stage to undertake an examination of the prospects of success beyond considering whether the plaintiffs' claim is reasonably arguable (Jazabas; Fiduciary Ltd v Morningstar Research Pty Ltd (2004) 208 ALR 564; [2004] NSWSC 664 at [37]-[39] per Austin J).
I accept that there cannot be a determination at this stage as to the prospects of success. I note that there is an expert's report. How far that expert report goes in the circumstances may depend on a variety of factors and the outcome of cross-examination in the proceedings. As Young CJ in Eq noted in Vella v Permanent Mortgages Pty Ltd (2008) 13 BPR 25,343; [2008] NSWSC 505 at [245]-[247], a judge sitting as a tribunal of fact must "consider all the evidence before making his or her decision, and may prefer the oral evidence to the evidence of experts".
Suffice it to note that I accept that there is a reasonably arguable cause of action and there is nothing to indicate that it is not brought in good faith. That deals with the genuineness of the proceedings as well.
As to the impecuniosity of the plaintiffs, certainly there is evidence that has been adduced by the plaintiffs to the effect that Mr Lee may have difficulty in funding any order for security for costs at the same time as he is funding the costs of his own prosecution of the proceedings.
As to whether the impecuniosity is attributable to the defendant's conduct, it is said by the plaintiffs that this follows from the fact that, if the claim against the second defendant is successful, then the second defendant has caused it to be out of pocket for the $900,000 claimed in the proceedings. In that regard, I accept that any impecuniosity or difficulty in relation to funds at this stage cannot have been helped by non-repayment of the alleged loan, assuming that that claim is made good (but this is not a typical case where the cause of impecuniosity has been a determinative factor).
I also note that pursuant to r 42.21(1B) if the plaintiff is a natural person, an order for security for costs cannot be made merely on account of his or her impecuniosity.
As to whether an order for security for costs would stifle the proceedings, it is not apparent that it will necessarily stifle the proceedings on the evidence that is before me but it does seem to be apparent that it puts at risk the continuation of the proceedings particularly in circumstances where what is sought is a stay of the proceedings if security for costs is not provided and/or dismissal of the claim against the second defendant, and I have in mind the fact that it is less than two months before the hearing of the matter is listed to commence. It is relevant also that any stay of the proceedings at this stage would affect other parties to the proceedings, including the fourth defendant in respect of whom security for costs has been provided.
I note that another relevant issue is whether an order for costs made against the plaintiffs would be enforceable, and as to the ease or convenience or otherwise of enforcing a New South Wales court judgment or order in a country of a non-resident plaintiff (r 42.21(1A)(m)-(n)).
The plaintiff is resident in Singapore and there are reciprocal enforcement provisions which would make enforcement of a costs judgment in Singapore, I would have thought, relatively easy from an administrative point of view. The position in relation to the company in Taiwan may be a different matter but I have no evidence before me in relation to that.
Another factor that I consider relevant is that the plaintiffs have costs orders in their favour by Rees J and it seems to me likely that any ultimate costs orders of the hearing would be able to be offset, at least in part, in relation to those costs orders.
Balancing the factors in question, but for the time at which the application for security for costs has been made I would have considered that the material before me established that security should be ordered.
But I am concerned that there was clearly a forensic decision made not to apply for security for costs at an earlier time. Notwithstanding that the delay between the mediation and the filing of an application for security for costs is not great, I am concerned that these proceedings have been on foot since 2018 and that the application for security for costs was made at a late stage and is being heard not long before the commencement of the hearing. Any order for security for costs that would prejudice the ability of the matter to commence for hearing on the four to six days that have been set aside for it is not in the interest of the just, quick and cheap resolution of the real issues in dispute.
In my opinion, the forensic decision that was made is one with which the second defendant must live. Had I been of a different view and determined that security for costs should be ordered, I should note that I would not have ordered it for past costs and, in terms of prospective costs, I would not have ordered it in the amount of the table set out at [25] of Mr Psaltis' affidavit because that seems to be calculated on a solicitor/client basis not a party/party basis. I would have thought it should be limited to costs likely to be assessable on a party/party basis and I would have discounted it substantially given the lateness of the application. (I may also have made any such costs order to be payable in tranches, although given that the hearing is rapidly approaching that might not have been convenient.) On a broad brush basis, had I ordered security for costs, I would not have ordered it for more than $25,000 which would be roughly party/party costs of Counsel appearing in a six day hearing. As it is however, I am not persuaded that I should exercise the discretion to order security for costs and I dismiss the notice of motion.
[4]
Orders
For those reasons, I make the following orders:
1. Dismiss the notice of motion.
2. Reserve the question of costs.
3. Direct that an affidavit in relation to Ms Holt's expert evidence be filed and served by close of business on 30 September 2021.
[5]
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Decision last updated: 05 October 2021