Liu v Sha

Special circumstances

1. The respondent submitted that there were two special circumstances: impecuniosity and that the appellant had no real prospects of success. The appellant, Ms Hua Liu, conceded that impecuniosity could be inferred, but disputed that she had only low prospects of success.
2. In this matter the respondent sued the appellant on a guarantee which the appellant had entered into with respect to a loan of some $1 million made to her company, A & T Education Holdings Pty Ltd. As the primary judge, Leeming JA, stated at [1] of his Honour's judgment: "The litigation is a little unusual. In issue is whether a contract was entered into, and whether the guarantee is enforceable, notwithstanding that it is accepted that Ms Liu signed the loan agreement containing a guarantee and that funds were credited to the company's bank account which have not been repaid."
3. It appears that the pleadings of both parties left a deal to be desired: judgment [21]-[29]. In the way that the case was run (as opposed to pleaded) there were two key issues: first, whether or not the respondent had accepted the last iteration of the negotiated loan and guarantee, such as to crystallise an agreement, in circumstances where the written document had been signed by the appellant but not the respondent; secondly, whether or not there was consideration moving from the respondent.
4. The appellant's company had sought loans from a company listed in the United States named Puxin Ltd, of which the respondent was the CEO, and a Mr Peng Wang the CFO. However, that company was not in a position to provide a loan within the time sought by the appellant. Instead, negotiations turned to the respondent and Mr Wang each lending money to A & T themselves. It appears that these discussions were primarily conducted by Mr Wang on his and the respondent's behalf. The negotiations occurred significantly by way of messaging on WeChat.
5. His Honour explained at [11] that: "Ms Liu signed loan agreements in relation to the transfers. The documents were in similar form. They were drafted by her (or her company's) solicitors. In each case, A & T Education Holdings was the borrower and she guaranteed the company's obligations. In each case, Ms Liu executed the document both as sole director and secretary of her company, and personally as guarantor. In the case of the first transfer, the plaintiff was the lender. In the case of the second transfer, Mr Wang was the lender."
6. Shortly after the appellant had informed Mr Wang that she had signed the agreement relating to the loan from the respondent, Mr Wang responded by messaging: "Mr Sha will transfer the money from United States tonight. I assume the funds will reach your account within two days". A PDF version of the agreement as signed by the appellant was sent. The following day the appellant confirmed that she had received the money. Thus within a day of the respondent receiving the agreement as signed by the appellant, the amount of some $1 million covered by that agreement was transferred to an account controlled by the appellant.
7. This money was transferred from a bank account in the name of the respondent's wife, Ms Wenjing Song. It was Mr Wang who "caused" the transfer to occur. Mr Wang later caused another transfer to be made - oddly, again from Ms Song's bank account - in apparent fulfilment of the separate loan agreement he had reached with the appellant.
8. The appellant's first key argument below was that because the respondent seemingly had not signed the agreement, the respondent had not accepted the offer contained in the final version of the agreement. The primary judge held that the offer had been accepted by conduct, asking rhetorically at [79]: "What else could the transfer of funds refer to if not acceptance to be bound by the terms of the document executed by Ms Liu?". The finding on acceptance is not challenged on appeal.
9. It is the second key issue, relating to consideration, which is the focus of the notice of appeal. The appellant's primary submission below on this issue appears to have been that it was not necessary for him to establish that consideration moved from him. That argument was rejected by the primary judge. However, his Honour accepted the appellant's secondary argument that consideration had moved. His Honour's reasons on this issue were succinct: "[102] Mr Sha had a fallback submission, to the effect that Mr Sha procured the provision of the funds. Although the evidence is slight, it is unchallenged. The documents establish that funds held in a bank account in Ms Song's name were transferred to the credit of A & T Education Holdings, on account of Mr Sha. Mr Wang's unchallenged evidence is that Mr Wang caused this to occur. It may be inferred that Mr Wang had authority from the bank to cause funds to be transferred from an account in Mr Sha's wife's name, and that he did that with the authorisation of Mr Sha. It is not unusual for husbands and wives to hold separate bank accounts but nonetheless to regard them as assets of the marriage, available to be used by either party. Nor is it unusual for a husband who is engaged in business to have assets held in the name of his wife. No attempt was made to cross-examine Mr Sha or Mr Wang as to any absence of authority to do what Mr Wang said he caused to occur. [103] Although the evidence is slight, the appropriate inference is that Mr Sha authorised Mr Wang to cause money to be transferred from Mr Sha's wife's account, and in doing so, provided consideration in support of the loan agreement. The same conclusion confirms that the transfer amounted to conduct attributable to Mr Sha accepting [Ms] Liu's offer. [104] In any event, by letter of demand dated 16 January 2020, solicitors expressly stating that they acted for Mr Sha stated that the monies were provided to A & T Education Holdings on instructions from our client. There is no reason to doubt that Mr Sha's solicitors had actual authority to send that demand. It is difficult to avoid the conclusion that Mr Sha thereby ratified what Mr Wang had done the previous year, and as was said in Celthene Pty Ltd v W K J Hauliers Pty Ltd [1981] 1 NSWLR 606 at 615, even if there is a requirement that ratification take place within a reasonable time, in circumstances such as this, that requirement is satisfied. The same reasoning was applied in Commissioner of Taxation v Croft [2017] 2 Qd R 382; [2016] QSC 190 at [64]-[65]."
10. The appellant's notice of appeal contains four grounds, but the focus of argument was on the first two, as grounds 3 and 4 depended on those. Grounds 1 and 2 are as follows: "1. The Primary Judge erred in finding that Mr. Wang acted as the Respondent's agent in relation to the transfer of funds from the Respondent's wife's bank account that were the subject of the guarantee sought to be enforced by the Respondent in the proceedings below (Primary Judgment (J) at [103]). Particulars a. His Honour inferred that Mr Wang had authority from the bank to cause funds to be transferred from an account in the Respondent's wife's name and that he did that with the authorisation of the Respondent (J [102]). b. His Honour relied solely on the evidence of Mr Wang in making the inference. c. His Honour did not consider if there was evidence from the Respondent or his wife or any other evidence that supported the inference. d. There was no evidence (including evidence from the Respondent or his wife) that supported the inference made by his Honour. e. In the circumstances, his Honour erred in impermissibly making the inference as it was not supported by the evidence before his Honour. 2. The Primary Judge erred in finding that the funds transferred from the Respondent's wife's bank account were funds from the Respondent for the purposes of the guarantee he sued on (J [102]). Particulars a. His Honour held that the funds transferred from the Respondent's wife bank account ought to be regarded as funds from him by reason of it not being unusual for the separate bank accounts of husbands and wives as being available to be used by parties to a marriage or for a husband engaged in business to have assets held in his wife's name (J [102]). b. There was no evidence before his Honour permitting the finding that the Respondent's wife's account was available to be used by him or that the said account held the property or monies of the Respondent. c. Contrary to the finding his Honour made at J [102], funds in the Respondent's wife's account were also used for a personal loan made by Mr. Wang as found by his Honour (J [8]-[9], [16]-17]). d. His Honour failed to take into consideration there was no evidence from the Respondent's wife in relation to the position and use of the funds held in her bank account in making the finding at J [102]."
11. As regards ground 1, it is not strictly correct that the primary judge "relied solely on the evidence of Mr Wang in making the inference". His Honour also noted the respondent's evidence that Mr Wang "communicated with [the appellant] via WeChat on my behalf in respect of the loan agreement" (at [52]).
12. More generally, whilst it is neither necessary nor appropriate that I reach a final view on the merits of this appeal on this application for security for costs, it currently appears to me that there is a degree of unreality about the claims in the two grounds of appeal in light of the following undisputed facts: 1. The agreement which the appellant signed designated the respondent as the relevant lender. 2. Upon receipt of that signed agreement, Mr Wang messaged the appellant to say "Mr Sha will transfer the money from United States tonight". 3. The money was then transferred from the account of the respondent's wife. Counsel for the appellant conceded before me that the primary judge's statement that it was not unusual for separate bank accounts to be regarded as assets of the marriage was "something close to a truism".
13. No doubt it is a little surprising that the payment for the other loan, involving Mr Wang himself, also seemingly was made from the account of Ms Song. But it does not detract from the inferential force that this first payment, in fulfilment of a loan agreement which designated the respondent as lender, was made pursuant to the respondent's choice, fulfilled through actions of Mr Wang. It is difficult to discern any other reasonable characterisation of the events than that the payment in question was organised by Mr Wang on the respondent's behalf, and at some detriment to the respondent by way of depletion of his wife's bank account, which account was effectively conceded to be an asset of his marriage. The force of the primary judge's rhetorical question as regards acceptance, quoted above at [12], also resounds against the appellant's arguments on consideration, for it ties the transfer of funds in question to the written agreement between the two parties.
14. Counsel for the appellant sought to make something of the fact that the respondent had not given clear direct evidence on these issues, and that Ms Song had not been called to give evidence. However, he did not dispute the respondent's submission that the conduct of the case evolved significantly from what had been pleaded. Counsel for the appellant candidly and properly indicated that, so far as he could see, no submission had been made by senior counsel appearing for the appellant below that inferences of the kind discussed in Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8 and Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 should be drawn on the issues in question. The absence of such a submission suggests that it was not thought that such an inference could be justified given the way the case had developed.
15. Counsel for the appellant correctly submitted that given that neither Mr Wang nor Mr Sha had been cross-examined, this Court was likely to be in as good a position to determine the issues in dispute as the primary judge. However, my conclusions on prospects do not depend upon showing any appellate restraint in view of the advantages of a trial judge.
16. In these circumstances, I considered that the respondent had made out special circumstances on the combined bases of impecuniosity and that the two central grounds of appeal currently appear to have very weak prospects of success: cf eg Xenos v FAL Healthy Beverages Pty Ltd [2017] NSWCA 240 at [51].

Exercise of the discretion

1. The appellant raised two discretionary considerations against ordering security. First, the appellant asked the Court to infer that an order for security for costs "may result in her being unable to proceed with the appeal". The appellant provided no evidence in support of this proposition, where she bore an evidentiary onus in this regard: Brown v King at [21]. The mere fact that the judgment debt has not been paid does not establish that she does not have the resources to meet a security for costs order. The respondent also pointed to a letter sent by the appellant's solicitors on 4 August 2022 which stated that "[o]ur client is an Australian resident with resources in Australia, and she has been able to fund legal services to conduct multiple litigations to date". Even the appellant's submission was qualified: it was not to the effect that security would stultify the appeal, but that it may do so. I do not accept that the appeal would likely be stultified if the security sought by the respondent was ordered.
2. Secondly, it was submitted that there was a "proportionality factor" because the respondent is CEO of a company listed in the US, from which it should be inferred that "he has considerable financial resources at his disposal", whilst the appellant was impecunious. This submission faces a similar difficulty to that facing the first consideration. As the respondent submitted, there is no evidence before me of the financial position of either party. I would not be prepared to infer that the respondent was wealthy simply because he holds a senior position in a company of unknown size.
3. Moreover, in Northern Territory v Sangare (2019) 265 CLR 164; [2019] HCA 25 the High Court upheld an appeal from a decision of the Northern Territory Court of Appeal which had refused a costs order to a successful litigant purely on the basis that the other party was impecunious. The High Court stated at [32] (emphasis added, citation omitted): "Whether a party is rich or poor has, generally speaking, no relevant connection with the litigation. It may be said, by way of qualification to that general proposition, that a party's financial position may be relevant to the extent that it may inform the structure of a costs order. For example, impecuniosity may justify providing for the payment of costs over time in order to avoid inflicting unnecessary hardship while at the same time improving the likelihood of compliance with the order. That said, any such qualification was not invoked in the present case."
4. Obviously enough, on a security for costs application the financial position of the appellant is relevant. That does not render relevant the financial position of the respondent. The appellant's submission in effect asks that the respondent be denied security for costs on the basis that he can better afford this litigation than the appellant. The respondent is not a party to this appeal by choice. He is subject to an appeal process in which, because of the appellant's impecuniosity, he is at significant risk of being unable to recover his costs if successful on appeal. If the interests of justice otherwise indicate that security should be ordered, the respondent should not be deprived of the benefit of the rules because of his resources.
5. Given the special circumstances found above, the absence of countervailing factors, and taking account of all the circumstances, I was persuaded that security should be ordered.

Quantum

1. The respondent sought $35,000 security. This amount was supported by calculations set out in an affidavit from the respondent's solicitor, Jia Xiao. However, the calculations were as to what costs would be incurred, not what costs would be recoverable. In general it is only the latter which will be taken into account in awarding security for costs, as the security is for costs likely to be recoverable. The appellant's solicitor, Yu Chen, gave evidence that costs in his experience are commonly assessed as being 60-75% of total fees and disbursements. Applying those percentages would reduce the amount to a range of $21,000 and $26,250.
2. Further, the calculations appeared a little on the high side. For example, an hour is claimed for each of senior and junior counsel and a principal solicitor to attend a directions hearing, where there would have been no need for senior counsel. Allowing two days preparation for each of senior and junior counsel for what is a focused appeal based on very limited material, which it is accepted will take no more than half a day, also seems a little generous.
3. Applying a broad-brush approach, I considered $20,000 was an appropriate amount.

Costs

1. The respondent sought costs of his application. The appellant opposed this, pointing to her degree of success on quantum. No evidence was provided suggesting that the respondent had offered to settle the security claim for less than the $35,000 sought. He has ended up achieving four-sevenths of what was sought, thus representing only a partial degree of success. In the circumstances I considered that it was appropriate to award the respondent 60% of his costs on the motion.

Amendments 30 September 2022 - coversheet - corrected decision date 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: 30 September 2022