Mark Sensing Shanghai Paper Products Co Ltd v Baldock [2010] VSC 124

Supreme Court of Victoria|2010-04-14|Before: MUKHTAR AsJ

PRACTICE AND PROCEDURE - Security for costs - Foreign corporation - No assets in Victoria - Counterclaim - Whether plaintiff's claim defensive in nature - Applicable considerations

1 By a summons filed 18 February 2010, the defendant has applied for security for costs for $75,000. That amount is referable to the defendant's estimate of its costs for a three day trial.

2 The plaintiff is incorporated in the People's Republic of China. It conducts business as a manufacturer of thermal paper products in China. In about July 2006 it engaged the defendant as an operations manager in China on terms contained in a written service agreement. That agreement was expressed to be governed by Victorian law and contained an express term that the parties would submit to the exclusive jurisdiction of Victorian courts. The agreement was terminable upon three months notice. Clause 8.7 entitled the employee to a severance package if there was to be a material reduction in responsibilities or the elimination of the position as the result of a company restructuring or reorganisation.

3 The defendant says his employment was terminated on 10 June 2009 because his position was made redundant. He says he was therefore entitled to a severance package and other entitlements. On 23 July 2009 he made a claim against the company in the Shanghai Labour Arbitration Bureau for his severance package, salary in lieu of notice and untaken annual leave and long service payments. It was due to be heard in September 2009.

4 On 31 August 2009 the plaintiff filed a generally endorsed writ in this court. On 24 September 2009 this court granted by consent an interlocutory anti-suit injunction restraining the defendant from continuing with the arbitration claim in China on the ground, I assume, of the exclusive forum clause in the service agreement. The court made ancillary orders for the filing of a statement of claim and a defence and counterclaim.

5 I shall not rehearse the pleadings in any detail. It is sufficient to say the plaintiff alleges that on 15 June 2009 it terminated the defendant's employment because of his poor performance and other breaches of the agreement. By counterclaim, the defendant alleges that his position had beforehand been made redundant and that he is entitled to a severance package plus other entitlements under Victorian statutory law for long service and annual leave. There are alternative claims, but his primary claim is for $192,284.11.

6 The dominant issue in the dispute is whether the defendant was dismissed or made redundant. If he was retrenched, then his entitlements, and the calculations of those entitlements, under the agreement and at law or ought not to be highly controversial. It seems right to me, as Mr O'Grady, counsel for the defendant submitted, that the preponderance of the evidentiary requirements and the fact finding and therefore the legal work, lie in the company's case for the multiple alleged breaches and the alleged losses flowing from those breaches. Some of those allegations are serious including an allegation that the defendant caused company officers to pay illegal commissions and caused the company to contravene the law. Those allegations are denied. The point is, by their nature, the plaintiff's allegations will dominant this litigation, both forensically and adjudicatively.

7 The uncontradicted evidence is that according to the usual searches of public information, neither the plaintiff nor its parent company have real property in Victoria. The plaintiff is not a company registered in Victoria. A credit search of the plaintiff has revealed no results. Public information from its parent company in February 2010 states that the corporate group losses in China were $1 million.

8 The evidence also shows that between 8 October 2009 and 9 February 2010 the defendant's solicitors were pressing the plaintiff's solicitors, in vain, for information about the plaintiff's financial position to ascertain whether it was in a position to meet an adverse costs order. They have also been pressing for particulars of the allegations of wrongdoing which have only recently been provided. I have examined those particulars and as a matter of impression at least, they confirm a view that the plaintiff's case is, in litigation terms, the dominant case and will be productive of the greater costs either to prove or to resist.

9 As the plaintiff is a foreign corporation and has no assets in Victoria, there was no debate on the question of whether the court's jurisdiction had been attracted or engaged to order security for costs. Nor was there debate on the relative merits of the claim and counterclaim. The question whether the defendant was retrenched or dismissed, one would think, would be uncomplicated if it was only a matter of seeing how the company communicated its decision. There may be more to it. But it is the plaintiff that will have the burden of proof of its many allegations.

10 The company resisted an order for security on the ground that the plaintiff's case was essentially defensive in character. Reliance was placed on a decision of Ormiston J in Interwest v Tricontinental Corporation Ltd[1] in which His Honour said (omitting case references and citations) -

The authorities on the effect of counterclaims and cross-claims are by no means satisfactory ... Perhaps it may be said that the authrorities support the proposition that security will only ordinarily be ordered against a party who is in substance the plaintiff, and that an order ought not be made against parties who are defending themselves and thus forced to litigate ... That would appear to be an overstatement, but the fact that a plaintiff, or counterclaimant has instituted essentially defensive proceedings, must be a significant factor in the exercise of the court's discretion.

11 His Honour referred to the English Court of Appeal decision in New Fenix[2] in which it was said by Vaughan Williams LJ that -

One must look at each case to see whether in substance the claim set up by a defendant is set up by him by way of a defence to the claim against him ... I do not think that there is any hard and fast rule on the subject. We have to consider whether, in substance, upon the facts of the particular case, the defendant's in the original action are to such an extent plaintiffs in the cross-action that they ought according to the general practice in the matter be ordered to give security for costs because they have taken up the position of plaintiffs, irrespective of defence to the original action.

12 Reference was also made by His Honour to the New South Wales decision of Sydmar[3] in which Smart J identified two propositions relevant to the present case. First, ask whether the plaintiff's proceedings are merely a defence against "self-help" measures taken by the defendants. Secondly, see whether substantially the same facts are likely to be canvassed in determining the action and cross-action.

Principally it would appear necessary to characterise the proceedings in respect of which security is sought. If they are "defensive" proceedings, either directly resisting proceedings already brought or seeking to "halt self-help procedures", it would seem that to require security would be oppressive, or at least would provide serious grounds for refusing to make an order. At the least, it is a factor to be considered in the exercise of the discretion. In particular, it is a basis for reducing the amount of security ordered to a sum related to the costs of those claims which cannot be characterised as defensive.

14 So the issue is whether the plaintiff's claims are properly characterised as defensive. If a party is genuinely seeking to resist the defendant's claim in whatever form it takes then it might be thought that to order security is manifestly unfair.[5]

15 I would not characterise the plaintiff's case as defensive, at least not completely so. As I see the facts, the plaintiff has, by restraining the Chinese arbitration, "gone on the front foot" in the litigation. True it is the defendant made the first move by claiming his severance package in the Chinese arbitral proceedings. But the plaintiff put an end to that by an anti-suit injunction and has by its initiative in effect seized control of this dispute. And I think it can now be regarded as the protagonist. Nor do I think it can be said that substantially the same facts are likely to be canvassed in determining the claim and counterclaim. As I have said, apart from the issue of whether the defendant was dismissed or retrenched, the bulk of this case is really about the plaintiff's allegations of breach of the service agreement.

16 There being no disqualifying or other factor to the exercise of an unfettered discretion, in my view an order for security of costs should be made. That leaves the question of quantum.

17 The question of quantum has to be viewed by reference to two periods of time.

18 The writ was filed on 31 August 2009. According to an affidavit of the defendant's solicitor, K.T. Blake, the defendant had already incurred costs "in connection with the Plaintiff's claim in excess of $35,000 including counsel's fees" and, as at 16 February 2010, the defendant owed $78,405.73 in legal costs and disbursements in this proceeding.[6] I would think some of those costs would be attributable to the Chinese arbitral proceedings. Deducting the $35,000 from the total figure (because it was incurred before the writ was filed) gives $43,405. Of course, that is not a party/party figure, and the court is in no position to know the components of that figure.

19 As for the second period of time, it is referable to the date of the summons (18 February 2010) and subsequent procedural orders requiring materials to be filed by 25 March 2010. The defendant relies on an advice from a costs consultant, Ms Jenny Young dated 24 March 2010, for an assessment of the defendant's party/party costs from 23 March 2010 to the end of a 3-day trial. Ms Young comes to a figure of $129,198. Before that advice, Mr Blake's affidavit had said that "I believe, a true estimate of the party/party costs which may be incurred by the Defendant in defending this proceeding, to be in the amount of $90,000"[7] which I assume is for a three day trial at least. He is the practitioner responsible for the matter on the defendant's behalf.

20 The court can only take a broad brush approach to these cases, acting on the evidence and applying its own experience. It was acknowledged by Mr O'Grady, realistically, that as in nearly all of these cases, discounting or reductions have to take place and prognostications have to be made about the expected burdens of the case. I think discounts have to be made in this case on the figures not to suggest in any way that Ms Young's advice or expertise is impeachable. I would say the following -

(a) part of Ms Young's advice included $8,092 for an application to strike out the statement of claim, but that has not occurred, and I am told will not occur, so that amount needs to be deducted;

(b) the figure of $2,375 for a short request for particulars strikes me as high (and when I say high I mean it would be susceptible to be reduced on taxation);

(d) $7,131 for further and better discovery strikes me as high;

(e) $21,292 for witness statements strikes me as high; and

(f) the order for security should not go beyond the first day of trial.

21 Ordinarily the court would be disinclined to order security for costs beyond mediation. But as mediation is due to occur soon I will, in the interests of minimising costs for another application, order security in this case up to the first day of trial especially as the plaintiff is a foreign corporation with no assets in Victoria. Moreover, I think it only fair to do so because in this proceeding there was also a cross-application by the plaintiff for security for costs on the counterclaim which was brought by summons filed 18 March 2010. The plaintiff sought $100,000. The court did not inquire into this as it is unusual for a natural person to have to give security, unless it was because the defendant was living in China. Despite that, undertakings have been given to the court by him not to dispose or further encumber a property he owns at 155 Heath Street in Port Melbourne without giving 14 days notice of an intention to do so. It is more an asset preservation order but nevertheless it seems to me that if the defendant was willing to do that, there is no injustice of requiring the plaintiff to provide security beyond mediation.

22 The defendant seeks security of $75,000. Courts undertake a "conventional" reduction: see for example Farmitalia Carlo Erba SrL v Delta West Pty Ltd.[8] Doing the best I can to discount it for some overlap between claim and counterclaim, reductions on taxation, the prospect of settlement after mediation, and confining calculations up to the first day of trial, I would discount that figure so as to require security for costs in the sum of $60,000. I will hear counsel for the plaintiff on the appropriate form of security.

[2] New Fenix Compagnie Anonyme d'Assurances de Madrid v General Accident Fire & Life Assurance Corporation Ltd [1911] 2 KB 619 at 625-6.

[3] Sydmar Pty Ltd v Statewise Developments Pty Ltd (1987) 11 ACLR 616.

[5] See also ADS Advertising Distribution Services v Central West Business Park [2005] VSC 265 (Whelan J).

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