Min Kyu Kim & Ors v Byung Sun

Clamenz Corporate Lawyers (Defendants) File Number(s): 11/296647

Judgment 1Two Notices of Motion were made returnable before me. By the first, filed on 23 December 2003, the Defendants sought orders that (1) the Plaintiffs provide security for the Defendants' costs in such amount and such form as the Court thinks fit and for the proceedings to be stayed until that occurred; (2) the Statement of Claim be struck out; (3) the Fourth and Fifth Plaintiffs be removed as party to the proceedings; and (4) the time for service of the Defendants' evidence be extended until after the hearing of the motion. By the second motion, filed on 6 February 2012, the Plaintiffs sought orders that the Defence and Statement of Cross-Claim be struck out and (presumably in the alternative) that the Plaintiffs have leave to file and serve an Amended Defence to the Statement of Cross-Claim in the form of a draft provided to the Defendants on 25 January 2012. I will address the issues raised in the two motions in succession. Security for costs 2The first question raised by the Defendants' motion is whether the three individual Plaintiffs should be required to provide security for costs under Uniform Civil Procedure Rules 2005 (NSW) r 42.21(1) or in the Court's inherent jurisdiction in circumstances that they are not permanent residents in Australia. 3The Defendants seek to establish an entitlement to security for costs under UCPR r 42.21(1)(a) which allows the Court to order security for costs where a plaintiff is ordinarily resident outside New South Wales. The question raised by that rule is not, importantly, whether the individual plaintiffs are foreign nationals or whether they have assets in New South Wales but rather whether they are "ordinarily resident" in New South Wales. 4The concept of "ordinarily resident" was considered in Re Taylor; Ex parte Natwest Australia Bank Ltd (1992) 37 FCR 194 at 198 where Lockhart J observed that the concept "connotes a place where in the ordinary course of a person's life he regularly or customarily lives" involving "some element of permanence" as distinct from temporary or occasional residence. In Logue v Hansen Technologies Ltd [2003] FCA 81; (2003) 125 FCR 590 at [26], Weinberg J noted that the concept "depends to a significant degree upon the state of mind of the person whose residence is in question". Those cases were reviewed by White J in Corbett v Nguyen [2008] NSWSC 1265, where his Honour held that a person who had lived in Vietnam from May 2007 until November 2008 was ordinarily resident there. His Honour's reasoning suggests that ordinary residence could be established by continuous residence over a period. 5On the one hand, the three individual Plaintiffs are Korean citizens and are present in New South Wales on temporary student visas that, it appears, expire in 2012 and 2013. It appears that two of the Plaintiffs have been, at least at one point, at risk of not satisfying the course attendance and performance requirements of their respective visas. On the other hand, the First Plaintiff has lived continuously in Sydney since 30 January 2009 with the exception of a 17 day trip to Korea; the Second Plaintiff has lived continuously in Sydney since his arrival in January 2009; and the Third Plaintiff has lived continuously in Sydney since his arrival on 30 March 2008, with the exception of a one month trip to Korea. The Plaintiffs' solicitor gives evidence that each of them has informed him that they intend to remain in Australia permanently, although that does not, of course, establish that they have an entitlement to take that course. It appears that at least one purpose of the transactions that are in issue in the proceedings was potentially to qualify the three individual Plaintiffs for permanent residence in Australia. 6I am satisfied that each of the three individual Plaintiffs is, at present, ordinarily resident in New South Wales. I do not think that, if any of the Plaintiffs were to be asked the question "where do you ordinarily live?" they could reasonably respond "Korea" in circumstances that each of them has been continuously resident in New South Wales for a period of at least three years. That position may, of course, change if the Plaintiffs do not in future satisfy their visa requirements or their visas expire and are not renewed or if they choose to return to Korea, and jurisdiction for an order under UCPR r 42.21(1)(a) may then be established. However, I do not consider that jurisdiction is established now, based on a possibility or probability that the position may change in the future. The rule focuses on whether a person is presently ordinarily resident in New South Wales, not upon any risk that he or she might cease to be so in the future. 7The Defendants submitted that, even if jurisdiction under UCPR r 42.21(1)(a) was not established, the Court had inherent jurisdiction to order security for costs. However, an individual plaintiff who is ordinarily resident within the jurisdiction is generally not subject to an order for security for costs. In Green (as liquidator of Arimco Mining Pty Ltd) v CGU Insurance Ltd (2008) 67 ACSR 105; [2008] NSWCA 148 at [70], Basten JA observed that: "Nor is an individual plaintiff generally subject to an order for security for costs; although the inherent jurisdiction of the court may extend beyond the circumstances now found in the Uniform Civil Procedure Rules 2005 (NSW), r 42.21(1), the circumstances in which orders might be made against individuals are usually to be found within the exceptions to the general principle there stated. Both the general principle and the exceptions demonstrate an underlying policy that one may sue to vindicate one's own rights as an individual, so long as one does not take positive steps to avoid the potential consequence of failure, being liability for the other party's costs of the proceedings. That principle is expressly stated in para (c) of the subrule (relating to change of address) and may be seen to underlie para (b) (misstating an address with intent to deceive). Although it involves no element of deliberate avoidance, para (a) (referring to ordinary residence outside the jurisdiction) may be seen to reflect a variation on the same principle, namely that the plaintiff should be available to answer for any liability in costs without undue difficulties being imposed on the defendant in seeking to recover costs." 8I would follow the views expressed by his Honour and I can myself see no basis in policy or principle for exercising any inherent jurisdiction to require security for costs to be given by natural persons who are presently lawfully resident in New South Wales. I can again see no reason to depart from that approach merely because that position may change in the future, where a defendant has the ability to renew its application for security for costs under UCPR 4 42.21(1)(a) if and when that change occurs. 9I should add that the Defendants sought to lead hearsay evidence, through their solicitor, of a suggestion by the First Plaintiff that, if unsuccessful in the proceedings, he would return to Korea without meeting any claim for costs. I admitted that evidence only for a limited purpose under s 136 of the Evidence Act 1995 (NSW) and it is not probative of the fact that such a threat was made. The First Plaintiff led evidence, through his solicitor, contesting that evidence which was also only admitted for a limited purpose and is not probative of the contrary. I note, however, that the likelihood of the Plaintiffs taking that course may be qualified by the fact that they (or their families) have advanced in excess of $582,000 to the Defendants and would presumably be reluctant to abandon any interest in those monies or the relevant business. 10I should also add that, even if I considered that I had jurisdiction to make the orders sought in respect of the individual Plaintiffs, there would be a real question whether they should be made. I see some force in the Plaintiffs' contention that the monies which they advanced to the Defendants should be treated as assets within the jurisdiction which would be available to meet a claim for costs in any event. There has been some delay in bringing the application for security for costs, which was not brought until after the Plaintiffs had filed their evidence and the Defendants were due to file their own evidence and to give discovery, although that delay is not lengthy in time. 11In these circumstances, I do not consider that I should order security for costs as against the individual Plaintiffs and no question as to the quantum of any security for costs to be ordered against them arises. 12The Defendants seek orders for security for costs against the Fourth and Fifth Plaintiffs, if it is not successful in obtaining the order that it seeks to remove those entities as parties to the proceedings. The Court has power to order security for costs if there is reason to believe that a corporate plaintiff may be unable to pay an adverse costs order under UCPR r 42.21(1)(d) and Corporations Act 2001 (Cth) s 1335. There are factors which support such an order in the present circumstances, since the Fourth and Fifth Plaintiffs each have limited share capital; neither own real property in New South Wales; and each appears to have liabilities, primarily to directors, in excess of their assets. 13However, the individual plaintiffs are the persons behind those companies and are parties to the proceedings and liable to an order for costs in them, and any costs order made against them is likely to be joint and several, so that the Defendants would not be left to look to the corporate plaintiffs alone for recovery of their costs. This matter strongly tends against an order for security for costs in respect of the corporate plaintiffs: Fiduciary Ltd v Morningstar Research Pty Ltd (2004) 208 ALR 564; [2004] NSWSC 664 at [69]. To the extent that the policy of UCPR r 42.21(1)(d) and Corporations Act s 1335 is to require a person who conducts his or her business affairs as a corporation and would otherwise be in a position to expose the other party to the proceedings to costs without risking his own assets, to accept liability for costs, that policy seems to be satisfied where that person is already liable for costs of the proceedings as a party to them: Harpur & Ors v Ariadne Australia Ltd & Ors (No 2) (1984) 2 ACLC 536 at 356; Newtimber (Operations) Pty Ltd v Tarong Energy Corporation Ltd [2011] FCA 123 at [32]. Mr Knackstredt, who appeared for Oliver Brown contended that this principle had no operation where the individual Plaintiffs were themselves persons who should be ordered to give security for costs; however, I do not consider that such an order should be made against them for the reasons I have indicated above. 14On balance, I therefore do not consider that I should order security for costs against the Fourth and Fifth Plaintiffs in circumstances where the First, Second and Third Plaintiffs are already party to the proceedings. Application to strike out Plaintiffs' claim 15The Defendants also seek an order that the Plaintiff's Statement of Claim be struck out. UCPR r 14.28 permits the Court to order that the whole or any part of a pleading be struck out if the pleading discloses, relevantly, no reasonable cause of action or has a tendency to cause prejudice, embarrassment or delay in the proceedings or is otherwise an abuse of the process of the Court. 16Before turning to the merits of this application, I should note that its timing is somewhat unfortunate. The Statement of Claim was filed on 14 September 2011. By letter dated 11 October 2011, the Defendants' solicitors sought particulars of the Statement of Claim and extensive particulars were provided by letter dated 19 October 2011, including detail of the content of the discussions on which the Plaintiffs rely in support of their claim. It appears that a number of the matters on which the Defendants now rely to contend that the Statement of Claim is insufficiently particularised were not previously the subject of requests for particulars. A Defence and Statement of Cross-Claim were filed by the Defendants on 2 November 2011 and a Defence to the Statement of Cross-Claim was filed by the Plaintiffs on 11 November 2011. 17By directions made on 14 November 2011, Barrett J directed the Plaintiffs to serve any affidavits from lay witnesses by 21 November 2011 and the Defendants to serve any affidavits from lay witnesses and give discovery by 9 December 2011. On 12 December 2011, Barrett J declined to accede to an application by the Defendants to vacate the directions for them to file their evidence and give discovery but extended the time for the filing of that evidence and for discovery to 23 December 2011. Those directions were not complied with and, on 23 December 2011, the date on which they were due to file evidence and give discovery, the Defendants filed their motion seeking to strike out the Statement of Claim. 18The Defendants' first complaint is that the Originating Process identifies a claim for oppression under Pt 2F.1 of the Corporations Act which seeks orders in respect of capital contributions in and shares of the Fourth and Fifth Plaintiffs as well as the Third Defendant. The Defendants contend that the Plaintiffs have therefore placed themselves " in the position of seeking relief (in part) from themselves in favour of themselves ". In my view, this complaint has little merit. The Fourth and Fifth Plaintiffs bring claims for misleading and deceptive conduct under s 12DA of the Australian Securities and Investment Commission Act 2001 (Cth) (" ASIC Act ") and s 1041H of the Corporations Act and are properly joined as Plaintiffs in that capacity. Had such claims not been made, they would have properly been joined as Defendants so far as orders under Part 2F.1 of the Corporations Act are sought in respect of their affairs. In my view, the approach that the Plaintiffs have adopted reflects a pragmatic means of accommodating the nature of the relief claimed and my attention has not been drawn to any authority that indicates it is not permissible. A similarly pragmatic approach was adopted by Santow J where relief was claimed in a Statement of Claim by persons named as defendants in a derivative action in Keyrate Pty Ltd v Hamarc Pty Ltd [2001] NSWSC 491; (2001) 38 ACSR 396. 19The Defendants make the associated complaint that the Fourth and Fifth Plaintiffs are not proper Plaintiffs and the Court should order their removal as party to the proceedings under UCPR r 6.29. It appears that the Fourth and Fifth Plaintiffs contend that they are persons who have suffered loss by reason of misleading and deceptive conduct of the Defendants in contravention of s 1041H of the Corporations Act and s 12DA of the ASIC Act , and are entitled to recover compensation under s 12GF of the ASIC Act or to other orders under s 12GM of the ASIC Act and s 1325 of the Corporations Act . So far as the Fourth and Fifth Plaintiffs seek such relief, I consider they are properly joined as Plaintiffs in the proceedings and no occasion for an order removing them under UCPR r 6.29 arises. 20Mr Hewitt, who appeared for the Plaintiffs, made clear that the Fourth and Fifth Plaintiffs did not contend that they have standing to seek to relief in respect of oppression in respect of their own affairs. Accordingly, the relief sought in paragraph 23 of the Statement of Claim in respect of the Fourth and Fifth Plaintiffs should be understood as sought by the First, Second and Third Plaintiffs. That paragraph could be better pleaded but that is not a matter that warrants the removal of parties to the proceedings with otherwise proper claims. 21The Defendants also contend that the pleadings contained in the Statement of Claim extend beyond the relief sought in the Originating Process. I do not consider that the Defendants have made good that complaint. To the extent that the Statement of Claim pleads matters seeking relief in oppression, paragraphs 1 and 2 of the Originating Process seek corresponding relief. To the extent that the Statement of Claim pleads a misleading and deceptive conduct claim under s 12DA of the ASIC Act and s 1041H of the Corporations Act , paragraph 3 of the Originating Process seeks damages and paragraph 5 seeks such further or other order as the Court sees fit. 22The first basis for the strike-out application identified by the Defendants is the proposition that the Statement of Claim alleges causes of action by all of the Plaintiffs against some of them and I have dealt with this issue in paragraphs 16-18 above. The second basis for the strike-out application is that the pleadings in the Statement of Claim extend beyond the relief sought in the Originating Process and I have dealt with this issue in paragraph 21 above. I do not consider that either of these matters warrants an order striking out the Statement of Claim. 23The third basis for the strike-out application is that, the Defendants contend, the Statement of Claim fails to provide them with all of the particulars necessary for them to understand that the case they have to meet and is otherwise embarrassing. I do not consider that the Defendants have made good this complaint. It faces the immediate difficulties that the relevant particulars have not previously been sought and that the Defendants have already filed their Defence. 24In my view, the Statement of Claim sufficiently pleads the material facts on which the Plaintiffs rely in a manner which will allow the case to be conducted fairly to all parties: Gunns Ltd v Marr [2005] VSC 251 at [57]; McGuirk v University of New South Wales [2009] NSWSC 1424 at [29]. Paragraph 9 of the Statement of Claim pleads the terms of the agreement for which the Plaintiffs contend and provides particulars of the discussions that are said to have given rise to that agreement. Further particulars were provided of those discussions by the Plaintiffs' solicitor's letter dated 11 October 2011 to which I have referred above. Paragraph 14 of the Statement of Claim pleads significant capital contributions made by the individual Plaintiffs to the Companies and the Business (as defined). Paragraph 15 pleads representations alleged to have been made by the Defendants, which are again particularised. I accept that the fact that a pleading contains material factual allegations sufficient to constitute a cause of action will not necessarily prevent it being struck out, if it is otherwise unintelligible, ambiguous or so imprecise as to deprive the opposing party of proper notice of the substance of the claim: Northam v Favelle Favco Holdings Pty Ltd (NSWSC, Bryson J, 7 March 1995); Gunns Ltd v Marr above at [14]-[15]. However, I do not consider that the Plaintiffs' pleading has that character. 25The Defendants' particular complaints concern paragraphs 17-18, (21)(a), 22 and 23 of the Statement of Claim. Paragraph 17 identifies alleged breaches of the "Agreement" and "Understanding" which terms are in turn defined in paragraphs 9 and 11(a) of the Statement of Claim. In my view, the pleading in paragraph 17 of the Statement of Claim is adequate to permit the Defendants to know the case which they have to meet and it is not necessary nor would it be helpful for the Plaintiffs to seek to further link the particular breaches alleged to the particular terms and representations on which they rely. Paragraph 18 in turn identifies the aspects in which the conduct alleged in the Statement of Claim is said to have been misleading or deceptive. Paragraph 21(a) pleads that the alleged conduct constituted a misrepresentation at general law, which is sufficient to identify the legal claim which is there articulated. 26Paragraph 22 contains an unparticularised allegation that the Plaintiffs have suffered loss and damage. However, it is open to the Defendants to seek further particulars of that loss and damage if they wish to do so. Paragraph 23 of the Statement of Claim could be better pleaded and, in particular, would preferably have identified which party advances an allegation of oppression in respect of which entity, but I do not consider that this matter is sufficient to warrant striking out that paragraph or the Statement of Claim generally. Extension of time for Defendants' evidence 27The Defendants seek an extension of time for the filing of their evidence until after the hearing of the motion. Conversely, by motion filed on 6 February 2012, the Plaintiffs sought orders that the Defence dated 2 November 2011 and the Statement of Cross Claim also dated 2 November 2011 be struck out. I have outlined the directions made by Barrett J and the Defendants' non-compliance with them above. Mr Knackstredt properly concedes that the Defendants have defaulted in complying with those directions and they have apologised for the default, although seeking to explain or justify it by reference to the matters which I have identified above. 28The Defendants also draw attention to the observation of Ward J in Szanto v Bainton [2011] NSWSC 985 at [89] that: "It is hardly consistent with the statutory objectives of s 56 of the Civil Procedure Act 2005 (NSW) for the defendants to be required to plead to a statement of claim that they maintain (and that I am satisfied) is an embarrassing pleading and that should be struck out." There is substantial force in her Honour's observation, at least in the circumstance to which it was directed, where the complaints maintained by the Defendants as to the Statement of Claim were justified. The justification for non-compliance with the Court's directions is weaker where the Defendants have here failed to make good their complaints as to the pleading of the Statement of Claim. 29Having said that, there is evidence of matters which have given rise to genuine difficulty for the Defendants in completing their evidence. One of the solicitors acting for the Defendants, Mr Menon, gives evidence that it has not been possible to prepare the Defendants' evidence within the timeframe contemplated by Barrett J's orders by reason of "difficulties in understanding the Plaintiffs' Statement of Claim"; the complex and voluminous nature of the documentary evidence and oral instructions; the fact that three of five intended witnesses have been unavailable as a result of annual leave; and that the Defendants have been concerned not to incur further costs until their application for security for costs has been determined. Another solicitor acting for the defendants, Mr Spartalis, gives evidence that he has taken significant steps to prepare the Defendants' discovery and evidence; that the Third Defendant has been delayed in giving discovery because it has been "experiencing computer IT difficulties" in retrieving and locating various records of the business and also had no orderly system for management and storage of its business records when it commenced its business. Mr Spartalis also gives evidence of difficulties involved in the preparation of evidence where the first language of the First and Second Defendants is Korean and emails are written in Korean and need to be translated. Mr Spartalis gives evidence that he expects that the Defendants' six lay affidavits can be prepared and served by 12 March 2012, having regard to the volume and complexity of that evidence, the language difficulties, the fact that the Defendants are awaiting third party translation of emails and evidence from an accountant and the claimed deficiencies in the Plaintiffs' cause of action and pleadings. 30In these circumstances, I consider that it would be contrary to the overriding purpose in s 56 of the Civil Procedure Act 2005 (NSW) to strike out the Defence or Cross-Claim by reason of the failure to comply with the Court's previous directions as to the filing of evidence and discovery. The preferable course is to extend the time for the Defendants to comply with those directions on the basis that any further default, if not explained by convincing evidence, may well not be treated in that manner. Plaintiffs' application for leave to file proposed Amended Defence to Statement of Cross-Claim 31By their Notice of Motion dated 6 February 2012, the Plaintiffs also seek leave to file and serve an Amended Defence to the Statement of Cross-Claim in the form of a draft provided to the Defendants on 25 January 2012. 32The proposed Amended Defence to Cross-Claim contends that agreements pleaded in the Cross-Claim as the "BMG Agreement" and the "MTK Agreement" were subject to the Franchising Code of Conduct as set out in the schedule to the Trade Practices (Industry Codes - Franchising) Regulations 1998 (Cth) and that the Defendants failed to comply with various requirements of the Code and thereby breached s 51AD of the Trade Practices Act 1974 (Cth) and s 51AD of the Competition and Consumer Act 2010 (Cth) and engaged in unconscionable conduct under Part 2.2 of the Australian Consumer Law . The Plaintiffs contend that they are entitled to orders under s 87 of the Competition and Consumer Act 2010 and s 237 of the Australian Consumer Law refusing to enforce the provisions of the alleged BMJ Agreement and MTK Agreement or alternatively specified provisions of those agreements. 33The Defendants contend that leave should not be granted to file the Amended Defence to the Statement of Cross-Claim because it would be liable to be struck out if filed. The Defendants contend that the proposed amendments fail to plead each of the elements set out in s 51AD of the Competition and Consumer Act 2010 and ss 20-21 of the Australian Consumer Law and, in particular, fail to plead that the alleged conduct was "in trade or commerce". It would be preferable that this deficiency be remedied, although the circumstances suggest that the relevant dealings may well have had that character. 34Criticisms are again made that the pleading does not allow the Defendants to understand the case they have to meet. In my view, the pleading is sufficient to identify the material facts that are alleged, namely the failure to provide the documents which are alleged to have been required under the Franchising Code, and the Defendants should have no difficulty in pleading to that case. Complaint is also made that the amendments fail to provide necessary particulars, but it is open to the Defendants to seek such particulars as they properly require. 35A more substantive criticism of the Amended Defence to the Statement of Cross-Claim was that the orders sought in the final paragraph were not properly by way of defence. An immediate difficulty is that paragraph 19 of the draft Amended Defence to the Statement of Cross-Claim does not make clear whether the defence propounded is one of illegality, on the basis that orders could have been made under s 87 of the Competition and Consumer Act and s 237 of the Australian Consumer Law , or whether such orders are sought. 36It appears that a defence of illegality could be raised by way of defence. A pleading in a defence that particular terms of an agreement would be unlawful, by reason of a contravention of s 45 and 45D of the Trade Practices Act , was referred to without disapproval by the High Court of Australia in Carlton & United Breweries Ltd v Castlemaine Tooheys Ltd (1986) 161 CLR 543; see also Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2006] NSWCA 238; (2006) 67 NSWLR 9 at [90]. In Drabsch v Switzerland General Insurance Co Ltd (1996) 130 FLR 127, Santow J treated a plaintiff's attempt to raise issues under the Trade Practices Act by way of defence to a cross-claim as irregularly included in that defence but as capable of inclusion, with leave, in the statement of claim (at [57]-[58]). It appears that a pleading of a prohibition contained in the Trade Practices Act as a defence was considered, including by the High Court, in SST Consulting Services Pty Ltd v Rieson [2006] HCA 31; (2006) 225 CLR 516; 228 ALR 417, without the reliance by way of defence being challenged, and Basten J referred to that approach without disapproval in Bitannia Pty Ltd v Parkline Constructions Pty Ltd at [104]. On the other hand, the Plaintiffs may be unable to invoke the statutory rights given by s 87 of the Competition and Consumer Act 2010 and s 237 of the Australian Consumer Law by way of defence so as to have orders made under those sections: Bank of New Zealand v Spedley Securities Ltd (in liq) (1992) 27 NSWLR 91 at 98-99 per Kirby P; Bitannia Pty Ltd v Parkline Constructions Pty Ltd at [102]. 37I would be inclined to grant leave to file the Amended Defence to the Statement of Cross-Claim, once the matters to which I have referred in paragraphs 33. 35 and 36 above are addressed, on the basis that the question whether a defence in that form is maintainable is not so clear as to warrant a refusal of leave. However, I would also grant corresponding leave to the Plaintiffs to amend their Statement of Claim to include a corresponding claim for relief, once those matters are addressed, if they wish to take that course in order to seek to avoid further dispute as to this matter. Orders 38I direct the parties to submit short minutes of orders to give effect to this judgment, including orders as to the costs of the motion, to my Associate by 4pm on 24 February 2012, if agreement as to the form of those orders can be reached between them. If no agreement is reached, each party should submit the form of orders for which it contends and short written submissions dealing with any matters disputed between them to my Associate by that time.