Porter v Aalders Auctioneers and Valuers Pty Ltd and Anor

District Court of NSW|2011-08-08

Background 1Aalders Auctioneers and Valuers Pty Ltd (Aalders) operates an antique auction and valuation business. Mr Aalders, a director, holds qualifications in the decorative arts. On 23 April 2009, Mr Porter took various Chinese artefacts to Aalders and spoke to Mr Aalders. According to Mr Porter, he requested a valuation of the artefacts. According to Mr Aalders, he asked that the artefacts be sold at auction. Aalders sent a consignment order to Mr Porter, which listed the artefacts by group. In relation to each group, it gave a "pre-sale estimate" of value and a reserve price of one cent. Mr Aalders was of the opinion that the artefacts were tourist items of little value. On 19 May 2009, Mr Porter attended the Aalders premises and removed two swords from the artefacts. On 24 May 2009, a number of the artefacts were sold. On 15 June 2009, Mr Porter collected the unsold artefacts and a cheque for $50.10, being the net proceeds of sale. On 22 September 2009, Mr Porter and his solicitor attended the premises of Aalders and alleged that the artefacts should not have been sold and were worth more than $35,000. Subsequently, Mr Aalders recovered some of the artefacts that had been sold at auction. Mr Porter now asserts that the artefacts that were sold and not recovered had a combined value of almost $100,000.

The Proceedings 2On 3 November 2010, Mr Porter commenced proceedings, alleging that Aalders and Mr Aalders breached a bailment agreement and converted the artefacts. Alternatively, it is alleged that Aalders breached its duty of care in connection with the auction process. 3In a request for particulars dated 24 November 2010, Aalders enquired as to whether Mr Porter resided in Australia and, if so, as to his usual place of residence. On 26 November 2010, Mr Porter's solicitors advised that he did not currently reside in Australia, but would be an Australian resident from 2011. He was described as "an Australian resident, temporarily absent". The solicitors stated that the majority of Mr Porter's property was located in Australia. Between late 2010 and April 2011, Mr Porter swore several documents in Phuket, Thailand, but gave his address as an apartment in North Sydney. 4In a letter dated 17 December 2010, Aalders solicitors requested details of any real property owned by the Mr Porter in Australia. In that letter and in later dealings, Aalders solicitors foreshadowed a possible security for costs application. On 10 May 2011, Aalders made application for security for costs. The application was listed for 20 May 2011. 5On 19 May 2011, Mr Porter flew from Phuket, Thailand to Australia. On July 2011 he returned to Thailand for the purpose of extending his Thai business visa for 12 months (to July 2012). On July 2011, he returned to Australia.

Issues 6Rule 42.21 (1) and (2) of the Uniform Civil Procedure Rules 2005 provides : " (1) If, in any proceedings, it appears to the court on the applic ation of a defendant: (a) that a plaintiff is ordinarily resident outside New South Wales, or ... the court may order the plaintiff to give such security as the court thinks fit, in such manner as the court directs, for the defendant's costs of the proceedings and that the proceedings be stayed until the security is given. (2) Security for costs is to be given in such manner, at such time and on such terms (if any) as the court may by order direct. " 7On the application for security for costs, the issues are : (1) Has Aalders established that Mr Porter was "ordinarily resident" in Thailand? (2) If so, should the Court's discretion be exercised in favour of Aalders? (3) If so, on what terms should security for costs be ordered?

Ordinarily Resident Outside Australia 8Section 117 of the Constitution requires that rule 42.21(1)(a) be read down to mean "ordinarily resident outside Australia": Corby v Channel Seven Sydney Pty Ltd [2008] NSWSC 245 at [6]; Australian Building Construction Employees and BLF v Commonwealth Trading Bank [1976] 2 NSWLR 371 at [373G]. 9The purpose of ordering security for costs against a plaintiff who is ordinarily resident outside the jurisdiction is to ensure that a successful defendant will have a fund available within the jurisdiction against which it can enforce a judgement for costs, so that the defendant is not forced to seek recovery in a foreign jurisdiction: Re Energy Drilling Inc v Petroz NL [1989] FCA 146 at [24]. 10The onus is on a respondent to establish on the balance of probabilities that an applicant is not ordinarily resident in Australia. Ordinary residence is a question of fact. The relevant time to consider the question of residence is the time when the application is heard: Corby at [27]. When a respondent has moved between several jurisdictions, the court should enquire as to whether the respondent has "a settled purpose to reside in Australia": ibid, Logue v Hansen Technologies Ltd [2003] FCA 81 at [34]. It may be possible for a person to have two ordinary residences, one within the jurisdiction and one outside: Logue at [24]. 11Until late 2009, Mr Porter lived in an apartment in Ashfield, Sydney, which he owned. From time to time, he travelled overseas for periods of between one and four weeks. In late 2009, Mr Porter separated from his wife, sold his Ashfield unit and invested $20,000 from the proceeds of sale in a music shop/equipment hire business in Thailand. Between 23 January 2010 and 18 May 2011, except for a period of 12 days in September 2010, he resided continuously in Thailand. On 19 May 2011 (the date prior to the first return date of the application for security for costs) he returned to Australia and moved into a friend's apartment in North Sydney. Previously, he had stayed with his friend on occasions. In June 2011, Mr Porter returned to Thailand for 12 days. In July 2011, he spent two weeks in Thailand, inter alia arranging for his Thai visa to be extended to July 2012 (Affidavit, 1 August 2011) . 12Mr Porter intends to reside in Phuket, Thailand, from October 2011 to April 2012, to manage the music shop/equipment hire business during the seven-month tourist season. He has a Thai accountant who attends to the affairs of the business. There is no evidence of the extent of his income from the business. Mr Porter is not in a domestic relationship with anyone in Thailand and he has no family in that country (Affidavit, 1 August 2011) . 13Mr Porter and his former wife own an apartment in Shanghai, China. The parents of Mr Porter's former wife occupy that apartment. Mr Porter hopes to divest himself of his share of the apartment (Affidavit, 1 August 2011). Mr Porter gave affidavit evidence that the value of his assets outside Australia was approximately $78,300 (including the Shanghai real estate) and that the value of his assets within Australia was about $15,500 (primarily musical instruments and household goods). The last tax return that Mr Porter lodged in Australia was for the 2007 tax year (Affidavit, 28 June 2011, Exhibit JVP4) . 14Mr Porter has remained on the Australian electoral roll. A brother a nd sister reside interstate. Mr Porter has infrequent contact with them via a social network. In Australia, he intends to undertake employment as a musician and taxi driver. While he was in Thailand, Mr Porter maintained an Australian taxi licence. Mr Porter's band has been booked for a series of performances in September 2011. The band hopes to release an album and to secure performances to coincide with the release of the album. 15Currently, the only strong tie in Mr Porter's life is his business connection in Phuket, Thailand. There is no doubt that, between January 2010 and 18 May 2011 , he was "ordinarily resident" in Thailand. As he returned to Australia only one day before the return date of the motion, I infer that his return was largely prompted by a desire to pursue this litigation. Apart from the attraction of playing with a band, and promote the band's new album, and a view of himself as being "Australian", there is little that ties him to this jurisdiction. There is no evidence that Mr Porter has removed his belongings from storage, arranged to lease premises or accepted full-time, permanent employment in Australia . By his own admission, in the next 12 months, he plans to spend seven months in Thailand. I conclude that Mr Porter remains "ordinarily resident" in Thailand. He may be flirting with the idea of returning to Australia or maintaining two "ordinary residences", but any such idea falls well short of a "settled purpose".

Discretionary Considerations 16The power to make an order for security for costs is discretionary: Barton v Minister for Foreign Affairs (1984 ) 2 FCR 463. Where a plaintiff is " ordinarily resident " outside Australia and has limited assets within the jurisdiction, a court will be strongly inclined to order security for costs . This principle must be weighed against oth er discretionary considerations: Corby v Channel Seven Sydney Pty Ltd [2008] NSWSC 245. 17Factors relevant to the exercise of the discretion include the applicant's conduct vis-a-vis the plaintiff (including whether the application for security was made promptly), whether the applicant is able to enforce any judgment in the jurisdiction in which the plaintiff's assets are held, and a consideration of whether the plaintiff appears to have reasonable prospects of success. 18To date, Aalders has refused to give Mr Porter access to the artefacts that were sold but recovered, and has failed to agree to the employment of a joint expert. I accept the submission that Mr Porter's expert should have access to the recovered items. Aalders has now agreed to provide access. 19An application for security for costs should be made before a plaintiff has incurred substantial costs in connection with the proceedings: Avner Pty Ltd v Dimopoulos (12 February 1987, per Young J at [6]). In this case, there was no delay. In the request the particulars made on 24 November 2010, Aalders enquired as to Mr Porter's usual place of residence. In a letter of 17 December 2010, the solicitors for Aalders foreshadowed a possible security for costs application. From December 2010 until the application was filed in May 2011, there were communications between the parties in connection with a possible application. 20Australia and Thailand have no agreement for the reciprocal enforcement of judgments: Foreign Judgements Act 1991 and Schedule 2 to the Foreign Judgments Regulations 1992. As Mr Porter lacks substantial assets in Australia, the absence of such an agreement means that the only way in which Aalders could reasonably hope to recover any costs awarded in its favour is if the Court orders security for its costs. 21When deciding whether it is in the interests of justice that there be an order for security for costs, the plaintiff's prospects of success must be considered. At the hearing, it is likely that there will be at least three contentious issues: (1) Whether Mr Porter instructed Mr Aalders to auction the artefacts, or merely asked that they be valued; (2) Whether Aalders was negligent in connection with the auction process; and (3) Whether the artefacts that were sold (and not recovered) were valuable antiques (and, if so, their value) or worthless tourist souvenirs. 22The resolution of the dispute concerning the nature of the instructions that were given to Mr Aalders in April 2009 will depend upon an assessment of the credit of Mr Porter and Mr Aalders. On this application, it was neither possible nor appropriate to form a firm view on credit. However, there are some uncontested circumstances that raise serious questions about Mr Porter's credit. On 12 May 2009, Aalders emailed a consignment order to Mr Porter. The consignment note allocated presale estimates and reserve prices to the artefacts. A few days later, Mr Porter collected a hard copy of the consignment note. Following the auction, Mr Porter collected the unsold artefacts and a cheque for $50.10 without complaint. He banked the cheque immediately. It was not until September 2009 that Mr Porter complained about the fact that the items had been sold and alleged that they had been worth a significant sum. 23As to whether Aalders breached its duty of care to Mr Porter in the way in which it conducted the auction process, the evidence of Ms Ricketts, a licensed valuer, does not appear to establish such fault. 24In relation to the value of the items, prior to the auction, Mr Porter e-mailed a third party stating "we realise that (some of the artefacts) will be fake and some will not". Mr Porter did not query the pre-estimates of value all reserved prices indicated in the consignment note. Mr Porter relies upon "valuation certificates" from an unknown and possibly unidentifiable employee of the " Shanghai Central Testing Laboratory of Ministry of Geology and Minerals" who has not put on an affidavit attesting to the value of the items or linking the artefacts sold at auction with the items identified in the certificates. On the other hand, Mr Aalders, who holds qualifications in the decorative arts, assessed the artefacts to be of tourist quality. 25Counsel for Mr Porter submitted that the means of Mr Porter are such that a security for costs order would stultify his ability to further pursue the claim. Mr Porter ha s been forced to utilise his credit card to pay $22,000 of his own costs. However, Mr Porter himself was confident that, if ordered to provide security for costs in the sum of $50,000, he could raise "most of" that sum. He said that, within 1-2 months, he could obtain $10,000 from a business associate in Thailand and that, within a period of weeks, he could obtain $15-30,000 through selling opals that were in possession of his former wife. Mr Porter's assessment of the value of his assets has fluctuated and it is impossible to determine the true value of assets located in Thailand and China. I proceed on the basis that it is most unlikely that Mr Porter would have overestimated the value or availability of his overseas assets.

Terms of the Security 26The Court has a broad discretion as to the terms upon which security may be ordered. In determining the amount of security, the Court must consider the applicant's probable recoverable costs should it succeed . 27It will be necessary for Aalders to obtain independent expert evidence from a valuer/auctioneer, who will be required to give evidence at the hearing. 28The solicitors for Aalders estimate that the hearing will occupy about seven days. The solicitors for Mr Porter estimate that the hearing will occupy only one or two days. The motion itself occupied more than a day and involved only limited cross-examination of one witness, Mr Porter. At the hearing, there will be extensive cross- examination of Mr Aalders, Mr Porter and the expert/s called by each party. I estimate that the hearing will occupy a minimum of four days. 29Up to the end of June 2011, Mr Porter incurred legal costs of approximately $85,500. A partial explanation for the amount of the legal costs is that Mr Porter's solicitors have had to liaise with parties in China. However, the quantum of those costs does provide some indication of the extent of legal expenses that may be associated with the conduct of these proceedings. 30I order that Mr Porter provide $40,000 by way of security for costs, the sum of $20,000 to be paid by 15 September 2011 and the remainder by 15 October 2011. The proceedings are stayed until the security is given. 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: 16 August 2011

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