Pun v Poon

Supreme Court of NSW|2019-07-10|Before: Henry J

Solicitors: Lloyd Truman Sadiq Solicitors (plaintiff) Proctor Phair Lawyers (defendant) File Number(s): 2018/00299922

Judgment

By notice of motion filed on 13 May 2019, the defendant seeks security for costs in respect of proceedings in which the plaintiff claims an interest in a residential apartment in Ultimo, Sydney (the Unit) of which the defendant is the registered proprietor.

The defendant's claims in the proceedings

The defendant has not, in her defence, clearly articulated the basis of her case. Her defence comprises mostly admissions and bare denials, including a denial that the plaintiff has any beneficial interest in the Unit. It admits the defendant signed the 2006 document but says it was conditional and not as described by the plaintiff without providing any particulars about the way in which the agreement was conditional nor how it should be properly described.
The defendant has also filed a cross-claim in the proceedings in which she contends that the $200,000 was deposited into her Advance Bank loan account without her knowledge or consent. She admits signing the 2001 document and contends it would be unconscionable for the plaintiff to rely on the 2006 document for various reasons particularised and, in any event, states that there were conditions precedent to its operation (relating to the plaintiff's 50% share of the HK loan) which have not occurred.
The cross-claim also pleads that the defendant and her husband arranged the HK loan at the plaintiff's request, and the plaintiff has refused to pay her share. It also pleads that from May 2002 to around 30 July 2018, the plaintiff has leased out the Unit and personally retained all the rental income.
The cross-claim seeks declarations in relation to the construction, validity and enforceability of the 2006 document. It also includes a claim for the rental payments received by the plaintiff and, in the event that the 2006 document is held to be valid and enforceable, declarations that the plaintiff is obliged to pay to the defendant the amount of HKD$700,000 plus interest from 3 April 2006.
The defendant's evidence has not yet been filed but is close to completion according to the defendant's solicitor, Russell Phair. At the hearing of the motion, Mr Phair raised the prospect that the English translation of the 2006 document may not be accurate. This submission, if pursued, will need to be the subject of evidence in due course.

The parties' contentions in relation to security

The defendant seeks an order for security pursuant to r 42.21(1)(a) of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR), which relevantly provides: 42.21 Security for costs (1) If, in any proceedings, it appears to the court on the application of a defendant: (a) that a plaintiff is ordinarily resident outside Australia… …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.
The plaintiff accepts there is a basis for the defendant to seek an order for security for costs as she is ordinarily resident outside the jurisdiction but submits that the Court should not make an order for security in this case. This is because the following factors, she submits, disentitle the defendant from obtaining security for costs: 1. the plaintiff's claim for an 87.4% interest in the Unit is strong; 2. the defendant is already adequately secured for her costs, as she received, and continues to have the benefit of, at least $200,000 of the plaintiff's funds; and 3. the defendant delayed in making her application for security.
The plaintiff also submits that the defendant's cross-claim is, in part, offensive as it seeks to secure a monetary judgment for rent and for the defendant's purported share of the HK loan. As a result, the plaintiff argues that the cross-claim will necessitate additional evidence relating to the rental amounts claimed by the defendant and the events surrounding the HK loan, that would not be required if the matter was determined based on the statement of claim and defence alone.
In the alternative, and as to quantum, the plaintiff submits that the Court should not order security in the amount claimed because the estimate of four days is based on a "guess" by the defendant's solicitor, includes work which has already been undertaken and which relates to the cross-claim, and does not provide for the proceedings going to mediation.

Should security be ordered?

As noted above, there is no dispute that the plaintiff is ordinarily resident outside Australia. The evidence indicates that the plaintiff lives overseas and, while visiting on a regular basis, does not ordinarily reside in Australia. The threshold question of the Court's jurisdiction to grant security under r 42.21 of the UCPR is, therefore, enlivened.
The issue to be determined is whether the factors raised by the plaintiff mean that the Court should not in the exercise of its discretion, grant security for costs in the defendant's favour.
The principles to be applied in determining whether to exercise the Court's power under r 42.21(1)(a) of the UCPR were not in dispute at the hearing. The parties accepted that the Court's discretion is broad and unfettered, although it must be exercised judicially: KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 at 196; Oshlack v Richmond River Council (1998) 193 CLR 72; Bell Wholesale Co Pty Ltd v Gates Export Corporation (No 2) (1984) 2 FCR 1; (1984) 52 ALR 176 at 178.
The list of non-exhaustive considerations that the Court may take into account in an application for security for costs are set out in r 42.21(1A) of the UCPR. They reflect the discretionary factors referred to KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 at 196-198, and include matters which are relevant to this case, being whether the application has been brought promptly, the strength and bona fides of the applicant's case, whether the application for security is oppressive and whether the security being sought is against a party who is in substance not a plaintiff.
The plaintiff contends that her prospects of success are very strong as the terms of the 2000, 2001 and 2006 documents constitute an acknowledgement by the defendant that the plaintiff contributed at least $200,000 towards the purchase of the Unit and that the plaintiff holds a 87.4% interest in the Unit.
It is an unusual case where a court is able to form any view as to the strength of a party's case on an application for security for costs, which would influence its discretion in ordering security for costs: Fiduciary Limited v Morningstar Research Pty Ltd (2004) 208 ALR 564; [2004] NSWSC 664 at [37]-[39]; Litmus Australia Pty Ltd (in liq) v Paul Brian Canty & Ors (2007) 25 ACLC 1,141; [2007] NSWSC 670 at [28].
I accept that the 2000, 2001 and 2006 documents (as currently translated) appear to provide a strong basis for the plaintiff's claimed interest in the Unit. But the defendant has, by her defence and cross-claim, put in issue the terms and effect of those documents, including the enforceability of the 2006 document.
The pleadings highlight that there will be factual disputes about the circumstances in which funds were paid into the defendant's Advance Bank loan account in 1997, as well as the events which gave rise to her signing the 2006 document. The outcome of those factual disputes will impact the plaintiff's case, as they can be expected to determine, for example, the circumstances giving rise to the payment of funds into the defendant's Advance Bank loan account; whether it was agreed that the plaintiff would have an interest in the Unit reflecting any funds she contributed; if it was agreed, whether that interest was held on trust for her by the defendant and the terms on which it was to be held; whether the 2000, 2001 and 2006 documents accurately describe what was agreed; and whether the 2006 document is enforceable.
Further, any assessment of prospects must be determined on the pleadings as they currently stand and I accept the defendant's submission that the statement of claim does not clearly disclose the nature of the plaintiff's case. The facts pleaded in the statement of claim do not make it clear whether the plaintiff is relying on an oral contract between the parties, nor does it specify the nature of the trust relationship between the plaintiff and the defendant pursuant to which it is alleged that the defendant holds the plaintiff's interest in the Unit. In oral submissions, plaintiff's counsel suggested the interest could be held pursuant to a constructive trust or a resulting trust: T:20:45-46. The state of the pleadings also raises doubt about the plaintiff's ultimate prospects.
The defendant did not take issue with the bona fides of the plaintiff's case and, prima facie, the 2000, 2001 and 2006 documents may indicate that the plaintiff's claims are strongly arguable. The defendant's evidence, however, has not yet been served. It is, therefore, not possible or appropriate to assess the merits of the factual basis of the plaintiff's case. Nor can it be concluded that the plaintiff's case for the 84.7% interest in the Unit based on those documents or the pleadings is so insuperable that ordering security for costs is not justified in this case.
Even if I was satisfied that the plaintiff's case was strong, I would consider it a neutral factor in this case. This is because there is no evidence or submission that ordering security for costs would stultify the proceedings or be likely to preclude the plaintiff from obtaining "access to justice in circumstances where [she] has a legitimate and worthwhile cause of action": Edenham Pty Ltd v Meares (No 2) [2016] WASC 302 at [16].
The plaintiff also relies on the defendant being adequately secured as, it is said, there is "no dispute at least $200,000…on any reasonable basis, is [the plaintiff's] money" and that amount exceeds the amount of security sought: T:21:20-23.
It is true that the terms of the 2001 and 2006 documents support the conclusion that the funds of at least $200,000 paid in 1997 came from the plaintiff. However, the pleadings disclose a dispute about that fact and whether the defendant paid all of the interest and part of the principal repayments on the mortgages: see [6] of the statement of claim and defence, and [18] of the cross-claim.
It is also relevant that the plaintiff only relies on the $200,000 payment in support of her claimed beneficial interest in the Unit. The plaintiff does not plead any other claim in respect of those funds nor does she seek relief for their return. If the plaintiff fails to establish that she has a beneficial interest in the Unit the defendant will retain the benefit of the funds paid into her Advance Bank loan account in 1997 and the plaintiff will not get them back. I accept the defendant's submission that, in those circumstances, it is difficult to see how the $200,000 could be characterised as the plaintiff's funds. I am also not persuaded that they should be characterised as funds available to the defendant to satisfy any future costs order made against the plaintiff.
The plaintiff did not lead any evidence of her financial position. Other than the asserted interest in the Unit, the Court must proceed on the basis that she has no assets within the jurisdiction. The lack of her financial resources in Australia together with the fact that her ordinary residence is out of the jurisdiction are matters of great weight in favour of an order for security for costs: PS Chellaram and Co Limited v China Ocean Shipping Company (1991) 102 ALR 321; [1991] HCA 36.
The plaintiff also argued that the defendant's delay tends against awarding security. The plaintiff's application was filed on 13 May 2019, more than eight months after the proceedings were commenced, and after the plaintiff served her evidence in chief on 1 May 2019.
I accept that there has been some delay on the defendant's part in making her application for security for costs. Applications for security should be made promptly and this application should have been made earlier in the year.
However, I also consider that some of the delay is explicable by the fact that, on 5 April 2019, the plaintiff's solicitor stated that her client was "currently residing in Australia" in response to the defendant's request for confirmation that the plaintiff was ordinarily resident outside Australia. At best, that answer was technically correct on that day. A proper response, that the plaintiff ordinarily resided in Macau (consistent with the plaintiff's own affidavit filed on 1 May 2019 and the position taken on this application), may have prompted an application for security prior to the plaintiff's evidence being served.
In any event, the delay in this case does not seem to have resulted in any wasted costs. There is no evidence to suggest the plaintiff would not have moved forward with her case and not prepared her evidence if the application had been made earlier. This is also not a situation in which the plaintiff was unaware that the defendant might apply for security for costs. The plaintiff has been on notice of the prospect of such an application being made since 13 February 2019, well before she served her evidence.
In my view, the delay in this case is not enough to tip the balance when considered with the other factors raised by the plaintiff (which I have found are not disentitling factors either together or by themselves) to justify not ordering security for costs in this matter. The delay can also be dealt with by limiting any order for security for costs to those to be incurred from the date of the application, rather than covering costs incurred to date: Darelvale Holdings Australia Pty Ltd v Waterjet Designs Pty Ltd [2003] FCA 863.
As to the cross-claim, I accept that it is largely defensive. Much of it could, and should, have been pleaded in the defence, particularly as paragraphs [1] - [7], [9] - [13], [15] and [18] deal with facts that go to whether the plaintiff has an interest in the Unit and the enforceability of the 2006 document. It also seeks the recovery of the plaintiff's share of the HK loan, but that seems to me to be a logical consequence of the defence which asserts that the 2006 document was conditional upon the plaintiff paying her share of that loan.
The claim for rental income in the cross-claim is, in my opinion, in a different category. It involves a monetary claim which does not arise on the plaintiff's statement of claim. It is also likely to require additional evidence of some length compared to the evidence required for the plaintiff's claim and the defendant's response. This may include, for example, evidence regarding on whose authority the Unit was rented out from May 2002, what rent was paid, to which account, on whose behalf and for whose benefit.
Nevertheless, I do not consider that the existence of an offensive claim for rent in the cross-claim means that the defendant should not be entitled to security for its costs. Rather, this factor goes to the quantum of security to be ordered, which I have dealt with below.
Based on the above, I am satisfied that it is appropriate to make an order for security in this case and the only issue to be resolved is the quantum of the security and the terms on which it is to be granted.

Amount of security and other terms

The defendant claims security for costs in the amount of $110,000, or such other amount as the Court thinks fit.
This figure is based on Mr Phair's evidence, who estimates that the defendant's recoverable costs and disbursements from 10 May 2019 to the end of the hearing would be $115,500. That estimate is based on Mr Phair estimating that the hearing will last 4 days, four to five witnesses will give evidence, an interpreter will be required at the hearing, and senior and junior counsel will be briefed: [37]-[39] of Phair affidavit.
Mr Phair's estimate is broken down by reference to the number of hours of work to be carried out by the solicitors and senior paralegal retained by the defendant in preparing for evidence and attending the hearing, senior and junior counsel's estimated fees of preparing for and attending the hearing, and other disbursements. In estimating $115,500, Mr Phair "rounds down" the calculations and then applies a 30% discount to the solicitor/senior paralegal costs and a 5% discount to counsel's fees, to reflect recovery on an ordinary party/party basis.
In the ordinary course, delay in making an application for security will result in security being ordered in respect of the future unincurred costs only and not those costs which have already been expended: Chocron v Onkoud [2018] NSWSC 1205 at [10]; Re Colorado Products Pty Ltd (in provisional liquidation) [2013] NSWSC 611 at [69].
As noted above, Mr Phair's costs estimate relates to costs that will be incurred from 10 May 2019 (just prior to the date the application for security was filed) and does not include costs incurred prior to that date. In any event, I have found that some of the delay in making the application was explicable by the response received from the plaintiff's solicitors on 5 April 2019. Even if Mr Phair's estimate covered work done after that response was received (which it does not appear to), I would not exclude those costs.
It follows that the amount of security claimed by the defendant should not be reduced because of her delay, nor should it exclude the costs incurred by the defendant in considering the evidence served by the plaintiff and the work done since that date in preparing her evidence in response, which on Mr Phair's evidence are the costs to be incurred from 10 May 2019.
The plaintiff submits that Mr Phair's assessment of a four-day hearing is excessive given the likelihood that there will be only three witnesses on the defendant's side, one of whom is an expert translator, and much of the evidence will be by way of documentary tender. I accept Mr Phair's views that the evidence in this case may take longer than usual given the delays that can be associated with witnesses who need to give evidence via an interpreter and because the relevant events span over 27 years. The hearing is likely to require more than two days (as asserted by counsel for the plaintiff).
Mr Phair's evidence does not delineate between the costs to be incurred in defending the plaintiff's claim (including by the defensive cross-claim), and the costs of pursuing the claim for rent as advanced in the cross-claim. To allow for this, I consider that some adjustment should be made to the estimate. I propose to do so by adjusting Mr Phair's estimate to allow for a three-day hearing and discounting the time allowed for preparing for evidence and for the hearing by approximately 20%.
The plaintiff also objects to the proposed order for security as the parties have not yet attended a mediation, which is a step usually ordered in proceedings before this Court. I consider this can be dealt with by ordering security to be given in two tranches, which allows for the possibility that the matter might resolve at a mediation or before trial. The first tranche will be to cover the costs up to the end of evidence and other interlocutory steps, including a possible mediation. The second tranche would cover the cost of preparing for and attending the hearing.
Taking all of those matters into account, and applying what is necessarily a broad-brush approach as opposed to a precise calculation, in my opinion, it is appropriate to order the plaintiff to pay security in the sum of $90,000, with $30,000 to be provided by way of the first tranche, and $60,000 in the second tranche.
As the defendant has succeeded in obtaining an order for security for costs and that order was contested by the plaintiff, I also consider it appropriate to order the plaintiff to pay the defendant's costs of the notice of motion.

Orders

For these reasons, I make the following orders: 1. Pursuant to r 42.21 of the Uniform Civil Procedure Rules 2005 (NSW), the plaintiff to provide security for the defendant's costs in the amount of $90,000 in the following tranches: 1. the first tranche of $30,000 within 21 days of the date of this order; and 2. the second tranche of $60,000 within 21 days after any mediation which does not resolve the proceedings or not less than 21 days before the commencement of the hearing, whichever occurs earlier, such security to be provided by way of an unconditional bank guarantee from an Australian bank in a form acceptable to the defendant, payment into Court or in such other manner as may be agreed between the parties. 1. The proceedings be stayed if security is not provided in accordance with Order 1 above. 2. Grant the defendant liberty to apply on 5 business days' notice for further security to be provided if the security provided in a particular tranche proves insufficient to cover the party/party costs incurred from 10 May 2019. 3. The plaintiff to pay the defendant's costs of the defendant's notice of motion for security for costs.

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: 17 July 2019

Conveyancing Act 1999(NSW)s 66G

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