Sunshine Energy Australia Pty Ltd v Youssef

Federal Court of Australia|2023-03-09|Before: Derrington J

Pursuant to s 56(4) of Federal Court of Australia Act 1976 (Cth) and rule 19.01(1)(c) of the Federal Court Rules 2011 (Cth) the proceeding be dismissed.
The applicants pay the respondents costs of the proceedings, including the costs of the first respondent's interlocutory application dated 25 January 2023. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Introduction 1 By an interlocutory application filed 25 January 2023, the first respondent to the substantive proceedings, Mr Youssef, seeks an order dismissing those proceedings on the basis that the applicants are in default of an order made by the Court on 21 December 2022 to provide security for costs. By that order, the applicants were required to pay $150,000 into Court, or provide a bank guarantee for that amount in a form acceptable to the Queensland District Registrar on or by 4pm on 24 January 2023. A second tranche of $200,000 was to be paid 3 business days after the date by which the Court orders the applicants to file and serve any affidavits of lay and/or expert witnesses in support of their proceedings. 2 As at the date of the hearing of the interlocutory application, no security has been forthcoming. It is common ground that the applicants are impecunious and their only possible method of providing security is by way of bank guarantee. 3 The substantive proceedings relate to the development of a commercial opportunity to establish a solar farm in Queensland. The applicants allege Mr Youssef used confidential information obtained while acting as a director for the first applicant to develop the same opportunity with the fourth respondent. The applicants seek damages of $66.5 million for breach of contract, breach of fiduciary duties and contraventions of the Corporations Act 2001 (Cth). The applicants' claim against the fourth respondent is entirely derivative. The parties agree that should the first respondent's interlocutory application succeed, it is appropriate that the entire proceedings be dismissed as no separate claim could be maintained against the fourth respondent. 4 In addition to written submissions filed on 2 March 2023, Mr Youssef relied on two affidavits of Mr Robert Webb sworn 25 January 2023 (January Aff-Webb) and 1 March 2023 (March Aff-Webb). He also relied on the affidavit of Mr Li affirmed 20 December 2022 (December Aff-Li). 5 Without objection, the applicants were given leave to file and read an affidavit of Mr Chi Man Li affirmed on 7 March 2023 (March Aff-Li) and relied on written submissions filed the same day. The applicants did not cavil with Mr Youssef's enunciation of the principles of law contained in his written submissions and outlined below. Rather, the applicants contend the circumstances are not such as to warrant the disposal of the proceedings at this early stage and that a further period up until 6 April 2023 should be permitted for the applicants to provide security, failing which it would be appropriate to dismiss the proceedings.

The relevant principles 6 Section 56(4) of the Federal Court of Australia Act 1976 (Cth) (FCA Act) provides: Security … (4) If security, or further security, is not given in accordance with an order under this section, the Court or a Judge may order that the proceeding or appeal be dismissed. 7 Rule 19.01(1) of the Federal Court Rules 2011 (Cth) (Rules) provides: Application for an order for security for costs (1) A respondent may apply to the Court for an order: (a) that an applicant give security for costs and for the manner, time and terms for the giving of the security; and (b) that the applicant's proceeding be stayed until security is given; and (c) that if the applicant fails to comply with the order to provide security within the time specified in the order, the proceeding be stayed or dismissed. 8 There is no doubt the Court has power under s 56(4) of the FCA Act to dismiss these proceedings for failure to provide the security for costs as ordered by the Court: Microbio Resources Inc v Betatene Ltd [1993] FCA 848. It is a broad, discretionary power: Mecrus Pty Ltd v Industrial Energy Pty Ltd [2015] FCA 103; 327 ALR 523 at [18]-[20] per Murphy J. The only limitation is that power must be exercised judicially: Bell Wholesale Co Ltd v Gates Export Corporation [1984] FCA 29; 2 FCR 1 at 3 per Sheppard, Morling and Neaves JJ. In Microbio, their Honours said at 9 - 10: The Court is careful to see that orders for security for costs do not work injustice to parties against whom such orders are made, but if those parties do not comply with the orders and give no evidence or explanation as to why they have not complied with them, they cannot be heard to complain of injustice if, after a considerable length of time, and extensions of time, the ultimate sanction of dismissal is applied. It is incumbent on parties in such circumstances to provide evidence of their position. 9 In Idoport Pty Limited v National Australia Bank Limited [2002] NSWSC 18 (upheld on appeal [2002] NSWCA 271), Einstein J identified five factors relevant to the exercise of the discretion: (1) the period that has elapsed since security was ordered; (2) the fact that the plaintiff has been on notice of the application for dismissal; (3) the seeming inability of the plaintiff to further fund the Main Proceedings; (4) the prejudice to the defendants; (5) the position of the Court. 10 These factors have been subsequently applied by this Court in Cosdean Investments Pty Ltd v Football Federation Australia Limited (No 3) [2007] FCA 766, Austcorp Project No. 20 Pty Limited v The Trust Co (PTAL) Limited, in the matter of Bellpac Pty Limited (Receivers and Managers Appointed) (in liq) [2015] FCA 850 and Manhattan (Asia) Limited v Dymocks Franchise Systems (China) Limited (No 2) [2016] FCA 1323.

The period of time that has elapsed since security was ordered 11 On the hearing of the application for security for costs, the applicants submitted they would require 28 days to provide a bank guarantee or make payment, given the intervening Christmas and New Year period. The Court granted the applicants 34 days to provide the security. 12 There is no dispute that, as at the date of this application, the security ordered by the Court is 43 days overdue. The applicants contend this delay should be viewed as a delay of no more than that, despite Mr Youssef's contention that the applicants have been on notice of his intention to apply for security of his costs since July 2022 and have therefore had eight months to organise their financial affairs. 13 The applicants contend the Court should take a similar approach to the length of delay in this case as was taken in the first instance decision in Microbio Resources Inc v Betatene Ltd [1992] FCA 503 (Microbio 1), where the date for the provision of security was extended by Olney J from 29 June to 27 August 1992 (with subsequent extensions by consent). The applicants relied further on the decisions in Jalpalm Pty Ltd v Hamilton Island Enterprises Pty Ltd & Anor [1995] FCA 162; 16 ACSR 532 (where proceedings were dismissed after an unexplained delay of over five months), Billinudgel Pastoral Co Pty Ltd v Westpac Banking Corporation & Ors [1998] FCA 278 (where Cooper J made a self-executing order to dismiss the proceedings after an unexplained delay of approximately 3 months if the security was not provided one month hence), and Cosdean (where Mansfield J made a similar order in respect of a three month extension to the time by which security was to be provided). 14 More recently, in Austcorp, Gleeson J granted the plaintiffs one further month to comply with a security of costs order that had been made eight months earlier. In Manhattan, Farrell J was satisfied it was appropriate to dismiss the proceedings in circumstances where almost two years had elapsed since the order. 15 In light of these authorities, the applicants press that the order sought by Mr Youseff is extraordinary and the Court should be loath to dismiss the proceedings in the absence of a long delay or unless there has been a long silence (Jalpalm) or there was no hope of security being provided (Billinudgel). 16 Despite the relatively short delay in the present case, there are a number of matters to be considered in the exercise of the Court's discretion under s 56(4). 17 First, the applicants have not provided any adequate explanation for the delay in meeting the security for costs order. What explanation has been provided was described by Mr Youssef as misleading. 18 In March Aff-Li, Mr Li deposed to the reasons for the delay as being: • The delay in sourcing HSBC and the delay in obtaining details for the Bank Guarantee (March Aff-Li [43(a)]); • The delay in providing information to HSBC in Hong Kong (March Aff-Li [44]); • The delay in the transfer of the file to my current lawyer (March Aff-Li [44]); • My personal travel to Hong Kong to look after my grandfather(March Aff-Li [44]); • The delay associated with Chinese New Year (March Aff-Li [44]). 19 By contrast, in December Aff-Li, Mr Li deposed to the reason for the delay as being that Mr Li was ... presently in Hong Kong on business that need to be resolved before Christmas and it has been difficult for me to finalise this Affidavit or provide instructions in relation to the matters outlined below because of my work commitments. 20 Yet a different explanation was offered in a letter sent by the applicants' then lawyers, JKR Lawyers, to Mr Youssef's lawyers on 20 January 2023 (January Aff-Webb, Annexure C): [T]he Third Applicant, Mr. Li, was hospitalised in Hong Kong prior to the Christmas period with Covid-19. Mr. Li has been released but remains at home in Hong Kong recovering from Covid-19. We are further instructed that: • To arrange the security, Mr Li and the Applicants financial controller need to attend at the Applicants financial institution and request a valuation of the Applicants asset list with such valuation to take at least 2 weeks from request; • The Applicants offices were closed over the Christmas period and did not reopen until 9 January 2023; • the Applicants financial controller was in Singapore on annual leave until 13 January 2023; • the Applicants offices and its financial institutions are once more closed from Due to Mr. Li's hospitalisation and the matters set out above, the Applicants regrettably cannot meet the deadline for the provision of first instalment of security sum for the First Respondent's costs. 21 As to these explanations, the first matter to observe is that Mr Li did not make any substantive enquiries of HSBC until 6 February 2023, more than a week after the time for the payment of the security had already lapsed. Further, that enquiry was greeted with an automatic response. When a response was received on 10 February 2023, Mr Li was told it would take 28 working days to complete his application for a bank guarantee. Despite this, Mr Li did not contact the Federal Court Registry as to the form of the guarantee until on or about 23 February 2023 (March Aff-Li, Annexure CML17). By that stage, a month had elapsed since the security was due. Counsel for the applicants pointed to that correspondence between 23 February and 1 March 2023 as evidence of the applicants' intention to run the proceedings. Nevertheless, there is still no evidence before the Court which indicates that a complete application for a bank guarantee has been made either to HSBC or any other financial institution. 22 To the extent that the applicants have explained the delay, what emerges is that Mr Li prioritised his personal and business interests over compliance with the order to provide security. 23 Secondly, as counsel for Mr Youssef submitted, all the other matters proffered by way of explanation, with the exception of the Chinese New Year, were matters within the control of Mr Li himself. As to the Chinese New Year period, Mr Li can be taken to have been aware of the logistical difficulties he might encounter in Hong Kong during that period and either did or ought to have taken this into account when instructing his solicitors that he would need 28 days to arrange security. 24 Thirdly, the Court is unable to have any confidence in Mr Li's various explanations for the delays. Each affidavit has proffered a different set of excuses such that what evidence there is must be considered wholly unreliable. 25 The applicants have not given a satisfactory explanation as to why the security for costs order has not been complied with.

Notice of the application for dismissal 26 By his interlocutory application dated 14 October 2022, Mr Youssef gave the applicants notice of his intention to apply for the dismissal of these proceedings in the orders sought: 3. Such security, as ordered by the Court, to be paid by the Applicants in the following tranches: a. one-third of the quantum ordered by the Court to be paid within twenty-eight (28) days after the pronouncement of orders by the Court requiring the Applicants to provide security for the First Respondent's costs; b. one-third of the quantum ordered by the Court to be paid within six (6) months after the pronouncement of orders by the Court requiring the Applicants to provide security for the First Respondent's costs; and c. one-third of the quantum ordered by the Court to be paid prior to twenty-eight (28) days before the commencement of the final hearing, failing which the proceedings be dismissed. (Emphasis added.) 27 The intention to apply for the dismissal of proceedings was reiterated counsel for Mr Youssef in oral submissions at the hearing of his interlocutory application on 21 December 2022 and in correspondence by Mr Youssef's solicitors to the applicants' solicitors by letter dated 19 January 2023. 28 The applicants have therefore been on notice of Mr Youssef's intention to apply for dismissal for five months and have been reminded of the dismissal application on several occasions. The applicants did not contest this position.

The seeming inability of the plaintiff to further fund the main proceedings 29 As has already been discussed, the applicants have not adduced any evidence to indicate that they have any prospect of meeting the order for security for costs. 30 It is uncontested that the first and second applicants are companies which have no assets and that they neither trade nor own real property. 31 It is uncontested that the third applicant, Mr Li, does not own real property in Australia. 32 Mr Li deposes that the first and second applicants are funded by ManOffice International Limited and ManOffice (Australia) Pty Ltd (ManOffice Companies) (December Aff-Li, [18]). The first applicant has a net position of $6,294,318.00 comprised of accumulated losses which relate to loans from Mr Li and ManOffice Companies (December Aff-Li, [20] and Annexure CML2-1). 33 Annexure CML2-1 contains a letter from ManOffice International Limited dated 2 August 2022 stating: This letter is to confirm that ManOffice International Limited will financially support Mr. Man LI and Sunshine Energy Australia to deal with the Harlin legal matter in Australia. Our total asset value is around AUD16.5million by today. 34 No evidence has been filed in support of the financial position of the ManOffice Companies. Further, Mr Youssef contends no weight should be given to the letter as, inter alia, the applicants have not adduced evidence detailing the obligations or rights of the funding arrangements. It can therefore be implied that such funding may be withdrawn without notice. 35 Regardless of the evidential deficiencies, Mr Li deposes that he does not believe the ManOffice Companies will advance any further funding (December Aff-Li, [24]). 36 There is simply no evidence that the applicants are able to fund the main proceedings.

The prejudice to the defendants 37 Mr Youssef is an individual who is facing the prospect of significant legal proceedings. He submits that he will continue to incur legal costs, even where the proceedings are stayed, albeit to a lesser degree. He points to this interlocutory application as an example of the need to incur costs, which albeit is his application, in order to progress the proceedings. Mr Youssef contends he will continue to be burdened and feel the personal strain associated with litigation: Ketteman v Hansel Properties Ltd [1987] AC 189 at [220]. 38 Mr Youssef further submitted he is prejudiced by the applicants' continued noncompliance with the court orders in that further costs are incurred caused by the disorderly conduct of the proceedings. 39 The applicants contend that there will be no prejudice to Mr Youssef in granting an extension of time to provide the security as no further costs will be incurred whilst the proceedings remain stayed. 40 Nevertheless, it is beyond doubt that for so long as the proceedings remain on foot, Mr Youssef will continue to incur legal costs; costs which he has no hope of recovering from the admittedly impecunious applicants.

The position of the Court 41 Mr Youssef contends the circumstances of this case put it in the category of cases referred to by the applicants as one where there is no real hope of the security being provided, even were the Court to make the self-executing order sought by the applicants. This is because of the applicants' failure to comply with any order of the Court made this far in the proceedings, a fact not disputed by the applicants. As detailed in Mr Youssef's written submissions at [43], those defaults include: a. On 19 July 2022, the Court ordered, inter alia: 2. By 12 August 2022, the Applicants are to file and serve on the Respondents: (a) any Amended Originating Application; and (b) a statement of claim. b. By 26 August 2022, the Applicants had not filed and served an Amended Originating Application or Statement of Claim. Accordingly, on 26 August 2022, the Court ordered, inter alia: The Applicants are to file and serve their Amended Originating Application and Statement of Claim on or before 29 August 2022. c. The Applicants did not file and serve sealed copies of an Amended Originating Application or Statement of Claim until 12 October 2022 and 31 August 2022, respectively. d. On 7 October 2022, the Court ordered, inter alia: 2. By 14 October 2022, the applicants provide a written response to the first respondent's request for particulars dated 9 September 2022. 3. By 4pm on 10 October 2022, the applicants produce the documents specified in the notice to produce dated 29 September 2022 to the fourth respondent. … 7. By 4pm on 18 November 2022, the applicants are to file and serve written submissions in respect of any strike out application. … 11. By 4pm on 2 December 2022, the applicants file and serve any lay and/or expert evidence in response to any security for costs application. … 13. By 4pm on 16 December 2022, the applicants are to file and serve written submissions in respect of any security for costs application. e. The Applicants did not provide a written response to the First Respondent's request for particulars until 19 October 2022. f. The Applicants did not produce the documents specified in the Notice to Produce dated 29 September 2022 until 19 October 2022, albeit the Applicants produced part of what was sought by the Notice to Produce on 12 October 2022, which was nevertheless still after when they were ordered to produce the documents. g. The Applicants have still not filed or served any written submissions in respect of the Fourth Respondent's Interlocutory Application for summary judgment and, in the alternative, to strike out parts of the Amended Statement of Claim. h. By 8 December 2022, the Applicants had not filed or served any lay or expert evidence in response to the October Interlocutory Application. Accordingly, on 8 December 2022, the Court made the following orders, inter alia, by consent: 1 By 4pm on 9 December 2022, the applicants file and serve any lay and/or expert evidence in response to the first respondent's security for costs application. Any evidence filed and served after that time may not be relied upon by the applicants without leave of the Court. … 3 By 4pm on 16 December 2022, the applicants are to file and serve written submissions in respect of the first respondent's security for costs application. i. On 20 December 2022, the Applicants filed and served Li, Humphries and the Applicants' Written Submissions. 42 In Microbio 1, whilst granting an extension in which to provide the security in that case, Olney J observed, at [6], that the position may have been different had …there been a history of non-compliance on the applicant's part such as to indicate an inability or unwillingness to co-operate with the Court and the other party in having the matter ready for trial within an acceptable period nor has the non-compliance yet occasioned delay, expense or other prejudice to the respondent (see Lenijamar Pty Ltd and others v AGC (Advances) Ltd [1990] FCA 520; (1990) 98 ALR 200). 43 In response to this application, Mr Li deposes (March Aff-Li, [44]): … I will do all actions to the best of my ability to ensure that no delay occurs, or if it is to occurs, is minimal in all of the circumstances so as not to cause any further disruption to the proceeding. (Error in the original.) 44 The applicants' history of non-compliance in prosecution of their claim against the respondents can only be described as a contumelious disregard of Court orders. The Court can have no confidence the applicants will comply with any further order of the Court despite Mr Li's assertion that he will act "to the best of his ability to ensure no delay occurs". 45 Further, if the proceedings are not dismissed, the Court will continue to case manage the proceedings which are not progressing with any alacrity on the part of the applicants, with orders having even been required to compel them to file a statement of claim. This is a significant drain on scarce court resources and is incompatible with the requirement of parties to act consistently with the overarching purpose of civil practice and procedure provisions: ss 37M and 37N, FCA Act.

Disposition 46 I am conscious of the care with which the discretion under s 56(4) of the FCA Act is to be exercised given the consequences for the applicants should I dismiss the proceedings. Nevertheless, taking all the circumstances into account, I am satisfied that it is appropriate to exercise the discretion to dismiss the proceedings. The applicant however submitted that no res judicata or issue estoppel would arise consequent upon the dismissal of the proceedings, nor is there any issue of the proceedings being time barred: cf Idoport Pty Ltd v National Australia Bank Ltd [2002] NSWCA 271. 47 The applicants have had sufficient time and notice to organise their financial affairs to enable them to comply with the order for security for costs. They have not done so, nor have they provided any reasonable or plausible explanation for their delay. It is pellucid that they do not have the means to fund the proceedings and their contumelious disregard of the orders of the Court demonstrate little intention of prosecuting those proceedings in accordance with the overarching purpose of civil practice and procedure provisions of this Court. I certify that the preceding forty-seven (47) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Sarah C Derrington.

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