Taiqi Investments v Mirani Lodge

PARTIES : Mirani Lodge Pty Limited (First Defendant)

Michael Cambridge (Second Defendant) FILE NUMBER(S) : SC 20061/2002 Mr Paul R Glissan (Plaintiff) COUNSEL : Mr L V Gyles (Defendants) Mr James Leung Rutland's Law Firm (Plaintiff) SOLICITORS : Ms Hilary Bates Phillips Fox (Defendants)

LOWER COURT Supreme Court JURISDICTION : LOWER COURT 20061/2002 FILE NUMBER(S) : LOWER COURT Acting Assistant Registrar Whitehead JUDICIAL OFFICER :

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

20061/2002 - TAIQI INVESTMENTS (AUST) PTY LIMITED v MIRANI LODGE PTY LIMITED & ANOR

JUDGMENT (Review decision of Registrar - security for costs) 1 MASTER: By notice of motion filed 21 March 2003, the plaintiff seeks orders firstly, that the orders of Acting Assistant Registrar Whitehead dated 24 February 2003 be discharged; secondly, the notice of motion filed by the defendant on 20 December 2002 be dismissed, with costs; thirdly, that the defendants pay the plaintiff's costs of this motion; and fifthly, if qualified, the defendant have a Certificate under the Suitors' Fund Act 1951 in respect of the costs of this motion. The plaintiff is Taiqi Investments (Aust) Pty Limited ACN 080 625 298 (Taiqi). The first defendant is Mirani Lodge Pty Limited ACN 078 537 238 (Mirani). The second defendant is Michael Cambridge. 2 There are some cases that are authority on the consideration that ought to be given on review. They are Beaufort Air-Sea Equipment Pty Ltd v Emhart Australia Pty Ltd (NSWSC unreported, Master Malpass, 18 December 1992); Brijeski v Sunbeam Corporation Ltd (NSWSC unreported Master Greenwood, 29 January 1997); Westpac Banking Corporation v Abemond Pty Ltd and Westpac Banking Corporation v Cameron (NSWSC unreported, Santow J, 3 November 1994); Modern Woodcraft Pty Ltd v Nott (NSWSC unreported, Young J, 7 March 1997); Mariala Estates Ltd v Athanasi & Ors [2001] NSWSC 1013; and Abram v National Australia Bank Ltd [2001] NSWSC 916. 3 From these decisions, the approach I should take is that I should inform myself of all the material before the Registrar at the time when he made the orders. Fresh evidence has been tendered. I should make my own decision based on the material before me after having the benefit of counsel's submissions. The further evidence the plaintiff relied upon was the affidavits of Rutland Cheung affirmed 21 march 2003, Angel Wong affirmed 25 August 2003 and Linna Ye affirmed 4 February 2003, 20 May 2003, 29 August 2003 and 10 October 2003. Ms Ye was briefly cross examined. The further evidence provides more information of financial positions of the directors of the plaintiff company. 4 The first defendant carried on a licensed real estate business t/as Ray White Commercial in George Street, Sydney. The second defendant, Michael Cambridge is a director and employee of the first defendant. It is alleged that in about January 1988, the second defendant made representations to the plaintiff in relation to a commercial unit known as Suite 2 Bridgeport, 38 Bridge Street, Sydney. It is alleged that the plaintiff acted in reliance of these representations. On 11 February 1998, the plaintiff exchanged contracts for the purchase of the property at the price of $2,550,000.00 and subsequently settled the purchase of the property at that price. It is alleged that, contrary to the representations, the value of the property was less than $2,550,000.00 at the time the contracts were exchanged. It is alleged that these representations were negligent and that the defendant has engaged in conduct which was misleading or deceptive or likely to mislead and deceive in contravention of s 52 of the Trades Practices Act 1974.

The Registrar's decision 5 On 24 February 2003, the Registrar delivered judgment and made the following orders: "The plaintiff is to provide security for costs of the defendants in the sum of $60,000 in a form acceptable to the Registrar within 28 days, otherwise the proceedings are to be stayed until such sum is paid. The plaintiff pay the defendants costs of the motion filed 20 December 2002." 6 The Registrar referred to Part 53 r 2(1)(e) SCR and s 1335 of the Corporations Act 2001 and the principles enunciated in two cases, namely Sydmar Pty Ltd v Statewise Developments Pty Ltd (1987) 11 ACLR 616 and K P Cable Investments Pty Limited v Meltglow Pty Ltd (1995) 56 FCR 189. I need not reproduce them here. As before the Registrar, it still remains the case, that there is reason to believe that the plaintiff will be unable to meet an order for payment of the defendants' costs. Thus, the Court's jurisdiction to make an order for security for costs is enlivened. Once the jurisdiction is enlivened the discretion is unfettered. I agree with the Registrar's reasoning at paragraph 17 in relation to delay. The defendants have not delayed in making the application. 7 The plaintiff has served a number of experts' reports, including an accountant and real estate agent's report. While the issues raised in the cause of action will be in dispute at trial, I am satisfied that the plaintiff's claim is made bona fide and has reasonable prospects of success. The plaintiff has 100 ordinary shares made up at $1.00 each. 8 There are two shareholders Qi Gui Duan (Madam Duan) and Linna Ye. Madam Duan own 99 of the shares. Ms Ye is the daughter of Madam Duan. The plaintiff's current registered office is at Suite 30, Level 7, 88 Albert Avenue, Chatswood. The plaintiff does not own any real estate in New South Wales. The plaintiff's liabilities were $1,910,324.00, including and "interest bearing liability" loan to the plaintiff from "Shareholder No 1" Madam Duan, in the amount of $1,910,324.00. The plaintiff's net assets were negative $1,893,612.00. As at 4 February 2003, Ms Ye deposed that the plaintiff's solvency had depended on the financial support of its principal shareholder, Madam Duan, to whom the plaintiff is presently indebted in the sum of $1,910,324.00 as revealed in the financial statements for the plaintiff for the year ending 30 June 2002. The plaintiff's present assets comprise essentially cash and cash at call totalling $15,384.33 and the cause of action the subject of these proceeding. Most of this represents loan repayable to the majority shareholder, Madam Duan. 9 On 10 July 2003 in the Intermediate People's Court at Zhongshan, Madam Duan was convicted of numerous offences including embezzlement. She was sentenced to death, deprivation of lifetime political rights pending death and confiscation of all property. She has since lodged an appeal against these convictions and sentences to the High Court of Guandong. Pending the hearing and determination of her appeal, she is being held in custody and all her property is confiscated. 10 In an interview Madam Duan gave to a reporter of a Chinese newspaper sometime prior to 1998, she stated that TaiQi Group has actively participated in development and construction in mainland China in recent years, achieving impressive results. According to the article, the groups principal is the Macao TaiQi International Investment Development Limited Company, and consists of about a dozen subsidiaries in Australia, Changhai, Zhongshan and Wuhan. Its scope of operations covers real estate development, cement products manufacture, automobile dealerships, imports and exports, advertising, tourism, food and beverage, investment advice and so on. The group had nearly 2 billion Yuan in assets. However, in Madam Duan's more recent statement of 3 July 2003, she stated that the Taiqi Group had been developing very well. However, after her involvement in the criminal charge, the entire operating projects were suspended or terminated, which caused a huge economic loss. The whole company operation is stopped and it has no assets at all. 11 Ms Ye in her affidavit dated 10 October 2003, deposed that the plaintiff is not a subsidiary of any other company in Australia or elsewhere. Ms Ye's statement of 10 November 2002 is not consistent with the plaintiff being part of a group of companies. When cross examined before the Registrar, she admitted that the plaintiff is one of a large group of companies which are involved in different types of activities as referred to in the newspaper article. Taiqi Towers in China is a very substantial building of at least 20 storeys. 12 Ms Ye in her affidavit dated 29 August 2003, gave details of her income and expenses. She is currently employed by Drysan Pty Ltd trading as Ray White Kensington as a salesperson earning approximately $550.00 per week after tax. She stated that she fully expends her income on rent and day to day living expenses and is unable to provide any security for costs in these proceedings. Her assets are as follows: Assets (apart from clothing and personal effects of no particular value) Cash in Bank $ 1,097.41 Jewellery (approximately) $ 1,000.00 Toyota Camry 1998 (approximately) $15,000.00 Furniture (approximately) $ 2,000.00

Liabilities Credit Card Debts ($6,924.85)

Liabilities ($6,924.85) $12,172.56

13 In the hearing before the Registrar, Ms Ye also gave evidence that the source of the $15,000.00 that the company had paid out in the last few weeks came from her personal account (t 22.55). Ms Ye has provided a schedule of the plaintiff's legal expenses which have been expended. She has also provided a copy of her tax return and of the plaintiff's bank accounts which show the current balance in the plaintiff's Commonwealth Bank account from 3 September 2003 to 2 October 2003 as $5,541.46 and in the plaintiff's HSBC Bank of Australia Limited account from 15 August 2003 to 15 September 2002 as $542.69. 14 The defendants submitted that there is no evidence that Ms Ye has sought to borrow the money which is required to be paid. In that regard, the company itself has over $6,000.00 and Ms Ye has a car worth $15,000.00. If those assets were used, that means that she would need to find an additional $40,000.00. Ms Ye gave evidence that as a salesperson in a real estate agency she needs the car for her work. She pays rent and has credit card debts. It is my view that it is unreasonable for Ms Ye to be obliged to borrow funds, nor is it likely that her application for finance would be successful given her financial situation. The defendant also submitted that there were and are other factors not referred to by the Registrar which supports the making of the order. Firstly, Madam Duan is the primary creditor, shareholder and ultimate beneficiary of the case, has by order of a Court in China forfeited her belongings to the government (possibly including the shares) and any monies by her will have to be paid to a company in China. That company (or the Chinese Government) should be funding the order if it stands to benefit from it. Secondly, according to the defendant, the prospects of the case succeeding are in any event in real doubt given the plaintiff's primary witness is in goal in China and has been sentenced to death in connection with embezzlement charges such conviction already having been the subject of an unsuccessful appeal. Ms Ye was present when some of the representations were made. 15 The additional evidence provided by the directors of the plaintiff show that they do not have the funds from which to provide security for costs, nor are the directors in a position to offer a personal undertaking to be liable for costs. This evidence was not put before the Registrar. The plaintiff will frustrated from pursuing its case should security be ordered. In the light of this additional evidence, it is my view that in the exercise of my discretion, I should not make an order that the plaintiff provide security for costs. It was due to this evidence that the Registrar's decision is set aside and in these circumstances, the plaintiff should still be responsible for the costs of the application before the Registrar. The order of the Registrar that the plaintiff provide security for costs of the defendants in the sum of $60,000.00 in the form acceptable to the Registrar within 28 days, otherwise the proceedings are to be stayed until such sum is paid, is set aside. The defendants are to pay the plaintiff's costs of the review. 16 The Court orders:

(1) The order of the Registrar that the plaintiff provide security for costs of the defendants in the sum of $60,000.00 in the form acceptable to the Registrar within 28 days, otherwise the proceedings are to be stayed until such sum is paid, is set aside.

(2) The plaintiff is to pay the defendants' costs of the application before the Registrar.

(3) The defendants are to pay the plaintiff's costs of the review.

(4) A Status Conference is to be allocated. Court to notify the parties of the date. **********

Last Modified: 10/30/2003 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.