Wu v Bi [2022] VSCA 22

2 Under the agreement, 'Party B' agreed to subscribe for shares in FEL on the basis that, if the shares did not achieve a specified value by a given date, Mr Wu could be required to purchase 'the shares of Party B' at that price. At the given date, the shares had not achieved the specified value, but Mr Wu declined to purchase the shares at the specified price, on the basis that they were not held by Ms Bi.

3 Ms Bi and Zhongda brought a proceeding in the Trial Division. They were successful.[1] The judge ordered Mr Wu to pay damages in the sum of $2,706,000, together with interest of $31,705.52.

4 The focus of the dispute is the proper construction of the expressions 'Party B' and 'the shares of Party B' in the agreement. The judge found that the expression 'Party B' encompassed both Ms Bi (who executed the agreement along with Mr Wu) and Zhongda,[2] and that the expression 'shares of Party B' encompassed the shares in FEL held by Zhongda.[3]

5 Mr Wu contended at trial, and wishes to establish by way of appeal, that 'Party B' meant only Ms Bi and that 'the shares of Party B' meant only shares owned by Ms Bi. As a result, the shares held by Zhongda were not 'the shares of Party B', and he was not obliged under the agreement to purchase those shares. He also wishes to challenge a finding made by the trial judge that he was, in any event, estopped from denying that Zhongda (or Mr Bi on its behalf) could enforce the obligation to purchase the shares.

6 In that context, the trial judge found that Mr Wu suggested that Ms Bi effect the acquisition of the relevant shares in the name of a company, and to that end arranged for her to be introduced to Mr Cheng, FEL's accountant. After the introduction, Mr Cheng arranged for the incorporation of Zhongda.[4] The judge found that, before the agreement was signed, Mr Wu knew that there was a good possibility that the shares would be subscribed for in the name of a company, to be incorporated for that purpose by Mr Cheng on behalf of Ms Bi.[5]

7 Mr Wu filed an application for leave to appeal the decision of the judge of the Trial Division. The respondents made an application for security for costs pursuant to r 64.38(2) of the Supreme Court (General Civil Procedure) Rules 2015, on the basis that Mr Wu is impecunious and the proposed appeal's prospects of success are low.

8 After hearing argument in respect of the application for security, the Court made orders that Mr Wu pay security in the amount of $55,000, failing which the application for leave to appeal would be dismissed. These are our reasons for making those orders.

9 Rule 64.38(2) of the Supreme Court (General Civil Procedure) Rules 2015 provides:

A party may apply to the Court of Appeal for an order -

(a) that the applicant or appellant give security for the costs of the application or appeal, and for the manner, time and terms for giving the security;

(b) that the application or appeal be stayed until security is given; and

(c) that, if the applicant or appellant fails to comply with the order to provide security within the time specified in the order, the application or appeal be dismissed.

10 An order for security for costs of an application for leave to appeal is designed to ameliorate a risk that a successful respondent, put to the expense of defending a judgment in their favour, will be unable to recover costs against an unsuccessful applicant, being a risk which is unacceptable in all the circumstances.[7] It is therefore essential to any application for security that the 'nature and extent' of that risk be identified.[8] The party making the application for security bears the onus of establishing the matters which give rise to the risk.[9] Usually, the risk is said to arise because the applicant is impecunious.

11 Establishment of the necessary risk is not sufficient, of itself, to justify the making of an order for security. It must be shown as well that the risk is unacceptable in all the circumstances. In that regard, the power of the Court to order security for costs involves an exercise of discretion.[10] That discretion, while unconfined, is informed by the following familiar factors:[11]

(a) the prospects of success of the application for leave to appeal;[12]

(b) the degree of risk that a costs order might not be satisfied because of the impecuniosity of the applicant;

(c) whether the giving of security would be oppressive in that it would stifle a reasonably arguable claim;

(d) whether any impecuniosity of the applicant arises out of the conduct complained of by the applicant;

(e) whether there are aspects of the public interest which militate against the giving of security; and

(f) whether there are particular discretionary matters peculiar to the circumstances of the case.

12 In determining whether an applicant is impecunious, the following principles are relevant.

13 First, the onus remains on the respondent to establish the applicant's impecuniosity,[13] even where proof of an applicant's ability to satisfy a costs order lies in their own hands.[14]

14 Secondly, sometimes (but not always) an inference that the applicant is impecunious may be at least partially founded on an applicant's refusal to provide to the respondent requested evidence as to their financial position and ability to meet an adverse costs order.[15] But the fact that the applicant declines such a request does not mean that the inference must be drawn.[16] The inference may be more readily drawn where other evidence suggests the applicant's refusal to disclose is motivated by a wish to hide an insufficiency of assets. But it will be less readily drawn if there is a benign alternative explanation for the refusal to disclose, or if there is other evidence inconsistent with impecuniosity.[17]

15 Thirdly, an inference that an applicant is impecunious may also be supported by their failure to satisfy final costs orders.[18] But again, such a failure does not mean that the inference must be drawn. It will be less readily drawn if there is other evidence suggesting that impecuniosity was not the cause of the failure to pay - for example, evidence that the applicant has assets sufficient to meet their costs liability.[19]

16 Fourthly, it will typically be difficult to establish an applicant's impecuniosity where evidence discloses that the applicant owns unencumbered real property the value of which might reasonably be supposed (even absent valuation evidence) to exceed the amount of a prospective adverse costs order.[20] The position is different if the property is, as it is here, encumbered.[21]

17 As mentioned earlier, if impecuniosity has been established, it will be a significant, but not decisive, factor in an application for security of the costs of an application for leave to appeal.[22] This recognises that, in contrast to the position at trial, there has already been a determination of rights adverse to the impecunious applicant, and the respondent has already incurred trial costs. In those circumstances, a respondent should not be put to additional cost without meaningful prospects of recovery.[23]

18 On the other hand, if impecuniosity has not been established, that will ordinarily mean that the requisite unacceptable risk cannot be established.[24]

19 It is convenient first to address the question of Mr Wu's alleged impecuniosity.

20 Both parties filed affidavit evidence. The respondents relied on an affidavit sworn by their solicitor, Belle Lou, on 20 January 2022. Ms Lou stated that:

(a) Mr Wu has been served with a bankruptcy notice based on the judgment debt in the present matter and did not comply with that notice within the time limited;

(b) Mr Wu has previously deposed to having assets being shares in FEL and a property located in Box Hill;

(c) a title search of the Box Hill property discloses a mortgage in favour of ING Bank (Australia) Ltd, and three charging caveats in favour of three other corporations;

(d) a printout from the Australian Stock Exchange records that trading in shares in FEL has been suspended since August 2020;

(e) a search of the County Court online portal reveals:

_(i) a judgment against Mr Wu in favour of Yiping Guo, in the sum of $1,326,000 plus interest and costs, entered on 25 May 2020 and subsequently set aside, in a proceeding which remains on foot; and

(ii) a judgment against Mr Wu in favour of Linchi Group Pty Ltd, in the sum of $810,000 plus costs, entered on 21 February 2020._

21 Ms Lou also exhibited correspondence with Mr Wu's former solicitors in which she sought security for costs in the amount of $64,330.50. Her letter included an itemised table setting out how that amount was calculated. The response from Mr Wu's former solicitors relevantly stated:

(a) as to the caveats on the Box Hill property, one secured an amount of $120,000 not yet due, while the other caveators were a prospective financier and mortgage broker who arranged for a loan for Mr Wu that did not proceed. Mr Wu disputes those caveats; and

(b) as to the County Court proceedings, Mr Guo's proceeding claiming the sum of $1,326,000 is listed for mediation in March 2022, while the judgment in favour of Linchi Group Pty Ltd was subsequently settled and fully paid.

22 Mr Wu did not file an affidavit in response to this material. Instead, he relied on an affidavit he had affirmed on 8 November 2021 in support of an extension of time for filing and serving the application for leave to appeal, and in support of a stay of the orders made by the trial judge.

23 In that affidavit, Mr Wu deposed among other things to having started from about 16 September 2021 to encounter financial difficulties in meeting the potential costs of an appeal. He also stated that he was unable to pay the judgment debt within the time identified in the bankruptcy notice.

24 Mr Wu then set out his assets, including equity in the Box Hill property said to be valued at $396,000 (representing an asserted value of $1.25 million less the mortgage, in the sum of $854,000), and shares in FEL valued at $314,424 (based on a value of 4.9 cents per share adopted by the trial judge).

25 Mr Wu made further assertions of fact in both his written submissions and orally, which it is convenient to record while noting that they were not the subject of evidence. In particular, he made extensive submissions about his expectation that the fortunes of FEL were shortly to rebound, and about an interest he had in Next-Gen Battery Industries Pty Ltd ('Next‑Gen'), which was incorporated on 13 September 2021. However, Mr Wu accepted that he was not in a position to ascribe a value to either shareholding. Trading in FEL remains suspended for the time being, and the value of his shareholding in Next-Gen is as yet unknown.

26 Mr Wu frankly described his circumstances as revealing 'cash flow difficulties' despite being, as he asserted, 'asset rich' and in a 'strong financial position'.

27 Mr Wu made further factual assertions, which we mention below. It is convenient to turn directly to our analysis of the application itself.

28 In our opinion, the material before the Court reveals a significant risk that Mr Wu would be unable to meet a costs order in the respondents' favour if they were to succeed in upholding the judgment of the trial judge. The only asset belonging to Mr Wu to which any substantial value can be assigned is the property in Box Hill. No valuation evidence was presented in respect of that property. Mr Wu deposes to having equity in that property of some $396,000, being the estimated value of the property less the amount owing on a secured mortgage. But he accepts that there is also a caveat securing a further debt of $120,000, not yet due. While he asserts that nothing is due under either of the other caveats, because no loan proceeded, he candidly informed us from the Bar table that the caveators in those cases have refused to remove the caveats, on the basis that they were owed unspecified amounts in respect of legal costs and brokerage fees. It is highly likely, in these circumstances that, even if Mr Wu's estimate of the Box Hill property's value is accurate, his equity in the property is significantly less than $396,000.

29 Mr Wu accepted that his shareholdings in FEL and Next-Gen could not at present be ascribed any particular value. The value assigned by the trial judge to FEL shares was historical, based on its price during a period when that company was trading (albeit very thinly), and for the discrete purpose of calculating damages. There is no material upon which we could base any finding that those shares, let alone the interest in Next-Gen, are presently of any value at all. Most of the evidence and the submissions of Mr Wu in this context went to the future prospects of these ventures once certain investors become involved and difficulties caused by the present pandemic are ameliorated. But these are at best matters of opinion, as to which there is no expert evidence, and the Court cannot speculate as to them.

30 It is also plain that Mr Wu is being pursued in the County Court for a sum in excess of $1.3 million arising out of a loan or investment arrangement similar to the one which is the subject of the present case. We were told that this matter will go to trial in April if a mediation in March is unsuccessful. There is no evidence as to how Mr Wu would be able to pay any part of this claim if it were to be upheld.

31 These matters all reveal Mr Wu's financial position to be perilous. As noted, he frankly conceded in his submissions that he had cash flow difficulties. It is clear that, even if the judgment debt sought to be appealed is left out of account, the respondents have established the requisite impecuniosity.

32 The main reason Mr Wu advanced against the making of an order for security was the strong prospects said to be enjoyed by the proposed appeal. By inference, it was contended that an order for security would stifle a reasonably arguable claim.

33 However, the proposed application must succeed both on the question of construction of the contract and the estoppel argument in order for the judgment of the trial judge to be displaced. That requires showing that (a) the expressions 'Party B' and 'the shares of Party B' are unambiguous and do not encompass Zhongda and the shares held by it, and (b) Mr Wu did not induce Ms Bi to enter into the agreement on the understanding that her shares could be held by a corporate entity.

34 Without traversing the merits in any detail, it seems to us at present to be difficult to argue that 'the shares of Party B' can only mean 'the shares owned by Party B' and not, for example, 'the shares controlled by Party B'. Unless it can be established that the expressions are unambiguous, the judge's findings as to the communications about a corporate entity, engaged in before the agreement was entered into, present a real obstacle to the narrower construction.[25] Equally, those findings are a key foundation of the estoppel claim and there is no direct attack against them in the written case filed by Mr Wu. In short, the proposed appeal presents distinct challenges to Mr Wu, and its prospects of success are not so great as to make it acceptable that the respondents bear the risk associated with his impecuniosity.

35 For these reasons, we made the order for security, fixing the amount in a 'broad brush' way by reference to the respondents' estimate, reduced mainly to account for a separate hearing that had been envisaged when the estimate was made but which will not now be required.

[1] Bi v Wu [2021] VSC 447.

[6] The following explication of the principles, which are not in doubt, is drawn from Djordjevich v Rohrt [2021] VSCA 279, on which the respondents relied.

[7] Australian Dream Homes Pty Ltd v Stojanovski [2016] VSCA 38 [40] (Santamaria and McLeish JJA) ('Australian Dream Homes'); Botsman v Bolitho [2018] VSCA 111 [50] (Whelan and Niall JJA) ('Botsman').

[8] Australian Dream Homes [2016] VSCA 38 [40].

[10] See He v Huang [2017] VSCA 102 [49] (Santamaria and Beach JJA and Keogh AJA) ('He'); Bodycorp Repairers Pty Ltd v Oakley Thompson & Co Pty Ltd [No 3] [2016] VSCA 185 [19] (McLeish JA); Façade Treatment Engineering Pty Ltd (in liq) v Brookfield Multiplex Constructions Pty Ltd [2015] VSCA 169 [11] (Tate and McLeish JJA).

[11] See Timbercorp Finance Pty Ltd (in liq) v Tomes [2015] VSCA 322 [16] (McLeish JA, Santamaria JA agreeing at [40]); Australian Dream Homes [2016] VSCA 38 [38] (Santamaria and McLeish JJA); Rozenblit v Vainer [2019] VSCA 164 [45] (McLeish and Niall JJA) ('Rozenblit').

[12] Any consideration of the prospects is necessarily provisional and 'broad brush': ASEA 1 Pty Ltd v Rudyard Pty Ltd [2020] VSCA 122 [26] (Kaye and McLeish JJA); Rozenblit [2019] VSCA 164 [46].

[13] Botsman [2018] VSCA 111 [37], [50] (Whelan and Niall JJA).

[14] Australian Dream Homes [2016] VSCA 38 [42] (Santamaria and McLeish JJA).

[16] Ibid; Botsman [2018] VSCA 111 [52] (Whelan and Niall JJA).

[17] Botsman [2018] VSCA 111 [52].

[18] Maher v Commonwealth Bank of Australia [2008] VSCA 122 [109] (Dodds-Streeton JA, Redlich JA agreeing at [1]); Koshani v Gao [2019] VSCA 141 [28] (Kyrou and T Forrest JJA) ('Koshani').

[19] See, eg, Davey v Herbst [No 2] [2012] ACTCA 19 [43]-[46] (Refshauge J); Frigger v Kitay [No 9] [2016] WASC 92 [30] (Allanson J).

[20] See, eg, Botsman [2018] VSCA 111 [51] (Whelan and Niall JJA).

[21] See Bria v Wilson [2020] VSCA 338 [9]-[12] (Emerton and Sifris JJA); Koshani [2019] VSCA 141 [28] (Kyrou and T Forrest JJA).

[22] Love v Roads Corporation [2012] VSCA 269 [13] (Redlich JA and Davies AJA); Kenyon v Akeroyd [2007] VSCA 50 [13]-[14] (Redlich JA, Maxwell P agreeing at [16]). See, eg, AE Brighton Holdings Pty Ltd v UDP Holdings Pty Ltd [2020] VSCA 43 [30] (Osborn JA); Rozenblit [2019] VSCA 164 [61] (McLeish and Niall JJA); He [2017] VSCA 102 [64] (Santamaria and Beach JJA and Keogh AJA).

[23] Rozenblit [2019] VSCA 164 [57] (McLeish and Niall JJA); Jafari v 23 Developments Pty Ltd [2019] VSCA 16 [7] (Whelan and Hargrave JJA).

[24] See [11] above.

[25] The proposed appeal seeks to establish that the contractual expressions are unambiguous, such that the evidence of the communications was not admissible. We leave to one side the question whether a finding of ambiguity was essential to the reliance of the trial judge on that evidence. On one view, it was not: Bi v Wu [2021] VSC 447 [108]-[113].