Xinfeng Australia International Investment Pty Ltd v GR Capital Group Pty Ltd

Evidence on the judgment creditors' security for costs application

1. On the security application, the judgment creditors relied upon the affidavits of Mr Laing Ying affirmed 4 October 2019 and 14 October 2019 respectively. Mr Ying is the solicitor who has had carriage of the proceedings for the judgment creditors from their commencement, including their settlement in October 2018. It is noted that Mr Ying was not required for cross-examination and accordingly the judgment creditors submit that his account of the procedural history of the matter (summarised in the judgment creditors' "Procedural Chronology re Wensheng Liu" document) may be conveniently adopted by the court. The judgment debtors relied upon affidavits affirmed by Mr Liu and Mr Khoury, each of whom was cross-examined (over the objection of Senior Counsel now appearing for the judgment debtors) in the course of this hearing.

Judgment creditors' submissions

1. The judgment creditors invoke the inherent jurisdiction of the court and the statutory power to order security for costs in what they maintain are "the highly unusual and unsatisfactory circumstances" of the judgment debtors' set aside motion.
2. The judgment creditors say that the question of Chinese Government permission for a transfer of funds from China to Australia was one of many issues raised by the judgment debtors in the proceedings last year; and say that the judgment debtors also claimed, in a number of (what are said to be inconsistent) ways, that they ought not to be fixed with liability under the executed security documents. (The judgment debtors cavil with this description of the pleadings but nothing relevantly turns on this at this stage.)
3. The judgment creditors emphasise that the matter had been fixed (on 5 October 2018) for hearing on an expedited basis on all issues (save for certain issues on the cross-claim) beginning 18 October 2018 with an estimate of ten days; a listing which they say entailed considerable disruption to the court (which it certainly did) and imposed considerable additional costs on the judgment creditors, in circumstances where Mr Liu had asserted that the builder (Mr Uy's company, Gencorp Pty Ltd) would stop work on the development and the registered mortgagee might take enforcement action. It is said that part of Mr Liu's case involved asserting the authenticity of a document that he asserted was signed by Mr Yuqing Liu but which Mr Yuqing Liu had sworn was a forgery; and that Mr Liu had been given notice to produce the original of those documents on the morning of the trial.
4. By the time the judgment debtors consented (on the eve of the trial) to judgment against them for $10 million principal plus interest plus costs on an indemnity basis, the judgment creditors say that they had fully prepared their case for hearing beginning the following day (including serving five affidavits in reply comprising three folders of material, preparing and serving objections to the judgment debtors' voluminous evidence (in accordance with the orders made on 5 October 2018) and providing the court with a chronology and dramatis personae); and Senior and Junior Counsel had been retained to appear and were fully prepared to open the case the following day. It is said that the affidavit material had been prepared at great haste and expense; and required the judgment creditors' solicitors to fly to China to interview witnesses; and that many volumes of documents needed to be urgently translated to and from Mandarin for that purpose.
5. The judgment creditors complain that the judgment debtors gave no indication that they were prepared to compromise the litigation until the day before the October 2018 trial commenced; and that they offered then (and now) no explanation for the capitulation on the morning of the October 2018 trial. It is said that, in the week or so before the October 2018 trial, a lengthy application further to amend the pleadings had been served, and five subpoenas to produce and two subpoenas to give evidence had been issued (without prior notification to the judgment creditors or the court); and three notices to produce had been served on the judgment creditors.
6. The Consent Orders were entered forthwith. The judgment creditors say that their costs of the proceedings to that date were approximately $640,000 (which costs have been paid to the legal advisers).
7. Mr Ying has deposed that the judgment debtors have not paid any part of the $10 million judgment debt or any amount towards those costs. (The judgment debtors cavil with this and point to a payment of $1.4 million, which the judgment creditors accept was made on 21 November 2018, to which I refer in more detail in due course. The characterisation of that payment is hotly disputed.)
8. On 18 October 2018, the day of entry of the Consent Orders, the directors of GR Capital and One Capital (who included Mr Liu) resolved to appoint Administrators.
9. On 18 February 2019, GR Capital and One Capital each entered into a Deed of Company Arrangement (DOCA), the effect of which was to revert control of the companies to the directors without any payment to creditors. Clauses 9.3 and 9.4 of the respective DOCAs provided that they were not binding on Everest Private (Everest) (the registered first mortgagee) or Xinfeng, as secured creditors.
10. The DOCAs executed by Mr Liu acknowledged that Xinfeng may realise and deal with its security interest, namely the mortgage and general security deed.
11. In June 2019, Everest appointed receivers and managers to GR Capital.
12. On 2 September 2019, the judgment debtors filed the set aside motion, in support of which, as adverted to above, the judgment debtors have served fifteen affidavits and one expert report, comprising numerous A4 folders (that material comprising virtually the whole of the evidence which was sought to be relied upon at the October 2018 trial, together with new expert evidence and evidence from the judgment debtors' now solicitor). The judgment debtors have also served electronic copies of further translated material apparently relied upon (but not, the judgment creditors complain, paper copies of that material).
13. The judgment creditors complain that the material so served by the judgment debtors: gives no explanation as to why they had capitulated to the Consent Orders in October 2018; gives no explanation as to why the DOCAs acknowledged Xinfeng's security interest which they now seek to set aside; seeks to rely on new expert evidence concerning the legality of funds being transmitted from China when this was a live issue in the proceedings when settled; and does not explain why the judgment debtors should be entitled to run the entire factual case on which they capitulated at the October 2018 trial should the Consent Orders be set aside.
14. The set aside motion was accompanied by an affidavit of Mr Liu's solicitor, which annexes what is said to be a previously unseen document (which Mr Liu himself did not seek to prove and about which he did not provide any evidence), the purported execution of which by Mr Yuqing Liu is denied and will here be contested. Insofar as Mr Liu's position is that he signed that document, it is submitted that this document appears to evidence that Mr Liu and Mr Uy were party to a conspiracy to defraud the Commonwealth of Australia, a conspiracy dishonestly to influence a public official of the Commonwealth in the execution of their duties, and an attempt to deceive the Government of the Peoples Republic of China. (Mr Liu, cross-examined as to this document at the hearing of the present application, admitted that it was his signature on the document but does not agree that he had a conversation in 2016 with Mr Uy in which any concern as to the legality of the transaction was acknowledged; and he denies any illegality.)
15. Insofar as the judgment debtors now seek to rely on all of the evidence at the abandoned or compromised October 2018 trial on the set aside motion, it is said that this will require a substantial number of the issues which the judgment debtors abandoned with their capitulation on the morning of the 2018 October trial now to be canvassed; and that this "deliberate and unexplained course" will of itself mean that the set aside motion takes days to determine.
16. In that regard, the judgment creditors estimate the hearing of the set aside motion will now take four hearing days. It is said that the new lay and evidence served in respect of the motion apparently seeks to establish that after Mr Liu received the $10 million loan into his own account in China, he transferred it in a manner that was contrary to the laws of China. It is said that no explanation (and no legal principle) has been advanced to explain how Mr Liu's own putative criminal conduct under Chinese Law could be a reason to set aside the Consent Orders and that, in all the circumstances, the set aside motion "must be regarded as at least bordering on hopeless". The judgment creditors say that the court has entered a final judgment by consent and (save for the question of the quantification of interest, which was specifically reserved) at first instance the court is now functus officio in respect of the original causes of action, which have merged into judgment.
17. Reference is made to the circumstances in which a court will set aside consent orders in the exercise of its inherent jurisdiction (as explained in Owners Strata Plan No 57164 v Yau (2017) 96 NSWLR 587; [2017] NSWCA 341 (Yau) (Beazley P, as Her Excellency then was, Leeming JA and Emmett AJA agreeing; from which decision special leave was refused: Owners Strata Plan Number 57164 v Yau [2018] HCASL 101). In summary, it is noted that: the starting point is the well-established principle that an order once regularly made and entered is beyond recall (Bailey v Marinoff (1971) 125 CLR 529; [1971] HCA 49); and the question whether a compromise is to be set aside depends upon the existence of a ground which would suffice to render a simple contract void or voidable or to entitle the party to equitable relief against it, grounds for example such as illegality, misrepresentation, non-disclosure of a material fact where disclosure is required, duress, mistake, undue influence, abuse of confidence or the like (Harvey v Phillips (1956) 95 CLR 235; [1956] HCA 27). It is said that the judgment debtors put forward no evidence of any such matters.
18. The judgment creditors maintain that the evidence establishes that each of the judgment debtors is insolvent and would be unable to pay the costs of the judgment creditors if ordered to do so; noting that, on Mr Liu's evidence, One Capital has no funds; and that GR Capital has been in administration, under a DOCA, and either it or its property is now under the contract of a receiver and manager. It is noted that the administrators of the corporate judgment debtors found that each of them was "clearly insolvent" and that liquidation "appeared to be the only viable outcome"; and that, since the administration, a receiver has been appointed to the company and/or property of GR Capital and a further $15 million has been loaned by Everest to complete the development of the Hurstville Property (which is not yet complete).
19. The judgment creditors say that the administrators found no evidence that Mr Liu had any funds; noting that Mr Liu refused to provide a personal statement of assets and liabilities to the administrators, who have reported that matter to the Australian Securities and Investments Commission. It is also noted that, since the Consent Orders were made, Mr Liu has been sued by at least two other plaintiffs in this Court: Mr Jianhua Yan (in matter 2019/00082170) and Mr Ruifa Wang (matter 2018/375643) (the existence of these other claims being admitted by Mr Liu in cross-examination).
20. As to the three aspects to this current security application - a conventional security for costs application; and applications for security for the past costs (the subject of the Consent Orders already made for indemnity costs) and for the judgment debt itself, the judgment creditors submit as follows.
21. It is submitted that there is jurisdiction to order security in both the Court's inherent jurisdiction and, so far as the corporate judgment debtors are concerned, under s 1335 of the Corporations Act 2001 (Cth) (Corporations Act). In that regard, it is submitted that the judgment debtors are the moving parties (in substance they are plaintiffs) seeking to overturn those orders (referring to Magafas v Carantinos [2009] NSWSC 1124 at [11], [12] and [22] per Bergin CJ in Eq).
22. So far as the third judgment debtor (Mr Liu) is concerned, it is submitted that there is unfettered inherent jurisdiction to order security, as confirmed by Holland J at first instance in Rajski v Computer Manufacture & Design Pty Ltd [1982] 2 NSWLR 443 (Rajski) at 447F and the Court of Appeal in Rajski v Computer Manufacture & Design Pty Ltd [1983] 2 NSWLR 122 at 128B. Reference is made to the observation by Holland J (at 452A) that exceptional circumstances are "the very thing" to which "an inherent jurisdiction to regulate procedure and prevent abuse of the process of the court is able to adjust".
23. The judgment creditors further seek that, as a condition of the judgment debtors having their set aside motion heard, the judgment debtors pay into court the costs incurred by the judgment creditors which are the subject of the indemnity costs order made when Mr Liu and his companies abandoned all defences and counter-claims by their capitulation on the morning of the October 2018 trial. Reference is made to Zisti V Bartter Enterprises Pty Ltd [2013] NSWCA 146 ([66]-[68]) where the Court of Appeal held that this Court has the power to require security for past costs (which, for example, may be exercised against a party seeking to amend).
24. The judgment creditors also seek that, as a condition of having their set aside motion heard, the judgment debtors pay into Court the $10 million judgment debt. In that regard, the judgment creditors say that there are two well-established powers which are directly analogous: first, where payment into court is the price of a stay of judgment, or second where it is the price of an injunction to restrain the exercise of a power of sale, as in Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161; [1972] HCA 74 (Inglis), noting that Mr Liu admits he received the $10 million and that he abandoned the allegations challenging the mortgage last year.
25. The judgment creditors say that, in circumstances where they have a money judgment and a declaration that the judgment debt is secured by the security documents, the judgment debtors are in default and the judgment creditors' powers are exercisable; and that setting aside the Consent Orders would have the same effect as a stay or injunction.
26. The judgment creditors accept that a condition requiring payment in of the judgment debt might not be imposed, unless the court were otherwise minded to grant some relief on the set aside motion; but say they have brought this application at this stage so as not to be criticised for prejudicing the judgment debtors by delaying in seeking such a condition.
27. As to the inability of the judgment debtors to meet a costs order, it is submitted that their financial position is clearly hopeless (pointing to the fact that there has been a judgment debt for $10 million against all of them which has been unpaid for a year as sufficient of itself to ground an inference of an inability to pay). Furthermore, they point to the following matters: that One Capital has no funds according to Mr Liu (referring to Mr Liu's affidavit sworn 18 October 2019 at [12]); that GR Capital was in administration and is now under a holding DOCA; and that both GR Capital and Mr Liu have debts to Everest and Mr Uy, as well as contingent debts to Messrs Yan and Wang (each the subject of other proceedings in this Court) and noting that there are additional caveats on the titles to the other properties about which Mr Liu gives evidence.
28. As to the discretionary factors relevant on a security for costs application, it is submitted that these favour an award of security.
29. First, the judgment creditors say that the set aside motion has been advanced in a deliberate, oppressive and misleading way for which no explanation is offered in the evidence. It is accepted that, if there were a legitimate illegality defence, a plausible assertion of mistake in relation to it, and established knowledge on the part of the judgment creditors which might infect them in a relevant way with that mistake, then the court might, in its discretion, set aside the Consent Orders, but the judgment creditors submit that that should be conditional on the judgment debtors being able to advance only that new defence. It is further submitted that there could be no basis for the setting aside of the Consent Orders which reflected a voluntary capitulation (with the advice of Senior Counsel), merely to let judgment debtors run the compromised defences afresh, when those defences were not dependent on illegality, and no mistake concerning those defences has been alleged. It is submitted that, to do so, would be inconsistent with well-established principles that orders made and entered are beyond recall, and that controversies, once resolved, are not to be reopened (referring to Leeming JA's judgment in Yau).
30. It is noted that the judgment debtors have now served for the hearing of their set aside motion all of the evidence they served for the October 2018 trial "and quite some more" and it is said that if all of that evidence is to be received, together with the additional evidence (noting the contentious conversations alleged regarding foreign transfers), then the hearing of the set aside motion will take four days.
31. Complaint is made as to the successive indications by the judgment debtors as to the evidence on which they intended to rely on their motion (first indicating their intention to set aside the Consent Orders without putting a single document before the court; two weeks later serving their motion supported only by the nine page affidavit sworn by Mr Khoury; and, since then, having have served evidence or indicated that there would be reliance on other evidence on numerous separate occasions.
32. As to the complaint by the judgment debtors of delay in the making of the present application, it is noted that the application for security for costs was immediately foreshadowed when, on 8 October 2019 the judgment debtors notified the full extent of their evidence (which Mr Khoury deposed would occupy approximately ten A4 folders (double-sided)); and that Mr Khoury also deposed that day, for the first time, that contrary to the position earlier adopted by Senior Counsel before this Court (and on which basis the motion had been listed for hearing), they would now rely on the "substantial evidence" prepared for the final hearing on 18 October 2019.
33. In relation to the prospects of success, reference is made to Dimitrovski v Australian Executor Trustees Ltd [2013] NSWSC 337 where the Court stated (at [3]): The language of Rule 36.15 focuses on the steps pursuant to which the judgment or order was 'given' or 'entered' or 'made'. It does not direct attention to the underlying merits of the position of the party against whom the decision was made. The rule is concerned with irregularity in the process by which the judgment was obtained, not with the correctness of the decision. It is certainly not concerned with whether there was an available defence that might have been relied upon at the time the judgment was given or the order was made. See Perpetual Trustees Australia Ltd v Heperu Pty Ltd [No 2] [2009] NSWCA 387 at [16]; Avery v Saree Holdings Ltd [2012] NSWSC 463 at [100] and [103].
34. The judgment creditors say that the judgment debtors do not point to any irregularity in the process by which the judgment was obtained (and, for that reason alone, that their set aside motion is both hopeless and an abuse of process). In addition, the judgment creditors say that there are poor prospects of success on the evidence sought to be adduced, for the reasons that: the mortgage document was between Australian companies providing a loan in Australian dollars in Australia for an Australian development, with Australian land as security; it is submitted that nothing in it contemplated, much less compelled, illegality; that Mr Liu's own evidence is that he received the money into his Chinese bank account; that his account is that he met a Ms Sun (the "middle lady") in the Westin Hotel Beijing who said she could get money out of China via an entity referred to as KVB and that Mr Liu paid those moneys to KVB in China; and there is no evidence that Chinese law was broken.
35. It is said that KVB could have collected the money in China and paid an equivalent amount from its own funds already in Australia to the Australian bank account of borrower and that this would not have involved a transfer of funds out of China. It is also said that the intermediary (KVB) could have used its own funds in different countries and might well have relied on currency flows both ways to avoid an imbalance, and hedge any exposure to currency fluctuation. It is said that the judgment debtors' evidence does not exclude this possibility (and Mr Liu's evidence is consistent with that possibility, in that he says that he sent the money to another account within China) and that, without excluding that possibility, there is no illegality. (The expert evidence sought to be relied upon at the set aside motion is said by the judgment debtors to establish the opposite - though, as the judgment creditors point out, the expert herself seems to disavow the precedential value of case law in China.)
36. To the extent that Chinese law was broken, it is said that it must have been broken by Mr Liu. It is said that Mr Liu now asks the court to accept that he thought it was legal when, on his own version of the conversation asserted with Mr Yuqing Liu, the money was only to be paid via KVB if Chinese Government approval was refused. Thus, that Mr Liu asks the court to assume that, while he believed it was legal, Mr Yuqing Liu must have known it was illegal, even though on Mr Liu's own evidence it was he who introduced Mr Yuqing Liu to the existence of KVB.
37. Further, it is said that that is not enough to set aside a final order made by consent; that what is required is a mistake which would vitiate a simple contract; and that not only is there no evidence from which an inference can be drawn about the judgment debtors operating under a mistake, the case theory of the judgment debtors is that Mr Yuqing Liu knew it was illegal - so any mistake was not a common mistake; nor is there even an allegation about differing or mutual mistakes.
38. Finally, it is submitted that, for the court to decline to enforce the obligation to repay would be contrary to the policy of the Chinese law asserted, because it would prevent repatriation to China of funds (on this hypothesis) illegally exported out of China. It is said that the repatriation of funds to China is one of the key remedies of the Chinese law itself, referring to the discussion appearing in Dr Huang's report at pp 64-65.

Judgment debtors' submissions

1. The judgment debtors submit that no security for the judgment debt should be ordered; nor should any security for costs order be made in relation to the past costs or costs of the set aside motion (and, if any security is ordered for the latter costs, that it should be limited to $100,000).

Security for judgment debt

1. As to the security sought for the judgment debt, the judgment debtors submit: that no principled basis (or authority) was identified in the judgment creditors' outline of submissions for such an order; that the judgment creditors already possess sufficient security; that the judgment creditors are not inhibited by the set aside motion from enforcing the Consent Orders (and that Xinfeng or Mr Yuqing Liu has, in return for $1.4 million in consideration, already agreed not to liquidate or bankrupt the judgment debtors); and that the judgment debtors have already incurred substantial legal costs that they would not have incurred had substantial security for the judgment been foreshadowed or sought and required at the time their set aside motion was filed, with the judgment creditors not raising this until 8 October 2019.
2. Insofar as reliance is placed by the judgment creditors on the inherent jurisdiction of the court for the making of such an order, the judgment debtors submit that no analogy can be drawn with the cases where a party may be obliged either to give security for a judgment sum or be obliged to pay into court money secured by a mortgage (those being where such an order may be made as a condition to the stay of execution of orders pending an appeal - the judgment debtors referring, by way of example, to Kalifair Pty Ltd v Digi-Tech (Australia) Ltd (2002) 55 NSWLR 737; [2002] NSWCA 383 (Kalifair) at [28]; Mushroom Composters Pty Ltd v IS & De Robertson Pty Ltd [2014] NSWCA 231 (Mushroom Composters) at [8] per Gleeson JA; and where an interlocutory injunction is sought to restrain a mortgagee exercising its power of sale - where the amount of the mortgage debt must be paid into court; see Inglis at 164-165 per Walsh J.
3. As to the first, it is noted that in Kalifair (at [28]), the Court of Appeal said that "a requirement for security is only intended to protect the status quo, that is the existing value of the judgment and not to improve the position of the judgment creditor by increasing that value"; i.e., to prevent and remedy any prejudice flowing from the judgment creditor's inability to proceed immediately to recover his/her debt, that being "the risk that if the appeal fails assets which earlier were available to satisfy the judgment will no longer be available for that purpose" (see also Mushroom Composters at [8]).
4. As to the second, it is noted that the rule in Inglis is one of general application (not an absolute rule) and not applied inflexibly (citing RAMS Mortgagee Corporation Ltd v Skipworth [2007] WASC 24 at [90]-[93] per E M Heenan J (and the authorities cited therein); Clairview Developments Pty Ltd v Law Mortgages Gold Coast Pty Ltd [2007] 2 Qd R 501; [2007] QCA 141 at [39] per Jerrard JA); and that there are a number of well-recognised exceptions thereto, including that it does not apply where the validity of the mortgage itself is being challenged (citing Allfox Building Pty Ltd v Bank of Melbourne Ltd (1992) NSW ConvR 55-634 at 59-627 per Powell J; Bayblu Holdings Pty Ltd v Capital Finance Australia Ltd [2011] NSWCA 39; (2011) 279 ALR 166 at [58] per Campbell JA (Tobias and Macfarlan JJA agreeing); and Goater v Commonwealth Bank of Australia [2014] NSWCA 265 at [76]). It is submitted that, in the present case, no injunction or restraint of Xinfeng's rights is being sought pursuant to the set aside motion and that, rather, if the motion is successful, the application involves a challenge to the validity of the mortgage on which Xinfeng relies.
5. The judgment debtors submit as follows as to the proposition that the judgment creditors already possess sufficient security in respect of the principal debt of $10 million and estimated entitlement to costs of $600,000 (in the form of the second-ranking unregistered mortgage over the Hurstville Property).
6. It is acknowledged that the registered proprietor of the Hurstville Property (GR Capital) is in administration and subject to both the appointment of receivers and managers (appointed by Everest as the first registered mortgagee) and a DOCA. However, the judgment debtors point to the latest report from the administrators (dated 21 January 2019), which contains a calculation of the estimated return to creditors (see Exhibit F on this application). It is noted that that report estimates that the sale of the units from the development of Hurstville Property will generate revenue of approximately $64.4 million (identifying sales off the plan as at 30 June 2018 that amount to approximately $45.1 million).
7. The judgment debtors calculate that, assuming sales of $64.4 million, payment of GST estimated at $5.2 million), marketing and sale costs (estimated at $1 million), and the debt to Everest (estimated at close to $52 million (when including interest and fees)), there would be some $6.2 million to pay out the costs of the receivers and managers (estimated at $600,000 on the "worst case" scenario) and the debt due under the Consent Orders (see their submissions at [34]-[36]).
8. It is acknowledged that this amount alone would not be sufficient to discharge the judgment debt of $10 million and the costs liability of $600,000 under the Consent Orders. However, the judgment debtors point to the fact that the debt to Everest owed by GR Capital is also secured (by first ranking securities) over other properties, including: a property at Airlie Beach, in Queensland (which it is noted was valued in September 2011, albeit on the basis of a now lapsed development approval, at $17,945,000) of which GR Capital is the registered proprietor; and another property in Hurstville (the Second Hurstville Property), of which The Won Capital Pty Ltd (recs & mgrs apptd) is the registered proprietor (valued by a valuation dated 12 January 2017 (as is) at $7 million).
9. The judgment debtors say that, although Xinfeng does not have a mortgage over those other properties, Xinfeng can rely on the principles of marshalling (to Everest's security interests over those properties) if there are insufficient proceeds from the Hurstville Property to pay out the judgment debt of $10 million and costs of $600,000 (referring to Miles v Official Receiver in Bankruptcy (1963) 109 CLR 501 at 510-511; [1963] HCA 24 per Dixon CJ, Windeyer and Menzies JJ). It is thus submitted that GR Capital's judgment debt is presently sufficiently secured.
10. Second, that even if the moneys payable under the Consent Orders are not presently sufficiently secured, that is irrelevant since the purpose of requiring the judgment debtors to provide security in respect of the moneys payable under the Consent Orders cannot be to "improve the position of the judgment creditor by increasing that value"; instead, any security must be limited to ensuring the present status quo is preserved and to address any prejudice arising out of the set aside motion. The judgment debtors say that the judgment creditors have not identified any such prejudice (other than the costs to meet that application, which is a question dealt with in respect of the application for security for costs).
11. Third, as adverted to above, it is submitted that no part of the set aside motion seeks to enjoin Xinfeng from enforcing the judgment debt of $10 million or its costs of $600,000 (upon those costs being assessed, which Xinfeng is free to do but has not done). It is submitted that the present limitations upon Xinfeng enforcing the fruits of the Consent Orders are not the product of any part of the set aside motion; rather, it is said, those limitations reflect Xinfeng's own conduct. In that regard, it is noted that: pursuant to the DOCAs executed by both GR Capital and One Capital on 18 February 2019, up until the earlier of the completion of the Hurstville Property development or 30 November 2019, the unsecured creditors are restrained from enforcing their claims against both companies (see cl 9.6(2) of each DOCA); those DOCAs do not prevent Xinfeng from enforcing any security interest (see cl 9.4 of each DOCA) (and hence, the judgment debtors say, without admissions, that putting aside the present challenge to the validity of the mortgage, as an unregistered mortgagee over the Hurstville Property, Xinfeng would otherwise be able to exercise the power of sale conferred pursuant to s 109 of the Conveyancing Act 1919 (NSW), although any sale would be subject to Everest's first-ranking registered mortgage - referring to King Investment Solutions v Hussain (2005) 64 NSWLR 441; [2005] NSWSC 1076 at [60]-[63] per Campbell J); and that by a "legally enforceable agreement made in November 2018", Mr Yuqing Liu (on behalf of Xinfeng) received $1.4 million from Mr Liu in exchange for Xinfeng agreeing not to liquidate or bankrupt the judgment debtors.
12. Pausing here, the set aside motion (contrary to these submissions) does include, by way of alternative relief, a stay of enforcement of the Consent Orders, but perhaps that is no longer to be pressed. Also, although receipt of the sum of $1.4 million is acknowledged by the judgment creditors, there is dispute as to its proper characterisation (and there was objection to the evidence) of the "middle lady" conversations relied upon to establish that agreement (see further below).
13. Fourth, it is submitted that there has been considerable (and prejudicial) delay by Xinfeng in bringing this application (the delay so identified being delay from 19 August 2019, when the judgment debtors first raised in court the proposed motion to set aside the Consent Orders on the basis that there existed illegality under Chinese law that infected the Consent Orders and the foreshadowing of the security for costs application on 8 October 2019). It is said that more than $230,000 in legal fees have been incurred in respect of the set aside motion since mid-July 2019 (an extraordinary amount on any view of things, I would have thought, but one that cannot here be tested in any meaningful way).
14. The judgment debtors point to evidence from Mr Liu to the effect that he would not have instructed his solicitors to bring the present application, and incur the costs that have been incurred, had he known that he would have been required to give security in the vicinity of $10.6 million. It is submitted that the judgment debtors "do not have that kind of money" and that any order to provide such security will stultify the set aside motion. (That, however, does not rise beyond an assertion of stultification.)
15. Fifth, it is said that the judgment debtors have a "more than arguable basis" to set aside the Consent Orders; and that the raising by them of a bona fide and reasonably arguably application does not militate in favour of acceding to the judgment creditors' application for security.

Security for costs

1. In respect of the application for security for costs, the judgment debtors submit, again, that no principled basis (or authority) was identified for such an order; that the judgment debtors will be able to meet an adverse costs order, with Xinfeng's position already being sufficiently secured; that the third judgment debtor (i.e., Mr Liu) is a party to the proceedings, is "not a man of straw", and (to the extent necessary given his position already as a party) undertakes to the court to be personally liable for any costs order made against the judgment debtors on the set aside motion; and, again, that there has been delay in bringing the application in circumstances where the judgment debtors have incurred substantial legal expenses.
2. It is said that the entirety of the evidence in chief to be relied upon by the judgment debtors on the set aside motion was filed and served prior to any issue of security for judgment or costs being raised by Xinfeng (on 8 October 2019); the pleadings and evidence served in the original proceedings being relied upon in order to establish a bona fide defence.
3. As to the application for security for costs, the judgment debtors again submit that: Xinfeng is not an unsecured creditor (having the benefit, unless ultimately set aside by the judgment debtors, of a mortgage over the Hurstville Property and the ability to marshall against the mortgages of Everest); that Mr Liu is a party to the application and is "not a man of straw", owning property in this jurisdiction and being an Australian citizen and resident (who proffers, to the extent necessary, an undertaking to the court to be personally liable for any costs order made against the judgment debtors on the set aside motion); and that the set aside motion is reasonably arguable.
4. It is submitted that the present application for security for costs has been brought "after considerable unexplained and prejudicial delay" and that the judgment debtors should not be put in the position whereby the benefit of considerable legal expenditure (of over $230,000) could be imperiled if security is not provided. The judgment debtors emphasise that the application for security is made at a time when the judgment debtors have served their evidence in chief in support of the motion and the original hearing date in respect of the motion has been vacated because it could not be heard in the time available.

Evidence

1. I provisionally admitted (subject to weight and relevance) certain evidence on the hearing of the security motion, indicating that I would provisionally rule on that evidence in my reasons on the application, which I now do.
2. The evidence in question related to evidence of a conversation with the so-called "middle lady", on which conversation the judgment debtors rely for the proposition that there is a binding agreement with the judgment creditors (or one of them) pursuant to which, in consideration of payment of the sum of $11.4 million, they would not take steps to liquidate or bankrupt, as the case may be, the judgment debtors. The significance of this for present purposes appears to be that the judgment debtors argue that the security application is an attempt to circumvent that agreement, which they maintain should not be permitted (see T 56ff).
3. The judgment creditors objected to most of that evidence of the "middle lady" (albeit not to [47] which deposes to the fact of payment as such) on the basis that it is hearsay and there is no evidence of the "middle lady"'s authority to bind the judgment creditors to any such agreement (see T 63). In particular, I only provisionally read [42], the first sentence of [43] and [44]-[46] of Mr Liu's affidavit sworn 18 October 2019, subject to relevance.
4. As already noted, it is not disputed that the sum of $1.4 million was paid. It is said by the judgment creditors (from the bar table) that this was for Mr Yuqing Liu to vote in a particular way at the creditors' meeting (T 56.45); it is said by the judgment debtors that this was for a promise not to liquidate or bankrupt the respective judgment debtors. The judgment debtors also argue that reliance could be placed on the principles of ratification in relation to the alleged agreement (see at T 56.11).
5. Even if that evidence were to be finally admitted (subject to relevance and weight), I would not have concluded that it was sufficient to establish a binding agreement in the absence of evidence of the middle lady's authority to bind the judgment creditors (and assertions by her to that effect would not be sufficient in that regard). In any event, whichever way the so-called agreement is to be understood (and even assuming it to be binding), it does not, to my mind, establish a basis on which to conclude that the judgment creditors would now be precluded (as a matter of contract) from seeking security for their costs) because I am not persuaded that its result would necessarily be the liquidation or bankruptcy of the judgment debtors.
6. In those circumstances, were it to be necessary finally to rule on this evidentiary objection, I would reject those parts of the affidavit to which objection was taken in respect of the "middle lady" conversations. As it is, it is not necessary to do so because I do not consider that they take matters any further in relation to the security application.

Determination

1. Dealing first with the application for an order that the judgment sum be paid into court, I propose to defer ruling on that application until I have heard the judgment debtors' application to set aside the Consent Orders. In this regard I consider sensible the position informally advanced by the judgment creditors in this regard (although at T 38.23 Senior Counsel for the judgment creditors suggested that the order might not become operative at this stage, at T 43 it was contemplated that judgment could in effect be reserved on this question).
2. For the judgment debtors, it was submitted that it is inappropriate for there to be, in effect, judicial advice given by way of some advance ruling in that regard. While I do not consider that to be an accurate characterisation of the judgment creditors' position (i.e., I do not see this as an application for judicial advice), rather, there is merit to deferring a ruling until the set aside motion has been determined (since the outcome of that motion might render the security application otiose and, if not, the parameters of any setting aside of the Consent Orders would then be known). Further, while I consider that there is some force in the submission that there is an analogy in this regard between applications to restrain the exercise of rights under a mortgage (where the Inglis rule generally applies) and the present situation, there is also force in the submission that such an analogy would not necessarily here apply where the validity of the mortgage may ultimately be in dispute; and I consider that this issue would merit more consideration than there is presently time to devote to the security application. Accordingly, that argument should be deferred for another day.
3. I would treat the application for payment into court of an amount by way of indemnity costs already ordered in the same way. However, in that regard, I do note that there seems to me to be considerable force to the position that, as a condition of setting aside the Consent Orders (were I to come to that conclusion), the judgment debtors should pay to the judgment creditors at least that portion of the indemnity costs the subject of the Consent Orders that represents costs thrown away by the abandonment of the hearing dates in October 2018 (having regard to the chronology of events that has taken place in relation to the present litigation).
4. As to the application for security for the costs of the judgment debtors' motion to set aside the Consent Orders, that is in an entirely different category. That application needs to be dealt with now, and quickly, to avoid further delay in the final disposition of the real issues remaining in proceedings that have already been disposed of (unless set aside) by the Consent Orders.
5. The power to order security for costs pursuant to r 42.21(1)(d) of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) and s 1335 of the Corporations Act requires, as a precondition to the invocation of any discretion to order security, that a defendant prove that if a costs order was made against the plaintiff, there is credible evidence (or a reason) to suggest that the plaintiff will be unable to pay those costs (see Beach Petroleum NL v Johnson(1992) 7 ACSR 203 (Beach Petroleum) at 205 per von Doussa J; Polstead Pty Ltd (in liq) v Shah [2009] NSWSC 560 at [4]-[5] per Brereton J (as his Honour then was); Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 744 at [20] per Einstein J; 15 Management Pty Ltd v Newstar Sports Management Pty Ltd [2009] NSWSC 1208 (Newstar) at [29]-[31] per Nicholas J).
6. This does not require the court to be satisfied, on the balance of probabilities, that the plaintiff (or, here, the judgment debtors) will, at judgment, be unable to pay any adverse costs order made; only that there is credible evidence to give rise to a reason to believe as much (see Beach Petroleum at 204). The test has been described as an "undemanding" one (Hurworth Nominees Pty Ltd v ANZ Banking Group Ltd [2005] NSWSC 1360 at [41] per White J (as his Honour then was); Newstar at [32] per Nicholas J; HP Mercantile Pty Ltd v Dierickx [2013] NSWCA 87 at [6]-[9]).
7. The notion of being "unable to pay" was considered by von Doussa J in Beach Petroleum at 205 as follows: A corporation "will be unable to pay" the costs within the meaning of the section if it can only do so if given extended time to realise assets which might be difficult to realise, at least at a price sufficient to provide a surplus over other liabilities, sufficient to pay the costs… The company will also be unable to pay the costs within the meaning of the section if the payment would be one that will amount to a preference of the defendant over other creditors such that the payment would be liable to be set aside either as a preference or as a fraudulent disposition…
8. It is accepted by the parties that, even if satisfied of the threshold condition for a grant of security for costs, the court still retains an unfettered discretion as to whether to order security for costs, which discretion should be exercised having regard to all the circumstances of the case without any predisposition in favour of the award of security (see KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 at 196 per Beazley J, as Her Excellency then was); those discretionary factors now being reflected in r 42.21(1A) of the UCPR and being equally relevant to any assessment under s 1335 of the Corporations Act.
9. As to the corporate judgment debtors, the statutory jurisdiction to make such an order is, in my view, clearly enlivened having regard to the undemanding nature of the test and the financial position of those judgment debtors.
10. There appears to be no real doubt that the corporate judgment debtors are in a position of financial difficulty having regard to the evidence that they are or have been under administration and that there is now a receiver and manager appointed to GR Capital. Although the judgment debtors' arithmetical calculations suggest that there would be funds out of which or properties which could be realised to meet an adverse costs order, those calculations were themselves subject to criticism by the judgment creditors. The real question is whether the overall position of this corporate judgment debtor enables me comparably to conclude (as the judgment debtors assume) that the judgment creditors have adequate security for their costs of the set aside motion when one takes into account the prospect of an adverse judgment on that application (which would leave the judgment under the Consent Orders payable in full). The very fact that the judgment debtors complain that payment into Court of the judgment debt would stultify the proceedings or would amount to a breach of the asserted agreement not to liquidate or bankrupt the judgment debtors tells against such a conclusion.
11. The judgment debtors maintain that the criticism of their arithmetical calculations is not justified in that the $14 million additional security is already incorporated in these calculations. However, that still leaves the difficulty that that part of the administrators calculations depend on assumptions as to the scope of the Hurstville Property development, and there appear to be a number of other claims made against, and/or secured by, the respective properties. Furthermore, insofar as there may be a need to rely upon principles of marshalling or the like, there is room for doubt as to whether the judgment creditors will be adequately secure. Thus I consider that there is reason to believe that the judgment debtors may be unable to meet an adverse costs order (which thus enlivens the jurisdiction to award security for costs.
12. The position of Mr Liu, as a natural person, is obviously different but I consider that there is inherent jurisdiction to make such an order in his case. I accept that this is not a case on all fours with that considered in Rajski (where the plaintiff was found to have rendered himself judgment proof by divesting himself of assets). Nevertheless, I consider that there is reason to believe that Mr Liu may not personally be able to make good his undertaking to be liable for the costs of the corporate judgment debtors were the Consent Orders to be set aside but were he ultimately unable to succeed in his (and the corporate judgment debtors') defences to the mortgage transaction and the claims made by the plaintiffs (i.e., the judgment creditors) in the substantive proceedings.
13. I do not accept that it can comfortably be concluded that the judgment creditors are sufficiently secured by reference to the property secured by the unregistered mortgage; nor by reference to the principles of marshalling. The position is that the development of the Hurstville Property is not complete; the companies are the subject of DOCAs and Everest has exercised its rights to appoint a receiver in respect of GR Capital (whether over the assets of the company or the company itself is not clear). To require the judgment creditors to rely upon the successful outcome of a marshalling application is not in my opinion an adequate answer (and particularly not in light of the history of this matter to date).
14. As to the discretionary factors raised against the grant of security, it is recognised by the judgment creditors that a failure to move expeditiously in seeking security for costs can be a reason to refuse an application for security for costs (see Owners Corp Strata Plan 64970 v Austruc Constructions Ltd [2007] NSWSC 778 at [12] per Einstein J; Oswal v Australia and New Zealand Banking Group Ltd [2016] VSC 52 (Oswal) at [34]-[44] per Sifris J (and the authorities cited therein)); and I accept that prejudice to a plaintiff may be presumed where there is delay (though this may also be the subject of evidence - see Oswal at [44(c)] per Sifris J).
15. In the present case, I am not persuaded that there was a relevant delay and, regardless, I consider that any such delay can squarely be laid at the judgment debtors' door. When the application to set aside the Consent Orders was first foreshadowed (and even when it was subsequently commenced by the filing of the notice of motion) it was contemplated that it would be an exercise that could be completed within a short period of time and there was no suggestion that the evidence would be as voluminous as it now is going to be (or that the whole of the evidence proposed to have been relied on at the ultimately vacated October 2018 trial would now need to be reviewed). While I do not find that there was any intention on the part of the judgment debtors' legal representatives to present a misleading picture in that respect, it hardly lies in the mouths of the judgment debtors to complain about delay in bringing a security for costs application that it can safely be inferred would not have occurred had the judgment debtors' motion to set aside the Consent Orders not turned into a three to four day hearing at which the whole of the previous evidence filed when the matter was to be heard last year (for ten days) is apparently now sought to be put before the court.
16. As to the prospects of success or merits of the application set aside the Consent Orders, while I accept that this is a relevant factor to determining whether to order security for costs (see r 42.21(1A)(a) of the UCPR), it is ordinarily not possible to form a meaningful view as to the strength or weakness of a plaintiff's claim for the purposes of an application for security for costs (see Live Board Holdings Ltd v Cody Live Pty Ltd [2017] NSWCA 302 at [98] and [102]) and in the present case I think it inappropriate to undertake that exercise (particularly in circumstances where that would call for a view as to the expert evidence in relation to Chinese law which I have not yet had the time to assess).
17. As a general proposition, where the claim is not frivolous and there appears to be real issues to be tried, the strength of the case is seen as a neutral factor in the exercise of the discretion (see Fiduciary Ltd v Morningstar Research Pty Ltd [2004] NSWSC 664 at [37]-[38] per Austin J; Jazabas Pty Ltd v Haddad [2007] NSWCA 291; (2007) 65 ACSR 276 at [84] per McClellan CJ at CL). While I accept that in some cases it may be necessary to go further than concluding that the proceedings are not frivolous and that there are real issues to be tried (see Luo v Windy Hills Australian Game Meats Pty Ltd (No 2) [2018] NSWSC 1139 at [19] per Stevenson J; Trojan Marketing & Consultants Pty Ltd v Kirela Pty Ltd [2018] NSWSC 1786 at [65] per Rees J); and while in the present case, there may be obvious concerns as to the spectre of a litigant (with the benefit of experienced Senior Counsel and solicitors) abandoning proceedings at the eleventh hour and then seeking a year later to revive those proceedings (and raise all of the defences previously abandoned, without explanation as to why all those defences are now sought to be pressed), and there is hence some force to the complaint as to an abuse of process, those are matters more appropriately to be dealt with at the hearing of the set aside motion itself. For present purposes suffice it to say that I have not formed a concluded view on those issues (or as to whether any setting aside of the Consent Orders should be conditional on only, say, the most recently advanced defences of illegality or mistake being raised and not the myriad of other defences abandoned for what one might expect were good forensic or commercial reasons).
18. I accept that it has long been held that "poverty is no bar to a litigant", such that, in relation to individual plaintiffs, impecuniosity alone has never been a sufficient reason to order security for costs (see, for example, Cowell v Taylor (1885) 31 Ch D 34 at 38 per Bowen LJ; Uptown Sydney Development Corporation Pty Ltd v Bank of New Zealand (No 1) (1993) 11 ACSR 300 at 301 per Kirby P (as his Honour then was)), in the present case I do not accept that the making of a security for costs order would stifle the prosecution of the judgment debtors' notice of motion; nor do I accept that Mr Liu should not be required to provide tangible security for the costs of the seemingly lengthy exercise he now wants to pursue at the cost of valuable court time and at the expense of other litigants in this Court. The principle does not automatically fetter the discretion of the Court to award security for costs (see Epping Plaza Fresh Fruit & Vegetables Pty Ltd v Bevendale Pty Ltd [1999] 2 VR 191 at [19]-[24] per Winneke P and Phillips JA; Jazabas Pty Ltd v Haddad (2007) 65 ACSR 276 at [2] per Mason P).
19. That said, a factor relevant to take into account in the present case is the extraordinary circumstances in which the application to set aside the Consent Orders is made (particularly where there is a suggestion, albeit denied by Mr Liu in cross-examination, that he was aware of concerns as to the legality of the initial transaction) and where such a considerable amount of time is now to be set aside for it (as a result of the voluminous amount evidence to be relied upon).
20. Accordingly, I propose to order that the judgment debtors provide security to the judgment creditors' costs of the notice of motion to set aside the Consent Orders; and that they should do so in the amount proposed by Mr Ying and with the assumption that the hearing of the notice of motion will take four days (i.e., the sum of $120,000).
21. As to quantum of the security sought (and the complaint by the judgment debtors that a three day estimate is adequate) the judgment debtors nevertheless maintain that if it is necessary to establish the existence of an arguable defence, then all of the evidence which was to have been relied upon at the abandoned or compromised hearing (the October 2018 trial) must be before the Court (referring to Australia and New Zealand Banking Group Ltd v James (No 3) [2019] NSWSC 832 per Ball J). If so, I am not prepared to discount the prospect of the whole of motion taking four days and will order security to cover that period.
22. Ordinarily, when ordering security for costs I consider it appropriate to do so in tranches (see Anderson v Patersons Securities Ltd [2019] NSWSC 852). However, in the present case, there is now no step remaining to be taken, as I understand, it before the hearing of the set aside motion and I am attempting to list that hearing in April next year. Accordingly, I will order that the security be provided within 28 days.

Orders

1. For the above reasons, I make the following orders: 1. Pursuant to r 42.21 of the Uniform Civil Procedure Rules 2005 (NSW) and s 1335 of the Corporations Act 2001 (Cth), order the defendants (the judgment debtors) to provide security for the plaintiffs' (the judgment creditors') costs of the notice of motion filed 2 September 2019 seeking to set aside the Consent Orders made in these proceedings on 18 October 2018, such security to be in the sum of $120,000 and to be paid into court or by the provision of an unconditional bank guarantee in a form and from a bank or financial institution acceptable to the judgment creditors (or as approved by the court) within 28 days. 2. In the event that Order 1 is not complied with by the time specified, stay the hearing of the notice of motion filed 2 September 2019 until further order. 3. Defer ruling on the application for payment into court of the judgment sum and costs the subject of the Consent Orders made on 18 October 2018 until the hearing of the notice of motion to set aside those orders. 4. Reserve the costs of the judgment creditors' notice of motion filed on 14 October 2019 to be dealt with after the hearing of the notice of motion referred to in Orders 1 to 3 above.

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