Zhu v Wang

Judgment

1. This is an application by the respondents (collectively referred to as "De Rucci") to an appeal by Ms Lucy Zhu and companies associated with her ("the appellants") against a judgment of Rothman J sitting in the Common Law Division of the Supreme Court (De Rucci International Pty Ltd v Zhu & Ors [2020] NSWSC 1720).
2. The dispute that his Honour determined related to the commercial relationship between the parties, and particularly to a Management Agreement entered into on 20 October 2016 and to the title to certain furniture display stock. His Honour gave judgment in favour of De Rucci in the sum of $230,473.90 and dismissed the appellants' cross-claim in which they had sought a judgment of almost $1.5 million.
3. Ms Zhu's family commenced a furniture retail business in about 2003 in Brisbane, later expanding and establishing it in prominent shopping centres such as Moore Park Supa Centa in Sydney. In about 2013 the business entered into commercial arrangements with entities associated with Mr Bing Kun Wang whose moniker, Ms Zhu said, was the "King of Sleeping Furniture". She said his business, operating under the name "De Rucci", had over 2,000 branches in China. Their business relationship broke down in 2019, leading to the present litigation.
4. By notice of motion dated 1 April 2021, De Rucci sought an order that the appellants provide security for De Rucci's costs of the appeal.
5. In responding to the application, the appellants were unrepresented, as they were before Rothman J at first instance. The material they put before this Court indicates that their business has continued notwithstanding the COVID-19 pandemic but that it has been affected by it and they have had to attempt to rebuild it.
6. The Notice of Appeal raises issues essentially as follows.
7. Ground 1 complains of procedural unfairness resulting from Ms Zhu being denied a proper opportunity to make submissions at the conclusion of the hearing at first instance. Ground 2 concerns an agreement described as the "Bundall Sale Agreement". The appellants allege that errors by the primary judge in determining the disputes relating to it led to his Honour erroneously dismissing the cross-claim. Ground 3 alleges that the primary judge erred in finding that the appellants repudiated the Management Agreement and Ground 4 alleges three identified errors of his Honour in assessing damages against the appellants for repudiation of the Management Agreement.
8. De Rucci's application for an order that security for costs be provided was based on r 51.50 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") which relevantly provides that "[i]n special circumstances, the Court may order that such security as the Court thinks fit be given for costs of an appeal". This rule is to be contrasted with r 42.21 which applies in respect of security applications at first instance. That permits security orders to be made only if one of the particular grounds stated in r 42.21(1) is established (for example, ordinary residence outside Australia) and r 42.21(1A) identifies various matters that are relevant to the exercise of the Court's discretion. Notably, r 42.21(1B) provides that "[i]f the plaintiff is a natural person, an order for security for costs cannot be made merely on account of his or her impecuniosity". Also distinct from r 51.50 of the UCPR is s 1335 of the Corporations Act 2001 (Cth) which permits a court to order a corporation to provide security for costs if there is reason to believe that the corporation will be unable to pay a defendant's costs.
9. In its submissions, De Rucci accepted that where there are multiple appellants comprising both individuals and corporations, it is ordinarily inappropriate to order some but not others to provide security for costs. It referred in this regard to Uptown Sydney Development Corporation Pty Ltd v Bank of New Zealand (No 1) (1993) 11 ACSR 300 at 303. It further implicitly accepted that because this Court would not (by analogy to r 42.21(1B)) order security against Ms Zhu on the ground of her impecuniosity alone, to maintain consistent treatment of the appellants, the Corporations Act power would not be utilised to order security against the corporate appellants on the basis that they are impecunious. De Rucci therefore did not seek to establish that Ms Zhu or the corporate appellants were impecunious but submitted that the impecuniosity of at least the fifth appellant that incidentally appeared from the evidence could be taken into account in determining whether there were "special circumstances" for the purposes of r 51.50.
10. It would of course be inappropriate to attempt to define "special circumstances" exhaustively as their existence must be determined from case to case (see Preston v Harbour Pacific Underwriting Management Pty Ltd [2007] NSWCA 247 at [18] and Partington v Pacific Link Housing Ltd [2013] NSWCA 259 at [67]). It should be emphasised however that r 51.50 does not contemplate that security will be ordered in the ordinary case or as of course. The terms of the rule indicate that there must be something "special" about the application or appeal which attracts the rule's operation.
11. De Rucci submitted that the following four features of the present appeal established the existence of "special circumstances".
12. First, it submitted that the appeal is so "lacking in sufficient substance to have any realistic prospect of success". Despite Mr Gee's able argument on behalf of De Rucci, I cannot however so characterise the appeal. On an application such as the present, the merits of an appeal can, of necessity, usually only be considered on a limited, and to some extent superficial, basis. The present appeal arises out of a commercial dispute addressed by the primary judge in a judgment of some 78 pages which I cannot, without more detailed argument and analysis, conclude to be plainly correct. I cannot therefore conclude that the appeal has no "realistic prospect of success".
13. Secondly, De Rucci asserted that the appellants "seek to agitate almost all legal and factual issues raised at first instance", referring to Ballard v Brookfield Australia Investments Ltd [2012] NSWCA 434. I am not convinced from my limited consideration of the judgment below and of the appeal that this proposition is correct but in any event it would, if correct, be a factor of only limited significance unless, which has not occurred, it were also established that a significant proportion of those issues were raised on appeal without justification. As well, I note that in his affidavit in support of De Rucci's security application, its solicitor estimates one day for the duration of the appeal hearing. This does not suggest that the appeal is likely to be unduly protracted as a result of the appellants raising multiple groundless arguments.
14. Thirdly, De Rucci submitted that "there is a risk that the appeal will involve unnecessary cost", citing Lall v 53-55 Hall Street Pty Ltd [1978] 1 NSWLR 310 (as to which see at 313-4). De Rucci referred in this regard to what it asserted was a failure by the appellants to comply with procedural orders in the Court below, as evidenced by comments recorded in the primary judgment. I do not reject this as a factor to take into account but in my view it falls well short of itself constituting "special circumstances".
15. Fourthly, De Rucci submitted that there is "no evidence that security would stifle the proceedings", citing Xenos v FAL Healthy Beverages Pty Ltd [2017] NSWCA 240 at [51]. Ms Zhu did contend before this Court that an order for provision of security would stifle the appeal but, as De Rucci asserted, she did not support it by adequate evidence. Ms Zhu did however affirm the proposition in an affidavit, saying also, in relation to her personal financial position, that she did not have any substantial personal assets. She referred to various different categories of assets which she did not have, including cash deposits and real estate. In relation to the corporate appellants, she produced a profit and loss account concerning the business showing that profits had been earned in trading in recent financial years, although in respect of that to March 2021 $206,800 was shown as income from "Government Subsidies", presumably relief from the effects of the pandemic.
16. None of these matters in my view, whether taken individually or cumulatively, indicate that there are in the present case "special circumstances" empowering the Court to make an order for the provision of security. When looked at broadly, the arguments relied upon do not amount to much, if any, more than assertions that the appeal is weak and that there is no proper evidence that an order for security would stifle the appeal. The former is not an uncommon circumstance and, so far as the latter is concerned, it is for De Rucci to prove the existence of "special circumstances", not the appellants. De Rucci does not do this by asserting or even proving that the appellants have not established a matter that may have been an answer for them to De Rucci's application.
17. For these reasons, I do not consider that the power to order security under r 51.50 of the UCPR is enlivened. I therefore dismiss De Rucci's motion, with costs.

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