He v Huang
[2017] VSCA 102
•5 May 2017
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCI 2017 0004
| WILLIAM JINGCHENG HE | First Applicant | |
| J.C.HE INTERNATIONAL TRADE PTY LTD (ACN 162 966 483) | Second Applicant | |
| CISELY LIU | Third Applicant | |
| v | ||
| LIANGPING HUANG | First Respondent | |
| TOP UNION BUSINESS PTY LTD (IN LIQ) (ACN 162 966 485) | Second Respondent | |
---
| JUDGES: | SANTAMARIA and BEACH JJA and KEOGH AJA |
| WHERE HELD: | MELBOURNE |
| DATE OF HEARING: | 28 April 2017 |
| DATE OF JUDGMENT: | 5 May 2017 |
| MEDIUM NEUTRAL CITATION: | [2017] VSCA 102 |
---
PRACTICE AND PROCEDURE – Application for stay on execution of judgment pending appeal – Principles – Whether real risk that appeal will be rendered nugatory – Whether circumstances of applicants’ impecuniosity related to conduct of respondents – Stay granted.
PRACTICE AND PROCEDURE – Application for security for costs – Weight to be given to impecuniosity of respondents – Whether circumstances of respondents’ impecuniosity related to conduct of applicants – Application refused.
---
| APPEARANCES: | Counsel | Solicitors |
| For the Applicants | Mr A W Sandbach | Katherine Moorhouse-Perks |
| For the First Respondent | Mr R E T Wodak | Wharton Legal |
| For the Second Respondent | Mr C H Truong | Wharton Legal |
SANTAMARIA JA
BEACH JA
KEOGH AJA:
Introduction
On 28 April 2017, this Court heard and determined:
(a) an application by the applicants, filed 18 January 2017, for a stay of the orders made in the County Court on 8 December 2016 made pursuant to Rule 64.39 and Rule 66.16 of the Supreme Court (General Civil Procedure) Rules 2015 (‘the Rules’); and
(b) an application by the respondents, filed 10 March 2017, for security of costs of the appeal made pursuant to Rule 64.38 of the Rules and s 1335(1) of the Corporations Act 2001 (Cth).
After hearing arguments, we granted the application for the stay and refused the application for security. What follows are our reasons for making those orders.
Summary
Mr Liangping Huang (‘Mr Huang’) is a successful Chinese business man. He entered Australia on a temporary visa and was living in Sydney. He wanted to secure permanent residence. In order to do so, he entered into an arrangement with Mr Jingcheng He (‘Mr He’) a young Australian citizen who conducted a business in Dandenong, Victoria using the company JC He International Pty Ltd (‘JC He International’). Mr He was the son of a friend of Mr Huang. The arrangement involved Mr Huang using his company Top Union Business Pty Ltd (‘Top Union’). The details of arrangement are the subject of the present dispute. The arrangement was made in late 2013 and early 2014. The trial judge held that the entire purpose of the proposed arrangement between the parties, whatever its details and whether it was merely between the two individuals, or included their companies, was to enable Mr Huang to qualify for a visa giving him Australian residency based upon his conduct of a substantial enterprise in Australia.
By March 2014, the parties were in dispute and their arrangement, which had operated for less than two months, terminated.
In the County Court, Mr He and JC He International made a claim against Mr Huang and Top Union. Mr Huang placed Top Union into liquidation. As a result, the claim proceeded solely against him. Mr Huang funded a counterclaim by the liquidators of Top Union. The defendants to the counterclaim were (1) Mr He
(2) Ms Cisely Liu, the wife of Mr He and (3) JC He International.
Both the claim and the counterclaim alleged that the parties made agreements of considerable subtlety. None of the agreements was reduced to writing. None appears to be reflected in any document. All terms were said to be oral or to be implied. Moreover, while the alleged terms of the agreements are not aligned, they correspond closely such that it is possible that each party may have had quite different understandings of what was being agreed to. On a level of generality, Mr He contended that an arrangement was made that Top Union give the appearance (presumably to the Australian immigration authorities) of conducting a successful business by becoming, in effect, the retail supplier to the customers of Mr He and JC He International and that stock that had already been paid for by Mr He and JC He International would be made available to Top Union for it to deliver to customers. On the other hand, Mr Huang contended that he and Top Union had taken over the business previously conducted by Mr He and JC He International and had employed Mr He and Ms Liu with the result that Mr He and JC He International could no longer conduct their previous business.
The arrangement was implemented in early 2014. Several external actions were taken; but, their relationship to the arrangement is controversial. New premises were secured in Doveton. Mr He paid the security deposit. The rental was guaranteed by both Mr Huang and Mr He . Stock already paid for and located at the premises of JC He International was moved to the new premises, together with plant and equipment. Mr He, Ms Liu and other persons employed by JC He International took up employment with Top Union. Bank accounts were opened in Top Union’s name. Mr Huang placed funds in those accounts. Mr He had access to them.
In the claim, Mr He and JC He International alleged that, when the arrangement broke down, Mr Huang, by refusing to give Mr He access to the stock, had unlawfully impounded (and, thus, converted) goods belonging to JC He International. In the counterclaim, Top Union alleged that, by continuing to operate JC He International, Mr He had breached his duties of loyalty and fiduciary duties owed to Top Union and that Ms Liu had been a knowing participant.
On 8 December 2016, after a trial of almost 20 days, the trial judge made an order on the claim to the effect that Mr Huang had procured Top Union to convert goods belonging to JC He International. The greater part of the claim in conversion was dismissed on the basis that property in most of the stock that Mr He had brought from the old premises to the new premises had already passed to Top Union (notwithstanding that it had not been paid for by Top Union). Otherwise the claim was dismissed. The judge made an order on the counterclaim that the defendants pay damages to Top Union for breach of the duties alleged. Orders for costs were made which fell most heavily on Mr He.[1]
[1]He v Huang [2016] VCC 1658 (Judge MacNamara) (‘Reasons’).
On 18 January 2017, Mr He, Ms Liu, and JC He International (‘the applicants’) applied for leave to appeal the orders variously made against them on the claim and the counterclaim. In essence, the applicants contend that (1) the judge should have found that the parties had agreed that the business of JC He International could operate alongside that of Top Union and that it was not necessary to close the business of the former to avoid there being breaches of duty by the applicants as employees of the latter; (2) the judge erred in finding that JC He International had sold stock to the value of $316,814.09 to Top Union; (3) the finding that Top Union had not converted the stock of JC He International was against the weight of the evidence; (4) the judge had erred in his assessment of payments that should have been offset and what percentage of sales revenue should be accounted for; and (5) the judge misdirected the exercise of his discretion in relation to costs.
On the same day, the applicants sought orders staying the judgment and orders of the trial judge made on 8 December 2016. Mr Huang and Top Union (‘the respondents’) have opposed that application.
On 21 February 2017, Whelan JA gave the applicants leave pursuant to s 500(2) of the Corporations Act 2001 (Cth) to bring the application for leave to appeal against Top Union.
On 10 March 2017, the respondents applied for an order that the applicants provide security for the respondents’ costs of the application for leave to appeal by paying the sum of $80,000 into Court.
Background
Mr Huang was born in the People’s Republic of China. He is senior partner in an architectural firm known as Dalian Top Union Construction Consultant Ltd, based in the People’s Republic. The firm has approximately 50 employees. He resided in Australia from 2010. He held a temporary business visa sub-class 163 which expired in April 2017.
Mr He was also born in the People’s Republic of China. He came to Australia. He obtained the degree of Bachelor of Accounting from Victoria University and the degree of Master of Financial Management from the Australian National University, Canberra. In December 2010, Mr He incorporated JC He International. It established a business at Rodeo Drive Dandenong and sold trailer parts and accessories.
Mr Huang and Mr He’s father knew each other from the time that they laboured together during the Cultural Revolution.
At some stage, Mr Huang decided that he wished to reside in Australia permanently. He contemplated applying for a visa which would entitle him to permanent residency known as a ‘Business Owner Visa (Subclass 890)’. This visa required applicants to establish that they had managed their own business in Australia for ‘the past two years’. Applicants were required to establish, amongst other things, ‘ownership of a main business’ which entailed an interest of 30 per cent in an Australian enterprise with a turnover of $400,000 or more and employing at least one full-time employee or equivalent who is an Australian citizen or permanent resident or a New Zealand passport holder, and not a member of the applicant’s family.
Mr Huang discussed the matter with Mr He’s father who suggested that he make contact with Mr He.
The arrangement
It seems that, after several conversations in Melbourne in November and December 2013, Mr Huang and Mr He came to an arrangement that was designed to enable Mr Huang to qualify for a permanent residency visa for Australia. The terms of the arrangement were and remain in controversy. The arrangement involved the establishment of Top Union and its conducting a business identical to that thus far conducted by JC He International. Mr Huang was to supply capital to the business. When his permanent residence visa was secured, he was to transfer the business to Mr He for the cost of the capital that he had contributed plus 10 per cent. It seems that there was to be no payment for ‘goodwill’.
Mr He suggested that Top Union should employ him and his wife. He also suggested that Top Union employ a Mr Peter Cochrane, who had been a sales rep for JC He International, as well as Ms Lucas Zhang, another one of JC He International’s existing employees.
The principal controversies relate to (1) whether Mr He was entitled to continue to operate JC He international and allow it to trade and (2) the ownership of the stock transferred from the premises in Dandenong where JC He International had previously conducted its business to Doveton.[2]
[2]The following account of the implementation and breakdown of the arrangement is taken from Reasons [13]–[29].
Application for a stay
On 18 January 2017, Mr He and JC He International applied for a stay of the order of 8 December 2016, including the release of funds held in the Court and the release of the first respondent and his wife from their undertaking. They have advanced three grounds in support of their application. They have said that, if a stay is not granted:
1.any payment of the money payable to [Top Union] a company in liquidation, under the judgment will be dissipated by [it] and will not be able to be recovered in the event the Applicants are ultimately successful on appeal thereby rendering the appeal nugatory.
2.any costs orders against Top Union Business Pty Ltd (In Liquidation) will not be satisfied if the sum held in the County Court at present, in the amount of $60,000.00 as security for the costs of the defendants by counterclaim in defending the proceeding brought against them by the company in liquidation, is released before the hearing and determination of the applicants’ application for leave to appeal and, if leave is granted, the Appeal;
3.any costs orders against Top Union Business Pty Ltd (In Liquidation) will not be satisfied if [Mr Huang]and his wife Ms Hawei Zong, are released from their undertaking by Counsel that they will honour any adverse costs orders made against Top Union Business Pty Ltd (in Liquidation) in favour of any of the defendants by counterclaim, the applicants herein, and in support of the undertaking will not encumber or otherwise deal with the property situated at 31/730 Pacific Highway Gordon in the state of New South Wales, Lot 31, Strata Plan 86987 until any adverse costs order that may be ordered against Top Union Business Pty Ltd (In Liquidation) is satisfied.
Affidavit in support of stay
The application for a stay was supported by an affidavit sworn of Katherine Moorhouse Perks, who is the solicitor for the applicants. In her affidavit, Ms Moorhouse Perks refers to the above grounds and says:
If, on appeal, the applicants are successful in demonstrating that they were not required to close the business of the second applicant and that they had remitted more to the second respondent than was due from the total sales of the applicant, the sum presently being held in the County Court as security for costs is likely to be dissipated and impossible to recover from the second respondent and the first respondent and his wife may well have disposed of their assets in New South Wales given that their visa to remain in Australia expires in April 2017.
The applicants filed a written submission dated 18 January 2017. Having referred to their application for a stay and the affidavit of Ms Moorhouse Perks they said:
In particular, the insolvency of the second respondent creates a very high risk of dissipation of any money paid to it pursuant to the Orders. The likelihood that a successful appeal would be rendered nugatory weighs heavily in favour of the grant of a stay on these facts.[3]
[3]Cellante v G Kallis Industries Pty Ltd [1991] 2 VR 653.
The offer to resolve the application for a stay
On 3 March 2017, the respondents wrote an open letter to the applicants, offering to resolve the stay application on the basis that the applicants pay to the respondents’ solicitor $301,434.69 to be held in an interest-bearing trust account in the joint names of the parties to the application until the solicitor receives (a) a joint instruction from the parties to release the funds, or (b) an order is made by the court as to the release of the funds (‘the Offer’).
The 3 March letter enclosed an annexure setting out costs incurred by the respondents from the conduct of the trial, and contending that the amount the respondents proposed be set aside in respect of costs was a conservative assessment of the award of costs in favour of the respondents.
The Offer was not accepted and, no alternative proposal has been put forward by the applicants.
On the hearing of the present applications, a letter dated 26 April 2017 from the respondents’ solicitors was tendered. In that letter, the time for accepting the Offer was extended to the conclusion of the present hearing.
Application for security for costs
On 10 March 2017, the respondents applied for security for their costs of the appeal in the sum of $80,000. They applied for three conventional orders:
1.Pursuant to Rule 64.38 of the Supreme Court (General Civil Procedure) Rules 2015 and s. 1335(1) of the Corporations Act, the applicants provide security for the respondents’ costs of the application for leave to appeal, and if granted the appeal, by paying into court the sum of $80,000 by 4:00pm 5 May 2017.
2. The proceedings are stayed until 4:00pm 5 May 2017.
3.If the applicants fail to provide the security by 4:00pm 5 May 2017, the proceedings are dismissed.
Affidavit in support of application for security
The application was supported by an affidavit affirmed 10 March 2017 by Vin Eddy, the solicitor for the respondents. In that affidavit, he deposed as follows:
(c) during the trial, it emerged that JC He International carried on no business;
(d) Mr He had transferred the business formerly conducted by JC He International to a new company called Jingcheng Group Ltd;
(e) JC He International had incurred liabilities since 2014 but has earned no income, its assets being used by Jingcheng Group Ltd;
(f) a search has revealed that Mr He and Ms Liu own no real property in Victoria save the real property situated at 18 Cherryfield Drive, Keysborough;
(g) that property is encumbered with (i) a mortgage to the National Australia Bank and (ii) a charge in favour of the solicitor for Mr He and Ms Liu;
(f) JC He International does not appear to own any property;
(g) He had written to the solicitor for the applicants about the financial status of the applicants and had received no response to his correspondence; and
(h) The fact that orders for costs of approximately $10,000 that the applicants had been ordered to pay arising from interlocutory applications had not been satisfied.
Mr Eddy also deposed that the estimated costs of the stay application and the application for leave to appeal were $111,240. He added:
I note that the costs estimate does not allow for contingencies such as Notices of Contention or the possibility that the Appeal might occupy a day itself. Therefore there is a real prospect that the applicants’ actual recoverable costs may substantially exceed those identified above.
It is appropriate that Mr Huang and Top Union (in liq) are represented by separate Counsel. Both respondents are not affected by the same grounds of appeal and, importantly, Mr Huang has been identified as a potential debtor of Top Union (in liq).
Further, Mr Huang’s comprehension of written and oral English is very low. He is unfamiliar with the Australian legal system. The trial was lengthy and complex and it is necessary to explain to him the issues raised by the application for a stay and the application for leave to appeal and to obtain instructions. An inordinate number of hours spent to date in consultation with. Seeking instructions from Mr Huang will inevitably be time consuming.
Opposition to application for security
The applicants opposed the application by the respondents for security. In their notice of opposition dated 3 April 2017, they advanced the following grounds:
1.There are pertinent discretionary matters that tend against the making of the security for costs order and they are:
1.1The respondents’ wrongs are the cause of the impecuniosity of the applicants;
1.2 The appeal has substantial merit; and
1.3The appeal would be stifled if the order for security for costs were made.
2. The quantum of the security sought is unreasonable and excessive.
Affidavits in opposition to application for security
In support of their notice of opposition, the applicants filed an affidavit of Mr He sworn 2 April 2017 and an affidavit of Katherine Moorhouse Perks sworn 2 April 2017.
At the hearing of the application, counsel for the respondents objected to most of the affidavit of Mr He. They contended that it deposed to facts and circumstances that had been the subject of findings by the trial judge and which were not traversed by the grounds of appeal.
There is force in the objection. However, we decided that we would receive the affidavit on the basis that it provided Mr He’s account of the background to the present applications. We are conscious that much of what he said was disputed by Mr Huang and some of what he said was contrary to findings by the trial judge.
In his affidavit, Mr He deposed that:
(h) he met Mr Huang in November 2013. At the time, Mr Huang was 66; he was 25;
(i) he felt himself under a duty to assist Mr Huang (who was a friend of his father) to obtain a Business Owner Visa Sub Class 890;
(j) at the time that they met Mr Huang, Mr He and his wife had:
(i) built up a business that had cash in the bank (approximately $140,000) and stock that had been paid for (approximately $200,000);
(ii) just bought a land and building package for the house they now live in; and
(iii) built up a business that had a turnover of approximately $1,654,000 per annum ‘without borrowing money or purchasing stock on credit or an overdraft’.
(k) between 1 July 2013 and November 2013, his business had sold about $725,000 of stock and had no creditors;
(l) various ideas to get Mr Huang a visa were considered including that he become a franchisee for a customer of JC He International;
(m)the stratagem that was adopted involved making it look as if Top Union was trading as a business. This involved:
(i) making it appear as if Top Union had identified customers who needed goods with JC He International supplying those goods to Top Union on a wholesale basis so that Top Union could sell the goods to the customers on a retail business: what would have been a direct sale from JC He International to its customers became a tripartite arrangement using Top Union; and
(ii) Mr Huang paying the profit made by Top Union to Mr He in cash;
(n) subsequently, the parties agreed that:
(i) Mr He would manage Top Union; and
(ii) When Mr Huang had secured his visa, he would transfer Top Union to Mr He for an amount equal to the amount he had to contribute to Top Union during the time needed to secure his visa (plus 10 per cent);
(o) after making this agreement, Mr He:
(i) found the larger premises in Doveton;
(ii) paid rental of $190,000 on the new premises;
(iii) guaranteed the trade accounts established for Top Union; and
(iv) prepared employments contracts for himself and his wife at salaries below market rates.
(p) between November 2013 and February 2014:
(i) Mr He moved stock of an approximate value of $290,000 (all of which had been paid for by JC He International) to the new premises in Doveton;
(ii) Mr Huang opened a bank account in the name of Top Union at Westpac into which he deposited $100,000; and
(iii) Top Union purchased $1,947 worth of stock from Oztrail.
(q) Top Union has claimed that it purchased stock to the value of either $42,507.18 or, alternatively $102,038 between March and April 2014;
(r) differences arose between Mr Huang and Mr He:
(i) Mr Huang directed Ms Liu to work only as a cashier and as a cleaner; and
(ii) Mr Huang failed to document his promise to transfer Top Union to Mr He.
(s) between 15 February 2014 and 12 April 2014, online sales averaged approximately $3320 per day. Had sales of those dimensions continued for a year, the turnover of the business would have greatly exceeded what was necessary for Mr Huang to secure his visa;
(t) between 29 March 2014 and 19 April 2014, Mr He:
(i) caused the sum of $89,540.55 to be debited to his PayPal account (where the proceeds of sales by Top Union and JC He International had been deposited) and credited to the Top Union account; and
(ii) paid 48,642.15 directly into the account of Mr Huang.
(u) after 15 April 2014,
(i) the relationship between Mr Huang and Mr He broke down;
(ii) Mr He and Ms Liu were excluded from accessing the Doveton premises;
(iii) Mr Huang impounded stock worth approximately $317,000 in the Doveton premises; and
(iv) Mr He had to make refunds of approximately $23,020.16 to online customers who had paid for stock that could not be despatched.
(v) despite his promises to do so, Mr Huang refused Mr He permission to access the Doveton premises to recover stock plant and equipment that had been paid for by JC He International and stored at those premises;
(w) Mr He and JC He International had commenced proceedings to recover their stock. Those proceedings had been defended. After the proceedings had commenced, Mr Huang had placed Top Union into liquidation. The liquidator had sold stock at the Doveton premises. The stock was valued at $275,820; it was sold by the liquidator for about $61,000; and
(x) in the event, Mr He and Ms Liu lost stock worth approximately $300,000. Moreover, Mr Huang retained stock that belonged to Mr He and did not permit him to recover it.
Mr He concluded his affidavit as follows:
My wife and I are currently running a business to meet our mortgage payments and living expenses and, as such, have no significant disposable income.
My wife and I and [JC He International] would not be able to provide security in the sum claimed by the respondents and our appeal would, as a consequence, be stifled. Our inability to do so is a direct result of the wrongs of the respondents which are the subject matter of this proceeding. I believe our appeal has good and valid grounds and it would be unjust, if, by reason of the conduct of the first and second respondents we find ourselves unable to conduct our appeal.
In her affidavit sworn 2 April 2017, Ms Moorhouse Perks said that:
(y) the estimate of Mr Eddy is uninformed by the current Scale of Costs
(z) the estimate is in various aspects excessive in so far as:
(i) much of the preparation can be done in less than the time estimated by Mr Eddy;
(ii) there is no need for counsel for Mr Huang to confer with the liquidators of Top Union;
(iii) there is no need for counsel for the respondents to confer with each other; and
(iv) the allowances for document preparation and conferences is excessive.
Ms Moorhouse Perks valued the work that she said is proper for the respondents to do as at $29,015.30. As the respondents have claimed 70 per cent of their costs to be paid by way of security, she estimated this at $19,343.53 (being 70 per cent of $29,015.30).
In particular, Ms Moorhouse Perks questioned why, in circumstances where the respondents are represented by the same law firm, different counsel would need to be briefed and then confer with each other about how to best accommodate any potential conflict of interest.
The respondents submissions in opposition to the stay
The application for a stay was opposed on the following grounds:
1.Any risk of dissipation of the proceeds of judgment would be addressed by an undertaking or order that the proceeds of the judgment below be paid into a trust account controlled by the respondents’ solicitor pending the outcome of the appeal proceedings.
2. The appeal prospects are poor.
3.The respondents are entitled to the fruits of judgment and the financial position of the applicants demonstrates that there is a real risk that they may not be able to satisfy the judgment
In their written submissions dated 21 March 2017, the respondents repeated their grounds of opposition.
The respondents said that, given the Offer, the applicants’ principal contention that any payment of funds to Top Union will be dissipated by Top Union and not recoverable if the applicants are ultimately successful was without merit. They said that, by reason of the Offer, the applicants: (a) would be exposed to no risk that, if successful, they would not be restored to their former position and (b) would gain a substantial advantage, namely the concession by the respondents in respect of the amount which ought to be paid into trust in respect of costs. If the present application failed, the applicants would inevitably be required to pay a far greater amount in respect of the respondents’ costs below. Further, the respondents contended that the there is a doubt over the legitimacy of the bona fides of the applicants given: (i) their failure to accept the Offer or to make any counter proposal (ii) their failure to offer to provide security for the costs of the application and appeal and (iii) the fact that it appeared that none of the applicants had any substantial assets. In the event that the Court were minded to grant a stay, the respondents said that, before any stay is granted, a condition should be imposed on the applicants that there be a payment into Court or into trust of the amount of the judgment.
The law
The relevant principles informing the determination of an application for a stay of execution of a judgment pending an appeal were summarised in Loftus v Australia and New Zealand Banking Group Limited,[4] where the Court (Whelan and Kaye JJA) said:
The application for a stay of execution of the judgment of Cameron J is made under Rule 64.39 and Rule 66.16 of the Supreme Court (General Civil Procedure) Rules 2015. The principles relating to such an application are well established and not in dispute. Prima facie, a successful party is entitled to the benefit of the judgment obtained below. Accordingly, an applicant for a stay is required to demonstrate special or exceptional circumstances to remove the case from the general rule that an appeal, and an application for leave to appeal, do not operate, of themselves, as a stay. In particular, special circumstances may be found to exist where the applicant is able to demonstrate that there is a real risk that it will not be possible to restore the applicant substantially to his or her former position if the judgment against the applicant is executed before the conclusion of the appeal.
In order to justify the grant of a stay, an applicant should also demonstrate that there is at least an arguable ground of appeal. However, ordinarily, the court does not have before it sufficient materials to consider, in detail, the merits of the grounds of appeal relied on in the application for leave to appeal. In such a case, unless there is no arguable ground of appeal, or the appeal is not bona fide, the court ordinarily will focus on matters relevant to the enforcement of the judgment, rather than matters that are relevant to its validity or correctness.[5]
[4][2016] VSCA 114.
[5]Ibid [7]–[8]. The Court referred to Cellante v G Kallis Industries Pty Ltd [1991] 2 VR 653, 655 (Young CJ); Maher v Commonwealth Bank of Australia [2008] VSCA 122 [19]–[27] (Dodds-Streeton JA); Cross Country Realty Victoria Pty Ltd v Ubertas 350 William Street Pty Ltd [2015] VSCA 347 [79]–[90] (Kyrou and McLeish JJA); Scarborough v Lew’s Junction Stores Pty Ltd [1963] VR 129, 130 (Adam J).
The application for security for costs
In Bodycorp Repairers Pty Ltd v Maisano,[6] the Court (Beach JA and Cameron AJA) referred to the authorities that inform the determination of an application for security for costs.[7] The Court said that the factors relevant to the exercise of the Court’s discretion whether to grant security for costs include
[6][2017] VSCA 39 (3 March 2017).
[7]Re Equity Access Pty Ltd v Westpac Banking Corporation [1989] FCA 506; (1989) 16 IPR 431; Maher v Commonwealth Bank of Australia [2008] VSCA 122 [80]; Ribbera v Eagle Fuels Pty Ltd [2014] VSCA 173 [30]; Trkulja v Dobrigevic [2015] VSCA 281 [43]; Bodycorp Repairers Pty Ltd v Oakley Thompson & Co Pty Ltd [2016] VSCA 19; Giza v Waybecca Pty Ltd [2016] VSCA 184 [13].
(aa) the prospects of success of the appeal;
(bb) the degree of risk that a costs order might not be satisfied;
(cc)whether the making of an order would be oppressive by stifling a reasonably arguable claim;
(dd) whether any impecuniosity of the applicant for leave to appeal arises out of the conduct about which complaint is made;
(ee) whether there are any aspects of public interest militating against the making of an order; and
(ff) whether there are any particular discretionary matters relevant to the application.
The hearing
At the hearing of the applications, Mr He said that the Offer was unrealistic. His whole association with Mr Huang had made him (and the other applicants) impecunious. Unless the judgment was stayed, the application for leave to appeal would be stifled. An order for security would have the same effect.
In their oral submissions, the respondents referred to Neate vThoroughbred International Marketing[8] and Gangemi v Osborne.[9] In particular, they referred to the conclusory nature of the evidence on the applicants’ financial circumstances. They referred to (a) the fact that a new company had been erected to continue the trading in trailer parts, (b) the unsatisfactory banking information that had been exhibited, (c) the mortgages and charges attaching to the only real property that the applicants held in Victoria and (d) the unexplained failure of the applicants to respond to the Offer. They said that the applicants had failed to show that, absent a stay, their application for leave to appeal and any appeal would be rendered nugatory.
[8](2012) 34 VR 318, [5], [6]–[8], [50], [52] (‘Neate’).
[9][2008] VSCA 221 [12].
The respondents also argued that the grounds of appeal were very weak; the trial judge had several independent reasons for rejecting the applicants’ contention that they were entitled to continue to trade using JC He International despite being employed by Top Union. They also said that the applicants had failed to demonstrate that, if they were impecunious, their impecuniosity was caused by or related to the arrangement that they had with Mr Huang.
Analysis
As is plain, the criteria which inform an application for a stay are different from those which inform an application for security. However, they have features in common. Each application involves the exercise of judicial discretion. Each discretion is broad; neither the Rules that confer the discretions or (in the case of applications for security against a corporation) the Corporations Act 2001 (Cth), stipulate any particular matter, apart from there being credible testimony in support of the application, that must be satisfied before either can be exercised. However, in each case, there have been authoritative decisions that outline considerations relevant to the exercise of the particular discretion. While these may not be ignored, none of these considerations may be elevated into a rule which inhibits what must remain the exercise of a judicial discretion.[10]
[10]In Neate, the Court (Mandie JA and Cavanough AJA) referred to Ninety-Fourth Highwire Pty Ltd v State Electricity Commission of Victoria (Unreported, Supreme Court of Victoria, Ormiston J, 31 August 1991) 8: ‘Thus it appears that there is a discretion to be exercised according to the justice of the particular case. The few reported cases are but examples of circumstances leading to one conclusion or another and should not be treated as restrictive of the Court’s powers’.
In exercising each discretion, consideration should be given to whether there is ‘an arguable ground of appeal’ and whether the appeal has any ‘prospect of success’.[11] In our opinion, the applicants have arguable grounds of appeal. By way of example, the grounds of appeal as to (1) whether Mr He ever agreed that the business of JC He International would be closed upon the commencement of his (and his wife’s) employment with Top Union and (2) whether Mr He’s company sold $316,814.09 of stock to Top Union are plainly arguable.
[11]In relation to an application for a stay, see the authorities considered in Neate (2012) 34 VR 318, 320-321, 326 328 [24]-[32].
On the hearing of the present applications, it was not feasible for the Court to have given detailed consideration to the merits of the application for leave to appeal. We are not able to express an opinion as to their prospect of success. Those arguments failed before the judge. Moreover, the occasion for Mr Huang to file submissions in defence of the decision below has not yet arisen.
While we formed no view on the merits of the application for leave, it seems to us that, in all the circumstances, the merits of the applicants’ position are not so lacking as to refuse a stay or to justify the granting of security.
It is true that the written submissions filed in support of the applicants’ application for a stay referred to the possibility that, if the appeal succeeds, it may be rendered nugatory. The respondents’ proposal that the judgment sum be paid into trust would seem to offer a complete answer to the applicants’ concerns such as to make a stay unnecessary.
Notwithstanding the unsatisfactory nature of the evidence adduced, we formed the view that the applicants demonstrated sufficiently that, unless the judgment below is stayed and if they were required to give security, their application for leave to appeal would be stifled.
Moreover, the account provided by Mr He in his affidavit sworn 2 April 2017 appeared to show that the impecuniosity of the applicants is related to the failure of their arrangements with Mr Huang. It is that impecuniosity that has prompted their application for a stay and their resistance to the application for security. In reaching that conclusion, we recognised that many of the propositions advanced by Mr He in his affidavit sworn 2 April 2017 (in opposition to the application for security) are controversial and that several are directly contrary to findings made by the trial judge.
Mr He deposed that, before he met Mr Huang, his business had an annual turnover of ‘roughly $1,654,000.00 per annum’. When the arrangement between them was set up, he ‘moved stock of a value of approximately $290,000.08 to’ the new premises. He had paid for that stock and, as the judge said, there was no evidence that Top Union had ever paid for that stock.[12] In the event, the arrangement broke down, and Mr Huang impounded the stock. Eventually, it was taken into possession by the liquidators of Top Union, and sold. The proceeds were retained by the liquidators.
[12]At the hearing of the present applications, counsel accepted that the stock had not been paid for. However, the judge’s finding that ownership had passed to Top Union was defended. .
The judge held that ownership of the stock had passed to Top Union and that, as a result, it could not be said to have been converted by Top Union or Mr Huang. That holding is the subject of two grounds of appeal. As already indicated, at present, we are in no position to assess the merit of those grounds, but consider them to be reasonably arguable.
In addition, Mr He deposed that, between 29 March and 19 April 2014, he paid $89,540.55 into the bank account of Top Union. He deposed that that sum represented the proceeds of online sales of ‘both [JC He International] and [Top Union]. Finally, he deposed that, after Mr Huang had impounded the stock and denied him access to the Doveton premises, he had to pay, by way of refund, $23,020.16 to online customers of JC He International whose orders had been paid for but could no longer be despatched.
We were (and are) not in a position to make firm findings about any of these matters. We note, however, that the trial judge did appear to find that Mr He had delivered stock to the new premises and that it had been sold by the liquidators of Top Union although it had not been paid for. We make no comment on the propriety of this.
We do note, however, that there is a basis for concluding that the impecuniosity of Mr He and the other applicants seems to be closely related to the whole association between Mr Huang and Mr He.
As indicated above, that association and the arrangements that it gave rise to are at the heart of this proceeding. They were highly personal despite the fact that the parties to them were barely familiar to each other when they made those arrangements. The arrangements were completely undocumented; they are of considerable complexity and open to be understood quite differently by the participants to them. The existence of a contract is of course, determined objectively. Moreover, the change in ownership in property (here: the stock transferred to the new premises) may occur at law quite independently of the understanding of the parties.
None of those issues have been determined on the present application.
What does seem clear is that the present financial circumstances of Mr He—the circumstances that have led him to seek a stay of the judgment below and the circumstances that have led the respondent to seek security for its costs of the application for leave to appeal—are inextricably bound up in the unravelling of the ambiguous arrangements to which we have referred. Accordingly, while in the normal course the respondents would be entitled to the fruits of the judgment below, it seemed to us that, in the present case, special circumstances exist that justify there being a stay on the judgment. These same circumstances also led us to conclude that security should be refused.
The applications involve, as we have said, the exercise of judicial discretion. We took into account the fact that the offer to establish the trust account would normally be sufficient to make a stay unnecessary. We also took into account that the impecuniosity of the applicants would normally justify an order that security be given. However, in all the circumstances, we were persuaded that the impecuniosity of the applicants was bound up inextricably with the conduct of the respondents and that it would be unfair to make orders that would have the effective consequence of stifling the present application for leave to appeal.
For these reasons at the conclusion of the hearing on 28 April 2017:
(gg) the application for a stay was granted; and
(hh) the application for security for costs was refused.
SCHEDULE
IN THE SUPREME COURT OF VICTORIA
AT MELBOURNE
IN THE COURT OF APPEAL No. S APCI 2017 0004
BETWEEN
WILLIAM JINGCHENG HE First Applicant
J.C.HE INTERNATIONAL TRADE PTY LTD
(A.C.N. 162 966 483) Second Applicant
CISELY LIU Third Applicant
| And |
LIANGPING HUANG First Respondent
TOP UNION BUSINESS PTY LTD (IN LIQ)
(A.C.N. 162 966 485) Second Respondent
9
11
0