Hill v Zhang

Case [2019] FCA 1562

FEDERAL COURT OF AUSTRALIA

Hill v Zhang [2019] FCA 1562

File number: ACD 50 of 2019
Judge: GRIFFITHS J
Date of judgment: 25 September 2019
Catchwords:

PRACTICE AND PROCEDURE - application for security for costs - where proceedings involve a substantial degree of overlap between claims brought by both an individual and corporate applicant - assessment of the individual’s capacity to meet a potential costs order against the corporate applicant - security ordered

PRACTICE AND PROCEDURE - application for strike out of statement of claim under r 16.21(1)(c) of the Federal Court Rules 2011 (Cth) - where the pleading contains a number of ambiguities about material facts - statement of claim struck out
Legislation:

Corporations Act 2001 (Cth) s 1335

Federal Court of Australia Act 1976 (Cth) s 56

Federal Court Rules 2011 (Cth) rr 16.21, 19.01

Cases cited:

Australian Law Company Pty Ltd v Initiative Holdings Pty Ltd [2019] FCA 1561

Brecher v Barrack Investments Pty Ltd [2018] FCA 472

Equity Access Ltd v Westpac Banking Corporation (1989) ATPR 40-972

Fiduciary Ltd v Morningstar Research [2004] NSWSC 664; 208 ALR 564

Harpur Pty Ltd v Ariadne Australia Ltd (No 2) [1984] 2 Qd R 523

Hill v The Council of the Law Society of the ACT [2019] ACTSC 79

Interwest Ltd v Tricontinental Corporation Ltd (1991) 5 ACSR 621

Jodast Pty Ltd v A & J Blattner Pty Ltd (1991) 104 ALR 248

Lim v Comcare [2016] FCA 1346

Street v Luna Park Sydney Pty Ltd [2006] NSWSC 1317

Date of hearing: 24 September 2019
Registry: Australian Capital Territory
Division: General Division
National Practice Area: Commercial and Corporations
Sub-area: Commercial Contracts, Banking, Finance and Insurance
Category: Catchwords
Number of paragraphs: 63
Counsel for the Applicants: WDB Buckland
Solicitor for the Applicants: Nelson & Hill Lawyers
Counsel for the Respondents: K Pattenden
Solicitor for the Respondents: Aulich Civil Law

ORDERS

ACD 50 of 2019
BETWEEN:

ALAN HILL

First Applicant

INITIATIVE HOLDINGS PTY LTD

Second Applicant
AND:

KAI ZHANG

First Respondent

THE AUSTRALIAN LAW COMPANY

Second Respondent

JUDGE:

GRIFFITHS J

DATE OF ORDER:

25 SEPTEMBER 2019

THE COURT ORDERS THAT:

1.The applicants are jointly and severally liable to give security for the respondents’ costs in the amount of $50,000 (exclusive of GST). 

2.The security is to be given in the form of a bank guarantee (or in such other form as is acceptable to the Registrar) and is to be lodged with the Registrar and a copy of which is to be served promptly on the solicitor for the respondents.

3.The bank guarantee (or other approved form) required by Orders 1 and 2 be lodged with the Registrar within 21 days hereof. 

4.The proceedings are stayed until security for costs has been provided as required by the above orders. 

5.Pursuant to r 16.21(1) of the Federal Court Rules 2011 (Cth), the originating application and statement of claim be struck out.

6.The respondents have leave to file an amended originating application and amended statement of claim within 14 days after…

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Hill v Zhang [2019] FCA 1562
Case
[2019] FCA 1562
Decision Date

CaseChat Overview and Summary

The case of Hill v Zhang involved an application for security for costs and a motion to strike out the statement of claim. The applicants, Mr Hill and Zhang, sought to recover costs from the respondents, Initiative Holdings Pty Ltd and Australian Law Company Ltd. The primary legal issues were whether the Court should order security for costs and whether the statement of claim should be struck out due to its ambiguity. The Court determined that the applicants should provide security for costs in the amount of $50,000, given their limited financial capacity and the complexity of the case. Additionally, the Court found that the statement of claim contained significant ambiguities and uncertainties, leading to its striking out and a directive for the applicants to replead.

The Court exercised its discretion under s 56 of the Federal Court of Australia Act 1976, r 19.01 of the Federal Court Rules 2011, and s 1335 of the Corporations Act 2001. The Court considered the applicants' financial situation, the risk of non-payment if they were unsuccessful, and the need to protect the respondents from potential financial loss. The Court noted the applicants' lack of financial resources and the substantial overlap between their claims, which necessitated a precautionary measure. Given the applicants' inability to meet a potential costs order, the Court found it appropriate to order security for costs. Additionally, the Court addressed the respondents' application to strike out the statement of claim, finding that the document contained numerous ambiguities and uncertainties that hindered the respondents' ability to defend the proceedings effectively.

In conclusion, the Court ordered that the applicants provide security for the respondents' costs in the amount of $50,000, to be given in the form of a bank guarantee and lodged within 21 days. The proceedings were stayed until the security was provided. Furthermore, the Court struck out the applicants' statement of claim and granted the respondents leave to file an amended statement of claim within 14 days after compliance with the security order. The Court also directed the parties to attempt to agree on the terms of costs for the interlocutory application, with a final determination to be made on the papers if they could not reach an agreement.

Orders

Orders of the court

1. The applicants are jointly and severally liable to give security for the respondents’ costs in the amount of $50,000 (exclusive of GST).

2. The security is to be given in the form of a bank guarantee (or in such other form as is acceptable to the Registrar) and is to be lodged with the Registrar and a copy of which is to be served promptly on the solicitor for the respondents.

3. The bank guarantee (or other approved form) required by Orders 1 and 2 be lodged with the Registrar within 21 days hereof.

4. The proceedings are stayed until security for costs has been provided as required by the above orders.

5. Pursuant to r 16.21(1) of the Federal Court Rules 2011 (Cth), the originating application and statement of claim be struck out.

6. The respondents have leave to file an amended originating application and amended statement of claim within 14 days after compliance with Orders 1 to 3 above.

7. Liberty to apply on the giving of 48 hours’ notice.

8. By 5:00 pm 2 October 2019, the parties are to seek to agree the terms of an order for costs in respect of the interlocutory application. If they cannot agree, within that time, each is to file and serve an outline of submissions, not exceeding three pages in length, setting out the order they seek and supporting reasons. The issue of costs will then be determined on the papers and without a further hearing.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

For completeness, it should also be noted that the respondents’ opposition to security did not raise any issue concerning incremental costs (see Brecher at [19]). Accordingly, I have not addressed that issue. Conclusion on security For these reasons, the Court will order that the first and second applicants be jointly and severally liable to give security for the respondents’ costs in the amount of $50,000 (exclusive of GST). That amount should be paid in the form of a bank guarantee (or in such other form as is acceptable to the Registrar) to be lodged with the Registrar and a copy of which is to be served on the solicitor for the respondents. The bank guarantee (or other acceptable form of security) is to be lodged with the Registrar within 21 days hereof. The proceedings will be stayed until security for costs has been provided as required by the orders. In the event that the applicants fail to comply with these orders, there will be liberty to apply on the giving of 48 hours’ notice. (b) Adequacy of applicants’ pleading The respondents apply under r 16.21(1) of the 2011 FCRs to strike out the applicants’ pleading:16.21 Application to strike out pleadings(1)A party may apply to the Court for an order that all or part of a pleading be struck out on the ground that the pleading:(a) contains scandalous material; or(b) contains frivolous or vexatious material; or(c) is evasive or ambiguous; or(d)is likely to cause prejudice, embarrassment or delay in the proceeding; or(e)fails to disclose a reasonable cause of action or defence or other case appropriate to the nature of the pleading; or(f)is otherwise an abuse of the process of the Court. The Court was informed that there has been an exchange of correspondence between the parties on the issue of the adequacy of the applicants’ originating application and statement of claim. The completing views are recorded in two letters by their respective solicitors, both letters being dated 11 September 2019 and which together became Exhibit A. The respondents’ letter was written with an invitation for the applicants to amend their pleadings and, if they did so, costs thrown away would not be sought. The applicants did not avail themselves of that offer. Instead, they responded in a four page letter dated 11 September 2019 and invited the respondents to treat their response as particulars of the originating application and statement of claim. Having heard argument, I am satisfied that the present originating application and statement of claim should be struck out and repleaded. As matters stand at present, there are too many uncertainties about the pleadings to enable the respondents to know the case which they have to meet. The need for certainty is highlighted in this case having regard to its history and the altered position taken by one or other of the applicants on several key issues. It is sufficient to refer to the differences between the contents of the affidavit sworn by Mr Hill in support of the statutory demand in the proceedings in ACD14/2019 (see Australian Law Company Ltd v Initiative Holdings Pty Ltd [2019] FCA 1561 at [11]) and the terms of the 2018 Agreement, and to the need for the applicants to plead the status and relationship of the 2015 and 2018 Agreements.

Ratio Decidendi

Legal Principle Established

The applicants asked to be heard on the issue of the costs of the interlocutory application. Consideration and determination on security(a) Summary of legal principles The application for security for costs is made pursuant to s 56 of the Federal Court of Australia Act 1976 (Cth) (FCA Act), r 19.01 of the 2011 FCRs and s 1335 of the Corporations Act 2001 (Cth) (the Act). The Court has a discretion under s 56 of the FCA Act and r 19.01 of the 2011 FCRs to order an applicant to give a security for the payment of costs that may be awarded against it. Further, s 56(2) provides that the security shall be of such amount, and given at such time and in such manner and form, as the Court directs. It is well settled that the Court’s discretion under s 56 is broad and unfettered, but it must be exercised judicially (and with close attention to the circumstances of the particular case (see Lim v Comcare [2016] FCA 1346 at [18] per Wigney J). At [19] of Lim, Wigney J said:The various considerations that may bear upon the making of an order have been considered in numerous authorities. Those considerations include: the appellant’s prospects of success; the extent of the risk that a costs order against the appellant will not be met if the appeal is unsuccessful; whether the making of an order for security for costs would be oppressive, in that it would stifle a reasonably arguable claim; whether any impecuniosity of the appellant arises out of the conduct complained of; whether there are other aspects of the public interest that weigh in the balance against the making of an order for security; and whether there are any particular discretionary matters peculiar to the circumstances of the case: see generally Equity Access Ltd v Westpac Banking Corporation [1989] FCA 520; (1989) ATPR 40-972 at 50,635 [24]; Soh v Commonwealth of Australia [2008] FCA 1524 at [10]; Clack v Collins (No 1) [2010] FCA 513 at [13]. Under s 1335 of the Act, the Court has a discretion to order a corporation, which is a plaintiff in any action or other legal proceeding in which the Court has jurisdiction, to order security for costs “if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant” if the defendant succeeds. The purpose for making an order for security for costs is to protect the respondent against the possibility that the applicant, if unsuccessful, will be unable to meet an order for costs. Where an application for security for costs is made in respect of a corporate applicant, the following three issues usually rise (see Street v Luna Park Sydney Pty Ltd [2006] NSWSC 1317 at [5] per Brereton J):(a)whether the “jurisdictional issue” is established, namely that credible testimony demonstrates that the applicant corporation is unable to pay the respondent’s costs, in which event the Court’s discretion to order security for costs is enlivened;(b)where the jurisdictional issue is established, whether an order for security should be made as a matter of discretion; and(c)the quantum and terms of security to be given.