Hill v Zhang (No 3)

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FEDERAL COURT OF AUSTRALIA

Hill v Zhang (No 3) [2020] FCA 969

File number: ACD 50 of 2019
Judge: GRIFFITHS J
Date of judgment: 9 July 2020
Catchwords: COSTS – interlocutory application for release of funds from existing security for costs – whether an order should be made that the applicants are jointly and severally liable to give additional security – release of funds and additional security ordered
Legislation:

Corporations Act 2001 (Cth), s 1335

Federal Court of Australia Act 1976 (Cth), ss 23, 56

Federal Court Rules 2011 (Cth), rr 1.32, 19.01
Cases cited:

Austcorp Project Number 20 Pty Ltd v L M Investment Management Ltd (in liq) [2014] FCA 1371

Australian Battery Distributors Pty Ltd v Robert Bosch (Australia) Pty Ltd [2015] FCA 1164

Bell Wholesale Co Ltd v Gates Export Corporation [1984] FCA 29; 2 FCR 1

Capital Webworks Pty Ltd v Adultshop.com.Limited [2008] FCA 40

Co-Operative Farmers’ & Graziers’ & Direct Meat Supply Ltd v Smart [1977] VR 386

Cowell v Taylor (1885) 31 ChD 34

Coyle v Cassimatis [1994] 2 QdR 262

East Grace Corporation v Xing (No 1) [2005] FCA 219

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

Hill v The Council of the Law Society of the ACT (No 2) [2020] ACTCA 13

Hill v Zhang [2019] FCA 1562

Hill v Zhang (No 2) [2019] FCA 1649

P S Chellaram v China Ocean Shipping Co [1991] HCA 36; 102 CLR 321

Truth About Motorways Pty Ltd v Macquarie Infrastructure Investment Management Ltd [2001] FCA 1603
Date of hearing: 9 July 2020
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: 58
Counsel for the Applicants: D A Hassall
Solicitor for the Applicants: Legal On London
Counsel for the Respondents: K Pattenden
Solicitor for the Respondents: Aulich Civil Law

ORDERS

ACD 50 of 2019
BETWEEN:

ALAN RICHARD HILL

First Applicant

INITIATIVE HOLDINGS PTY LTD (ACN 008 560 521)

Second Applicant
AND:

KAI ZHANG

First Respondent

THE AUSTRALIAN LAW COMPANY PTY LTD (ACN 606 972 196) TRADING AS MAXWELL & CO SOLICITORS AND BARRISTERS

Second Respondent

JUDGE:

GRIFFITHS J

DATE OF ORDER:

9 JULY 2020

THE COURT ORDERS THAT:

1.The sum of $48,598.46 plus interest from 9 April 2020 be released to the respondents from the $50,000.00 security lodged by the applicants on or about 5 November 2019. 

2.The applicants are jointly and severally liable to give additional security for the respondents’ costs in the amount of $100,000.00. 

3.The security referred to in order 2 above 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. 

4.The bank guarantee (or other approved form) required by orders 2 and 3 above be lodged with the Registrar within…

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Details
Case
[2020] FCA 969
Decision Date

CaseChat Overview and Summary

Hill v Zhang (No 3) involves an interlocutory application brought by the respondents seeking the release of funds from existing security for costs, as well as the imposition of additional security for costs. The applicants, who have a history of failing to pay costs, oppose the application. The court must determine whether the applicants should be required to provide additional security for costs and, if so, in what amount.

The legal issues before the court include whether the applicants' financial position justifies an order for additional security, and if so, what amount would be appropriate. The court considered the applicants' history of non-payment of costs, their current financial circumstances, and the potential costs of the litigation. The court noted that the applicants had a history of being ordered to pay costs but not actually paying them, and that they had recently agreed to pay costs in related proceedings. The court also considered the likely costs of the litigation and the applicants' ability to pay them.

The court found that the applicants' history of non-payment of costs, combined with their current financial circumstances, justified an order for additional security. The court ordered that $48,598.46 be released to the respondents from the existing security, and that the applicants provide additional security in the amount of $100,000.00. The court also stayed the proceedings until the additional security was provided, and ordered that the applicants pay the respondents' costs of the interlocutory application. The court found that the applicants' claims were bona fide and had a reasonable prospect of success, but that their history of non-payment of costs justified an order for additional security.

The court's orders reflect a careful consideration of the applicants' financial position and the potential costs of the litigation. The court found that the applicants' history of non-payment of costs, combined with their current financial circumstances, justified an order for additional security. The court's orders ensure that the respondents will be compensated for their costs if the applicants fail to pay them, while also taking into account the applicants' ability to pay.

Orders

Orders of the court

1. The sum of $48,598.46 plus interest from 9 April 2020 be released to the respondents from the $50,000.00 security lodged by the applicants on or about 5 November 2019.

2. The applicants are jointly and severally liable to give additional security for the respondents’ costs in the amount of $100,000.00.

3. The security referred to in order 2 above 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.

4. The bank guarantee (or other approved form) required by orders 2 and 3 above be lodged with the Registrar within 28 days hereof.

5. The proceedings are stayed until security for costs has been provided as required by orders 2, 3 and 4 above.

6. If the security is not paid in accordance with orders 2, 3 and 4 above, the proceedings be dismissed.

7. The applicants are jointly and severally liable to pay the respondents’ costs of the interlocutory application filed on 12 May 2020, as agreed or taxed.

8. Liberty to apply on the giving of 72 hours’ notice.

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

Background

Background to the litigation

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Evidence

Evidence Before The Court

The respondents’ present application for further security for costs, which is brought by an interlocutory application filed on 12 May 2020, seeks orders which may be summarised as follows:(a)the sum of $48,598.46 be released to the respondents from the $50,000.00 security lodged by the applicants on or about 5 November 2019;(b)the applicants be jointly and severally liable to give security for the respondents’ costs in the amount of $100,000.00 (exclusive of GST) within 28 days;(c)in the alternative to (b), the applicants jointly and severally are liable to give security for the respondents’ costs in the amount of $48,598.46 (excluding GST) within 28 days;(d)the proceedings be stayed until the security for costs has been provided;(e)if the applicants fail to give the security for costs the proceedings be dismissed; and(f)the applicants pay the respondents’ costs of the interlocutory application. The parties’ evidence In support of their application for security for costs, the respondents relied upon an affidavit affirmed on 12 May 2020 by their instructing solicitor, Ms Erin Taylor. It summarised the background and history of the litigation. On the issue of security for costs, Ms Taylor deposed (and I accept with one exception):·the second applicant has $2.00 of paid up share capital;·the second applicant is the service trust of a law practice that no longer operates;·the applicants are jointly and severally liable to pay the respondents’ costs which have been taxed in the amount of $48,598.46 (Taxed Costs);·the applicants are jointly and severally liable to pay the respondents’ costs in the amount of approximately $95,500.00 in related proceedings in ACD14/2019;·the applicants are also jointly and severally liable to pay the respondents’ costs in accordance with orders made by the Court on 27 March 2020 in relation to amendments to the statement of claim and originating application;·the first applicant is currently the subject of an adverse costs order made by the ACT Court of Appeal in Hill v The Council of the Law Society of the ACT (No 2) [2020] ACTCA 13;·the first applicant owns three properties all of which are subject to caveats (but see [9(d)] below);·the first applicant has lost his unrestricted practising certificate; and·the applicants have rejected the respondents’ request that they pay the Taxed Costs and provide further security in the sum of $100,000.00. Ms Taylor deposed, and I accept, that the costs order dated 27 March 2020 is likely to be taxed in the amount of approximately $40,000.00, which would bring the total amount of costs owing by the applicants to the respondents to approximately $180,000.00 (including costs in the related proceeding in ACD14/2019). Ms Taylor deposed, and I accept, that the respondents’ likely professional costs in the further conduct of the present proceeding will be in the range of approximately $40,000.00 to $66,000.00 and likely disbursements in the range of approximately $4,000.00 to $7,000.00. I also accept that the respondents’ counsel’s estimate that his future fees in respect of a hearing which is estimated to take four days will be between $16,500.00 and $22,500.00.

Decision

Reasons for decision

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

For the same reasons as given in Hill v Zhang [2019] FCA 1562 at [40]-[41], I find that, on an impressionistic basis, the applicants’ claims are bona fide and have a reasonable prospect of success. On the basis of the material presently before the Court, however, the Court is not in a position to determine the validity of the applicants’ repeated assertion that they have “good claims” which are “very likely to succeed” and produce an award of damages of approximately a half a million dollars plus costs. I note that the respondents are yet to file a defence or any detailed evidence on the substantive matters but, as Edelman J observed in Australian Battery Distributors Pty Ltd v Robert Bosch (Australia) Pty Ltd [2015] FCA 1164 at [32], those circumstances provide “a classic instance where it is inappropriate to descend into a consideration of the prospects of success”. (c) Other relevant considerations I see no reason to vary the analysis and findings set out in Hill v Zhang [2019] FCA 1562 at [44] to [48], taking into account the additional and updated evidence before the Court. The applicants have adduced no sufficient evidence to demonstrate that an order for further security for costs in the amount sought by the respondents will stifle the proceeding. Ms Taylor’s evidence demonstrates that the applicants, collectively and individually, have a history of being ordered to pay, but not in fact paying or dealing at least with the paying of the respondents’ costs. As noted, the applicants recently agreed to pay the respondents’ costs in ACD14/2019. It is also noted that Mr Hill has agreed with the ACT Law Society that he will pay their costs in separate proceedings in the amount of $5,000.00 per month commencing on 1 November 2020. Self-evidently the agreed monthly payment of $5,000.00 per month will take up almost one-half of Mr Hill’s monthly salary, after November 2020. Furthermore, it was only today in the course of the hearing that the applicants agreed to the release of the existing security. There is no suggestion that the respondents have delayed unreasonably in seeking a further order for security. No persuasive evidence has been advanced which suggests that the financial position of either applicant has been adversely affected in a material way by the respondents’ own conduct. The highest the evidence goes is that of Mr Hill who said that although he was meeting his financial obligations, this has proven to be difficult at times as he was relying upon the sale proceeds of his legal practice. That brings me to the applicants’ central claim that the poverty of an applicant is not a sufficient basis to justify an order for security. On its face, there appears to be some tension between the criteria in rule 19.01(3)(a) and (d) of the 2011 FCRs. The former criterion requires that an affidavit in support of an application for security for costs should state whether there is reason to believe that the applicant will be unable to pay the respondent’s costs if so ordered, whereas subparagraph (d) requires the affidavit to also state whether the applicant is impecunious. It is notable that Mr Hill did not claim in his affidavit that he was impecunious. On the contrary, he drew attention to his current monthly salary. As I have noted above, however, it would appear that the agreement he has with the ACT Law Society to pay their costs, commencing in November 2020, will involve almost one-half of his salary and the applicants have also very recently agreed to pay the respondents’ costs in ACD14/2019. Despite these developments, Mr Hill did not claim to be impecunious or provide any evidence to support any such claim. There is good reason to believe, however, based on the history of the proceedings and the financial position of both applicants, that they will not be able to pay the respondents’ costs, if so ordered.