Nikolic v Guo
[2023] WASC 265
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: NIKOLIC -v- GUO [2023] WASC 265
CORAM: REGISTRAR FATHARLY
HEARD: 31 MAY 2023
DELIVERED : 17 JULY 2023
PUBLISHED : 17 JULY 2023
FILE NO/S: CIV 2059 of 2021
BETWEEN: DAVOR NIKOLIC
Plaintiff
AND
XIUYI GUO
First Defendant
SHUYA DUAN
Second Defendant
Catchwords:
Application for security for costs ‑ Individual plaintiff ‑ Concern plaintiff will be unable to meet adverse costs order ‑ Whether obligations on plaintiff to set out financial circumstances ‑ Conferral
Legislation:
Rules of the Supreme Court 1971, O 25, O 59 r 9
Result:
Application for security dismissed
Category: B
Representation:
Counsel:
| Plaintiff | : | In Person |
| First Defendant | : | D Chandler & A Lai |
| Second Defendant | : | D Chandler & A Lai |
Solicitors:
| Plaintiff | : | In Person |
| First Defendant | : | AH2 Legal |
| Second Defendant | : | AH2 Legal |
Case(s) referred to in decision(s):
Brundza v Robbie & Co (No 2) (1952) 88 CLR 171, 175; [1952] HCA 49
Cowell v Taylor (1885) 31 Ch D 34
Kevorkian v Burney (No 2) [1937] 4 All ER 468
Mabrouk Minerals Pty Ltd v Mabrouk Holdings Ltd [2008] WASC 132
Morris v Hanley [2000] NSWSC 957
Nikolic -v- Guo [2022] WASC 386
Remm Construction (SA) Pty Ltd v Allco Newsteel Pty Ltd [1991] SASC 3090 [42]
Sarac v Croatian House Hrvatski Dom (Inc) (Unreported, WASC Full Court, Library No 950675, 12 December 1995)
Southern Cross Exploration NL v Fire & All Risks Insurance Co Ltd (1985) 1 NSWLR 114
Sutton Investments Pty Ltd v Realistic Investments Pty Ltd [2017] WASCA 14
REGISTRAR FATHARLY:
Application for security
On 31 May 2023 I heard the defendants' application for orders that the plaintiff pay $50,000 into court as security for future costs of the proceedings with the proceedings to be stayed until the security is furnished. I reserved my decision at the time.
The proceedings have now been on foot for 21 months with two substantive contested applications brought prior to the application for security.
The defendants' application is based upon their concern that the plaintiff will not be able to meet an order for costs if he fails in the action, that is, if the defendants are successful in their defence of the proceedings[1] (the defendants' Concern). In reality, they simply do not know whether he could.
[1] Affidavit of Shuya Duan affirmed 23 March 2023, [6].
The defendants' solicitors demanded of the plaintiff that he provide personal information to satisfy them as to his ability to meet an adverse costs order, but not surprisingly he did not do so.
The defendants rely upon that refusal or failure as a basis for not knowing whether he could satisfy costs of an adverse judgment, submitting they had no choice but to make the application and that if the plaintiff had simply answered the defendants' Concern this application would not have been necessary.
The defendants submit that the plaintiff has brought the application upon himself by refusing or failing to satisfy them and it is a factor in favour of exercise of discretion to award security. I respectfully disagree.
For the reasons stated the application should be dismissed.
Documents relating to the application
In support of the application were:
(a)the chamber summons filed 23 March 2023;
(b)memorandum of conferral;
(c)an affidavit of Shuya Duan affirmed 23 March 2023; and
(d)submissions and authorities filed 13 April 2023.
In opposition to the application were:
(a)an affidavit of Davor Nikolic filed 6 April 2023; and
(b)submissions and authorities filed 24 April 2023.
Nature of claim and defence
The plaintiff commenced these proceedings on 10 October 2021. He claims[2] that:
(a)he was at all material times the sole proprietor of Architectural Online;
(b)the defendants, as registered proprietors of the two properties in Northbridge, proposed to construct a hotel on the site;
(c)on 20 April 2019 the plaintiff entered into a written contract with the defendants to project manage the construction of the new proposed hotel;
(d)on 20 November 2020 the defendants repudiated the contract;
(e)he accepted the repudiation of the contract; and
(f)pursuant to the terms of the contract he is entitled to damages.
[2] Summarised in Nikolic -v- Guo [2022] WASC 386 [2].
The defendants deny that they entered into any contract with the plaintiff and accordingly deny they are liable for damages.
It is not in dispute that given the arguments between the parties on the pleadings and the fact that mediation has not resolved the claim, the matter will have to be determined at an estimated two day trial.
Principles
The Court may order security for costs to be given by a plaintiff but no order shall be made merely on account of the poverty of the plaintiff or the likely inability of the plaintiff to pay any costs which may be awarded against him.[3]
[3] O 25 r 1 Rules of the Supreme Court 1971 (RSC), reflecting well‑established case law.
The granting of security shall be in the discretion of the Court, and in determining whether an order should be made the Court shall take into consideration:[4]
(a)the prima facie merits of the claim;
(b)what property within the jurisdiction may be available to satisfy any order for costs against the plaintiff; and
(c)whether the normal processes of the Court would be available within the jurisdiction for enforcement of any order for costs made against the plaintiff.
[4] O 25 r 3 RSC.
Of itself, mere poverty is no bar to a litigant,[5] and the 'poverty rule' is merely one of the factors to consider of whether it would be vexatious to allow the proceedings to continue without security.[6]
[5] Cowell v Taylor (1885) 31 Ch D 34, 38.
[6] Morris v Hanley [2000] NSWSC 957 [18].
There is an entirely general discretion to award or refuse security and the mere fact of the poverty of the plaintiff will not necessarily be sufficient to justify the making of an order, although one of the primary issues to be considered is whether the plaintiff will be able to meet an order for costs if he or she fails in the action.[7]
[7] Sarac v Croatian House Hrvatski Dom (Inc) (Unreported, WASC Full Court, Library No 950675, 12 December 1995).
There are nine stated non‑exclusive grounds in O 25 r 2 RSC which may justify making an order for security.
The discretion is unfettered but must be exercised judicially and upon examination of all of the relevant circumstances.[8]
[8] Mabrouk Minerals Pty Ltd v Mabrouk Holdings Ltd [2008] WASC 132 [57].
A defendant must provide the relevant information in their possession as to whether security should be ordered and the required amount.[9]
[9] Remm Construction (SA) Pty Ltd v Allco Newsteel Pty Ltd [1991] SASC 3090 [42], [67].
If security is ordered:
(a)the Court may direct the manner and form of security and may from time to time vary the amount and form of security;[10] and
(b)unless otherwise ordered the proceedings are stayed until the security is furnished.[11]
[10] O 25 r 5 RSC.
[11] O 25 r 6 RSC.
Prima facie merits of the claim
The indorsed writ claims liquidated damages of $825,000, alternatively unliquidated damages against the defendants for breach of contract. The writ, but not the substance of the claim, has since been amended.
The claim, originally pleaded in the statement of claim[12] and now more fully set out in the amended statement of claim[13] has been the subject of two applications by the plaintiff to Master Sanderson.
[12] Filed 6 December 2021.
[13] Filed 30 January 2023.
The first application sought summary judgment against the defendants, dismissed 28 April 2022 with the costs of that summons being ordered to be costs in the cause.
For the purposes of the summary judgment application, it would only have been appropriate to give judgment for the plaintiff if there was no real question to be tried, if there was no fairly arguable point to be brought forward.[14] Relevantly, the defendants dispute there is a binding contract and rely upon having signed a largely blank standard form document in reliance upon the plaintiff's representations, issues for trial.
[14] Sutton Investments Pty Ltd v Realistic Investments Pty Ltd [2017] WASCA 14, [24].
The second application was for a freezing order against two properties owned by the defendants, the subject of reasons in Nikolic v Guo. Orders made 12 December 2022 dismissed the application with the plaintiff to pay the defendants' costs. For the purposes of the freezing order application, Master Sanderson was prepared to accept the plaintiff has a good arguable case.[15]
[15] Sutton Investments Pty Ltd v Realistic Investments Pty Ltd, [7].
The plaintiff had also made an application for default judgment at an early stage of the proceedings in circumstances of the defendants' solicitors having had difficulty filing the defence using the e-Courts portal, the defence being filed later than ordered. I did not enter judgment.
For the purpose of this application, it is not in dispute that there are factual and legal determinations to be made at trial. Without the benefit of the evidence at trial, it must be accepted that the plaintiff has an arguable case.
The claim is prima facie regular and discloses a cause of action. In the absence of evidence to the contrary, the claim must be accepted as bona fide with reasonable prospects.
There is no suggestion that the claim is vexatious, should be struck out or the subject of summary judgment in favour of the defendants, nor has there been any such application by the defendants.
While it is entirely possible that the defendants will be successful in their defence of the claim at trial, I am not satisfied in relation to this application that the prima facie merits of the claim weigh in the defendants' favour to be a factor justifying security.
Assets to satisfy an adverse costs order
In determining what property within the jurisdiction may be available to satisfy any order for costs against the plaintiff, the following summary of evidence was before me on affidavit from the defendants:[16]
[16] Affidavit of Shuya Duan affirmed 23 March 2023.
(a)a copy letter from AH2 Legal to the plaintiff dated 22 July 2022[17] raising concern about his ability to pay the defendants' costs of the proceedings in the event that they were successful in their defence. The letter requested him to inform their client of his:
[17] Attachment SD‑1.
(i)visa and residency status in Australia;
(ii)the value of assets and liabilities including any loans and mortgages held by him in Australia;
(iii)and any other information that could establish his ability to satisfy any costs order against him, estimated to be around $65,000 on a party to party basis;
(b)a copy of an email from the plaintiff to AH2 Legal dated 26 July 2022[18] in which he refused to disclose any information as to his personal status. He stated there was no basis for the disclosure of this information but out of his goodwill and for the sake of transparency he could confirm that he did not fall in any category stated in O 25 r 2 RSC;
(c)a copy letter from AH2 Legal to the plaintiff dated 4 November 2022 referring to the 22 and 26 July 2022 correspondence.[19] It stated that they noted he had refused to disclose information pertaining to his ability to pay the defendants' costs of the proceedings in the event they are successful in their defence. It warned that an application may be made if they did not receive a satisfactory response from him by 11 November 2022 and enclosed a draft bill of costs;
(d)the draft bill of costs of 4 November 2022 attached to the letter from AH2 Legal which set out costs of $43,967 to that date and estimated future costs of $59,078;
(e)a copy of an email from the plaintiff to AH2 Legal dated 14 November 2022[20] stating that the defendants do not have any grounds for applying for security for costs pursuant to O 25 r 2 RSC, and that if the application is made it would be vigorously defended;
(f)a copy of an email from the plaintiff to AH2 Legal dated 19 January 2023[21] stating that he would prefer communication by email not orally for reasons he stated;
(g)a copy of an email from AH2 Legal to the plaintiff dated 20 January 2023[22] restating the defendants' position and stating that if the defendants are satisfied that the plaintiff has sufficient assets in Australia to meet any costs order against him, they will not apply for security but reserve the right to do so in future. It was stated that the refusal by the plaintiff to provide the requested information was unjustified on grounds, citing authorities, of the unfettered discretion of the Court to order security, the discretion not being confined to O 25 r 2 RSC criteria, and inherent jurisdiction to order security. The time frame for provision of information was extended to 25 January 2023 and invited conferral by telephone;
(h)a copy of an email from the plaintiff to AH2 Legal dated 30 January 2023[23] stating that in the interests of public justice he could confirm that he is an Australian citizen and that he does own real estate in Australia;
(i)copy of an email from AH2 Legal to the plaintiff dated 2 February 2023[24] stating that his answer to the repeated request for 'the value of assets and liabilities (including any loans and mortgages) held by you in Australia', answered by the fact that he “own[s] real estate in Australia” is not sufficient and that an application for security would be filed;
(j)a copy of a certificate of title for a Mount Lawley property registered in the name of the plaintiff on 17 July 2019, extracted from Landgate on 15 March 2023, purchased for $540,000 over which there is a mortgage to Westpac Banking Corporation registered July 2019;[25]
(k)a statement from the second defendant, without supporting invoices, that she has incurred $60,000 in legal costs including disbursements to 23 March 2023 and had been told by her solicitor that the future costs on a party to party basis, excluding this application, would be $50,000.
[18] Attachment SD‑2.
[19] Attachment SD‑3.
[20] Attachment SD‑4.
[21] Attachment SD‑5 [15].
[22] Attachment SD-5.
[23] Attachment SD-6 [16] ‑ [17].
[24] Attachment SD-6.
[25] Attachment SD‑7.
The following summary of evidence was before me on affidavit from the plaintiff:[26]
[26] Affidavit of Davor Nikolic sworn 6 April 2023.
(a)the correspondence in the second defendant's affidavit was referred to, together with:
(i)a further email from AH2 Legal to the plaintiff on 17 January 2023[27] setting out information about the security for costs application to be made, providing information previously provided;
[27] Attachment DN‑1.
(ii)a further email of 17 January 2023 from the plaintiff to AH2 Legal[28] regarding programming orders and stating with respect to security for costs that, unless they could provide him with a substantial basis for the application, he stood by his decision. He offered to confer with Mr Lai of AH2 Legal regarding the application and any other issues at a time convenient to Mr Lai, including to discuss the case further to try to find a resolution;
[28] Attachment DN‑2.
(b)The plaintiff set out his concerns about:
(i)the delays in the defendants bringing the application;
(ii)the amount of costs claimed for security;
(iii)perceived intention to delay or other ulterior motives; and
(iv)no reasons stated for sudden concerns as to the plaintiff's inability to pay costs;
(c)the plaintiff stated that he is a non‑practising lawyer but admitted in the Supreme Court of Western Australia on 4 November 2022. While representing himself at present he intends to hire a barrister and solicitor for trial. He is also a builder;
(d)the plaintiff confirmed that he is an Australian citizen, owns the Mount Lawley property in which he will be residing, owns a 2015 Mitsubishi Triton and is the director of a building company, Nikolic Enterprises Pty Ltd, which he started 13 years ago.
While the current value of the plaintiff's property has not been set out, it is clear that the plaintiff has significant assets within the jurisdiction. There is no suggestion or evidence that he will not continue to have those assets available to satisfy any potential adverse costs order in the future. What is not clear from the evidence is the extent of liabilities and the net asset value.
If the plaintiff establishes a prima facie case that he or she has assets within the jurisdiction which will remain available to cover the costs, it is then for the defendants to prove that the assets are insufficient.[29]
[29] Kevorkian v Burney (No 2) [1937] 4 All ER 468, 470.
The defendants submit that they do not know the value of the assets and liabilities because the plaintiff will not tell them. However, he is not obliged to do so. The defendants cannot prove those circumstances that the plaintiff's assets are insufficient.
Having properly turned his mind to criteria in O 25 RSC, the plaintiff made clear to the defendants by correspondence that none of the provisions of O 25 r 2 applied to him, and went further to confirm to them that he is an Australian citizen and does own property in Australia. Not surprisingly, he refused to answer the defendants' demands for information beyond that.
It is clear that the defendants could have obtained publicly available information about the plaintiff's real property ownership and potentially other business interests with or without demanding it from him, knowing for example that he was operating at least one business in Western Australia from which the dispute arose. No company or business name searches were provided in support of the application despite:
(a)the plaintiff's company and website being referred to regularly in correspondence and the pleadings; and
(b)Architectural Online being referred to in the pleadings.
Assuming the defendants have provided all evidence in their possession relevant to the question of whether security should be ordered, the fact that they could have:
(a)undertaken property searches sooner than the 15 March 2023 search provided; or
(b)undertaken business name and company searches relating to the plaintiff but did not do so as part of the application so as to provide a complete picture of why security is nonetheless required;
undermines the application.
Defence counsel properly concedes (the Concessions) that:
(a)there is no obligation on the plaintiff to provide the information sought either under O 25 RSC or under any authority to which he could refer me; and
(b)as a result of not having detailed answers to their enquiries, they cannot tell whether the plaintiff could satisfy an adverse costs order but do know the plaintiff owns a mortgaged property; and
(c)if the plaintiff fell within the category of 'poverty … or the likely inability of the plaintiff to pay any costs which may be awarded against him'[30] that of itself is not a proper basis to make an order for security.
Whether the normal processes of the Court would be available within the jurisdiction for enforcement of any order for costs made against the plaintiff
[30] O 25 r 1 RSC.
Given the above, there is no apparent reason why the normal processes of the Court would not be available within the jurisdiction for the enforcement of any adverse costs order against the plaintiff.
The plaintiff is a non‑practising legal practitioner admitted in Western Australia less than a year ago, has a longstanding business operating from Western Australia and real and personal property in Western Australia. There is no apparent reason, in the context of being a plaintiff in these proceedings seeking to recover substantial damages to which he claims to be entitled, or otherwise, suddenly to leave the jurisdiction or sell assets with a view to avoiding enforcement of any adverse orders. There is no evidence or submission that he is doing so or may do so.
Consideration
In exercising my discretion in this case to refuse security I have taken into consideration the following:
(a)none of the usual grounds set out in O 25 r 2 apply to this plaintiff;
(b)I am not satisfied in relation to this application that the prima facie merits of the claim weigh in the defendants' favour to be a factor justifying security;
(c)the plaintiff has significant assets within the jurisdiction. There is no suggestion or evidence that he will not continue to have those assets available to satisfy any potential adverse costs order in the future;
(d)while the net value of the assets is not known, and the defendants have not satisfied me that they are insufficient to meet an adverse costs order, the amount sought as security is less than 10% of the purchase price of the Mount Lawley property when purchased in 2019, in addition to which he has a car and business interests;
(e)there is no apparent reason why any adverse costs order could not be enforced in Western Australia, including as necessary, taking action as may be necessary under the Civil Judgments Enforcement Act 2004;
(f)the defendants' Concern is based upon lack of knowledge and speculation rather than upon facts demonstrating that the plaintiff may be unable to satisfy an adverse costs order in these proceedings. Demanding the plaintiff's financial and other information satisfy their concerns but not receiving it is not a sufficient basis to justify ordering security;
(g)the Concessions;
(h)the defendants' own conduct, referred to below.
The defendants' conduct is of itself not a determining factor but undermines their application due to delay in bringing this application and delay in taking steps to assess and recover the costs ordered 12 December 2022.
While security may be ordered at any time, applications should be made promptly.[31] Delay can be a significant discretionary consideration militating against the making of an order.[32] In this case:
(a)the application for security was first foreshadowed on 22 July 2022, shortly after the plaintiff applied for the freezing order against defendant assets actually being sold, but nine months after the proceedings commenced. It was not foreshadowed upon commencement of the proceedings;
(b)since 22 July 2022 numerous documents have been filed with the two contested applications and further pleadings;
(c)the application for security was not filed until eight months after it was foreshadowed despite the plaintiff's response to it being consistently that there was not a proper basis for it and him providing some information in response to the defendants' Concerns; and
(d)while delay is sought to be explained on the basis of ongoing conferral and attempting to obtain information from the plaintiff to avoid the need for an application if the defendants' Concerns were satisfied, there was no meaningful change of position of the parties regarding security during that time but there was significant time and effort of two contested applications, one giving rise to the adverse costs order, which may be said to have prejudiced the plaintiff.
[31] Brundza v Robbie & Co(No 2) (1952) 88 CLR 171, 175; [1952] HCA 49.
[32] Southern Cross Exploration NL v Fire & All Risks Insurance Co Ltd (1985) 1 NSWLR 114, 123.
The delay arising from the assessment and recovery of the 12 December 2022 orders is relevant because, despite the defendants' Concern said to found this application to secure future costs:
(a)when the security application was filed, no steps had been taken to file a bill of costs to determine the amount payable or to recover those past costs despite submissions from defence counsel that attempts were made to agree costs;
(b)a bill of costs was finally filed on 25 May 2023, six days before the special appointment to hear this application, claiming $11,673 but which costs have not been taxed. At the time of this decision the provisional assessment process has not been completed; and
(c)at this stage the plaintiff is not in default of payment for costs ordered and the amount for which he is liable has not been determined.
If the defendants' Concern was sufficiently great, it is curious and incomprehensible that they did not apply for security sooner and file the bill much earlier than they did instead of filing the bill two months after the application for security, six days prior to the special appointment. Had the ordered costs been determined but not paid there may have been a stronger basis for the defendants' Concern of an inability to pay.
There is no evidence that the making of an order for security would frustrate the litigation or place the plaintiff in a position of being unable to carry on with the proceedings, however, the plaintiff submitted from the bar table that the proceedings would need to be stayed for some time if security was ordered on the basis that he requires funds for other purposes, preventing him providing security in the near future.
While the plaintiff states he is prejudiced in all the circumstances, the defendants deny that and consider there is equally prejudice to the defendants if security is not ordered to protect their position in relation to future costs.
Amount and manner of security
As the application for security will be dismissed, it is unnecessary to determine the amount and manner of security.
Had security been ordered in relation to future costs, based upon the costs claimed and work to be undertaken, I would have ordered $40,000 not $50,000 in any event, with some of the stated future costs in the draft bill being excessive,[33] not justified upon the evidence[34] and the amounts not reflective of the likely time and effort which should be required for this matter to proceed to trial. While the form of security typically is by payment into Court, that would have been within a reasonable time subject to hearing from the parties.
[33] Claimed $7,271 for this application based upon a combination of 13 hours total of senior practitioner and counsel time.
[34] Claimed 'Preparation of the case for trial, includes work reasonably and necessarily undertaken prior to commencement of proceedings' (my emphasis) to a value of $17,490, particularly when there is a separate item claiming past costs with similar description to a value of $9,240. It is not apparent whether that is merely a repetition of scale wording or claim for specific work of that description.
Conferral
As a postscript to this application, the conferral or lack thereof by phone or in person became a central cause of frustration and alleged justification for this application.
On one hand, the defendants accused the plaintiff of forcing the need for the application by failing or refusing to allay the defendants' Concerns by provision of financial information including the value of his assets and liabilities in Australia. On the other hand, it was submitted by defence counsel that if the plaintiff had just provided the value of the mortgage liability that may have sufficed.
The plaintiff submitted that had he known that was all the defendants needed or wished to know he would seriously have considered providing that. However, he did not understand that the mortgage liability information would suffice.
As made clear to the parties, this is the very reason Court requires conferral by phone or in person.
By the defendants overreaching in their demands for information, the application was almost inevitable.
Appropriate orders
The plaintiff's application will be dismissed.
I will hear from the parties as to costs, noting of course that the plaintiff is unrepresented and the defendants have been unsuccessful in their application.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
JC
Associate
17 JULY 2023
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