Yu v Xu

[2018] WASC 4

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION:   YU -v- XU [2018] WASC 4

CORAM:   ALLANSON J

HEARD:   18 DECEMBER 2017

DELIVERED          :   10 JANUARY 2018

FILE NO/S:   CIV 3161 of 2016

BETWEEN:   DI YU

Plaintiff

AND

QIONGWEN XU
First Defendant

QICHAO CHEN
Second Defendant

ZHIQIANG XU
Third Defendant

AUMAY PTY LTD
Fourth Defendant

Catchwords:

Practice and procedure - Defendant's application for security for costs - Where plaintiff resides outside of Australia - Where plaintiff has no assets in Australia - Delay - Turns on own facts

Legislation:

Rules of the Supreme Court 1971 (WA), O 25

Result:

Application granted

Category:    B

Representation:

Counsel:

Plaintiff:     Mr W C Tay

First Defendant              :     Mr T J Porter

Second Defendant         :     Mr T J Porter

Third Defendant            :     Mr T J Porter

Fourth Defendant           :     Mr T J Porter

Solicitors:

Plaintiff:     Robertson Hayles Lawyers

First Defendant              :     Tang Law

Second Defendant         :     Tang Law

Third Defendant            :     Tang Law

Fourth Defendant           :     Tang Law

Case(s) referred to in judgment(s):

Pham Thai Duc v PTS Australian Distributor Pty Ltd [2005] NSWSC 98

PS Chellaram & Co Ltd v China Ocean Shipping Co [1991] HCA 36; (1991) 102 ALR 321

1. ALLANSON J:  The defendants have applied for an order that the plaintiff give security for the costs of this action and for consequential orders, including that the action be permanently stayed if the plaintiff fails to comply within 21 days of the date of the order.

2. The defendants apply pursuant to O 25 of the Rules of the Supreme Court 1971 (WA). They rely on the facts that the plaintiff has no capacity to pay an order for costs should the defendants succeed, that he resides outside Australia, and he has no assets in Australia.

The claim

1. The plaintiff is a director and 40% shareholder in the fourth defendant.  The first defendant is a shareholder and the second and third defendants are directors and shareholders of the fourth defendant.  The second and third defendants are solely responsible for running the day to day business activities of the fourth defendant. 

2. The plaintiff commenced proceedings on 15 December 2016, claiming damages from all but the second defendant for misleading or deceptive conduct, and seeking an order that the fourth defendant be wound up, pursuant to s 233, alternatively s 461, of the Corporations Act 2001 (Cth).

The evidence

1. The defendants rely on the affidavits of Qiongwen Xu, dated 23 October 2017 and 15 December 2017 and Stephen Clark, dated 25 October 2017.

2. The plaintiff relies on an affidavit of Richard Wah Chooi Tan, dated 20 November 2017, annexing an affidavit of the plaintiff in the Chinese language with an English language translation.  The plaintiff has also filed an affidavit of Weechong Tay, dated 24 November 2017.

The principles

1. Order 25 r 1 provides that the court may order that security for costs be provided by a plaintiff, but that no order shall be made merely on account of the poverty of the plaintiff, or the likely inability of a plaintiff to pay any costs which may be awarded against the plaintiff. Rule 2 sets out a non-exhaustive list of grounds for ordering security, including that the plaintiff is ordinarily resident out of the jurisdiction. Rule 3 provides:

   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 -

   (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;

   (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.

2. It is well established that, subject to O 25, the discretion to order security for costs is unfettered, and depends on an examination of all of the relevant circumstances. The circumstances in which the discretion should be exercised cannot be stated exhaustively. They will vary from case to case and the weight to be given to any circumstance in a particular case will depend not only upon its own intrinsic persuasiveness, but upon the impact of the other circumstances which have to be weighed: PS Chellaram & Co Ltd v China Ocean Shipping Co [1991] HCA 36; (1991) 102 ALR 321, 323.

3. The plaintiff is a resident of the Peoples Republic of China.  Apart from shares in the fourth defendant, he has no assets in Australia.  This is a factor that is generally given considerable weight:  PS Chellaram & Co Ltd v China Ocean Shipping Co (323).  It is not possible to value the shareholding of the plaintiff.  There is no evidence before the court to enable me to determine whether the shares are an asset that could be realised, or whether there are restrictions on their sale.

4. I also accept, as submitted by the defendants, that the court should consider what assets held by the plaintiff can be immediately realised or realised in time to enable the plaintiff to comply with a costs order in the usual terms.  The plaintiff's own position, in response to the application, is that there are regulatory restrictions in remitting funds from China.

5. Although the plaintiff's claim has been pleaded and discovery has been given, it is difficult to make an assessment of the merits of the claim, or at least the claim in misleading and deceptive conduct.  The defendants submit that it is a neutral factor.  That may be so for the damages claim, and the claim in oppression.  But the plaintiff also applies for winding up on just and equitable grounds.  It is not clear, on the filed defence, just what answer the defendants put forward to that claim in circumstances where the relationship between the plaintiff and the defendants has clearly broken down.

6. The other particularly relevant factor in the present case is delay.  The application for security was only raised in conferral on 3 October 2017, and the application filed on 26 October 2017.  The only explanation for the greater part of the delay is that the defendants changed solicitors on 17 August 2017, and they had not been advised to consider an application by their previous solicitors.  The delay between 17 August and 3 October is explained by the need to apply resources to complying with existing court orders. 

7. Although the explanation for the delay is not compelling, the prejudice caused by the delay is not, in my opinion, significant.  The writ was filed with an endorsed statement of claim.  The parties have exchanged discovery and there has been mediation.  The plaintiff has incurred costs, and expended time, in the preparation of his case, but not to such an extent that it should result in the defendants' application being dismissed.  In my opinion, the justice of the case can be met by making any security order prospective only.

8. The court should also consider whether an order for security would stultify the proceedings.  The defendants base their application on the plaintiff having no assets available in Australia to meet a costs order, so that he has no capacity to pay.  The plaintiff asserts that he is impecunious.  The plaintiff's impecuniosity is a relevant factor in the exercise of the court's discretion.  In the present case, however, it is not a factor to which I can give any particular weight because of the lack of evidence.  The plaintiff has given no sufficient statement of his assets and liabilities to enable any conclusion that an order for security will frustrate his claim.

9. The resolution of this application is difficult.  Were the plaintiff's claim confined to the claim for damages and the oppression claim, I would have little hesitation in ordering security.  The claim for winding up on just and equitable grounds, however, introduces a further factor.   As Barrett J said in Pham Thai Duc v PTS Australian Distributor Pty Ltd [2005] NSWSC 98:

   There is a clear public interest in companies with multiple shareholders and multiple directors functioning by means of consultation among those persons in the ways company law requires. It is contrary to that public interest for one person to take over the role of the body of persons and to function in the way in which the body is meant to function [15].

   If that was the only claim, in my opinion there would be strong grounds for it to go forward without delay.

10. Ultimately, looking at the claim as a whole, I am satisfied that security should be ordered. 

Quantum

1. The defendants have estimated their likely future costs at more than $170,000.  I have reservations about the draft bill supporting that estimate.  But, allowing for those reservations, the total costs of the parties, compared to the value of the subject matter, is concerning.  The purchase price of the business conducted by the fourth defendant was $450,000.  Even with further capital contributed by the defendants since purchase, the value of the subject matter is not in proportion to the likely cost of the litigation.

2. I will order security to the completion of further discovery and a further mediation.   That amount has not yet been estimated and I will hear the parties as to the appropriate amount if it cannot be agreed.

Consequential orders

1. Security should be by payment into court, with an order that the proceedings be stayed until security is given.  The defendants' proposed order for a permanent stay if security is not given within 21 days is, in my opinion, premature.  I would, in any event, allow the plaintiff 60 days, as proposed by counsel for the plaintiff, to allow the plaintiff to comply with restrictions on remitting funds out of China.