Liu v Sha

1. [1]

   The respondent in this appeal, Mr Yunlong Sha (the respondent), applied for security for costs in the amount of $35,000 pursuant to UCPR r 51.50. At the completion of the hearing of the application on 26 September 2022 I made the following orders:

   1. (1)

      The appellant to provide within 14 days security in the sum of $20,000 for the respondent’s costs of the appeal by payment of that amount into Court.

   2. (2)

      The appeal be stayed until the appellant has complied with order 1 above.

   3. (3)

      The appellant to pay 60% of the respondent’s costs of the motion filed on 8 August 2022.

2. [2]

   What follows is the reasons for making those orders.

3. [3]

   The principles relating to security for costs in this Court are well established, were not in dispute, and it is not necessary to repeat them. I summarised some of those principles in Brown v King [2022] NSWCA 75 at [6]-[10] and [50]-[54].

4. [4]

   Four issues arose on the application:

   1. (1)

      whether there were special circumstances within the meaning of r 51.50;

   2. (2)

      if so, whether the Court’s discretion to grant security should be exercised;

   3. (3)

      if so, the quantum of any security; and

   4. (4)

      the costs of the motion.

Special circumstances

1. [5]

   The respondent submitted that there were two special circumstances: impecuniosity and that the appellant had no real prospects of success. The appellant, Ms Hua Liu, conceded that impecuniosity could be inferred, but disputed that she had only low prospects of success.

2. [6]

   In this matter the respondent sued the appellant on a guarantee which the appellant had entered into with respect to a loan of some $1 million made to her company, A & T Education Holdings Pty Ltd. As the primary judge, Leeming JA, stated at [1] of his Honour’s judgment:

3. [7]

   It appears that the pleadings of both parties left a deal to be desired: judgment [21]-[29]. In the way that the case was run (as opposed to pleaded) there were two key issues: first, whether or not the respondent had accepted the last iteration of the negotiated loan and guarantee, such as to crystallise an agreement, in circumstances where the written document had been signed by the appellant but not the respondent; secondly, whether or not there was consideration moving from the respondent.

4. [8]

   The appellant’s company had sought loans from a company listed in the United States named Puxin Ltd, of which the respondent was the CEO, and a Mr Peng Wang the CFO. However, that company was not in a position to provide a loan within the time sought by the appellant. Instead, negotiations turned to the respondent and Mr Wang each lending money to A & T themselves. It appears that these discussions were primarily conducted by Mr Wang on his and the respondent’s behalf. The negotiations occurred significantly by way of messaging on WeChat.

5. [9]

   His Honour explained at [11] that:

6. [10]

   Shortly after the appellant had informed Mr Wang that she had signed the agreement relating to the loan from the respondent, Mr Wang responded by messaging: “Mr Sha will transfer the money from United States tonight. I assume the funds will reach your account within two days”. A PDF version of the agreement as signed by the appellant was sent. The following day the appellant confirmed that she had received the money. Thus within a day of the respondent receiving the agreement as signed by the appellant, the amount of some $1 million covered by that agreement was transferred to an account controlled by the appellant.

7. [11]

   This money was transferred from a bank account in the name of the respondent’s wife, Ms Wenjing Song. It was Mr Wang who “caused” the transfer to occur. Mr Wang later caused another transfer to be made – oddly, again from Ms Song’s bank account – in apparent fulfilment of the separate loan agreement he had reached with the appellant.

8. [12]

   The appellant’s first key argument below was that because the respondent seemingly had not signed the agreement, the respondent had not accepted the offer contained in the final version of the agreement. The primary judge held that the offer had been accepted by conduct, asking rhetorically at [79]: “What else could the transfer of funds refer to if not acceptance to be bound by the terms of the document executed by Ms Liu?”. The finding on acceptance is not challenged on appeal.

9. [13]

   It is the second key issue, relating to consideration, which is the focus of the notice of appeal. The appellant’s primary submission below on this issue appears to have been that it was not necessary for him to establish that consideration moved from him. That argument was rejected by the primary judge. However, his Honour accepted the appellant’s secondary argument that consideration had moved. His Honour’s reasons on this issue were succinct:

10. [14]

    The appellant’s notice of appeal contains four grounds, but the focus of argument was on the first two, as grounds 3 and 4 depended on those. Grounds 1 and 2 are as follows:

11. [15]

    As regards ground 1, it is not strictly correct that the primary judge “relied solely on the evidence of Mr Wang in making the inference”. His Honour also noted the respondent’s evidence that Mr Wang “communicated with [the appellant] via WeChat on my behalf in respect of the loan agreement” (at [52]).

12. [16]

    More generally, whilst it is neither necessary nor appropriate that I reach a final view on the merits of this appeal on this application for security for costs, it currently appears to me that there is a degree of unreality about the claims in the two grounds of appeal in light of the following undisputed facts:

    1. (1)

       The agreement which the appellant signed designated the respondent as the relevant lender.

    2. (2)

       Upon receipt of that signed agreement, Mr Wang messaged the appellant to say “Mr Sha will transfer the money from United States tonight”.

    3. (3)

       The money was then transferred from the account of the respondent’s wife. Counsel for the appellant conceded before me that the primary judge’s statement that it was not unusual for separate bank accounts to be regarded as assets of the marriage was “something close to a truism”.

13. [17]

    No doubt it is a little surprising that the payment for the other loan, involving Mr Wang himself, also seemingly was made from the account of Ms Song. But it does not detract from the inferential force that this first payment, in fulfilment of a loan agreement which designated the respondent as lender, was made pursuant to the respondent’s choice, fulfilled through actions of Mr Wang. It is difficult to discern any other reasonable characterisation of the events than that the payment in question was organised by Mr Wang on the respondent’s behalf, and at some detriment to the respondent by way of depletion of his wife’s bank account, which account was effectively conceded to be an asset of his marriage. The force of the primary judge’s rhetorical question as regards acceptance, quoted above at [12], also resounds against the appellant’s arguments on consideration, for it ties the transfer of funds in question to the written agreement between the two parties.

14. [18]

    Counsel for the appellant sought to make something of the fact that the respondent had not given clear direct evidence on these issues, and that Ms Song had not been called to give evidence. However, he did not dispute the respondent’s submission that the conduct of the case evolved significantly from what had been pleaded. Counsel for the appellant candidly and properly indicated that, so far as he could see, no submission had been made by senior counsel appearing for the appellant below that inferences of the kind discussed in Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8 and Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 should be drawn on the issues in question. The absence of such a submission suggests that it was not thought that such an inference could be justified given the way the case had developed.

15. [19]

    Counsel for the appellant correctly submitted that given that neither Mr Wang nor Mr Sha had been cross-examined, this Court was likely to be in as good a position to determine the issues in dispute as the primary judge. However, my conclusions on prospects do not depend upon showing any appellate restraint in view of the advantages of a trial judge.

16. [20]

    In these circumstances, I considered that the respondent had made out special circumstances on the combined bases of impecuniosity and that the two central grounds of appeal currently appear to have very weak prospects of success: cf eg Xenos v FAL Healthy Beverages Pty Ltd [2017] NSWCA 240 at [51].

Exercise of the discretion

1. [21]

   The appellant raised two discretionary considerations against ordering security. First, the appellant asked the Court to infer that an order for security for costs “may result in her being unable to proceed with the appeal”. The appellant provided no evidence in support of this proposition, where she bore an evidentiary onus in this regard: Brown v King at [21]. The mere fact that the judgment debt has not been paid does not establish that she does not have the resources to meet a security for costs order. The respondent also pointed to a letter sent by the appellant’s solicitors on 4 August 2022 which stated that “[o]ur client is an Australian resident with resources in Australia, and she has been able to fund legal services to conduct multiple litigations to date”. Even the appellant’s submission was qualified: it was not to the effect that security would stultify the appeal, but that it may do so. I do not accept that the appeal would likely be stultified if the security sought by the respondent was ordered.

2. [22]

   Secondly, it was submitted that there was a “proportionality factor” because the respondent is CEO of a company listed in the US, from which it should be inferred that “he has considerable financial resources at his disposal”, whilst the appellant was impecunious. This submission faces a similar difficulty to that facing the first consideration. As the respondent submitted, there is no evidence before me of the financial position of either party. I would not be prepared to infer that the respondent was wealthy simply because he holds a senior position in a company of unknown size.

3. [23]

   Moreover, in Northern Territory v Sangare (2019) 265 CLR 164; [2019] HCA 25 the High Court upheld an appeal from a decision of the Northern Territory Court of Appeal which had refused a costs order to a successful litigant purely on the basis that the other party was impecunious. The High Court stated at [32] (emphasis added, citation omitted):

4. [24]

   Obviously enough, on a security for costs application the financial position of the appellant is relevant. That does not render relevant the financial position of the respondent. The appellant’s submission in effect asks that the respondent be denied security for costs on the basis that he can better afford this litigation than the appellant. The respondent is not a party to this appeal by choice. He is subject to an appeal process in which, because of the appellant’s impecuniosity, he is at significant risk of being unable to recover his costs if successful on appeal. If the interests of justice otherwise indicate that security should be ordered, the respondent should not be deprived of the benefit of the rules because of his resources.

5. [25]

   Given the special circumstances found above, the absence of countervailing factors, and taking account of all the circumstances, I was persuaded that security should be ordered.

Quantum

1. [26]

   The respondent sought $35,000 security. This amount was supported by calculations set out in an affidavit from the respondent’s solicitor, Jia Xiao. However, the calculations were as to what costs would be incurred, not what costs would be recoverable. In general it is only the latter which will be taken into account in awarding security for costs, as the security is for costs likely to be recoverable. The appellant’s solicitor, Yu Chen, gave evidence that costs in his experience are commonly assessed as being 60-75% of total fees and disbursements. Applying those percentages would reduce the amount to a range of $21,000 and $26,250.

2. [27]

   Further, the calculations appeared a little on the high side. For example, an hour is claimed for each of senior and junior counsel and a principal solicitor to attend a directions hearing, where there would have been no need for senior counsel. Allowing two days preparation for each of senior and junior counsel for what is a focused appeal based on very limited material, which it is accepted will take no more than half a day, also seems a little generous.

3. [28]

   Applying a broad-brush approach, I considered $20,000 was an appropriate amount.

Costs

1. [29]

   The respondent sought costs of his application. The appellant opposed this, pointing to her degree of success on quantum. No evidence was provided suggesting that the respondent had offered to settle the security claim for less than the $35,000 sought. He has ended up achieving four-sevenths of what was sought, thus representing only a partial degree of success. In the circumstances I considered that it was appropriate to award the respondent 60% of his costs on the motion.