Yu Xiao v BCEG International (Australia) Pty Ltd

This is an application by BCEG International (Australia) Pty Ltd (“BCEG”), the respondent to the appeal, for an order that the appellants, who comprise Mr Xiao, Ms Chen and a number of corporate entities, provide security for BCEG’s costs of the appeal. The appellants accept that the quantum of the security sought, $120,000, is reasonable.

The application is made under r 51.50 of the Uniform Civil Procedure Rules 2005 (NSW) (“the UCPR”) which provides that the Court may in “special circumstances” order that an appellant provide security for a respondent’s costs of the appeal. Observations as to the nature of circumstances that may be special for this purpose were made by Basten JA in Preston v Harbour Pacific Underwriting Management Pty Ltd [2007] NSWCA 247 at [18] and by Gleeson JA in Swift v McLeary [2013] NSWCA 173 at [27]–[30] (“Swift”). Evidence of delinquent conduct and non-compliance with court orders will be a significant factor (see Zong v Wang [2021] NSWCA 214 at [28]–[33]), as will the dissipation or encumbering of assets, particularly at or around the time of, or after, judgment (see Swift at [44]–[45].

Moreover, in Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 at 325, Gleeson CJ said, in the context of a Mareva injunction application, that relevant to whether there was a danger of the defendant in that case absconding or removing assets from the jurisdiction, or disposing of them within the jurisdiction, was the nature of a scheme in which the defendant had allegedly been involved. His Honour said that the plaintiff had established a prima facie case that the defendant had been involved in “serious dishonesty involving diversion of money from its proper channels” (ibid). His Honour said that in these circumstances it was “reasonable to infer that [the defendant] is not the sort of person who would, unless restrained, preserve his assets intact so that they might be available to his judgment creditor” (at 326). These observations are in my view equally relevant to the identification of “special circumstances” for the purpose of a security for costs application and to the manner in which the Court’s discretion might appropriately be exercised.

In seeking security for its costs, BCEG relied on a number of matters, including the asserted impecuniosity of the appellants. It acknowledged however that such impecuniosity would not of itself constitute special circumstances. It is unnecessary to address the question of impecuniosity as I am of the view that the primary judge’s findings concerning the appellants’ conduct in relation to the transactions the subject of the proceedings, as well as their conduct in the course of the proceedings at first instance, constitutes “special circumstances” to warrant the making of the order for security sought by the respondent.

The proceedings in the Equity Division involved multiple claims, including for breach of fiduciary duties, against directors and the companies controlled by them. The nature of the proceedings was described in detail by Rees J in her thorough judgment of 22 July 2022 finding in favour of BCEG ([2022] NSWSC 972). In a subsequent judgment concerned with costs, her Honour referred to two individual appellants, Mr Xiao and Ms Chen, as having “engaged in serious fraud” ([2022] NSWSC 1221) at [59] and continued at [62] and [63] as follows:

The appeal against the principal judgment does not challenge the finding of fraud but is instead confined to issues of causation and relief. That makes the present case a stronger one than Patterson v BTR where findings of misconduct had only been established on a prima facie basis. The substantive findings of fraud in this case give rise, as the respondent contends, to the conclusion that there is “a risk that the respondent will not recover costs that may ultimately be awarded in its favour” because the Court orders for payment of costs may simply not be obeyed or “because the appellant[s] may take steps to arrange [their] affairs such that [they have] insufficient assets to discharge the liability” for costs (see the written submissions at [27]). The same conclusion follows from her Honour’s descriptions quoted in [5] above of what occurred at the trial although I appreciate that to some extent these findings may fall for further consideration in contempt of court proceedings against the appellants that have been commenced, and remain undetermined.

For these reasons, I make the following orders: