New South Wales Supreme Court CITATION : Corbett v Nguyen & Ors [2008] NSWSC 1265 HEARING DATE(S) : 24 November 2008 JUDGMENT DATE : 28 November 2008 JURISDICTION : Equity JUDGMENT OF : White J DECISION : 1. Order that the defendants' notice of motion filed on 24 June 2008 be dismissed with costs; 2. exhibits may be returned after 28 days. CATCHWORDS : PRACTICE AND PROCEDURE – costs – security for costs – plaintiff ordinarily resident in both Vietnam and Australia – extreme difficulty in enforcing costs order in Vietnam – sufficient Australian assets to meet costs order – plaintiff not shown to be lacking commercial probity – delay by defendant in bringing motion – application refused Inland Revenue Commissioners v Lysaght [1928] AC 234 Re Taylor; Ex parte Natwest Australia Bank Ltd (1992) 37 FCR 194 CASES CITED : Logue v Hansen Technologies Ltd [2003] FCA 81 Leyvand v Barasch (High Court of Justice, 15th February 2000 unreported; 2000 WL191256) Corby v Channel Seven Sydney Pty Ltd [2008] NSWSC 245 Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 744 James Corbett PARTIES : v Hau Nhon Nguyen & 4 Ors FILE NUMBER(S) : SC 3137/04 COUNSEL : Applicants/Defendants: T Molomby SC Respondent/Plainitff: B W Collins QC & N Potts SOLICITORS : Applicants/Defendants: G J Gooden, Solicitor Respondent/Plaintiff: Legal Recovery Solutions IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION WHITE J Friday, 28 November 2008 3137/04 James Corbett v Hau Nhon Nguyen & 4 Ors JUDGMENT 1 HIS HONOUR: This is an application for security for costs against an individual plaintiff who is alleged to be ordinarily resident outside New South Wales. 2 The proceedings were commenced on 27 May 2004. The notice of motion seeking security for costs was filed on 24 June 2008. Security is sought in an amount of $160,000 by way of bank guarantee. 3 The proceedings relate to a superannuation fund of which the fourth defendant, Abaco Machines (Australasia) Pty Ltd ("Abaco"), is the trustee. Up to July 2001, the plaintiff and the first, second and third defendants were directors, shareholders and employees of Abaco. On or about 12 July 2001, the parties entered into an agreement for the plaintiff to relinquish his shares in Abaco. The plaintiff was to have certain superannuation entitlements from a fund of which Abaco is trustee. The defendants say that the plaintiff is entitled only to $50,000. The plaintiff contends that the defendants were required to roll over his superannuation entitlements into another fund of his nomination and pay him an additional $50,000. He contends that Abaco breached the trusts of the superannuation fund and of a unit trust in which the superannuation fund held units and of which it was also trustee. He claims superannuation entitlements as at 30 June 2007 and accruing in the sum of $263,873 and "loss and damage continuing to date of hearing". The defendants seek an order for rectification of the deed of 12 July 2001 to provide that their obligations were to pay into the superannuation fund on behalf of the plaintiff such amounts as were necessary to increase to $50,000 the net amount standing to his credit as at 30 June 2001, and to cause the superannuation fund prior to 30 June 2002 to roll over the plaintiff's accumulated contributions to a superannuation trustee nominated by him. 4 In the four and a half years the proceedings have been pending, pleadings have been prepared and amended, discovery has been given, subpoenas issued, and the plaintiff has served his evidence in chief. The defendants are yet to serve their evidence. 5 The plaintiff is an Australian citizen. He owns a house in Baulkham Hills, Sydney, where he lives when he is in Australia. His wife and son are permanently resident in that house. It is encumbered with a mortgage securing a debt of about $100,000. The land alone was valued at $340,000 in 2005. The plaintiff estimates his equity in the property to be worth about $400,000. There was no challenge to that estimate. 6 The plaintiff is a director and sole shareholder in two companies which have their registered offices in New South Wales: Aardwolf Pty Ltd ("Aardwolf") and Herdgraph Pty Ltd ("Herdgraph"). It is said that Herdgraph holds a patent for a "slab lifter" which Aardwolf, under licence, distributes worldwide. It is said that Aardwolf subcontracts the manufacture of the equipment to companies in Vietnam. The plaintiff travels frequently to Vietnam, at least for the purposes of supervising the manufacture of that product. 7 On 7 May 2007, a company incorporated in the British Virgin Islands, Aardwolf Vietnam Ltd ("Aardwolf Vietnam"), was issued with a certificate by the Vietnamese government providing for its registration to set up a business and to carry out an investment project for the production of mechanical products and machinery related to the construction industry in Vietnam. The certificate of investment required the installation of machinery and the commencement of production within six months. The plaintiff is the named authorised representative for the company in Vietnam, and I infer that he is beneficially entitled to at least some of the shares in that company. It can be inferred that his continued presence in Vietnam is, at least in part, due to the establishment of that company's business. 8 The records of the plaintiff's arrival and departure from Australia show that he was out of Australia for 56 percent of the time in the year ended 30 June 2004, 75 percent of the time in the year ended 30 June 2005, 77 percent in the year ended 30 June 2006, 76 percent in the year ended 30 June 2007 and 80 percent in the eight months ended 29 February 2008. For most of the time he was overseas he lived in a rented flat in Ho Chi Minh City, Vietnam. On 29 November 2007, he was issued a temporary resident's card which appears to permit him to reside in Vietnam without a visa. It expires on 29 November 2010. Prior to having the temporary resident's card, he travelled to Vietnam on a business visa. 9 The application is made pursuant to r 42.21(1)(a) of the Uniform Civil Procedure Rules. Rule 42.21 provides: " 42.21 Security for costs (1) If, in any proceedings, it appears to the court on the application of a defendant: (a) that a plaintiff is ordinarily resident outside New South Wales, or (b) that the address of a plaintiff is not stated or is mis-stated in his or her originating process, and there is reason to believe that the failure to state an address or the mis-statement of the address was made with intention to deceive, or (c) that, after the commencement of the proceedings, a plaintiff has changed his or her address, and there is reason to believe that the change was made by the plaintiff with a view to avoiding the consequences of the proceedings, or (d) that there is reason to believe that a plaintiff, being a corporation, will be unable to pay the costs of the defendant if ordered to do so, or (e) that a plaintiff is suing, not for his or her own benefit, but for the benefit of some other person and there is reason to believe that the plaintiff will be unable to pay the costs of the defendant if ordered to do so, the court may order the plaintiff to give such security as the court thinks fit, in such manner as the court directs, for the defendant's costs of the proceedings and that the proceedings be stayed until the security is given. " 10 The first issue is whether the plaintiff is ordinarily resident outside Australia. If not, the application fails at the outset. 11 If the plaintiff is ordinarily resident in Vietnam, there is a question as to whether he is also resident in, or ordinarily resident in, New South Wales. A person may be resident and ordinarily resident in more than one place at a time. There is authority that if a plaintiff is resident, or ordinarily resident, in the jurisdiction, it would only be in a rare case that security for costs would be ordered against him or her, even though there is jurisdiction to do so on the basis that the person is also ordinarily resident outside Australia. 12 Other questions relevant to the exercise of the discretion whether or not to order security for costs include the significance of the plaintiff owning property in New South Wales, the effect of delay in making the application and the reasons for the delay, whether the plaintiff has fully disclosed his financial position on the application and, if not, the relevance of that fact, and whether the plaintiff has, or is likely to have, substantial foreign assets. 13 The plaintiff does not contest that the defendants would face extreme difficulty in seeking to have an order for costs made in this court enforced against assets of the plaintiff in Vietnam. The plaintiff does not challenge the defendants' solicitor's estimate of the likely amount of costs that would be recoverable on assessment if the defendants succeed. Ordinary Residence in Vietnam 14 The plaintiff's residence is his settled and usual place of abode (Inland Revenue Commissioners v Lysaght [1928] AC 234 at 245). In Re Taylor; Ex parte Natwest Australia Bank Ltd (1992) 37 FCR 194, Lockhart J said (at 198): " To say that a person is ordinarily resident in Australia must mean something more than that he is resident in Australia. The word 'ordinarily' connotes a comparison, a measure of degree. A person may have more than one residence, but he is not necessarily ordinarily resident in each of them. ... The concept of 'ordinary residence' ... connotes a place where in the ordinary course of a person's life he regularly or customarily lives. There must be some element of permanence, to be contrasted with a place where he stays only casually or intermittently. The expression 'ordinarily resident in' connotes some habit of life, and is to be contrasted with temporary or occasional residence. ... The concept of ordinarily resident cannot be stated in definite terms; each case must be determined on its facts and after taking into account all relevant matters ... ... Most people, if asked where they were ordinarily resident at a particular time, would name but one place: their home, because that would be the only place in which they normally or customarily live, although they may travel to other places on holidays or business intermittently. Other people may have two or more houses or flats and stay for various purposes and varying lengths of time in each. It may, depending on the circumstances, be permissible to say that at a particular time they are ordinarily resident in each of the places, though they may be at that time physically present somewhere else. This point is made in many of the reported cases ... " 15 In Logue v Hansen Technologies Ltd [2003] FCA 81, Weinberg J reviewed a number of the authorities on the meaning of the expressions "resident" and "ordinarily resident" and observed (at [26]): " What these cases, and others like them seem to establish is that the test for ordinary residence depends to a significant degree upon the state of mind of the person whose residence is in question. The language used in a number of the cases focuses upon whether the person habitually and normally resides in the jurisdiction, and does so for a settled purpose. " 16 The plaintiff admits that he frequently travels to and stays in Vietnam for the purpose of overseeing the production and quality control of the product manufactured by a subcontractor for the companies of which he is the sole beneficial shareholder and a director. I also infer that since at least May 2007 he has lived in Vietnam to oversee the business to be established by Aardwolf Vietnam. He has a bank account in Vietnam. 17 It was submitted for the plaintiff that whilst he has ties with Vietnam, those ties exist for business purposes only. It was submitted for him that his connection with Vietnam is merely to generate income to support his family in New South Wales. It was submitted that he could not be considered to be "ordinarily resident" in Vietnam where his only legal status to be in that country is as a "temporary resident". 18 However, in my view, the frequency and length of his stays in Vietnam, and the fact that he has a settled abode in rented accommodation in Ho Chi Minh City, indicate that he is currently ordinarily resident in that country. The fact that he has a legal status as a temporary resident in Vietnam is consistent with his being ordinarily resident there. "Ordinary residence" is not the same as permanent residence, although there are questions of degree involved. As he has spent most of his time over the last four years in Vietnam and is permitted to remain in that country under his existing permit for another two years, I can readily conclude that he is ordinarily resident in that country, even though he is not permanently resident there. The fact that he is resident there for business purposes does not mean that he is not ordinarily resident there. 19 It was also submitted for the plaintiff that it should be inferred that his purpose in residing in Vietnam was to oversee the installation of machinery, completion of factory repairs and commencement of production by Aardwolf Vietnam. It was submitted that this was a temporary purpose and not a "settled purpose". 20 However, there is no evidence from the plaintiff that his purpose in continuing to reside in Vietnam was only to oversee the implementation of the business for Aardwolf Vietnam. Just as he has been resident in Vietnam to supervise the quality of production by subcontractors to Aardwolf, so it can be inferred that he intends to continue his residence in Vietnam to supervise the operations of the business of Aardwolf Vietnam after its production commences. 21 For these reasons I conclude that the plaintiff is ordinarily resident in Vietnam and that there is jurisdiction to make the orders sought. Residence in New South Wales 22 It does not follow that the plaintiff has ceased to be resident, or ordinarily resident, in New South Wales. He owns a house in Sydney in which his family lives and where he lives for at least a quarter of the year. He pays income tax as an Australian resident. 23 It was submitted for the defendants that it was significant that until the present application was brought, the plaintiff was not listed on the Australian Electoral Roll. In correspondence to the Australian Electoral Commission ("AEC") in July 2008 the plaintiff asserted that he had never asked to be removed from the electoral roll, nor changed his address. The AEC did not dispute that contention and restored his name to the roll. I do not think his absence from the roll indicates that he had ceased to be an Australian resident. Nor does the fact that the plaintiff adduced no evidence as to whether he attempted to vote in Australian elections indicate that he had ceased to be an Australian resident. 24 The plaintiff is a director and shareholder in Aardwolf and Herdgraph. Both companies have their registered offices in New South Wales. He maintains a joint account with his wife with the Commonwealth Bank of Australia. In my view, he has not ceased to be ordinarily resident in New South Wales. 25 On 8 May 2008, the plaintiff's solicitor served a notice to admit facts. It sought admissions that the plaintiff is not a resident of the Commonwealth of Australia and is a resident of the Republic of Vietnam. 26 Rather than serve a notice admitting or denying those facts, the plaintiff filed a notice of motion to have the notice to admit facts set aside. That notice of motion has not been determined. Because no notice disputing the facts was served within 14 days, the facts are taken to have been admitted by the plaintiff for the purposes of these proceedings (Uniform Civil Procedure Rules, r 17.4). However, the plaintiff may, with the leave of the Court, withdraw such admissions. It is clear, and would have been clear to the defendants, that the plaintiff did not intend to make such admissions. There is no prejudice to the defendants if the admissions are withdrawn. As the deemed admission that the plaintiff is not a resident of the Commonwealth of Australia is contrary to the evidence, I give leave to the plaintiff to withdraw it. Discretionary Considerations 27 In Leyvand v Barasch (High Court of Justice, 15th February 2000 unreported; 2000 WL191256), Lightman J said (at [5]): " The fact that the Claimant is ordinarily resident out of the jurisdiction confers on the Court jurisdiction to order him to provide security. It is well established that a claimant may have two ordinary residences, one within the jurisdiction and one outside. The fact that a claimant who is ordinarily resident outside the jurisdiction is also ordinarily resident within the jurisdiction does not preclude the Court ordering security. For Order 23 confers jurisdiction to order security in the case of a claimant 'ordinarily resident out of the jurisdiction' and not in the case of a claimant 'not ordinarily resident within the jurisdiction'. But the connection of the claimant with this country is of course relevant to the exercise of discretion, and the closer the connection, the greater the relevance. If the claimant has an established home and is resident here, security may rarely be required; if the claimant has an established home and is ordinarily resident here an order for security may even more rarely be ordered. " 28 This was followed by Weinberg J in Logue v Hansen Technologies Ltd at [24] and by McCallum J in Corby v Channel Seven Sydney Pty Ltd [2008] NSWSC 245 at [25]. 29 In Leyvand v Barasch, Lightman J also said (at [6]): " ... The common sense principle applies that the existence of assets within the jurisdiction, their fixity and performance, are among a number of potentially relevant factors, their importance depending on the particular facts of the case. The Court will not infer the existence of a real risk that assets within this country will be dissipated or shipped abroad to avoid there being available to satisfy a judgment for costs unless there is reason to question the probity of the claimant: there is no such reason in this case. If there is reason to question the claimant's probity, the character of his property within the jurisdiction is relevant in assessing the risk: the risk may be greater if the property is cash or immediately realisable or transportable, and less if fixed and permanent. " 30 Here, the plaintiff owns a house in which he and his family live which is estimated to be worth $400,000 more than the mortgage debt. It was submitted for the defendants that it did not follow that this asset would be available to satisfy a costs order. That was so, it was said, because in the event of the defendants seeking to enforce a costs order, the plaintiff's wife could be expected to bring property settlement proceedings pursuant to s 79 of the Family Law Act 1975 (Cth) for altering the interests of the parties to the marriage in the property. In my view, that is purely speculative and I see no ground for apprehending that if such proceedings were brought, an order would be made to the prejudice of the plaintiff's creditors. As the defendants' solicitor assesses their likely recoverable costs of the proceedings in the sum of $160,000, there is ample equity in the property to satisfy a costs order. 31 It was then submitted that it would be open to the plaintiff further to encumber the property and to transfer the moneys raised offshore. Whilst that is a theoretical possibility, I do not infer from the matters relied on by the defendants that it is at all likely. 32 In support of that claim, and in a general attack on the plaintiff's probity (and hence as to the risk that assets in the jurisdiction will be removed or encumbered), the defendants submitted that the plaintiff has not been frank in disclosing his assets and that it should be found that he has assets and sources of income which he did not disclose. The defendants emphasised that the plaintiff had not himself sworn an affidavit in opposition to the application, but adduced evidence on information and belief through his solicitor. 33 In particular, the defendants relied upon the following matters. First, that the plaintiff did not produce his income tax returns in response to a notice to produce. His solicitor exhibited copies of notices of assessment of income tax, but these do not disclose the source of income. Next, it was submitted that whilst the plaintiff's solicitor deposed on information and belief that the plaintiff derives income from Aardwolf which is taxed in Australia and evidenced by the notices of assessment, when the plaintiff applied to the Commonwealth Bank of Australia in August 2005 for a home loan, he informed the Bank that he earned about $60,000 per year before tax as a production manager for a different company. It was submitted that this was in addition to the income he derived of about the same amount from Aardwolf over the same period. 34 Next it was submitted that it should be inferred that the plaintiff was receiving income from Aardwolf Vietnam which he has not disclosed. It was also submitted that it appears from a report from the General Department of Taxation of the Vietnamese Government to the Bureau of Economic Public Security of Ho Chi Minh City that following an investigation of accounts of the plaintiff with a Vietnamese bank he received US$3,289,372 between April 2004 and July 2006, but transferred US$2,215,725 and 4,578,020,000 VND and 2,733,000,000 VND to businesses or individuals in Vietnam, as well as transferring US$51,542 to overseas companies. It was submitted that the payments out of the accounts were almost US$500,000 less than the payments in. There was no explanation as to where this money went. 35 The present application is not the occasion for an audit of the accounts of the plaintiff or companies of which he is a director in relation to the business conducted in Vietnam. Particularly is that so where the evidence reveals that there is bitter rivalry between the plaintiff and Aardwolf on the one hand, and the defendants on the other hand, in Vietnam. In 2003, the plaintiff complained to the Vietnamese Government and to the Australian Consulate in Ho Chi Minh City that the second defendant (known as Harry Nguyen) was responsible for sending thieves and thugs into the factory in which the lifting clamps were being manufactured and was using corrupt police to attempt to close the business down. For his part, the second defendant made accusations to the Vietnamese authorities that the plaintiff was co-operating in the operation of an illegal business in Vietnam and was using two individual accounts at a Vietnamese bank to receive money transfers from overseas and forwarding them to particular Vietnamese businesses and individuals. It appears that the General Department of Taxation carried out an investigation into the accusation, but advised that it did not have the capacity to assess the allegation of money laundering and sent information it had collected to the Bureau of Economic Public Security for further investigation. The defendants produced the report from the General Department of Taxation to the Bureau of Economic Public Security together with detailed summaries of movements in the plaintiff's Vietnamese bank accounts. 36 For present purposes, it is enough to say that the defendants have accused the plaintiff of carrying on an illegal business in Vietnam, tax evasion and money laundering, and have obtained either from government authorities or other sources detailed information in relation to the movement of funds in Vietnam. 37 The plaintiff, through his solicitor, gave detailed evidence in relation to the documents produced by the defendants from the Vietnamese authorities. The plaintiff alleges that documents provided by the defendants from the Vietnamese authorities on the basis of which he was fined about $1,400 in relation to one of their complaints was itself forgery and says that the reason for the plaintiff having closed his accounts with the VietcomBank were that he suspected the defendants had obtained access to those accounts and he did not want his competitors to have such access. 38 The present application for security for costs is not the vehicle for investigating those matters. I think the plaintiff would be justified in thinking that the defendants would hope to use the present application to dig further for information that could be used in the ongoing disputes between the parties in Vietnam. 39 Whilst the evidence of the plaintiff's financial position is not as complete as it might be, I do not infer that this is due to a want of commercial probity. Moreover, if, as the defendants contend, the plaintiff has more assets overseas than he has acknowledged, that does not strengthen the defendants' case for obtaining an order for security for costs. The contrary was submitted because the plaintiff's solicitor deposed that if security for costs were ordered the plaintiff considered it would be necessary for him to borrow on security of the Baulkham Hills property to provide the security. As security is sought by way of bank guarantee, that might not be necessary, but in any event the plaintiff did not adduce any substantial evidence that this would cause hardship. 40 The plaintiff continues to reside ordinarily in New South Wales (even though he is also ordinarily resident in Vietnam). He owns a house in Sydney. His family lives here. He has a bank account here. Aardwolf and Herdgraph are Australian companies. The defendants have not established a want of commercial probity. These factors indicate that security for costs should not be ordered, even if the application had been made at an appropriate time. In fact this application was not made until more than four years had passed after the institution of the proceedings. 41 The defendants submitted that there was an explanation for the delay, and that in any event, delay would only be a relevant factor if the plaintiff demonstrated that he incurred costs and expenses in conducting the litigation which he would not have incurred had the application for security been made at an early stage. It was submitted that because the plaintiff would be able to raise the security sought, the proceedings would not be stultified by the order and the plaintiff suffered no prejudice by having incurred expenses in the interim. 42 The explanation for the delay in making the application was that the defendants' solicitor, Mr Gooden, did not appreciate until late 2007 that there was a question as to whether the plaintiff might be a resident of Vietnam. In the summons and statement of claim the plaintiff gave his address in Baulkham Hills. 43 Mr Gooden deposed that: " 20. I was informed by Alf and Harry Nguyen that James Corbett operated a component of the business of Aardwolf Pty Limited from Vietnam. I was made aware of this fact shortly after proceedings were commenced in May 2004. I was also informed by Harry and Alf Nguyen that the Respondent was often in Vietnam although neither Harry nor Alf Nguyen could tell me how often the Respondent was in Vietnam nor how long he stayed in that country when he visited. 21. I was informed by Alf and Harry Nguyen that product marketed by Aardwolf Pty Limited was manufactured in Vietnam. The fourth defendant in these proceedings also manufactures most of its own equipment in Vietnam. " 44 It is clear from the documents tendered in relation to the disputes between the plaintiff and the defendants in Vietnam that the defendants were well aware that the plaintiff spent considerable time in Vietnam, even though they are unlikely to have been aware of the precise periods of time he was there. Sufficient was known in 2004 to have prompted the inquiries which Mr Gooden made in 2007 and 2008 which led to the filing of the notice of motion for security in June 2008. There is no acceptable explanation for the delay. 45 I accept the defendants' submission that if the security sought were ordered, the plaintiff's claim would not be frustrated. Rather, the security would be provided. The plaintiff's expenditure on costs to date would not be wasted. However, I do not accept that it follows that delay is irrelevant. The significance of the delay is reduced by the absence of relevant prejudice, but delay remains one factor to be taken into account in the balancing exercise of determining the justice or injustice of making an order for security (see Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 744 at [69]-[81] and in particular at [69], [70], [72] and [81]). 46 It is inappropriate that the defendants should have left it until after pleadings have been prepared and amended, discovery has been given, and the plaintiff has served his evidence in chief, before making the present application. The delay is an additional reason for refusing the application. 47 For these reasons, I order that the defendants' notice of motion filed on 24 June 2008 be dismissed with costs. 48 The exhibits may be returned after 28 days. ****** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.