District Court New South Wales Medium Neutral Citation: Wang v Chea [2014] NSWDC 328 Hearing dates: 14 March 2014 Date of orders: 14 March 2014 Decision date: 14 March 2014 Jurisdiction: Civil Before: P Taylor SC DCJ Decision: (1) Note that the plaintiffs' application for adjournment has been abandoned. (2) Strike out paragraphs 48e through to and including the words "$145,600 per annum" in paragraph 48h of the statement of claim. (3) Strike out paragraph 49d, e and f of the statement of claim. (4) Leave to the plaintiffs to replead by an amended statement of claim, so as to plead what conduct is alleged to be misleading, and to separately plead what conduct is alleged to be unconscionable conduct, within 21 days. (5) The plaintiffs are to provide security for the defendants' costs of the proceedings by depositing the sum of $69,000 into an account controlled jointly by the plaintiffs' solicitor and the defendants' solicitor or such other form of security as is agreed upon by the parties, within 28 days. Any interest that accrues on the sum of $69,000 whilst it is so held is to be paid to, or for the benefit of, the plaintiffs. In the event that security is not provided within 28 days then the proceedings will be stayed. (6) Stand over for directions on Thursday, 20 March 2014 at 9.30am before the Judicial Registrar. (7) The defendants' costs of the motion be the defendants' costs in the proceedings. (8) Grant liberty to apply. Catchwords: PROCEDURE – application to strike out or dismiss statement of claim – security for costs – form of security COSTS – costs of notice of motion – Calderbank letter by respondent – respondent less successful Legislation Cited: Uniform Civil Procedure Rules 2005, r 42.1, r 42.7, r 42.21 Category: Procedural and other rulings Parties: Shikuan Wang (first plaintiff) Fenlian Jin (second plaintiff) Rui King Pty Ltd ACN 156 351 441 (third plaintiff) Pauline Yi Bin Chea (first defendant) Kevin Cheang Meang Chea (second defendant) Golden Tower Enterprises Pty Ltd ACN 130 397 634 (third defendant) Representation: Counsel: Mr I G Archibald (plaintiffs) Mr B Lloyd (defendants) Solicitors: Hu Solicitors (plaintiffs) Jason Li Lawyers (defendants) File Number(s): 2013/335053 Publication restriction: None Judgment 1. The first and second plaintiffs are residents of China. They own the third plaintiff, an Australian company with a share capital of $100. 2. The plaintiffs purchased a Chinese restaurant from the defendants in about March 2012. The defendants also owned the premises on which that restaurant business was conducted and at the time of the sale entered into a lease with the plaintiffs. 3. The contract for sale contained a reference to a consideration of $250,000, which is the price the defendants received for the business. However, the plaintiffs, in addition to that $250,000, paid a further $210,000 in cash, apparently believing that that money was also part of the purchase price. An agent of the plaintiffs known as Mr Wu retained those funds. 4. The plaintiffs allege that Mr Wu told them that the defendants required that cash payment of $210,000 as part of the purchase price and also allege that the defendants were aware of Mr Wu's plan to charge the plaintiffs $460,000 rather than $250,000 for the purchase of the business. Mr Wu was apparently retained by the plaintiffs to buy a business for the purpose of assisting them to obtain Australian residency. 5. The business failed. The plaintiffs sue the defendants for misleading and unconscionable conduct. 6. I should note that there is no suggestion that the defendants received any additional amount by reason of their alleged willingness, on the instructions of Mr Wu, to keep silent about the additional $210,000 in cash to be paid by the plaintiffs for the business. In due course, Mr Wu apparently felt troubled by his conduct and returned the $210,000 to the plaintiffs. 7. The defendants apply, first, to strike out or dismiss the statement of claim and secondly, to seek security for costs. 8. At the outset the plaintiffs were unprepared. They applied to adjourn the application. However, an affidavit prepared on behalf of the plaintiffs became available during the course of the adjournment application. The defendants took no issue about its lateness. That matter and also the acknowledgment by the parties that the plaintiffs proposed to amend their claim to allege that the defendants were aware or had knowledge of the plaintiffs' vulnerability led the plaintiffs to withdraw the application to adjourn the notice of motion and thus the hearing of the notice of motion went ahead. 9. As to the strike out application, it is apparent that a number of the paragraphs in the statement of claim deal with conduct of Mr Wu which is not attributed to be the conduct of the defendants. This conduct of Mr Wu seemed immaterial to the liability of the defendants. But during the course of argument the question of apportionment of any liability between the defendants and Mr Wu arose. The question of apportionment renders the conduct of Mr Wu relevant to the proceedings. 10. The defendants also submit that the misleading conduct case must fail because the return of the $210,000 cash payment to the plaintiffs means that the plaintiffs have suffered no damage. 11. There may be some merit in this argument. However, that will be determined at trial whereas this is a strike out application. Whether the plaintiffs made a loss or not by reason of representations about the sale price required by the vendors depends on what the plaintiffs would have done had they not been misled. 12. The current pleading suggests that the conduct caused them to suffer damage by making the advance, entering into the contract, signing the lease and suffering trading losses. I make no comment about the likelihood of these matters succeeding at trial. However, it is at least possible that had the representation not been made the purchase might not have occurred. 13. To put the matter another way, the defendants submit that if the plaintiffs agreed to purchase the business for $460,000 they would certainly have agreed to purchase it for $250,000 had the true position been known, or had the representations not been made. Yet this might not be so if there was a greater minimum purchase price required to obtain residency, which was one of the purposes for the purchase. 14. In any event, these matters are properly matters for trial. Although there is some force in the defendants' submissions in relation to the unlikelihood of the plaintiffs' claim, nevertheless I do not think that the plaintiffs' claim is so lacking in merit that it should be summarily dismissed or that the pleading should be struck out. 15. I have also been directed to paragraph 48 of the pleading that sets out the alleged misleading conduct and unconscionable conduct engaged in by the defendants. 16. The pleading in its current form contains conduct that both parties agree could not be misleading, such as matters concerning what terms were required by the vendors in the lease. These allegations cannot be maintained. 17. It follows that I should strike out paragraphs 48e through to the reference to $145,600 per annum in paragraph 48h and similarly strike out paragraphs 49d, e and f, but granting leave to the plaintiffs to replead. It should be a condition of the leave to replead those paragraphs that the plaintiffs identify precisely what conduct is alleged to be misleading and separately identify the conduct relied upon to constitute unconscionable conduct, rather than list them together in the way that they currently appear in the statement of claim. 18. The second aspect of the defendants' application is for security for costs under Part 42 r 21(1)(a) and (d) of the Uniform Civil Procedure Rules 2005. 19. The plaintiffs appear not to contest the defendants' entitlement to security. The defendants seek the sum of $78,000 and the plaintiffs have made an open offer to provide security of $69,000 in a form to which I will come. 20. As to the amount, it seems to me that $69,000, at least at this stage, is sufficient security for the defendants' costs. If the conduct of the proceedings renders that amount excessive or inadequate, it would be open to either party to make a further application. 21. The plaintiffs ask that this amount of security be given by the form of a second mortgage on residential premises owned by the plaintiffs, or some of them, in Breakfast Point in Sydney. There is evidence that the property has a value of $600,000, was purchased in December 2011 for $565,000 and the sum of approximately $454,000 is currently owed by way of first mortgage to Westpac Banking Corporation. 22. It seems to me that the giving of a second mortgage over real estate by way of security raises complications and would necessarily involve the incurring of legal costs to bring it about. It may be appropriate for that form of security to be given if there were no other assets available, but the evidence suggests otherwise. There is evidence before me that in addition to the purchase of the Breakfast Point property in late 2011 the plaintiffs were able to pay $510,000, including $210,000 in cash, for the purchase of the business and other expenses associated with the purchase of the business. Secondly, the plaintiffs received $210,000 from the return of the cash paid to Mr Wu. 23. In those circumstances, it seems likely that there are other assets to which the plaintiffs could conveniently turn to provide security and that a more conventional arrangement in respect of security is appropriate. 24. After delivery of the above reasons and indicating the proposed orders, both parties sought an order for the costs of the motion. 25. The plaintiffs rely upon a letter in which they offered a slightly larger amount of security to be given by way of a second mortgage. The defendants relied upon a responsive letter to the effect that the security should be given in a more conventional form. 26. The plaintiffs' Calderbank letter is of limited value because the form of security proposed in the letter was not ordered. Thus, the plaintiffs have not obtained a result as good as or better than what they offered. 27. The application was to strike out or dismiss the proceedings and to obtain security for costs. The defendants have obtained security for costs and have had some part of the pleading struck out, and thus have largely succeeded. Bearing in mind this result, and that this is an interlocutory motion, and also the provisions of Uniform Civil Procedure Rules 42.1 and 42.7, the appropriate order is that the defendants' costs of the notice of motion be the defendants' costs in the proceedings. If the defendants succeed, ultimately they will likely be awarded their costs. If they fail to obtain an order for the costs of the proceedings then each party will bear their own costs of the motion. 28. Accordingly, the orders of the Court are: 1. Note that the plaintiffs' application for adjournment has been abandoned. 2. Strike out paragraphs 48e through to and including the words "$145,600 per annum" in paragraph 48h of the statement of claim. 3. Strike out paragraph 49d, e and f of the statement of claim. 4. Leave to the plaintiffs to replead by an amended statement of claim, so as to plead what conduct is alleged to be misleading, and to separately plead what conduct is alleged to be unconscionable conduct, within 21 days. 5. The plaintiffs are to provide security for the defendants' costs of the proceedings by depositing the sum of $69,000 into an account controlled jointly by the plaintiffs' solicitor and the defendants' solicitor or such other form of security as is agreed upon by the parties, within 28 days. Any interest that accrues on the sum of $69,000 whilst it is so held is to be paid to, or for the benefit of, the plaintiffs. In the event that security is not provided within 28 days then the proceedings will be stayed. 6. Stand over for directions on Thursday, 20 March 2014 at 9.30am before the Judicial Registrar. 7. The defendants' costs of the motion be the defendants' costs in the proceedings. 8. Grant liberty to apply. ********** 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. Decision last updated: 21 May 2015