Supreme Court New South Wales Medium Neutral Citation: DHR International Inc v Challis; Hoffmann v Challis [2016] NSWSC 1619 Hearing dates: 8 November 2016 Decision date: 17 November 2016 Jurisdiction: Common Law Before: Button J Decision: (1) The plaintiff, DHR International Inc, must provide security for costs of the defendant, Mr Darren Challis, in the sum of AUD 30,000, in the form of an irrevocable bank guarantee from an Australian Bank, or alternatively by way of a payment into Court of that amount, or alternatively by payment of that amount into a controlled money account operated by the plaintiff's solicitors, K&L Gates. (2) The plaintiff, Mr David Hoffmann, must provide security for costs of the defendant, Mr Darren Challis, in the sum of AUD 30,000, in the form of an irrevocable bank guarantee from an Australian Bank, or alternatively by way of a payment into Court of that amount, or alternatively by payment of that amount into a controlled money account operated by the plaintiff's solicitors, K&L Gates. (3) Until Orders 1 and 2 have been complied with, these proceedings are stayed. (4) Each of the parties must pay his or its own costs of the proceedings before me. Catchwords: COSTS – security for costs – whether defendant is entitled to security for costs when corporate plaintiff is not domiciled in Australia – whether defendant is entitled to costs when individual plaintiff is ordinarily resident outside of Australia Legislation Cited: Foreign Judgments Regulations 1992 (Cth), Sch 2 Uniform Civil Procedure Rules 2005 (NSW), r 42.21 Cases Cited: Ballard v Brookfield Australia Investments Ltd [2013] NSWCA 82 Barton v Minister for Foreign Affairs (1984) 2 FCR 463; [1984] FCA 108 Chellaram & Co v China Ocean Shipping Company (1991) 102 ALR 321; [1991] HCA 36 Crozat v Brogden [1894] 2 QB 30 DHR International Inc v Challis (Supreme Court (NSW), Registrar Bradford, 19 February 2016, unrep) DHR International Inc v Challis (No 3) [2016] NSWSC 492 DHR International Inc v Challis (No 5) [2016] NSWSC 761 Hoffmann v Challis (No 2) [2016] NSWSC 269 Li v State of New South Wales [2013] NSWCA 165 Logue v Hansen Technologies (2003) 125 FCR 590; [2003] FCA 81 Category: Procedural and other rulings Parties: David Hoffmann (Plaintiff/Respondent) DHR International Inc (Plaintiff/Respondent) Darren Challis (Defendant/Applicant) Representation: Counsel: MS White SC (Plaintiffs/Respondents) RC Gration (Plaintiffs/Respondents) B Katekar (Defendant/Applicant) P Horobin (Defendant/Applicant) Solicitors: K & L Gates (Plaintiffs/Respondents) Atanaskovic Hartnell (Defendant/Applicant) File Number(s): 2015/305175; 2015/349993 Judgment Introduction 1. By way of two notices of motion, each filed on 20 July 2016, Mr Darren Challis has sought security for costs from each plaintiff in two separate but related proceedings. In the first, he seeks security for costs, in the sum of $90,000, from DHR International Inc (DHR). In the latter, he seeks an identical sum for an identical purpose from Mr David Hoffmann. 2. On 24 June 2016, McCallum J ordered that the two sets of proceedings should travel together, and that (subject to any contrary order by the trial judge) evidence in one proceeding should also be admitted in the other. With the consent of the parties, I adopted an identical course at the hearing of the two motions, and this judgment should be regarded as delivered in each proceeding. Background 1. The background of this dispute has already been recounted in many judgments of this Court, despite the fact that proceedings have only been on foot for a little over a year. To avoid fruitless repetition, I shall be brief. 2. DHR is a large human resources company that is active in over 18 countries. Mr Hoffmann is its principal. Mr Challis was the CEO of the Australian subsidiary of DHR, DH International Pty Limited. Some time ago, the employment of Mr Challis was terminated, and the subsidiary in question is now in liquidation. 3. The allegation of both DHR and Mr Hoffmann is that Mr Challis placed (to use a general word) on the internet material highly critical of each of them. That has led to the proceedings in this Court brought by DHR alleging that Mr Challis committed the tort of injurious falsehood, and the proceedings brought by Mr Hoffmann alleging that Mr Challis committed the tort of defamation. 4. Separately, Mr Challis has commenced proceedings against Mr Hoffmann, in the Corporations List of this Court, alleging that Mr Hoffmann breached his director's duties with regard to the Australian subsidiary. Amongst other things, Mr Hoffmann has disputed the standing of Mr Challis to bring those proceedings. 5. There have already been a number of hard fought interlocutory battles between the parties. They include an allegation of criminal contempt brought by Mr Challis against DHR, which was heard and dismissed by me: see DHR International Inc v Challis (No 3) [2016] NSWSC 492 and DHR International Inc v Challis (No 5) [2016] NSWSC 761. 6. On 19 February 2016, Registrar Bradford (in the proceedings brought by DHR against Mr Challis), ordered that DHR pay $70,000 as security for costs. That was in the context of DHR already having voluntarily paid $100,000 for the same purpose when it commenced its proceedings against Mr Challis: see DHR International Inc v Challis (Supreme Court (NSW), Registrar Bradford, 19 February 2016, unrep). 7. On 26 February 2016, Campbell J (in the proceedings brought by Mr Hoffmann against Mr Challis) ordered that an amount of $75,000 be paid by Mr Hoffmann as security for the costs of Mr Challis: see Hoffmann v Challis (No 2) [2016] NSWSC 269. 8. It is in that context that Mr Challis submitted, on the motions before me, that a further sum totalling $180,000 should be made available. He also submitted that, if successful on either motion, he should have his costs of pursuing it, and that any such costs should be payable forthwith. Evidence before me 1. A deal of affidavit evidence was placed before me. It may be summarised as follows. 2. First, a great deal of money has already been expended on these proceedings by Mr Challis. The expert opinion of a solicitor experienced in litigation is that a great deal more money will be expended between now and the final hearing. 3. Although neither the accuracy of the recitation of costs already incurred, nor the general correctness of the prediction of future costs, was impugned by the respondents to the motions, it was said that much of the expenditure has been caused by fruitless applications brought by Mr Challis. I interpolate at this stage of my judgment to say that it is impossible for me on the hearing of these motions to adjudicate, except in the broadest sense, the rights and wrongs of the conduct of the litigation thus far. 4. It was not disputed that, as I have said, DHR is a large and successful company with an international presence. 5. Nor was there dispute that Mr Hoffmann is a very wealthy man indeed. 6. Nor was it disputed that neither respondent has assets in New South Wales, or indeed Australia, thereby enlivening the first precondition for an order for security for costs to be found in r 42.21 of the Uniform Civil Procedure Rules 2005 (NSW) (the Rules). 7. There was a degree of dispute, however, about whether or not assets of Mr Hoffmann and DHR would be available to satisfy enforcement of a costs order, made by this Court, in the State of Illinois in the Midwest of the United States of America. 8. The respondents read an affidavit that was a detailed legal opinion of Mr Gabriel Aizenberg with regard to the ease with which one could enforce a costs judgment of this Court in Illinois. Although the legal correctness of that opinion was not contradicted by a legal opinion to the contrary, the submission of Mr Challis was that the opinion would not satisfy me that it would be an easy matter to enforce a substantial judgment, in an effective and practical way, against either respondent in that jurisdiction. 9. In that regard, Mr Challis noted that, in the Corporations List proceedings, Brereton J had ordered that Mr Hoffmann pay $5,500 in costs, and do so forthwith. That order was made on 18 July 2016. And yet, for reasons unexplained by senior counsel for Mr Hoffmann, his undeniably wealthy client has not complied with that order. 10. Furthermore, relatively recently the solicitors on the record in these proceedings for Mr Hoffmann declined to accept service of documents for Mr Challis in the Corporations List proceedings. That service not having been accepted, Mr Challis sought to serve Mr Hoffmann personally at a residential address in the suburbs of Chicago, but was unsuccessful. Nor did he succeed in serving DHR at an address in the downtown of that city. 11. Separately, it was noted by counsel for Mr Challis that DHR is recorded as being domiciled in the state of Delaware, not Illinois. In similar vein, evidence was placed before me that Mr Hoffmann resides in Naples, Florida, not Chicago, Illinois. 12. Finally, the respondents placed before me a draft deed that they would be prepared to execute. It was said that that deed would effectually prohibit the respondents from resisting the enforcement in Illinois of an order for costs made by this Court. Submissions of Mr Challis 1. It was accepted by counsel for Mr Challis that, pursuant r 42.21 of the Rules (and the factors enumerated therein), I am called upon to exercise a broad discretion, albeit judicially and not capriciously: see Li v State of New South Wales [2013] NSWCA 165. The following matters were particularly emphasised by counsel as informing that discretion. 2. First, it was said that the controversy between the parties about security for costs has in truth, been resolved: first by Registrar Bradford, and thereafter by Campbell J. To the extent that each of those judicial officers had been content to order security for costs intended to be up to final hearing, and the respondents did not dispute the quantum of the costs expended and the costs predicted before me, it was said for Mr Challis that the respondents should not be permitted to resist the application again. 3. Secondly, as I have said, it was not asserted that either respondent is impecunious; quite the contrary. But various possible difficulties with enforcement were noted: whether there are in fact assets of either respondent in Illinois; the difficulties already encountered with service; and the question of whether enforcement may be achieved as readily as curial recognition. It was also said that the wealth of the respondents may argue against an ability readily to enforce, in that it could be possible that a very wealthy individual or corporation could structure his or its assets in an obstructive way. 4. It was also submitted that the outstanding order of Brereton J might give me cause for significant concern. In other words, I was asked to consider whether, if an order in the sum of $5,000 is permitted to remain outstanding, an order of (to speak hypothetically) $500,000 for costs, after a very hard fought final hearing, might be treated in the same way. 5. In short, it was said that the longstanding approach of this Court has been readily to order security for costs in the case of a foreign plaintiff who does not have assets in New South Wales or Australia: see Barton v Minister for Foreign Affairs (1984) 2 FCR 463; [1984] FCA 108, and Logue v Hansen Technologies (2003) 125 FCR 590; [2003] FCA 81. Two officers of this Court had been content to order such security in sums that have already been shown to be insufficient to protect the interests of Mr Challis. In weighing up all of the circumstances, it was submitted, I should make the orders sought. Determination 1. Turning to my determination, I reject the fundamental submission of Mr Challis that I am somehow bound by the judgments of Registrar Bradford or Campbell J to make the orders sought in the motions. Of course, I give those learned judgments due deference, and have read them carefully more than once. But I consider that I am called upon to exercise my discretion afresh, determining fresh motions, argued on the basis of fresh evidence. In particular, I reject the proposition that the principal in Ballard v Brookfield Australia Investments Ltd [2013] NSWCA 82 (namely, that a party seeking to impugn a previously made order or judgment must have a sound basis for doing so) has any application here. 2. Secondly, it is certainly true that, in the past, courts were very ready to order security for costs against a foreign plaintiff, including one that was pecunious. Indeed, there is a suggestion that, in England and Wales, it was almost an inflexible rule that security would be ordered in those circumstances: see Crozat v Brogden [1894] 2 QB 30 at 35, and Barton v Minister for Foreign Affairs at 468. And as relatively recently as in Chellaram & Co v China Ocean Shipping Company (1991) 102 ALR 321; [1991] HCA 36 at 643, McHugh J said that: …for over 200 years, the fact that a party, bringing proceedings, is resident out of the jurisdiction and has no assets within the jurisdiction has been seen as a circumstance of great weight in determining whether an order for security for costs should be made. Indeed, for many years the practice has been to order such a party to provide security for costs unless that party can point to other circumstances which overcome the weight of the circumstance that that person is resident out of and has no assets within the jurisdiction. 1. Having said that, this application was placed before me in 2016, not 1894, or 1991. Even as recently as 25 years ago, a party seeking to enforce a judgment of this Court overseas did not have the benefit of the internet, e-mail, virtually free international telephone calls, and the ability to transmit images (including photographs and documents in PDF format) instantaneously. 2. In other words, I think that the remarkable technological advances that have undoubtedly "shrunk" the world and made Australia far less isolated from other countries tell, in a broad way, against a readiness to make such an order as a matter of course. 3. Thirdly, it is to be remembered that the location under consideration is the third largest metropolitan area in the United States of America. It is not a geographically isolated village in a markedly less developed nation. To the contrary, I am surely entitled to take judicial notice that Chicago is a metropolis larger than Sydney, and a more significant commercial and legal centre. That factor also tells against the application. 4. Fourthly, it is quite true that Australia and the United States of America do not have a reciprocal right of enforcement of each other's judgments, pursuant to Sch 2 of the Foreign Judgments Regulations 1992 (Cth). And it is impossible for me to speak with expertise, on the determination of this motion, with regard to the law of one of the fifty United States. But the un-contradicted opinion evidence of Mr Aizenberg satisfies me that, just as enforcement of a judgment of a State Supreme Court of the United States would not be overly difficult within New South Wales, nor would a judgment for costs of this Court be overly difficult to enforce in Illinois. 5. Fifthly, the affidavit evidence supports the proposition that Mr Hoffmann has extensive real estate holdings in Chicago that are readily ascertainable; in fact, they are revealed in an annexure to an affidavit that, with the consent of both parties, I have ordered should be kept confidentially on the Court file. 6. Sixthly, it is true that a wealthy person or corporation might structure things to make enforcement difficult. But that is an aspect of Australian society just as much as it is of the United States. And in any event, the assertion that that could occur is, at this stage, speculative. 7. Seventhly, the difficulties with regard to service, and the outstanding order of Brereton J, have given me pause for thought. But I think it possible that the solicitors declined service in the proceedings in the Corporations List so as to maintain a resistance to standing or jurisdiction. And the affidavit evidence about problems with service in Illinois does not support a firm conclusion that Mr Hoffmann is "keeping house". As for the outstanding costs order, I have ultimately factored that into my determination of quantum. 8. Eighthly, I accept the submission of senior counsel for the respondents that, if a further order for security for costs is to be made against these wealthy respondents, it should be limited to the costs of overseas enforcement, (to be measured in the tens of thousands of dollars), rather than substantive costs (to be measured in hundreds of thousands of dollars). I say that because I accept that the principle to that effect discussed in Barton v Minister for Foreign Affairs (and many subsequent cases) is applicable in the circumstances of this case. Having said that, I think I should build in a considerable buffer, in terms of the costs of enforcement. 9. Finally, senior counsel for the respondents submitted that, if I were satisfied that I should make an order reflecting nothing more than the costs of enforcement of a substantive order for costs, then the security for costs already provided amply satisfies such an order, many times over. But to accept such a submission would be to undermine the purpose and effect of the orders already made by Registrar Bradford and Campbell J. There is no reason for me to do so; rather, as I have said, I am simply called upon to determine the two motions placed before me on their inherent merits. 10. In all of the circumstances, I propose to order that a further $30,000 be paid by each of DHR and Mr Hoffmann. To be clear, I shall make those orders in order to provide security for costs pertaining only to the enforcing in Illinois of any costs orders made by this Court. 11. Finally, each motion proposed that I order that Mr Challis be granted liberty to apply for additional security for his costs of defending these proceedings at any time, upon 5 days' notice to the plaintiff. But I see no basis upon which such alleged urgency should be accommodated. Costs of the motions 1. As for the costs of the motions, each party enjoyed a measure of success and failure. In those circumstances, I consider that each party should pay its own costs. Orders 1. I make the following orders: 1. The plaintiff, DHR International Inc, must provide security for costs of the defendant, Mr Darren Challis, in the sum of AUD 30,000, in the form of an irrevocable bank guarantee from an Australian Bank, or alternatively by way of a payment into Court of that amount, or alternatively by payment of that amount into a controlled money account operated by the plaintiff's solicitors, K&L Gates. 2. The plaintiff, Mr David Hoffmann, must provide security for costs of the defendant, Mr Darren Challis, in the sum of AUD 30,000, in the form of an irrevocable bank guarantee from an Australian Bank, or alternatively by way of a payment into Court of that amount, or alternatively by payment of that amount into a controlled money account operated by the plaintiff's solicitors, K&L Gates. 3. Until Orders 1 and 2 have been complied with, these proceedings are stayed. 4. Each of the parties must pay his or its own costs of the proceedings before me. ********** Amendments 18 November 2016 - Typographical error on Cover Sheet corrected. 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: 18 November 2016