Supreme Court New South Wales Medium Neutral Citation: TTM Investment Corporation Pty Ltd v Hua Chang Pty Ltd [2020] NSWSC 294 Hearing dates: 25 February 2020 Decision date: 25 March 2020 Jurisdiction: Equity Before: Robb J Decision: TTM is to provide an additional $80,000 of security for Mr Lu's costs of the proceedings. Parties should confer for the purpose of agreeing short minutes of order to give effect to these reasons. Note pars 103 – 105 regarding details to be included in those short minutes. Catchwords: COSTS — Security for costs — Quantum and form Legislation Cited: Competition and Consumer Act 2010 (Cth) Corporations Act 2001 (Cth) Home Building Act 1989 (NSW) Uniform Civil Procedure Rules 2005 (NSW) Cases Cited: TTM Investment Corporation Pty Ltd v Hua Chang Pty Ltd [2018] NSWSC 1078 Category: Procedural and other rulings Parties: TTM Investment Corporation Pty Ltd (plaintiff) Hua Chang Pty Ltd (first defendant) Shu Ye Lu (second defendant) Representation: Counsel: B Oliak (plaintiff) JC Lee (first defendant) JA Rose (second defendant) Solicitors: Juris Bridge Legal (plaintiff) Fang Wang & Co Legal (first defendant) Guantao & CS Lawyers (second defendant) File Number(s): 2017/63772 Judgment 1. At the beginning of the hearing on 28 February 2020, the Court had before it three notices of motion for determination. 2. On 4 November 2019, the plaintiff, TTM Investment Corporation Pty Ltd (TTM), filed a notice of motion seeking the leave of the Court to file a further amended statement of claim in the form attached to the notice of motion. 3. The first and second defendants are respectively Hua Chang Pty Ltd (Hua Chang) and Mr Shu Ye Lu. The defendants filed notices of motion seeking orders for the provision by TTM of further security for their costs on 1 and 6 November 2019 respectively. 4. TTM commenced these proceedings by summons filed on 28 February 2017. TTM named, as second defendant, a company that has since been deregistered, and Mr Lu has come to be treated as the second defendant. 5. TTM filed an amended statement of claim on 22 August 2017. That is significant as it represented TTM's statement of claim in effect when the first orders were made by the Court for the provision of security for costs to the defendants. I will return to the significance of that matter below. 6. At the hearing, the defendants informed the Court that they did not oppose the making of an order granting leave to TTM to file the further amended statement of claim. Mr Lu's concern was that the consequence of its filing should not be allowed to increase his legal costs before his application for further security for costs was dealt with. 7. I informed the parties that, in due course, I would make an order granting leave to TTM to file the further amended statement of claim, together with directions to deal with the additional pleadings, and an order that TTM disclose to the defendants and the Court the nature of any further evidence that it would serve to deal with the amendments. 8. Even though there is no longer any issue about leave being granted to TTM to file the further amended statement of claim, it will be necessary to discuss that pleading for the purpose of explaining the Court's reasoning in respect of the defendants' applications for orders for further provision by TTM of security for their costs. 9. Hua Chang came to an agreement with TTM as to the terms upon which TTM would provide additional security for its costs. I will explain the agreement below. The only remaining matter for determination is Mr Lu's claim for additional security. 10. The only amendment made to the amended statement of claim is the addition in pars 156A to 156J of a new claim by TTM against Mr Lu. 11. TTM pleaded that, during the period 9 December 2009 to 3 February 2017, Mr Lu was the only director of TTM who resided and worked in Australia, and that he was the director who was solely responsible for the day-to-day management of TTM's operations in Australia, including the real estate development that gave rise to the dispute: see par 3. 12. In par 100, TTM alleged against Mr Lu that, at relevant times, he owed the statutory duties to it that arise under ss 180 to 182 of the Corporations Act 2001 (Cth), in addition to the fiduciary duty that he act honestly and in the interests of TTM. The new allegations are, in summary, that on 4 July 2014, Mr Lu transferred TTM's funds totalling $126,028 to himself without the prior consent of TTM, and that, on about 8 July 2014, Mr Lu used $114,035.18 of the money to acquire a home unit at Chatswood. By its new claim, TTM alleged that Mr Lu is obliged to repay the full amount to it, and also that it has an equitable interest by way of constructive trust or equitable lien in the home unit. 13. The additional claim will have the effect of increasing Mr Lu's costs of defending TTM's claim. It may be said that the new claim is a relatively straightforward one, but it may nonetheless be that the increase in costs will be significant. 14. I will now consider the balance of the allegations and relief claimed, which has not been changed from the amended statement of claim. It is not necessary to analyse the allegations in detail, and I will refer to them in summary, limited to the extent necessary to deal with the application for further security for costs. 15. The purpose of this analysis is to provide a factual basis for judging the reality of the submissions made on behalf of Mr Lu concerning the forensic issues that will need to be addressed in the preparation and hearing of these proceedings by Mr Lu, and the length of time and cost relevant to his defence. 16. On 23 February 2010, TTM purchased land in St Ives for the purposes of subdivision and sale. By written contract made on 6 July 2011, TTM engaged Hua Chang and the now deregistered company to demolish and construct eight self-contained units on the land, in compliance with a development consent and approved plans. The residential building works were substantially completed by November 2013. 17. On 19 April 2014, TTM applied for the issue of a final occupation certificate in respect of the development, but the application was declined in consequence of there being no Home Warranty Insurance covering the development as required, as TTM alleged, under the Home Building Act 1989 (NSW) (the Act). 18. TTM alleged, in par 14, that, on 23 April 2014, Hua Chang and Mr Lu executed a written Deed of Indemnity under which TTM was required to indemnify Hua Chang for any claim made in respect of the work undertaken for the development, and that Hua Chang would effect the insurance required by the Act. Hua Chang then obtained the necessary insurance. 19. A final occupation certificate was then issued in respect of the development. 20. TTM then alleged, from par 18 onwards, that the Owners Corporation commenced proceedings in NCAT regarding Hua Chang's defective work resulting in an award of damages being made against Hua Chang, which it did not pay. As a consequence, its builders licence was cancelled on 25 August 2016. 21. On 9 November 2016, Hua Chang commenced debt recovery proceedings in the Local Court of New South Wales against TTM and Mr Lu seeking recovery of $81,899 under the Deed of Indemnity as its cost of rectifying defects in the construction of home units forming part of the development. Those proceedings have been transferred into this Court. 22. TTM alleged, in par 24, that it was a term of the Deed of Indemnity that Hua Chang provide the home warranty insurance required by the Act. Next, in par 25, that TTM and Mr Lu would indemnify Hua Chang for all liabilities in respect of the insurance. Further, it was alleged in par 26 that, under the Deed of Indemnity, TTM agreed to mortgage one of the lots in the home unit development to secure the indemnity that was given. 23. By a series of allegations in pars 27 to 46, TTM alleged that, by reason of non-compliance with the Act, the Deed of Indemnity was unenforceable for various reasons that turned upon the basic facts and the effect of the provisions of the Act. 24. Then, in par 47, TTM pleaded that, on 20 September 2013, Mr Lu signed a document called "Letter of Commitment" on behalf of TTM. 25. The Letter of Commitment varied the terms of the building contract to require TTM to pay for the costs of home warranty insurance, and for all costs of fixing defects during the period of the home warranty insurance. 26. TTM alleged, in pars 51 to 58, that, by reason of the basic facts and the provisions of the Act, the Letter of Commitment is void. 27. In pars 59 to 68, TTM pleaded that Hua Chang had no right to retain the final payment of $500,000 for the building works, because the agreement that Mr Lu entered into with it to make the final payment was void under the terms of the Act. 28. TTM alleged, in pars 69 to 71, that Hua Chang was not entitled to lodge any caveat against the title to any home unit that formed part of the development, because it had no estate in the property as the Deed of Indemnity was void. 29. Finally, in respect of the claim made by TTM against Hua Chang, TTM pleaded, in pars 72 to 99, that Hua Chang did not have the right to retain payments made to it of $27,690.57, $250,000 or $500,000 because of the operation of the Act. 30. In pars 89 to 91, TTM made an alternative claim against Hua Chang. This was on the basis that it had contravened s 18 of the Competition and Consumer Act 2010 (Cth), Schedule 2, when it issued tax invoices requiring payment of the amounts paid by TTM, because the tax invoices represented that the debts were legally due and payable, when they were not. 31. The amended statement of claim pleaded six claims against Mr Lu. As explained above, the further amended statement of claim will add an additional claim. 32. It will be convenient to consider the claims in a different order than they are found in the amended statement of claim. The second claim, which is pleaded in pars 120 to 130, arises out of the fact that Mr Lu caused TTM to pay the amounts of $27,690.57, $250,000 and $500,000 to Hua Chang. 33. In respect of each payment, TTM alleged that, as the director of TTM with management responsibility, Mr Lu owed a duty to TTM to get legal advice as to whether TTM was obliged to make any of the payments, before he caused TTM to do so. TTM alleged that, if legal advice had been obtained, Mr Lu would have been advised not to make the payment, so that TTM would not have suffered the relevant loss. 34. This appears to be the claim that overlaps with TTM's claim against Hua Chang, and which has been the basis for TTM to make claims against both defendants in these proceedings. 35. The determination of this claim will depend upon the validity of TTM's claims in its case against Hua Chang, that it was not obliged to make the payments because of the operation, in the circumstances, of various provisions of the Act. The issue will then be whether Mr Lu, as the director with management responsibility, had a duty to seek legal advice, and if he had sought competent advice, what that advice would have been. 36. The fifth claim made by TTM against Mr Lu, in pars 153 to 156, pleaded that Mr Lu is indebted to it for the residual amount of $110,198.24 in respect of a single loan made by TTM to Mr Lu to enable him to purchase a home unit. 37. It will then be convenient to consider the first, third, fourth and sixth claims made by TTM against Mr Lu together, because they all have common features for the purpose of their relevance to Mr Lu's claim for an order requiring TTM to provide additional security for his costs. 38. All of these claims concern relatively numerous unauthorised payments that TTM alleged Mr Lu made out of its funds. 39. I will summarise the claims as follows: Claim 1: Paragraphs 101 to 113. Mr Lu caused 12 payments totalling $30,160 to be made to his daughter and 50 payments totalling $367,152.08 to be made to a specified bank account, which was not for the proper purposes of TTM. Claim 3: Paragraphs 131 to 142. Mr Lu caused TTM to make 44 credit card payments totalling $25,052.19 (see Schedule B) that were not genuinely or reasonably required for the benefit of TTM. Claim 4: Paragraphs 143 to 147. Mr Lu caused TTM to reimburse Mr Lu for 32 alleged expenses in respect of the development or other activities of TTM totalling $60,242.51 (see Schedule C) which were not in fact incurred for the proper purposes of TTM. Claim 6: Paragraphs 153 to 156. Mr Lu caused TTM to make to a company called Waterland Corporation Pty Ltd, being a company owned principally by Mr Lu's de facto partner or girlfriend, 469 payments totalling $504,977.41 (see Schedule D) for goods and services which Waterland alleged it had provided for the development or to TTM. 1. Claims 1, 3, 4 and 6 are of particular relevance to Mr Lu's claim for additional security for costs because of the number of individual transactions that are involved, which Mr Lu submitted would have the effect that the length of the hearing would be substantially greater than was originally expected. Claims 2 and 5 raised significantly narrower forensic issues. 2. As TTM and Hua Chang have compromised the latter's claim for an order for the provision of additional security for costs, it will only be necessary to set out the relief claimed in the further amended statement of claim against Mr Lu, which is as follows (the underlined prayers being those added by the amended pleading): 25. An order that the Second Defendant render accounts to the Court and that the proceedings be referred to an appropriately qualified and experienced referee for the taking of accounts. 26. An order that the Second Defendant pay to the Plaintiff such amount as it is certified on the taking of accounts as being due to the Plaintiff by him after all just allowances are made. 27. Further or in the alternative, an order that the account be taken on a wilful default basis and the Second Defendant pay to the Plaintiff such amount as it is certified on the taking of accounts as being due to the Plaintiff by him after all just allowances are made. 28. An order that the Second Defendant pay interest on the amount found to be due. 29. An order that the costs of taking of the accounts be paid by the Second Defendant. 30. As against the First Defendant and Second Defendant, damages and/or equitable damages, and/or compensatory damages pursuant to section 236 of Schedule 2 to the Competition and Consumer Act 2010 (Cth). 31. As against the Second Defendant, compensation for damage suffered by the Plaintiff as a result of the Second Defendant's contraventions of the civil penalty provisions in sections 180(1), 181(1) and 182(1) within the meaning of section 1317H(2) of the Corporations Act 2001 (Cth) 32. As against the Second Defendant judgment in the amount of $110,198.24 plus interest in respect of the loan pleaded in paragraph 148 to 152 herein. 32A. Declaration that the sum of $126,028 withdrawn from the Plaintiff's ANZ Bank account (Account No: XXXX) by the Second Defendant on or about 4 July 2014 was at all times held by the Second Defendant on trust for the benefit of the Plaintiff. 32B. Order that the Second Defendant account to the Plaintiff for the said $126,028 taken from the Plaintiff's account. 32C. Declaration that the Second Defendant holds the property contained in Folio Identifier XXXX otherwise known as XXXX subject to a constructive trust or equitable lien securing the Second Defendant's obligation to account for the said $126,028 improperly withdrawn on 4 July 2014. 1. Prayers 25 to 29 concern TTM's application that Mr Lu render accounts and that the taking of accounts be conducted by a referee appointed by the Court under rule 20.14 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR). 2. Consequently, the issue at the hearing in respect of this relief will only be whether, if TTM is able to establish that Mr Lu is an accounting party, there is proper reason for the Court to think that the conduct of an accounting will be sufficiently likely to lead to a finding that Mr Lu must account to TTM for some amount, and whether Mr Lu's conduct justifies an order that the accounting be on a wilful default basis. 3. The Court at the hearing will not investigate the circumstances in which the substantial number of transactions referred to by TTM in its pleading and Schedules occurred for the purpose of deciding whether or not they were authorised by TTM or otherwise were proper. 4. It is reasonable to suppose that, if the Court makes the order sought in prayer 25, the referee will conduct the accounting process in a more expeditious, inexpensive and informal way than would be required if those issues were to be determined by a judicial hearing. 5. TTM seeks a money judgment against Mr Lu in prayer 30, apparently for involvement by Mr Lu in Hua Chang's misleading and deceptive conduct. The only such conduct that is alleged is in pars 90 to 99 of the further amended statement of claim. The basis of that claim is not made entirely clear, but it seems to be limited to the specific payments made by TTM to Hua Chang at the direction of Mr Lu. It is not concerned with the multitude of transactions the subject of claims 1, 3, 4 and 6. 6. I add that the only misleading and deceptive conduct claim that is pleaded in the further amended statement of claim is the claim pleaded against Hua Chang, and there is no pleading that Mr Lu was a person involved in those contraventions. 7. Prayer 31 is a claim by TTM for compensation from Mr Lu for contraventions of the provisions of the Corporations Act that are referred to. 8. This compensation does appear to be based on the alleged conduct of Mr Lu in entering into the multitude of transactions that TTM claims involved breaches of duty because the transactions were not carried out for the benefit of TTM. 9. However, the existence of prayer 31 should not have the consequence that, at the judicial hearing in these proceedings, the Court will investigate every single transaction to determine whether it occurred and whether it involved a breach of duty on Mr Lu's part that gives rise to an obligation on him to compensate TTM. The Court would not contemplate referring the possibility of those breaches having occurred to a referee for the purpose of conducting an accounting to ascertain whether there is some balance payable by Mr Lu to TTM, and, at the same time, conduct a full forensic examination of all of the same issues in the judicial hearing. 10. For completeness, I note that prayers 32 to 32C seek money orders, and consequential relief against Mr Lu in respect of two discrete sums of money. 11. Consequently, I interpret TTM's prayers for relief against Mr Lu, in so far as they concern the multitude of transactions the subject of claims 1, 3, 4 and 6, as being a request for an order that Mr Lu account to TTM, and an order referring that inquiry to a referee for report to the Court, so that the Court will be in a position to use the findings in the report to determine what compensation is payable by Mr Lu to TTM under prayer 31. The Court will not, at the hearing, duplicate by judicial inquiry the accounting process to be undertaken by the referee. 12. The significance of this conclusion is that Mr Lu's application for additional security for costs must be determined having regard to the more limited issues that arise for judicial determination, and the fact that TTM has asked for the accounting to be dealt with by means of an inquiry conducted by a referee, which is a forensic process intended to be considerably less expensive than a judicial determination. 13. As I have noted above, the Court has already made orders that TTM provide security for the defendants' costs: see TTM Investment Corporation Pty Ltd v Hua Chang Pty Ltd [2018] NSWSC 1078, decided by Parker J on 13 July 2018. 14. As Parker J recorded at [17], Mr Lu's application was settled, with consent orders being made for TTM to provide security in the sum of $80,000 out of the proceeds of sale of the only home unit in the residential development that then remained in the ownership of TTM. 15. His Honour ruled, at [28], that the appropriate amount to fix as the security for costs to be provided to Hua Chang was $40,000. That amount was chosen on the basis that Hua Chang had filed a cross claim against TTM, and it was proper to apportion half of Hua Chang's costs between each of TTM's claim and Hua Chang's cross claim. 16. It will now be appropriate to set out the orders sought by Mr Lu in his notice of motion. It is not necessary to set out orders 1 and 2, as they have been overtaken by events. The orders claimed are: 3. That the Plaintiff provide further security for the Second Defendant's costs by paying into court the (additional) sum of $238,000 (or such other amount as this Honourable Court may determine) within 28 days (or within such other time as this Honourable Court may determine), or by otherwise providing security for that amount in a manner satisfactory to the Second Defendant. 4. That the proceedings be stayed pending compliance with order 3 above. 5. That the proceedings be listed on a date to the convenience of the court after the expiry of the period referred to in order 3 above, for: a. consequential orders; or b. in the event that order 1 and/or order 3 has not been complied with, an order for the dismissal of the proceedings under rule 42.21(3) of the Uniform Civil Procedure Rules. 6. That the Second Defendant have liberty to apply for additional security for costs at any stage of the proceedings. 7. Costs. 1. It should be recorded that, on 25 February 2020, as between TTM and Hua Chang, the Court made the following orders by consent: 1. Order that the plaintiff provide further security for the first defendant's costs by payment into Court of $12,000 within 42 days of the date of these Orders. 2. Order that the first defendant's notice of motion filed 1 November 2019 be dismissed with costs of that notice of motion to be costs in the cause. 3. If the security is not provided in accordance to Order 1, the proceedings against the first defendant be stayed until further order of the Court. 1. Rule 42.21 of the UCPR relevantly provides: 42.21 Security for costs (1) If, in any proceedings, it appears to the court on the application of a defendant— … (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, … (1A) In determining whether it is appropriate to make an order that a plaintiff referred to in sub-rule (1) give security for costs, the court may have regard to the following matters and such other matters as it considers relevant— (a) the prospects of success or merits of the proceedings, (b) the genuineness of the proceedings, (c) the impecuniosity of the plaintiff, (d) whether the plaintiff's impecuniosity is attributable to the defendant's conduct, (e) whether the plaintiff is effectively in the position of a defendant, (f) whether an order for security for costs would stifle the proceedings, (g) whether the proceedings involves a matter of public importance, (h) whether there has been an admission or payment in court, (i) whether delay by the plaintiff in commencing the proceedings has prejudiced the defendant, (j) the costs of the proceedings, (k) whether the security sought is proportionate to the importance and complexity of the subject matter in dispute, (l) the timing of the application for security for costs, (m) whether an order for costs made against the plaintiff would be enforceable within Australia, (n) the ease and convenience or otherwise of enforcing a New South Wales court judgment or order in the country of a non-resident plaintiff. … (2) Security for costs is to be given in such manner, at such time and on such terms (if any) as the court may by order direct. (3) If the plaintiff fails to comply with an order under this rule, the court may order that the proceeding on the plaintiff's claim for relief in the proceedings be dismissed. (4) This rule does not affect the provisions of any Act under which the court may require security for costs to be given. 1. The Court may, as sub-rule (4) recognises, also make an order for security for costs under s 1335(1) of the Corporations Act, which provides: (1) Where a corporation is plaintiff in any action or other legal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his, her or its defence, require sufficient security to be given for those costs and stay all proceedings until the security is given. 1. A number of matters relevant to the determination of the dispute were not controversial. 2. TTM accepts that it will, for the purposes of rule 42.21(1)(d) of the UCPR, be unable to pay the costs of Mr Lu if it is ordered to do so, if those costs exceed the $80,000 that has already been provided as security. In similar vein, the threshold in s 1335 of the Corporations Act for the making of an order for the provision of security is satisfied. 3. As a result of the sale of the last of the home units in the residential development, the $120,000 that TTM has paid into court as security for the defendants' costs represents the entirety of TTM's remaining assets. Consequently, TTM will not be able to pay any costs ordered to be paid to either defendant that exceeds the amount of the security provided to that defendant. 4. TTM is controlled by Mr Wang, who is a citizen of the People's Republic of China resident in Shanghai. 5. Mr Wang has been providing funds to TTM to prosecute these proceedings, and its future conduct of the proceedings will depend upon the continuation of that funding. 6. Mr Wang holds 70% of the shares in TTM, and, to that extent, these proceedings are being conducted for his ultimate benefit. 7. Mr Lu holds the remaining 30% of the shares in TTM. To that extent, he may benefit from any success in the proceedings by TTM against Hua Chang, but he naturally will not benefit from the claims made by TTM against him. 8. Mr Wang has not offered any undertaking to the Court to pay any costs that may be awarded against TTM in favour of the defendants to the extent that TTM is unable to pay those costs itself. 9. Mr Wang has not provided any evidence concerning his financial affairs and his capacity to fund the litigation, or whether the making of any particular order for security for costs will have the effect of stultifying the proceedings. 10. As recorded above, on or about 8 June 2018, TTM and Mr Lu compromised Mr Lu's first application for security for costs on the basis that the amount to be paid was $80,000 in contemplation that that sum would be adequate security for Mr Lu for the conduct of his defence until the completion of the proceedings. 11. The granting of leave to TTM to file its further amended statement of claim will introduce one new claim against Mr Lu that was not in contemplation when the compromise was agreed on 8 June 2018. 12. TTM has served on Mr Lu additional evidence on which it intends to rely that was also not entirely in contemplation when the compromise was agreed on 8 June 2018. 13. TTM and Mr Lu disagree as to the significance of the compromise made on 8 June 2018 to the Court's consideration of whether it should order TTM to provide additional security for Mr Lu's costs. 14. As I understand TTM's position, as stated at par 6 of its written submissions, TTM accepts that the Court's discretion to make an additional order for security for costs continues to be available, even in a case where the parties have previously compromised a claim by a defendant for the provision of security at an amount intended at the time by both parties to be sufficient security to the end of the proceedings. However, TTM submitted that the fact of the compromise was important to the new exercise of the Court's discretion. I understand that Mr Lu did not go so far as to submit that the earlier compromise was entirely irrelevant, but he did appear to contend that, the Court's discretion being absolute and unfettered, the paramount issue was whether, on the current evidence before the Court, there is objectively a justification for the order of additional security because the evidence establishes that the agreed amount was not sufficient. 15. It will be appropriate at this stage to set out a number of matters that I consider to be of importance to the manner in which the Court should exercise its present discretion. 16. First, in the affidavit of Mr Lu's solicitor made on 20 October 2017, in support of the first application for security for costs made by Mr Lu, the solicitor said that his estimate of the likely costs that Mr Lu would incur in defending the proceedings included an allowance for a five-day trial in this Court, in which Mr Lu would be represented by a named junior counsel. 17. At the hearing before me, Mr Lu contested the assumption that I made that the $80,000 in security was agreed on the basis that it would be sufficient until the end of the proceedings. I am satisfied, on the basis of the evidence given by Mr Lu's solicitor, that the underlying assumption made by the parties, when the $80,000 was agreed, was that the amount would cover Mr Lu until the end of the hearing in the proceedings, that the hearing was expected to take five days, and that Mr Lu would be represented by junior counsel. 18. TTM and Mr Lu disagreed about the significance of the additional evidence served by TTM after the first order for the provision of security for Mr Lu's costs was made. 19. TTM's solicitor gave evidence that Mr Lu served his affidavit evidence on about 3 August 2018, after the first security for costs order was made. TTM served five affidavits in April and May 2019. The solicitor described the affidavits as evidence in reply. It may be accepted that the affidavits introduced new evidence, whether or not they were strictly in reply. 20. It appeared during submissions that Mr Lu initially approached the issue of whether an additional order for security for costs should be made in his favour on the basis that it was not necessary for him to demonstrate that TTM's conduct of the litigation had significantly increased the costs that Mr Lu would have to incur beyond the costs that were contemplated at the time he agreed to accept $80,000 in security from TTM. 21. In the face of a suggestion from the Court that TTM's conduct of the litigation in a way that had unexpectedly increased Mr Lu's costs may be relevant to whether additional security should be ordered, Mr Lu sought to tender all of the evidence served by TTM, which counsel for Mr Lu had divided into the evidence served by TTM before and after the making of the agreement as to the amount of the security for costs to be provided by TTM. The purpose of the tender, as explained to the Court, was to demonstrate that a substantial proportion of the evidence upon which TTM proposed to rely was new. 22. Counsel for TTM objected to the tender, as it had not been foreshadowed, and she was not in a position to test the validity of the division made by Mr Lu's counsel, and in any event she submitted that the amount of paper in the new evidence was not a valid test of the extent to which the new evidence would increase Mr Lu's costs, as a substantial proportion of the new evidence consisted of exhibits containing a large number of documents such as bank statements. Thus, TTM's counsel submitted, much of the new evidence would be tendered to prove a relatively small number of simple facts. 23. In the event, the Court rejected the tender by Mr Lu of TTM's evidence in bulk. The Court would not, in any event, have realistically been in a position to assess the extent that the new evidence would be likely to increase the costs incurred by Mr Lu, above the amount that may have been contemplated at the time that he entered into the agreement with TTM, that $80,000 would be an appropriate amount of security for costs to the end of the hearing. 24. The position is simply that the Court knows that TTM has added one new relatively straightforward claim to the proceedings, and served a number of affidavits which may introduce more new evidence than Mr Lu ought to have allowed for in respect of evidence in reply at the time he accepted the $80,000. 25. I consider that the fact of the earlier agreement between TTM and Mr Lu that $80,000 in security would be sufficient to the end of the hearing is a relevant, though not decisive, consideration for the purpose of the Court's exercising its discretion under rule 42.21 of the UCPR and s 1335 of the Corporations Act, as to whether it is proper for TTM to be ordered to provide an additional amount of security. The Court must exercise its discretion in a judicial manner, having regard to the objective facts and the probable course of the proceedings as they appear at the time that the decision is to be made. It is not conclusive against the making of an order for the provision of additional security that the parties to the application have already agreed to consent orders as to the security for costs that would be sufficient until the end of the hearing. It will usually not be possible for the Court to know, with accuracy, the assumptions made by the parties at the earlier time when the agreement was made, and it may well be that they each acted upon different assumptions. The process of thought engaged in by the parties, as part of the bargaining process, may not have been bound closely to precise assumptions concerning the future course of the proceedings. Assumptions of that nature are often proved wrong in any event. Consequently, the Court must exercise its discretion on the basis of the circumstances as they appear at the time the application for additional security must be decided. 26. However, it does not follow that the fact of the earlier agreement as to the appropriate amount of security is irrelevant to the exercise of the discretion. Following the agreement as to the appropriate amount of security for costs to be provided, and the provision of those costs by the plaintiff, the plaintiff will then prosecute the proceedings in the expectation that it will only have to meet its own costs up to the end of the hearing. There may be unfairness to the plaintiff, if it is required unexpectedly to provide additional security, as a condition of the continuation of the proceedings. That may lead to the security provided and the additional costs incurred by the plaintiff being wasted, if the requirement for additional security is too burdensome in the plaintiff's financial circumstances for it to continue to prosecute the proceedings. 27. In the present case, however, this consideration must be applied having regard to the fact that TTM has not led any evidence of its inability to provide additional security, or hardship that may be caused if it is required to do so. 28. Mr Lu's application for an order for additional security for costs was supported by an affidavit of his solicitor, in which the solicitor said that Mr Lu had incurred substantial costs of defending the proceedings between October 2017 and the 5 November 2019 date of the solicitor's affidavit. The significance of October 2017 is that it was the month in which Mr Lu filed his first notice of motion for an order for security for costs. 29. The solicitor said that Mr Lu had incurred costs in filing defences to TTM's amended pleadings, attending a mediation, attending nine directions hearings, inspecting 35 bundles of documents produced in response to subpoenas issued by TTM, considering four additional affidavits served by TTM, including 1896 pages of exhibits, preparing five affidavits in defence, including exhibits of 885 pages, attending a second mediation, and further additional steps usually required in litigation. 30. The solicitor said that Mr Lu's legal costs and disbursements to the date of the affidavit exceeded the $80,000 that had been agreed to be provided as security in the original agreement with TTM. The solicitor exhibited redacted tax invoices that showed that Mr Lu's solicitor's costs had been $80,733.50, excluding counsel's fees. However, the unfortunate effect of the redaction being so complete as to remove from the exhibit all information concerning the work done, the time taken and the costs incurred, was to make it impossible for TTM to determine whether the expenditure of costs was reasonable, given the expectation that the first agreement of $80,000 would be sufficient to the end of the hearing. 31. TTM submitted that Mr Lu's delay of some two years in making his application for additional security for costs, in circumstances where he expended costs equal to the agreed amount of security before he made an application for additional security, and particularly where the evidence he tendered did not explain why he had expended the agreed amount so long before the commencement of the hearing, was a significant discretionary factor that militated against the Court making the order sought by Mr Lu. There is some force in this argument, and I will give it some weight when I exercise my discretion. However, the weight that should be given to the submission is reduced by the fact that TTM has not led any evidence that Mr Lu's delay in making the application has caused it hardship. 32. Mr Lu's solicitor gave evidence of what he described as his conservative calculation of the legal costs that he estimates will be incurred by Mr Lu for the balance of the proceedings (after making certain corrections by a later affidavit), the relevant parts of which may be summarised as follows: 1. Mr Lu's costs will be GST inclusive as he is not entitled to claim an input credit for the GST payable on the costs. 2. The work will be carried out by the solicitor, as principal, an associate solicitor and junior counsel. 3. The solicitor stated the rates of the three lawyers, and as the reasonableness of those rates was not challenged by TTM, and as I consider them to be reasonable, it is not necessary or appropriate that I record the amounts in these reasons. 4. The solicitor apprehends that seven witnesses will be called for TTM, one witness for Hua Chang and two witnesses for Mr Lu. 5. Most of the witnesses, including TTM's Mr Wang and Mr Lu, will require the assistance of interpreters in giving their evidence. 6. The solicitor estimates that the hearing will require 15 hearing days or more. 7. The total costs and disbursements of Mr Lu are likely to exceed $378,800 including GST. 8. The solicitor estimates that 80% of those costs will be incurred in defending TTM's case, and 20% will relate to the defence of a cross claim made by Hua Chang against Mr Lu. 9. Consequently, the total costs and disbursements that Mr Lu is estimated to incur in relation to the defence of TTM's claim is $303,040. 10. On the assumption that Mr Lu would be awarded 70% of his actual costs and disbursements on an assessment of his costs on the ordinary basis, the amount payable would be $212,128. 1. Mr Lu's solicitor exhibited to his affidavit separate worksheets for himself as principal, the associate solicitor and junior counsel, in which he itemised his estimate of Mr Lu's future costs. On my calculation, and correcting for the error notified by the solicitor, the solicitor has estimated the total costs for the three lawyers plus GST as follows: * Unbilled costs to the date of the affidavit – $9,873.18. * Preparing defence and evidence in response to the further amended statement of claim – $24,500. * Conduct of this security for costs application – $19,600. * Directions hearings – $6,960. * Preparation for trial – $100,500. * Conduct of trial – $157,120. * General additional expenses – $13,000. * Disbursements relating to the trial – $12,900. * GST – $38,645.32. 1. TTM submitted, in respect of this estimate, that it appeared by reference to the amounts of time that each of the three lawyers were expected to work on the relevant tasks that the estimate was not as economical as it could be, with the most suitable lawyer being responsible for each work item with limited supervision by the other lawyers. The Court can say no more than that TTM's criticism of the estimate may be true to some extent, but the estimate is understandably not transparent in respect of this issue. 2. The most significant feature of the estimate is that it allows for preparation and the conduct of a 15 day hearing. The estimates for preparation, the trial, and general expenses such as for transcripts and an interpreter for Mr Lu, and consequently the amount of GST payable, will be substantially reduced in proportion to any actual reduction in the length of the trial below the estimated 15 days. 3. As I have noted above, the amount of security at $80,000 that was agreed in mid-2018 was based upon an assumed five-day hearing. The Court is not now in a position to judge the actual likely length of the hearing. However, as I have explained above, the remedy that TTM has sought against Mr Lu in respect of the multitude of transactions that he is alleged to have caused TTM to undertake is that Mr Lu render accounts to the Court, and that the proceedings be referred to an appropriately qualified and experienced referee for the taking of accounts. That should have the effect that the hearing will be significantly shorter than Mr Lu's solicitor has assumed for the purpose of his estimation of the costs that Mr Lu will incur. The very object of the procedure for the rendering of accounts is that, at the hearing, the Court only determines whether there have been defaults that make the taking of accounts worthwhile, and the basis upon which the accounting should be undertaken. That will involve some investigation of the transactions, but it should not require a transaction by transaction examination of the events in the conventional manner required of a judicial hearing. The Court, at this stage, cannot make a reliable estimate of the time that will be necessary at the trial to enable the Court to decide whether to order Mr Lu to render accounts and to refer the proceedings to a referee. 4. If, at the end of the hearing, the Court decides that TTM has not established that Mr Lu is obliged to render accounts in respect of the transactions, then TTM will fail on that aspect of its claim, and that will be the end of the matter. Mr Lu will not need security for the costs of any reference. 5. However, if TTM succeeds and establishes that Mr Lu has committed breaches that justify an order that he render accounts to TTM, then the accounting process and the reference will be conducted on the basis that Mr Lu has been shown to be in breach, and the only remaining question is the determination, by means of the accounting process, of the amount that Mr Lu should be ordered to pay TTM. In that case, it is questionable that TTM would be ordered to provide security for Mr Lu's costs of the accounting process and the reference, as he would presumptively be in default. In any event, it would be premature for the Court to now make any order against TTM that it provide security for Mr Lu's costs of the accounting process and the reference. 6. In all of these circumstances, in the exercise of my discretion, I have concluded that Mr Lu has established that an order should be made requiring TTM to provide additional security for his costs, but the amount should be substantially less than the adjusted amount claimed by Mr Lu. 7. It is significant that TTM and Mr Lu agreed in mid-2018 that $80,000 would be an appropriate amount of security, on the apparent basis that both parties estimated that the trial would take five days. I would make an allowance for Mr Lu's costs increasing because of the addition of the new claim in the further amended statement of claim, and the fact that TTM has served a substantial amount of evidence in reply, that may well have been more than was expected by Mr Lu. These matters would have a consequential effect in likely increasing the length of the trial and the amount of preparation that will be necessary. I would also make some allowance for the reality that Mr Lu's present lawyers have judged that the trial will probably last more than the originally estimated five days. Further, events have now made it clear that the only asset that TTM has is the $120,000 that it has already paid into Court. TTM has no assets at all that will be available to meet any costs incurred by the defendants above that sum, if they are successful in defeating TTM's claims. In these circumstances, the Court must infer that Mr Wang has been funding the proceedings on behalf of TTM, and that he expects to continue to do so to the end of the hearing. Even though Mr Lu has a minority interest in TTM, it is Mr Wang who is the person who will primarily benefit from the success of TTM in these proceedings. Mr Wang has not offered to provide any undertaking to the Court to meet any costs order made against TTM, and even if he had, as he is a resident of China, there would be a question about the enforceability of any such undertaking. Significantly, Mr Wang has not provided any evidence at all on this application, and in particular has not given evidence for the purpose of establishing that he would suffer hardship if an order for further security was made, or that such an order would prevent TTM from continuing to prosecute the proceedings. 8. I have had regard to the estimated $24,500 costs of Mr Lu responding to the further amended statement of claim, and the $19,600 costs of this application, together with the other estimates of costs. That gives a total of $44,100 before any allowance is made for additional costs that Mr Lu may incur over the balance of the proceedings. Allowing for the likelihood that the trial will take more than five days, I consider that it will be appropriate for the Court to order TTM to provide an additional $80,000 in security for Mr Lu's costs of the proceedings. That estimate is based upon the factual circumstances put before the Court on this application and on that basis is intended to cover Mr Lu's costs until the end of the hearing. It assumes that TTM will not be required to quantify its claim in respect of the multitude of transactions about which it complains by examining each of those claims, claim by claim, during the judicial hearing, and will in fact pursue an order for accounts to be rendered by Lu and a reference. It also reflects the principle that the amount of security for costs ordered is generally intended not to provide a full indemnity to the applicant. The question of what should be done in relation to any accounting and reference that may be ordered should be left to a later time. 9. I am mindful of the submission made by counsel for TTM, in par 6(a)(iii), that it may be difficult for TTM to transfer the required funds from China to Australia on short notice, because of restrictions imposed by China on cross-border fund transfers. The lateness of Mr Lu's application for additional security for costs justifies the Court in being flexible about the timing of the provision of the additional security, and it may be appropriate that the amount be paid in tranches over an appropriate period. 10. TTM and Mr Lu should confer for the purpose of agreeing short minutes of order to give effect to these reasons for judgment, which may include an appropriate timetable for the provision of the additional security, on the basis that the preparation of the case for hearing will continue in the meantime. 11. The short minutes of order should include an order giving TTM leave to file the draft further amended statement of claim, and Hua Chang should also be invited to confer concerning the costs orders that should be made in relation to the amendment, and the case management orders that should be included in the short minutes of order. 12. If TTM and Mr Lu cannot agree on the costs order that should be made in relation to Mr Lu's application for additional security for costs, I will hear the parties on that issue. I note that, although Mr Lu has succeeded, the amount of security is substantially less than the amount that he sought. Both parties have had considerable success, and it may be that the appropriate order is that the cost be costs in the cause. That is the same order that was agreed between TTM and Hua Chang. ********** Amendments 30 April 2020 - Corrected second defendant's counsel's initials 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: 30 April 2020