ACN 064 516 543 Pty Ltd and Ors v Pivot Ltd [2002] VSC 19

Supreme Court of Victoria|2002-02-20|Before: Byrne J

PRACTICE AND PROCEDURE - security for costs - delay in bringing claim - change in plaintiffs' circumstances - discretionary factors.

Before the court is an application brought on behalf of the defendant, Pivot Ltd, by summons filed on 11 January 2002 seeking security for costs from the firstnamed plaintiff, ACN 064 516 543 Pty Ltd (in liquidation) (receiver and manager appointed), and the thirdnamed plaintiff, LOCM Pty Ltd (in liquidation). The secondnamed plaintiff, Leigh & Orange Australia Pty Ltd, has been deregistered. Having heard argument on 15 February 2002 I determined that the application should be granted and orders were made. I have been requested to provide reasons. These are my reasons.

According to the pleadings, the claim of the plaintiffs arises from a series of building projects which were carried out at some 30 sites in various country locations throughout Australia between 1994 and 1997.

The firstnamed plaintiff was an architect and the thirdnamed plaintiff a building contractor. The defendant was a company engaged in the manufacture and supply of fertilisers and other related products and services to the agricultural industry. The amount claimed by the firstnamed plaintiff is about $400,000, being the unpaid balance of invoices to a total value of $7.7M. The amount claimed by the thirdnamed plaintiff is about $1.2M being the unpaid balance of invoices to a total value of about $23.2M. The work concerned the design, project management and construction of a number of phosphate storage and distribution centres called Rural Service Centres.

This brief summary of the claims does little justice to a statement of claim which runs to 20 pages and two schedules. It is sufficient that I note that the claims are substantial and concern a number of different contractual arrangements between the parties.

The last of the invoices of the thirdnamed plaintiff is dated May 1997 and the proceeding was commenced on 12 December of that year. Meantime, in July 1997 the thirdnamed plaintiff was placed in external administration and in January 1998 it entered into a deed of company arrangement. In December 1999 a liquidator was appointed over the thirdnamed plaintiff pursuant to a creditor's voluntary winding up. In May of that year the firstnamed plaintiff also went into liquidation.

The proceeding moved forward through its pleading stages in the usual way until December 1998. These pleadings included a substantial counterclaim filed by the defendant on 16 September 1998. This included a claim for nearly $500,000 damages for conspiracy to defraud and for misleading and deceptive conduct as well as various sums for breach of contract in relation to many of the Rural Service Centre projects.

Thereafter, the pace of the litigation slowed so that, according to the chronology, the only step taken in 1999 was the filing of further and better particulars of defence and counterclaim by the defendant in September.

In January 2000 the proceeding was picked up by the court Litigation Support process and the parties were required to submit an interlocutory timetable. On 11 May of that year the defendant obtained leave to proceed against the firstnamed plaintiff and the thirdnamed plaintiff. On 18 September an unsuccessful mediation was conducted pursuant to an order of Master Bruce made on 30 March 2000.

An interlocutory timetable directed by Master Bruce on 21 February 2001 was not complied with by any party. In May of that year the present solicitors became the solicitors on the record for the three plaintiffs. The new solicitors, on 26 October 2001, obtained an order entering the proceeding in the Building Cases List and directions were given on that day for the filing of amended pleadings. In accordance with these directions, the amended statement of claim of the first and thirdnamed plaintiffs was filed on 30 November 2001.

The defendant, as I have mentioned, filed this summons on 11 January 2002 and on 25 January filed an amended defence. It has filed no counterclaim and I take it that the 1998 counterclaim is abandoned. Instead, it makes similar allegations in its defence, other than the conspiracy allegation, and raises these by way of defence and set-off to the plaintiffs' claims.

It was not disputed before me that there is reason to believe that the firstnamed plaintiff and the thirdnamed plaintiff do not have sufficient assets within Victoria to meet an order for costs of the defendant so that I have jurisdiction to make the order sought.

As counsel for the plaintiffs observed, this is an unusual application brought many years after the proceeding was first commenced. Indeed, it was put that the impecuniosity of the plaintiffs would have been known to the defendant in December 1997 when the writ was issued or at least in April 1998 when the statement of claim was served on the defendant.

Delay in bringing the application will usually be a powerful consideration against its success because it is unfair for a defendant to stand by and to permit an impecunious plaintiff to incur costs in pursuing a claim without the burden of providing security and then to impose the burden upon it. The evidence shows that the plaintiffs have already incurred legal costs and disbursements in excess of $220,000 in prosecuting these claims.

This case, however, has unusual features which detract from such a conclusion of unfairness. The last document filed in the proceeding before the firstnamed plaintiff went into liquidation was the reply and defence to counterclaim in December 1998. Thereafter, the proceeding was essentially dormant. Now that new life has been breathed into it, notwithstanding the liquidation of the plaintiffs, the matter can be viewed afresh.

The second significant feature which to my mind overrides the consideration of delay is that it is apparent that since 1999 there is a new force driving the litigation.

The assets of the firstnamed plaintiff were, in 1995, charged in favour of the National Australia Bank. On 21 July 1999 this charge was assigned to Swinburne Gardens Pty Ltd as trustee of the Residential Unit Trust. The office bearers of Swinburne appear to have an association with the present solicitors for the plaintiff. A title search discloses that Swinburne has or has had real assets but there is some dispute about them and their value. The unit holders of the trust are Paringa Group Pty Ltd, Robprop Investments Pty Ltd and Building Number 8 Pty Ltd, each of which is a company associated with John Lawrence Rex Crozier, a former director of the plaintiffs and his family members.

On 21 January 2002 the debenture was again assigned to Yarborough Holdings Pty Ltd. This was said to "reflect a change of trustee which occurred on 21 January 2001 upon resignation as trustee by Swinburne". The new trustee which was registered only in September 2000 also has as its director and secretary a partner of the present solicitors for the plaintiff. A title search has disclosed no assets. Yarborough, in February 2000, appointed a receiver and manager to the firstnamed plaintiff and this receiver and manager is now conducting the proceeding on the behalf of that plaintiff.

The liquidator's accounts of the firstnamed plaintiff show that the liquidator's unpaid remuneration is $92,836.30 and that the charge secures a debt of $252,177. The claim of the firstnamed plaintiff in this proceeding is therefore being conducted for the benefit of the unit holders of the trust and the members of Mr Crozier's family.

The thirdnamed plaintiff has granted two charges over its assets: one to the Westpac Bank in 1996 and a second in favour of Building Number 8 Pty Ltd in July 1997. In May 2000 the bank assigned its charge to Swinburne as trustee for the same trust and the charge was again assigned to Yarborough in January 2001.

The liquidator's accounts for the thirdnamed plaintiff show that the liquidator is owed $23,564.27 for unpaid remuneration and that the amount secured by charge is $1,382,589. The liquidator is holding liquid assets of only $1,404. This claim, too, is being conducted for the benefit of the chargees and ultimately for the unit holders of the trust and the members of Mr Crozier's family.

The legal costs to the plaintiffs to date have been met from Mr Crozier's resources and from those of Peter John Smithson, another former director of the plaintiff. It seems likely that these two men will be the source of future funding for the plaintiffs. In my opinion the justice of this case leads to the conclusion that, since 2000 when the proceeding began to become active again, the defendant is entitled to revisit the prospect of recovering security from those who now stand to benefit from the proceeding.

It is clear that this is a major piece of litigation and, if it goes to trial, it will be an expensive one. It was put on behalf of the plaintiffs that this was primarily the reason for the complexity of the defendant's case which, until very recently, was by way of counterclaim. I am not persuaded that this is correct. The substantial issues at trial were always likely to be the contractual arrangements between the parties and the quality of the plaintiff's work, for which they seek payment. These issues arise on the plaintiff's claims.

The application seeks security in the sum of $660,025 being the party and party costs of the whole proceeding including five days' preparation and a 30-day trial. Mr Crozier says that such a sum is beyond the resources available and that such an order will stifle the claim. I will order security in stages so that the first instalment will take the parties to the date of setting down. On Mr White's figures the amount of $100,000 was ordered. I have no reason to think that this will stifle the claim.

Accordingly, I ordered that security in that sum be provided.

At a glance

Court

Decision date

Before

Source

Judgment (26 paragraphs)

Parties