Base 1 Projects Pty Ltd v Islamic College of Brisbane Ltd [2012] QCA 114

SUPREME COURT OF QUEENSLAND

CITATION: Base 1 Projects Pty Ltd v Islamic College of Brisbane Ltd [2012] QCA 114

PARTIES: BASE 1 PROJECTS PTY LTD (appellant) v ISLAMIC COLLEGE OF BRISBANE LTD (respondent)

FILE NO/S: Appeal No 8859 of 2011 / SC No 745 of 2011

DIVISION: Court of Appeal

PROCEEDING: General Civil Appeal

ORIGINATING COURT: Supreme Court at Brisbane

DELIVERED ON: 24 April 2012

DELIVERED AT: Brisbane

HEARING DATE: 13 March 2012

JUDGES: Margaret McMurdo P, Margaret Wilson AJA and Applegarth J / Separate reasons for judgment of each member of the Court, each concurring as to the order made

ORDER: Appeal dismissed with costs

CATCHWORDS: PROCEDURE – COSTS – SECURITY FOR COSTS – RELEVANT FACTORS – where the primary judge ordered the corporate appellant to provide security for costs to the conclusion of the first day of trial in the amount of $90,000 – where there was no challenge to the quantum of security ordered – where corporate appellant would be unable to satisfy order for costs – where order for security would stifle the litigation – whether appellant’s impecuniosity caused by respondent – where director of appellant proffered guarantee – where director’s guarantee not of any particular value – whether the primary judge erred in the exercise of her discretion / Uniform Civil Procedure Rules 1999 (Qld), r 670 / Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc (1981) 148 CLR 170; [1981] HCA 39, cited / Epping Plaza Fresh Fruit & Vegetables Pty Ltd v Bevendale Pty Ltd [1999] 2 VR 191; [1999] VSCA 43, cited / Jazabas Pty Ltd v Haddad (2007) 65 ACSR 276; [2007] NSWCA 291, cited / KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189; [1995] FCA 76, cited / Robson v Robson [2010] QCA 330, cited / Specialised Explosives Blasting & Training Pty Ltd v Huddy’s Plant Hire Pty Ltd [2010] 2 Qd R 85; [2009] QCA 254, cited / Thune v London Properties Ltd [1990] 1 WLR 562, cited / Togito Pty Ltd v Pioneer Investments (Aust) Pty Ltd [2009] QSC 68, cited / Yandil Holdings Pty Ltd v Insurance Co of North America (1985) 3 ACLC 542, cited

COUNSEL: L D Bowden for the appellant / T Matthews for the respondent

SOLICITORS: John M O'Connor & Co for the appellant / Wilson Lawyers for the respondent

MARGARET McMURDO P: I agree with Margaret Wilson AJA’s reasons for dismissing this appeal with costs.

MARGARET WILSON AJA: This is an appeal against the decision of a judge of the Trial Division that the appellant provide security for costs in the amount of $90,000.

Background

The appellant is a building company whose sole director and secretary is Mr EPF Zwetsloot. On 14 September 2009 it entered into a contract with the respondent to design and construct a multi-purpose hall at a school operated by the respondent at Karawatha on the outskirts of Brisbane for $2,661,500 plus GST.

The contract was in standard form AS4906-2002.¹ By clause 22.1 variations were required to be in writing.

Work commenced in September 2009, the date for practical completion being in February 2010. By June 2012 practical completion had not been achieved, and from June until November 2010, at the request of the appellant, the respondent made payments directly to the appellant’s suppliers and employees to keep the works progressing.

In November 2010 the appellant advised the respondent that it did not intend to complete, and on 30 November 2010 the respondent gave notice to the appellant that it accepted the appellant’s wrongful repudiation of the contract as terminating the contract.

In January 2011 the appellant delivered a payment claim pursuant to the Building and Construction Industry Payments Act 2004 (Qld) (“BCIPA”), in response to which the respondent delivered a payment schedule asserting that no sum was owed by it. The appellant took no steps to have an adjudication undertaken.

The appellant commenced this proceeding on 3 February 2011 claiming $1,368,664.81.²

On 27 May 2011 the appellant delivered a further payment claim pursuant to BCIPA. The respondent delivered a payment schedule, but the appellant did not seek an adjudication.

By its amended statement of claim filed on 29 June 2011 the appellant claims $1,231,882.40 as moneys due and owing or alternatively as damages for breach of contract. That sum is made up as follows:

Contract price (excluding GST)$ 2,661,500.00

Variations (excluding GST)$ 993,027.00

GST$ 332,229.50

$ 3,986,756.54

Less Credit received by or on behalf of appellant

(including GST)$ 2,754,874.14

$ 1, 231,882.40.³

The respondent counterclaimed against the appellant and Mr Zwetsloot (as guarantor) for $907,256.79 made up as follows:

Moneys had and received or paid at the appellant’s

request$ 587,257.64

Damages$ 319,999.15

$ 907,256.19.⁴

The appellant’s claim is essentially one for oral variations. There was no challenge to the primary judge’s assessment that there was clearly a prima facie cause of action.⁵

It was common ground before the primary judge and on appeal that the appellant is impecunious.

Order for security for costs

On 30 June 2011 the respondent’s solicitors wrote to the appellant’s solicitors. After discussing the claim and counterclaim, they said:

“Our client has incurred legal costs to date consequent upon the legal proceedings initiated by Varkraft involving Base 1 and the College; the initial Base 1 payment claim under BCIPA; the Supreme Court proceedings; and the second BCIPA payment claim by Base 1 of approximately $50,000.00. The majority of those costs and say, $35,000.00 would be referable to the Supreme Court proceedings. Based on the writer's experience, it is estimated that if this action proceeded to trial, then on the basis of a three day trial, I would estimate the costs would be approximately $150,000.00 of which 70%, that is, $105,000.00 would be recoverable by way of standard costs.

Please advise as to what, if any, means Base 1 says it has of satisfying a costs order in our client's favour for approximately $105,000.00. Further, please advise as to whether and on what basis your client says that our client should not proceed with an application to the court seeking orders for Base 1 to provide security for an adverse costs order.”⁶

The appellant’s solicitors replied on 7 July 2011 saying relevantly:

“With respect to your suggestion of a Costs Order in the sum of $105,000 I say only that in my experience a Costs Order in that sum is most unlikely unless the litigation proceeded for an unforeseeable length of time.

We do not see any basis for a belief that the Plaintiff would be unable to pay the Defendant's costs in that sum in the unlikely event that it were ordered to do so.

The Plaintiff has been in business in the construction industry now for 20 continuous years and its director, Mr Emil Zwetsloot has been in continuous business in the construction industry for the last 30 continuous years.

Mr Zwetsloot the director would stand behind the company and Mr Zwetsloot owns a unit at Coolum on the Sunshine Coast valued currently at a minimum of $700,000 on which there is a secured debt of approximately $500,000 only.

In our respectful submission there is no reason to believe that a costs order would not be met in the unlikely event that the Plaintiff was unsuccessful in the litigation.

In the circumstances our client denies any liability to pay security or consent to such an Order.”⁷

On 22 August 2011 the respondent filed an application for security for costs in the sum of $137,000. It was heard and determined on 5 September 2011. The primary judge’s reasons for her decision were delivered ex tempore.

Before the primary judge, the appellant’s counsel submitted that to order security for costs would stifle the litigation. He contended that the appellant’s impecuniosity had been caused by the respondent. Conceding that the guarantee offered by the director did not have any particular value, he submitted that her Honour should accept it for whatever it was worth.⁸

The application for security for costs was made pursuant to r 670 of the Uniform Civil Procedure Rules 1999 (Qld). As the primary judge observed, the discretion to order security for costs is unfettered and should be exercised having regard to all of the circumstances of the particular case without any predisposition in favour of an award of security. Her Honour observed:

“A number of cases have established that it is not possible to ascertain or list all of the matters relevant to the exercise of the discretion because factors clearly vary from case to case and the weight to be given in any circumstances depends on the circumstances of each case.”⁹

She referred in particular to the convenient summary of relevant considerations contained in Beazley J’s judgment in KP Cable Investments Pty Ltd v Meltglow Pty Ltd:¹⁰

“1.That such applications should be brought promptly. This is a principle of longstanding: see Grant v The Banque Franco-Egyptienne;¹¹ see also Smail v Burton; Re Insurance Associates Pty Ltd;¹² Caruso Australia Pty Ltd v Portec (Australia) Pty Ltd;¹³ Bryan E Fencott.¹⁴ I should state immediately that there is no issue of delay in this case.

That regard is to be had to the strength and bona fides of the applicant's case are relevant considerations: see M A Productions Pty Ltd v Austarama Television Pty Ltd;¹⁵ Bryan E Fencott.¹⁶ As a general rule, where a claim is prima facie regular on its face and discloses a cause of action, in the absence of evidence to the contrary, the court should proceed on the basis that the claim is bona fide with a reasonable prospect of success. (Bryan E Fencott.¹⁷)

Whether the applicant's impecuniosity was caused by the respondent's conduct subject of the claim: see M A Productions v Austarama Television.¹⁸

Whether the respondent's application for security is oppressive, in the sense that it is being used merely to deny an impecunious applicant a right to litigate: see M A Productions v Austarama Television;¹⁹; Yandil Holdings Pty Ltd v Insurance Co of North America;²⁰ Bryan E Fencott.²¹ In Yandil Holdings²² Clarke J stated the principle in these terms:

‘[t]he fact that the ordering of security will frustrate the plaintiff's rights to litigate its claim because of its financial condition does not automatically lead to the refusal of an order. Nonetheless it will usually operate as a powerful factor in favour of exercising the court's discretion in the plaintiff's favour.’

This factor is related to the next, namely:

Whether there are any persons standing behind the company who are likely to benefit from the litigation and who are willing to provide the necessary security: see Memetu Pty Ltd v Lissenden;²³ Sent v Jet Corporation of Australia Pty Ltd;²⁴ Bell Wholesale Co Pty Ltd v Gates Export Corporation;²⁵ Hession v Century 21 South Pacific Ltd (In liq)²⁶ Bryan E Fencott;²⁷ Yandil Holdings.²⁸ The combined effect of these two principles was summarised by Meagher JA in Hession²⁹ as follows:

‘... a company in liquidation against whom an order for security for costs is sought cannot successfully resist such an order merely by proving that it cannot fund the litigation from its own resources if an order for security is made; it must prove that it cannot do so even if it relies on the other resources available to it (the company's shareholders or creditors) ... Finally, whilst it is both true and important that poverty must be no bar to litigation, what that means is that the courts must be astute to see that no person pursuing a claim which is not frivolous is precluded from doing so by the erection of obstacles which poverty is unable to surmount; it does not mean that proof of insolvency automatically confers an immunity from statutory provisions which deal with insolvent plaintiffs.’

An issue related to the last guideline is whether persons standing behind the company have offered any personal undertaking to be liable for the costs and if so, the form of any such undertaking: see Cameron's Unit Services Pty Ltd v Kevin R Whelpton & Associates (Australia) Pty Ltd;³⁰ Mantaray Pty Ltd v Brookfield Breeding Co Pty Ltd;³¹ Clyde Industries Ltd v Ryad Engineering Pty Ltd.³²

Security will only ordinarily be ordered against a party who is in substance a plaintiff, and an order ought not to be made against parties who are defending themselves and thus forced to litigate: see Interwest;³³ Heller Factors Pty Ltd v John Arnold's Surf Shop Pty Ltd;³⁴ Sydmar Pty Ltd v Statewise Developments Pty Ltd;³⁵ Weily's Quarries v Devine Shipping³⁶ where Zeeman J stated:

‘[t]he general proposition that security ought not to be ordered where the proceedings are defensive in the sense of directly resisting proceedings already brought or seeking to halt self-help procedures is no more than that, a general proposition. It ought not to be elevated to being a rule of law. In many cases of that nature it could be considered oppressive to require security and that in itself may be sufficient to refuse to make an order ...[see] Sydmar Pty Ltd v Statewise Developments Pty Ltd and Interwest Ltd v Tricontinental Corporation Ltd.’ [Emphasis added.]”

The primary judge’s discussion of the relevant factors proceeded on the assumption that the appellant would be unable to satisfy an order for costs. She said:

“…whether the applicant's impecuniosity was caused by the respondent’s conduct. There is no indication here that that is the case. A further factor is whether the application for security is oppressive in the sense that it is being used merely to deny an impecunious applicant a right to litigate.

As has been set out in a number of decisions, particularly in Yandil Holdings Pty Ltd v Insurance Co of North [America]³⁷ where Justice Clarke stated:

‘The fact that the order of security will frustrate the plaintiff’s right to litigate its claim because of its financial condition does not automatically lead to the refusal of an order. Nonetheless, it will usually operate as a powerful factor in favour of exercising the Court’s discretion in the plaintiff’s favour.’

However, this principle is related to the next principle which relates to whether there are any persons standing behind the company who are likely to benefit from the litigation and who are willing to provide the necessary security.

The provision of a director's guarantee is one of the factors to be taken into account and in a number of cases this matter has been considered in some detail.”³⁸

Her Honour referred to Jazabas Pty Ltd v Haddad³⁹and Epping Plaza Fresh Fruit & Vegetables Pty Ltd v Bevendale Pty Ltd.⁴⁰ She said that in her view there were real concerns whether Mr Zwetsloot would be able to meet an adverse costs order, citing a passage from the judgment of the Chief Justice in Togito Pty Ltd v Pioneer Investments (Aust) Pty Ltd:⁴¹

“When a company would likely be unable to meet an adverse costs order, then absent any other discretionary consideration …, the alternative proposal must be reasonably secure, if an order is to be avoided.”

Her Honour said that the real concern was the worth of the suggested backing of the company by its sole director. She said:

“In particular, it would seem that we have nothing that is solid. We have nothing that really goes to the value of the Director. There is nothing which really substantiates the worth of the director standing behind in relation to an adverse costs order.

It would seem that there have been repeated requests in relation to the substantiation but there is nothing more definite other than Mr Zwetsloot's statement as to what he believes the unit is worth. In the circumstances, and particularly relying on the decision of Togito where the Chief Justice clearly indicated that there has to be some real substantiation, I consider that there should be an order for security for costs.”⁴²

Her Honour ordered the appellant to furnish security for the respondent’s costs of and incidental to the proceeding, to the conclusion of the first day of trial, in the amount of $90,000, either by payment into court or by the provision of a bank guarantee or other security in a form satisfactory to the registrar.⁴³

Appeal

The appellant appealed against the order on the following grounds:

that the primary judge wrongly exercised her discretion in ordering security for costs;

that the primary judge failed to give any weight or sufficient weight to the fact that to order security for costs would stifle the litigation;

that the primary judge failed to give any weight or sufficient weight to the fact that the appellant has a strong case for moneys owing under the contract;

that the primary judge wrongly decided that the director of the appellant company had to establish his worth or the value of his assets in the circumstances of the particular case; and

that the primary judge ought to have held that in the circumstances of the case the guarantee of the appellant’s director was sufficient security for costs.⁴⁴

There was no challenge to the quantum of the security ordered.

The determination of an application for security for costs calls for the exercise of a judicial discretion in all the circumstances of the particular case. The exercise of that discretion requires the assessment and weighing of relevant factors, some of which may be inter-related. The decision is an interlocutory one, concerning questions of practice and procedure. In Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc,⁴⁵ Gibbs CJ, Aickin, Wilson and Brennan JJ said:

“Nor is there any serious dispute between the parties that appellate courts exercise particular caution in reviewing decisions pertaining to practice and procedure. Counsel for Brown urged that specific cumulative bars operate to guide appellate courts in the discharge of that task. Not only must there be error of principle, but the decision appealed from must work a substantial injustice to one of the parties. The opposing view is that such criteria are to be expressed disjunctively. Cases can be cited in support of both views: for example, on the one hand, Niemann v Electronic Industries Ltd;⁴⁶ on the other hand, De Mestre v A D Hunter Pty Ltd.⁴⁷ For ourselves, we believe it to be unnecessary and indeed unwise to lay down rigid and exhaustive criteria. The circumstances of different cases are infinitely various. We would merely repeat, with approval, the oft-cited statement of Sir Frederick Jordan in In re the Will of F B Gilbert (dec):⁴⁸

‘… I am of opinion that, … there is a material difference between an exercise of discretion on a point of practice or procedure and an exercise of discretion which determines substantive rights. In the former class of case, if a tight rein were not kept upon interference with the orders of Judges of first instance, the result would be disastrous to the proper administration of justice. The disposal of cases could be delayed interminably, and costs heaped up indefinitely, if a litigant with a long purse or a litigious disposition could, at will, in effect transfer all exercises of discretion in interlocutory applications from a Judge in Chambers to a Court of Appeal.’”

Consistently with those authorities, this court does not readily interfere with decisions on applications for security for costs.⁴⁹

Counsel for the appellant submitted that an order for costs would stifle the litigation, which would cause an injustice, and that the primary judge had wrongly taken the view that there was no indication that the appellant’s impecuniosity had been caused by the respondent’s conduct. He submitted that there were powerful reasons for not ordering security in this case:

that a director was prepared to come out from behind the corporate veil; and

that an order for security would stifle the litigation.⁵⁰

He submitted that the primary judge had misunderstood the effect of the decision in Togito Pty Ltd v Pioneer Investments (Aust) Pty Ltd.⁵¹

Discussion

Appellant’s financial position

It was for the appellant to persuade the court that its impecuniosity was caused by the respondent’s conduct. In Jazabas Pty Ltd v Haddad⁵² McClellan CJ at CL said:

“[94]The claimants carried the onus of establishing both the adequacy of their financial position before their dealings with the opponents and that the opponents’ actions have caused or at least materially contributed to the claimants’ inability to meet an order for security for costs (see Fiduciary Ltd v Morningstar Research Pty Ltd.⁵³)

[95]In Law of Costs, G E Dal Pont says:⁵⁴

‘[T]he plaintiff must be able to support the allegation with relatively straightforward and unambiguous evidence of a fairly compelling nature, because otherwise the hearing of the issue of security might become a trial within a trial. For this reason, it is not enough that the defendant’s conduct is merely a contributing factor – it must be the material contributor to or cause of the plaintiff’s impecuniosity.’ (emphasis added.)

(see also M A Productions Pty Ltd v Austarama Television Pty Ltd;⁵⁵ Fiduciary Ltd v Morningstar Research Pty Ltd;⁵⁶ Pioneer Park (in liq) v ANZ;⁵⁷ Sharjade v Darwinia Estate.⁵⁸)”

On the material before the primary judge, the appellant made inconsistent assertions about the cause of its financial woes, what it had expended in doing the work the subject of the contract with the respondent, and what payments the respondent had made to it or on its behalf.

In a letter to the respondent dated 22 November 2010 Mr Zwetsloot said:

“As I have pointed out to you in previous exchanges I personally deny all personal liability for what has occurred and believe that the reason for the problems has been the behaviour of other members and employees of Base 1 Projects Pty Ltd before I became closely personally involved in the work.”⁵⁹

In further and better particulars of the statement of claim dated 8 April 2011 the appellant alleged that a total of $3,070,444.22 had been paid by the respondent to it or on its behalf.⁶⁰

In its amended statement of claim filed on 29 June 2011 the appellant alleged:

“8.The Defendant has paid to or on behalf of the Plaintiff the following sums in consideration for the Plaintiff’s services as follows:

Paid to or on behalf of the

Plaintiff (including GST) $2,662,916.62 $ 2,754,874.14

Plus creditors paid by Defendant

on behalf of Plaintiff 108,230.07

Total $2,771,146.69 $ 2,863,104.21.⁶¹”

In their letter to the respondent’s solicitors dated 7 July 2011 the appellant’s solicitors said that the appellant had been in business for 20 continuous years, but they gave no details of its financial position before its dealings with the respondent.

The respondent delivered a notice to admit facts on 15 July 2011, in which it dealt seratiam with each payment it claimed to have made to or on behalf of the appellant. The payments totalled $3,358,404.33.⁶² The appellant did not respond to the notice, and is therefore deemed to have admitted the payments.⁶³ At any rate, only one of those payments ($11,117.70) had been in issue on the pleadings.

Mr Zwetsloot swore on 1 September 2011:

“4.The plaintiff company was incorporated in or about 1995. I commenced the company with a friend of mine called Lee Pennington. Initially I maintained my engagement as a subcontractor site manager with Evans Harch and ran the company in parallel with that engagement and with their consent. We operated as a building company and commenced with smaller type projects such as an extension to a boarding house and we developed the business from there.

Over the years the company has traded profitably and consistently returned profits for income tax purposes.

The subject contract with the defendant in these proceedings was executed on or about the 14th of September 2009. At that time the plaintiff company was financially sound. It had been trading property for several years.

In addition to the company itself, there was a related company namely Base 1 Personnel Pty Ltd which had a line of credit from the National Australia Bank and which line of credit was available for the use of the plaintiff if necessary.

In short I verily believe that at the commencement of the project the company was soundly based and well able to meet all of its obligations including a sizable amount in respect of legal costs if the need arose.

…

As mentioned the plaintiff company has been a business for a number of years.

I verily believe that to the extent that the plaintiff is now suffering financial difficulty, that such difficulty was caused solely by the conduct of the defendant and more particularly by its failure to pay progress claims as made from time to time under the contract. The plaintiff company has paid out over $3 million from its own resources in the construction of the building in question. In return the plaintiff company has received approximately $2.6 million only for such construction.

I verily believe that had the respondent properly paid all progress claims as made from time to time the plaintiff company would not be in the financial position in which it presently finds itself.”⁶⁴

The appellant made inconsistent assertions about the cause of its predicament. The material before the court about payments relating to the contract was riddled with inconsistencies.

In short, the appellant failed to show that its impecuniosity was caused by the respondent’s conduct the subject of the claim.

Stifle the litigation/Guarantee offered by director

In his letter to the respondent dated 22 November 2010 Mr Zwetsloot said:

“On a without prejudice basis I can say that if I had funds I would be prepared to make them available to the College to be spent in payment to the College and to creditors however all my personal assets have been spent in this project and apart from a very modest equity in my home at Coolum which is very heavily encumbered I now have nothing left that can be spent in further payments.

This is most regrettable but is unfortunately my current financial situation.”⁶⁵

Before the primary judge, there was some contention about the value of the unit at Coolum and the extent of Mr Zwetsloot’s equity in it. There was no expert valuation evidence.

In their letter to the respondent’s solicitors dated 7 July 2011, the appellant’s solicitors said that the unit was:

“valued currently at a minimum of $700,000 on which there is a secured debt of approximately $500,000 only.”⁶⁶

Mr Zwetsloot swore on 1 September 2011:

“23.I believe there is significant equity in my unit in Coolum such that the defendant would be protected for costs should the litigation fail and should I be called upon to honour my guarantee. I have previously suggested a minimum value of $700,000.00 but that was based on an unsolicited offer.

I believe that the true value of the unit is in the region of $860,000.00 which would provide even more security for the costs of this litigation. Further I have little doubt that until quite recently the unit was worth in excess of $1 million but do accept that recent real estate trends have shown a decline in such value.

I have no other significant assets. I have my tools of trade and a Toyota Land Cruiser which is now quite old and of little value.

There were, at one stage two caveats lodged against the property at Coolum. One of those caveats was lodged by Crane Distribution Ltd. That was one of the plaintiff’s suppliers and in the contract of supply, and more particularly the guarantee which I gave there was to be found an equitable charge which gave rise to the caveat*.* That charge also gave rise to the proceedings which were resolved before Justice Daubney by his order of the 19th of April 2011.

The Crane debt has now been repaid and the caveat has been withdrawn. Now produced and shown to me and marked with "EZ1" is a true copy of a letter from the solicitors for Crane Distribution together with the copy of the Registration Confirmation Statement. There is no danger that property will be sold pursuant to the order of Justice Daubney.

The search of the subject unit also shows a caveat lodged by Allfix Fasteners Pty Ltd. That caveat also arises from an equitable lien on the same basis as the Crane caveat. My indebtedness to Allfix does not exceed $8,000.00 approximately and I am in a position to pay out that indebtedness.

Further I am in a position to undertake not to further encumber the said property and to maintain my payments to the National Australia Bank.

I should mention that the National Australia Bank mortgage secured not only a loan of $500,000.00 but an additional line of credit of $100,000.00. I believe the equity in the property is somewhere in the position of $250,000.00 - $260,000.00.

I am prepared to charge that property in favour of the defendant in order to secure their costs, limited to the sum fixed by this court, if so required.”⁶⁷

In his second affidavit, sworn on 5 September 2011, he deposed:

“2.I personally have during the last six (6) months been able to procure an employment contract which has been very remunerative. Unfortunately this engagement terminates on or about 15th September 2011 and despite industrious attempts I have been unable to obtain a replacement contract yet. However I am confident that I will be able to do so in a short space of time. I have never in my working life been unemployed.

I have from this income source been able to pay a significant amount of Base 1 Project’s creditors. Altogether I calculate that I have paid approximately $430,000.00 of the debts that I owed arising from the Islamic College of Brisbane Limited (‘ICB’) contract when the ICB failed to pay Base 1 Projects Pty Ltd contract remuneration as a result of which I also suffered as guarantor.

I am confident that I will be able to continue to fund this litigation from my current source and any replacement source that becomes necessary as I have to date.”⁶⁸

At the commencement of the hearing of the appeal counsel for the appellant candidly informed the court that Mr Zwetsloot’s circumstances had altered since the primary judge’s decision. He had entered into a contract to sell the unit. The contract was subject to finance, and not yet completed. It also transpired that, in response to an application by the respondent for security for costs of the appeal, he had undertaken to provide the respondent with a mortgage over the unit charging it to the extent of approximately $23,000 as security for the respondent’s costs of the appeal.⁶⁹ He was still prepared to offer his personal guarantee. The court considered that this change of circumstances would become relevant only if it were satisfied that the primary judge had erred in the exercise of her discretion with the result that the discretion had to be re-exercised.

Counsel for the appellant conceded that in all the circumstances his client could not prove that the director’s guarantee had any particular value. He submitted that in this case the overriding considerations were that his client’s impecuniosity was caused by the respondent and that an order for security for costs in any form would stifle the litigation.⁷⁰

It is well settled that an order for security for costs will not be made against an impecunious plaintiff who is a natural person except in certain limited circumstances. However, for some years it was unclear on the authorities whether the mere fact that a natural person standing behind a company was willing to be responsible for meeting an adverse costs order made against a corporate plaintiff, irrespective of the means or lack of means of that natural person, was enough to defeat an application that the corporate plaintiff provide security for costs.

In Specialised Explosives Blasting & Training Pty Ltd v Huddy’s Plant Hire Pty Ltd⁷¹ Muir JA (with whom Holmes JA and Philippides J agreed) undertook an extensive review of the authorities, and concluded:

“[39]I respectfully agree with the observations of Beazley J in KP Cable Investments⁷² that the decisions in Mantaray⁷³ and Gentry⁷⁴ do not purport to propound a principle that where the shareholders or other persons interested in the outcome of the litigation offer to be personally liable for the plaintiff company's costs, an order for security should not be made and other circumstances need not be considered.”

As Bingham LJ observed in Thune v London Properties Ltd:⁷⁵

“…. if the plaintiff is impecunious and an order for security for costs may stifle his claim, that may very well be a powerful reason for not ordering security.”

In that case his Lordship was satisfied that there was no hint in the evidence that an order for security would stifle the claim.

Togito Pty Ltd v Pioneer Investments (Aust) Pty Ltd⁷⁶ was a different case from the present. There the plaintiff resisted the second defendant’s application for security for costs on the basis its directors were persons of substantial financial means who undertook to discharge any costs order which might be made in the plaintiff’s favour. The second defendant raised concern over the way in which the undertaking came to be offered. The plaintiff did not say that an order for security would stifle the litigation, and the plaintiff and those behind it did not say they were impecunious. The Chief Justice ordered the plaintiff to provide security in a stated amount either by payment into court or by the provision of a bank guarantee or in some other form satisfactory to the registrar.

The appellant failed to establish that its impecuniosity was caused by the respondent. Its director was prepared to guarantee payment of any adverse costs order, but there was not substantiation of the worth of such a guarantee.

In a thorough ex tempore judgment the primary judge surveyed all of the circumstances of the particular case. It is clear from her Honour’s citation of Yandil Holdings Pty Ltd v Insurance Co of North America⁷⁷ that she was conscious of the potential effect of an order for security in stifling the litigation and that that could be a powerful factor against making such an order. But she was conscious, too, of the interrelationship between that factor and the willingness of a director to provide security.

The appellant has not shown that the primary judge erred in failing to take into account a relevant consideration or in taking into account irrelevant considerations. The weight to be attached to the various factors was a matter for her Honour. She made no error of principle in her consideration of the effect of an order for security on the litigation, or in her consideration of the guarantee offered by the director.

Conclusion

The primary judge’s order was the result of a sound exercise of a judicial discretion.

I would dismiss the appeal with costs.

APPLEGARTH J: I agree with the reasons of Margaret Wilson AJA and with the order proposed by her Honour.

Footnotes

1. AR 90ff. ↩

2. Claim and statement of claim 3 February 2011 – AR 204ff. ↩

3. Amended statement of claim 29 June 2011 paras 7 and 9 – AR 267ff. ↩

4. Amended defence and counterclaim10 June 2011 – AR 251ff. ↩

5. Reasons – AR 320; appeal transcript 13 March 2012 pages 1-15 – 1- 16, 1-23. ↩

6. AR 32 – 33. ↩

7. AR 34 – 35. ↩

8. Appellant’s written submissions before primary judge: AR 311 (para 3), 315 (para 16 – 22). See also appeal transcript 13 March 2012 pages 1 – 9, 1-19. ↩

9. AR 320. ↩

10. (1995) 56 FCR 189 at 197 – 198. See also Jazabas Pty Ltd v Haddad [2007] NSWCA 291; 65 ACSR 276, where Mc Clellan CJ at CL adopted that summary. ↩

11. (1876) 1 CPD 143. ↩

12. [1975] VR 776 per Gillard J at 777. ↩

13. (1984) 1 FCR 311 at 313. ↩