Supreme Court of WA|2008-05-13|Before: Beech J

BBC NOMINEES (WA) PTY LTD -v- YANGEBUP DEVELOPMENTS PTY LTD [2008] WASC 81 (13 May 2008)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : BBC NOMINEES (WA) PTY LTD -v- YANGEBUP DEVELOPMENTS PTY LTD [2008] WASC 81

BETWEEN : BBC NOMINEES (WA) PTY LTD as Trustee for MARKOVICH FAMILY TRUST

Practice and procedure- Security for costs - Plaintiff trustee company - Whether power enlivened - Threshold requirement - Merits of plaintiff's claim - Turns on own facts

1 BEECH J: The defendant applies for an order for security for costs pursuant to s 1335(1) of the Corporations Act 2001 (Cth). That section is in the following terms.

Costs

(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.

2 The following facts emerge from the affidavits filed in relation to this application, primarily the affidavit of Mr John McColl sworn on 2 April 2008.

3 The plaintiff is the trustee of the Markovich Family Trust (the Trust) and sues in that capacity.

4 The plaintiff was incorporated on 10 November 2005 and has a paid up capital of $1 comprising one fully paid $1 share.

5 St George Bank has a fixed and floating charge over all the plaintiff's present and future rights, assets and undertakings, created on 8 February 2008. The charge covers a maximum liability of in excess of $3 million. The charge is in respect of the plaintiff in its own right and as trustee for the Markovich Family Trust.

6 A search of the Landgate Land Register shows that the plaintiff is not the registered proprietor of any land in Western Australia.

7 The defendant requested that the plaintiff provide information relating to the financial standing of the plaintiff and the Trust, and requested a copy of the relevant trust deed. That request was declined by the plaintiff.

8 Subsequently, the plaintiff's solicitors advised that Mr Slobodan Markovich, who was said to be a beneficiary of the Markovich Family Trust, was prepared to give an indemnity in respect of the costs of the action. The defendant requested that the plaintiff provide information in respect of Mr Markovich's financial standing but no information has been provided in response to that request.

9 The only evidence filed by the plaintiff in response to the application is an affidavit of Mr Markovich which states that in his capacity as the beneficiary of the Markovich Family Trust he is prepared to give an indemnity to the defendant. Mr Markovich undertakes that if any costs ordered against the plaintiff are not paid by it, he will pay those costs.

10 The plaintiff submits that the defendant has failed to establish that 'it appears by credible testimony that there is reason to believe' that the plaintiff will be unable to pay the costs of the defendant if successful in its defence, thus challenging whether the defendant has satisfied the threshold requirement of enlivening the power under s 1335 of the Corporations Act. Further, there are issues between the parties as to matters relevant to the exercise of the discretionary power. In particular, there are issues as to the strength or weakness of the plaintiff's case in the action, and issues as to the weight to be given to the offer by Mr Markovich to indemnify the defendant in respect of costs if they are not paid by the plaintiff.

11 In my opinion, the facts as I have summarised them are sufficient to satisfy the threshold requirement of establishing that '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 it is successful in its defence'.

12 In Beach Petroleum NL v Johnson [1992] FCA 110; (1992) 10 ACLC 525, 527, Von Doussa J stated that the power under s 1335 arises if:

[C]redible evidence establishes that there is reason to believe there is a real chance that in events which can fairly be described as reasonably possible the plaintiff corporation will be unable to pay the costs of the defendant on service of the allocatur, if judgment goes against it. This will be so even if in other events which can also be fairly described as reasonably possible the plaintiff corporation would be able to pay the costs. The degree of likelihood of the plaintiff corporation being unable to pay the costs along with all the circumstances, actual and possible, about its financial position, would be then to be taken into account in the exercise of the discretion, and in framing the orders of the court if the decision is to order security.

13 The plaintiff relies on this statement of principles. This statement has been applied in subsequent cases: see, for example, Meni's Tailoring & Alterations Pty Ltd v Jeanswest Corporation Pty Ltd [2003] FCA 1108; Acohs Pty Ltd v Ucorp Pty Ltd [2006] FCA 1279; (2006) 155 FCR 181.

14 In Laundry Coin-Wash Nominees Pty Ltd v Dunlop Olympic Ltd (1985) 7 ATPR 40-584 (46,729) Smithers J said:

Where the only tangible assets of an applicant company are held in trust for another entity and its solvency depends on its right as trustee to indemnity as against that entity it is necessary for the court to have in mind the difficulties which a successful respondent would face in attempting to execute in respect of an order for costs. Indeed, unless some step is taken to alleviate those difficulties it is reasonable and just to treat the applicant company as if it were without assets to meet such a liability.

15 That passage has been cited with approval on many occasions: Lagarna Pty Ltd v Bridge Wholesale Acceptance Corporation (Australia) Ltd [1995] VicRp 9; [1995] 1 VR 150, 154; Blackbird Entertainment Pty Ltd v I O Research Pty Ltd (Unreported, WASC, Library No 980297, 2 June 1998) 9; Citi Nominees Pty Ltd v Fenny [2006] WASC 97 [92].

16 In this case, the evidence is that the plaintiff does not own any real estate. In Lagarna, as in this case, the trust deed had not been produced. Tadgell J (Cummins J agreeing) held that the fact that Lagarna owned unencumbered real estate, the value of which exceeded the likely costs of the appeal and over which it had a right or recourse as trustee by way of indemnity, did not justify a conclusion that security ought not be given. His Honour pointed out that the trustee may, and he was prepared to assume that it would, be required at any time to transfer its legal interest in the unencumbered property to the beneficiaries of the trust, or to encumber it.

17 In Second Lenbourne Pty Ltd v Beagle Management Pty Ltd [1999] FCA 486 [18] Goldberg J held that the fact that the plaintiffs in that case had a paid up capital of $2 and were trustee companies was, of itself, sufficient to conclude that the threshold under s 1335 was satisfied.

18 I do not accept the plaintiff's submission that the existence of a charge over the whole of the assets of the plaintiff somehow assists the plaintiff.

19 I find that the discretion under s 1335(1) is enlivened. I turn to the question of the exercise of that discretion.

Discretion under s 1335 - general principles

20 It is not in dispute that the court's discretion is unfettered and depends upon an examination of all of the circumstances of the case. Some of the matters relevant to the exercise of the discretion were identified by French J in Carey-Hazell v Getz Brothers & Co (Aust) Pty Ltd [2004] FCA 1334 [28] as including the following:

Whether the application for security has been brought promptly;
The strength and bona fides of the plaintiff's case;
Whether the plaintiff's impecuniosity was caused by the defendants conduct the subject of the claim;
Whether the application for security is oppressive in the sense that it is being used to deny an impecunious applicant a right to litigate;
Whether there are persons standing behind the plaintiff who are likely to benefit from the litigation and who are willing to provide the necessary security;
Whether the persons standing behind the plaintiff have offered any personal undertaking to be liable for the costs, and if so, the form of such undertaking;
Whether the applicant is in substance a plaintiff or the proceedings are defensive in the sense of directly resisting proceedings already brought or seeking to halt the defendant's self-help procedures.

21 The parties' submissions invite attention to two of these matters, namely the question of the strength of the plaintiff's case and the weight to be given to the personal undertaking of Mr Markovich.

22 It is common cause that on 19 April 1997 the plaintiff and the defendant entered into a contract (the Contract) for the sale by the defendant to the plaintiff of property described as proposed lot 513 (the Property).

23 The Property was not a lot as defined in the Planning & Development Act 2005 (WA). The Contract included special conditions set out in annexure A. Clause 4.3 of annexure A was in the following terms:

4.3. Condition 13 of the 2002 Revision of the Law Society and Real Estate Institute of Western Australia Joint Form of General Conditions for the Sale of Land ('the General Conditions') incorporated into this Contract shall be deleted and the following shall be inserted in lieu thereof:

4.3.1 This contract is conditional upon and subject to the Seller being able to, at the expense of the Seller:

4.3.1.1 comply with any conditions imposed by the Planning Commission upon the creation of the Land; and,

4.3.1.2 cause the Planning Commission to affix its unconditional endorsement to a Deposited Plan of Survey describing the Land as a separate lot

on or before the expiration of 270 days from the Contract Date.

4.3.2 If in the event that, for any reason howsoever arising, the Seller is unable to cause the Planning Commission to affix [its] unconditional endorsement to a Deposited Plan of Survey describing the Land as a separate lot on or before the expiration of 270 days from Contract Date then this Contract shall be at an immediate end without the need for either party to serve notice on the other and all deposit monies shall be repaid to the Buyer and neither party shall have any claim against the other either at law or in equity.

4.3.3 The Seller shall, as soon as is practical after the Planning Commission has affixed [its] unconditional endorsement to a Deposited Plan of Survey describing the Land as a separate lot, lodge the Deposited Plan so endorsed by the Planning Commission at the Office of Titles.

4.3.4 As soon [as] reasonably practicable after the Deposited Plan of Survey describing the Land as a separate lot is endorsed in order for dealings at DLI the Seller shall:

4.3.4.1 apply for a certificate of title to the Land as a separate lot,

4.3.4.2 upon making the application in satisfaction of Condition 4.3.4.1 above, notify the Buyer:

4.3.4.2.1 that the Deposited Plan describing the Land as a separate lot is endorsed in order for dealings at DLI

4.3.4.2.2 of the date at which the Seller made [the] application to DLI for issue of a certificate of title to the Land as a separate lot.

4.3.5.1 14 days from the date at which the Seller notifies the Buyer that a certificate of title to the Land as a separate lot has issued; or,

4.3.5.2 The date stipulated in the Contract, whichever is the later.

24 On 15 January 2008, the defendant issued a notice to the plaintiff to the effect that the Contract was terminated under cl 4.3. One of the grounds relied upon by the defendant in terminating was that by 14 January 2008 the Planning Commission had not affixed its unconditional endorsement on a plan for the creation of lot 513 as a separate lot. The notice also relied upon the subject to finance clause as justification for termination of the Contract. In order to succeed at trial, the plaintiff must prove that neither ground for the termination was lawful. Because of that, and in light of my views as to the termination under cl 4.3, I do not propose to deal with the subject to finance ground in this application.

25 The starting point for an assessment of the strength of the plaintiff's case is the statement of claim in the action. The plaintiff pleads that cl 4.3.1.1 required the defendant, at its expense, to comply with any conditions imposed by the Planning Commission for the creation of the property as a lot. Further, the plaintiff pleads that cl 4.3.1.2 required the defendant to cause the Planning Commission to affix its unconditional endorsement to a plan describing the property as a separate lot within 270 days of 19 April 2007; namely by 14 January 2008. Finally, the plaintiff pleads that cl 4.3.1.1 and cl 4.3.1.2 read together required the defendant to comply with any conditions imposed by the Planning Commission by a reasonable time before 14 January 2008, so as to allow the Planning Commission to follow its normal processes for the affixing of its unconditional endorsement on the plan that would describe the property as a separate lot.

26 The plaintiff pleads that the defendant breached cl 4.3.1.2 in that it did not cause the Planning Commission to affix its unconditional endorsement to a plan describing the property as a separate lot. Further, the plaintiff pleads that the defendant breached cl 4.3.1.1 in that it did not, within a reasonable time before 14 January 2008, comply with all conditions imposed by the Planning Commission for the creation of the property. It is for those reasons that the plaintiff says the defendant is not entitled to invoke cl 4.3 to assert that the Contract has terminated.

27 Without expressing a concluded view on the merits of the action, my impression at this stage is that the plaintiff's pleaded case in relation to cl 4.3 can fairly be described as far from strong. There seems to me to be considerable difficulties in construing cl 4.3.1 as creating absolute obligations on the part of the defendant to comply with the conditions imposed by the Planning Commission and to obtain the result that the Planning Commission affixed its unconditional endorsement to a deposited plan.

28 The language and structure of cl 4.3 suggests that its primary character is the creation of a condition subsequent, failure of which would cause the Contract to be at an end. That is not to say that the clause creates no promissory obligations on the part of the defendant. For example, if the defendant failed to take any steps, or to make a genuine attempt, to comply with conditions and cause the affixation of an unconditional endorsement then, in all likelihood, the defendant would be in breach of implied obligations and would be unable to rely upon the failure to comply with cl 4.3: see, for example, Suttor v Gundowda Pty Ltd [1950] HCA 35; (1950) 81 CLR 418; Kheng v Secola [2001] WASCA 3; Expectation Pty Ltd v Pinnacle VRB Ltd [2002] WASCA 160 [85] - [90].

29 The language of the clause refers to the seller 'being able to' bring about the results or outcomes referred to in cl 4.3.1.1 and cl 4.3.1.2. That may support a construction of the clause as requiring that the defendant use its best endeavours to achieve the outcomes referred to. However, the plaintiff's pleaded case does not complain that the defendant failed to use its best endeavours. Counsel for the plaintiff frankly accepted that the plaintiff was in no position to say anything as to the quality of the endeavours on the part of the defendant to achieve the outcomes in cl 4.3.1. Rather, the plaintiff's case is that the condition in cl 4.3.1 gave rise to the absolute obligations already referred to.

30 Clause 4.3 makes the Contract conditional upon the matters set out in cl 4.3.1. The two matters are set out in subclause 1 and subclause 2 of that clause. By cl 4.3.2, if for any reason the seller is unable to cause the Planning Commission to affix its unconditional endorsement to a deposited plan describing the land as a separate lot on or before the expiration of 270 days from the contract date, then:

[T]his contract shall be at an immediate end without the need for either party to serve notice on the other ...

31 It is in that context that the plaintiff's construction of cl 4.3 must be considered.

32 The plaintiff contends that cl 4.3.2 creates an absolute obligation on the part of the defendant to bring about the affixation by the Planning Commission of an unconditional endorsement. Yet it is the non-occurrence of that very event which is the sole subject matter subject of cl 4.3.2 (which provides that the non-occurrence brings the contract to an immediate end). Thus, the condition in cl 4.3.2 can fail only by reason of what is, on the construction relied upon by the plaintiff, a breach by the seller. That seems an unlikely construction.

33 For the reasons I have given, my impression for the purpose of this application is that the argument in favour of the plaintiff's construction of cl 4.3 is far from strong. I turn to the weight to be given to the offered undertaking.

34 The fact that the shareholders of a company expose themselves to personal liability for whatever that may be worth is a relevant but not necessarily decisive consideration in the discretion to order security: Intercraft Cabinets Pty Ltd v Sampas Pty Ltd (1997) 18 WAR 306. The position is, in my opinion, the same in respect of an undertaking offered by a beneficiary of a trustee company. See, in this regard, Citi Nominees v Fenny [70].

35 In assessing the weight to be given to the personal undertaking offered by Mr Markovich, in the context of all of the circumstances of the matter, it is, in my opinion, relevant that there is no evidence as to Mr Markovich's means.

36 On the whole of the material, I am satisfied that it is appropriate to order security for costs. The undertaking offered by Mr Markovich does not dissuade me from that conclusion, given, in particular, the existence of reason to believe that the plaintiff will be unable to pay the defendant's costs and my view of the merits of the plaintiff's case.

37 The defendant seeks an order for payment of an amount of $50,000 as security up to entry for trial, with liberty to apply to vary the formal amount of security.

38 The draft bill of costs annexed to Mr McColl's affidavit shows costs in a total of about $77,000 through to the end of a three-day trial.

39 I take into account the apparent scope of the issues likely to be ventilated at a trial of this matter, including the issues that have emerged through oral argument today. An appropriate sum for security seems to me to be that contended for by the plaintiff, namely an amount of $35,000. In fixing security in that sum, I take into account that the security ordered is not intended to be a complete indemnity for the actual costs likely to be incurred by a defendant.

40 For these reasons, I would order security for costs in the sum of $35,000.

Development Act 2005

BBC NOMINEES (WA) PTY LTD -v- YANGEBUP DEVELOPMENTS PTY LTD [2008] WASC 81 (13 May 2008)

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Judgment (60 paragraphs)

BBC NOMINEES (WA) PTY LTD -v- YANGEBUP DEVELOPMENTS PTY LTD [2008] WASC 81 (13 May 2008)

Legislation Cited (1)

Cases Cited (3)