Bodycorp Repairers v Maisano

2 On 24 April 2013 I made orders for security for costs. Those orders were made in favour of the 1st defendant ("Maisano"), the 4th to 6th defendants ("the AAMI Defendants") and the 7th and 8th defendants ("the Melton Defendants"). At the time I made those orders, I indicated I would hand down my reasons soon thereafter.

3 On 2 May 2013 I published my reasons for ordering security on 24 April 2013[1] ("the Earlier Reasons"). The Earlier Reasons set out the orders previously made.

4 Pursuant to the orders made on 24 April 2013, the plaintiff ("Bodycorp") duly paid the security for costs before 4.00 pm on 1 May 2013.

5 At a directions hearing on 2 May 2013 I directed that any further application for security for costs should be made at 2.00 pm on 8 May 2013. This was because security for costs had been ordered up to and including the first 3 days of trial. As the trial started on 6 May 2013, the security previously ordered was due to be exhausted by the end of 8 May 2013.

6 I also directed that if Bodycorp were to seek to rely upon any further affidavit(s) in opposition to further security for costs being ordered, any such affidavit(s) should be filed by 4.00 pm on 7 May 2013. I stated this direction was made in order to ensure that the defendants had sufficient time to respond to any further affidavits from Bodycorp.

7 Regrettably, and without any explanation the subject of any evidence, affidavits in opposition to the further applications for security were not filed and served until the matter came on for hearing at 2.00 pm on 8 May 2013. There were 2 affidavits put before the court, 1 sworn by the sole director of Bodycorp, Tony Murdaca ("Murdaca"), and the other by Mr Zhong Xun Zhang ("Zhang").

8 Dealing with the latter of these 2 affidavits first, I refer to paragraphs 48 to 50 of the Earlier Reasons. As was noted there, on 24 April 2013 Bodycorp sought to rely upon an unsworn statement from a witness who was said to have had dealings with Maisano. That witness was Zhang. I gave that evidence little or no weight given its unsatisfactory state.

9 In substance, the affidavit of Zhang replicated the unsworn statement previously provided. As I noted on the last occasion, the contents of the statement raised serious allegations about the conduct of Maisano (and others). No doubt, the affidavit of Zhang was proffered in response to the observations made in the Earlier Reasons. However, no warning was given by the legal representatives for Bodycorp that this affidavit was going to be served. In the circumstances, Maisano had no opportunity to respond to it. Accordingly, given the gravity of the matters sought to be raised, I did not allow the affidavit to be put before the court in opposition to the application by Maisano for security for costs.

10 As to the former, this affidavit ("the Further Affidavit") was also clearly a response to observations I made in the Earlier Reasons. I previously noted that the defendants criticised the evidence led on the last occasion. The criticisms were primarily directed to the absence of evidence about the value of the 2 properties referred to, the fact that no bank statements of Murdaca had been provided and that there was no balance sheet.[2]

11 The Further Affidavit addressed 2 of these criticisms. First, valuation evidence was given in relation to both the family home of Murdaca and the warehouse previously referred to.[3] That evidence consisted of kerbside valuations, which indicated that the family home had a value of $650,000 to $690,000, and the warehouse had a value of $350,000 to $385,000.

12 Secondly, a document entitled "Statement of assets and liabilities Antonio Murdaca" was tendered ("the Statement of Financial Position"). There were a number of discrepancies in this document, but they were explained by counsel for Bodycorp. I read the document in light of those explanations.

13 The Statement of Financial Position demonstrated that $432,219 was secured against the family home. The document also indicated that $368,000 (by way of 3 loans) was secured against the warehouse. From this I deduce that there was effectively no equity left in the warehouse, but there is approximately $220,000 to $260,000 in equity remaining in the family home.

14 According to the Statement of Financial Position, there are also a substantial number of loans that have been advanced to Murdaca or Bodycorp. These loans, which include $100,000 in relation to counsel's fees,[4] total $1,162,000. There was supporting documentation tendered to corroborate the existence of some of the loans. The Statement of Financial Position suggests Murdaca is liable in relation to all of these loans.

15 There were further assets referred to in the Statement of Financial Position. An amount of $15,000 was said to be the value of furniture owned by Murdaca. Finally, there were further assets listed by reason of an interest in Repose Nominees Pty Ltd.[5] These assets totalled $210,000. Overall, there exists a deficit in excess of $600,000 in relation to Murdaca's personal position.

16 Which leaves the third matter the subject criticism, namely the bank statements. The defendants submitted it was significant that there were no bank statements provided by Murdaca in relation to his personal accounts. However, the Statement of Financial Position indicates that Murdaca has no cash-at-bank. Accordingly, any bank statements would only be there to verify the Statement of Financial Position.

17 There is no reason why I should not accept the Statement of Financial Position as being accurate. This is an interlocutory application. There was no evidence that contradicted the contents of the Statement of Financial Position. There was no application to cross-examine Murdaca on the contents of this document. In short, Murdaca has substantially addressed the criticisms that were previously made by the defendants, and I proceed on that basis.[6]

18 Further criticisms were made of the evidence now before the court. I do not intend to address most of these individually as, for the reasons already stated, I am proceeding on the basis that the Statement of Financial Position reflects the true position.

19 That said, there is 1 further matter I need to address. In the Earlier Reasons I referred to the decision of Registrar Efthim (as he then was) in Bodycorp Repairers Pty Ltd v Maisano.[7] Registrar Efthim made the following observations in January 2004 as to the position of Bodycorp: [8]

[Bodycorp] is a trustee of the Bodycorp Unit Trust and has paid-up capital of only $2.00. The deed of trust reveals that the initial unit holders in the unit trust are Broome Time Investments Pty Ltd and Repose Nominees Pty Ltd. Each company is a trustee company and Broome Time Investments Pty Ltd is the trustee of the Ralph Murdaca Family Trust and Repose Nominees Pty Ltd is trustee for the Antonio Murdaca Family Trust. [Murdaca] is the sole shareholder of [Bodycorp] who has a fixed and floating charge over the assets of [Bodycorp] which secures a loan of $20,000.

20 The above extract was the focus of submissions on the part of the defendants on this occasion. The evidence before the court, by way of a company search, was that Murdaca was the only shareholder and that he held the beneficial interest himself. The AAMI Defendants and the Melton Defendants submitted that the court should not accept the evidence given by Murdaca that he is now the sole shareholder and he holds his shareholding as the beneficial owner. This submission was made on the basis that there was no explanation as to how the previous structure was unwound. In particular, it was submitted there was no evidence as to how the interests previously held by others in the Bodycorp Unit Trust have now been transferred to, or otherwise reposed in, Murdaca.

21 The criticisms are of some merit. It is correct to say that there was no explanation on the part of Murdaca in relation to the change of circumstance. However, this was not the subject of any substantive submission on 24 April 2013 by the defendants.[9] Consequently, it was not the subject of the Earlier Reasons. In those circumstances, it is not surprising that the Further Affidavit does not specifically address how the beneficial ownership is now said to be held by Murdaca alone.

22 Although I accept the evidence before the court is not entirely satisfactory in relation to how it is that Murdaca now is said to be the person that stands behind Bodycorp and is the person who will benefit from the litigation, that is the unchallenged evidence before me. A substantial period of time has lapsed between the affidavit relied upon before Registrar Efthim[10] and the present time. Although the position is unexplained, there is nothing necessarily inconsistent between the 2 positions stated. In other words, it is perfectly plausible that a decision was made to unwind the trust structure previously in existence and for assets beneficially held by others to be transferred to Murdaca, including the chose in action being the right to prosecute this proceeding.

23 In all the circumstances, including that the Further Affidavit was prepared at a time when Bodycorp was conducting the trial, it is appropriate to accept the evidence of Murdaca on the interlocutory application in relation to the beneficial ownership of the shares in Bodycorp. As I noted above, none of the defendants sought to cross-examine Murdaca on the Further Affidavit.[11]

24 Murdaca has sworn that the funding of this case has stretched him to his financial limit. He deposed that the last payment of security ordered on 24 April 2013 was made from funds borrowed from Tony D'anna & Co Pty Ltd. He also stated there was no further funding available to him from that source. Murdaca concluded the Further Affidavit with the following statement:

I now [sic] the position where the only possible funds that could be borrowed for further security, would be from my 80 year old mother, whereby she would have to mortgage home [sic] in Essendon. However, subject to my mother agreeing to this, I would have to consult my brother and sister before I could explore this option of possible further funding for security.

25 In summary, the evidence referred to above indicates that:

(1) In relation to the beneficial interest in the company, Murdaca is the person standing behind Bodycorp.

(2) Murdaca's liabilities substantially exceed his assets, and he is financially stretched.

(3) Notwithstanding (2) above, there is still a significant amount of equity in the family home, albeit that Murdaca is not able to secure further funds for Bodycorp.

26 In the Earlier Reasons I set out the approach the court is to take on applications such as these. As I said on the previous occasion, the court has an "altogether unfettered [discretion], but on the footing that the very fact [that the jurisdiction has been enlivened] in the first place may itself be a factor, even a most significant factor, in the exercise of the discretion. Put another way, the satisfaction of the threshold condition 'calls for' the fulfilment of the purpose for which the power was conferred, subject to a proper exercise of the discretion depending on all the circumstances. Further, although the exercise of the power may be 'called for', that circumstance does not alter the fact that the burden rests on the defendants to persuade the court that security should be ordered."[12]

27 As the Earlier Reasons disclose, on 24 April 2013 the plaintiff raised 6 separate issues in inviting the court to exercise its discretion to refuse the applications for security for costs.[13]

28 On this application the only issue is whether or not further orders for security for costs would stultify this proceeding.

29 As the evidence now stands, it appears Murdaca has reached the end of his ability to raise further funds to fund this litigation for Bodycorp. Although the court has not been provided with a full reconciliation between the asset and liability statement referred to in the Federal Court Judgment and the Statement of Financial Position, there is no necessary inconsistency between the 2 documents. A period of some 10 years has elapsed, and one would expect it to be a substantial exercise to perform a reconciliation. As noted above, in circumstances where the Further Affidavit has been prepared at a time when Bodycorp is also conducting substantial litigation, this position is somewhat understandable.

30 Significantly, in contrast to the position on 24 April 2013, I now have before me a definitive statement of the assets and liabilities of Murdaca. From this evidence, there is no apparent source for any further funds to be raised.

31 As at 8 May 2013 the following security for costs has been provided by Bodycorp:

32 For further legal costs, the claims made by the defendants (based on a further 10 days of hearing) were as follows:

Each defendant or group of defendants also sought transcript fees of $500 a day; ie Maisano, the AAMI Defendants, and the Melton Defendants respectively. This added a further $5,000 to each claim.

33 During the course of submissions made on behalf of Bodycorp, I asked counsel for Bodycorp whether or not Murdaca was willing to give a personal undertaking in relation to any further costs incurred by the defendants in the conduct of the trial. The matter was stood down so instructions could be obtained. A form of undertaking has now been given to the court in the following terms:

Mr Antonio Murdaca undertakes to the court to be personally liable to pay any costs that the plaintiff becomes liable to pay in respect of costs ordered against the plaintiff from the end of day 3 of the trial to its conclusion in the event an order for costs is made against the plaintiff in the proceeding.

34 In Livingspring v Kliger[14] the Court of Appeal referred to a decision of the Full Federal Court in Bell Wholesale Co Ltd v Gates Export Corporation (No 2) in which the following was stated:[15]

In our opinion a court is not justified in declining to order security on the ground that to do so will frustrate the litigation unless a company in the position of the appellant here establishes that those who stand behind it and who will benefit from the litigation if it is successful (whether they be shareholders or creditors or, as in this case, beneficiaries under a trust) are also without means. It is not for the party seeking security to raise the matter; it is an essential part of the case of a company seeking to resist an order for security on the ground that the granting of security will frustrate the litigation to raise the issue of the impecuniosity of those whom the litigation will benefit and to prove the necessary facts. (Emphasis added.)[16]

35 On the issue of the relevance of an undertaking from a person or persons standing behind an impecunious company and how that might be relevant to the court's discretion, the following was stated in Epping Plaza Fresh Fruit & Vegetables Pty Ltd v Bevendale Pty Ltd:[17]

[T]here may be cases where, in the exercise of its discretion, the court will regard the fact that those who stand behind an impecunious company have bound themselves to assume responsibility for paying the defendant's costs as a relevant factor in favour of the plaintiff; [citations omitted]. But that is as far as it goes; the existence of such an offer to assume personal liability for an order for costs if made against the company, or even a formal guarantee to like effect, cannot be determinative in itself of the application for security, or else the discretion, which is otherwise conferred in general terms, will be impermissibly circumscribed. In Intercraft Cabinets Pty Ltd v Sampas Pty Ltd (1997) 18 WAR 306 the Full Court in Western Australia was concerned with an undertaking to accept personal responsibility for costs against an impecunious company, and after reviewing the authorities Malcolm CJ, speaking for the court, firmly espoused the view (at 316) that "the availability of an undertaking of personal liability by the persons who stand behind the company is no more than a factor, albeit an important factor, to be taken into account in the exercise of discretion". With respect, that is our view too.[18]

36 Of course, in the exercise of the court's discretion, the overarching purpose as set out in the Civil Procedure Act 2010 (Vic) must be kept in mind. The overarching purpose in relation to civil proceedings is to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute.[19] I am required to give effect to the overarching purpose in the exercise of the court's powers, including in relation to powers exercised under its statutory jurisdiction.[20]

37 This proceeding has been on foot since 2002. As I noted in the Earlier Reasons, the proceeding has had an extraordinarily long history, which no doubt has already come at great expense to the parties. This last observation is borne out by the fact that Bodycorp alone has spent in excess of $2,000,000 on costs to date.

38 It would not be in the interests of any of the parties for the trial to be delayed any further. Although not determinative, this factor is significant to the outcome of the present applications.

39 Based on the evidence before me, I have formed the view that although there is still equity in the family home, it is more likely than not that any further substantial order for security in the sums sought by the defendants would stultify the proceeding. Murdaca, as the person standing behind the company, has now given an undertaking to the court to make himself personally liable for the further costs of the defendants in the conduct of the trial in the event that costs are ordered in favour of the defendants. Given the instance of that undertaking, it is appropriate that the applications for further security for costs be dismissed.

40 As stated above, the undertaking in relation to personal liability was not proffered until during the course of argument. It is my view, subject to any further argument from counsel, that there should be no order as to costs in relation to the applications for further security. However, given the trial is ongoing, I will reserve costs at this stage to allow the parties to consider their positions.

41 I was again invited to consider the bona fides of the claims made by Bodycorp at the trial of this proceeding.

42 In the Earlier Reasons I expressed my reluctance to make any determination about the bona fides given that I was to be the trial judge, and the trial was imminent. Those considerations are more acute now that the trial has commenced.

43 Counsel for the Melton Defendants relied upon Merribee Pastoral Industries Pty Ltd v Australia and New Zealand Banking Group Ltd[21] in support of the submission that the strength of the case against the defendants ought to be considered. In that case Kirby J (sitting alone) observed that if a proceeding appeared hopeless and was bound to fail, the lack of apparent merit might be a reason for ordering the plaintiff to provide security for costs. This was said on the basis that it would appear in those circumstances the plaintiff was needlessly putting its opponent to those costs.[22]

44 Counsel for the Melton Defendants submitted that, on the basis of how the case has been opened and the evidence in the case so far, the case against the 8th defendant was hopeless. It is sufficient for me to say for present purposes that I am not in a position, based on the evidence before me on this application, to form any view to the effect that the case of Bodycorp against any of the defendants is hopeless or bound to fail. Given the trial is proceeding, I say nothing more on this topic.

[1] [2013] VSC 220.

[3] Earlier Reasons at [16(a) and (b)].

[4] I was asked to infer that counsel are being funded by Murdaca. I drew no such inference, particularly in light of this evidence.

[6] Senior counsel for the AAMI Defendants submitted it was unsatisfactory for Bodycorp to have, in effect, a second go. He referred me to the decision of Mijac Investments Pty Ltd v Graham [2010] FCA 87. He submitted this case was authority for the proposition that the evidence before the court should be seen as "tainted". However, that case is clearly distinguishable as it involved an appeal and also breaches of previous court orders. In contrast, this matter involves a fresh application where Bodycorp is entitled to put further evidence before the court.

[7] Federal Court (unreported, 12 January 2004) ("Federal Court Judgment").

[9] On the previous occasion, the fact that Bodycorp was a trustee company in 2003 and 2004 was referred to in the context of submissions concerning Registrar Efthim's finding that he could not conclude that Murdaca was unable to pay security for costs.

[10] Which was sworn on 18 September 2003.

[11] This is not a criticism of the defendants' counsel. The affidavit was served very late. Also, the applications for security for costs were an interruption to the conduct of the trial.

[12] Earlier Reasons at [9], citing Ariss v Express Interiors Pty Ltd [1996] 2 VR 507, 514.8; Livingspring Pty Ltd v Kliger Partners [2008] VSCA 93; (2008) 20 VR 377, 382-383 [19], [21].

[14] [2008] VSCA 93; (2008) 20 VR 377, 383 [22].

[15] [1984] FCA 34; (1984) 2 FCR 1, 4.4.

[16] The creditors referred to in the Statement of Financial Position are recorded as creditors of Murdaca. When I asked the question directly of senior counsel for the AAMI Defendants as to whether I should assume it was Murdaca alone who stood behind Bodycorp, I was told no, but only by reference to other possible beneficiaries of a trust. It was not suggested there were creditors of Bodycorp who "stood behind the company".

[17] [1999] VSCA 43; [1999] 2 VR 191, 196 [17] (Winneke P and Phillips JA).

[18] See also Epping Plaza Fresh Fruit & Vegetables Pty Ltd v Bevendale Pty Ltd, 197-198 [22]-[24] (Winneke P and Phillips JA), 201-202 [37]-[41] (Callaway JA).

[19] Section 7(1).

[20] Section 8(1)(a).

[21] [1998] HCA 41; (1998) 193 CLR 502.