PROCEDURE – CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS –
SECURITY FOR COSTS – EFFECT OF NON-COMPLIANCE WITH
ORDER FOR SECURITY
– where the plaintiff was ordered to pay security for costs in respect of
Source
Original judgment source is linked above.
Catchwords
PROCEDURE – CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS –SECURITY FOR COSTS – EFFECT OF NON-COMPLIANCE WITHORDER FOR SECURITY– where the plaintiff was ordered to pay security for costs in respect ofthe third, fourth and fifth defendants– where the security was not paidby the plaintiff – where the third, fourth and fifth defendants seek anorder to dismissthe plaintiff’s proceeding pursuant to rule 674(c) of theUniform Civil Procedure Rules 1999 (Qld) – whether theplaintiff’s proceeding against the third, fourth and fifthdefendants’ should be dismissedUniform Civil Procedure Rules 1999 (Qld), r674(c)Billinudgel Pastoral Co Pty Ltd v Westpac Banking Corporation[1998] FCA 278Craven v Globe Valley Pty Ltd [2018] QDC198Business and Personal Solutions Pty Ltd v Witherspoon & Ors[2022] QSC 10
Goodman v Lorenzen [2000] QCA 11
H & R
Management Consulting Pty Ltd v Bickford & Ors [2010] QSC
Tropicana Limited v Australasia Corporate Services Pty Ltd [2011]
FCA 684
Judgment (26 paragraphs)
[1]
Cohen Legal, for the third, fourth and fifth defendants
[2]
[1] On 17 February 2022, Brown J delivered judgment in relation to:
[3]
(a) the plaintiff's application for summary judgment against the first and second defendants, which was dismissed; and
(b) the defendants' applications for security for costs, ordering the plaintiff:
(i) to provide security, in a form satisfactory to the registrar, in the amount of $110,000 for the first and second defendants' costs of the proceeding, within 28 days; and
(ii) to provide security in the amount of $190,000 for the third, fourth, and fifth defendants' costs by payment of that sum into court, or the provision of a bank guarantee in a form satisfactory to the registrar, within 28 days. See Business and Personal Solutions Pty Ltd v Witherspoon & Ors[2022] QSC 10.
[4]
[2] The plaintiff has not paid the security in respect of either the first and second, or the third, fourth, and fifth defendants.
[3] The third, fourth, and fifth defendants have applied for an order pursuant to rule 674(c) of the Uniform Civil Procedure Rules 1999 (Qld) (UCPR), that the plaintiff's claim against them be dismissed.
If the Court orders the plaintiff to give security for costs -
[6]
(a) the time set by these rules or by an order of the Court for another party to take a step in the proceeding does not run until the security is given; and
(b) if security is not given under the order - the proceeding is stayed so far as it concerns the steps to be taken by the plaintiff; and
(c) the court may, on the defendant's application, dismiss all or part of the proceeding."
[7]
[5] The court has a broad discretion under rule 674(c), which is enlivened where, as here, the plaintiff has not given the security under the order. It has been said that an application for dismissal by reason of a failure to provide security is analogous to dismissal for want of prosecution.[1]
[6] The Court's discretion to dismiss the proceeding for failure to provide security is an unfettered discretion to be exercised in the circumstances of the particular case.[2] Having regard to the available authorities, relevant factors to the exercise of the discretion include:
[8]
(a) the circumstances in which the order for the provision of security was made, including considerations as to the strength of the plaintiff's case;[3]
(b) the time that has elapsed since the making of the order;[4]
(d) whether there is a prospect that the security will be paid in the future;[6] and, if so, what timeframe is involved (the circumstances being different if the costs might be paid in a reasonably short timeframe);[7]
(e) the natural reluctance of the court to dismiss a claim pursuant to rule 674, which amounts to denying an impecunious plaintiff an opportunity to litigate their claim;[8]
(f) the need to balance the public interest in aggrieved plaintiffs having their cases heard and determined by the courts, with the public interest in ensuring that the court process is not misused in any way by impecunious plaintiffs bringing proceedings against defendants without concern for the financial consequences that flow for the other party;[9] and
(g) possibly, that, depending on the limitation period which applies, if the impecunious plaintiff's circumstances change, it may be able to recommence the proceedings at another stage, as the order dismissing the proceeding for failure to pay the security ordered is regarded as interlocutory, not final.[10]
[9]
[7] The subject matter of these proceedings are summarised in detail in Brown J's decision. Briefly, the first and second defendants are the parents of the third defendant and the fifth defendant, who is married to the fourth defendant. The parents owned various cattle properties. They were in default under various facilities they held with a bank and were indebted to the bank for about $12 million. They engaged the services of the plaintiff, a "consultant", to assist them in their dispute with the bank. Mr Geoffrey Shannon is the sole director of the plaintiff and was one of the "key personnel". There was a consultancy agreement, under which the parents agreed to pay a fee and outgoings for the services provided.
[8] The bank appointed receivers to the properties of the parents in October 2014 and orders were made for the delivery of possession of their properties. A mediation subsequently took place and in July 2015 a settlement deed was entered into between the bank and the parents, under which the bank agreed to receive a much-reduced sum of $5.5 million. However, if that sum was not paid by a particular date, judgment could be entered against the parents for the whole sum (see [16] of Brown J's decision). Following some difficulties paying the $5.5 million, the money was paid in April 2016, after the parents sold two properties to their son, the fifth defendant, and another property to the third and fourth defendants. The sale and transfer of the properties took place in March 2016.
[9] Prior to this, in February 2016, the first and second defendants and the plaintiff entered into a deed of agreement, which contained an acknowledgement that they owed the plaintiff an amount of $600,000, inferentially, for the consultancy fees. The first and second defendants have paid some money to the plaintiff - about $270,000 it seems. By the proceeding against the first and second defendants, the plaintiff seeks to recover just under $500,000, under the deed of agreement. As already mentioned, the plaintiff's application for summary judgment on that claim was dismissed, Brown J not being satisfied, for the purposes of rule 292 of the UCPR, that the first and second defendants had no reasonable prospects of successfully defending the claim. I note also that the summary judgment application was brought defensively, after the security for costs applications were made.
[10]
(a) Brown J was not persuaded that an order for security would stifle the proceedings, because there was no evidence before the court that those standing behind the plaintiff were without means (see [87]);
(b) it was uncontroversial that the plaintiff did not have funds to pay an order for security;
(c) although the plaintiff's director offered to give an undertaking, there was no evidence that he would be able to meet a costs order or that his undertaking was otherwise of value (see [90]); and
(d) the court was not persuaded the offer of a charge over the plaintiff's assets was of any real worth either.
[11]
[13] There was no appeal from the order made by Brown J requiring payment of security for both the first and second defendants', and third, fourth, and fifth defendants' costs. Nor has any application been made under rule 675 to vary or set aside the order for security.
[14] The plaintiff does not proffer any reasons for failure to pay the security, other than lack of funds. It is in the same position that it was in February this year when Brown J determined the application: it does not have funds to pay the defendants' security for costs.
[15] The plaintiff's director, Mr Shannon, gives evidence by affidavit that he has had health problems since February, including having to undergo surgery and experiencing subsequent pain. He gives an undertaking to pay the first and second defendants' security, if he is able to raise funds in the way set out in his affidavit. That involves him selling two cars that he says he owns which, he says, are valued at $85,000 and $65,000 respectively. In the draft order proposed on his behalf, he wants six weeks to be able to do this.
[16] He gives no such undertaking in relation to the security ordered to be paid for the third, fourth, and fifth defendants' costs. Mr Shannon has no ability to pay the security ordered for those parties, even if he sells the cars.
[17] As to how the order might be complied with in the future, the plaintiff's plan, as outlined in opposing this application, is as follows:
[12]
(a) Mr Shannon sells the cars in the next six weeks, hoping to raise the $110,000 to pay the first and second defendants' security;
(b) the stay of that part of the proceeding would then be lifted, and the plaintiff says it would then apply for the determination of a separate question under rule 483 of the UCPR, being the liability of the first and second defendant under the deed and/or the consultancy agreement;
(c) assuming that application is determined favourably, and that the separate question is determined favourably to the plaintiff, and it recovers judgment, that would be the end of the matter;
(d) but if it is successful in getting an order for a separate question, and having the question determined in its favour, and cannot recover the judgment against the first and second defendants, it will then try to raise the security ordered for the third, fourth, and fifth defendants, or apply to set aside the order, so that it can proceed with the claim against them.
[13]
[18] The third, fourth, and fifth defendants submit that they should not have to carry the burden of this proceeding whilst all of the steps involved in the plaintiff's plan are permitted to be carried out, in circumstances where the plaintiff is demonstrably impecunious. They point to difficulties the existence of this proceeding poses for them should they wish to sell the properties, because the relief sought against them is a declaration that the transfers are void. The plaintiff submits there is no impediment to any such sale and concedes it would have no claim against a third party purchaser. However, I accept, having regard to the evidence in Ms Cohen's affidavit,[11] that the existence of the proceeding against the third, fourth, and fifth defendant, and the nature of the relief claimed, is something that could have an impact on a prospective purchaser, as it has already.
[19] The third, fourth, and fifth defendants also submit that it cannot be assumed that an order for separate determination of the claim against the first and second defendants would be made; and that they would want to be heard about that, which would involve them incurring further costs. Whilst the plaintiff contends the third, fourth, and fifth defendants would have no interest in the purported separate question, I do not accept that can be so readily assumed. Among other things, I note that in [20] of Brown J's decision, her Honour refers to the first and second defendants and the plaintiff entering into the deed "after negotiations which also sought to include the third and fifth defendants".
[20] The plaintiff also submits that, if it were to be unsuccessful in the separate question application, then that would be the end of the matter, and the third, fourth, and fifth defendants could re-enliven the present application.
[21] In that regard, what the plaintiff presses for is that it be given this six week time period to try to sell the cars and pay the first and second defendants' security. Referring to that time period, counsel for the plaintiff submits it is only a short timeframe that is being sought. However, that does not reflect the reality of the plaintiff's proposed plan, in respect of which that is only one step. It would actually be a considerable period of time, with many steps with uncertain outcomes before the position regarding the proceeding against the third, fourth, and fifth defendants is at all clear. All of that against the background where they have already had a hearing on the merits of their application for security, and been successful, and there has been no appeal from it.
[14]
(a) the plaintiff's claim against the third, fourth, and fifth defendants is not a strong one, as Brown J found;
(b) there is no certainty to what is proposed by the plaintiff's plan. It involves many contingencies; and in fact a return to the very same position the plaintiff is in now, even if it succeeds in getting a separate question ordered, and determined in its favour, but fails to have any such judgment satisfied;
(c) it is not consistent with the philosophy of the UCPR - both rule 5 and the rules providing for security for costs to be provided in particular circumstances - to essentially stay the order for security which has been made in favour of the third, fourth, and fifth defendants, or require them to abandon it, while the plaintiff endeavours to put itself in a position to prosecute its claim against the first and second defendants separately, leaving the third, fourth, and fifth defendants in limbo, uncertainty, and with a very serious court proceeding, involving allegations which involve matters of fraud hanging over their heads for an unknown period of time.[12]
[15]
[23] I have given consideration to the relevance of the limitation period in the context of this matter as well. On one view that limitation period may still have many years to run, if the period under s 13 of the Limitation of Actions Act 1974 (Qld) applies. However, on the basis of submissions I have heard from the parties today, that is not entirely clear and, accordingly, I do not factor that into account in reaching the conclusion that I have.
[24] However, in all of the circumstances, I consider it appropriate to exercise the discretion conferred by rule 674(c), by dismissing the plaintiff's claim against the third, fourth, and fifth defendants.
[25] The first order is that the plaintiff's proceeding against the third, fourth, and fifth defendants is dismissed, and the second order is the plaintiff pay the third, fourth, and fifth defendants' costs of the proceeding, including the application filed on 7 April 2022, to be assessed.
[10] The claim against the third, fourth, and fifth defendants is under section 228 of the Property Law Act 1974 (Qld), with the plaintiff's allegation being that the transfer of the properties to these parties was done with intent to defraud a creditor, the plaintiff. The monetary consideration for the sales included a sum of $5.5 million, which was paid to the bank to discharge the parents' obligations under the settlement deed and to release the mortgages. The transfers themselves refer to lower amounts and that the consideration included "love and affection" (see [79] of Brown J's decision). One of the arguments for the third, fourth, and fifth defendants was that but for the transfer to them of the properties, and their payment of the amount of the parents' debt to the bank, the bank through its receivers would have taken all three properties, to realise them for the more than $12 million for which judgment would then have been entered. On that basis, they argued that the properties were conveyed for valuable consideration, if not market value, and in good faith.
[11] Justice Brown described the fact that but for payment of the $5.5 million the bank would have taken the properties and sold them as a "significant barrier" to the plaintiff's contention (see [84] of her Honour's decision). Her Honour said she did not regard the case against the third, fourth, and fifth defendants as strong (see [96]). Although, in the end result, her Honour was not persuaded that the general proposition that the court should proceed, on an application for security, on the basis the plaintiff's claim is a bona fide one with reasonable prospects of success, was displaced, and ultimately considered the strength of the case to be a neutral factor.
[12] As to the other factors:
[22] This is a finely balanced matter. On the one hand, I acknowledge the natural reluctance of the court to summarily dismiss a claim, and the need for caution. On the other hand: