Caringbah Business & Sports Club Ltd v Caringbah Investments Pty Ltd

Decision 10Caringbah Investments' application for security for costs should be dismissed.

Threshold question 11It was common ground that the threshold question to be addressed is whether there is credible evidence to show that the Club could not meet an adverse costs order. As argument unfolded, it emerged that there was no dispute but that this had been established. 12The Club's accounts for the financial year ending 30 June 2013 showed that it traded at a loss in that year of $136,869. Both the directors and the auditors stated in those accounts that the ability of the club to continue as a going concern was dependent upon it deriving sufficient cash surpluses and "a return to profitability of the club's core trading activities". 13The Club's management accounts for the nine month period ending 31 March 2014 show that its position has improved, albeit only slightly. During that nine month period the Club traded at a net profit of $18,904; a very low margin of profit bearing in mind that its total income during that period was $880,360.74. 14Further, as at 30 June 2013 the Club had $135,381 cash on hand and in the bank but only $24,656 as at 29 April 2014. 15Mr Cheshire, who appeared for the Club, said the Club is "not doing particularly well but is making a small profit". 16I think it is clear that the Club could not meet an adverse costs order at a figure anything like that the subject of Caringbah Investments solicitor's estimate either now or at whatever time such an order might be made and enforced.

Discretionary factors 17Since 9 August 2013, many of the factors discussed in the authorities as being relevant to the exercise by the Court of its discretion to order security have been set out in r 42.21(1A) of the Uniform Civil Procedure Rules 2005. 18That rule was inserted in the UCPR following the publication by the New South Wales Law Reform Commission of its Report No 137 called Security for Costs and Associated Costs Orders, (December 2012). 19In my opinion, the recitation in UCPR r 42.21(1A) of the various potentially relevant factors was not intended, either by the Law Reform Commission or by the legislature, to displace the weight that authorities over the years have suggested be given to certain of those factors. 20That is made clear, so far as the Law Reform Commission is concerned, by the following statement at par 2.97: "We agree with the submissions that the legislative list of discretionary factors should be non exhaustive. The list is intended to identify the key factors that have been recognised by the case law rather than identify all possible the relevant factors. Flexibility to respond to the particular circumstances of cases is important as is making the law open for the future development." (emphasis added) 21The factors listed in UCPR r 42.21(1A) which are of significance in this case are: (a)whether an order for security would stifle the proceedings; and (b)whether the plaintiff is effectively in the position of the defendant (see UCPR r 42.21(1A) (e) and (f)).

Making an order for security would stultify or stifle the proceedings 22Were I to make the order sought by Caringbah Investments, that would bring the proceedings to an end. That is to say that the order would stultify the proceedings. 23It is well established that if the effect of making a security for costs order would stultify or end proceedings it is usually a powerful factor weighing against the making of an order (for example, Yandil Holdings Pty Limited v Insurance Company of North America (1985) 3 ACLC 542 at 545 per Clarke J (as his Honour then was)). 24There is also authority for the proposition that a Court would not normally decline to order security on this basis unless it could be shown that those who "stand behind" the company and who will benefit from the litigation are also without means (for example, Bell Wholesale Company Pty Ltd v Gates Export Corp. (No 2) (1984) 2 FCR 1 at 4; 8 ACLR 588 at 591). 25However, in this case those who stand behind the Club are, I presume, its members. It seems to me it would not be feasible, let alone appropriate, to make any decision on security based upon the financial position of the Club's members. 26There is no suggestion that these proceedings are not brought bona fide. Indeed, as Pembroke J has pointed out, there is a serious question to be tried. 27These matters alone provide a basis, in my opinion, on which I should dismiss Caringbah Investments' application.

The Club's claim is, in substance, defensive 28Mr Cheshire drew my attention to authorities which suggest that where, as a matter of commercial reality, the defendant and not the plaintiff is the "aggressor", security will not normally be ordered; see, for example, Classic Ceramic Importers Pty Ltd v Ceramica Antiga SA (1994) 13 ACSR 263. 29In Prynew Pty Ltd v Nemeth [2010] NSWCA 94, Beazley JA said at [20]: "Whether a plaintiff is participating in proceedings defensively is a factor to be taken into account in the exercise of the court's discretion in determining whether or not to order security: see KP Cable Investments v Meltglow; Heller Factors Pty Ltd v John Arnold's Surf Shop Pty Ltd (1979) ACLC 32, 446 per Mitchell J at 32-449; Sydmar Pty Ltd v Statewise Developments Pty Ltd (1987) 5 ACLC 480 at 484. As I stated in KP Cable Investments v Meltglow: Security will 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 Ltd v Tricontinental Corporation Ltd (1991) 5 ACSR 621 at 626; Heller Factors Pty Ltd v John Arnold's Surf Shop; Sydmar Pty Ltd v Statewise Developments Pty Ltd; Weily's Quarries v Devine Shipping Pty Ltd [1994] TASSC 76; (1994) 14 ACSR 186. ...Proceedings have been characterised as defensive where...'they are...either directly resisting proceedings already brought or seeking to 'halt self-help procedures'.: per Ormiston J in Interwest at 627." 30In substance, the Club has brought these proceedings defensively and to prevent Caringbah Investments from acting on the "self help measures" they took when they purported to resume possession of the Property. 31It is true, as Mr George, who appeared for Caringbah Investments, pointed out that the Club propounds an estoppel and will have to establish the conversations said to provide a basis for that claim. However, the Club will do that only in order to make out a defence to the claim Caringbah Investments makes, relying on the terms of the Lease. In substance, it will be acting defensively. 32In my opinion, this is a further factor weighing against the making of an order for security.

Caringbah Investments already has security 33A further factor weighing against an order for security is that, in a very real sense, Caringbah Investments already has security for the costs of these proceedings. 34On 7 December 2012, as part of the arrangements entered into when the Club sold the Property to Caringbah Investments, the Club gave Caringbah Investments a "Deed of Security". 35By cl 2 of that document, the Club gave Caringbah Investments security over the Club's poker machines and poker machine entitlements. That document stands as security for the Club's obligations under the Lease (see cl 23 of the Lease) including any costs incurred by Caringbah Investments in the enforcement of the Lease (see cl 21.12 of the Lease). 36There is some evidence of the value of the poker machines and the poker machine entitlements in the Club's accounts for the year ending 30 June 2013. Those accounts show the "carrying value" of the poker machine entitlements to be $158,164. They also show that poker machine takings for that year were $394,105 suggesting that the poker machine entitlements are of significant value. The poker machines themselves have a written down value of $15,173.

Conclusion 37For those reasons my opinion is that Caringbah Investments' notice of motion of 22 April 2014 should be dismissed with costs.

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