Channel Island Seafood Pty Ltd v Bryjed Pty Ltd

REASONS FOR DECISION 1 The respondents to this proceeding have applied by notice of motion on 7 May 2002 for an order for security for costs against each of the applicants. 2 There is no real issue between the parties as to the appropriate considerations, generally speaking, on which such an application should be determined: see e.g. Bell Wholesale Co. Ltd v Gates Export Corporation (1984) 2 FCR 1 (Bell Wholesale). It is a matter for the Court in the exercise of its discretion in all the circumstances of the case. 3 The parties in their helpful written and oral submissions have identified a number of matters which courts commonly have regard to in considering such an application. I propose to deal with the factors to which the parties have directed my attention sequentially. The sequence in which I deal with those factors does not indicate particular weighting given to any one factor. 4 The first matter to determine is whether, in the relevant sense, the applicants or either of them are impecunious. That is not to suggest that they are insolvent or need to be shown to be insolvent. In my view, it is appropriate to look to determine whether the respondents have adduced material to demonstrate that the applicants, or either of them, do not have sufficient assets, or access to sufficient assets, to be able to meet any order for costs, if an order for costs is ultimately made against them in the proceedings: see Southern Cross Exploration NL v Fire & All Risks Insurance Co. Ltd [1986] 13 NSWLR 193. 5 Each of the applicants has adduced evidence as to their financial position. In the case of the personal applicant, he has a significant excess of assets over his liabilities, including some cash resources, but he is presently unemployed. His assets include all of the shares in a company called Interior Tech Pty Ltd (Interior Tech) which is apparently a commercial office building company, based in Sydney, and which is presently not operating. The corporate applicant has assets of some substance, but its balance sheet demonstrates that it has a substantial net equity deficit in the order of about $386,000. That deficit is created principally by reason of a liability to Interior Tech in the order $550,000. Neither Interior Tech, nor the personal applicant as the sole share holder in Interior Tech has proffered any undertaking to the Court not to call up that indebtedness, although the personal applicant has indicated that he has no current plans to demand that amount. 6 Given the existence of that liability, and the capacity of Interior Tech to call up that amount, or some part of it at any time, in my view I must conclude that the corporate applicant does not have the resources available to meet any order for costs against it, if such an order is ultimately made in these proceedings, notwithstanding that it has current assets in the order of $72,000, including cash in the order of $41,000. I note also that it has non-current assets of $78,000 or thereabouts, but as the personal applicant has explained, it is not able presently to realise those assets because, in a practical sense, they are under the control of the first respondent. That is because they are on the property on which the business of the corporate applicant was conducted, but occupied now by the first respondent under its perpetual lease. 7 There are a number of factors to which the parties referred relevant to the exercise of my discretion. 8 It is common ground that the application has been brought promptly following institution of these proceedings. 9 Each of the parties contended that I should have regard to the strengths of their respective cases. It is perhaps not surprising that the respondents, whose application this is, contended on the basis of the affidavit material they had adduced, that they had a very strong defence to the proceedings and that the applicants were unlikely to succeed. The applicants for their part, by counsel, contended on the basis of the affidavit material which they had adduced, that they have a very good chance of succeeding in the proceedings. As I indicated in the course of submissions, the Court is not in the position to adjudicate on issues of credibility on an application such as the present. It is apparent from the respective affidavits filed on behalf of the parties that there are significant issues of credit between the personal applicant on the one hand, and the second respondent on the other. I accept, as counsel for the respondents pointed out, that Rodney Sean Negus, who was apparently a director of the corporate applicant for some time, and was a shareholder of the corporate applicant, has provided an affidavit which appears largely to support the version of events of the second respondent in some significant respects. 10 However, the position remains that there are significant issues of credit between the parties. I do not think, having had careful regard to their respective affidavits, that I am able to form any conclusions as to the respective strengths of the parties' cases so as to take that factor into account in these proceedings. 11 Counsel for the applicants, opposing the motion, also contended that I should conclude that the financial position of the corporate applicant was caused by the conduct of the respondents. That is, in one sense, easy enough to conclude. The evidence shows that the corporate applicant has expended almost $600,000 on an enterprise from which the corporate applicant has either now withdrawn or been excluded. The source of those funds is apparently largely Interior Tech. But I do not think that is sufficient to take that factor into account. It does not answer the question whether its expenditure, and therefore its relatively poor financial position at the present time, was due to the conduct of the respondents in the sense of that conduct being wrongful so that the applicants may be entitled to the remedies which they seek. That will depend upon the findings made at the trial. I have sought to explain, by reference to the affidavit material already referred to, resolution of that question will depend upon resolution of significant areas of disputed fact between the parties. 12 Although I accept that the corporate applicant's financial position is as a result of the expenditure incurred, in the enterprise which it sought to carry out, I do not presently take the step of concluding that that expenditure was spent and lost because of the wrongful conduct of the respondents. I therefore do not give that factor any weight in the present circumstances. 13 Similarly, the contention of counsel for the applicants opposing the motion that the conduct of the respondents was oppressive must be treated in the same light, that is, I am unable to determine on the material before me whether that is the case, because it will need to be determined only after hearing evidence at the trial: cp Spiel v Commodity Brokers Australia Pty Ltd (in liq) (1983) 8 ACLR 410. 14 There remains to address the other discretionary considerations to which I have been directed. 15 The shareholders in the corporate applicant are Interior Tech and, apparently until late 2001, Mr Negus. Interior Tech holds the one A class issued share and Mr Negus held the one B class issued share. I do not know what rights respectively are attributed to those classes of shares. It is agreed between counsel for the parties, that when Mr Negus ceased to be a director of the corporate applicant, in late 2001, he agreed to transfer his share to a nominee of the applicants. It is unclear whether that share was transferred to Interior Tech or to the personal applicant or to some other entity of the personal applicant, but I accept that in a practical sense, Interior Tech or other interests of the personal applicant are now the beneficial shareholders of all the shares in the corporate applicant. Interior Tech, as counsel for the respondents (applicants on this motion) indicated, is a relevantly solvent enterprise, both in terms of cash and other assets. 16 My view, having regard to the shareholders, or shareholder, of the corporate applicant and having regard to its balance sheet position, and in the light of the other matters to which I have referred, is that it is appropriate that there be some order for security for costs against it in this proceeding. The fact is that the persons or entity which stand behind the corporate applicant, its shareholders, will be those who will benefit if the corporate applicant succeeds in its proceeding: see e.g. Bell Wholesale at [4]. Those entities have the capacity to fund the action and to provide security of costs. 17 I note, and accept that the assets of the corporate applicant include the property, plant and equipment to which it referred to in its balance sheet, totalling $78,424. I accept the evidence that that property, plant and equipment was purchased in the preceding 12 or 18 months for the purposes of carrying out the prawn farming enterprise of the corporate applicant, on the property of which the first respondent is the perpetual lessee, and that that plant and equipment remains on that property. It is unclear whether it has been affixed to the property in any sense which makes it irremovable, or whether it is simply at the property and presently the corporate applicant does not have access to it. There is evidence which demonstrates that that amount was in fact expended on plant and equipment for the purposes of the fishing enterprise in the period of time to which I have referred. I do not know what its present value is. Bearing in mind the date of its acquisition and the availability of invoices to demonstrate its value at the time, I accept that its value is quite substantial. Moreover, I accept the evidence that, at least for the time being, those assets will remain on the property of which the first respondent is the perpetual lessee, and possibly until the hearing and determination of this proceeding. Accordingly unless some action is taken with respect to that property to secure it by the corporate applicant, and because of its location the first respondent will come to know of any such action, those assets will remain on the property of which the first respondent is perpetual lessee until the trial. 18 Upon that basis, I consider those assets are likely to remain available to the first respondent for the time being. I am mindful that if the first applicant were to be wound up, those assets would have to be called to account in its winding up and would not be the subject of a charge in favour of the first respondent, so that it could not then directly access them. But that is true of any amount ordered to be provided as security for costs. As things stand, any action directly to recover them or involving the winding up of the first applicant, will come to the attention of the first respondent. It may then, if so advised, seek further security beyond that which I presently propose to order. 19 There is little evidence as to the amount in respect of which security of costs should be ordered. There is no formal estimate of the likely amount of costs. No skeleton bill of costs has been produced. There is some evidence that both the applicants and the respondents have been asked by their respective solicitors to put the solicitors in funds to the extent of $100,000, but there is really no evidence as to the likely amount of costs in this proceedings beyond that. Obviously the costs will be substantial. I must make a judgement as to an appropriate amount for security for costs in the absence of such evidence. 20 Having regard to the circumstances to which I have referred, which are the major matters to which counsel's submissions were directed, in my view it is appropriate that the corporate respondent be ordered to pay security for costs in the sum of $15,000 at this point. That is a relatively modest amount. It is an amount I have determined having regard in particular to the present state of affairs where the personal applicant has indicated that he does not presently seek to call up the indebtedness of Interior Tech from the corporate applicant, and where, in a practical sense, the plant and equipment purchased for in excess of $78,000 will remain at the premises of which the first respondent is the perpetual lessee. It is also a figure I have arrived at without the benefit of any skeleton bill of costs or any basis for realistically assessing the likely amount of costs in the proceeding. 21 I therefore order that the corporate applicant pay into Court by way of security for costs the sum of $15,000 within 21 days. I give the parties liberty to apply to vary that order, to the extent that they propose some alternative avenue for payment of the amount ordered to be paid by security for costs. For example, if the parties, by their solicitors, agree that such sum should be paid into an interest earning bank account, of which the respective solicitors are co-signatories in some form, I would, by consent, vary the order in that way. 22 I turn to consider the position of the personal applicant. As counsel for the applicants pointed out, the Court is generally disinclined to order security for costs against a natural person: see e.g. Fletcher v Federal Commissioner of Taxation (1992) 110 ALR 233; Pearson v Naydler [1977] 1 WLR 899; Rajski v Computer Manufacture & Design Pty Ltd [1982] 2 NSWLR 443 affd on appeal [1983] 2 NSWLR 122. In this case, the personal applicant has a significant excess of assets over his liabilities. I see no particular reason why I should depart from that general approach. In reaching that view I have had regard to the factors which counsel for the respondents (applicants on the motion) put before me. 23 I do not therefore propose to make an order for security for costs against the second applicant. 24 The parties of course have the right to apply to vary that order at any time. I will hear the parties as to costs. I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Reasons for Decision herein of the Honourable Justice Mansfield.