Cosmetic Laser Clinic Pty Ltd v Pirintji

The Facts of the Matter

1. The proceedings were initially commenced in November 2011. An Amended Statement of Claim was filed on 25 September 2012. The Defence to the Amended Statement of Claim was filed in October 2012.
2. A considerable amount of evidence has been assembled and filed in the proceedings to date. Between June and August 2012 the plaintiffs filed a number of witness affidavits and reports. In September 2012 Mr. Pirintji filed his affidavit relevant to the matter. After the Amended Statement of Claim and Defence to it were filed in September and October 2012 respectively the matter went to mediation, but that was unsuccessful.
3. In September and October 2013 a large amount of affidavit evidence was filed by the plaintiffs. Evidence from the defendant was due to be filed by February 2014 to comply with orders of the Court, but the timeframe was extended when the defendant did not comply with the original orders.
4. Correspondence from the defendant's legal representative raising the issue of security for costs was sent on 18 June 2014. The figure referred to in the letter of that date was some $700,000 as security. Further correspondence on the subject between the parties followed, including requests for details of how the figure of $700,000 was arrived at.
5. There followed correspondence between the parties in which each accused the other of being responsible for delay in the finalisation of the matter. The issue of security for costs continued to be disputed, with the defendant moderating his demands over time, such that the claimed security was reduced to $450,000 (by correspondence of 27 November 2014) and, as at the date of the hearing of this aspect of the motion, was further reduced to $150,000.
6. The filing of further evidentiary material by the defendant followed the raising of the costs issue, with the Notice of Motion seeking security for costs (and other orders) filed 5 December 2012 and an Amended Notice of Motion filed 12 December 2014.
7. On 23 April 2015, Garling J considered the Notice of Motion: Cosmetic Laser Clinic Pty Ltd v Pirintji [2015] NSWSC 983. Justice Garling dealt only with the issue of whether the applicant should be allowed to amend his defence, holding that the other orders sought must 'await' the outcome of the amendment application. On 31 July 2015, Garling J determined that leave should be granted to the applicant to file and serve an amended defence insofar as that was not objected to by the plaintiffs. An Amended Defence was filed on 21 August 2015.
8. This judgement deals only with the matter of security for costs, which was the subject of a Further Amended Notice of Motion filed 21 August 2015.
9. The plaintiff filed additional expert evidence in May 2015.
10. It would appear that, once all of the matters raised by the current motion are determined, the matter will be ready to proceed to hearing.

Security for Costs

1. The Court's wide discretion both at common law and pursuant to the Civil Procedure Act 2005 (NSW) and the Uniform Civil Procedure Rules 2005 (NSW) is such that an order need not be made even if a basis for the making of an order can be or has been established: Hoxton Park Residents Action Group Inc v Liverpool City Council [2012] NSWSC 1026 at [85]-[86]. This accords with the general principle that poverty "is no bar to a litigant": Cowell v Taylor (1885) 31 Ch D 34 at [38]; Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11.
2. In determining whether or not to order security for costs the competing interests of the parties must be balanced, such as to ensure appropriate protection for a defendant, but without wrongly preventing an impecunious plaintiff from pursuing litigation: Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 744 at [47]. The exercise of the power requires consideration of the particular facts of the case: Merribee Pastoral Industries v Australia and New Zealand Banking Group Ltd (1998) 193 CLR 502; [1998] HCA 41.
3. The principles to be taken into account in determining an application include the promptness with which the application is made; the bona fide nature of the plaintiffs' claim; whether the plaintiff's impecuniosity is attributable to the conduct of the defendant; whether the application is intended to frustrate the plaintiff's litigation; whether there are persons standing behind the plaintiff who may benefit from the litigation and could provide security; whether any person standing behind the plaintiff has offered an undertaking as to costs; whether the plaintiff is in substance a plaintiff; and any public interest in the litigation: as stated by Beazley J (as her Honour then was) in KP Cable Investments Pty Ltd v Meltglow Pty Ltd [1995] FCA 76; (1995) 56 FCR 189.
4. In this instance, the applicant, a corporation, seeks security for costs in an amount of $150,000 pursuant to rule 42.21(1)(d) of the UCPR and s 1335 of the Corporations Act 2001 (Cth). Rule 42.21(1)(d) provides, "If, in any proceedings, it appears to the court on the application of a defendant… (d) that there is reason to believe that a plaintiff, being a corporation, will be unable to pay the costs of the defendant if ordered to do so.. …the court may order the plaintiff to give such security as the court thinks fit, in such manner as the court directs, for the defendant's costs of the proceedings and that the proceedings be stayed until the security is given."
5. In addition, s 1335(1) of the Corporations Act 2001 (Cth) provides, "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."
6. Security for costs orders exist to safeguard defendants from unsuccessful proceedings so as to ensure justice between the parties. In respect of corporate plaintiffs, as is the case in this matter, the purpose of an order for security for costs, as posited by Austin J in Fiduciary v Morningstar Research [2004] NSWSC 664 at [35] "…is to protect the defendant against the risk of being deprived, through the plaintiff's inability to pay, of the benefit of a costs order made for that purpose, should the defendant be successful."
7. Einstein J in Idoport at [20] sets out the starting point for determining whether the discretion of the court should be exercised in respect of an application for security where the plaintiff is a corporation: "The Court must first consider the threshold question of whether credible testimony can establish that there is reason to believe that the corporation will be unable to pay the costs of the defendant if the latter is successful in its defence: Weily's Quarries v Devine Shipping (1994) 14 ACSR 186. If this question is answered in the affirmative, the second question arises as to whether, in the exercise of the Court's discretion, the relief sought should be granted: Southern Cross Exploration NL v Fire & All Risks Insurance Co Ltd (1985) 1 NSWLR 114."
8. Whether or not the corporation is able to pay the costs of the defendant if the defendant is successful is relevant not only in the sense that such a situation will trigger the discretion of the court, but such a circumstance will also be a "substantial factor in the exercise of the discretion": Fiduciary v Morningstar Research at [36]. As the applicant for the order, the defendant bears the onus of establishing that there is reason to believe that the corporation will be unable to pay the costs of the defendant. Once this is established, the evidentiary burden "shifts" to the plaintiff as the plaintiff is required to demonstrate that "taking into account all relevant factors" [emphasis in the original], the Court's discretion ought to be exercised by either refusing to order security or by ordering security in some lesser amount than was sought by the defendant: Idoport at [60] - [62].
9. The defendant contends that the security for costs sought is a modest amount having regard to the stage the proceedings have reached and the work that remains to be done before the plaintiffs' claim is finalised.
10. In the written outline of submissions on behalf of the applicant, the defendant contends, "Neither of the Plaintiffs nor Moini own real property. In its letter of 18 June 2014 the Sparke Helmore expressed doubt that the Plaintiffs would be able to meet an adverse costs order, and described their financial position as dubious. It also referred to Moini's past history of directorship of various companies that owned the Avana business prior to the sale to HBI in 2008. That history involved the sale of the Avana business to related entities which resulted in the vendors companies of which Mr Moini was a director being placed in some form of external administration that has seen certain debt organisations not being met in full. These allegations are not denied or even addressed. It is reasonable to conclude that the recovery of an adverse cost order is in serious doubt."
11. The defendant's concern in seeking such an order is that neither the plaintiffs nor Mr. Moini, who has funded litigation for the plaintiffs to date, own any real property, or appear to have assets sufficient to comply with any adverse costs order. The defendant argues that he faces the very real prospect of successfully defending the suit brought against him by the plaintiffs, but being significantly disadvantaged notwithstanding the outcome of the litigation because the plaintiffs cannot not meet his costs if ordered to do so.
12. The impecuniosity of the plaintiff does not appear to be contested by Cosmetic Laser. Accordingly, the evidentiary burden shifts to the plaintiff in demonstrating why the court should not exercise its discretion in awarding the security for costs order.
13. The plaintiffs object to the order sought, arguing that their impecuniosity has been brought about through the defendant's negligence, and the application from the defendant is so belated that it should not be granted.

Determination

1. As noted above, rule 42.21(1A) of the UCPR provides a list of factors to be considered in determining an application of this nature, although it is not an exhaustive list. The court may consider any relevant matter: Morris v Hanley [2000] NSWSC 957; Southern Cross Exploration NL v Fire and All Risks Insurance Co Ltd (1985) 1 NSWLR 114. In addition, the weight to be given to any circumstance depends upon its own intrinsic persuasiveness and its impact on other circumstances which have to be weighed: Acohs Pty Ltd v Ucorp Pty Ltd (2006) 236 ALR 143; [2006] FCA 1279. Not all of the matters referred to in r 42.21 have direct application to the present case. Below, I have considered the factors relevant to the matter currently before the court.
2. The prospects of success: Whilst the prospects of the plaintiffs' claim is an important consideration, it is difficult to determine this aspect of the matter without embarking on an exercise akin to that which will be undertaken by the trial judge. However, on the basis of the evidence tendered to the Court it would appear that the plaintiffs have at least an arguable case against the defendant.
3. The genuineness of the proceedings: Whether the claim is bona fide or a sham is a relevant consideration. Here, there is no reason to conclude other than that the plaintiffs' claim is a bona fide claim.
4. The impecuniosity of the plaintiff: As noted above, the defendant has placed evidence before the Court which suggests that the plaintiffs may be unable to pay a costs order in the defendant's favour. The plaintiffs do not dispute that or seek to assert other than that they have limited means.
5. The plaintiffs assert, however, that impecuniosity is attributable directly to the defendant's negligence
6. Is the plaintiff's impecuniosity attributable to the defendant: As with the prospects of success, it is not possible to determine this feature with any certainty in the absence of consideration of the whole of the evidence relevant to the determination of the plaintiff's claim. However, if the plaintiff's contention as to the defendant's negligence is made out, it would follow that the impecuniosity of the plaintiffs may well be attributable to the defendant.
7. Would a security for costs order stifle the plaintiffs' claim: On the evidence before the Court, it seems likely that, were a costs order made against the defendants, even at the reduced claimed amount of $150,000, the effect of the order may be to bring the litigation to an end. The plaintiff's claim has, at least prima facie, some prospects. The capacity of the plaintiffs (or of Mr. Moini who seems to stand behind the plaintiffs) to pay security for costs is most uncertain, and may lead to the claim being abandoned for want of the means to prosecute it.
8. Whether the proceedings involve a matter of public importance: This does not appear to be a relevant factor, there being no matter of public importance raised by the action.
9. The question of delay: The plaintiff contends that the defendant has left his application seeking security for costs until such time as the plaintiffs have already expended very considerable sums in preparing the matter for trial. Delay by a defendant in seeking security for costs is a relevant factor in the exercise of the discretion: Idoport at [68]. It has been frequently held that the further a plaintiff has proceeded with its litigation and the greater the costs it has incurred without steps having been taken to obtain security for costs, the more difficult will be a defendant's task in persuading the court that an order is required and appropriate: Buckley v Bennell Design & Constructions Pty Ltd (1974) 1 ALCR 301 at [309]; Szanto v Bainton [2011] NSWSC 985 at [50] - [51].
10. Here, prior to the defendant raising the issue of security for costs, the plaintiff had thoroughly investigated its case and filed lay and expert evidence in support of it. The evidence is that, between November 2011 when the original Statement of Claim was filed, and 18 June 2014, when the defendant's representative sent correspondence demanding security for costs, the plaintiff had expended over $300,000 in costs associated with its case. Those costs could well be costs thrown away if there is an order requiring the plaintiffs to pay a further $150,000 immediately by way of security for costs, in that such an order would have the likely effect of preventing the plaintiff from proceeding further with their claim.
11. Why the defendant waited for over two years to seek security is not clear on the evidence, but the delay will undoubtedly occasion prejudice to the plaintiffs if an order is made at this advanced stage of the proceedings.
12. Ultimately, it is the issue of delay which I regard as the most persuasive feature of the matter.
13. In circumstances where the plaintiff's claim is ready to be fixed for hearing, and there is no proper explanation as to why the defendant's application for security for costs has been left so late, I am unpersuaded that it is in the interests of a just resolution of the matter to make an order for security for costs.
14. The application made at such an advanced stage, and any order acceding to it, could cause significant prejudice to the plaintiffs, even to the point of stifling the continuation of the litigation. Such an outcome cannot be justified in my view, and does not represent a just outcome.
15. Accordingly, I propose to dismiss that part of the notice of motion relevant to the defendant's application for security for costs.

ORDERS

1. The defendant's Notice of Motion of 21 August 2015 seeking an order for security for costs is dismissed.
2. Costs of the motion to be costs in the cause.
3. The matter is to be placed in the Registrar's list at 9am on 16 September 2015 for a hearing date to be fixed.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 15 September 2015