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[2005] VSC 265
Supreme Court of Victoria
2005-07-29
WHELAN J
Original judgment source is linked above.
Security for costs - Defence to counterclaim repeating allegations in claim - Delay.
Interwest Ltd v Tricontinental Corporation Ltd (1991) 5 ACSR 621.
1 This is an application by the defendant, Central West Business Park Pty Ltd ("Central West") seeking security for costs against the firstnamed plaintiff ("ADS Aust"). Security is not sought against the secondnamed plaintiff ("ADS").
2 The proceeding concerns a lease over a storage facility in Ashley Street, West Footscray. The tenant under the lease is ADS. It is alleged by the plaintiffs that there are, and have been, significant defects in the flooring of the premises. It is alleged that those defects constitute breaches of the terms of the lease and that substantial damages have been suffered as a result. The plaintiffs allege that "primarily" these damages have been suffered by ADS Aust, which is not the tenant named in the lease. The claim on behalf of ADS Aust is put on a variety of bases, including agency between it and ADS, consent by Central West to an assignment or sub-lease by ADS, negligence, and misleading conduct.
3 ADS Aust has recently sold its business. ADS and ADS Aust have informed Central West that they intend to vacate the premises on 31 August 2005. Central West characterises that advice as repudiation and has indicated that it will accept that repudiation when they vacate.
4 Central West has a counterclaim against both ADS and ADS Aust. The counterclaim is for unpaid rent and a claim is also made for damages in relation to the alleged repudiation or foreshadowed repudiation. While Central West maintains that ADS Aust can have no claim as it is not the tenant, Central West makes its counterclaim against ADS and ADS Aust in the alternative.
5 Central West makes its application relying on Rule 62.02 of the Supreme Court (General Civil Procedure) Rules 1996 and s 1335(1) of the Corporations Act 2001 (Cth). Having reviewed the financial accounts exhibited to the affidavit filed on behalf of the plaintiffs, sworn by their solicitor, Mr William Simon Heath, on 15 July 2005, and the ASIC extract in relation to ADS Aust exhibited to the affidavit of Central West's solicitor, Ms Julie Estelle Armstrong, sworn 29 June 2005, I find that there is reason to believe that ADS Aust will be unable to pay the costs of Central West if Central West is successful in resisting ADS Aust's claim.
6 Mr Bick QC, who appeared on behalf of the plaintiffs on this application, made a number of submissions as to why security ought not to be ordered. In brief summary those submissions were:
1. any impecuniosity of ADS Aust is a result of Central West's wrongdoing;
2. liability is not a matter of substantial controversy in the proceeding as it is clear that the floor was defective;
3. any obstacle represented by the fact that ADS Aust suffered the substantial loss, whereas ADS was the tenant under the lease, had been remedied by ADS exercising a right which it had under the lease to sub-let to ADS Aust;
4. the allegations raised by ADS Aust in response to the counterclaim are the same as the allegations raised on its claim and accordingly security ought not to be ordered as those allegations will have to be determined whether ADS Aust pursues its claim or not;
5. the claim for security is made too late and security should not be ordered because of delay.
7 I accept for the purpose of this application that the claim made by ADS Aust is made in good faith. It seems to me that the claim will face obstacles as a result of the fact that ADS Aust is not the tenant under the lease, but I cannot assess on this application how significant those obstacles will be. In the circumstances I do not think that analysis of the likely outcome of the litigation on the limited material I have assists in this application.
8 The matter is fixed for trial on 29 August 2005. This application for security has been made at a very late stage in the proceeding, but it has been prompted in large part by the fact that ADS Aust has sold its business recently and that ADS and ADS Aust propose to vacate the premises on 31 August 2005. These are significant new developments.
9 On the hearing of the application, Mr Bick conceded that ADS Aust's financial position has been deteriorating. He relied upon that circumstance as being a matter that militated against the provision of security at this late stage. On the present material, I cannot make a finding that ADS Aust's financial position is a result of the alleged wrongdoing of Central West. It does seem to me that the acknowledged deterioration in ADS Aust's financial position, culminating in the recent sale of its business and the decision to vacate the premises on 31 August 2005, represents a development of such significance as to eliminate delay as a significant factor in this application.
10 The matter which does give me particular concern is the existence of the counterclaim. Mr Bick correctly points out that the counterclaim is made against ADS Aust and that Central West persists in it notwithstanding the fact that they have been alerted to the problems it creates in the application for security.
11 It seems to me that the applicable principles where a defence to a counterclaim repeats the allegations in the claim are those set out by Ormiston J in Interwest v Tricontinental.[1] In that case, Ormiston J identified the relevant consideration as being whether the plaintiff's claims might be properly characterised as defensive.
12 In my view, the claims made here by ADS Aust are not properly characterised as defensive. They are defensive only in part. Having reviewed the pleadings and having heard a number of directions hearings in this matter, it seems to me that ADS and ADS Aust are, in substance, the offensive parties in the litigation, although there is also a defensive element.
13 In my view the correct approach here is to order security, but to reduce the amount of security so as to reflect the defensive aspect of the claims, as was done by Ormiston J in Interwest.
14 It is unnecessary for me to embark upon the process of determining the amount of security which ought to be ordered, as during the course of the hearing Mr Bick advised me that should I form the view that security should be ordered, he had instructions on behalf of the sole director of ADS and ADS Aust, Mr Peter Mark Birch, to proffer an undertaking. The undertaking proffered is in the following terms:
"Peter Mark Birch undertakes to the Court to pay any costs ordered in favour of the defendant and not paid by the plaintiffs or either of them."
15 It seems to me that this appropriately meets Central West's concerns, and counsel for Central West, Mr Wyles, accepted that that was the position.
16 Accordingly, upon the undertaking referred to being given on behalf of Mr Birch, I propose to dismiss the application for security for costs.
17 A further application was also made on behalf of Central West. The application was to discharge an injunction granted on 5 March 2004 and to release Central West from an undertaking given on the same day.
18 In relation to the injunction, discharge was not opposed. The injunction concerned attempts to retake possession and, given ADS' and ADS Aust's intention to vacate the premises, the injunction has been overtaken by events. I will accordingly order that the injunction granted on 5 March 2004 and contained in Order 1 of the order made that day be discharged.
19 The position in relation to the undertaking is not so clear. The undertaking is noted in paragraph 2 of "other matters" in the order made on 5 March 2004. In substance, the undertaking is that Central West will not call on a security deposit. The security deposit itself was provided for in the lease and was ordered to be provided by an order made on 5 March 2004. Mr Bick indicated to me that ADS acquiesced on that order on the basis that the undertaking would be given, and that if it had not been given, the order would have been resisted. In the circumstances, I am not prepared to release Central West from the undertaking in the absence of material on affidavit addressing the circumstances in which the order of 5 March 2004 concerning the security deposit was made.
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Central West Business Park Pty Ltd \[2005\] VSC 265