Supreme Court of WA|2001-08-22|Before: Templeman J, Mr P

Gabstone Pty Ltd & Anor v Camisa Nominees Pty Ltd & Ors [2001] WASC 224 (22 August 2001)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : GABSTONE PTY LTD & ANOR -v- CAMISA NOMINEES PTY LTD & ORS [2001] WASC 224

Consolidated pursuant to the Order of Templeman J on 9 May 2001

Application for security for costs - Whether plaintiffs impecunious - Whether plaintiffs in reality in the position of defendants - Exercise of discretion in the circumstances - Turns on own facts

First Plaintiff : Mr S Owen-Conway QC & Mr P A Monaco

Second Plaintiff : Mr S Owen-Conway QC & Mr P A Monaco

Australian Quarry Holdings Pty Ltd (In Liq) v Dougherty (1992) 8 ACSR 569

Collie v Merlaw Pty Ltd (In Liq) [2001] VSC 39; (2001) 37 ACSR 361

Concrete Constructions Pty Ltd v Dalma Formwork Pty Ltd (Admin Apptd) [1999] NSWCA 16

Dalecoast Pty Ltd v Guardian International Pty Ltd, unreported; SCt of WA; Library No 990168; 7 April 1999

FFE Minerals Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69; (2000) 22 WAR 241

Interwest Ltd v Tri-continental Corporation Ltd (1991) 5 ACSR 621

Ravi Nominees Pty Ltd v Phillips Fox (1992) 10 ACLC 1313

Sydmar Pty Ltd v Statewise Developments Pty Ltd (1987) 11 ACLR 616

Westralian Goldmines Ltd v Westralian Minerals & Drilling Pty Ltd (1986) 4 ACLC 165

1 WHITE AUJ: These consolidated actions are in the expedited list. The defendants seek an order requiring the plaintiffs to furnish security for costs of the action in an amount of $75,000 and that the plaintiffs pay the defendants' costs of the application.

2 By a written lease dated 30 January 1996 the defendants jointly and severally leased to the first plaintiff and to Gumina Investments Pty Ltd ("Gumina") all that part of the land and buildings as defined in the lease known as Old Papa's and located at 17 South Terrace, Fremantle ("the leased premises") for a term of 10 years upon and subject to the terms and conditions contained in the lease including certain successive options to renew the lease. There were two guarantors in respect of the first plaintiff's and Gumina's due performance and observance of the terms and conditions of the lease.

3 By a document dated 29 July 1999 the defendants consented, inter alia, to the assignment of the lease from the first plaintiff and Gumina to the first plaintiff alone and to the retirement of one of the guarantors and the addition of another guarantor in his place.

4 There were several issues raised in the pleadings in relation to construction work done or sought to be done by the first plaintiff in relation to the leased premises and it is unnecessary for me to deal with those issues at this stage. It is enough to say that there are disputes connected with them.

5 The following provisions of the lease are relevant to the matters before me.

"The Lessee shall not, without the prior written consent of the Lessor assign sub-let or part with possession or occupation (including the granting of a licence) of the Leased Premises or any part thereof or this Lease or any estate or interest therein but in the event of the Lessee wishing to assign or sub-let the whole of the Leased Premises the Lessor shall not unreasonably withhold its consent to such assignment or sub-letting if:

(a) Prior to entering into any agreement for sub-letting the Lessee shall have submitted to the Lessor particulars of the proposed sub-lease including the name, address and occupation of the sub-tenant, the proposed term and any options of renewal available under the sub-tenancy, the proportion if any of outgoings payable under the sub-tenancy, the proposed covenants and conditions of the sub-tenancy and such other information as may be reasonably required by the Lessor or which would be relevant to the Lessor granting or withholding its consent."

There are other conditions relating to the withholding of the Lessor's consent but it is unnecessary to set them out herein.

"It is expressly agreed and declared that the covenants by the Lessee specified in

(a) ...

(b) ...

(c) ...

(d) ...

(e) ...

(f) Clause 8.01 not without the prior written consent of the Lessor to assign sublet or part with possession or occupation of the Leased Premises or any part thereof;

(g) ...

are (subject to the proviso hereinafter contained) essential terms of this Lease the breach non-observance or non-performance of any one or more of such covenants terms and conditions shall be deemed to be a fundamental breach of the provisions of this lease on the part of the Lessee to be observed and performed PROVIDED THAT the presence of this Clause in this Lease shall not mean or be construed as to meaning that there are no other essential terms in this Lease.

..."

8 By a deed of assignment undated but stamped on 3 April 2001, the first plaintiff assigned to the second plaintiff absolutely:

"All of the legal and beneficial estate and interest of and held by the assignor in the leased premises and the whole of the rights both legally and beneficially of and held by the assignor under the lease, for the residue then unexpired of the term as varied by the deed".

The effective date of the assignment was 20 February 2001.

9 It is common cause that the first plaintiff did not seek or obtain the consent of the defendants to that assignment, as required by cl 8.01 of the lease.

10 On 4 May 2000 the first plaintiff had entered into a deed of bare trust with Old Papa's Holdings Ltd whereby the first plaintiff declared that it would at all times hold its entire estate, right, title and interest in the business (including but not limited to the trustee's right, title and interest in the lease, the liquor licence, the licences and the business name) as bare trustee for and on behalf of the beneficiary.

11 The application is supported by the affidavit of Pino Anthony Monaco, sworn on 9 July 2001 in which he deposes, inter alia, to the appointment on 10 May 2001 of a liquidator to the first plaintiff and on 12 April 2001 of an administrator to Old Papa's Holdings Ltd. Exhibited to that affidavit was a number of news items taken from media reports indicating that the first plaintiff and Old Papa's Holdings Ltd are in financial difficulties, confirming the inference to be derived from the appointment of a liquidator and an administrator to those companies respectively.

12 Mr Monaco has annexed a draft bill of costs in a total amount of $77,090, which bill of costs includes $5,400 for the pleading of the Defence and the Counterclaim, $35,000 for getting up the case, $14,000 for counsel's fees for the first day and several other amounts usually included in such a draft bill of costs.

13 Mr Monaco is the solicitor for the defendants. In his affidavit Mr Monaco says that prior to the actions being consolidated and expedited he had written to the plaintiffs' solicitors on 26 February 2001 seeking security for costs. In that letter the grounds for the requirement of security for costs were stated to be the following:

1. The length of time these proceedings have continued for.

2. Gabstone appears to be a nominal plaintiff (which is suing in a representative capacity as trustee for Old Papa's Holdings Ltd) which may not be able to pay the cost of our client, if ordered to do so.

3. Mr Bruce Monteath, a director of Gabstone, has been reported in the West Australian as saying on 14 February 2001 that Gabstone is unlikely to be able to repay $1,180,000 owed by Gabstone to Monteath Properties Pty Ltd.

4. Mr Monteath, as a director of Gabstone, has been reported in the West Australian as saying that there is little hope of Monteath Properties Pty Ltd recovering more than $2,500,000 he owes to Monteath Properties Pty Ltd.

5. Bruce Monteath, as a director of Gabstone, has been reported in the West Australian as saying that Gabstone has no realisable assets.

6. Gabstone is unlikely to receive financial support from its directors (sic) Bruce Monteath.

14 The reply from the plaintiffs' solicitors, refusing to provide security, stated:

"1. The reports in the West Australian as to statements made by and on behalf of our client are inaccurate. The statements attributed to Mr Monteath have, we are instructed, never been made.

2. Our client is plaintiff in name only. Your client has sought to exercise a self-help remedy and our client has been forced to commence proceedings to maintain the status quo. Our client is in reality a defendant. In such a case security for costs will not be ordered: see Willey v Synan [1935] HCA 76; (1935) 54 CLR 175 which has been frequently applied, notably in Aquatown Pty Ltd v Holder Stroud Pty Ltd (1995) 18 ACSR 662.

3. Your client has a counterclaim which will result in the same and further legal and factual issues being agitated as are raised in the statement of claim. That the counterclaim arises out of the same factual matrix as the claim is a very important discretionary factor against ordering security for costs: Sydmar Pty Ltd v Statewide Developments Pty Ltd (1987) 11 ACLR 616; Concrete Constructions Pty Ltd v Dalmar Formwork Pty Ltd (Admin APPTD) (1999) NSW (CA) 16.

4. As trustee our client has the right to be indemnified out of trust assets.

5. Our client's claim is very strong. Correspondingly, your client's position is, at its highest, weak. The strength of our respective clients' claims is plainly shown by the pleadings in Supreme Court CIV 1034 of 1999 and your facsimile of 27 April 1999. The weakness of your client's case is only emphasised by the garbled pleading now contained in your minute of amended defence and counterclaim dated 7 March 2001 in which you appear to, by pleading a large volume of irrelevant communications, seek to contradict the plain words of your letter of 27 April 1999. That pleading cannot possibly be maintained and, when you apply for leave to amend the pleading, will be one of the grounds on which we oppose your application."

15 Mr Monaco's affidavit goes on to allege that on 10 May 2001 a liquidator was appointed to the first plaintiff and on 12 April 2001 an administrator was appointed to Old Papa's Holdings Ltd.

16 The defendants apply for the provision of security for costs pursuant both to O 25 r 1 of the Rules of the Supreme Court and to s 1335 of the Corporations Law. Order 25 r 2 provides that the court may order security for costs to be furnished where the plaintiff is a company in liquidation or under official management, or a company in respect of which a receiver of his property has been appointed. Rule 3 provides that the granting of security shall be in the discretion of the court and that in determining whether an order should be made the court shall take into consideration

(b) what property within the jurisdiction may be available to satisfy any order for costs against the plaintiff;

(c) whether the normal processes of the court would be available within the jurisdiction for enforcement of any order for costs made against the plaintiff.

17 Section 1335 of the Corporations Law provides as follows:

"1335(1) [Security given by corporation]

Where a corporation is plaintiff in any action or other legal proceeding, the court having jurisdiction in the matter may, if it appears be 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, requires sufficient security to be given for those costs and stay all proceedings until the security is given.

1335(2) [Discretion as to costs]

The costs of any proceeding before a court under this Law shall be borne by such party to the proceeding as the court, in its discretion, directs."

18 The defendants submit that there does not appear to be any clear written or other evidence that prior approval was obtained by the first plaintiff as lessee from the defendants as lessor for the carrying out of structural alterations to the demised premises, nor any such prior approval before parting with possession of the lease or the leased premises. The defendants submit that the first plaintiff appears to have insufficient assets within the court's jurisdiction which will remain available to satisfy an order for costs made against the first plaintiff.

19 The first plaintiff submits that it has no interest in the preliminary issues which have been entered for trial. Its only remaining interest is in part of the damages claimed set out in par 14 to par 17 of the amended consolidated statement of claim, which is not to be tried until after the trial currently entered for hearing. According, it is submitted that the application as against the first plaintiff should be stood over until after the trial of the preliminary issues.

20 In relation to the second plaintiff it is submitted that this company is neither in administration nor liquidation. The affidavit of Kimberley Stuart Wallman, filed on behalf of the plaintiff in opposition to the application for security for costs, exhibits as annexure "KSW10", the historical company extract as at 29 June 2001 in relation to the second plaintiff and this does not contain any suggestion that the company is in liquidation or under administration.

21 Mr Wallman is a registered liquidator and is the voluntary administrator of Old Papa's Holdings Ltd ("OPHL").

22 OPHL is the sole shareholder of the second plaintiff and holds the lease, the subject of the claims in this action on trust for OPHL. In the course of his argument, Mr Owen-Conway QC said (transcript page 78):

"The preliminary issues which have been entered for trial concern the question of whether the lease is on foot and whether my clients are entitled to possession. Damages issues have been severed and it is my submission today that the first plaintiff is very much at the heart of this issue because Gabstone was the lessor which parted with possession on 4 May last and which carried out the works. It is clear that OPFS is a bare trustee of the lease in premises on behalf of a company OPHL which is in voluntary liquidation."

23 In relation to the position of the second plaintiff, senior counsel for the defendants submitted that:

"As far as the second plaintiff is concerned, of course, it is not in receivership but because it acts only as a bare trustee, one has to look at the owner of the asset, and the owner of the asset is OPHL which in fact is the current lessee or assignee of the lease. Of that, there is no doubt. There can't be any doubt as a matter of law that OPHL is the lessee or the assignee of the lease."

"The evidence as far as OPHL is concerned is that a voluntary administrator has been appointed.

Now, the clear inference of that, the strong inference from that, is that it is insolvent so we say that there is evidence which permits your Honour to perform a rational belief that the plaintiffs would be unable to pay the defendants' costs."

25 In the course of the argument before me Mr Giles of counsel for the plaintiffs said that the plaintiffs do not say that the claim for security stultifies the plaintiffs' claims.

26 Mr Giles said of the assignment of the lease that the only question is whether or not it was a breach of the lease, such that the lease can now be terminated and that would depend upon whether the refusal of consent was reasonable. From his address it appeared that the plaintiffs intend to place reliance upon the Commercial Tenancy (Retail Stores) Act 1985. Counsel for the plaintiff also argued that in effect the plaintiff was in a position of a defendant being under attack by the defendants and accordingly security for costs should not be ordered. Counsel referred to Aquatown Pty Ltd and Holder Stroud Pty Ltd (1995) 18 ACSR 622 at 623 per Sundberg J. He submitted that the long historical basis of the rule is summarised by Scrutton LJ in Maatschappij voor Fondsenbezit v Shell Transport & Trading Co [1923] 2 KB 166 at 177 which is applied in Willey v Synan [1935] HCA 76; (1935) 54 CLR 175. Counsel referred also to Amalgamated Mining Services Pty Ltd v Warman International Pty Ltd [1988] FCA 309; (1988) 19 FCR 324 at 328 per Wilcox J and Everest Colonial Pty Ltd v Ice Creameries of Australia Pty Ltd, unreported; FCA; 27 March 1997 at 31 per Goldberg J. He submitted that the second plaintiff has come to the court to maintain the status quo, that is solely to prevent its right to the benefit of the lease being removed by extra curial means.

27 Senior counsel for the defendants submitted that his clients are truly defendants and that it is not the case that the plaintiffs are in reality the defendants. He submitted that it is not the case that the defendants' counterclaim traverses identical ground to the plaintiff's claim, as the plaintiffs plead an assignment in April following a refusal of consent by the defendants in December, whereas the defendants plead an unlawful assignment in May 2000 as the core of their counterclaim.

28 Mr Owen-Conway relied upon the extracts from the West Australian newspaper as constituting credible evidence that there is reason to believe that the plaintiff will be unable to pay the costs of the defendants if they are successful in their defence. Mr Giles objected to the admissibility of the newspaper reports as hearsay. Mr Owen-Conway submitted that the present application is one in which hearsay evidence is admissible. I assume that counsel was referring to O 37 r 6 of the Rules of the Supreme Court which provides, relevantly:

(a) interlocutory proceedings; or

(b) an application under the -

May contain statements of information or belief

(2a) An affidavit containing statements of information or belief must set out the sources or grounds of that information or belief."

29 In his affidavit, Mr Monaco says nothing as to the inability of the plaintiffs to pay the defendants' costs, if they succeed in their defence, other than par 5 of the affidavit, which reads:

"5. There has been a number of newspaper articles referring to the financial status of Gabstone Pty Ltd and Old Papa's Holdings Limited in relation to the leased premises the subject of this litigation. Attached hereto and marked with the letters 'PAM3' is a collection of the newspaper articles."

30 At the time of swearing his affidavit, Mr Monaco had received the letter from the plaintiffs' solicitors, denying the accuracy of the newspaper articles, but no attempt was made to establish that the reports were accurate. Accordingly, I feel unable to attribute any substantial weight to those reports.

31 However, the facts that a liquidator has been appointed to the first plaintiff and an administrator to Old Papa's Holdings Ltd, the beneficiary of the bare trust of which the second plaintiff is the trustee, are, in my opinion, sufficient to trigger the operation of s 1335 of the Corporations Law.

32 Accordingly, the question is as to whether I should, in the exercise of my discretion, order the plaintiffs to provide security for the defendants' costs of the action. I accept Mr Owen-Conway's submission that the relevant considerations include the plaintiffs' impecuniosity, the plaintiffs' prospects of success in the action, the bona fides of the application, any contribution by the defendants to the plaintiffs impecuniosity and the impact of an order on the plaintiffs' capacity to pursue the litigation.

33 There is also the question as to whether or not the plaintiffs are, in reality, in the position of defendants, as submitted by Mr Giles.

34 An evidentiary onus lies on the party seeking to rely upon a particular consideration to establish the necessary factual basis for it before it can be taken into account in the exercise of discretion.

35 I have indicated the view that the facts show that there is reason to believe that the plaintiffs are impecunious and that there is accordingly a danger that the defendants will be unable to recover their costs if they are successful.

36 The bona fides of the application are not in dispute and it is not suggested that the defendants have contributed to the plaintiffs' impecuniosity.

37 I have already mentioned that it is not contended on behalf of the plaintiffs that any such order would have the effect of stultifying the action.

38 The defendants' allegations as to the lack of consent to the assignment effected by the first plaintiff appear prima facie to be well-founded. I appreciate that the plaintiffs contend that the refusal of consent was unreasonable and that this is certainly a triable issue.

39 Mr Giles submitted that the first plaintiff originally held the lease on trust for the Gabstone Family Trust, so that there was no legal transfer when the equitable interest was assigned. He submitted that cl 8.01 and cl 8.03 of the lease apply only to the assignment of legal interests and not to the assignment of equitable interests. Accordingly, Mr Giles submitted, the assignment did not purport to be an assignment under the lease. He relied on s 10 of the Commercial Tenancy (Retail Stores) Act 1985 ("the Act") for the proposition that cl 8.01 of the lease is void. I have difficulty with that submission. Clause 10(1) of the Act provides:

"Notwithstanding any other written law, a retail shop lease shall be taken to grant to the tenant a right to assign the lease, subject only to a right of the landlord to withhold consent to an assignment on reasonable grounds."

40 Clause 8 of the lease does not seem to me to be inconsistent with that provision.

41 Mr Giles then submitted that the pleading of the allegation that, unless restrained, the defendants would terminate the lease, shows that it is a defensive plea. He pointed further to the statement by Mr Wallman (the voluntary administrator of OPHL) in his affidavit to the effect that he had been indemnified by the directors of Smith Coffey Financial Management to a maximum of $50,000 in relation to anticipated legal fees relating to the lease dispute.

42 Mr Owen-Conway submitted that clearly there are financial parties standing behind OPHL - who they are is unknown. He asked, why should those parties have the protection of limited liability and not personally expose themselves to the risk of litigation?

43 There is much to be said on both sides of this application. On balance, I conclude that the plaintiffs are in reality defending their position against the threat of termination of the lease and that, in the exercise of my discretion, I should refuse to order the provision of security for costs.

Tenancy (Retail Stores) Act 1985

Protection (Western Australia) Act 1996

Gabstone Pty Ltd & Anor v Camisa Nominees Pty Ltd & Ors [2001] WASC 224

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (82 paragraphs)

Gabstone Pty Ltd & Anor v Camisa Nominees Pty Ltd & Ors [2001] WASC 224 (22 August 2001)

Parties

Legislation Cited (3)

Cases Cited (3)