The offer by the shareholders of the applicant to accept personal liability for the applicant's costs is a factor weighing heavily against the making of an order against the applicant for provision of a cash or other security for costs notwithstanding that the worth of the shareholders may ultimately prove insufficient to satisfy any judgment in whole or in part."
25 However, Basten JA did note at [27], that the full bench judgment in Epping Plaza disapproved the single judge dicta in Gentry Bros Pty Ltd v Wilson Brown.
26 When the application for security for costs was determined there were four shareholders who stood behind Jazabas, Mr and Mrs Haigh and Mr and Mrs Krikas. Aside from Mr Haigh, none of the other shareholders offered an undertaking to the Court. However, this situation has now changed.
27 On 16 November 2007, Stephen Haigh purchased the two shares in Jazabas belonging to Kikiras Real Estate Pty Ltd ("Kikiras") for the consideration of $1 each. The chronology in relation to this transfer is as follows:
28 On 1 April 2007, Mr Haigh wrote to Kikiras Real Estate Pty Ltd and stated that the shares in Jazabas "be immediately transferred to S Haigh to allow consistency in that the plaintiffs have no funds for provision of any security cost application. This would take away from the courts a middle of the road decision in our appeal that could allow security for costs." The shares were in fact transferred to Stephen Haigh (Nominees) Pty Ltd (Ex A).
29 Until 16 November 2007, Kikiras was a shareholder in Jazabas. Dimitrios (Jim) Kikiras became the sole director and shareholder of Kikiras some time in 2003. Prior to him selling his shares to Mr Haigh, Jim Kikiras and Kikiras were not prepared to meet any costs in these proceedings nor were they prepared to have any involvement in them.
30 During the financial years ending 2006 and 2007, Mr and Mrs Haigh had taxable earnings of $6000 nett each for both years [see Ex B]. During cross examination, Mr Haigh explained that this was because that sum fell below the tax threshold. The bank account statements for the Haigh Family Trust between 26 August 2002 and 25 April 2008 show a negligible balance [Ex C]. Neither Mr nor Mrs Haigh own any property in their own names either jointly or separately. They present to the Court as being impecunious.
31 Mr Haigh is a builder and developer. For many years Mr Haigh has been buying land in the Little Bay area using different corporate entities. Once the company purchases the land, the house is demolished, the land is sub divided and a dual occupancy dwelling is built. Mr Haigh draws the plans and obtains council approval to carry out the building work. BAS is usually the vehicle used to carry out the building work.
32 Once the dual occupancy is completed, the company is sold with each part of the dual occupancy and that company then becomes a shelf company. Each new site purchased for development requires a new company name. Mr Haigh on cross-examination told the Court "there are substantial profits in what we do" (t 24). By way of example Mr Haigh cited the current contract BAS has for building work on land owned by Venice Ice Pty Limited, a company which he owns with his wife and Alan and Sonia Kilchran, all of who are also the directors. In 2007 Venice Ice Pty Ltd purchased the property for somewhere between $855,000 and $900,000. While building costs are estimated to be around $500,000, Mr Haigh gave evidence the dual occupancy, on completion, will sell for around $2 million in total (t 24). That leaves a surplus of approximately $600,000.
33 According to counsel for Botany Council, the Court should not lend its seal of approval to parties who seek to overcome an order for security by replacing solvent shareholders with purportedly impecunious ones who then offer to stand behind the company, as such an offer is worthless.
34 Counsel for Botany Council submitted that in order for the security for costs order in this matter to be effectively lifted, an arrangement was concocted whereby the shareholder who was not willing to put its assets on the line and stand behind the company for the purposes of the litigation, transferred its shares to the admittedly impecunious Mr Haigh for a substantial consideration.
35 Counsel for Mr Haddad and the State of NSW submitted firstly, that the series of representations is sufficient to demonstrate that as a result of the sale of the two Kikiras shares in Jazabas to Mr Haigh for $1 each, Kikiras have an arrangement that the sum of $182,977.28 will be paid to Kikiras by November 2009; and secondly, that due to the impecuniosity of Jazabas and Mr Haigh, the only sensible conclusion is that the offer was based upon an expectation that Kikiras would share in the fruits of any success by Jazabas in these proceedings. At best Kikiras P/L has an interest in the proceedings as a potential beneficiary. Even if Mr Kikiras has an interest as a potential beneficiary, I regard this as being of little significance.
36 In the past Mr Haigh has made funds available to pay the Botany Council's legal fees. In earlier Equity proceedings 2609/2000, Registrar Berecry were dismissed the proceedings between BAS and Botany Council and made an order for costs in favour of Botany Council. On 15 December 2006, a Certificate as to the Determination of Costs issued in the sum of $9,143.82. After service of a creditors statutory demand for payment of debt upon BAS, Botany Council's solicitor was informed by Council's finances officer, Bryan Bulock that Mr Haigh paid the sum of $9,143.82 to Council on or about 5 October 2007.
37 To date BAS has been able to pay the plaintiffs' legal fees. Payments have been made for the plaintiffs' legal representation for the hearing before Simpson J (2 days plus half day) and the subsequent appeal.
38 On the state of the evidence there are two alternate conclusions that are available. One is that the personal undertakings proffered by Mr and Mrs Haigh are of little worth. The evidence indicates they have no personal assets of any real value. I accept that Mrs Haigh defers to her husband in relation to financial matters and it is Mr Haigh who has control over funds in various corporate entities.
39 Should the plaintiffs' case be unsuccessful, Mr Haigh may choose to make some funds available to pay some or all of the defendants' costs that are in the sum of $969,305.51. Jazabas has made an offer to pay the council's costs in relation to the prior proceedings at the rate of $500.00 per month. Mr Haigh either may choose not to or may not be in a position to make good the undertakings his has given. In these circumstances, I do not view the undertakings as of any real worth. I accept that if the order for security is to remain in place these proceedings may be stultified. However, I do not view these undertakings as a factor of sufficient weight to count against the provision of security if it otherwise were appropriate.
40 If I am wrong, and these undertakings are of real pecuniary worth there is no reason why Mr and Mrs Haigh could not utilise their assets to enable Jazabas or the other plaintiffs to put up security for costs. If that were to occur these proceedings would not be stultified.