Lawrence Waterhouse Pty Ltd v Port Stephens Council

CATCHWORDS: PRACTICE AND PROCEDURE - failure to comply with security for costs order - whether appeal should be dismissed - Uniform Civil Procedure Rules 42.21(3)

CASES CITED: Idoport Pty Ltd v National Australia Bank Ltd [2002] NSWCA 271 Dovade Pty Ltd v Shaddock [1999] NSWSC 142

PARTIES: Port Stephens Council (Applicant) Lawrence Waterhouse Pty Ltd (Respondent)

COUNSEL: M C Fraser (Applicant) W Lawrence (Director of Respondent)

LOWER COURT JURISDICTION: Land & Environment Court

LOWER COURT MEDIUM NEUTRAL CITATION: [2007] NSWLEC 605

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40638/07

Monday 15 September 2008 LAWRENCE WATERHOUSE PTY LTD v PORT STEPHENS COUNCIL Judgment

1 HER HONOUR: The Court has before it a Notice of Motion filed on behalf of Port Stephens Council, the respondent to the appeal, on 21 August 2008 seeking an order dismissing the appeal pursuant to Uniform Civil Procedure Rules 2005 42.21(3). That sub-rule enables the Court to dismiss proceedings where a party has failed to comply with an order to provide security for costs. 2 Mr Wayne Lawrence, a director of the appellant, appeared unopposed on its behalf. It was common ground that he was authorised by the appellant to do so. 3 Although the Council is formally the applicant, and Lawrence Waterhouse Pty Ltd is formally the respondent (UCPR 51.2) I shall refer to them, for ease of comprehension respectively, as the appellant and the respondent. 4 On 7 July 2008 the Court ordered that the appellant provide $25,000 as security for costs on or before 18 August 2008. That amount has not been paid. 5 The respondent advances its prayer for relief on the basis not only of the appellant's default in compliance with the order to pay security for costs, but also on the basis of evidence that the appellant has taken steps to put itself in the position where it could not satisfy any costs order which might ultimately be made in the respondent's favour. The respondent points to steps the appellant has taken to charge its property and also to steps it has taken, the respondent asserts, actively to remove property from the reach of any costs order. 6 The respondent relies first on the affidavit of Mr Martin Richard Ball sworn 10 September 2008. For convenience I will deal with the contents of that affidavit in order although the particular points to which I have just referred appear towards its end. 7 Annexure A to the affidavit comprises a substantial body of correspondence exchanged between the appellant and the solicitors for the respondent, Messrs Harris Wheeler, between 10 July 2008, three days after the security for costs order was made, and 10 September, namely late last week. The bulk of that correspondence is from the appellant. 8 On 10 July 2008 the appellant wrote to Messrs Harris Wheeler drawing attention to the expense of the litigation and the likely expense of the appeal and asking that firm to seek instructions as to mediation in order to resolve further litigation and to save costs. Messrs Harris Wheeler responded the same day conveying their instructions that the respondent did not consider the proceedings suitable for mediation. The letter also conveyed the solicitors' instructions not to engage in further communication with the appellant unless and until the security for costs ordered by the Court had been provided. Thereafter, as I have said, the bulk of the correspondence emanating from the appellant constituted various unsuccessful attempts to elicit a response from Messrs Harris Wheeler. 9 On 22 August 2008, four days after the time for complying with the security for costs order expired, the appellant wrote to Messrs Harris Wheeler asking that any notice of motion, presumably to have the proceedings dismissed for want of compliance, be deferred until after 28 August for two reasons. One related to another case and can be set to one side. The other asserted that a sale had been secured "subject to inspection on a property and a purchaser has agreed to fund the $25,000 subject to the inspection". The inspection was said to be going to take place on 27 August. In that event the letter contemplated that the security for costs funds could be deposited on or before 29 August 2008. 10 On 22 August Messrs Harris Wheeler replied advising the notice of motion had already been filed, serving the same and enclosing an affidavit in support. The letter advised that should the security be provided prior to the return date, today 15 September, the firm would seek instructions as to whether to withdraw the application. 11 On 29 August 2008 the appellant wrote to Harris Wheeler asking that firm to seek instructions as to whether the security for costs could be given by way of a charge over the company with "priority over the Director as to their charge". Alternatively the letter proposed depositing a bond with the Supreme Court of New South Wales.

12 On 1 September Messrs Harris Wheeler replied conveying their instructions that the respondent declined the offer to provide security by way of a charge and confirming that the respondent required the security to be provided as ordered. Two further letters from the appellant followed concerning the possibility of an alternative to the cash deposit without success. 13 At the time the security for costs application was made the respondent relied on an affidavit of Martin Richard Ball sworn 11 June 2008. Mr Ball's affidavit deposed to an ASIC search which had been undertaken concerning the appellant. The search disclosed that on 5 February 2008 a fixed and floating charge was registered over the assets of the company, a charge said to have been created on 27 December 2007. The charge was registered the day after an earlier unsuccessful application by the respondent for security for costs. 14 Mr Ball also annexed to his affidavit of 11 June 2008 the form filed at ASIC setting out the details of the charge which discloses that the property charged was 64 Magnus Street, Nelson Bay, the property the subject of the appeal from the Land and Environment Court in this case, and that the maximum prospective liability secured by the charge was $1 million. Mr Wayne Lawrence was the chargee. 15 Annexed to Mr Ball's affidavit of 10 September 2008 is a Notice of Sale/Transfer Report which discloses that on 1 July 2008 the appellant transferred three properties, the details of which are set out on that Notice, to a company known as Minsden Pty Ltd. The consideration was $72,000. According to the Notice, the contract date to which the Transfer related was 23 January 2003. 16 Minsden Pty Ltd is a company whose directors all appear to be members of the Lawrence family, including Mr Wayne Lawrence. There are fifty-two shares in the company, all of which are beneficially held by the same Mr Lawrence. 17 Mr Fraser, who appears for the respondent, said without objection, that that transfer relates to the land which was the subject of the litigation before the Land and Environment Court. 18 Mr Lawrence relied on his affidavit sworn 15 September 2008. I am not doing that affidavit an injustice, I hope, if I summarise its contents by saying that he seeks to argue that the respondent's conduct has caused, or contributed to, the appellant's inability to meet the order that it provide security for costs. It is also the case, however, according to the affidavit, that the appellant's inability to comply with the order is said to relate to the state of the real estate market described in the affidavit as being "at the bottom" and, further, the respondent's refusal to entertain security being provided by way of a charge. 19 In the course of his submissions I asked Mr Lawrence whether the appellant was making any offer to pay the security for costs. He said it was not, at least not at this stage. Later in the course of his submissions he appeared to indicate that the appellant could meet the security for costs order, but that it needed until December 2008 to do so. The timing of this "offer" as I understand it again relates to the fragility of the real estate market and the uncertainty as to whether, or at what stage, it might be possible for the appellant, I assume, to sell any property it might still hold in order to satisfy the security for costs order. 20 Part 42.21 of the Uniform Civil Procedure Rules deals with the circumstances in which security for costs might be ordered. Subrule (3) provides that if the plaintiff fails to comply with an order under the rule, the court may order that the proceeding on the plaintiff's claim for relief in the proceedings be dismissed. In the Court of Appeal the reference to "the plaintiff" refers to the appellant: UCPR 51.1(4). 21 The Court has a discretion as to whether or not it ought to dismiss the appeal pursuant to this rule. In Idoport Pty Ltd v National Australia Bank Ltd [2002] NSWCA 271 (at [28]) the Court approved five factors Einstein J had posed for consideration in determining such an application. Those factors were "(1) the period that has elapsed since security was ordered;

(2) the fact that the plaintiff has been on notice of the application for dismissal;

(3) the seeming inability of the plaintiff to further fund the Main Proceedings;

(5) the position of the Court." 22 I turn first to the period which has elapsed since security was ordered. The respondent accepts that in this case that is not lengthy. The order was made on 7 July 2008 and time for compliance elapsed on 18 August 2008. It is now less than a month later. However, as Mason P (Stein and Giles JJA agreeing) said in Idoport (at [51]), "there is no minimum period established by legislation, rules or practice within which an application for dismissal might be made following default in compliance with an order for payment of security." 23 Next is the fact that the plaintiff has been on notice of the application for dismissal. That is uncontroversial. 24 The next factor, referred to by Einstein J, the "seeming inability of the plaintiff to further fund the Main Proceedings", requires an inquiry as to the ability of the person burdened by the security order to fund the principal proceedings. 25 Here the respondent submits, and I did not understand Mr Lawrence to dispute, that the appellant had divested itself of assets not so much as to deprive itself of the ability to fund the appeal, as to deprive the respondent of the benefit of any costs order it already holds, or might later secure. This raises the next factor, the prejudice to the respondent. 26 Mr Lawrence put in issue the characterisation the respondent sought to attach to the disposition of the appellant's assets but argued, as I understood his submission, that the transfer of the subject land in July this year was "innocent" relating, as was apparent from the Notice, to a much earlier agreement of 2003. 27 Mr Lawrence also submitted that, contrary to the inference available from the Notice of Transfer that the appellant ought now at least have $72,000 available to meet the security for costs order, those monies had been applied to discharge debts in relation to the properties. That was a mere assertion of which there was no evidence before the Court. 28 Mr Lawrence did not dispute that the effect of the charge registered on 5 February 2008 was to place an obstacle in the way of the respondent enforcing any costs orders of which it is currently, or may become, the beneficiary. 29 In my view the steps the appellant has taken demonstrate that its failure to comply with the security for costs order exposes the respondent to prejudice. 30 Mr Lawrence drew the Court's attention to a decision of Master Harrison (as she then was) in Dovade Pty Ltd v Shaddock [1999] NSWSC 142 (at 14) where her Honour in turn referred to a decision of Cooper J in the Federal Court concerning failure to provide security. I do not understand that passage in any way, if indeed it could, to cut across the Court of Appeal's approval in Idoport of the principles to which I have referred. 31 Mr Lawrence has sought to draw the Court's attention to the merit aspects of the appeal. The Court has not been taken in any detail to the judgment under appeal. I say that without any criticism. The point with which I am concerned is what order is appropriate, in circumstances where there has been non-compliance with an order for security for costs in the factual matrix to which I have referred. 32 It should be recalled, as the Court said in Idoport (at [39] - [40]), that one of the rationales for ordering security for costs in the case of corporations is to ensure that those who will benefit from success in the proceedings as shareholders in, or creditors of, a corporation, or as third parties for whose benefit the plaintiff sues, cannot litigate and expose the defendant to the risk of irrecoverable costs while themselves being shielded by reason of the interposition of the impecunious plaintiff from the burden of an adverse costs order.

33 Although I appreciate that the time since compliance with the order for securities is short, nevertheless I am concerned that the steps the appellant has taken either to burden its property and/or to dispose of it in circumstances where the respondent has been agitating to secure its costs of appeal appear to demonstrate that the appellant is doing all it can to expose the respondent to the risk of irrecoverable costs. 34 The vague statements which Mr Lawrence made, after some pressure I should add from myself, to see whether the appellant could in any way meet the order for security for costs offers the Court no comfort that the order for security for costs will be complied with in a time which would accommodate an efficient hearing of the appeal, if at all. 35 In those circumstances in my view I should accede to the order sought in the notice of motion. I dismiss the appeal pursuant to Uniform Civil Procedure Rules 42.21(3). I order the appellant to pay the respondent's costs as agreed or as assessed. **********

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