Lewis v Nortex Pty Ltd

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

3081/97 PETER LAWRENCE LEWIS v NORTEX PTY LTD (In Liq) 1750/02 LAMRU PTY LTD v KATION PTY LTD & ORS JUDGMENT 1 HIS HONOUR: The nomenclature I shall adopt in this judgment is: the plaintiff - Lamru Pty Ltd; the first and second defendants - Kation Pty Ltd and Peter Lewis; the third defendant - Mark Lewis; and the liquidator - the liquidator of Nortex Pty Ltd (In Liq). I have before me two applications relating to security for costs in these proceedings which are to be heard together. 2 The Registrar, on 15 March 2002, heard an application by the first and second defendants in proceedings 3081/97 for security for costs and in those proceedings ordered that the plaintiff give security in the sum of $120,000 by payment or bank guarantee for the first and second defendants' costs. The application now before me in relation to that order is an application by the plaintiff to review the order, but the review sought is a limited review. The plaintiff does not contest the making of an order for security or the amount of security ordered to be given, but asks that the order be varied so that the security may be given in the form of an undertaking to the Court by Mr Lamb, the principal of the plaintiff, and by Ms Tilbury, his wife, to be responsible for the plaintiff's costs if ordered. The first and second defendants press for the Registrar's order to be retained in its present form or, alternatively, for there to be an order that the security may be given by Mr Lamb and Ms Tilbury giving a mortgage for the amount of security over their home. 3 The evidence reveals that the substantial assets possessed by the plaintiff and by Mr Lamb and Ms Tilbury that may be available in one way or another for the payment of costs if ordered against the plaintiff are the fund of approximately $120,000, as it now is, owing to the plaintiff as a result of the allowance of a proof of debt by the liquidator and the equity which Mr Lamb and Ms Tilbury have in their home ("the property"). That equity is of the order of some $500,000 or $600,000, the property having been valued by a bank valuer some 18 months ago at $1.8 million and the amount owing under a registered mortgage over the property to the Westpac Bank ("the Bank") being approximately $1.2 million or $1.25 million. Mr Motbey, of counsel for the plaintiff, has assured me that Mr Lamb is prepared to give an undertaking to the Court in appropriate form to be responsible personally for costs ordered against the plaintiff. Equally, he informs me that Ms Tilbury is prepared to give such an undertaking to the Court. In the case of Ms Tilbury, I have indicated that the Court would not be prepared to accept such an undertaking from Ms Tilbury unless there is evidence that she had received independent advice in relation to the giving by her of such an undertaking to the Court and its possible consequences. Mr J Johnson, of counsel for the first and second defendants, presses me that his clients ought to have the assurance by way of security of an actual fund from which the costs may be met and that such an assurance can be provided only by compliance with the Registrar's order or the grant of a mortgage over the property. 4 Mr Motbey draws attention to the following matters. The mortgage to the Bank which has been put in evidence before me prohibits the grant of any mortgage or security over the property without the consent of the Bank and any such grant without consent would be a breach of the mortgage. Mr Lamb has not applied to the Bank to borrow the $120,000 or, indeed, to anyone else, on the security of the property or otherwise. On the other hand the lateness of the hour - the trial is fixed to commence on 10 April before me - leaves very little time for such an application to be made and dealt with and, if refused, for the consequences to be considered. There must be considerable doubt (in view of the evidence as to the financial affairs of the plaintiff and those associated with it) as to whether or not such a loan would be granted by the Bank or by any lender. Mr Johnson, on behalf of the first and second defendants, faces the dilemma which his submissions necessarily encompass on the material in evidence. On the one hand he is pressing for money to be borrowed or a security to be given for the assurance of his clients and on the other hand submitting to me that the financial affairs of the plaintiff and those associated with it are parlous, a fact which diminishes the possibility of such borrowing or consent to such security. Mr Lamb has deposed that he does not believe that he can raise the $120,000 in cash to provide as security and that, if the order of the Registrar is maintained, the plaintiff will be prevented from continuing with the litigation; the claims which are its subject matter will be destroyed. 5 There has been debate about the lateness of application. The importance of the lateness of application as a factor in security for costs applications has recently been emphasised by the Court of Appeal in Morris v Hanley [2001] NSWCA 374. There is argument in the present case as to whose fault the shortness of time in which the matter now before me can be dealt with and resolved really is. There is some merit in the arguments on both sides. Mr Lamb, who may realistically have anticipated the possibility of being required to put up security for costs at least since the beginning of this year, has not made approaches to see if the money could be borrowed during that time. On the other hand, various reasons of varying quality have been put forward for the application for security for costs not having been made on behalf of the first and second defendants before December 2001, although the proceedings commenced early in 2000. That matter did not prevent the Registrar from ordering security and, as I say, the correctness of the Registrar's decision that security be given and in what amount is not under challenge. Nonetheless, the lateness of the application in the first and second defendants' camp is one of the factors which places constraints on the situation which the Court faces at the moment. 6 The conclusion that I have come to is that, bearing in mind a very distinct possibility that the litigation will be foreclosed by the present form of the Registrar's order on the one hand, and the fact that the first and second defendants are entitled to have, in the events which have occurred, security for costs on the other, I believe that the correct decision is to vary the order for security so that the security may be provided if it can be by each of Mr Lamb and Ms Tilbury giving to the Court an undertaking in appropriate form to be responsible for costs if ordered against the plaintiff. If this can be done, this will permit the plaintiff to continue with the litigation. It will leave the first and second defendants with security for their costs which Mr Johnson is quite right to say is not as assured as that ordered by the Registrar, but which nonetheless is security of some reality. 7 I have already said that I shall not accept Ms Tilbury's undertaking unless there is evidence in satisfactory form at the time it is proffered that she has had independent advice concerning the giving of the undertaking and its possible consequences. Then, by the consent of all parties, I shall formulate the order for security in the form which it finally takes as being in respect of the plaintiff's costs both of the proceedings in which it was originally ordered and the second set of proceedings, #1750/02. 8 The second motion before me relates to security for the costs of the third defendant, who has recently been joined in the proceedings. If the motion for review of the Registrar's order had involved the assessment of the credit of witnesses or the likelihood of success in the proceedings, I should not have heard it, but sent it to another Judge. Equally, I should have sent the motion for security by the third defendant to the Registrar or to another Judge had any such considerations been involved. Mr Motbey, however, has very properly in light of the Registrar's decision in the earlier motion indicated that there would be no opposition by the plaintiff to the making of an order for security for costs in favour of the third defendant, provided that there could be debate as to its amount and debate as to the form in which it ought to be given. On this basis, there is no problem about my dealing with the motion. 9 Mr Wilks, solicitor for the third defendant, has asked for an order for security in the amount of $60,000 supported by an affidavit of his as to how that amount was calculated. I am prepared to make an order for security in the sum of $50,000. Mr Wilks has joined in the submissions of Mr Johnson for the first and second defendants as to the form in which security ought to be given. However, I propose to allow security in favour of Mr Wilks' client in the same form as the security which, under my order, there will be in favour of the first and second defendants. 10 In light of the above results, it seems to me that the first and second defendants ought to pay the plaintiff's costs of the plaintiff's motion for review of the Registrar's decision. Mr Johnson has submitted that to make an order in this form would penalise his clients. However, there is no question of penalty. The first and second defendants' motion was only filed last Friday. It has been fought virtually since its inception on the issue of whether the order should stand as made by the Registrar or whether there should be a variation, essentially in the form in which I have made it. It is in those circumstances that I shall make the costs order announced above. On the other hand, it seems to me that the plaintiff ought to be ordered to pay the costs of the third defendant's motion for security.

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