Maples v Hughes [2002] NSWSC 617 | Case summary

Such further orders as this honourable court deems fit." 2 When the motion came on to be heard, the defendant did not press for order 1 but he did pursue an order for costs and I will return to this presently. 3 The focus of the hearing on the motion was the application for security for costs against the second plaintiff and the defendant relied upon s 1335(1) of the Corporations Law and upon Pt 53 r 2(1)(e) in making the application. The latter sub-rule affords as a ground for the making of an order: "That there is reason to believe that a plaintiff being a body corporate will be unable to pay the costs of the defendant if ordered to do so." 4 The defendant relied upon a number of affidavits sworn by Paul Kozub, these being affidavits of 27 March 2002, 1 May 2002, 16 May 2002 and 3 June 2002. The second plaintiff read an affidavit sworn by Edward Davis on 4 July 2002. 5 Written submissions were presented on behalf of each of the parties to the motion and the Court also had the advantage of concise oral submissions. 6 There really was no dispute as to the relevant principles to be applied; rather the contest was as to how those principles should be applied in the circumstances of this case. 7 In Southern Cross Exploration NL v Fire & All Risks Insurance Co. Limited (1985) 1 NSWLR 114 at 116 Waddell J said, on an application for security for costs: "Two questions have to be decided. The first may be described as a threshold question. It is, whether, having regard to the whole of the evidence before the court, there is credible testimony by which it appears that there is reason to believe that the plaintiffs will be unable to pay the costs of the defendants if successful in their defence. If this question is answered, yes, the second question arises which is whether, in the exercise of the discretion given to the court by the subsection, the relief sought should be granted wholly or in part or should be refused." 8 Ms Sneddon submitted on behalf of the defendant that the first of the questions posed by Waddell J in Southern Cross Exploration calls for an affirmative answer in the circumstances of this case. On 12 March 2001 receivers and managers of the second plaintiff were appointed and the second plaintiff is a two-dollar company, the shareholders being the first plaintiff and Merril Annette Maples. The National Australia Bank is the chargee of both fixed and floating charges. 9 On 6 June 2002 the second plaintiff's solicitors sought an adjournment for three weeks to enable the second plaintiff to obtain relevant books and records so as to be able to address the issue of security for costs and the matter was stood over until 5 July 2002. A further call was made on 5 July 2002 for records of the second plaintiff relevant to the security for costs application, namely the second plaintiff's tax returns and assessments for the years ended 30 June 1997, 1998, 1999, 2000 and 2001, its financial statements, profit and loss statements and balance sheets for those same years and other documents which it is unnecessary for me to identify. No document was produced in response to the call, and it is a legitimate inference that such documents do not exist. 10 I am persuaded by Ms Sneddon's submissions that there is reason to believe that the second plaintiff will be unable to pay the costs of the defendant if the defendant succeeds in his defence. 11 This brings me to discretionary considerations. 12 I accept, as Ms Sneddon submitted, that:

(d) the litigation does not involve matters of public importance. 13 Ms Sneddon also submitted that there has been no unreasonable delay in making the application for security for costs. Mr Whittle of Senior Counsel submitted to the contrary. Whilst the proceedings were commenced in 2000, the conduct of the proceedings on behalf of the defendant has been hindered for a significant period by the collapse of HIH, the insurer of the defendant. Having considered the history of this matter since its inception, I am of the opinion that such delay as there has been in pursuing the present application ought not be regarded as a bar to the making of the order sought. 14 Had the second plaintiff been the only plaintiff in this cause I would not have hesitated to order security for costs. However, the defendant has another plaintiff, Bruce John Maples, against whom an order for costs could be enforced should the plaintiffs' claims fail. Whilst security for costs may be ordered where there is a natural plaintiff and a company joined as plaintiffs, if the overlap of their claims is small (see, for example, John Bishop (Caterers) Limited & Anor v National Union Bank Limited & Ors (1973) 1 All ER 707), such an order will not generally be made if the overlap of claims is such as would attract a liability in costs in the natural person should the claims fail. 15 The question of security for costs was considered in Harpur & Ors v Ariadne Australia Ltd & Ors (1984) 8 ACLR 835, a case in which a natural person was joined with three companies as plaintiffs. In the Queensland Court of Appeal it was determined that security for costs should not be ordered against the three plaintiff companies and the other members of the court agreed with what Connolly J had to say in the following passage at 841: "…what is the rule where there is more than one plaintiff? In such a case, all plaintiffs suing in the same interest and by the same solicitors and counsel, there is but one set of costs. If the defendants have an opponent who is worth powder and shot they have as much as any litigant is fairly entitled to. The court cannot by its orders guarantee a successful outcome in a practical sense to any party. It is thus no answer when security for costs is sought to say that a person of apparent substance may be able to make away with his assets within the jurisdiction before a judgment for costs can be executed: Re Apolinaris Company's Trade Marks [1891] 1 Ch 1 per Lord Halsbury LC at 3 sitting in the Court of Appeal. The 'two plaintiff' cases start with the situation in which one is out of the jurisdiction. Prima facie he ought to be ordered to provide security but his co-plaintiff is within the jurisdiction. In such a case it was considered that there was no ground for ordering security. See Sykes v Sykes (1869) 4 LR CP 645 at 648 per Byles J and Montague Smith J. This principle was held to apply even where the plaintiff within the jurisdiction was insolvent. I take the underlying reason to be that the defendant was really in no worse position than if he had been sued by a single plaintiff resident within the jurisdiction and insolvent. As Brett J remarked at 650, the cases show that, unless there is ground for making an order for security against all the plaintiffs, it cannot be made against any. One of the earlier cases was McConnell v Johnston [1801] 1 East 431; [1801] 102 ER 167 where it was held that if one of the plaintiffs reside within reach of the process of the court, security will not be required for the costs although the other plaintiff be a foreigner residing abroad and though the first mentioned plaintiff be a bankrupt in execution for debt. In D'Hormusgee & Co and Isaacs & Co v Grey (1882) 10 QBD 13 the same result was reached by Denman and Manisty JJ affirming Cave J in an action brought against a defendant as a common carrier by two plaintiffs, one resident abroad. The statement of claim alleged a contract by the defendant with the plaintiffs jointly and in the alternative with each of the plaintiffs separately. Although their Lordships cited no authority both referred to the practice in relation to security for costs before the Judicature Act. The critical point was that each plaintiff was liable for the whole of the defendant's costs. Now in John Bishop (Caterers) Ltd v National Union Bank Ltd [1973] 1 All ER 707 Plowman J made an order for security against a company although there was a co-plaintiff within the jurisdiction who was a natural person. His Lordship distinguished the earlier cases on the footing that there was in those cases a complete overlap as he put it of the causes of action. Accordingly, as he was not satisfied that the natural person would necessarily be ordered to pay all of the defendant's costs he ordered security. That is concededly not this case." 16 In the present case Mr Whittle submitted that if the plaintiffs are unsuccessful in these proceedings, the first plaintiff would be fully liable for costs incurred by the defendant. If that submission is correct then it seems to me, bearing in mind the above cited dicta of Connolly J, that security for costs should not be ordered against the second plaintiff. Whether the submission is correct calls for consideration of the nature of the claims being brought by the plaintiffs. 17 The nature of the claims of the plaintiffs is outlined in the statement of claim. From that document it emerges that the plaintiffs allege that the first plaintiff consulted the defendant as a solicitor to give certain advice concerning the purchase of some land at Woronora. The first plaintiff contemplated acquiring that land with another natural person or with the second plaintiff. What was contemplated was a sub-division of the land, but as the land adjoined Crown land, which was undeveloped bushland, any sub-division would call for fire-fighting development works that incorporated distance setbacks. It is alleged that the defendant gave incorrect advice as to what would be required and, the land having been purchased by the second plaintiff in reliance upon the defendant's allegedly negligent advice, the plaintiffs suffered loss. The first plaintiff claims as damages the diminution in the value of his shares in the second plaintiff. The second plaintiff claims damages, being the loss allegedly suffered in the acquisition of the land. 18 It seems to me that when one analyses the nature of the claim, Mr Whittle's submission is correct. The claims of the first plaintiff and of the second plaintiff are completely interlocked both as to liability and as to damages, and if the defendant is successful costs would ordinarily follow the event. On the material presently before the Court, it seems to me that the first plaintiff would be exposed to the liability of a costs order for all of the defendant's costs if the defendant succeeds. 19 I have therefore concluded that as this cause is presently constituted the Court should not order security for costs against the second plaintiff because the defendant will have resort to the first plaintiff to recover his costs if the action fails. If, for any reason, the first plaintiff was to cease to be a party to this litigation, the situation would warrant review. 20 What is the appropriate order for costs? 21 The former solicitors for the first and second plaintiffs filed a notice of ceasing to act on 12 April 2001 and the address for service of the second plaintiff was described in that notice as "c/- PriceWaterhouseCoopers". The solicitors appearing for the first plaintiff filed a notice of change of solicitor on 8 June 2001, but as at 27 March 2002 when Mr Kozub swore the first of the affidavits read on this motion, there were no solicitors appearing for the second plaintiff and that plaintiff had taken no active step in the litigation since the filing of the notice of ceasing to act. Subsequently, as Mr Kozub deposed, he was informed by Mr Spilia, on behalf of the receivers, that the receivers would not be interested in taking any part in the proceedings, and National Australia Bank, as the primary creditor of the second plaintiff, was unlikely to be interested in pursuing the claim. Whilst the solicitors for the first plaintiff later advised that the receivers and managers of the second plaintiff would be retiring, that had not occurred at the time when Mr Kozub swore his affidavit of 3 June 2002. Indeed, as the affidavit of Mr Davis sworn on 4 July 2002 makes clear, it was not until 6 June 2002 that the receivers and managers of Novarest resigned. Until such time as the fact of that resignation was conveyed to the defendant in the affidavit of Mr Davis, the defendant was justified in pursuing order 1 of the amended notice of motion. 22 Accordingly, I consider it proper that the second plaintiff pay the defendant's costs on the notice of motion on 2 April 2002, in which notice of motion the relief sought was limited in the making of orders 1 and 2 as set out in the amended notice of motion and also costs incurred in the pursuit of order 1 as sought in the amended notice of motion prior to 5 July 2002. However, the defendant failed on the application for security for costs and it was that application which occupied the time of the Court on 5 July last. The defendant should be ordered to pay the costs of the application for security for costs.

Maples v Hughes

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Judgment (20 paragraphs)

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Cited By (21)