Supreme Court of the ACT|2000-02-18

Master Club Consultants Pty Limited v Stanbritt Pty Limited & anor [2000] ACTSC 18 (18 February 2000)

Master Club Consultants Pty Limited v Stanbritt Pty Limited & anor [2000] ACTSC 18 (18 February 2000)

PRACTICE & PROCEDURE - Application for security for costs by defendants - Plaintiff a corporation - Impecuniosity of plaintiff company - Whether there is reason to believe that the corporation will be unable to pay the costs of the defendant if required - Factors relevant in the exercise of discretion - Plaintiff's failure to provide evidence of its financial position - No issue of principle.

1. The plaintiff provide security for costs to the defendants in the sum of $30,000 within 21 days.

2. The proceedings be stayed until such time as that security is provided.

3. The plaintiff pay the defendants' costs of and incidental to this application.

1. 1. This is an application for security for costs pursuant to s 1335 of the Corporations Law of the Commonwealth, which provides that

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

The power of the court under this section may be exercised by the Master pursuant to Order 75B rule 7.

2. The plaintiff in the present action, Master Club Consultants Pty Ltd brought proceedings against the defendants by way of an originating application dated 16 July 1999 seeking damages for alleged repudiation of a management consultancy agreement with the defendants. By notice of motion dated 17 November 1999 the defendants sought security for costs. When the matter first came before me on 19 November 1999 I ordered a timetable for both sides to file and serve affidavits on which they would seek to rely before a hearing date in December. The matter was then adjourned to this hearing date. The applicant defendants have filed affidavits in support of their notice of motion, but the plaintiff respondent has not.

3. The basis for the defendants' application is that the plaintiff corporation is unlikely to be able to meet a costs order in the event that the defendants are successful at the trial of the action. Impecuniosity of a plaintiff is not a sufficient ground for an application for security for costs except, as is the case here, where the plaintiff is a corporation. I am satisfied that the law is well set out by the learned author of Williams, Civil Procedure Victoria, where it is said (at I 62.02.70):

The court may order the plaintiff to give security for costs if `there is reason to believe' that the plaintiff will be unable to pay the costs of the defendant. The defendant must adduce evidence which gives the court reason to believe that the plaintiff will be unable to pay the costs. The evidence need not be conclusive. A prima facie case is sufficient: Churchills Ltd v Pilcher (1940) 57 WR (NSW) 109. Being in liquidation affords such prima facie evidence...Where the plaintiff corporation is not in liquidation, the defendant must show by evidence that the financial situation of the plaintiff is such that it will be unable to pay the defendant's costs if ordered to do so. The power to require security be given arises if credible evidence establishes that there is reason to believe that in events which can fairly be described as reasonably possible the plaintiff corporation will be unable to pay the costs of the defendant: Beach Petroleum NL v Johnson (1992) 7 ASCR 203."

4. The principal evidence in support of this application is an affidavit from Mr Galbraith, solicitor for the defendants. He deposes that Mr Robert Leslie Wignall, Director of the plaintiff company, commenced proceedings in the Federal Court against Mr James Stanwell, director of the present first defendant, and against the present second defendant, in December 1988. The Statement of Claim in that action, is annexed to his affidavit, and shows that the action was essentially the same as the present proceeding. That action was discontinued in the Federal Court by the plaintiff Wignall in June 1999, and the plaintiff was to pay the defendants' costs, which were assessed in the Federal Court in the sum of $11,478.65. The defendants in that action had, to the date of this application, received only half of that sum, by way of a cheque drawn in the name of Master Club Consultants Pty Ltd, the present plaintiff.

5. The affidavit goes on to set out results of Company Searches, which show that the plaintiff company has a paid up share capital of $12, consisting of twelve $1 shares, and that the registered directors of the company are Robert Wignall and Michelle Wignall. The affidavit also shows that the company does not own any real property in New South Wales or the Australian Capital Territory, but that it is the lessee of property at Narooma.

6. The affidavit also shows that the defendants have been seeking information from the plaintiff concerning its financial affairs, which information has not been forthcoming. The defendants issued a Notice for Non Party Production pursuant to Order 34B rule 3 of this Court against Robert Wignall seeking production of company records. An application to set this order aside was heard before this application, and in that matter I dismissed the application to set the order aside. The parties agreed that this application should then proceed, but the defendants asked me to take note of the extensive schedule of correspondence which shows that the defendants have been seeking to obtain this information, and the strenuous opposition to the notice to produce, to draw an adverse inference that the material in the hands of the plaintiff corporation which would show its true financial position would not assist the plaintiff/respondent's case in this application (Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298). It seems to me that I am entitled to draw this inference.

7. The evidence before me then establishes that a costs order in proceedings brought by a director of the plaintiff company but paid by a cheque drawn on the account of the plaintiff company has not been fully met. I am mindful that, at common law, a failure to pay the costs of an interlocutory order is not by itself a good ground of security (Lines v Tana Pty Ltd [1987] VicRp 53; [1987] VR 641) but this can be a factor going to the exercise of the discretion. The evidence also establishes that the plaintiff has only a very limited paid up capital of $12, and has no real estate assets in this jurisdiction, or in New South Wales.

8. Of itself, this would not be sufficient, in my opinion, to satisfy me that there was reason to believe that the plaintiff would be unable to pay the costs of the defendant if so ordered. In this case the plaintiff respondent has chosen to put no evidence in by affidavit, and has strenuously resisted disclosing any information concerning its financial affairs. The question then arises as to whether the adverse inference that I have drawn pursuant to the principle of Jones v Dunkel is sufficient to satisfy me that the plaintiff would be unable to meet any costs order.

9. In all of the circumstances of this case I am so satisfied. A court must always be cautious lest orders for security for costs become a weapon of oppression, but it is not in my mind an onerous task for a corporate plaintiff to meet an application by way of an affidavit from an appropriate officer of the company setting out information sufficient to satisfy a court that the company is in a sound financial position, and would be able to meet its obligations. To draw a negative inference in such circumstances does not seem to me to be altering the onus of proof. The defendant applicant in this matter has established that the company has a very limited paid up capital and no identifiable assets. It has established that a costs order in related litigation remains unpaid in full. This is not sufficient evidence, but does establish credible grounds for suspicion. An affidavit stating that the company is in a position to meet debts as they arise would however effectively meet this evidence. Where the company has chosen not to put in any evidence, and has resisted disclosing any information relating to its financial affairs, it seems to me that the adverse inference that can be drawn from this, together with the evidence positively adduced by the defendant applicant, is sufficient to satisfy me that there is reason to believe that the corporation would not be able to pay any costs order, and a sufficient basis is established for an order for security for costs.

10. This finding does not however resolve the matter. The court has a discretion in these matters. While it was once the view that the discretion was ordinarily exercisable in favour of the making of an order, the better view now is that the discretion should be exercised with no predisposition to make an order: Heller Factors Pty Ltd v John Arnold Surf Shop (1979) 22 SASR 20; Colbran, Security for Costs, p245. The position is again well stated by the learned author of Williams, Civil Procedure Victoria at I 62.02.75:

"In exercising the discretion the courts will be concerned to achieve a balance between ensuring that the defendant is adequately and fairly protected from prejudice arising from the limited liability character of the plaintiff and avoiding injustice to an impecunious company by unnecessarily shutting it out or prejudicing it in the conduct of litigation."

11. If there is evidence to suggest that the impecuniosity of the plaintiff company has been caused by the defendants' conduct the subject of the principal proceedings, this will go strongly against the exercise of the discretion. In this case, however, no evidence at all was adduced by the plaintiff, and so I cannot take this factor into account. It may also be the case that the financial position of those standing behind the company who would stand to gain if the litigation was successful is relevant (Bell Wholesale Co Pty Ltd v Gaey Export Corp [1984] FCA 34; (1984) 52 ALR 176), but again no evidence was led to establish this.

12. I am satisfied that the applicant defendant has made out all the necessary elements to justify an order for security for costs, and that furthermore there has been no factor made out that weighs against the exercise of the discretion. I am therefore satisfied that I ought to order that the plaintiff provide security for costs.

13. Mr Galbraith in his affidavit set out the costs that had been incurred by his clients in the proceedings to date, amounting to professional fees on a solicitor client basis of $19,000, and disbursements of $2000. Mr Galbraith is an experienced practitioner, a partner in his firm, and a person appropriately qualified to make estimates of costs. He set out the steps likely to be required for the future conduct of the matter to hearing, and estimated that the party/party professional costs would be likely to amount to $15,000 to $20,000, and that disbursements would be likely to run to $7,000 to $15,000, with the bulk being counsel's fees. He therefore said that the fees and disbursements would be likely to range between $39,000 and $52,000. The application sought security in the sum of $40,000.

14. Mr Galbraith was cross examined about his approach to charging, and the extent to which the taxing authorities would allow these fees. I am satisfied that his approach to costing has been generally sound, but of course there is always a discretion in the taxing authorities. It seems to me, taking into account the stage these proceedings have reached and the estimates of future expenses, that an order for security for costs in the sum of $30,000 would be appropriate in all of the circumstances.

15. The form of the security order was the subject of submissions, but no evidence. Counsel for the respondent plaintiff said that a personal guarantee from Mr Wignall should be appropriate. In the absence of any evidence about his financial affairs, however, I am reluctant to make this order. I would expect that the plaintiff company will provide the security ordered by way of bank guarantee, but I would be prepared to hear the parties further on this aspect of the matter.

(a) that the plaintiff provide security for costs to the defendants in the sum of $30,000 within 21 days;

(b) that the proceedings be stayed until such time as that security is provided; and

I certify that this and the six (6) preceding pages are a true copy of the Reasons for Judgment herein of the Master, Mr T Connolly.

Master Club Consultants Pty Limited v Stanbritt Pty Limited & anor [2000] ACTSC 18

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Decision date

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Judgment (29 paragraphs)

Master Club Consultants Pty Limited v Stanbritt Pty Limited & anor [2000] ACTSC 18 (18 February 2000)

Parties

Cases Cited (3)