(2) The costs of any proceeding before a court under this Act are to be borne by such party to the proceeding as the court, in its discretion, directs. "
14 It is common ground that there is reason to believe that the respondent, which is admittedly in the position of a plaintiff for the purposes of the provisions under consideration, will be unable to meet an order for costs, if one is made against it. Indeed, Melunu puts this matter forward as one of the principal reasons why an order for the provision of further security for costs should not be made. It says that it is unable to provide further security, that the applicants have caused or contributed to its impecuniosity and that the making of the order sought will stultify the proceedings.
15 Melunu has a paid up capital of $2.00. Its directors and shareholders are Dr. Shohmelian, who is a dentist, and his wife. It is a trustee of a family trust, and it appears to have no business activity other than as trustee of that trust. It may be that in truth it sues as trustee, but this is not pleaded, and it does not appear to be significant for present purposes. Its only significant asset appears to be the residential property in question. All of its assets are charged in favour of a bank, and stamp duty has been paid in respect of the deed of charge, up to the sum of $2.4 million.
16 The property in question was valued for the bank at $2.8 million as at 23 May 2003. I admitted the valuation into evidence over objection, it being a document prepared for the bank for mortgage purposes. I consider that I am entitled to know that the value might have increased since that date, but in any event, the evidence shows that Dr and Mrs Shohmelian wrote to the bank advising that they strongly disputed the valuation, asserting that the property was worth more, and enclosing appraisals from four local estate agents. One of the difficulties attendant upon a valuation or an appraisal of the value of the property is that the building work is presently incomplete, at least in some sense, Claron apparently having ceased building work before completion, presumably as an incident of the dispute between the parties. The appraisals provided by Dr and Mrs Shohmelian show a range of values - from $3.4 million to $3.8 million for the property in its present unfinished state, and from $3.5 million to $4.4 million when completed.
17 If the property is only worth $2.8 million, then on the evidence Melunu itself would be unable to pay the costs of the applicants, if such an order is made, but if the property is worth significantly more, then this assertion made by the respondent is significantly undermined.
18 In a practical sense, Melunu's case on this topic is dependent upon an assessment of the financial position of Dr and Mrs Shohmelian. Dr Shohmelian swore an affidavit, possibly an affidavit prepared for some other purpose. Notice was given for him to attend for cross-examination, and the respondent's solicitors said that his affidavit would not be read. He did not attend at court. The solicitor for the respondent swore an affidavit, but he was overseas at the time of the hearing. This lead to some debate, but in the result Mrs Shohmelian gave oral evidence in chief, and was cross-examined.
19 The evidence shows that Dr and Mrs Shohmelian and their three children live in the property in question. Between them they possess five cars: a Bentley, a Jaguar, a BMW, a Volkswagen and a Celica, the Celica having been acquired some time this year. The evidence includes various taxation returns and financial statements in respect of Melunu and the trust but not for the members for the Shohmelian family. The evidence establishes, in generalities, an apparent inability to raise money from the Shohmelians' bank, or the respondent's bank, but no real detail.
20 As already mentioned, there is no dispute but that the financial state of the respondent is sufficient to possibly trigger the operation of the rule and the section mentioned. Melunu not only concedes this, but goes further and contends that the making of an order for the provision of further security for costs now will be impossible for it to comply with, and will stultify the proceedings. The evidence does not satisfy me that this is so. I think it more likely than not that the property in question is worth more that $2.8 million, and I am not satisfied that the financial position of Dr and Mrs Shohmelian, personally, is adequately explained. It is of course very easy to see why they would not wish to sell the property, particularly before the building work upon it has been completed, so as to make it more attractive to prospective purchasers. However, the apparent lifestyle of the Shohmelian family does not encourage one to take the view that they are as impecunious as they would have me believe.
21 Dr Shohmelian made an application to Esanda on 27 April 2004 for financial assistance, in relation to the acquisition of the Celica car. In that document his personal assets were recorded as being worth $5,030,000 including a "home property" worth $4,000,000 and his personal liabilities were said to be $2,595,000, including $2,520,000 owing on the house properties, leaving a surplus of $2,435,000 of assets over liabilities. If one reduces the home value from $4,000,000 to $2,800,000 there would be a surplus of $1,235,000 including "other properties" said to be worth $500,000, being motor vehicles worth $300,000, household effects worth $100,000, and "other assets" worth $100,000.
22 I accept that there is a dispute that cannot be resolved before a final hearing concerning the liability of the applicants to Melunu. It does not seem helpful to attempt to say anything more than that, as a broad generality, there is a bona fide dispute to be resolved. It would not be at all prudent to attempt to assess the strength or weaknesses of the opposing cases. If Melunu's evidence is ultimately accepted, then it will probably succeed, but if it is not, it will probably fail.
23 Melunu resisted the application, asserting that there had been delay in making the application, the extent of the delay being described with various colourful adjectives. I am not satisfied that there has been a significant delay. As already mentioned, Claron and Don Winning sought security for costs when the proceedings were still in the District Court, and after negotiations, those parties and Melunu agreed upon the form of an order that Melunu provide security for costs, in the sum of $35,000. I do not see any sound basis for proceeding otherwise than on the basis that the order, made by consent, was a proper one, both in the sense that it was proper at the time to make an order for the provision of security for costs, notwithstanding the circumstances now described by the respondent as constituting delay in making the application up until then, and in the sense that the amount to be provided was appropriate, that is, thought to be a reasonable sum in the circumstances known to the parties and to the District Court at that time.
24 It follows that any consideration about delay, said to constitute a reason for rejecting the present application for the provision of further security, should relate to the period when, it might reasonably be said, the amount of the security previously provided might reasonably be regarded as being no longer adequate. From the time when the security was provided onwards for some time, Claron and Don Winning were in the position where they were secured as to their costs of the litigation. At some stage, this state of affairs came to an end, in that the view was reasonably open that the amount of $35,000, formerly regarded as appropriate, was no longer adequate. From that time onwards, Claron and Don Winning might reasonably have made an application for the provision of further security for costs, and if they were guilty of delay in making an application for the provision of further security for costs, this delay has to be assessed when exercising a discretion to make the order now sought.
25 A real difficulty about the respondent's argument now is that it is not possible to say when it was that this time was reached. The evidence discloses something of the work done in preparing the respondent's case for trial, and when it was done, but this detail is lacking in relation to the costs incurred by the applicants, and when it was incurred. In addition, Brent Winning was only added as a party on 20 February 2004. Notice of the application for further security was given on 31 May 2004, and I do not think there was any relevant delay, worthy of notice now, after that date.
26 In Buckley v Bennell Design and Construction Pty Ltd (1974) 1 ACLR 301 at 309, Moffitt P said:
"The right to seek security of costs and to stay proceedings, with the possible result that a claim for damages is frustrated, is a powerful weapon. Therefore, the litigant who seeks to use it against his opponent is at risk of not having it available, unless the application is made and persevered with in circumstances involving the least oppression of his opponent. The primary reason why the application should be brought promptly and pressed to determination promptly is that the company, which by assumption has financial problems, is entitled to know its position in relation to security at the outset, and before it embarks to any real extent on its litigation, and certainly before it is allowed to or commits substantial sums of money toward litigating its claim."
27 Given the making of the earlier application, and the consent of the respondent to the making of the earlier order, part of the respondent's case necessarily fails. It knew before the making of that order that Claron and Don Winning insisted upon their right to obtain security for costs, and in the absence of evidence to the contrary I take it that the respondent arranged its financial affairs accordingly. There is no evidence that shows that, after the making of the earlier order, the respondent believed that there would be no further application made, or that it acted in any way, relying upon such an assumption or belief.
28 There is no question but that, after the making of the earlier order, the nature of the litigation changed in various ways which cumulatively are quite significant.
29 Not only did the respondent seek different kinds of relief, it also sought very much more by way of damages for what might if only for brevity be described as faulty building work. It also sought to add Brent Winning as an additional party, and it appears that it made many more complaints about items of defective building work than had been the case earlier. The respondent has incurred costs, including expenses for expert witnesses and the like, of the order of $400,000. The solicitor for the applicants spoke of an opinion that if his clients succeeded, they would recover costs of the order of $240,000 on a party and party basis. These figures may be compared with the sum of $35,000, the subject of the earlier order for the provision of security for costs. No doubt it is a crude measurement, but the contrast between the figure accepted as appropriate at the time of the making of the earlier order, and the costs now incurred and expected to be incurred is really quite stark.
30 Focussing for the moment on whether their was some delay, significant for present purposes, I find it difficult to say just when it was that the amount of $35,000, the security ordered earlier, should have come to be seen to being inadequate. However, the greater difficulty with the respondent's submission about delay appears to be that the evidence does not show that the respondent, at any relevant time, acted in any way differently to the way in which it would have acted, had the applicants moved for further security for costs at some earlier point in time.
31 The respondent also submitted that the conduct of the applicant had caused or contributed to the impecuniosity of the respondent. This is a submission which seems to be made frequently in response to an application for security for costs. I respectfully agree with the decision of Rolfe J in Dalma Formwork Pty Limited v Concrete Constructions Group Ltd [1998] NSWSC 472, where his Honour said that a respondent to a motion for security for costs relying upon this as a ground for resistance, must establish a real causal connection between the conduct and impecuniosity which, in the exercise of the Court's discretion, would make it unjust to require security, and it must be established that the applicant for security for costs has been guilty of some form of misconduct or unacceptable business dealings qua the respondent, such as in this case, inappropriately making claims for and receiving monies for variations, which payments caused the respondent's impecuniosity. Mere general assertions, not supported by evidence, will not suffice. To hold to the contrary would be to defeat the purpose of the rule and to the section.
32 The evidence does not establish this; and the same may be said of the submission that to make the order sought would be to stultify these proceedings. In general terms, the evidence shows impecuniosity on the part of the respondent, and of it and Dr and Mrs Shohmelian expending substantial sums of money in preparing the respondent's case for trial, but what is not established is that, allowing for the expectation that they will have to pay further sums of money to their lawyers and witnesses before judgment, the payment of a further sum by way of security for costs of the applicants will somehow tip the balance of the scales against the respondent, or those behind the respondent.
33 It is not in dispute that it is appropriate to make an order for the provision of further security for costs, in respect of future costs only, as distinct from costs already incurred. Doing the best I can with the evidence that there is, I consider that the respondent should provide a further $170,000 by way of security.
34 I make the following orders: