Merrag Pty Ltd v Khoury [2008] NSWSC 1286 | Case summary

4184/08 MERRAG PTY LIMITED & ANOR v MICHAEL KHOURY & ANOR JUDGMENT 1 These proceedings are brought by a company in liquidation (Merrag) and its liquidator (Mr Krejci) against a director of the company (Mr Khoury) and the director's wife (Mrs Khoury). 2 The basic allegation is that, in March 2004, Merrag contracted to sell to Mr Khoury and Mrs Khoury a unit in a building in the course of construction by Merrag; that the agreed price was $614,800; that the unit was in due course conveyed by Merag to Mr Khoury and Mrs Khoury; and that they paid, in return, only $250,000 instead of the contracted purchase price of $614,800. Merrag, through its liquidator, advances a claim against Mr Khoury and Mrs Khoury for debt in the sum of $368,800 and a claim against Mr Khoury for breach of directors' duties occasioning loss to Merrag of $368,800. 3 Currently before me is an interlocutory process filed on 23 September 2008 by which Mr Khoury and Mrs Khoury claim an order that Mr Krejci, the liquidator, provide security for costs. 4 Some relevant principles are stated in the judgment of Hodgson JA in Green (as liquidator of Arimco Mining Pty Ltd) v CGU Insurance Ltd [2008] NSWCA 148; (2008) 67 ACSR 105 at [45]: "In my opinion, on the basis of this review of cases, and especially on the basis of the previous Court of Appeal decisions in Hession and Melville , a court considering applications for security for costs against liquidators should not treat the matter as being entirely at large, but should have regard to guidelines, which I would express as follows: (1) Liquidators suing personally are generally to be treated in the same way as natural persons, so that, on the one hand, costs orders will be made against them if proceedings fail, and, on the other hand, security for costs may be ordered against them when the conditions set out in UCPR 42.21 are satisfied or (on appeal) there are "special circumstances" within UCPR 51.50. Although security for costs can be ordered (at first instance only) in other circumstances, this is not the usual or normal course; and it is relevant that, in order that security for costs be ordered in other circumstances on an appeal, where at general law security was more readily granted, "special circumstances" are required. It is to be noted also that mere inability to meet costs orders does not amount to special circumstances ( Transglobal Capital Pty Ltd v Yolarno Pty Ltd [2004] NSWCA 136) and thus does not of itself put an onus on an appellant to prove that an order for security would stultify the appeal. (2) Where the plaintiff is a company in liquidation, and not the liquidator, then security for costs will more readily be ordered, although the court's discretion is unfettered ( Bell Wholesale P/L v Gates Export Corporation (No 2) (1984) 8 ACLR 588) and there is no presupposition in favour of granting security ( Bryan E Fincott P/L v Eretta P/L (1987) 16 FCR 497). However, the court will not refuse to order security on the ground that this will frustrate the litigation unless the company proves that those who stand behind the company and would benefit from the litigation are unable to provide security ( Bell Wholesale ). (3) Cases in which security for costs might be ordered against a natural person or a liquidator outside those provided for in UCPR 42.21 include cases where (in addition to proof that there is reason to believe the plaintiff will be unable to pay the defendant's costs) the plaintiff has dissipated assets and/or has not paid previous costs orders (especially if those costs orders were in favour of the defendant) and/or brings a weak case to harass the defendant and/or brings a case for the benefit of others (albeit not solely for their benefit as apparently required by UCPR 42.21(1)(e)). There is of course a sense in which a liquidator is suing for the benefit of others; but what was decided in Cowell and Strand Wood was that this was not of itself sufficient to justify security for costs in relation to a person who has the statutory right and duty to do this." 5 The present case is not one in which the liquidator sues personally. The party allegedly wronged - whether by non-payment of a sum due to it or by breach of duties owed to it - is Merrag. Unlike, for example, a claim under s 588FF of the Corporations Act 2001 (Cth), this is not a case in which the liquidator sues as liquidator with a view to obtaining an order that benefits the company in liquidation. Rather, the company, actuated by its liquidator, asserts causes of action belonging to it. 6 It follows that, if security for costs is ordered, it should be ordered against Merrag according to the principles referred to at item (2) of the above extract from Hodgson JA's judgment. Merrag is an impecunious company. This is made clear by Mr Krejci's affidavit about the very small amount available to him as liquidator. The discretion to order security is therefore enlivened: Corporations Act, s 1335; Uniform Civil Procedure Rules 2005, r. 42.21. 7 As Hodgson JA emphasised, however, the discretion is unfettered and there is no presupposition in favour of granting security. The suggestion to the contrary by Street CJ in Buckley v Bennell Design & Constructions Pty Ltd (1974) 1 ACLR 301 at 305 is no longer accepted: see also Winnote Pty Ltd v Page [2005] NSWCA 362; (2005) 64 NSWLR 244; Pioneer Park Pty Ltd v Australia and New Zealand Banking Group Ltd [2007] NSWCA 344; (2007) 65 ACSR 383. 8 In approaching the question of the exercise of the discretion in this case, I begin with an observation of Bowen CJ in J & M O'Brien Enterprises Pty Ltd v Shell Co Ltd (1983) 70 FLR 261 at 264: "One matter which is generally considered in relation to applications for security for costs in relation to proceedings at first instance is what prospects of success the plaintiff has in the proceedings. If the plaintiff has a strong and apparently meritorious case the court is reluctant to make an order which may have the effect of shutting the plaintiff out." 9 Merrag's case is predicated on the existence of a contract for sale to Mr Khoury and Mrs Khoury at a price of $614,800. Mr Khoury and Mrs Khoury, through an open letter written by their solicitors on 1 May 2008, deny the existence of that contract. The solicitors go on to say, however, that there was a later agreement that the property would be sold to Mr Khoury and Mrs Khoury for $440,000, with a loan and interest owed by Merrag to Mr Khoury and Mrs Khoury being set off against the contract price. In that context, the solicitors said, the payment of $250,000 made by Mr Khoury and Mrs Khoury to Merrag upon transfer of the unit produced a result that only $3,018 remained owing by Mr Khoury and Mrs Khoury to Merrag. 10 There was thus, in open correspondence, acceptance by Mr Khoury and Mrs Khoury of the proposition that they are indebted to Merrag as a result of a contract for sale between it and them. 11 The amount of the indebtedness is open to conjecture. According to Mr Khoury and Mrs Khoury it is $3,018.00. On the other hand, an instrument of transfer by Merrag to Mr Khoury alone is expressed to be for a consideration of $490,000 and carries a stamp duty notation consistent with a consideration of $490,000. There are thus grounds for thinking that the agreement acknowledged by Mr Khoury and Mrs Khoury was an agreement at $490,000, not $440,000, so that, even accepting the other figures on which they rely, the indebtedness is $53,018 rather than $3,018. 12 The solicitors' letter to which I have referred was written and sent before Mr Khoury and Mrs Khoury filed defences to the points of claim filed by Merrag and its liquidator. In those defences, they adhere to their denial of the existence of the contract for $614,800, deny that any contract came into existence on 31 March 2004, say that they paid $250,000 to Merrag on or about 25 October 2007, deny that that was on account of the purchase price under the contract alleged by Merrag and its liquidator and say that they "became registered proprietors of the Unit on registration of a transfer lodged on 10 October 2007 and that the consideration for that transfer has been paid". 13 The transfer thus referred to can only be the transfer to Mr Khoury alone mentioned above. That transfer relates to the property in question, is dated 9 October 2007 and is shown as having been lodged on 10 October 2007. 14 By referring to the transfer lodged on 10 October 2007, the defences therefore seem quite clearly to accept $490,000 as an amount that was to be paid by Mr Khoury and Mrs Khoury for the property. Yet while the defences say (without any attempt at explanation) that that consideration has been paid, the solicitors' letter refers to consideration of only $436,982 having passed (the payment of $250,000 and the off-set for the alleged interest obligation of $186,982). 15 In the circumstances outlined, I am bound to regard Merrag as having shown a strong basis for asserting a right to recover at least $53,018. 16 Merrag's claim is, of course, pursued for it by its liquidator who has no first hand knowledge of the events at the base of the claim. Subpoenas and notices to produce have been issued by the plaintiffs in order to obtain documents relevant to the claim. Correspondence makes it clear that a subpoena directed to Mr Khoury was returnable on 9 October 2008. His solicitors wrote to the plaintiffs' solicitors on 8 October 2008 saying that documents were being assembled and that a further seven working days were required to complete the task. The subpoena was stood over to 27 October 2008. No documents were produced. 17 I infer from the solicitors' letter of 8 October 2008 that this was not because of insufficiency of time to assemble the documents. More than seven working days elapsed between 8 and 27 October 2008. Rather, the reason may be taken to be that stated in a later paragraph of the solicitors' letter: "Further, we are of the view that it is not appropriate for our client to answer the subpoena until the application for security for costs is determined." 18 The unmistakeable message conveyed by Mr Khoury is that, in his view, an order of the court requiring action by him may be ignored by him until the proceedings have reached a stage where he considers it "appropriate" to comply - in other words, that he will comply when it suits him to do so. There had been no attempt to challenge the subpoena when I heard the interlocutory process. 19 All this bespeaks on Mr Khoury's part disdain for not only the order of the court but also the statutory duty imposed on him by s 56(3) of the Civil Procedure Act 2005. 20 Merrag has shown a strong basis for a significant monetary claim against Mr Khoury and Mrs Khoury. Merrag is an impecunious company such that the action will be stultified if it has to provide security (there is no suggestion that any creditor or member is willing to provide support). These factors, coupled with what I can only view as delinquent conduct of Mr Khoury in relation to the proceedings, cause the appropriate exercise of the discretion regarding security for costs to be an order that the interlocutory process filed on 23 September 2008 be dismissed with costs. 21 I so order. **********

Merrag Pty Ltd v Khoury

At a glance

Court

Decision date

Before

Source

Judgment (12 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (8)

Cited By (1)