Slattery J, Anthony J, Palmer J, Lindsay J, Hall J
Source
Original judgment source is linked above.
Judgment (3 paragraphs)
[1]
EX TEMPORE Judgment
The three plaintiffs in these proceedings, PA Putney Finance Australia Pty Ltd, PA Putney Custodian Pty Ltd and PA Putney Finance Pty Ltd, sue the two defendants, Adrian Emile Francois Aalders and Aalders Finance Pty Ltd, to enforce the settlement of proceedings before Palmer J on 15 July 2010. The proceedings were then, and still are, a dispute between two brothers, Mr Paul Aalders and Mr Adrian Aalders. The plaintiffs are controlled by Mr Paul Aalders and will be referred to for convenience as the "Paul Alders Parties" in these reasons. Mr Adrian Aalders is the second defendant and controls the first defendant. The defendants will be referred to for convenience as the "Adrian Aalders Parties".
In the settlement the Adrian Aalders Parties gave a number of warranties and indemnities to the Paul Aalders Parties upon the breakup of what had been up to then a joint business conducted by the brothers. The business involved the acquisition of assets for leasing to third parties. The split of the joint business in the settlement was effected the following way: subject to some minor exceptions, the Adrian Aalders Parties would make available to the Paul Aalders Parties all of the equipment leasing business, and the Paul Aalders Parties would make available to the Adrian Aalders Parties the motor vehicle leasing business.
In these proceedings, the Paul Aalders Parties contend that the Adrian Aalders Parties breach the July 2010 settlement. The Paul Aalders Parties contend in the events which have occurred: that indemnities in the settlement have been triggered such that the Adrian Aalders Parties must now indemnify the Paul Aalders Parties; and that a warranty that the Adrian Aalders Parties gave in the July 2010 settlement has been enlivened. The Adrian Aalders Parties dispute these allegations and they plead the statute of limitations against a number of the allegations. A trial of these issues is listed before Lindsay J for six days in March 2021.
The matter comes before the Court today on a Motion by the defendants/applicants for security for costs. It is not necessary to restate the principles that apply to such applications. The Court refers to several sources of power: under the Corporations Act 2001 (Cth), s 1335 under the Court's inherent jurisdiction and under Uniform Civil Procedure Rules 2005, r 42.21. The applicable principles are summarised in Welzel v Francis Justice Hall [2011] NSWSC 4477.
This security for costs application is the third such application by the defendants since these proceedings were commenced. The chronology of the prior applications may be briefly stated. The first motion for security was filed on 6 February 2019. It was contested. The Adrian Aalders Parties at that stage estimated their defence costs at $172,000 for the whole of the proceedings. The first motion was settled by the provision of security of $50,000 on a without admissions basis and with reservation of a right to make future security for costs applications.
The second security application was brought on 4 October 2019. The Adrian Aalders Parties estimated their costs for the whole of the proceedings at $150,000. This included an estimate of a final hearing of about three to four days. That, and other motions, was heard by Justice Adams in the Common Law Division on 1 April 2020. This motion also settled with a payment of additional security of $50,000. There was no agreed reservation of a right to seek further security for costs.
Another application for security has now been brought. The defendant seeks a further $100,000. The evidence read in support of the application was an affidavit of Fiona Ta'akimoeaka dated 23 October 2020. That affidavit says at paragraph 45 the following:
"MOTION SEEKING FURTHER PAYMENT OF SECURITY FOR COSTS
45. On 24 September 2020, I wrote the Plaintiffs' solicitor confirming that the Defendants' costs to date were $245,000 and that the security of $100,000 paid to date represented 40% of the total costs incurred to date. I estimated that the Defendants (sic) costs up to and including a 6-day hearing would be $60,000 and that therefore the Defendants would be seeking a further amount of security in the sum of $100,000. In those circumstances, if the total security paid by the Plaintiffs was $200,000, this would represent 66% of the Defendants estimated total costs of $305,000. A copy of my letter to the Plaintiffs' solicitor appears at Tab 11 of Exhibit FT-1".
This, together with a letter which says much the same, is the principal evidence upon which the defendants calculate their need for further security for costs.
It is very difficult in this case to work out if security for costs were to be ordered, what security should be ordered in addition to the security which has been ordered previously. The date up to which prior security was ordered is quite unclear.
Further security will often only be ordered where there is some demonstrable change in circumstances, such as an increased length of trial or additional evidence: Vintage Marine Art Pty Ltd v Henderson and Cremer (No. 2) (2019) 101 NSWLR 77; [2019] NSWCA 252 at [14] - [16], per Brereton JA. Security will be ordered in relation to future costs, not past costs. Timely applications for security are required. It appears that the total of $100,000 in security which has been ordered in the past covers how the costs of the whole proceedings looked up until 1 April 2020.
When the Court asked the defendant's counsel what had changed since 1 April 2020, Mr Horobin, indicated a number of things had changed, warranting the present application. He relied on the following matters: the hearing estimate had increased from three to four days, to six days before Lindsay J; very substantial evidence has now been filed on behalf of the plaintiffs in May 2020, including an affidavit of some 2,000 pages; further affidavit evidence of some 347 pages was filed in June; comprehensive expert evidence was filed on 20 July 2020; another affidavit of Mr Paul Aalders was filed after the expert evidence; and a Further Amended Statement of Claim was filed incorporating substantial amendments.
These developments have all occurred since the last order for security was made in April this year. They probably warrant some revision to the security for costs position. But the present application faces a more fundamental problem. In the Court's view, it cannot succeed today. But the Court would be doing the parties a disservice if it did not express an opinion upon the current evidence about what further security should be required in this case so that the parties can attempt to resolve their differences and avoid another future contest about security for costs.
The Adrian Aalders Parties have not complied with the first requirement of proving security for costs in UCPR, r 42.21(d): "that there is reason to believe that the plaintiff being a corporation, will be unable to pay the costs of the defendant if ordered to do so". The defendants/applicants have approached this application without taking to heart this obligation to prove this element of the application.
The uncontested evidence of the plaintiffs stated in the affidavit of David Farrer dated 6 November 2020, is to the following effect:
"(d) Paragraphs 37 to 43. Paul has provided me with an 'accounts receivables report' as at today's date for the second plaintiff which records a total of $214,754.26 as payable, with $173,736.18 current, $20,509.04 as between 31 to 60 days and $20,509.04 as over 90 days. A copy of the report is at tab 2.
(e) Paul has also provided me with a statement generated via his St George Bank Limited internet banking as at today's date for the first plaintiff recording a total of $154,512.80. A copy of the statement is at tab 3.
(f) I am informed by Paul that the first and second plaintiff do not have any third party liabilities resulting in a combined asset surplus of $369,267.06".
On an application such as this, the defendants/applicants must put material before the Court which gives the Court reason to believe that the corporate plaintiff will be unable to pay the defendants' costs if ordered to do so. The defendants/applicants have not sought by Notice To Produce to drill down into the management accounts of the plaintiffs to show their financial position. Belatedly, in the course of argument, the defendants sought to rely upon parts of an expert report served by the plaintiffs, which had not been tendered on this application, which allegedly contained some of the plaintiffs' balance sheets.
But it is the obligation of an applicant on a motion such as this to advance materials which show the overall financial position of a corporate plaintiff to raise a "reason to believe" it will not be able to pay a costs order. No Notice to Produce has been deployed against the Paul Aalders Parties. No admissions have been sought. No profit and loss statements are available. The Court is not inclined to allow an adjournment of an application such as this for the defendants/applicants to put their house in order.
The plaintiffs' evidence before me is that the first and second plaintiffs have combined assets of $369,267.06. The solicitor for the defendants, Ms Ta'akimoeaka, says that, based upon all of the evidence filed and presently anticipated, the defendants' total estimated costs including a six day hearing before Lindsay J would be $305,000. The defendants already have security for $100,000.
The three corporate plaintiffs have engaged the same solicitors. The normal rule for making costs orders against plaintiffs who retain the same solicitors is that they would be jointly and severally liable for the costs order: Currabubula Holdings Pty Ltd v State Bank of New South Wales [2000] NSWSC 232 at [104]. It is therefore appropriate to look at their combined assets. There is a combined asset surplus for all plaintiffs of $369,267.06. This would appear to be ample to cover an adverse costs order for the balance of unsecured costs of $205,000 ($305,000 less $100,000). In the Court's view, the threshold of a security for costs application has not been made out in this case. So the Court will dismiss the motion.
The dismissal of an interlocutory motion does not necessarily preclude a further motion being brought. I am dismissing the Motion on the basis of inadequate evidence to establish a risk of non-payment of future costs orders. But if the defendants were to bring a motion based upon the adequate evidence and if they were to establish that there was a risk that the plaintiffs may not be able to pay a costs order made against them, then taking into account what has been put, the Court may have ordered security for costs of a further $50,000. But that amount would take into account all anticipated further costs of the kind identified by the defendants up to the end of the six day hearing. And it would also take into account the outlined changes in circumstances since April 2020.
The Court has also had the opportunity to look at the pleadings in this matter and some of the evidence that has been filed. The management of this matter for trial is clearly for Lindsay J. But it may assist the parties, and his Honour, for me at least to observe this: that in the course of submissions today, it does appears to the Court that the parties have widely divergent views about what is sufficient proof of the plaintiffs' case. The plaintiffs rely to prove their loss on settlements of litigation. They say that they only have to tender the documents that prove the various settlements by which the plaintiffs say that their loss was crystallised, as a result of the alleged misrepresentations of the defendants. But the defendants say that it is necessary for the plaintiffs to call all the third parties to the settled litigation to give direct evidence to prove that the defendant made the misrepresentations that are alleged to have been at issue before the settlements occurred. Some authorities suggest that a commercial settlement at arm's length may be sufficient evidence to found a plaintiff's claim of loss. But whether the settlement is sufficient to prove there was misrepresentation by the Adrian Aalders Parties is another question.
It is not part of the business of the Court on this application to explore the rights and wrongs of this dispute. But there is a sufficiently wide difference of view about the conduct of the final hearing that there is a real risk of a party applying to adjourn the hearing, unless the parties soon reach a common understanding about the conduct of the trial before Lindsay J.
[2]
Conclusion and Orders
Accordingly, the Court makes the following orders and directions:
1. Dismiss the motion dated 2 October 2020.
2. Order that the applicants/defendants pay the respondents/plaintiffs' costs of this motion.
[3]
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Decision last updated: 20 November 2020