Plaintiff v Defendant

Supreme Court of Victoria|2015-08-13|Before: Ierodiaconou AsJ

PRACTICE AND PROCEDURE - Security for costs - Application by defendant for security against plaintiff - Security in related proceeding - Issue of quantum - Whether bank guarantee is adequate security - Costs in the proceeding - Corporations Act 2001 (Cth), s 1335(1), Supreme Court (General Civil Procedure) Rules 2005 (Vic), r 62.

1 By summons filed 9 June 2015, the defendant sought orders for security of costs from the plaintiff. Both the defendant and plaintiff are companies.

(a) whether the security should include costs for a related proceeding being proceeding SC I 2015 02947 in this Honourable Court ('the Caveat Proceeding');

3 In respect of the Caveat Proceeding, on 22 July 2015 the Court declined to order that security for costs be paid and indicated reasons would be given at the time a decision regarding the other substantive matters the subject of this application is given.

4 In the Caveat Proceeding, Emerton J made the following orders on 23 June 2015 'on the papers'.[1]

OTHER MATTERS:

The Court has considered the parties' written submissions as to costs.

In the Court's view, neither party has acted so unreasonably that the other party should obtain its costs and, as the Court did not hear full argument in the application to remove the caveat, it could not form the view that one party was almost certain to have succeeded if the matter had been fully heard.

In the circumstances, the parties' costs should be reserved to the trial judge in the proceeding S CI 2015 1226: Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; ex parte Lai Qin (1997) 186 CLR 626, 624-5.

It is intended that paragraph 1 of this Order will have effect such that, subject to the discretion of the trial judge in proceeding S CI 2015 1226, the costs of this proceeding will abide the outcome of the issues in that proceeding which bear upon whether the Plaintiff in that proceeding has the caveatable interest which it alleges.

THE COURT ORDERS THAT:

The costs of this proceeding are reserved to the trial judge in proceeding S CI 2015 1226 in this Honourable Court.

5 It was common ground that (a) no application for security for costs was made in the Caveat Proceeding and (b) the defendant in this proceeding was the plaintiff in the Caveat Proceeding.

6 The applicable law for the costs application is Order 62 of the Supreme Court (General Civil Procedure) Rules 2005 ('the Rules'), section 1335(1) of the Corporations Act 2001 (Cth) and the inherent jurisdiction of the Court.

7 Order 62.03 provides that 'where an order is made requiring the plaintiff to give security for costs, security shall be given in the manner and at the time the Court directs'.

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.

9 There was no authority that either party identified regarding the defendant's submission that security for costs in the related proceeding (namely, the Caveat Proceeding) should be given.

10 It is a well-established principle that security should generally only be given to a defendant.[2]

11 The defendant submitted that in a proceeding to remove a caveat, the plaintiff should not regarded as a plaintiff and relied on Piroshenko v Grojsman & Ors.[3] The submission is not accepted. The case concerns, inter alia, the onus of proof which the defendant must discharge.[4]

12 The defendant's application for security in the Caveat Proceeding is dismissed for the following reasons.

13 There is no authority to support the defendant's application for security in the related proceeding, namely the Caveat Proceeding. Further, the defendant was the plaintiff in that proceeding. The orders made by Emerton J leave the decision regarding costs to the trial judge to determine in this proceeding. The orders made by Emerton J do not provide support for the defendant's application for security in the Caveat Proceeding.

14 The defendant's solicitors wrote to the plaintiff's solicitors by letter dated 12 March 2015 expressing concern that the plaintiff did not have the financial resources to satisfy an order for costs.[5] The plaintiff agreed to provide security. The issue in dispute was the form of security and quantum.

15 The plaintiff initially offered security in the form of a personal undertaking from its sole director.[6]

16 The plaintiff provided a draft undertaking to the defendant under cover of a letter from its solicitors dated 25 May 2015.[7] The defendant's solicitors responded:

Our client is prepared to accept an appropriate undertaking from an individual to satisfy any order for costs that may be made in favour of our client in these proceedings. However, you have not responded to our request for information about the ability of [the director] to satisfy any order that may be made.

Please do so by 4pm on 28 May 2015, failing which our client will have no alternative than to proceed with an application for security for costs.[8]

17 After the summons in this application was issued, under cover of a letter from its solicitor to the defendant's solicitors dated 9 July 2015, and subsequent email correspondence, the plaintiff provided:

- a personal asset and liability statement of the director (from Liberty Financial) indicating that his assets exceeded his debts, along with a list of his furniture and art, and photographs of a piece of equipment owned by him;

- a statement from a personal account held by the director indicating his bank balance and a letter from his bank to him; and

- a title register search statement for a property in which he is the sole proprietor; information about the equity in it, a valuation and a copy of the memorandum of common provisions for the mortgage relating to a mortgage over the property.[9]

18 By letter dated 13 July 2015 from its solicitor to the plaintiff's solicitor, the defendant responded that the personal undertaking offered by the plaintiff's director was inadequate, primarily because of concerns about his financial standing in particular the value ascribed to his assets, and because the undertaking did not extend to providing security over the assets identified.[10]

19 By letter dated 15 July from its solicitor to the defendant's solicitor, the plaintiff then offered monies ($50,000) by way of bank guarantee. It anticipated it would require at least up to six weeks to arrange the bank guarantee and should security be required earlier, it could be placed in an interest bearing account held by its solicitors in an account styled 'on trust for JG King Developments Pty Ltd and Cleal Holdings' with any withdrawal to be by order of the Court, by consent or at the request of the plaintiff on the basis that a bank guarantee be provided in substitution for the amount held in security ('the trust offer').[11]

20 The defendant's solicitor responded by letter to the plaintiff's solicitor dated 17 July 2015, indicating that, subject to the wording of any bank guarantee, a bank guarantee would be acceptable, or alternatively funds could be paid into Court. The trust offer was not accepted:

In the event that [the plaintiff] finds itself in liquidation, the liquidator of that company would presumably claim an entitlement to those funds.[12]

The monies are held in trust for your client as a potential beneficiary and in our view insolvency of the plaintiff will not affect your client's right to those monies.[13]

22 The defendant sought security by way of money paid into Court or by bank guarantee.

23 Order 62.03 of the Rules provides that 'where an order is made requiring the plaintiff to give security for costs, security shall be given in the manner and at the time the Court directs'.

24 So long as the opposite party can be adequately protected, it is right and proper that the security should be given in a way which is the least disadvantageous to the party giving security.[14]

25 There are circumstances in which undertakings will be acceptable as security.[15]

26 Undertakings should not be accepted from impecunious individuals who have no chance of paying it out:

...the court should not readily accept an undertaking to pay costs from impecunious individuals who, at least at the time when such an undertaking is given, have no chance of making it good.[16]

27 The question arises of whether the defendant would adequately be protected by the personal undertaking by the director, or the trust offer, or by bank guarantee.

28 In respect of the bank guarantee, the defendant has already indicated (as discussed above) that it is prepared to accept a bank guarantee, subject to the wording. The plaintiff offered $50,000 in respect of the bank guarantee. The bank guarantee, providing it is by an Australian bank, would provide adequate protection in respect of $50,000 of costs.

29 There was no evidence that the director who offered the personal undertaking is impecunious. The plaintiff is entitled to offer security in the manner least disadvantageous to it, so long as the defendant is adequately protected. The defendant will be adequately protected by $50,000 in the form of a bank guarantee and security above that amount provided by way of a personal undertaking from the director.

30 In respect of the trust offer, it was offered as an interim measure for the plaintiff for the time it would take to obtain the bank guarantee. It was rejected by the defendant. Given the findings above in respect of the personal undertaking, it is unnecessary to further consider the trust offer.

31 In relation to this proceeding, the parties had agreed that security should be provided for costs up until mediation of the matter. The defendant sought security of $75,800.[17] The plaintiff considered security should be $42,750.[18] These estimates were based on calculations of costs by their respective solicitors. There had been some negotiation between the parties and, as a result, the negotiated amounts were $65,000 from the plaintiff, and $50,000 from the defendant.

32 Ms Patricia Coleman, cost consultant, provided an expert report dated 10 August 2015 with an estimate of the defendant's costs up to and including mediation on a standard basis ('the expert report'). Ms Coleman estimated the defendant's cost on a standard basis up to and including mediation to be $112,360.80.

33 The plaintiff filed an affidavit on 12 August 2015 challenging the defendant's submissions to Ms Coleman. The defendant filed submissions on 12 August 2015 seeking securing security in the amount of $118,860.80 following Ms Coleman's report and further costs incurred.

34 Section 7 of the Civil Procedure Act 2010 provides that the overarching purpose of the Act and the Rules in relation to civil proceedings is to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute. Section 9 requires the Court to further the overarching purpose by having regard to the following objects in making any order or giving any direction:

(b) the efficient use of judicial and administrative resources;

(g) dealing with a civil proceeding in a manner proportionate to -

(i) the complexity or importance of the issues in dispute; and

35 The parties were able to narrow the dispute about costs in this proceeding so that they were $15,000 apart. The expert report has provided an estimate of costs that is significantly higher than the costs initially sought by the defendant. Given the amount in dispute in this application, and the nature of this application (it has no bearing on the final outcome of the proceeding), it would be disproportionate to continue to hear further submissions regarding costs. A decision needs to be made so that this matter can proceed in a timely manner.

36 The plaintiff initially sought $75,800 in respect of costs. The expert report is for $112,360.80. Accordingly, it is reasonable and appropriate security for that amount be provided.

37 The parties agreed the plaintiff would pay the defendant's reasonable costs of the application up to 17 July 2015.[19] This concession was made prior to the orders for the provision of the expert report in relation to quantum. Insofar as this Court is aware, there is no agreement between the parties regarding the costs of the expert report.[20]

38 The defendant was partially successful and partially unsuccessful in respect of this application. It obtained security in the amount sought for the current proceeding. Security is not ordered in respect of the Caveat Proceeding. Security is ordered in the form of an Australian bank guarantee (the defendant sought security by bank guarantee or payment into Court). Further security will be provided by the personal undertaking of the director, which it resisted. Both of these types of security had already been offered by the plaintiff prior to the hearing.

39 Given the above, it is appropriate that the costs of the application not already agreed between the parties, namely those from 18 July 2015, be costs in the proceeding.[21]

40 The defendant sought an order that costs of the summons be taxed immediately.[22] Given that costs of the application from 18 July are costs in the proceeding, it is unnecessary to consider whether those costs are taxed immediately.

41 In relation to the costs prior to 18 July, the question arises as to whether costs should be taxed immediately. Rule 63.20.1 of the Rules provides that, unless the Court orders, costs in an interlocutory hearing shall not be taxed until the proceeding is completed. In Dale v Clayton Utz (No 3), Hollingworth J held:

Courts have recognised that the demands of justice may require a departure from the ordinary rule for one or more of three broad reasons:

(a) Because of the conduct of the unsuccessful party;

(b) Because of the likely delay before the final completion of the proceeding; and

(c) because the interlocutory application involves a separate or discrete issue [emphasis added].[23]

42 In this application, the defendant was partially successful and partially unsuccessful. The plaintiff could not be completely characterised as an unsuccessful party to this application. However, even if it were, there is nothing in its conduct that warrants the displacement of the usual rule. That is, its conduct could not be classed as unreasonable, or reprehensible, or of failing to act with competence and diligence such that it required the defendant to incur significant and unnecessary costs.[24] Therefore it is not appropriate to order costs be taxed immediately and overturn the usual rule in r 63.20.1.

43 Orders will be made in respect of the following.

44 By 4.00pm on 14 September 2015, the plaintiff provide to the defendant's solicitors an Australian bank guarantee in the amount of $50,000.

45 By 4.00pm on 14 September, the plaintiff file and serve a personal undertaking from its director in the form of Exhibit 'MC-7' to the affidavit of Mr Champion affirmed on 8 June 2015 to the defendant's solicitors for the amount of $62,360.80.

46 The proceeding be stayed until the plaintiff provides the two forms of security above.

47 Costs of the application up to and including 17 July 2015 be paid by the plaintiff on the standard basis.

48 Costs of the application from 18 July 2015 be costs in the proceeding.

[1] Exhibit 'MC-1' to the affidavit of Michael Champion affirmed on 14 July 2015.

[2] See commentary in Neil Williams, Civil Procedure Victoria (at 62.01.25).

[5] Affidavit of Michael Champion affirmed on 8 June 2015, exhibit 'MC-3'.

[8] Ibid, Exhibit 'MC-8'. The defendant had previously requested financial information by email from its solicitor to the plaintiff's solicitor dated 1 May 2015: exhibit 'MC-6'.

[9] Affidavit of Philip Jones sworn 20 July 2015, exhibit 'PAJ-5'.

[10] Affidavit of Mr Champion, above n 1, Exhibit 'MC-2'.

[12] Letter from the defendant's solicitor to the plaintiff's solicitor dated 17 July 2015, being exhibit 'PAJ-6' to the affidavit of Mr Jones, above n 9.

[14] Rosengrens Ltd v Safe Deposit Centres Ltd [1984] 1 WLR 1334, 1337 in Williams, above n 2at [62.03.15].

[15] Bodycorp Repairers Pty Ltd v Maisano & Ors [2013] VSC 247. The plaintiff referred to this case in the letter from its solicitor to the defendant's solicitor dated 23 April 2015, see affidavit of Mr Champion, above n 5, exhibit 'MC-5'.

[16] Epping Plaza Fresh Fruit & Vegetables Pty Ltd v Bevendale Pty Ltd [1999] VSCA 43 at [24].

[17] JG King Developments Pty Ltd (ACN 149 538 241, 'Outline of Submissions', Submission in _Cleal Holdings Pty Ltd (ACN 131 952 746) v JG King Developments Pty Ltd (ACN 149 538 241)_S CI 2015 01226, 21 July 2015, [18].

[18] Cleal Holdings Pty Ltd (ACN 131 952 746), 'Outline of Submissions', Submission in _Cleal Holdings Pty Ltd (ACN 131 952 746) v JG King Developments Pty Ltd (ACN 149 538 241)_S CI 2015 01226, 22 July 2015, [18].

[20] The orders made by this Court on 22 July 2015 provided that the parties were to pay the costs of the cost consultant in equal shares in the first instance.

[21] See Chan v Chen [2009] VSCA 233, [10] (J Forrest AJA, with whom Maxwell P and Redlich JA agreed_)._

[22] JG King Developments Pty Ltd (ACN 149 538 241) above n 19, [28].

Court (General Civil Procedure) Rules 2005

At a glance

Court

Decision date

Before

Source

Judgment (79 paragraphs)

Parties

Legislation Cited (2)

Cases Cited (1)