Rural & General Insurance Broking Pty Ltd v Barrie Goldsmith t/as Goldsmiths Lawyers

JUDGMENT 1HIS HONOUR: The plaintiff was a client of the defendant who provided legal services to it. A dispute arose as to payment of the defendant's costs. The plaintiff sought an assessment of costs. A costs assessor determined that there was no jurisdiction to determine the application for assessment because it was out of time. A review panel came to the same conclusion. On 23 November 2010 the plaintiff commenced proceedings in this Court by way of summons seeking to quash those two decisions. It also sought an order pursuant to s 728 of the Legal Profession Act 2004 that the defendant provide to the plaintiff a bill of costs. The proceedings are next before the Registrar on 21 March 2011 for directions. 2On 19 January 2011 the defendant filed a notice of motion seeking an order pursuant to rule 42.21 of the Uniform Civil Procedure Rules 2005 and section 1335 of the Corporations Act 2001 (Cth) that the plaintiff provide security for costs and that the proceedings be stayed until such security is provided. The plaintiff resists the motion. 3The basis of the defendant's motion is 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: UCPR r 42.21(1)(d). The Corporations Act provision is in similar terms. Such differences as there are between s 1335 and UCPR r 42.21(1)(d) are not presently significant. The primary question on this motion is whether the defendant has established that there is reason to believe that the plaintiff will be unable to pay the defendant's costs if the plaintiff were to be unsuccessful in relation to the proceedings it has brought. Three matters are said to give rise to the belief. 4The first matter is that an application was filed on 23 August 2010 in the Federal Court of Australia by the Deputy Commissioner of Taxation seeking an order that the plaintiff be wound up in insolvency and that a liquidator be appointed. The ground for the application is said to be the failure to comply with a statutory demand for the payment of a debt in the sum of $149,202.24. The defendant contends that this gives rise to a belief that the plaintiff is unable to pay its debts as they fall due and thus would be unable to pay the defendant's costs if ordered to do so. 5The plaintiff's response to this is to indicate that an arrangement has been made with the Australian Taxation Office for the payment of the debt by instalments. The plaintiff's evidence indicates that the plaintiff is paying what should be, as of this month, $20,000 per month and that the liability will be fully repaid by 30 June 2011. 6The second matter is that on 25 October 2010 a liquidator was appointed to a company associated with the plaintiff, ACN 000 007 492 Limited, previously called Rural & General Insurance Limited (RGIL). Previously an administrator had been appointed to this company. The defendant contends that these facts indicate that this company has an inability to meet all of its financial obligations. 7The plaintiff's response to this is that the company and the plaintiff, while associated, share no financial link. It is said that ACN 000 007 492 Limited operates the remnants of RGIL's underwriting business, while the plaintiff operates a broking business. It is also said that since 2004 the companies have had no common shareholders. 8The third matter relates to Mr Charles Pratten. Mr Pratten was at times a director and secretary of the plaintiff until he resigned on 11 October 2010. The plaintiff tendered material which indicates that he then briefly resumed his directorship with the plaintiff effective 14 December 2010, resigning again in 2011. 9The defendant annexed to his affidavit of 18 January 2011 a number of newspaper articles concerned with the apparent charging of Mr Pratten with seven counts of what is referred to as tax fraud and one count of threatening to cause harm to a Commonwealth public official, that is, an Australian Federal Police officer. The defendant submits that there is an inevitability that if Mr Pratten is convicted of these charges he will be sentenced to a term of imprisonment which is likely to be lengthy. I note that one of the newspaper articles refers to Mr Pratten being on bail, with conditions requiring security of $500,000, confiscation of his passport and thrice weekly reporting to police, so I take it that the allegations are of some seriousness. 10Also annexed to the defendant's affidavit is a printout from the plaintiff's website in which Mr Pratten is described as "a partner of the business". 11It is the defendant's contention that if Mr Pratten were to be incarcerated the business of the plaintiff will be prejudicially affected and this gives rise to further concern about its ability to meet any order for costs that may be made against it. 12The plaintiff asserts in response that, first and foremost, the plaintiff has experienced management that can competently manage the affairs of the business in Mr Pratten's absence. Moreover, it is contended that the charges against Mr Pratten are personal in nature and do not implicate the plaintiff; that they are in their embryonic stages in the sense that Mr Pratten has not had to enter a plea, no particulars of the charges have been provided by the prosecution, and the matter is unlikely to be heard until 2012, well after the conclusion of these proceedings; and that in any event, Mr Pratten intends to vigorously defend the charges. 13As noted above, the law governing motions for security for costs requires me to consider whether, as the parties put it, the "threshold test" has been met. That is, whether there is "reason to believe" that the plaintiff will be unable to pay the costs of the defendant if ordered. If the threshold test is satisfied, it is then necessary to determine whether the Court should exercise its discretion to order security for costs.