Somersall Investments Ltd v Pinnacle VRB Ltd [2001] VSC 283

11. In that affidavit Jacques has sworn that as at 7 August 2001 the net assets of the plaintiff total $963,291.26 consisting principally of 1,625,282 ordinary shares and 109,898 options held in the defendant Pinnacle VRB Ltd.

14. By an agreement dated 30 July 1997 the defendant engaged the plaintiff to provide it with management and advisory services.

17. On 19 October 2000 the plaintiff terminated the agreement in accordance, so it alleges, with the terms of the agreement. The defendant on the other hand maintains that it terminated the agreement at about that time because of the negligent manner in which the plaintiff had performed its managerial obligations and that it confirmed that termination in a letter of 27 October 2000 to the plaintiff's solicitors. Clearly, resolution of that dispute must await the trial of the proceeding.

20. On 22 December 2000 the plaintiff filed a writ in the Court seeking to recover the sum of $256,111.91 which it alleges is due to it pursuant to the agreement.

23. On 14 February 2001 the defendant filed its defence and counterclaim in the Court. By its counterclaim the defendant seeks to recover approximately $850,000, that being the sum it alleges it has lost by reason of the negligent conduct of the plaintiff in the performance of its management obligations.

26. On 12 June 2001 the defendant filed its summons in the Court whereby it seeks security for its costs of the proceeding.

29. The fact that a plaintiff is resident out of the jurisdiction tends strongly for the exercise of the discretion which the Court has in respect of such applications, in favour of the defendant.

32. In that respect one need go no further than the decision of McHugh, J. in P.S. Chellaram & Co. Ltd. v. China Ocean Shipping Co. and Another[1]. At p.323 his Honour said:

"However, for over 200 years, the fact that a party, bringing proceedings, is resident out of the jurisdiction and has no assets within the jurisdiction has been seen as a circumstance of great weight in determining whether an order for security for costs should be made. Indeed, for many years the practice has been to order such a party to provide security for costs unless that party can point to other circumstances which overcome the weight of the circumstance that that person is resident out of and has no assets within the jurisdiction."

36. However, it is argued on behalf of the plaintiff that there are two factors in the present case which either individually, or jointly, are sufficient to justify a refusal of the defendant's application.

39. In his affidavit of 9 August 2001 Jacques has sworn that the plaintiff will undertake not to dispose of the shares or options it has in the defendant without informing the defendant of the disposal, and in the event of disposal of all or part of the shares or options, it will retain the sum of $50,000 from the proceeds of sale in its solicitor's trust account. In that way, so it is said, the defendant will be protected in the event it is successful in its defence of the proceeding.

42. The second matter relied upon by the plaintiff concerns the defendant's counterclaim.

45. What is said in that regard is that by reason of the complexity of the defendant's counterclaim and the sum claimed in it, the defendant's counterclaim is now the dominant feature of the proceeding and the plaintiff is now, in substance, the defendant. In that situation it would be quite inappropriate to require the plaintiff to give security.

48. In my opinion the fact that the plaintiff has offered to give the undertaking it has is of little comfort to the defendant. I say that for the reason that any such undertaking by the plaintiff would be unenforceable in the Turks and Caicos Islands.

51. This aspect of an undertaking was also considered by McHugh, J. in Chellaram. In that case the plaintiff corporation was incorporated in Hong Kong. At p.324 his Honour said:

"But this contention misconceives the nature of an order or undertaking to a court to do an act or pay a sum of money. Breach of such an order or undertaking is a civil contempt of court enforceable by committal or sequestration of the contemnor's property. But it is a contempt of and, statute apart, enforceable only by the court which made the order or to whom the undertaking was given. Wide as the provisions of the Hong Kong Ordinance may be, they do not extend to the enforcement of orders or undertakings which are enforceable only by the institution of civil proceedings for contempt of court in a foreign jurisdiction. No point would be served in discussing the provisions of that Ordinance. It is enough to say that its principal object is to provide for the enforcement in Hong Kong of judgment debts obtained in the superior courts of any foreign country to which the Governor in Council has applied the provisions of the Ordinance. Any undertaking given by or on behalf of Mr. Chellaram to this court would not be enforceable in Hong Kong."

55. As to the plaintiff's second contention the defendant through its counsel has given an undertaking to the Court that if the plaintiff's action is stayed by reason of its inability to comply with an order for security for costs, it will not pursue its counterclaim.

58. Having considered the various factors put before the Court by the parties including those I have spelled out in these reasons for judgment I have concluded that this is a case in which it is appropriate to require the plaintiff to give security for costs.

61. It would appear that the sole commercial activity being undertaken by the plaintiff during the course of the management agreement was the provision by it of managerial services to the defendant. Certainly there is no evidence before me to suggest that it was involved in any other business activity.

64. Further, it would again appear that the plaintiff is simply the alter ego of Malcolm Thomas Jacques. Certainly there is no evidence to the effect that it employs any other staff either here or in the Turks and Caicos Islands.

67. One might be forgiven for asking, if that is the situation why is the plaintiff incorporated in the Turks and Caicos Islands and not in the State of Victoria? At the least one might ask - why is it not registered in this State?

70. Any answer to such questions is of course sheer speculation. But they do cause one to have concerns as to the defendant's prospects of recovering any cost order in its favour if it is ultimately successful in the proceeding.

73. I turn then to the nature of the security to be provided.

76. In his detailed estimate of the costs to be incurred by the defendant in defending the plaintiff's claim, and I stress "defending the plaintiff's claim" because the defendant's costs expert has not taken into account the defendant's costs of pursuing its counterclaim, the defendant's expert has arrived at a figure of $126,871.00 as representing the defendant's costs to the conclusion of the trial of the proceeding.

79. Not surprisingly that figure is challenged by the plaintiff's solicitor in his affidavit of 13 July 2001.

82. Having regard to one's experience of legal costs in proceedings of this nature the view I take of the matter is that it would be appropriate to require the plaintiff to provide security in the sum of $50,000 in respect of the defendant's costs of the proceeding up to but not including the date of trial of the proceeding.

85. If the proceeding is not resolved prior to trial it will be open to the defendant to make a further application in the matter in respect of its costs of the trial.

88. The appeal from the orders of the Master made on 16 July 2001 is allowed and the orders are set aside.

91. I order that the plaintiff give security for the defendant's costs of the proceeding up to but not including the date of trial of the proceeding in the sum of $50,000 in the form of a bank guarantee given by a bank trading in and with an office in Victoria or other form agreed by the defendant by the 28th day of September 2001. In default of the plaintiff giving the said security the proceeding be stayed.

94. I reserve liberty to the defendant to apply for an order for the giving of further security by the plaintiff on 7 days' written notice to the plaintiff.

97. I order that the plaintiff pay the defendant's costs of the application to the Master and the costs of the appeal.

100. I grant to the plaintiff the appropriate certificate under the Appeal Costs Act in respect of its costs of the appeal and the costs of the appeal it is required to pay to the defendant.

[1] [1991] HCA 36; 102 A.L.R. 321