//
© 2026 Zoe. All rights reserved.
Zoe is a legal information platform. Always consult the Federal Register of Legislation for authoritative text.
[2014] WASC 91
Supreme Court of WA
2014-05-28
Mr J, Allanson J
Original judgment source is linked above.
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
CITATION : SUNLEA ENTERPRISES PTY LTD AS TRUSTEE FOR DRUMMOND COVE UNIT TRUST -v- POLLOCK [2014] WASC 91
BETWEEN : SUNLEA ENTERPRISES PTY LTD AS TRUSTEE FOR DRUMMOND COVE UNIT TRUST
DREAMVIEW INVESTMENTS PTY LTD IN ITS OWN RIGHT TRUSTEE FOR THE DREAMVIEW TRUST
PROMENADE INVESTMENTS PTY LTD AS TRUSTEE FOR THE DREAMVIEW UNIT TRUST
Practice and procedure - Security for costs - Multiple defendants - Relevant principles - Factors relevant to exercising the discretion - Turns on own facts
Corporations Act 2001 (Cth), s 237(2), s 242, s 1335
1 ALLANSON J: Eight of the fourteen defendants to this claim have asked the court to order that the plaintiff give security for costs. The proceedings are relatively complicated, and I will give an outline of the facts and issues before considering the applications.
2 The plaintiff relies on two affidavits of Phillipe Fernand Leon Raoul Steinier, sworn on 30 August 2013 and 27 November 2013. In his first affidavit, Mr Steinier also states that he verifies the facts contained in the statement of claim, filed on 21 May 2013: par 77.
4 The plaintiff, Sunlea Enterprises Pty Ltd, is the trustee of the Drummond Cove Unit Trust. Mr Steinier obtained leave of the court under s 237(2) of the Corporations Act 2001 (Cth) to bring these proceedings in Sunlea's name. On such an application, the statutory criterion include whether the proceedings are in the best interests of the company. The ability of Mr Steinier to pay and bear and to indemnify the company for the costs of the proceedings is relevant to that criterion: Pottie v Dunkley [2011] NSWSC 166 [59] [64]; Coeur de Lion Investments Pty Ltd v Kelly [2013] QCA 160 [37]. The court had power to make orders in relation to the costs of the person who applies for leave, and the company: s 242. It appears that no orders regarding costs were made.
5 Mr Steinier is a director of Sunlea, and holds half of its shares. The other director is Trevor Stanley John Betts (the sixth defendant). Betts Nominees Pty Ltd (a company owned by Mr Betts and his wife) holds the other shares in Sunlea.
6 Mr Steinier, as trustee for the Pilou Trust, hold half the units in the Drummond Cove Unit Trust, and Betts Nominees holds the other half: first Steinier affidavit, PS 1.
7 Sunlea claims relief for losses it suffered, and for losses suffered by the unit holders in the Drummond Cove Unit Trust, in a land development project near Geraldton. Sunlea was not the original trustee of the Drummond Cove Unit Trust. Many of the relevant events occurred when Diamo Nominees Pty Ltd was trustee.
8 Diamo Nominees was a company with one issued ordinary share, which was held by Mr Steinier. Mr Steinier and Mr Betts were its directors.
9 Diamo Nominees entered into a joint venture with Dreamview Investments Pty Ltd (the ninth defendant) to carry out the land development project. Sunlea says the joint venturers anticipated large profits, but the project failed.
10 Sandpiper Asset Pty Ltd was also a signatory to the joint venture agreement. Sandpiper was owned equally by Dreamview Investments and Diamo Nominees. Sandpiper held the project land for the purposes of the project. Sunlea alleges that Sandpiper also performed the role of Project Manager. In particular, Sunlea alleges that Sandpiper entered financing agreements with two financiers (the twelfth and fourteenth defendants), secured by mortgages on the project land, and made payments to various persons (including the second and fourth defendants) from the money it borrowed. Sunlea alleges that Sandpiper was in breach of trust when it used the project land as security, and that the payments were unauthorised.
11 The ASIC historical extract for Sandpiper shows that
12 Sandpiper is not a party. It was placed in liquidation on 8 September 2010.
13 There were originally 15 defendants, but Sunlea discontinued against the eleventh defendants. The others are:
14 The applications for security for costs were brought by Jamie Pollock, Laserbase, AIK, Kevin Healey, Dreamview Investments, Mr Betts, Mr Lurie and Mr Freemantle.
15 There are other persons and entities whose conduct is relevant in these proceedings and who will be referred to in these reasons, but are not parties to the action:
16 There are other proceedings in this court between Crosswest Corporation and Allstrike Enterprises Pty Ltd. On 5 February 2014, Beech J delivered judgment on an application for security for costs in that action: Crosswest Corporation Pty Ltd v Allstrike Enterprises Pty Ltd [2014] WASC 27. The issues in that action touch on the matters before me, particularly on whether Sunlea is the beneficial owner of land in Western Australia, and whether that land is encumbered. There is, however, little in evidence before me about the matters being litigated in that action, and the parties have not been in a position to make submissions about it. For the purpose of these reasons it is not necessary to go outside the limited material about that action that is included in the affidavits filed in these proceedings.
17 Six of the defendants, including the two finance providers and their directors, have pleaded.
18 The substance of Sunlea's claim is set out in the earlier of Mr Steinier's affidavits, and in the statement of claim. I will refer to the statement of claim by the paragraph number in square brackets.
19 The Drummond Cove Unit Trust was created by deed in June 2004. There were 200 units issued. Mr Steinier owned half of them, and Betts Nominees owned the other half.
20 Sunlea has been the trustee of the Drummond Cove Unit Trust since about 13 November 2007. There were two earlier trustees: Diamo Nominees from 20 June 2004 to 17 July 2007, and Playstar Holdings from 17 July 2007 to 13 November 2007.
21 From September 2004 until 26 August 2005, Diamo Nominees was the registered proprietor of approximately 235 ha of land in the area of Glenfield and Drummond Cove, near Geraldton. The land was vacant and capable of subdivision and development. Diamo borrowed $5,950,000 from the Bank of Western Australia to acquire the land. The facility with the Bank was entered on 17 June 2005, and was for a period of six months: [67]
22 On 13 August 2005, Diamo Nominees and Dreamview Investments (each acting in its own capacity and as trustee) and Sandpiper executed Heads of Agreement for a joint venture to develop the land [14]. Sandpiper was beneficially owned, in equal shares, by the trustees of the Drummond Cove Unit Trust and the Dreamview Trust.
23 On 21 September 2005, the parties to the Heads of Agreement executed a deed of variation. As the chronology below shows, Sandpiper had by then already entered into its first loan agreement with Walthamstow.
24 The Heads of Agreement, as varied, provided for the parties to participate in an unincorporated joint venture to carry out a project of acquiring land, developing and subdividing the land into 1,700 residential lots, and marketing and selling the land. The joint venture was to have a Management Committee, with Diamo Nominees and Dreamview Investments each to appoint two representatives. Through the Management Committee, the joint venture was to appoint a Project Manager.
25 Diamo Nominees was to transfer the land to Sandpiper 'to hold on trust for Diamo, pursuant to the Declaration of Trust, all Diamo's estate and interest in and to the land': Heads of Agreement, cl 2.4 (a) (ii). No separate declaration of trust was signed. Later documents executed by the parties to the joint venture refer to the trust under which Sandpiper held the land as a bare trust.
26 Sunlea pleads that the parties acted on the basis that Sandpiper had executed a declaration of trust so that it held the land on a trust in accordance with the Heads of Agreement: [43]. Specifically, Sunlea pleads that Sandpiper was entitled to allow the land to be used to secure a loan of $7.5 million to give effect to the first refinancing (described below), but not otherwise [44], [114]. The Management Committee for the project never approved a second financing in accordance with the Heads of Agreement: [115].
27 The Heads of Agreement contemplated refinancing. It is unnecessary for present purposes to go into the detail of the financing arrangements. It is sufficient to note that Diamo Nominees paid, or was assumed to have paid, the acquisition costs of the land of $14 million. It was also acknowledged that Diamo Nominees had incurred debt to do so. Dreamview Investments, was to make an initial contribution to refinance Diamo Nominees' existing debt to its lenders, secure the release of any guarantees for that debt, and arrange for the payment of a First Equity Return to Diamo Nominees (from funds borrowed against the land). In this first stage of refinancing, (the First Refinancing) the amount borrowed and secured against the land would be limited to $7.5 million.
28 Dreamview Investments was required to then pay a Second Equity Return, of $500,000. Dreamview Investments was also required to carry out civil works and earthworks on the land. The overall effect was that Dreamview Investments, from its own funds or resources, would have then paid or provided works to the value of half of Diamo Nominees' acquisition costs, although one component (the First Equity Return) would be borrowed funds. The amount borrowed by Diamo Nominees from the bank would be refinanced and secured against the land, and Diamo Nominees would have received an equity return in two payments.
29 Dreamview Investments would then carry out the balance of the civil works and earthworks, so that the total amount on those works was $10 million.
30 Dreamview Investments was to arrange for its financier to finance up to 100% of the cost of the balance of the civil works and earthworks.
31 The joint venturers were then to cause the land and the project to be revalued, and to arrange additional finance 'for the maximum amount possible (the repayment of which will be secured by the Land and the Project)'. The further finance was to be used to pay the costs of carrying out further civil works and earthworks and to repay to each joint venturer the equity it had contributed at that time to achieve the result that each joint venturer would have an equal equity contribution.
32 Mr Steinier says that a feasibility study carried out for the parties showed a potential profit margin of about $215 million: first Steinier affidavit, par 29. The feasibility study is attached to his affidavit at 'PS 5'. It shows a profit margin of $215 million, but this is based on a development in 29 stages, including a shopping centre and commercial lots, carried out over approximately 14 years. Total development costs are shown of more than $146.6 million. The assumption appears to be that the peak level of debt would be approximately $10 million, so interest would only be about $2 million over the whole project. Cash flow was projected to begin in August 2004, with the first income from sales of land projected for October 2005, and steady sales of land and income from then so that debt is all repaid by January 2007.
33 That is not what happened. The following chronology is taken from the statement of claim:
35 Sunlea casts its net widely in claiming responsibility for each of these wrongs. In particular, it alleges that the directors of Sandpiper (except Mr Steinier) are liable for the breaches of the 'Land Trust' on which Sandpiper held the land to be developed. It alleges that persons receiving a benefit from the breaches of trust, including Walthamstow and Mr Masel, assisted in and procured the breaches of trust and are liable for loss and damage. The parties who received unauthorised payments received those payments with knowledge of the breach of trust by Sandpiper and knowingly participated in the breach of trust.
37 Sunlea also claims damages from Walthamstow and Troika under statutory causes of action for unconscionable conduct in the provision of financial services.
38 The sixth defendant put into evidence a copy of a deed, titled Deed of Consent to Distribution and Settlement, dated 10 January 2008. The copy is not signed by Mr Steinier, but it is not disputed that he signed it. The parties to the deed are Betts Nominees, Mr Betts, Mr Steinier in his own right and as trustee for the Pilou Trust, Rick Gavin Hopkins (then sole director and shareholder of Sunlea), Laika Corp Pty Ltd, Springland Pty Ltd in its own right and as trustee for the Bertram Heights Unit Trust and the Bertram Heights Unit Trust No 2, Bertram Heights Pty Ltd in its own right and as trustee for the Bertram Heights Unit Trust No 3, Sunlea in its own right and as trustee for the Drummond Cove Unit Trust, and Playstar Holdings Pty Ltd in its own right and as trustee for the Parkerville Unit Trust.
39 As 'background', the deed recites disputes between Mr Steinier and Mr Betts regarding various business ventures in which they had engaged. Relevantly, it refers to the Drummond Cove Unit Trust and recites:
(i) Sandpiper/Surfbeach aims to put in place (and expects to do so by 15 March 2008) financial facilities in the order of $40 m under which some $7 m is to flow back to Sunlea (as trustee for the Drummond Cove Unit Trust);
(ii) 60 of the lots from the Drummond Cove Land to which Sunlea (as Trustee of the Drummond Cove Unit Trust) is entitled free and clear of any claims of the Drummond Cove Joint Venture to participate in the fruits thereof, have an immediately realisable value of about $15 m;
(iii) the Drummond Cove Land (including the 60 lots) has recently been valued in the result, the Drummond Cove Unit Trust's share thereof is nominally $55 m; and
(iv) the sale of the Drummond Cove Land is therefore expected to support the flow of Distributions progressively over many years commencing after the sale (thought to be by December 2008) of 200 lots (in excess of the 60 lots referred to in paragraph (ii) above) from which time the Drummond Cove project is expected to be free of debt and cash positive.
40 I have not heard a full argument regarding the effect of the deed, but on its face it applies to the Drummond Cove Unit Trust, and to the relations between Sunlea, Mr Steinier and Mr Betts. The deed provides for various adjustments, and in cl 12 provides for each of them to release and discharge each other from claims in respect of matters 'arising from the Unit Trusts and the Projects'. By cl 13, the deed may be pleaded in bar to any claim 'in connection with, or in any way related to, the matters referred to either directly or indirectly in this Deed, save in respect of, or in relation to, the rights and obligations created, recorded, contained or preserved in or by this Deed'.
41 Under s 1335 of the Corporations Act, where a corporation is plaintiff in any action, 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, the court may require sufficient security to be given for those costs and stay all proceedings until the security is given. The fact that Sunlea's claims are asserted by Mr Steinier through a statutory derivative action does not convert them into claims by an individual; they remain claims of the corporation: see Fiduciary Ltd v Morningstar Research Pty Ltd [2005] NSWSC 442; (2005) 53 ACSR 732 [53]; Rusiti v Alkhoshaibi [2007] NSWSC 1374.
42 Sunlea accepts that it will be unable to pay any order for costs in favour of a successful defendant. Sunlea is a trustee, and holds its property for the unit holders of the Drummond Cove Unit Trust. Its own evidence (although I have reservations about it) is that it has an excess of liabilities over assets of about $2.5 million: first Steinier affidavit, PS 59.
43 The issues raised in this application go to the proper exercise of discretion to make an order.
44 Costs are awarded to indemnify the successful party, at least in part, against the expense to which he or she has been put by reason of the legal proceedings. The purpose of an order for security for costs against a corporate plaintiff is to protect the defendant against the risk of being deprived of the benefit of that compensation, should the defendant be successful.
45 Once the conditions for the exercise of the power under s 1335 have been met, the court has an unlimited discretion whether to require security. The discretion is to be exercised considering all of the circumstances of the case. Essentially, the section requires a balance to be struck between protecting the defendant from the possible consequences of being sued by an impecunious corporation with limited liability, and avoiding injustice to the corporation by unnecessarily prejudicing it in the conduct of litigation: see Buckley v Bennell Design & Construction Pty Ltd (1974) 1 ACLR 301.
46 I approach this matter on the basis that there is not an entitlement to security once the defendant has established that the plaintiff will be unable to pay its costs if the defendant is successful; nor is there a predisposition towards an order for security: see the extensive review of the authorities in Bryan E Fencott and Associates Pty Ltd v Eretta Pty Ltd [1987] FCA 102; (1987) 16 FCR 497. In the circumstances of a particular case, however, the fact that the plaintiff is impecunious may be an important factor in determining the application: Spiel v Commodity Brokers Australia Pty Ltd (in liq) (1983) 35 SASR 294, 300; Pearson v Naydler (1977) 1 WLR 899, 906; BPM Pty Ltd v HPM Pty Ltd (1996) 14 ACLC 857, 860; Harpur v Ariadne Australia Ltd (No 2) (1984) 2 ACLC 356, 361.
47 There are several cases which have identified the factors commonly considered in such applications: see KP Cable Investments Pty Ltd v Meltglow Pty Ltd [1995] FCA 76; (1995) 56 FCR 189, 196 - 198; Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [2013] WASC 57 [6]. None of these lists claims to be exhaustive, and the factors will vary from case to case. The weight to be given to any circumstance depends not only upon its own intrinsic persuasiveness but upon the impact of the other circumstances which have to be weighed: PS Chellaram & Co Ltd v China Ocean Shipping Co [1991] HCA 36; (1991) 65 ALJR 642, 643.
48 On the matters raised in the present applications, the court should properly have regard to:
(i) the likelihood of Sunlea being unable to pay the defendants' costs;
(iii) whether Sunlea's impecuniosity was caused by the defendants' conduct which is the subject of the claim;
(iv) whether the application for security is oppressive, and in particular, whether the award of security would deny Sunlea a right to litigate, and stultify its claim;
(v) whether there are persons standing behind Sunlea who are likely to benefit from the litigation, and whether those persons have offered any security or personal undertaking to be liable for the costs, and if so, the form of such an undertaking;
(vi) the position of Mr Betts as a defendant who seeks security for his costs, but who is also likely to benefit from any relief obtained by Sunlea because Betts Nominees holds half of the units in the Drummond Cove Unit Trust.
49 There are other factors commonly considered, but none are pertinent to the present applications.
(i) the likelihood of the plaintiff being unable to pay the defendants' costs
50 In the present case, having regard to its position as a trustee, and the limited evidence about its financial status, I am satisfied that it is fair and reasonable to treat Sunlea as without assets.
51 First, Sunlea's general position is that it holds property as a trustee for the Drummond Cove Unit Trust, and has no other assets. Even assuming that Sunlea has a right of indemnity out of trust funds, the court should have in mind the difficulty faced by a successful defendant in attempting to execute against trust funds: Lagarna Pty Ltd v Bridge Wholesale Acceptance Corporation (Australia) Ltd [1995] VicRp 9; [1995] 1 VR 150; Transocean Capital Pty Ltd v AFSIG Pty Ltd [2006] NSWSC 806.
52 Second, Mr Steinier has put into evidence an unsigned Special Purpose Financial Report for the year ended 30 June 2013: first Steinier affidavit, PS 59. The Trading Profit and Loss Statement for the year shows accumulated losses of $2,458,309. The major item of expenditure is recorded as 'loan written off $12,885,001'. The Balance Sheet shows that to be a loan to Sandpiper. The loan is recorded in the Balance Sheet as a current asset in 2012, even though Sandpiper went into liquidation in 2010. The major item of income, $14 million, is described in the notes as 'Asset Revaluation Transfer'. Without explanation, this is all of very limited assistance.
53 The Balance Sheet shows an excess of liabilities over assets of $2,458,209. Current liabilities are relatively insignificant. Noncurrent liabilities are loans from two unit trusts that were established for earlier land developments in Bertram, and which partly financed the purchase of the land. The loans total $12,486,347. The notes record an increase of $3,722,452 in the value of those loans from the 2012 entry - the whole of that increase appears to be capitalised interest. The excess of liabilities (from a positive balance in 2012 of more than $11 million) is primarily due to the write off of the loan to Sandpiper, and the inclusion of the interest in the Bertram Heights Unit Trust Loans.
54 Third, Sunlea is not the registered owner of any land in Western Australia. It has no assets registered in its name in the Personal Property Securities Register.
55 Sunlea may be entitled to land held by Crosswest. On 14 June 2010, Crosswest declared that it held 17 lots of land in Geraldton as trustee for Sunlea in Sunlea's capacity as trustee of the Drummond Cove Unit Trust, and will, when requested by Sunlea, execute and deliver a proper registrable transfer in favour of Sunlea. Online searches of Landgate on 26 June 2013 and 22 July 2013 by solicitors for the defendants obtained certificates of title for five lots. Each title is subject to mortgages to Allstrike, registered on 6 July 2010: affidavit of Tobias Christopher Young, sworn 23 July 2013, TCY 5, TCY 7 11.
56 Again there are gaps in the evidence. No evidence has been given about the other 12 lots transferred to Crosswest. The Allstrike mortgages are the subject of the proceedings between Crosswest and Allstrike, currently before Justice Beech. Mr Steinier has not put forward any evidence about those matters.
57 The evidence is not completely satisfactory. But, on the whole of the evidence, I am satisfied that Sunlea would be unable to pay the defendants' costs from its own assets. It is unlikely to be able to borrow for this purpose because of its trustee status, the apparent excess of liabilities, and the need for Mr Betts to cooperate.
58 Sunlea resists the application for security on other grounds.
(ii) the strength and bona fides of Sunlea's case
59 The bona fides of the claim and its merits may be considered in the exercise of the discretion, at least where there is material from which an assessment may be made: see, for example, Brian E Fencott & Associates Pty Ltd v Eretta Pty Ltd (513 - 514). Generally, however, the court should not embark on a detailed consideration of the merits: Equity Access Ltd v Westpac Banking Corporation (1989) ATPR 40-972, 50636; Interwest Ltd v Tricontinental Corporation Ltd (1991) 5 ACSR 621, 624; Jazabas Pty Ltd v Haddad [2007] NSWCA 291; (2007) 65 ACSR 276 [83] [84]. In Equity Access and in Yici Pty Ltd v Sun Wah Marine Products (HK) Co Ltd [No 2] [2010] WASC 27 [7], the court recognised how difficult it may be to make any meaningful assessment of the relative strengths and weaknesses of the cases of the parties when the application is brought at a relatively early stage in the proceedings.
60 The parties have put on affidavit evidence which identifies areas where there will be substantial dispute, but the court is not presently in a position to fully assess the strength of Sunlea's claim. Sunlea claims against multiple defendants, and under various causes of action. Some of the allegations are of a nature and gravity that their proof will call for clear and cogent evidence. It is early in the proceedings, and not all of the defendants have pleaded.
61 It is necessary, however, to make some preliminary assessment, particularly when Sunlea alleges that the defendants caused it to be in its present position where it cannot meet an order for costs.
62 Sunlea's case depends upon the court accepting its argument as to the proper construction of the Heads of Agreement, as varied. If Sunlea is correct about the construction of the Heads of Agreement, documents attached to the first affidavit of Mr Steinier are evidence that:
63 Mr Steinier contends that any borrowing beyond $7.5 million was unauthorised, and further alleges that it was done without his knowledge and consent.
64 Sunlea has also put forward documents which, if not explained, may show that:
65 The defendants point to deficiencies in Sunlea's case.
66 First, while Mr Steinier complains about the conduct of Sandpiper, he was a director of Sandpiper from September 2005 to March 2010. He was a director during the period that the borrowed monies were used to meet the cost of undertaking civil works and earthworks and meeting other project costs.
67 Second, there is evidence that Sandpiper made the Walthamstow and Troika loan agreements, and executed mortgages, but limited evidence of the draw down or application of the borrowed funds.
68 Third, Sunlea relies largely upon assertion that the money paid to Laserbase and AIK came from funds borrowed in breach of trust.
69 Fourth, the evidence currently available does not show that the 'unauthorised options' were granted at other than market value, and does not show whether they were exercised.
70 Fifth, the defendants rely on matters recorded in the minutes of project meetings, which commence in October 2005. Even when Mr Steinier was not present at project meetings, Mr Betts (also a director of Diamo) was present. Minutes of all meetings are recorded as sent to Mr Steinier. The minutes show:
71 More generally, the defendants point to the scant evidence put forward by Sunlea to establish knowledge by various defendants of any breach of trust by Sandpiper, and to establish the alleged conspiracies, when such allegations require clear proof.
73 It is not possible to resolve these matters at a preliminary stage. I should also have regard to the fact that the court granted leave under s 237(2) of the Corporations Act for Mr Steinier to bring these proceedings in the name of Sunlea. In considering whether to grant leave, the court will not normally enter into the merits of the proposed derivative action to any great degree: Maher v Honeysett & Maher Electrical Contractors Pty Ltd [2005] NSWSC 859 [19]; Macralink Pty Ltd v Saris [2011] VSC 665 [18]. It must, however, have been satisfied that the application was brought in good faith and that there is a serious question to be tried.
74 Where a claim is brought in good faith and there appear to be real issues to be tried, the fact that the plaintiff has an arguable claim may be a neutral factor in the exercise of discretion: see Litmus Australia Pty Ltd (in Liq) v Paul Brian Canty (2007) 25 ACLC 1141; [2007] NSWSC 670 [28], Fiduciary Ltd v Morningstar Research Pty Ltd [37] [39]. In my opinion, that is how I should treat the merits in this case. The merits are also relevant to the next consideration, causation.
(iii) whether the plaintiff's impecuniosity was caused by the defendants' conduct which is the subject of the claim
75 Where the defendants' conduct has caused the plaintiff's impecuniosity, the court may not order security: see for example, BPM Pty Ltd v HPM Pty Ltd (346); Lynnebry Pty Ltd v Farquhar Enterprises Pty Ltd (1977) 3 ACLR 133. There must be 'a real causal connection between the conduct and the impecuniosity which, in the exercise of the court's discretion, would make it unjust to require security': see Welzel v Francis [2011] NSWSC 477 [14]; Dalma Formwork Pty Limited (Administrator Appointed) v Concrete Constructions Group Limited [1998] NSWSC 472.
76 While it is for the applicants to persuade the court that an order for security should be made, where the plaintiff relies upon a particular discretionary factor, such as the defendants' wrongdoing, it has an evidentiary onus to establish that matter: BPM Pty Ltd v HPM Pty (346). It may do so by showing its financial condition before and after the transaction complained of. In other cases, it may be sufficient to lead evidence from which the inference may be drawn that the defendants' wrongdoing caused the plaintiff's financial collapse, without the plaintiff having to prove its previous financial strength in detail: see Fiduciary v Morningstar Research.
77 Sunlea has been registered since 2007. It has proffered no evidence of its financial position before it became the trustee of the Drummond Cove Unit Trust, or about the financial position of its predecessors as trustee of the Drummond Cove Unit Trust. The only evidence of Sunlea's current financial position is in the unsigned Special Purpose Financial Report attached to the affidavit of Mr Steinier. The profit and loss statement and balance sheet are for 2012 and 2013 only. Sunlea advanced no evidence regarding earlier years. The asset of greatest value recorded in the balance sheet is the 'loan' to Sandpiper of $12,885,001. There is no evidence about what accounting treatment was used to record Sandpiper as a debtor in this amount.
78 In effect, Sunlea relied upon the claim that the wrongdoing of the defendants resulted in it, or the Drummond Cove Unit Trust, failing to profit.
79 Sunlea relied heavily on the contention that its problems, or those of the Drummond Cove Unit Trust, were caused by Sandpiper borrowing in excess of the $7.5 million limit. I cannot accept that contention. Before any borrowing from third party financiers, Diamo Nominees was indebted to the Bank of Western Australia and to the Bertram Unit Trusts for the purchase price of the land. The amount borrowed appears to have been at least equal to the purchase price of the land. The facility with the bank was for six months only. There is no evidence that the land, undeveloped, was worth any more than what had been paid for it. There is no evidence that Diamo Nominees had any means of repaying or servicing the debts it had incurred, other than by the first refinancing paying out the debt to the bank.
80 Even if one accepts that the first refinancing was limited in the manner alleged, the Heads of Agreement provided then for further refinancing for the purpose of completing the development. At the moment, the plaintiff relies upon an assertion that no further financing was approved, despite the references in project meetings throughout the period covered by the minutes. Sunlea has not shown how the project would have proceeded and been profitable, or even have serviced its existing commitments without that refinancing. The Feasibility Study, dated 24 August 2004, on which Mr Steinier relies to show the potential profit margin of $215 million, is based on development costs of over $140 million.
81 I refer again to the general proposition that the persuasiveness of each factor depends not only on its intrinsic force, but on the interaction with other circumstances. In considering the claim that the defendants caused Sunlea's impecuniosity, I have regard to the fact that it is a trustee company and appears never to have held assets in its own right. I have also had regard to my preliminary impression of the strength of Sunlea's case. I am not satisfied that, on the limited evidence available, Sunlea has established causation for the purposes of this application.
**_(iv) whether the application for security is oppressive
(v) whether the award of security would deny an impecunious applicant a right to litigate
(vi) whether there are persons standing behind the plaintiff who were likely to benefit from the litigation
(vii) whether the persons standing behind the plaintiff have offered any security or personal undertaking to be liable for the costs, and if so, the form of such an undertaking_**
82 These factors are conveniently dealt with together.
83 The court may refuse to make an order for the provision of security if it would operate to frustrate or stultify the pursuit of genuine claims. Where the plaintiff establishes the possibility of stultification, that is a powerful factor to be taken into account in exercising the court's discretion, although it does not automatically lead to refusal of the order: Yandil Holdings Pty Ltd v Insurance Co of North America (1985) 3 ACLC 542, 545.
84 Where, however, those who stand behind the company and would gain from the litigation are financially able to provide adequate security, it is at least a weighty consideration in favour of an order for security: Yandil Holdings Pty Ltd v Insurance Co of North America, 545; Sent v Jet Corporation [1984] FCA 178; (1984) 2 FCR 201, 215. A court is not justified in declining to make an order on the basis that the proceedings will be stultified unless the impecunious plaintiff establishes that those who stand behind it are also unable to provide the requisite security for costs: Bell Wholesale Co Pty Ltd v Gates Export Corporation [1984] FCA 34; (1984) 2 FCR 1, 3; Idoport Pty Ltd v National Australia Bank Limited [2001] NSWSC 744 [66]; Hession v Century 21 South Pacific Ltd (in liq) (1992) 28 NSWLR 120, 123.
85 The effect of the authorities is that a company seeking to resist an order for security on the ground that it will frustrate the litigation must 'raise the issue of the impecuniosity of those whom the litigation will benefit and to prove the necessary facts': Bell Wholesale Co Pty Ltd v Gates Export Corporation (4). It is incumbent upon a plaintiff who wishes to resist an application for security to put before the court a full and frank statement of the assets and liabilities of the plaintiff, and also of its shareholders and creditors (if relevant), and, if there are trust assets, of the beneficiaries of the trust: Newtrend Pty Ltd v Oceanic Life Ltd [1990] WAR 1, 3; Tirops Safety Technology Pty Ltd v Lazer Safe Pty Ltdhttp://www.austlii.edu.au/au/cases/wa/WASC/2005/164.html [2005] WASC 164 [47]. Without that evidence, no conclusion can properly be reached that the effect of an order for security will be to frustrate the plaintiff's claim. In this sense there is an evidential onus on a plaintiff resisting an order for security: see BPM Pty Ltd v HPM Pty Ltd (862); Bell Wholesale Co Pty Ltd v Gates Export Corporation.
86 Sunlea has failed to put forward sufficient evidence of the necessary facts. If it was to obtain a favourable exercise of the court's discretion, it needed to make a full and frank disclosure, so as to enable the court to make an assessment of its assets and liabilities, those of its shareholders and creditors, and those of the unit holders of the Drummond Cove Unit Trust. In particular, the deed for the Drummond Cove Unit Trust shows that Mr Steinier holds his units as trustee of the Pilou Trust. But he has put forward no evidence about that trust or its assets. The major creditors of Sunlea are the two Bertram trusts, both appear to be substantially under his control, but there is no evidence about them. Mr Steinier says in his first affidavit that the units in the Bertram Heights Unit Trust are owned by Laika Corp Pty Ltd, a company he owns. There is no evidence about Laika Corp.
87 In his second affidavit, Mr Steinier provided some further information: he does not own any real property and 'very few assets of any value' because he caused 'most' of his personal wealth to be invested in the loan to Diamo Nominees to purchase the land. Evidence at this level of generality is not sufficient to found an exercise of discretion in favour of Sunlea.
88 Mr Steinier has offered to provide a personal undertaking to pay the costs of the defendants. In my opinion, it is appropriate that Mr Steinier be liable for and indemnify Sunlea against any costs order. But it would not, in my opinion, be reasonable to rely solely on an undertaking from Mr Steinier. Those who stand behind Sunlea in pursuing this action and who stand to gain from it, are all entities associated with Mr Steinier. There has been no sufficient disclosure and no proper basis for a conclusion that those persons cannot put up security in the amount to be ordered.
89 Sunlea relies upon a further argument. Because Mr Betts (or Betts Nominees) stands to benefit equally from any successful action, any undertaking Mr Steinier is required to give should only be for 50% of the amount that the court would otherwise have ordered. The purpose of an order for security, however, is to protect the defendant against the risk of being deprived of the benefit of a costs order. The prospect of Mr Betts obtaining an equal benefit does not alter the position of the defendants, including Mr Betts, should Sunlea be unsuccessful.
90 Each defendant has put forward a draft bill, supported by affidavit evidence of a legal practitioner. The draft bill in each case is based upon a trial of 10 days, and includes costs already incurred. It is appropriate, in my opinion, to make an order now for security up to entry for trial. Should the matter proceed to trial, further consideration can be given at that stage to whether there should be an order for security for the costs of trial, or whether, on the evidence then put forward, some other order should be made.
91 On the basis of the estimates given by different defendants it is likely that costs to entry for trial, including mediation, will be in the range of $70,000 to $100,000. In making an order for security, the court does not set out to give a complete indemnity to the defendants: Brundza v Robbie & Co (No 2) [1952] HCA 49; (1952) 88 CLR 171, 175. At this early stage, where the matter has not been fully pleaded, the best the court can do is to estimate the sum which it thinks just to order to be secured, having regard primarily to a reasonable estimate of the likely taxable costs of the defendants: see, for example, Global Finance Group Pty Ltd (in liq) v Marsden Partners [2004] WASC 52 [57].
92 For these reasons, I would order that Sunlea give security in the sum of $200,000 on the defendants' chamber summons. I will hear the parties on the manner and form of security if the parties cannot reach agreement in that regard.
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
CITATION : SUNLEA ENTERPRISES PTY LTD AS TRUSTEE FOR DRUMMOND COVE UNIT TRUST -v- POLLOCK [2014] WASC 91 (S)
BETWEEN : SUNLEA ENTERPRISES PTY LTD AS TRUSTEE FOR DRUMMOND COVE UNIT TRUST
DREAMVIEW INVESTMENTS PTY LTD IN ITS OWN RIGHT TRUSTEE FOR THE DREAMVIEW TRUST
PROMENADE INVESTMENTS PTY LTD AS TRUSTEE FOR THE DREAMVIEW UNIT TRUST
Practice and procedure - Costs - Defendants' applications for costs following successful security for costs applications - Whether special costs order should be made - Turns on own facts
Legal Practitioners (Supreme Court) (Contentious Business) Determination 2012 (WA)
Rules of the Supreme Court 1971 (WA), O 1 r 4A, O 1 r 4B, O 66 r 10(1)
Plaintiff to pay defendants' costs of each application
1 ALLANSON J: On 21 March 2014 I ordered the plaintiff to give security for costs in relation to eight of the 14 defendants. The other defendants did not seek security.
2 Those defendants who were successful in their application now ask for orders that the plaintiff pay the costs of the applications, and that the costs be payable forthwith. With one exception, they seek special costs orders to permit costs to be taxed without limit to the number of hours fixed in the Legal Practitioners (Supreme Court) (Contentious Business) Determination 2012 (WA), made under the Legal Profession Act 2008 (WA).
3 These applications raise a difficult balancing exercise. There are several factors in favour of making the orders sought.
4 First, in my opinion, it is appropriate to order that the defendants have the costs of the applications. There was no real dispute that the threshold question in s 1335 of the Corporations Act 2001 (Cth) had been met. The plaintiff opposed the applications for security on discretionary grounds, including that the defendants had caused its impecunious position, and that the application was likely to stultify the claim.
5 Second, the defendants were put to the expense of responding to the allegation that they had caused the plaintiff's impecuniosity, which required that they address both the pleading and some factual material that the plaintiff put forward.
6 Third, on the issue of whether the order for security was likely to stultify its claim, the plaintiff did not put forward adequate evidence. In making my decision, I was unable to conclude whether those who stand behind the plaintiff, and stand to gain in this action should it succeed, could provide security, or indeed meet any costs order I now make. I am still in that position. On the evidence that has been presented to date, I cannot assume that the plaintiff would be unable to meet an order that it pay the costs of the applications.
7 The question of whether costs should be ordered to be paid forthwith raises additional issues. Order 66 r 10(1) of the Rules of the Supreme Court 1971 (WA) provides that costs may be dealt with by the court at any stage of the proceedings, and the court may order the costs to be paid forthwith notwithstanding that the proceedings are not concluded. Consolidated Practice Direction 4.7.1, relating to the costs of interlocutory applications, provides a general rule that where an order for costs is to be made against a party in interlocutory proceedings, the costs will be fixed and ordered to be paid forthwith or by a particular date. Consolidated Practice Direction 4.7.1 is a departure from the historical practice of ordering costs to be paid in any event. It states that the departure was because the historical practice does not sufficiently serve the purpose of discouraging illconsidered or needless interlocutory applications.
8 Although the Consolidated Practice Direction refers to the fixing of costs, there are several cases where orders have been made for costs to be taxed or agreed and paid forthwith in interlocutory applications. So, the normal practice in this list is to order that costs be paid forthwith, and, preferably but not invariably, that they be fixed.
9 Finally, the costs now sought by the defendants, on a rough calculation, are about a third of the amount of the security which I have ordered. In ordering the amount of security, I did so prospectively to an identified milestone. I accept that, in bringing the application for security, the defendants have incurred costs which deplete the resources available to them to defend the serious allegations.
10 On the other hand, I do not regard the application for security, and the opposition to it, as either ill-considered or needless. The fact that I found against the plaintiff does not mean that its opposition was properly described by either of those adjectives, and that the only reasonable course was to negotiate an amount for the security sum.
11 Next, the proportion of the costs already incurred to the security ordered could be met in other ways. The orders made anticipate that there will be an order for further security at a future time. There is also an unresolved issue regarding whether Mr Steinier should be ordered to indemnify the plaintiff, the action being his action although brought in the plaintiff's name. I do not have enough information to make an assessment of his capacity to indemnify the plaintiff because his evidence on the application for security was short on detail. Mr Steinier has, however, indicated his willingness to indemnify the plaintiff.
12 Further, there is a real issue of resources, particularly for the parties but also for the court, when the effect of the orders sought will be four taxations at an interlocutory stage in this matter. This would be exacerbated by any order (sought by three of the parties) that there be a special order regarding costs so that the taxing officer may tax costs without regard to the hourly limit in the determination.
13 I am satisfied that this is a matter which comes within s 280 of the Legal Profession Act, where a special costs order may be made where a judicial officer is of the opinion that the amount of costs allowable in respect of a matter under a costs determination is inadequate because of the unusual difficulty, complexity or importance of the matter. The relevant item in the determination, for an application in chambers, allows for two days preparation and a one day hearing. But, in my opinion, it is at least fairly arguable that the costs allowed in the determination are inadequate where the defendants were required to respond to the plaintiff's allegation that its impecuniosity was caused by their conduct. Having regard to the many allegations in the statement of claim, the seriousness of several of them, and the volume of evidence adduced on the application I believe this is a proper case under s 280 to make a special costs order.
14 Taking all of these matters into consideration, I believe that the course most consistent with O 1 r 4A and 4B of the Rules of the Supreme Court and the interests of justice is to order that the plaintiff pay the defendants' costs of each application, the costs to be taxed without limit by the number of hours fixed in item 10(a) of the Legal Practitioners (Supreme Court) (Contentious Business) Determination, and payable by the plaintiff in any event.
(1987) 16 FCR 497
(1983) 35 SASR 294
(1995) 56 FCR 189
(1991) 65 ALJR 642
(1984) 2 FCR 201
(1984) 2 FCR 1
(1992) 28 NSWLR 120
(1952) 88 CLR 171