T & H Pty Limited v 304 Chapel Rd Pty Ltd; T & H Pty Limited v Trinh

Issues

1. Rule 42.21 of the Uniform Civil Procedure Rules 2005 ( "UCPR") provides as follows; '42.21 Security for costs (1) If, in any proceedings, it appears to the court on the application of a defendant: (a) that a plaintiff is ordinarily resident outside Australia, or (b) that the address of a plaintiff is not stated or is mis-stated in his or her originating process, and there is reason to believe that the failure to state an address or the mis-statement of the address was made with the intention to deceive, or (c) that, after the commencement of the proceedings, a plaintiff has changed his or her address, and there is reason to believe that the change was made by the plaintiff with a view to avoiding the consequences of the proceedings, or (d) that there is reason to believe that a plaintiff, being a corporation, will be unable to pay the costs of a defendant if ordered to do so, or (e) that a plaintiff is suing, not for his or her own benefit, but for the benefit of some other person and there is reason to believe that the plaintiff will be unable to pay the costs of the defendant if ordered to do so, or (f) that there is reason to believe that the plaintiff has divested assets with the intention of avoiding the consequences of the proceedings, the court may order the plaintiff give such security as the court thinks fit, in such manner as the court directs, for the defendant's costs of the proceedings and that the proceedings be stayed until the security is given.'
2. The plaintiff concedes that the threshold test in 42.21 has likely been satisfied. I am satisfied that the plaintiff is not resident in Australia, has very limited assets and is therefore unlikely to be able to pay the costs of the defendants if ordered to do so.
3. Having been satisfied that the threshold question has been answered in the affirmative, I must now determine whether it is appropriate to make such orders. The matters to which I may have regard to in making that assessment are contained in rule 24.21(1A) of the UCPR as follows: '24.21 (1A) In determining whether it is appropriate to make an order that a plaintiff referred to in subrule (1) give security for costs, the court may have regard to the following matters and such other matters as it considers relevant: (a) the prospects of success or merits of the proceedings, (b) the genuineness of the proceedings, (c) the impecuniosity of the plaintiff, (d) whether the plaintiff's impecuniosity is attributable to the defendant's conduct, (e) whether the plaintiff is effectively in the position of a defendant, (f) whether an order for security for costs would stifle the proceedings, (g) whether the proceedings involves a matter of public importance, (h) whether there has been an admission or payment in court, (i) whether delay by the plaintiff in commencing the proceedings has prejudiced the defendant, (j) the costs of the proceedings, (k) whether the security sought is proportionate to the importance and complexity of the subject matter in dispute, (l) the timing of the application for security for costs, (m) whether an order for costs made against the plaintiff would be enforceable within Australia, (n) the ease and convenience or otherwise of enforcing a new South Wales court judgment or order in the country of a non-resident plaintiff.'
4. Further, once the threshold question is answered in the affirmative, the onus of proof switches to the plaintiff to establish that an order for security ought not be made (Wollongong City Council v Legal Business Centre Pty Limited [2012] NSWCA 245 at [30], per Beazley JA): 'Once the defendant has discharged the onus of establishing that there is reason to believe that the other party to the litigation will be unable to pay the costs of the litigation if unsuccessful, the onus shifts to the party against whom the order is sought (who I will refer as the plaintiff) to establish a reason why security should not be granted.'
5. Exhibit A provides the evidence of the following; 1. The plaintiff has paid up capital of $2.00 (ASIC search, annexure "I" to Than affidavit). 2. The plaintiff owns no land in NSW or Queensland (Property searches, annexure "J" to Than affidavit, and paragraph 9 of Nguyen affidavit). 3. Despite requests made by the solicitor for the defendants for the production of any financial information of the plaintiff, nothing was provided until a Notice to Produce was issued. (correspondence, annexure "D" to Than affidavit). 4. There are four sets of proceedings in which the plaintiff may be found liable for costs.
6. The plaintiff relies on an affidavit of Andrew Nguyen affirmed on 10 June 2018 which is exhibit 1 in the proceedings. Mr Nguyen is a director of the plaintiff and does not assert that the plaintiff can meet the costs of the proceedings, but rather that as at 31 May 2018 the plaintiff had $176.48 in its bank account (paragraph 14) and a liability of at least $67,796.64 in directors loans (paragraph 15).
7. Mr Nguyen deposes that he earns $1,000 per month from the plaintiff (paragraph 25) and that the company is not registered for GST. At paragraph 23 of his affidavit Mr Nguyen offers a personal guarantee that he will pay the defendant's costs in the proceedings if they obtain a costs order, and it is submitted on behalf of the plaintiff that in exercising my discretion, that is something to which I ought have regard. He states in his affidavit at paragraph 32 that if he was ordered to pay the defendant's costs, he would not be able to do it as it would put him in financial hardship.
8. Counsel for the plaintiff refers me to the decision in KP Cable Investments Pty Ltd v Meltglow (1995) 56 FCR 189 at 197-198 Beazley J sets out the fundamental principles relevant to the exercise of that discretion as follows: 1. applications should be brought promptly; 2. regard is to be had to the strength and bona fides of the applicants case and where a claim is prima facie regular on its face and discloses a cause of action, in the absence of evidence to the contrary, the court should proceed on the basis that the claim is bona fide with a reasonable prospect of success; 3. whether the applicant's impecuniosity was caused by the respondent's conduct subject of the claim; 4. whether the respondent's application for security is oppressive, in the sense that it is being used merely to deny an impecunious applicant a right to litigate; 5. whether there are any persons standing behind the company who are likely to benefit from the litigation and who are willing to provide the necessary security; 6. whether persons standing behind the company have offered any personal undertaking to be liable for costs and if so, the form of any such undertaking; 7. security will only ordinarily be ordered against a party who is in substance a plaintiff, and an order ought not be made against parties who are defending themselves and thus forced to litigate.
9. In response the plaintiff submits that the impecuniosity of Mr Nguyen is established, however the impecuniosity of the plaintiff is not. Mr Nguyen owns one of two shares in the company, and the other share is owned by Asruni Alim who has not offered any security. In Sky Cloud Pty Ltd v Shi [2017] FCA 1579 it was held that where one shareholder will benefit if the corporate litigant is successful in the litigation (in this case as to 50%), (s)he ought to put on evidence to establish that (s)he is also impecunious. His Honour held: '…..Given that it is an essential part of the case of a company seeking to contend that the granting of security will frustrate the litigation to raise the issue of the impecuniosity of those whom the litigation will benefit and to prove the necessary facts (see [7] above), the absence of any evidence about Mr Que (other than his unwillingness to stand behind the company) is highly relevant'.
10. The plaintiff submits that the defendants' claims are partly the cause of the company's impecuniosity as it has not been paid for the work that Mr Nguyen performed, which forms the basis of the substantive proceedings. I note there is no evidence to support that proposition. It further submits that the director Mr Nguyen has offered a personal guarantee, and that to grant an order for security for costs would stultify the proceedings. This, they submit, is a "powerful factor" towards the Court exercising its discretion in the plaintiff's favour. See Yandil Holdings Pty Ltd v Insurance Company of North America (1985) 3 ACLC 542 at 545
11. They submit that whilst Mr Nguyen is willing to provide security for costs, due to his financial position, he is unable to do so, and that he would also be unable to pay the plaintiff's legal costs in the proceedings, which would essentially mean that the company would be unable to continue pursuing the proceedings. They refer my attention to the following; 'To the extent that a party asserts that an order that security be provided would stultify the proceedings, it must satisfy the Court that those who stand behind it or stand to benefit from its success in the proceedings are unable to provide security for costs … A proceeding cannot be regarded as stultified unless those who stand behind the impecunious plaintiff are unable (not unwilling) to provide the requisite security for costs.(Green v (as liquidator of Arimco Mining Pty Ltd) v CGU Insurance Ltd [2008] NSWCA 148 at [8] (citations omitted), cited in Ballard v Brookfield Australia Investments Ltd [2013] NSWCA 82 at [53]).'
12. The plaintiff advanced another argument in defence of the defendant's motions, that the defences foreshadowed by the defendants, are principally in the nature of cross-claims. The foreshadowed defences plead that the work performed by Mr Nguyen on behalf of the plaintiff was not performed with due care and skill, or at all, and necessitated the defendants paying another person to rectify the works. Such costs will be sought in the substantive proceedings. It is submitted that the defendants cannot equitably set-off an unliquidated claim against a liquidated claim and such cross-demands must be pleaded by way of counter-claim.
13. In Sydmar Pty Ltd v Statewise Developments Pty Ltd (1987) 73 ALR 289 it was held at 301-303 that where defendants are seeking to claim from the plaintiff, the discretion weighs heavily against ordering security for costs against the plaintiff.
14. In response the defendants submit that the claims are for a breach of warranty and a breach of contract, and therefore cannot be characterised as a cross-claim. I accept that proposition.
15. I make the following findings; 1. The threshold question pursuant to r 42.21(1) of the UCPR is satisfied, as I believe that the plaintiff would be unable to pay the defendants' costs was it ordered to do so. 2. Mr Nguyen is impecunious, but there is nothing before me as to the company's financial circumstances. 3. Mr Nguyen's strained financial situation has not been caused by the defendants' actions. 4. There is nothing before me as to the second shareholder, and their financial position, or whether they would offer security. 5. There has been significant delay in the commencement of these proceedings given that the invoices were issued in 2012 and the substantive proceedings were commenced in 2018. I note there has been no explanation for that delay. 6. The plaintiff has commenced four separate proceedings against the defendants in this court and the Local Court, putting the defendants to significant expense in defending four claims. 7. The proposed defences are not cross claims.
16. I am satisfied that on the above findings and having regard to the factors as detailed in UCPR 42.21(1A) it is appropriate to make an order for security for costs.

Quantum

1. The defendants submit that courts take a "broad brush" approach to the quantum of an order for security for costs, and therefore not attempt a detailed costs assessment. ( In the matter of Felan's Fisheries Pty Limited [2016] NSWSC 1351 at [40]; Ashington Capital Pty Ltd v Parissen Capital (Project X) Pty Ltd [2012] NSWSC 410 at [18]; Re Colorado Products Pty Ltd (in prov liq) [20134] NSWSC 611 at [66].
2. The estimates provided in Mr Than's affidavit are based on the work that he anticipates may need to be done to defend the proceedings. The plaintiff submits that the proceedings are very straightforward, simply seeking payments in accordance with a contract. They submit that any order I make as to costs ought be proportionate with the sums involved in the dispute, and not be an indemnity for costs. (see Brundza v Robbie & Co (No 2) (1952) 88 CLR 171 at 175). In my view, the figure of $25,000 in each matter is appropriate.

Orders

1. Therefore I make the following orders: 1. In the proceedings 00093528/2018, the plaintiff is to provide security for the defendants' costs by paying into court the sum of $25,000.00 or by otherwise providing security for that amount in a manner satisfactory to the defendant. The security is to be provided by 10 September 2018, on which date the matter is to be listed before the court for consequential orders, or, in the event that the security has not been provided, an order for the dismissal of the proceedings under r 42.21(3). 2. Proceedings in 00093528/2018 are stayed pending compliance with order (1). 3. In the proceedings 00093529/2018, the plaintiff is to provide security for the defendants' costs by paying into court the sum of $25,000.00 or by otherwise providing security for that amount in a manner satisfactory to the defendant. The security is to be provided by 10 September 2018, on which date the matter is to be listed before the court for consequential orders, or, in the event that the security has not been provided, an order for the dismissal of the proceedings under r 42.21(3). 4. Proceedings in 00093529/2018 are stayed pending compliance with order (3). 5. The costs in each motion are to be the defendants' costs in the cause.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 09 August 2018