Supreme Court of the ACT|1996-09-13|Before: Gallop J

Top Slice Deli Pty Ltd v George Maliganis and Edmund Craig Edwards Carrying On Business As Maliganis Edwards Johnson [1996] ACTSC 96 (13 September 1996)

TOP SLICE DELI PTY LTD v. GEORGE MALIGANIS and EDMUND CRAIG EDWARDS carrying

IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

Williams, Civil Procedure Victoria, Butterworths

Colbran, Security for Costs, 1993, Longman Professional

T Slogan and Sons (Builders) Ltd v Brothers of Christian Instruction (1974)

Remm Constructions (SA) Pty Ltd v Allco Newsteel Pty Ltd (1992) 57 SASR 180

Churchills Ltd v Pilcher (1940) 57 WR (NSW) 109

Beach Petroleum NL v Johnson [1992] FCA 110; (1992) 7 ACSR 203

Heller Factors Pty Ltd v John Arnold Surf Shop (1979) 22 SASR 20

Bell Wholesale Co Pty Ltd v Gatey Export Corp [1984] FCA 34; (1984) 52 ALR 176

Ariss v Express Interiors [1995] VICSC 192; (1995) 13 ACLC 1585

Irwin Alsop Services v Mercantile Mutual Insurance [1986] VicRp 6; (1986) VR 61

Prime Forme Cutting Pty Ltd v Baltica General Insurance (1990) 8 ACLC 29

Frankston Ambassador Pty Ltd v Cigna Insurance Australia Ltd (1991) 9 ACLC

1. That the plaintiff provide security for costs of the defendant's interlocutory steps in these proceedings in the sum of $25,000 within 21 days.

2. That the proceedings be stayed until such time as that security is provided.

3. The plaintiff pay the defendant's costs of and incidental to this application.

MASTER T. CONNOLLY This is an application for security for costs brought by the defendants in this action, a firm of solicitors. The action is a claim based both in negligence and breach of contract brought by the plaintiff against its solicitors, relating to a transaction in 1989 concerning the sale of a business. This sale was the subject of an action in this Court which resulted in a decision by Mr Justice Gallop ordering Top Slice Deli, the present plaintiff, to pay damages in the sum of $245,888.35, together with costs. These have not been taxed, but the matter ran for 7 days before His Honour, so they will be substantial. In the present action, Top Slice Deli seeks to recover these sums against its solicitors.

2. Security for costs may be awarded, in a court's discretion, where a party is forced into court to defend an action in circumstances where, even if that party is eventually successful, the party bringing the unsuccessful action would be unable to meet the costs orders that would flow. This acknowledges the reality of litigation - that the plaintiff has the choice of continuing the litigation or not, whereas the defendant must incur the costs of defending an action, whatever the real merits, or risk a form of default judgment. In such circumstances a final judgment and a costs order is of little comfort to a defendant if a plaintiff is unable to meet such an order.

3. An application for security for costs is properly within my jurisdiction as Master either, in respect of an application brought under s.1335 of the Corporations Law, pursuant to O.75B,r.7 and Schedule 13 of the Supreme Court Rules or, in respect of the general power to seek security contained in O.33B, pursuant to O.61A, r.1(i).

4. The application for security is supported by an affidavit of Mr Clynes. In this he deposes that he is a partner in the firm acting for the defendants with carriage of the matter, that he was admitted to practice some 21 years ago, and that

"For the past 20 years I have practised as a litigation solicitor

in this and other courts. On numerous occasions I have taxed Bills

of Costs and negotiated agreements with other practitioners in

relation to the quantum of party and party costs that might be

payable from one litigant to another in consequence of orders for

costs in this and other courts."

"Doing the best that I can with the information available to me at

this point and without having done a precise itemisation against

the Supreme Court scale, I estimate that the defendants will incur

costs in conducting the interlocutory steps that will be necessary

to prepare this case for hearing which, if taxed on a party/party

basis, would amount to approximately $25,000."

5. This sum was identified in a letter from Mr Clynes to the plaintiff's solicitors on 3 July 1996 as his estimate as to the appropriate level of security. His affidavit also sets out some six identified steps which will incur costs.

6. Counsel for the plaintiff urged that this material is insufficient to allow me to exercise my discretion, because an application must set out a skeleton bill of costs. A mere estimate, it is argued, is insufficient.

7. The reference to a skeleton bill comes undoubtedly from Civil Procedure ACT where, at para. 9505.1 of Volume 1 it is said:

"The affidavit should disclose the estimated costs, such as by

exhibiting a skeleton bill of costs accompanied by an expression

of opinion of an experienced solicitor or costs consultant as to

the reasonableness of the sum (T Slogan and Sons (Builders) Ltd v

Brothers of Christian Instruction (1974) 3 All ER 715)."

8. I do not read the decision of Lane J in that case as authority for the proposition that an application must attach a skeleton bill of costs, and that a failure to do so will be fatal to an application. The case involved a dispute as to the appropriate amount of security, and Lane J expressed concern at the entire lack of reliable figures as to the appropriate sum. The case therefore stands as authority for the proposition that there should be evidence as to the quantum of security, but there is no absolute rule requiring a skeleton bill of costs.

9. I note that the Victorian and New South Wales Civil Procedure books do not suggest a requirement for a skeleton bill. In Remm Constructions (SA) Pty Ltd v Allco Newsteel Pty Ltd (1992) 57 SASR 180 King CJ at 185 said:

"It may be accepted as a matter of principle that a party seeking

security for costs should be required to provide to the court all

information in its possession which is relevant to the question

whether security should be ordered and the amount thereof."

I am satisfied that the information in the affidavit of Mr Clynes is sufficient in this regard.

10. There has been no dispute in the schedule of correspondence, or in argument before me, as to the appropriateness of the sum of $25,000. No doubt in cases where there is disagreement, an applicant's case would be strengthened by the provision of a skeleton bill of costs. But this is not, in my view, an absolute requirement. I note that the learned author of Colbran, Security for Costs, says that a draft or skeleton bill of costs or a solicitor's estimate are alternatives (p278).

11. As King CJ said in Remm Constructions (SA) Pty Ltd v Allco Newsteel Pty Ltd (1992) 57 SASR 180 at 188:

"There is no rule of law which requires an applicant for security

to prove the precise costs incurred to date nor requires the

Master to demand such proof. The Master may reasonably rely on

other proper material produced to him and his own experience."

12. Mr Clyne's affidavit also sets out an extract search obtained from the Australian Securities Commission in respect of the plaintiff on 19 March 1996. This shows that the plaintiff company has two dollar shares. Counsel for the plaintiff argues that this is insufficient material to allow the exercise of discretion because it does not show that the plaintiff company is impecunious.

13. Except where the plaintiff is a corporation, the impecuniosity of the plaintiff is not a sufficient ground for requiring the plaintiff to give security for costs. The position is different, however, with a corporate plaintiff, and is set out concisely by the learned author of Williams, Civil Procedure Victoria:

"The Court may order the plaintiff to give security for costs if

'there is reason to believe' that that plaintiff will be unable to

pay the costs of the defendant. The defendant must adduce evidence

which gives the court reason to believe that the plaintiff will be

unable to pay the costs. The evidence need not be conclusive. A

prima facie case is sufficient: Churchills Ltd v Pilcher (1940) 57

WR (NSW) 109. Being in liquidation affords such prima facie

evidence ......Where the plaintiff corporation is not in

liquidation, the defendant must show by evidence that the

financial situation of the plaintiff is such that it will be

unable to pay the defendant's costs if ordered to do so. The power

to require that security be given arises if credible evidence

establishes that there is a reason to believe that in events which

can fairly be described as reasonably possible the plaintiff

corporation will be unable to pay the costs of the defendant:

Beach Petroleum NL v Johnson [1992] FCA 110; (1992) 7 ACSR 203 (Federal Court of

Australia)."

14. The schedule of correspondence shows that solicitors for the plaintiff stated on 15 July 1996 in a letter to the defendant's solicitors that,

The solicitors for the defendant noted this and in a letter to the solicitors for the plaintiff on 18 July 1996, said:

"This appears contrary to the position we have been able to

ascertain from the searches we have conducted of the Australian

Securities Commission. If it is the case that your client is not

impecunious, we invite you to provide us with evidence of this

fact within seven days and advise that we will take no steps to

prepare an application for security for costs during that period.

Of course, if we can be satisfied that your client is not

impecunious there will be no need for an application for security

for costs."

15. In response, the solicitors for the plaintiff provided a statement from a firm of chartered accountants. This was described as a "self explanatory letter" by the plaintiff's solicitors. The letter does not identify the accountancy firm as the plaintiff's accountants. It says in its relevant aspects:

"It is quite clear from the Balance Sheet of the company as at

30 June 1995, that the net asset position of the company was a

positive $61,831. This should support that the company is not in

fact impecunious as at that date. I cannot confirm the position

beyond that date, but it would seem to me that no other person

could either, as no further returns have been lodged."

16. I note that this letter, quite carefully, only provides a statement as to the position on 30 June 1995. While I accept that, as at that date, the company had a positive asset position of $61,831, material before me establishes that, by order of Justice Gallop of 27 September 1995, the company has been ordered to pay damages of $245,888.65 plus the costs of a trial that lasted seven days. On the material before me I am satisfied that the applicant defendant has established that there is reason to believe that with this order against the plaintiff, it will be unable to pay the costs of the defendant.

17. This finding does not however resolve the matter. A court has a discretion in these matters. While it was once the view that the discretion was ordinarily exercisable in favour of the making of an order, the better view now is that this discretion should be exercised with no predisposition to make an order: Heller Factors Pty Ltd v John Arnold Surf Shop (1979) 22 SASR 20; Colbran, Security for Costs (p245). The position is again well set out by the learned author of Williams, Civil Procedure Victoria:

"In exercising the discretion whether to order a company to give

security for costs the court must carry out a balancing exercise.

It must weigh the injustice to the plaintiff if prevented from

pursuing a proper claim by an order for security against the

injustice to the defendant if no security is ordered and at trial

the plaintiff's claim fails and the defendant is unable to recover

costs from the plaintiff. The court will properly be concerned not

to allow the power to order security to be used as an instrument

of oppression, but also it will be concerned not to be so

reluctant to order security that an impecunious company can use

its inability to pay costs to put unfair pressure on the

defendant."

18. The plaintiff's prospects of success can be a factor relevant to the exercise of the discretion, although it is not appropriate for a court exercising the discretion to go into this at length. This claim is prima facie regular on its face, and a letter from the plaintiff's solicitors to the defendant's solicitors contained in the schedule of correspondence states further that,

"Our client has obtained Queen's Counsel's opinion that it has

reasonable prospects of success and that the paper work discloses

a cause of action."

19. Counsel for the plaintiff argued that, if I was to find that the plaintiff corporation is impecunious, this impecuniosity is caused by the defendant. This has also been set out in two letters from the plaintiff's solicitors to the defendant's solicitors.

20. There is however no affidavit or other material to support these assertions. It is for the plaintiff to show that any impecuniosity was in fact caused by the defendant, and I am not satisfied that this evidential onus has been discharged.

21. A further factor relevant to the exercise of the discretion is the claim that the making of an order for security for costs might frustrate the plaintiff company's ability to continue with litigation. This was claimed by the plaintiff's solicitors in a letter to the defendants of 15 July contained in the schedule of correspondence, where it was stated that,

"A request and application for security for costs in this instance

is being used oppressively so as to try and stifle a genuine

claim."

22. The risk that an order might stultify the litigation is a recognised factor adverse to the granting of an order. But in order to successfully resist an application on such a ground it is necessary to prove, not just that the corporate entity is without funds (that, after all, is the premise for making the application in the first place), but that those standing behind the corporate entity are not in a position to continue the litigation in the face of an order. The Full Court of the Federal Court in Bell Wholesale Co Pty Ltd v Gatey Export Corp [1984] FCA 34; (1984) 52 ALR 176 made it clear that an application should not be refused on this ground unless there is evidence of the financial position of those standing behind the company who stand to benefit if the litigation is successful:

"It is an essential part of the case of a company seeking to

resist an order for security on the ground that the granting of

the 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"

(at 179). As Phillips JA said in Ariss v Express Interiors [1995] VICSC 192; (1995) 13 ACLC 1585 at 1588, it is for the party making this assertion to

"...establish the necessary factual basis before that argument

can be weighed in the exercise of the discretion."

23. There is simply no material before me on this question.

24. It was further argued that the fact that the applicant solicitors are insured is a factor which should be taken into account and should favour an exercise of discretion adverse to the making of a costs order. The proposition that the existence of a policy of insurance is fatal to an application for security for costs was rejected by the Full Court of the South Australian Supreme Court in Remm Constructions (SA) Pty Ltd v Allco Newsteel Pty Ltd (1992) 57 SASR 180. There, King CJ said:

"I can see no reason to treat an action against a defendant who

is insured against liability differently from one in which the

defendant has no such insurance. In weighing the factors affecting

the provision of security for costs, the ability of the defendant

to absorb the costs, if he is unable to recover them from the

plaintiff, is a relevant consideration. Any insurance cover would

be relevant in assessing that factor. That, to my mind, is the

only relevance which the existence of insurance cover can have,

whether such insurance has been taken out of the defendant's own

volition or, as contended here, in compliance with a term of the

contract with the plaintiff" (at 186).

25. There is Victorian authority for the proposition that an insurer defendant may not succeed in an application for security: Irwin Alsop Services v Mercantile Mutual Insurance [1986] VicRp 6; (1986) VR 61 per Ormiston J, but this has been doubted in later cases - Prime Forme Cutting Pty Ltd v Baltica General Insurance (1990) 8 ACLC 29; Frankston Ambassador Pty Ltd v Cigna Insurance Australia Ltd (1991) 9 ACLC 790. These cases refer to insurers, not insured defendants.

26. While it was conceded that the applicant defendant would have insurance (as is required of all legal practitioners) there was no evidence produced as to the precise nature of the cover in these circumstances. I am not persuaded that the mere existence of professional liability insurance by the defendant is of itself a reason for denying an order for security for costs which is otherwise made out. Certainly there is no authority to support such a proposition in relation to an insured defendant, as opposed to a defendant who carries on the business of risk management as an insurer - Colbran, Security for Costs (p269).

27. I am satisfied that the applicant defendant has made out all the necessary elements to justify an order for security for costs, and that furthermore there has been no factor made out which weighs against the exercise of a discretion. The applicant has demonstrated the appropriateness of an order in the sum of $25,000, and has given the respondent the opportunity to provide such security before bringing this application.

1. That the plaintiff provide security for costs of the

defendant's interlocutory steps in these proceedings in the sum of

$25,000 within 21 days.

2. That the proceedings be stayed until such time as that security

is provided.

3. The plaintiff pay the defendant's costs of and incidental to

this application.

Top Slice Deli Pty Ltd v George Maliganis and Edmund Craig Edwards Carrying On Business As Maliganis Edwards Johnson [1996] ACTSC 96

At a glance

Court

Decision date

Before

Source

Judgment (54 paragraphs)

Top Slice Deli Pty Ltd v George Maliganis and Edmund Craig Edwards Carrying On Business As Maliganis Edwards Johnson [1996] ACTSC 96 (13 September 1996)

Parties

Cases Cited (3)