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[2013] QSC 187
General information, not legal advice.
Supreme Court of Queensland
2013-07-24
Philippides J
Original judgment source is linked above.
The application by the second and third defendants
[1] The second and third defendants apply pursuant to UCPR 670 for an order that the first and second plaintiffs pay security for the second and third defendants' costs of and incidental to the proceedings, up to and including the first day of trial, in the amount of $500,000.
[2] The plaintiffs have brought proceedings against the defendants arising out of two short term loans obtained from the first defendant, a financier. The second defendant is a firm of solicitors. The third defendant is an employed solicitor of the second defendant.
[3] The first plaintiff, Mr Ucchino (who currently resides in Papua New Guinea), is the sole director and shareholder of the second, third and fourth plaintiffs. The third and fourth plaintiffs sought and were granted leave to withdraw.
[4] As against the first defendant, the first and second plaintiffs seek relief in respect of various claims including, misleading and deceptive conduct; negligent or fraudulent misrepresentation; failing to properly exercise the power of sale; unconscionable conduct; and recovery of default interest which is claimed to be in the nature of a penalty.
[5] The plaintiffs sue the second and third defendants for damages for negligence and/or breach of contract in the sum of $5,293,853. The second and third defendants have denied liability to the plaintiffs' claim.
[6] As against the second and third defendants, the first and second plaintiffs allege breach of the retainer and/or negligence. The crux of the claim against the second and third defendants is that they failed to advise the first and second plaintiffs of the nature and effect of an all charging provision contained in the loan documents.
[7] It is alleged that prior to executing the First Loan and the Second Loan, the first plaintiff sought advice from the second and third defendants. It is alleged that the first plaintiff specifically instructed the second and third defendants that the First Loan and Second Loan should only be secured by 38 and 40 Ryans Road. The First Loan and Second Loan both contained a term whereby the first plaintiff agreed to charge all of his and the second plaintiff's property with the payment of any moneys owed to the first defendant. The first plaintiff alleges that the second and third defendants failed to advise him of the existence and effect of the charging clause. He further alleges that, had he been advised of the charging clause, he would not have entered into the First Loan or the Second Loan, but would have sought finance where only 38 and 40 Ryans Road were available as security. It is alleged that their failure to do so meant that the plaintiffs were exposed to the first defendant selling properties which were never intended to be offered as security, to recover moneys (including default interest) which may ultimately not have been payable. The plaintiffs allege that, had the second and third defendants advised of the charging clause, they would not have entered into the loan agreements on those terms.
[8] The first plaintiff and the second plaintiff defaulted on the First Loan and the Second Loan. The first defendant took steps to enforce the securities, including by lodging caveats, and later mortgages, over six other properties owned by the first plaintiff. Subsequently, three of those properties were sold by the first defendant pursuant to a power of sale. The properties at 38 and 40 Ryans Road were also sold by the first defendant pursuant to a power of sale. However, these were the last two properties sold by the first defendant.
[9] By their pleading, the plaintiffs allege that:
(a) a loan agreement dated 17 October 2005 which provided for a loan of $29,000 over two months;
(b) a loan agreement dated 3 November 2005 which provided for a loan of $76,000 over two months;
• the First and Second Loan Agreements were conditional upon the plaintiffs signing an Acknowledgment of Independent Legal Advice;[3]
• the first plaintiff, on his own behalf and on behalf of the second plaintiff advised the second and third defendants that the First and Second Loans were to be secured against properties owned at 38 and 40 Ryans Road at Northgate in the State of Queensland, and that no other properties were to be at risk on 17 October 2005 and 3 November 2005;[4]
(a) would not have entered into the First Loan Agreement and/or the Second Loan Agreement;
(b) would and could have sourced funds for the short term loans from another source; and
[10] The plaintiffs' loss and damage is said to arise in consequence of, inter alia:
(a) the incursion of excessive and unenforceable penalty interest charges;
(b) the loss of the opportunity to source funds for the short term loans from another source;
(c) the loss of the opportunity to facilitate the complete refinance;
(d) the loss of the opportunity to effect the sale of various properties in a timely manner and with appropriate marketing so as to achieve the best realisable sale price for each property;
(e) the loss of the opportunity to further develop various properties (for the purposes of increasing their potential value and achieving the best realisable sale price);
(f) losses pertaining to the sale of the properties of the first and/or second plaintiffs by the first defendant in the absence of reasonable care to ensure that the properties were sold in a timely manner and at market value;
(g) losses incurred by reason of the first defendant's sale of other properties owned by the first and/or second plaintiffs, prior to effecting the sale of 38 and 40 Ryans Road;
(h) other losses pertaining to the premature sale of properties.
[11] The plaintiffs claim damages of $5,293,853 against the second and third defendants.
[12] The second and third defendants filed a Notice of Intention to Defend on 28 February 2013. The second and third defendants dispute the scope of the alleged retainer and nature of the advices allegedly given by them. By their defence, the second and third defendants allege:
(i) the charging clauses were drawn to the attention of the first plaintiff, and thereby the second plaintiff, and the effect of same were explained;
(ii) the first and second plaintiffs were advised of the risk to other property owned by the first and/or second plaintiffs as a result of default under the First Loan Agreement and Second Loan Agreement;
(iii) each of the first and second plaintiffs were advised that in the event of default of the loan agreements (respectively), the first defendant could enforce its rights against any and all property owned by the first and second plaintiffs pursuant to the provisions of the charging clauses.
• On each of 17 October 2005 and 3 November 2005 the first plaintiff signed an Acknowledgement of Legal Advice, confirming that advice was provided by the second defendant.[12]
[13] The first defendant has not filed a Notice of Intention to Defend to the plaintiffs' claim, but no application for judgment appears to have been made by the plaintiffs against the first defendant.
[14] Pursuant to r 671 of the UCPR, the court may order a plaintiff to give security for costs only if one of the prerequisites therein is satisfied, namely:
"(a) the plaintiff is a corporation and there is reason to believe the plaintiff will not be able to pay the defendant's costs if ordered to pay them; or
(b) the plaintiff is suing for the benefit of another person, rather than for the plaintiff's own benefit, and there is reason to believe the plaintiff will not be able to pay the defendant's costs if ordered to pay them; or
(c) the address of the plaintiff is not stated or is misstated in the originating process, unless there is reason to believe this was done without intention to deceive; or
(d) the plaintiff has changed address since the start of the proceeding and there is reason to believe this was done to avoid the consequences of the proceeding; or
(e) the plaintiff is ordinarily resident outside Australia; or
(f) the plaintiff is, or is about to depart Australia to become, ordinarily resident outside Australia and there is reason to believe the plaintiff has insufficient property of a fixed and permanent nature available for enforcement to pay the defendant's costs if ordered to pay them; or
(h) the justice of the case requires the making of the order."
[15] In the present case, it is not disputed that there is evidence before the court which establishes that:
(a) the second plaintiff is a corporation with limited share capital and owns no real property in Queensland; and
(b) the first plaintiff is ordinarily resident in Papua New Guinea.
[16] In those circumstances, the respondent plaintiffs conceded that the jurisdiction to award security for costs is therefore enlivened pursuant to UCPR 671(a) and (e).
No order for security against an individual plaintiff
[17] It was argued by the respondents that, apart from a consideration of the discretionary factors in the UCPR relevant to the exercise of the discretion as to whether or not to award security for costs discussed below, the application should be dismissed, having regard to the following which were said to be principles pertinent to the present case:
(a) The general rule is that poverty is no bar to a litigant (Cowell v Taylor (1885) 31 Ch D 34 at 38 per Bowen LJ).
(b) Where one co-plaintiff is out of the jurisdiction but the other is in the jurisdiction, there is generally no ground for ordering security (Sykes v Sykes (1869) LR 4 CP 645 at 648 per Byles J).
(c) Reference was made to the situation where a corporation and a natural person are co-plaintiffs, and there is a complete overlap of interests, and the natural person is not seeking to shelter behind the company but is the prime plaintiff. It was said that if the individual is liable for the costs of the action, the presence of a corporation co-plaintiff will not be a ground for abrogating the rule that a natural person who sues will not be ordered to give security for costs (Harpur v Ariadne [1984] 2 Qd R 523 at 532-3).
(d) Citing Barton v Minister for Foreign Affairs [1984] FCA 89; (1984) 2 FCR 463 at 468-469, it was also submitted that the court has a discretion to refuse to order security even if the plaintiff is ordinarily resident outside Australia, and that an impecunious individual plaintiff will not be ordered to provide security merely because he is ordinarily resident outside of Australia. Further, where a defendant can enforce a judgment for costs by virtue of the relevant Reciprocal Enforcement of Foreign Judgments legislation (Reciprocal Enforcement of Judgements Act 1976 (PNG)), they are in no worse position than if the plaintiff had been resident in Australia (Barton at 469).
[18] Counsel for the respondents submitted that in the context of these proceedings, it was said that there is a complete overlap between the claims of the first and second plaintiffs. The first plaintiff is a primary plaintiff, together with the second plaintiff, given that they are both parties to the loan agreements and any advice sought from the second and third defendants was for the benefit of both of them, with both being exposed to properties being sold by the first defendant. It was argued by the respondents that based on the above principles there is no proper basis for an order for security for costs and that the application should be dismissed.
[19] In so arguing, counsel for the respondents placed a good deal of emphasis on the fact that any judgment against the first plaintiff would be readily enforceable in Papua New Guinea. While there clearly remains a discretion to refuse to order security even though a plaintiff is ordinarily a resident outside Australia, it is appropriate, as observed in Barton at 468, that the court exercise its discretion having regard to all of the circumstances of the particular case before it. I therefore turn to consider the pertinent discretionary factors.
[20] The discretionary factors to which regard may be had in deciding whether to make an order for security for costs are listed in UCPR 672 as:
"(a) the means of those standing behind the proceeding;
(b) the prospects of success or merits of the proceeding;
(d) for rule 671(a) - the impecuniosity of a corporation;
(e) whether the plaintiff's impecuniosity is attributable to the defendant's conduct;
(f) whether the plaintiff is effectively in the position of a defendant;
(g) whether an order for security for costs would be oppressive;
(h) whether an order for security for costs would stifle the proceeding;
(i) whether the proceeding involves a matter of public importance;
(j) whether there has been an admission or payment into court;
(k) whether delay by the plaintiff in starting the proceeding has prejudiced the defendant;
(l) whether an order for costs made against the plaintiff would be enforceable within the jurisdiction;
The means of those standing behind the proceedings
[21] On behalf of the respondents, it was submitted that this factor is not relevant in the present case as the first plaintiff does not seek to hide behind the corporate veil of the second plaintiff. He is already primarily liable for any costs order (Harpur v Ariadne Australia Limited [1984] 2 Qd R 523 at 532).
[22] On behalf of the applicants, reference was made to the first plaintiff's affidavit where he described himself as impecunious and without assets in Australia or Papua New Guinea. It was noted that he nevertheless also stated that he is the "full shareholder" of two Papua New Guinean companies, the value or business of which he did not identify. He deposed that he was employed by those two companies as a "project manager" and that his salary for the last 12 months was about $80,000. He said he had about $3,000 in savings at the time of his affidavit and that his monthly expenses, including the cost of conducting the present litigation, equalled or exceeded his income. He stated that he had relocated to Papua New Guinea so that he could earn an income sufficient to fund litigation and rebuild his life.
[23] Given the deposed-to earnings, counsel for the respondent did not press a submission that the first plaintiff was impecunious. I note that there is no evidence of the financial status of the entities which employ the first plaintiff in Papua New Guinea and in respect of which the first plaintiff stated he was a "full shareholder". In the circumstances, I do not consider that the first plaintiff has fully disclosed his financial circumstances.
Prospects of success/merits/genuineness of the proceeding
[24] The claim, as I mentioned, against the second and third defendants is one for professional negligence and/or breach of contract arising from the contents of oral advices given to the first and second plaintiffs on 17 October and 3 November 2005.
[25] On behalf of the respondents, it was submitted that they have a demonstrable prima facie case, concerning conduct alleged against those defendants that they failed to properly advise the plaintiffs. It was argued that if a claim is prima facie regular and discloses a cause of action, in the absence of evidence to the contrary, the court will generally assume it to be bona fide with a reasonable prospect of success (Bryan E Fencott Pty Ltd v Eretta Pty Ltd [1987] FCA 102; (1987) 16 FCR 497 at 514). Further, a conclusion that the plaintiffs' claim is not brought bona fide or that it has no reasonable prospect of success should not be drawn except upon evidence of the clearest kind (Bryan E Fencott Pty Ltd at 502). Thus it was argued that where, as was said to be the case here, there is a bona fide claim, the court will ordinarily treat this factor as neutral.
[26] On behalf of the applicants, it was submitted that even at this preliminary stage it is open to the court to find that the plaintiff does not enjoy a reasonable prospect of success for a number of reasons. The case is one which will turn largely on oral evidence, as there does not appear to be documentary evidence being put forward to support the plaintiffs' claim against the second and third defendants. Emphasis was placed on the contested factual enquiry at the heart of the claim, which will necessarily involve questions of credibility of the first plaintiff and the third defendant. In that regard, it was noted that the first plaintiff has been convicted of a serious criminal charge and sentenced on a plea to having conspired to commit armed robbery: R v Ucchino and Evans [1993] QCA 137.
[27] Additionally, counsel for the applicants pointed to the plaintiffs' failure to particularise the claim put forward against the defendants.[13] For example, the alleged retainer is not particularised, despite a request for further and better particulars, other than to assert that it was formed orally. Likewise, the plaintiffs have been unable as yet to provide particulars in relation to matters pertinent to causation. They have not provided particulars as to the nature and purpose of the refinancing of the plaintiffs' asset position or as to the purpose that the plaintiffs required the short-term finance pending the "complete refinance". They have been unable to particularise requests for particulars of the "complete refinance" referred to in the pleading, stating that they are unable to do so until completion of non-party disclosure. The same applies to approaches alleged to have been made by the first plaintiff to financial institutions with respect to the "complete refinance" and the inability to facilitate the refinance. Nor have particulars been forthcoming as to the allegations that the plaintiffs "would and could" have sourced funds from another source in respect of the short-term loans, it being contended by the plaintiffs that they are unable to do so until completion of non-party disclosure. I consider that there is considerable merit in these submissions. The plaintiffs' failure to provide even the most elemental particulars after such a long period has passed since the alleged events does not reflect well on the prospects, merits and genuineness of the claim brought against the applicants.
[28] Further, I note that the default in respect of the loans totalling some $105,000 appears to have occurred within a short period after the First Loan was entered into and in circumstances where there is a failure to identify the plaintiffs' financial position at the time the loans were entered into. No reply has been filed in response to the second and third defendants' contentions in their defence that an alternative source of funds would not and could not have been sourced, and that any loss suffered by the plaintiffs was caused by their default, which would have occurred in any event, regardless of the source of the short term loans.
[29] I note the submissions made by the applicants as to the merits and genuineness of the damages claim, given the caveats attaching to the forensic accounting report dated 4 October 2012 of Geoff Missen[14] on which the plaintiffs rely. It is apparent that Mr Missen has not been provided with necessary evidentiary material relevant to the quantification of the claim and that there are considerable short comings as to the quantification of loss. I accept that the critical nature of the caveats and qualifications made by Mr Missen raise serious questions as to the merits and genuineness of the quantum of the claim.
[30] Additionally, counsel for the applicants placed emphasis on the fact that proceedings were not commenced until just prior to the expiration of the limitation period and there was delay in service of the proceeding on the second defendant. These matters are not, in my view, satisfactorily explained. The first plaintiff asserted in his affidavit that the delay was due to his impecuniosity without providing any documentation to substantiate that claim. Nor was any light shed on when solicitors were able to be engaged and the basis on which they have been engaged.
[31] The matters raised by the applicants cause me to have serious concerns in relation to the prospects and merits of the proceedings and their genuineness. Although I am unable to reach a concluded view on that, it remains that serious questions arise from the matters referred to, particularly the inability even at this stage to provide meaningful particulars and to provide Mr Missen with pertinent details going to the quantum of the claim.
Whether security would be oppressive or stifle the proceeding
[32] Given that counsel for the respondents did not maintain a submission that the first plaintiff was impecunious, no oral submissions were pressed that impecuniosity was attributable to the defendant's conduct.
[33] Whilst the first plaintiff asserted that an order for security for costs would stifle the proceeding, as I have noted, I am not satisfied that he has been fully forthcoming in relation to his financial position. There is no material before the court concerning the two companies through which it seems the first plaintiff carries on business. Accordingly, I am not persuaded that an order for security for costs would stifle the proceedings.
[34] I note that pursuant to a varied order of the Chief Justice made on 13 June 2013, the plaintiffs paid security for the second and third defendants' costs of and incidental to the proceedings up to and including the hearing of the application filed on 28 March 2013 in the amount of $20,000. That payment was on terms to secure an adjournment of this application. The payment of that money was the subject of an application by the plaintiffs which I will address later.
Whether delay by the plaintiff in starting proceedings has prejudiced the defendant
[35] Although the loans being entered into in 2005, and an event of default under each occurring by 5 January 2006, the plaintiffs did not commence proceedings until 10 October 2011. Service of the proceedings did not then occur on the second defendant for a further 12 months, on 9 October 2012, and well after the expiration of the statutory limitation period.
[36] The applicants point to the fact that seven years have transpired from the alleged retainer to service of the proceeding on the second defendant. While the matter of prejudice of a more specific nature was not deposed to in affidavit material, correspondence exhibited to an affidavit referred to the difficulty in locating relevant files. But it is trite to observe that proceedings brought so long after the events the subject of the proceedings inevitably place a defendant in an invidious position. The respondents made reference to the general presumption of prejudice that arises when a long delay occurs and the insidious nature of such prejudice, as explained by McHugh J in Brisbane South Regional Health Authority v Taylor [1996] HCA 25; (1996) 186 CLR 541.
Whether an order for costs made against the plaintiff would be enforceable within the jurisdiction
[37] The applicants argue that in the absence of an order for security for costs, an order for costs would not be enforceable in the jurisdiction.
[38] Bearing in mind the discretionary matters to be taken into account and the submissions made, I am satisfied that the balance falls in favour of the exercise of the discretion and that it is appropriate to make an order for security for costs.
[39] The applicants contended that security in the order of $564,000 should be ordered on the basis of a quantification by Mr Garrett as to likely standard costs to be incurred by the second and third defendants up to and including the trial of the action. The plaintiffs relied on Mr Kerr's affidavit, which critiqued that quantification and suggested a substantial discounting to no more than about $163,000.
[40] The plaintiffs also argued that any security should be confined to the costs of registering and enforcing a judgment in Papua New Guinea, which was the approach taken in authorities such as Barton (but I note that the court there was influenced by a consideration that a more onerous costs order might have effectively barred the proceedings: see Barton at 470).
[41] I note that traditionally the courts have adopted a conservative approach to the question of the quantum of security for costs and that the court does not set out to provide a complete and certain indemnity to a defendant by making a security for costs order. Factors that are relevant to be considered in this context are whether the proceedings will continue to determination, the difficulty in attempting to quantify at an early stage in the proceedings the ultimate costs, and the possibility that costs may be reduced on assessment. An approach that is sometimes adopted is to order security be provided up to a particular stage of the proceedings.
[42] There is merit in adopting such an approach. At this stage it is appropriate, in my view, to only order security up to and including mediation. That of course is without prejudice to the applicants' right to bring a further application. Counsel for the applicants stated that the sum of $20,000 appropriately reflects the approximate costs incurred to date. The quantification of the additional amount likely to be incurred in costs up to mediation and excluding an advice on evidence is in the vicinity of $240,000. Taking a conservative approach and bearing in mind the matters referred to as pertinent in determining quantum, an appropriate figure, in my view, would be one of $170,000 by way of security up to and including mediation.
[43] I therefore order that security be provided in the sum of $170,000 (the sum of $20,000 that has been paid into court may be put towards that security).
[44] In relation to that money, the relief sought in paragraphs 1 and 2 of the plaintiffs' application is refused.
[45] I will hear further from counsel as to the form of orders and as to costs.
[1] Further Amended Statement of Claim, para 2.
[2] Further Amended Statement of Claim, paras 5, 11.
[3] Further Amended Statement of Claim, paras 5, 11.
[4] Further Amended Statement of Claim, paras 8, 15.
[5] Further Amended Statement of Claim, paras 57, 60, 61.
[6] Further Amended Statement of Claim, para 17.
[7] Further Amended Statement of Claim, paras 32, 33.
[8] Further Amended Statement of Claim, paras 34.5, 34.6.
[9] Further Amended Statement of Claim, para 34.8.
[10] Further Amended Statement of Claim, para 62.
[13] See Answers provided on 7 February 2013 to the Request for Further and Better Particulars delivered on 13 December 2012.
[14] See Orr affidavit, annexure 16, page 70.
Ucchino & Ors
Oxygen Finance Pty Ltd & Ors [2013] QSC 187
(1984) 2 FCR 463
(1987) 16 FCR 497
(1996) 186 CLR 541