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[2012] QSC 286
General information, not legal advice.
Supreme Court of Queensland
2012-09-21
Daubney J
Original judgment source is linked above.
[1] This is an application for security for costs. There is no issue that the plaintiff does not have the financial capacity to meet an adverse costs order, and accordingly the defendant seeks the exercise of the Court's powers to order security under Chapter 17 Part 1 of the Uniform Civil Procedure Rules ("UCPR"), s 1335 of the Corporations Act, and the Court's inherent jurisdiction.
[2] The defendant is the registered proprietor of the land on which is constructed the complex known as the "Sanctuary Cove Marine Village". By a lease dated
11 October 2006, the plaintiff became the tenant of a shop in that complex, from which it conducted the business of selling, repairing and maintaining new and used golf carts. The lease was for an initial term of three years, with a number of three year options to renew. The lease was renewed, but was ultimately surrendered by agreement after proceedings were taken by the plaintiff challenging a market review of the rental payable under the lease.
[3] By the present proceeding, the plaintiff has sued the defendant claiming that the plaintiff suffered loss as a consequence of breaches by the defendant of the terms of the lease. The lease contained the usual covenants of quiet enjoyment and
non-derogation of grant. It also contained a covenant allowing for the payment to the plaintiff of reasonable compensation for loss suffered if the defendant substantially restricted the plaintiff's access to the premises, restricted customers' access or flow of customers to the premises, or caused significant disruption to the plaintiff's trading. The plaintiff asserts that the defendant breached these covenants by:
(a) temporarily closing the car park directly opposite the leased premises;
(b) permanently altering the car park by prohibiting the parking of motor vehicles and making it an "electric buggies only" car park;
(c) constructing a restaurant immediately adjacent to the leased premises, in the course of which building materials were placed outside the leased premises and noise and dust nuisances were created which interfered with the plaintiff's business;
(d) caused a bakery to be constructed nearby the leased premises in such a position as to restrict the visibility of the leased premises from passing trade;
(e) caused safety fencing to be constructed around the site, causing interference with the plaintiff's business;
(g) greatly restricted pedestrian and other access to the leased premises.
[4] Lengthy affidavits by Mr Donkin, the sole director and shareholder of the plaintiff, and by a representative of the defendant were filed. Mr Donkin, in forthright and emotive terms, described the matters of which the plaintiff complained and which resulted, according to Mr Donkin, in the collapse of the plaintiff's business. Ms Mountford, the centre manager of the complex, deposed at considerable length to the progressive changes to, and construction within, the complex and the reasons for same. She further addressed a number of specific issues relied on by Mr Donkin, such as the placement of bollards at the entry to the car park for the purpose of preventing its use by vehicles other than golf buggies.
[5] It is unnecessary to descend further into the details of these affidavits. There are clearly significant factual issues to be tried, and it is not possible on this application to make any useful assessment of the competing merits. In those circumstances, it is appropriate for me to assume for the purposes of the present application that the plaintiff's claim is bona fide and has reasonable prospects of success.[1]
[6] As already noted, given the financial incapacity of the plaintiff, there was no issue that the discretion to order security for costs was enlivened in the present case. It is, of course, well settled that the Court's discretion on such an application is unfettered, and is to be exercised only after taking account of all of the circumstances of the case. UCPR r 672 enumerates a number of matters to which the Court may have regard when deciding whether to make an order for security for costs, but this list is neither prescriptive nor exclusive.
[7] Counsel for the plaintiff pointed to numerous matters which, it was submitted, weighed against the exercise of the discretion to order security for costs. A couple of those can be dealt with briefly:
(a) A submission that the defendant's conduct in bringing this application was oppressive because the application was brought "with the specific intention of denying the plaintiff of its right to litigate against the defendant" and that the "fact is that the defendant is a large corporation, well able to absorb the costs of these proceedings" was not supported by the evidence. Beyond some unsubstantiated assertions by Mr Donkin, there was nothing in the evidence to suggest any improper or oppressive purpose. The fact that the defendant may be well resourced is not to the point. The discretion arises because the plaintiff lacks the financial capacity to meet an adverse costs order.
(b) I reject a submission that there has been undue delay in bringing this application. The proceedings were commenced in July 2010. In fact, the defendant raised concerns about the plaintiff's financial capacity and foreshadowed an application for security for costs by correspondence in August 2010. At that time, the plaintiff's solicitors responded by asserting, amongst other things, that Mr Donkin and another company associated with him, New Mobility Pty Ltd, were solvent. It was then late in 2011 that the defendant became aware of other litigation in which the plaintiff and the other company associated with Mr Donkin were involved. In November 2011, the defendant's solicitors wrote again to the plaintiff's solicitors on the question of security for costs, but no response was received. In those circumstances, I do not consider that there has been any inordinate delay in bringing the present application.
[8] The discretionary factors on which the plaintiff placed principal reliance, and which were the subject of most argument and evidence before me, were:
(a) that Mr Donkin has offered to give a personal guarantee in respect of any costs orders made against the plaintiff;
(b) the fact that the conduct complained of by the plaintiff caused its impecuniosity; and
(c) that the making of an order for security for costs would stifle the litigation.
[9] As I have already noted, Mr Donkin is the sole director and shareholder of the plaintiff. He is, clearly enough, the controller of the plaintiff and the person who, in real terms, stands behind the plaintiff. The fact that Mr Donkin has offered a personal guarantee is a relevant factor to be considered.
[10] The arguments on the other two points raised by the plaintiff led to a number of factual issues needing to be explored, which in turn necessitated several adjournments of the hearing of the application to allow the plaintiff, in particular, to put on further material.
[11] In his original affidavit in response to the application, Mr Donkin had baldly asserted:
"I am the sole shareholder of Valeba. As a result of the financial collapse of Valeba's business I have been left destitute."
[12] Further searches undertaken by the defendant's solicitors, however, revealed that it appeared that, contrary to the assertion that he was "destitute", there were several apparently valuable pieces of real property registered in Mr Donkin's name. Mr Donkin, however, put on further affidavit material to explain that two of the properties which still showed as registered in his name had, in fact, been sold in 2011 and early 2012, and he produced documentation evidencing those sales. The evidence also explained the delay in the transfer of those properties being registered; the delays were caused by the lodging banks and had nothing to do with Mr Donkin. He also produced documentation evidencing that the proceeds of sale had predominantly been applied to discharge of loans he owed. From one of the properties, which sold for a sum in excess of $1,300,000, Mr Donkin personally received only the sum of $2,788. In respect of the third property, Mr Donkin said that he had been trying to sell that property for some time, but its value had diminished considerably in the current real estate market. It is worth much less than what he owes.
[13] It is unfortunate that, as with so many other passages of his affidavit, Mr Donkin chose to use evocative language to describe his personal financial situation, as this led to further investigations needing to be undertaken. Despite his flowery language, however, I do accept for present purposes that his personal means are very limited indeed.
[14] The other significant factual issue concerned the contention that the impugned conduct of the defendant had caused the losses sought to be recovered by the plaintiff in this proceeding. The defendant raised the point that the business in the leased premises was apparently conducted not by this plaintiff but by the other company associated with Mr Donkin, New Mobility Pty Ltd. That company has no real property assets, and liquidators were appointed to it in November 2011.
[15] In response to the assertions concerning New Mobility Pty Ltd, Mr Donkin put on further affidavit material explaining the nature of the business conducted from the leased premises. He said:
"The lease was taken in the name of Valeba and Valeba was the importer of all the cars. Valeba had all negotiations with wholesalers. Valeba used New Mobility Pty Ltd as its agent to conduct the sales. This arrangement was introduced in 2006 on the advice of my accountants.
This meant that when invoices were rendered to clients they came from New Mobility who would thereafter account to Valeba for the proceeds. The bank accounts of both companies show regular transfers from New Mobility to Valeba. When a decision was made to put New Mobility into receivership, Valeba still carried on trading from the same premises and with the same products but without a corporate "agent"."
In short, as was submitted by counsel for the plaintiff, the evidence is to the effect that the plaintiff conducted parts of its business on the leased premises through an agency arrangement with New Mobility Pty Ltd.
[16] Accepting for present purposes this explanation of the way in which the business was conducted, it follows that the plaintiff would be able to establish a causal connection between the impugned conduct and the losses it claims to have suffered. This is not a case in which there is a mere assertion of impecuniosity as a consequence of the impugned conduct of the defendant. Rather, it is a case in which a causal connection between the impugned conduct and the loss of business is apparent and palpable.
[17] The present case is quite different from the circumstances considered in Contamination Control Laboratories Pty Ltd v Reyer,[2] on which the defendant placed reliance. In that case, there was simply no evidence to support the assertion that the plaintiff's impecuniosity was attributable to the conduct of the defendants. Moreover, in that case the individual who stood behind the plaintiff did not himself offer to put up security for the defendants' costs, but rather simply pointed to other entities with which he was involved as being entities of value from which he could raise funds. That is quite different from the present case, where the only person standing behind the plaintiff, Mr Donkin, has offered to provide security by way of a personal guarantee.
[18] Having regard to the plaintiff's lack of means and the severe limitations on Mr Donkin's personal means, I am satisfied that the making of an order for security for costs would have the effect of stifling this litigation. That, obviously, is a relevant matter for consideration, particularly when it is appreciated that the person who stands behind the plaintiff has offered his personal guarantee. It is true that the offering of such an undertaking by Mr Donkin is not the only consideration, but the "issue [as to security for costs] has to be looked at in the light of all relevant considerations including the merits of the action and whether the ordering of security will stifle an action which has some apparent merit".[3]
[19] It seems to me, on the facts of this case, that the balance tips against the making of an order for security for costs, particularly when one has regard to the offering of the personal guarantee by Mr Donkin and the stifling effect which would flow from the making of such an order.
[20] Mr Donkin will need to formalise his offer of a guarantee by lodging an irrevocable guarantee, in a form acceptable to the Registrar. That should be done within 14 days.
[21] Of course, if Mr Donkin fails to lodge such an irrevocable guarantee, then the balance of the considerations relevant to the exercise of the discretion will have shifted and, despite the other arguments, the plaintiff should be required to provide security for the defendant's costs. The solicitor for the defendant has made an assessment of the standard costs which the defendant will likely incur up to and including the first day of a two day trial. She has assessed this in the sum of $45,423.13. Her assessment was not challenged by the plaintiff. Adopting the conventional broad-brush approach to fixing the amount of security for costs, I would order the amount to be provided by the plaintiff, if Mr Donkin fails to lodge his irrevocable guarantee, in the sum of $35,000.
(b) Upon notification by the Registrar to the parties that the irrevocable guarantee in a form acceptable to the Registrar has been lodged, the defendant's application for security for costs will stand dismissed.
[1] Memutu Pty Ltd v Lissenden (1983) 8 ACLR 364; Specialised Explosives Blasting & Training P/L v Huddy's Plant Hire Pty Ltd [2009] QCA 254; [2010] 2 Qd R 85 at [40].
[3] Intercraft Cabinets Pty Ltd v Sampas Pty Ltd (1997) 18 WAR 306, per Malcolm CJ at 316; Specialised Explosives Blasting & Training Pty Ltd v Huddy's Plant Hire Pty Ltd (supra) at [31].
Valeba Pty Ltd
Mulpha Sanctuary Cove
(1997) 18 WAR
306
(1997) 18 WAR 306