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[2013] NSWSC 664
Supreme Court of NSW
2013-05-30
Nicholas J
Original judgment source is linked above.
Judgment 1His Honour: By her notice of motion filed 27 November 2012 the defendant seeks an order that the plaintiffs provide security for costs in the sum of $125,000, and other related orders. The order for security is sought under the inherent jurisdiction of the court.
Background 2The first plaintiff and the second plaintiff are husband and wife. The defendant and the second plaintiff are sisters. Until the time of his death on 17 March 2009 Mr Norman Gunner was the husband of the defendant. The late Mr Gunner was from about 2004 until the time of his death the registered proprietor of property at Old Bar, Beecroft, Mt Colah, and North Balgowlah. 3By their statement of claim filed 5 September 2012 the plaintiffs' claim various categories of relief against the defendant concerning dealings with properties at Old Bar, Beecroft, Mt Colah, and North Balgowlah. In short, the first plaintiff alleges agreements were made for the development and subdivision of these properties in the course of conversations in about 2004 between himself and the late Mr Gunner and conversations with the defendant after his death. Apparently, there are no documentary records of these conversations. Orders for specific performance, equitable compensation, and declaratory relief are sought. Issues of breach of contract, estoppel, constructive trust, and breach of fiduciary duties are pleaded. 4A separate claim is made by both plaintiffs in respect of an alleged agreement made between them and the late Mr Gunner concerning their entitlement to occupy a property at North Balgowlah, with an option to purchase it. Their claim depends upon conversations between the first plaintiff and the late Mr Gunner in about 2004, and discussions between the second plaintiff and the defendant. They claim that in about 2011 and 2012 the defendant has attempted to evict them from the property, and otherwise to act in breach of their agreement. They seek relief by way of damages, estoppel, and/or interest under a constructive trust. They also claim specific performance of a written agreement made on about 27 January 2012 between them and the defendant for the subdivision of the property into two lots, and the transfer of one lot to the second plaintiff. 5In her defence filed 1 November 2012, the defendant denies the claims for relief, and the factual bases for them in respect of each property. Included in the pleading are allegations of facts and circumstances claimed to disentitle the plaintiffs to any relief. By her cross-claim filed 18 January 2013 the defendant/cross-claimant claims damages against the plaintiffs/cross-defendants arising out of separate agreements between her and the plaintiffs, or either of them, concerning the carrying out of clearing work at the Old Bar property, and the sale of a property at Beecroft. 6It is self-evident from the issues raised by the pleadings that the factual issues to be canvassed may be widespread, and appear to have occurred over several years. The duration of any hearing is estimated to be of five days. 7At the time of hearing the present application no interlocutory steps had been taken in respect of the conduct and management of the proceedings, including directions for the filing of evidence to be relied upon by the parties. 8The defendant's claim is for security for her costs in the sum of $125,000. The opinion of her solicitor, Mr Tony Marshall, is that her legal costs for preparation and hearing, including fees for senior and junior counsel would amount to $238,500. He estimated the plaintiffs' costs at between $175,000 and $250,000. On the other hand, the plaintiffs' solicitor, Mr Charles Hockey, expressed the opinion that Mr Marshall had over-estimated the costs of investigation and preparation of evidence, although he accepted the difficulty of estimation at this early stage. He said that the plaintiffs have not retained senior counsel, and his view was that the case did not warrant retaining senior counsel. 9The court's inherent jurisdiction to order security for costs against a natural person is clearly established. That there is no absolute rule to control the exercise of discretion where the inherent jurisdiction is invoked was authoritatively stated in Merribee Pastoral Industries Pty Ltd v ANZ Banking Group Ltd [1998] HCA 41; (1998) 193 CLR 502 by Kirby J: "26 Without any pretence to having conducted an exhaustive analysis of the decisions in this Court where orders for security for costs have been sought, in appeals, a number of propositions can be stated which it may be useful to collect: 1. There is no absolute rule to control the exercise of the discretion to order security for costs where that jurisdiction derives from the inherent power of the Court. The jurisdiction, as one reposed in a court, is to be exercised judicially and for the purpose for which it exists. An analogous discretion has been described as 'absolute'. It would be wrong to attempt to hedge the jurisdiction about by rules or practices, even where derived from a number of instances. This is because what should be done in each case depends entirely on the circumstances of the case. The governing consideration is what is required by the justice of the matter. 2. There is therefore no absolute rule (applicable statute apart) that the impecuniosity of a party will entitle its opponent to an order for security for its costs. Where the power to so provide exists in uncontrolled terms, it would be to fetter the jurisdiction impermissibly to adopt such a rule or even a prima facie entitlement. By the same token, the inability of a party to meet the costs of an unsuccessful proceeding is not irrelevant to the exercise of the jurisdiction. Litigation is inevitably expensive and burdensome. To add to the burdens of a party successful in the outcome, those of paying its costs with little or no prospect of recovery under an order for costs may, in particular circumstances, be a reason for offering a measure of protection to that party by way of security for costs. 3. Another consideration that has sometimes been judged to be relevant is the strength of the case of the party resisting an order that it provide security for costs and an evaluation (necessarily tentative) of its prospects of success. Thus, the fact that a party has secured special leave to argue its case on appeal has been thought a relevant consideration in some circumstances. Similarly, if a proceeding appeared hopeless and such as was bound to fail, the lack of apparent merit in a party's case might be a reason for ordering it to provide security for the costs to which, it appears, it is needlessly putting its opponent. Such a consideration would need to be exercised with care, given that the real merits of a case might not emerge until the final hearing or might not sufficiently emerge in the necessarily brief proceedings typically involved in an application for security for costs. Furthermore, if a party asserts that its opponent's proceedings are manifestly lacking in legal merit, other remedies are available to it to protect it from needless vexation. In appeals there is the barrier of leave or special leave. ... Doubtless there are as many further considerations as there are cases. The foregoing help to illustrate some of the matters which courts, including this Court, have felt to be relevant to the exercise of the discretion to order security for costs, where that discretion is invoked." 10In Green (as liquidator of Arimco Mining Pty Ltd) v CGU Insurance Ltd [2008] NSWCA 148; (2008) 67 ACSR 105 Hodgson JA stated the applicable principles, which, relevantly, included: "7 The primary judge accepted as correct the following principles: 1. The Court has power to order the provision of security for costs against plaintiffs who are natural persons: s 23 Supreme Court Act, Rajski v Computer Manufacture and Design Pty Ltd [1982] 2 NSWLR 443 (Holland J) and [1983] 2 NSWLR 122 (Court of Appeal); Morris v Hanley [2000] NSWSC 957 at [10]ff (Young J); Bhattcharya v Freedman [2001] NSWSC 498 at [27] (Badgery-Parker AJ); Idoport Pty Ltd v National Australia Bank Limited [2001] NSWSC 744 at [17] (Einstein J); Byrnes v John Fairfax Publication Pty Ltd [2006] NSWSC 251 at [17] (Simpson J). This is an inherent power necessary for the due administration of justice and to prevent abuse of the Court's processes: Rajski at [447]-[448]; Bhattcharya v Freedman at [27]. 2. The Court's discretion to require the provision of security for costs is broad and the factors informing the exercise of that discretion cannot be stated exhaustively: Idoport Pty Ltd v National Australia Bank Limited [2001] NSWSC 744 at [48]; Dal Pont, Law of Costs, Butterworths 2003 at 29.2. The only limitation is that the discretion be exercised judicially: Bell Wholesale Co Pty Ltd v Gates Export Corporation (No 2) (1984) 52 ALR 176 at 178. Any attempt to limit the discretion by reference to rules or practices is wrong, as the exercise of a discretion judicially requires the court to consider the circumstances of the particular case with a view to determining the justice of the matter: Merribee Pastoral Industries Pty Ltd v Australia and New Zealand Banking Group Ltd (1998) 193 CLR 502 at 513 ([26]) (Kirby J), Dal Pont, Law of Costs at [29.2]; Lucas v Yorke (1983) 50 ALR 228 at 229 (Brennan J); Barton v Minister for Foreign Affairs (1984) 54 ALR 586 at 593-594 (Morling J); Jodast Pty Ltd v A & J Blattner Pty Ltd (1991) 104 ALR 248 at 251 (Hill J). 3. The purpose of a security for costs order is protective, so as to ensure that the primary purpose of an award of costs (that is, indemnification of the successful party: Oshlack v Richmond River Council (1998) 193 CLR 72 at 97 [67], per McHugh J and the cases therein cited) is achieved. As stated in Idoport Pty Ltd v National Australia Bank Limited [2001] NSWSC 744 at [33]: The jurisdiction to award security for costs should thus be seen as protecting the efficacy of the exercise of the jurisdiction to award costs. The discretion should be exercised with the same rationale in mind, namely that, to the extent it can be provided, the court should not permit a situation where a party's success is pyrrhic. 4. In exercising the discretion to make an order for the provision of security for costs, the court seeks to achieve a balance between ensuring that adequate and fair protection is provided to the defendant, and avoiding injustice to an impecunious plaintiff by unnecessarily shutting him out or prejudicing him in the proceedings: Rosenfield Nominees Pty Ltd v Bain & Co (1988) 14 ACLR 467 at 470 (Giles J); Idoport Pty Ltd v National Australia Bank Limited [2001] NSWSC 744 at [47]. 5. The inability of a plaintiff to meet the costs of a successful defendant weighs heavily in the exercise of the discretion: Rosenfield at 470; Idoport Pty Ltd v National Australia Bank Limited at [47]. ..." 11An often referred to, non-exhaustive, list of factors relevant to the exercise of discretion was provided in Morris v Hanley [2000] NSWSC 957, par 23 by Young J: "23 The leading cases show that the factors a Court must take into account when considering the general question as to whether the inherent power should be exercised to order security for costs include: (a) whether the plaintiff's claim is bona fide and not a sham; (b) whether the plaintiff has a reasonably good prospect of obtaining the orders he or she seeks; (c) whether an order for security would bring the proceedings to an end; (d) whether the plaintiff has a want of assets and how this was brought about; (e) whether there is anyone standing behind the plaintiff who might benefit from the action but who is unwilling to contribute to the risk involved in the action; and (f) the question of delay." 12In my assessment the judicial task requires the exercise of discretion with regard to the particular facts and circumstances of the case at the time the application is heard. Other cases sometimes afford helpful, but not determinative, guidance for the approach to be taken. They establish that the power to order security may be exercised whenever the circumstances of justice demand, and its exercise is not confined to particular, or closed, categories or circumstances. A court should keep in mind that the underlying purpose of an order is to provide adequate and fair protection to a defendant for the recovery of its costs against an unsuccessful plaintiff which has been ordered to pay them. 13Of relevance to this application are the orders made in recent proceedings which involved the first plaintiff and companies with which he had been closely associated. In In the matter of Lawrence Waterhouse Pty Ltd (in liq.) and Shaw v Minsden Pty Ltd & Lawrence (2009/00287488) orders were made which included an order that the defendants (which included the first plaintiff) were to pay the plaintiffs' costs of the proceedings as agreed or assessed. This order was made on 21 September 2011 by her Honour Justice Ward. 14On 5 October 2012 a certificate of determination of these costs was issued which assessed the costs payable by the defendants in the amount of $286,837.31. On the same day, a certificate of determination of costs of the costs assessment was issued which assessed the costs payable by the defendants in the amount of $6,056.12. These assessments are subject to applications for review made by the first plaintiff on about 22 March 2013. 15There was also evidence that the first plaintiff is the registered proprietor of a property at Braemar which was transferred to him on about 22 February 2001 by Wayne Lawrence Pty Ltd for a consideration of $90,000. He is also the registered proprietor of a property at Hilltop which was transferred to him on about 20 May 2003 by companies of which the plaintiffs were directors for a consideration of $120,000. These properties are unencumbered. The first plaintiff is also the registered proprietor of a property at Davidson which was transferred to him on about 24 September 1997 for the consideration of $337,500. This property is encumbered by a mortgage to National Bank of Australia. 16On 25 November 2011 Macready AsJ made a freezing order against the defendants in the following terms: "The defendants be restrained from in any way disposing of or dealing with or diminishing the sale of their assets in Australia up to the unencumbered value of $200,000 or the amount of the assessed costs of the plaintiffs ordered in these proceedings to date." 17By letter of 14 September 2012 to the plaintiffs' solicitor, the defendant's solicitor invited the plaintiffs to provide security in the sum of $65,000 within 21 days. Alternatively the plaintiffs were requested to provide information to establish that they had the capacity and means to satisfy any costs order made against them, for example by providing a statement of assets and liabilities and supporting documentation. The present application was foreshadowed in the event that the plaintiffs failed to comply with the request. The plaintiffs made no reply.
Determination 18Having regard to the variety of factors which, depending on the circumstances, may be relevant to the exercise of discretion, those which are unnecessary to consider in this case may be noted. The defendant does not contend that the plaintiffs are impecunious. She does not dispute that they have a bona fide case, although puts that it appears weak. It is accepted that there is no question of delay. There was no evidence that an order for security would stultify the proceedings. 19Upon refinement during the course of argument the defendant based the claim for security on grounds that the plaintiffs' case is weak, and that if she is successful and the plaintiffs are ordered to pay her costs it is probable that she would experience real difficulty in recovering costs from them. 20It was put that the weakness of the greater part of the plaintiffs' case lay in its dependence upon conversations which took place about nine years ago, uncorroborated by documentary evidence, and not raised until some three and a half years after Mr Gunner's death. The defendant emphasised the serious difficulties of proof for a party relying upon spoken words as the foundation of causes of action in the absence of some reliable contemporaneous record or other satisfactory corroboration as referred to by McClelland CJ in Eq. in Watson v Foxman (1995) 49 NSWLR 315, p 319. However, as Kirby J cautioned in Merribee (par 26), ordinarily a court will not enter into a close evaluation of the merits of a party's case in an application such as this as the real merits may not emerge until the final hearing. On the limited material before me it is simply too early to reach a conclusion as to the plaintiffs' prospects on their various claims. I regard the issue as to the weakness of the plaintiffs' case as a neutral factor. 21Before turning to the question of the prospects of recovery if the plaintiffs are ordered to pay the defendant's costs it is convenient to refer to other relevant factors. As the plaintiffs submitted, account should be taken of the issues under the cross-claim which, unsurprisingly, will overlap to some extent with those raised in the statement of claim and in the defence. Upon consideration, I regard this factor as one of neutral weight. 22With regard to the costs assessments, the plaintiffs contend that, pending review, the first plaintiff is under no current liability to pay either the amount of $286,837.31 or $6,056.12. Although it is uncertain whether, on review, the assessments will be confirmed or reduced, for present purposes I will assume that each will be reduced by about 15 per cent to a balance of about $240,000 and $5,100 respectively. 23I now turn to consider the significance of the existing freezing order made on 25 November 2011. The court's jurisdiction to make such an order is under Uniform Civil Procedure Rules 2005 Pt 25, r 25.11 and r 25.14. It is well established that the basis of both rules, and the inherent or implied powers of the court, is the necessity of ensuring the effective exercise of the court's jurisdiction, by authorising orders restraining an asset disposal that involves a real risk any judgment in the proceedings may not be satisfied. It is self-evident from the fact that the freezing order was made that there was a danger that by reason of assets being disposed of within the jurisdiction or otherwise dealt with in some fashion, the plaintiffs would not be able to have their judgment in respect of costs satisfied. (On the question of risk of assets being dissipated so that any judgment might be frustrated the court had regard to the comments of Gleeson CJ in Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319, p 321.) 24In my opinion, in the circumstances of this case, the existence of the freezing order is sufficient to justify the court in exercising its discretion to make an order requiring the plaintiffs to provide security for the defendant's costs. Relevantly, the first plaintiff is facing the prospect of a liability for the payment of about $245,000 under the costs order made on 21 September 2011. There is no evidence of the value of his interest in any of the properties earlier referred to. There is no evidence that the first plaintiff has sought to have the freezing order discharged, a situation which supports the inference that he accepts that it is appropriate that it should remain. It carries the message that there is a real risk that the first plaintiff, unless restrained, would deal with his assets so as to put them out of reach of creditors. The plaintiffs have chosen not to provide any evidence of the financial situation of either, including evidence as to assets and liabilities, although invited to do so by the defendant's solicitors on 14 September 2012. Had they accepted the invitation, the necessity to make this application would probably have been avoided. 25The plaintiffs' failure to provide evidence of their capacity and readiness to meet an order for costs in the event of an order against them in these proceedings, coupled with the fact that the court was satisfied that the first plaintiff should be bound by a freezing order in relation to an adverse costs order in other recent proceedings, provides ample support for the inference that it is highly probable that the defendant would experience real difficulty in recovering any costs ordered in her favour. The defendant should not be exposed to such a risk. In all the circumstances, in my opinion, the justice of the case requires that security be provided to protect her from that risk. 26At this early stage it is difficult for a court to make a satisfactory estimate of quantum in respect of the future conduct of the proceedings until the end of the trial. Nevertheless, common experience enables an assessment to be made of costs and expenses likely to be incurred by the defendant in preparation for the hearing. Although the evidence of Mr Marshall and Mr Hockey, practitioners of extensive experience, provides useful guidance, necessarily a broad approach must be taken. Accordingly, in the present circumstances, I find the appropriate amount to be ordered for security is $80,000. It will be open to either party to apply to vary the order should it become necessary to do so.
Conclusion 27Subject to any different orders to be made in terms agreed by the parties, I would order the plaintiffs to provide security for the defendant's costs of the proceedings in the sum of $80,000, such sum to be paid into court on or before 4pm 28 June 2013, failing which the proceedings be stayed until further order. 28I would also order the plaintiffs to pay the defendant's costs of this application. 29In the circumstances it is appropriate to direct the defendant to bring in short minutes to give effect to these conclusions. Unless this application is to be disposed of by consent orders made in chambers, I direct the defendant to arrange with my associate by 4pm 7 June 2013 to re-list the proceedings.
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: 30 May 2013
Wayne Lawrence & Anor
Frances Beatrice Gunner
(1998) 193 CLR 502
(1989) 18 NSWLR 319
(1984) 52 ALR 176
(1983) 50 ALR 228
(1984) 54 ALR 586
(1991) 104 ALR 248
(1998) 193 CLR 72
(1995) 49 NSWLR 315