Worklift Holdings Pty Ltd v Buchberger

District Court of NSW|2018-03-16

Judgment

These are my reasons for the orders I made on 16 March 2018.

Background

The plaintiff, a company in liquidation, commenced proceedings (through its liquidator) by statement of liquidated claim filed on 12 October 2017 for the sum of $135,804.07, being the sum of $101,000 plus interest calculated from 28 July 2012 to 31 August 2017 in relation to the GST component for the sale of a Cessna aircraft ("the aircraft"). The statement of claim alleges that the defendants, who were at the time the directors of the plaintiff company, caused the plaintiff to sell its asset (the aircraft) on 7 June 2012, but failed to pay the GST component of $101,000. Instead, the defendants caused the sale monies, including the GST component, to be transferred to a company account with the National Australia Bank in satisfaction of charges held by the National Australian Bank in relation to the company.
The following day (8 June 2012) the defendants signed an agreement with a third party to pay their shares. As the affidavit of the liquidator notes, the sale of the shares in the plaintiff company by the defendants to that third party, was on the terms and conditions set out in an agreement which was annexed to his affidavit (affidavit of Hayden Asper sworn 23 February 2018, annexure C). Clause 5 of that agreement was as follows: "5. On the Settlement Date, the Vendors and the Directors, as the case may be will: a) Hand to the Purchaser: I. A properly executed transfer of shares in favour of the Purchaser or his nominee or nominees; II. With regard to the Company all available company documents held by them. b) Retire from the company from any positions that they hold with it c) Sign such documents as may be required to remove the Director's name as a signatory to all bank accounts of the Company and do all such matters that may need to be done to remove the authority of the Vendor and the Directors to sign on behalf of, or otherwise bind, the Company. d) Hand to the Purchaser written resignations, signed by the Directors, resigning from their position as Directors e) Pay the Company's bank such funds as may be required to pay any GST liabilities for the period 1st April 2012 to the Settlement date (this amount to be agreed upon between the Company's external Accountant and the Purchasers representative, based on review of MYOB Accounting software for the period 1st April 2012 to the Settlement date) f) Pay all outstanding creditor invoices owed by the Company g) Pay all company credit cards, Australia Taxation Office obligations and employer obligations h) Acknowledge that loans owed to Worklift Trading (MYOB Account reference 2-2101) and Active Crane Hire (MYOB Account reference 2-2107) will be forgiven by the lenders, absolving the Company from any obligation to pay."

The orders sought in the notice of motion

By notice of motion filed on 21 December 2017, the defendants seek orders as follows: 1. The proceedings be transferred to the Sydney Registry of District Court of NSW pursuant to r 8.2 of the Uniform Civil Procedure Rules 2005 (NSW); 2. Pursuant to r 42.21 of the Uniform Civil Procedure Rules 2005 (NSW) or s 1335 of the Corporations Act 2001 (Cth), the plaintiff is to provide within 28 days of the making of these orders security for the first and second defendants' costs by paying into court the sum of $80,171.90 or by otherwise providing security for that amount in a manner satisfactory to the first and second defendants; 3. Until that security is provided, there will be a stay of the proceedings; 4. In the event that the security has not been provided within the 28 days, the plaintiff's claim be dismissed; 5. The proceedings be listed on the date 35 days after the making of these orders; 6. The defendants have liberty to apply for additional security for costs at any stage of the proceedings; 7. Costs; 8. Such further or other orders as the Court sees fit.

The application for security for costs

Rule 42.21 Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") provides: "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 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 the 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 to 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. (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. (1B) If the plaintiff is a natural person, an order for security for costs cannot be made merely on account of his or her impecuniosity. (2) Security for costs is to be given in such manner, at such time and on such terms (if any) as the court may by order direct. (3) If the plaintiff fails to comply with an order under this rule, the court may order that the proceeding on the plaintiff's claim for relief in the proceedings be dismissed. (4) This rule does not affect the provisions of any Act under which the court may require security for costs to be given."
Section 1335 Corporations Act 2001 (Cth) provides: "Costs (1) Where a corporation is plaintiff in any action or other legal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his, her or its defence, require sufficient security to be given for those costs and stay all proceedings until the security is given. (1A) Subsection (1) does not apply to a corporation that is an Aboriginal and Torres Strait Islander corporation. Note: Similar provision is made in relation to Aboriginal and Torres Strait Islander corporations under section 581-20 of the Corporations (Aboriginal and Torres Strait Islander) Act 2006. (2) The costs of any proceeding before a court under this Act are to be borne by such party to the proceeding as the court, in its discretion, directs."
The sum of $80,171.90 is the subject of a careful affidavit from the solicitor for the defendants, Mr Andrew Mackenzie of Roe Mackenzie Lawyers in Gosford. I am satisfied that it is a reasonable sum for the hearing of this application, although prepared on a solicitor/client basis, in circumstances where a realistic estimate of party/party will be closer to $60,000.
The plaintiff faces the following significant obstacles in relation to any opposition to an order for security for costs: 1. It is a company already in liquidation and, as the liquidator acknowledges in his affidavit in support of the application, has no funds with which to fund this litigation, although it is hopeful that some funds will be provided by the Deputy Commissioner of Taxation if the circumstances of the failure to pay the GST amount are brought to its attention; 2. This is not the first time that the plaintiff has commenced proceedings to recover this sum. The statement of claim was filed on or about 26 August 2016 and served on the first defendant. The second defendant was not served and the statement of claim was either discontinued or struck out, although no order was made as to its costs. However, the first defendant incurred solicitors' costs of $12,926.50 plus GST and counsel's fees of $4,256 plus GST.
Both parties referred me to Hession v Century 21 South Pacific Ltd (in liq) (1992) 28 NSWLR 120 where Meagher JA noted at 123: "… where a company in liquidation sues and fails, there is no jurisdiction in the Court to order the liquidators personally to pay the defendant's costs. Further, a company in liquidation against whom an order for security for costs is sought cannot successfully resist such an order merely by proving that it cannot fund the litigation from its own resources if an order for security is made; it must prove that it cannot do so even if it relies on the other resources available to it (the company's shareholders or creditors): Bell Wholesale Co Pty Ltd v Gates Export Corporation (1984) 2 FCR 1; 52 ALR 176. Finally, whilst it is both true and important that poverty must be no bar to litigation, what that means is that the courts must be astute to see that no person pursuing a claim which is not frivolous is precluded from doing so by the erection of obstacles which poverty is unable to surmount…"
This is a claim of substantial merit. I acknowledge that the strength and bona fides of the plaintiff's case is a vital feature (as to which see KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189). However, this is not the only factor.
Looking at the checklist of grounds upon which security may be refused, this is not a case where the want of assets experienced by the plaintiff is caused by the default of the defendants; the plaintiff went into liquidation, it would appear, from a variety of reasons and not as a result of the failure to pay this amount of GST.
In addition, I must take into account the circumstances in which earlier proceedings were commenced and abandoned. The first defendant in these proceedings has incurred legal costs in those proceedings, whether or not an order has been made.
I am satisfied that this is a bona fide claim for GST which the defendants failed to pay as their outstanding tax obligations as agreed under the agreement. It is unclear why the company is being left to shoulder the burden of recovering this GST when it would be open to the Deputy Commissioner of Taxation to commence proceedings against the defendants for the sums in question, but I understand that litigation of this nature may depend upon the allocation of priorities of litigation by the Deputy Commissioner of Taxation. In fact, one of my reasons for setting out a judgment outlining the reasons for making these orders is to assist the plaintiff to set off on the long road towards seeking the assistance of the Deputy Commissioner of Taxation, either in the funding or in the conduct of this litigation in the future. It certainly seems that the sale of the Cessna aircraft and the depositing of the money into an account where both the GST and sale price offset company liabilities, followed by the sale of the directors' shares the following day, could amount to potential breaches of duty by the defendants to the plaintiff company.
However, as noted above, I am not satisfied that there is a direct connection between the failure to pay GST and the company's liquidation, and I consider that the circumstances in which previous litigation was commenced and abandoned require the exercise of care in relation to the future conduct of these proceedings. This is especially the case as it is acknowledged that, if the proceedings are brought and lost, or abandoned a second time, the plaintiff has no assets to meet any costs order.
As to the quantum of the claim, I note the observations of McCallum J in Kazal v Fairfax Media Publications Pty Ltd (No 2) [2017] NSWSC 1252. I have taken into account her Honour's observations as to the making of an order for security for costs for a reasonable amount. I have allowed a three month period to enable the plaintiff company to approach the Deputy Commissioner of Taxation in relation to this litigation. If this is insufficient time, it is always open to the plaintiff to seek an extension of time for compliance with the security for costs order.
The other application which was brought was an application for change of venue. I set out my reasons for refusal of that application.

Application for change of venue

Rule 8.2 UCPR provides: "8.2 Change of venue generally (1) If it appears to the court: (a) that a fair or unprejudiced trial of a question arising or likely to arise in or in connection with any proceedings cannot otherwise be had, or (b) for any other reason it is appropriate for the venue of any proceedings to be changed, the court may, subject to this Part, make an order changing the venue of the proceedings. (2) The judicial officer before whom proceedings are being heard by the court may direct that proceedings commenced at one location be continued at another location at which he or she is authorised to hear those proceedings."
The plaintiff submits that the balance of convenience lies in the matter remaining in the Newcastle Registry. The liquidator will give evidence and it may be that the defendants will similarly give evidence. The defendants reside in the northern most suburbs of Sydney, close to the freeway. Their solicitors are based in Gosford.
Case management issues such as change of venue must now be determined in accordance with ss 56-62 Civil Procedure Act 2005 (NSW) and with a realistic appreciation of the availability of AVL facilities for the giving of evidence in court proceedings.
The Newcastle District Court is one of the most modern courts in New South Wales. All courtrooms are fitted with AVL facilities. By comparison, there are only four AVL civil courts available in the Sydney Registry. In addition, hearing dates for proceedings in Newcastle are considerably quicker than hearing dates in Sydney. The Sydney Registry has no Commercial List and these proceedings would have to take their place in the queue behind other matters of a more urgent nature, such as personal injury proceedings. Further, hearings of circuit courts tend to be cheaper and shorter.
While r 8.1 UCPR overrides earlier decisions that the plaintiff's right to nominate the place of trial should not be changed (see, for example, Lehtonen v Australian Iron & Steel Pty Ltd [1963] NSWR 323), courts should give some regard to the desirability of a plaintiff being able to litigate in venue the plaintiff has selected for the commencement of the proceedings. In the present case, given the ambit of the facts, it seems unlikely that any person other than the liquidator would give evidence in any event.
I am satisfied that the presence of the liquidator in Newcastle, the convenience of the legal representatives, and the ease with which the defendants can travel to Newcastle District Court, that the application to transfer proceedings to the Sydney Registry should be refused.

The future conduct of this litigation

As the orders note, a stay is in place until such time as security is provided. I have also granted liberty to apply in relation to costs and listed these proceedings in the 30 July 2018 Newcastle sittings, at which time the parties may seek such further orders as are necessary for the further conduct of these proceedings.
I have reserved the issue of costs so that the parties may seek these orders when the future of these proceedings (if any) is clearer. I note it is likely that the making of any costs order may be a futility in any event as the plaintiff has no assets with which to satisfy any such order.

Orders 1. The defendants' application for transfer of these proceedings to the Sydney Registry (order (1) of the Notice of Motion) is refused. 2. Order 2 of the Notice of Motion granted; pursuant to r 42.21 Uniform Civil Procedure Rules 2005 (NSW), the plaintiff is to provide security for costs in the sum of $35,000, within three months of today (15 June 2018) for the first and second defendants' costs in a manner satisfactory to the defendants or failing agreement as to the form of security, to the court (order (2)). 3. Stay of the proceedings until the expiry of the three month period on 15 June 2018, with liberty to apply. 4. Matter listed in the sittings commencing 30 July 2018 for any application for extension of time or for dismissal of the claim. 5. Costs reserved, with liberty to apply.

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: 29 October 2018

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Judgment (8 paragraphs)

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