A. Nolasco Pty Limited v Green
[1999] NSWSC 770
•12 July 1999
CITATION: A. Nolasco Pty Limited v Green [1999] NSWSC 770 CURRENT JURISDICTION: Equity Division
Construction ListFILE NUMBER(S): 55013/98 HEARING DATE(S): 2.7.99, 9.7.99, 12.7.99 JUDGMENT DATE:
12 July 1999PARTIES :
A. Nolasco Pty Limited (Plaintiff)
Richard Elliot Green (Defendant)JUDGMENT OF: Einstein J
COUNSEL : R.R.I. Harper (Plaintiff)
V.F. Kerr (Defendant)SOLICITORS: Coudert Brothers (Plaintiff)
Harris & Company (Defendant)CATCHWORDS: Practice and procedure - Application to strike out proceedings for failure to prosecute - Substantial non compliance by Plaintiff with directions - Breaches of undertakings given to the Court as part of security for costs regime - Construction list established to provide prompt and export resolution of construction matters - Obligation to adhere to interlocutory directions - Court in considering consequence of non compliance with directions takes into account not only the interests of individual litigants but also the Court lists and the general desirability of efficiency in the conduct of litigation - Security for costs - Principles - Order for security by Bank Guarantee DECISION: Guillotine orders providing that unless new directions and obligation to furnish Bank Guarantee complied with in terms, proceedings be dismissed with indemnity costs.
- 26 -THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISIONEINSTEIN J
2, 9 and 12 July 1999 - ex tempore
Revised 2 August 1999NO 55013/98 - A NOLASCO PTY LIMITED V RICHARD ELLIOT GREEN
JUDGMENT:
1 HIS HONOUR: There is before the court for hearing an amended notice of motion filed by the defendant on 6 July 1999.
The notice of motion seeks orders in the following terms: -
2A. The Plaintiff file and serve all statements, including expert reports, upon which it proposes to rely in support of its Summons by 4.00pm on 6 August 1999.
2B. The Plaintiff provide security for costs of the Defendant by way of bank guarantee in the sum of $150,000 by 23 July 1999.
2C. The proceedings stand dismissed if the Plaintiff fails to comply with either order 2A or order 2B.
2D. The Plaintiff pay the costs of the Defendant on an indemnity basis if the Plaintiff fails to comply with either order 2A or order 2B.
2 The proceedings have a sorry history from the perspective of the plaintiff's attendance to prosecuting the proceedings. They began on 1 April 1998 when a summons was issued. The plaintiff is A Nolasco Pty Limited. The defendant is Mr Richard Elliot Green.
3 As I understand the position, the plaintiff asserts that the shareholding in the plaintiff is held by Mr Arides Nolasco. Any shares in the company owned by Ms Maria Zaharia, Mr Nolasco’s wife, are said to be owned by her in trust for Mr Nolasco.
4 On 27 April 1998 his Honour Hunter J ordered that a notice of motion for security for costs be filed within fourteen days and a defence and cross claim filed within twenty eight days.
5 The defendant filed a notice of motion seeking security for costs on 8 May 1998, which motion was stood over on 16 May 1998 until 19 June 1998.
6 A defence was filed on 12 June 1998 and a cross claim was filed on 16 June 1998.
7 On 26 June 1998, Hunter J ordered, inter alia, that the defendant's notice of motion for security for costs be stood over for hearing on 27 April 1998.
8 On 17 July 1998 Hunter J stood the notice of motion for security for costs over to 7 August 1998 and on 17 July 1998, Hunter J ordered that the notice of motion be stood over until 21 August 1998.
9 On 4 September 1998, security for costs was furnished. That security took the form of a deed and an undertaking to the Court, given respectively by Mr Nolasco and by Ms Maria Zaharia and in each case given in the same terms. The form of the undertakings dated 16 September 1998, comprised an undertaking to the Court “to provide the defendant with at least fourteen days notice prior to dealing with any of the assets owned by me (jointly or otherwise) having a value in excess of $10,000.”
10 The deed of 16 September 1998 executed by each of those persons as guarantors, provided that the guarantor promised the defendant that:-
". . . if the Plaintiff does not pay to the Defendant all costs which the Plaintiff may have been ordered to pay to the Defendant in the proceedings, the guarantor will pay to the Defendant whatever is required to make good the Plaintiff's default to a limit of $95,000".
11 On 18 September 1998, Hunter J gave directions which required as follows:
"(a) the defendant cross claimant to file and serve an amended cross claim within fourteen days.
(b) the cross defendant to file and serve a defence to the cross claim within twenty eight days.
(c) the plaintiff and cross claimant's statements to be served by 21 December 1998,
(d) the defendant and cross defendant's statements to be served by 15 March 1999,
(e) the plaintiff and cross claimants’ statements in reply to be served by 12 April 1999."22 The construction contract was entered into on 28 October 1994 and the architect certified practical completion to be 9 December 1996. The summons further alleges that on 4 February 1997, the defendant took defect rectification work out of the hands of the plaintiff. On 26 February 1998, the superintendent issued a final certificate saying that the plaintiff owed $116,612.65 to the defendant.
12 The proceedings were at that time stood over for further directions to 16 April 1999.
13 On 22 October 1998, the cross claimant filed and served an amended cross claim.
14 On 12 March 1999, the defendant's solicitors wrote to the plaintiff’s then solicitors noting the significant departures from the time table set by the Court and advising that they were instructed that if the plaintiff's statements were not filed and served by 19 March 1999, they would proceed to put on a motion to strike out the summons. They advised that, in the alternative, if the Court was not minded to make that order at that time, that they would seek an order increasing the orders for security for costs to $150,000.
15 On 23 March 1999, the defendant/cross claimant filed and served evidence in support of its cross claim.
16 On 8 April 1999, the defendant filed and served a notice of motion seeking to strike out the summons.
17 On 19 April 1999, by consent, Hunter J made a number of orders, including orders that the cross defendant file and serve its defence to the cross claim by 22 April and that the plaintiff/cross defendant file and serve its statements, including expert's reports, by 11 June 1999.
18 On 22 April 1999, the plaintiff filed and served a defence to the amended cross claim.
19 On 25 June 1999 the defendant filed a motion seeking to strike out the summons and seeking judgment on the cross claim.
20 The notice of motion came on for hearing last week and a number of affidavits were read. The proceedings were stood over until this week. The defendant has now filed an amended notice of motion on 6 July, to which I have already referred.
21 The proceedings concern a dispute arising out of the construction of a residence in Terry Hills by the plaintiff for the defendant for a contract sum of $2,778,300. The following details are taken from the allegations in the summons.
23 By the summons the plaintiff, inter alia, asserts that the superintendent incorrectly assessed variations and provisional sums and incorrectly awarded liquidated damages for delay to the defendant. The plaintiff further claims an entitlement to prolongation. The plaintiff claims a total of $1,188,728.99 as at December 1997, plus interest. The summons does not make plain how the $1,188,728.99 sum is made up.
24 The cross claim to which I referred, raises a liquidated claim based on the final certificate, claims for defects and a s 52 Trade Practices Act claim based on certain precontractual representations by the plaintiff.
25 The security for costs issue was dealt with, as I have indicated, by the provision of personal guarantees to a $95,000 limit. The security for costs issue was then resolved by consent orders.
26 It is common ground that the guarantees given are unsecured.
27 By 12 March 1999, notwithstanding the directions which had been given, the plaintiff had served neither a defence to the cross claim nor evidence in chief.
28 When, on 16 April 1999, the defendant applied to strike out the summons, Hunter J declined that application and instead gave the plaintiff yet a further opportunity to prepare its case. The plaintiff was given almost two months to prepare its evidence in chief.
29 Even by the time of the hearing of this motion today, evidence in the proceedings has not been served by the plaintiff.
30 On 23 June 1999, the plaintiff's newly appointed solicitors applied to have the matter relisted with a view to seeking a further six weeks for filing evidence.
31 It is then the case that some fifteen months has elapsed since the proceedings commenced; eight months since orders were first made for the plaintiff to file statements and over six months since the elapse of the period first ordered for filing of evidence by the plaintiff. Apparently after comments were made by Hunter J about the delay in April 1999 and after the plaintiff was given a second opportunity to prepare its case in accordance with the consent directions, the plaintiff has yet still to produce a single witness's statement.
32 The burden of the defendant's application to strike out the summons is: -
"(a) that there has been such substantial non compliance with court directions that no order short of striking out would properly penalise the plaintiff,
(b) that the plaintiff's explanations for non compliance are feeble and unmeritorious,
(c) that the plaintiff has not demonstrated that it can now prepare the matter promptly and efficiently,
(d) that the plaintiff suffers no real prejudice if the matter is struck out,
(e) that the defendant has suffered and will continue to suffer prejudice from allowing the matter to meander on."
33 I accept the defendant's submission that the Construction List like the Commercial List has been established to provide prompt and expert resolution of construction matters. All matters are case managed by judges. Practice Note 100 provides a regime for directions to ensure the "Just quick and cheap disposal of proceedings". I accept also that the price for this preferential service is an obligation to adhere to interlocutory directions: See TSF Engineering Pty Ltd v Hill [1980] 2 NSWLR 105 at 110, a ‘repeated example….of the oft repeated warnings against the consequences of delay’; Challenge Bank v Raine & Horne Commercial Pty Ltd (1989) 17 NSWLR 297 at 303; GSA Industries Pty Ltd v N T Gas Ltd (1990) 24 NSWLR 710 at 713.
34 I further accept the defendant's submission that the court will, in considering the consequence of non compliance with directions, take into account not only the interests of the individual litigants but also the court lists and the general desirability of efficiency in the conduct of litigation. (see State Pollution Control Commission v Australian Iron and Steel Pty Limited (93) 29 NSWLR 487 at 493-495 and see GSA Industrial Pty Limited v NT Gas Limited (90) 24 NSWLR 710 at 715-716.)
35 It is necessary to examine the affidavit evidence filed by both parties and in particular by the plaintiff to follow the plaintiff's explanation, or several explanations for delay. Those explanations include the following:-36 In his affidavit made on 30 June 1999, Mr Nolasco gives detailed evidence of his dealings with Mr Haralambis, his lawyer at that stage retained. Mr Nolasco's affidavit covers a number of conversations which he had with Mr Haralambis about the progress of the proceedings. Mr Nolasco deposes that by 22 April 1999 he was aware that nothing was happening in the proceedings and had become concerned about the conduct of the matter and the direction of the proceedings. He felt, he deposes, that his lawyer was out of his depth and that he ought to get someone involved who was experienced in building disputes. His further evidence is that in April 1999 he had dealings with a Mr Wilson, an independent construction consultant, and sought to arrange and did arrange to meet Mr Wilson to use him as a consultant in this dispute. Mr Nolasco then deposes that throughout May 1999, he contacted Mr Wilson three or four times a week and was generally under the impression that Mr Wilson would, as apparently Mr Wilson informed Mr Nolasco, be closely examining the relevant files and drafting up statements and the like.
"(a) Mr Nolasco is inexperienced in litigation,
(b) Mr Nolasco was otherwise occupied,
(c) persons whom Mr Nolasco had sought to retain to assist him for preparation of his case, namely, Messrs Haralambis, Wilson and Zakos are incompetent."
37 Mr Nolasco's affidavit then includes evidence that between April and June he spoke with Mr George Zakos to retain him as an expert and was told that he was finalising his report. Mr Nolasco deposes, inter alia, that on 21 June 1999, Mr Wilson said to him that he had spoken to Mr Haralambis and thought that the plaintiff would have to change its solicitors. Mr Wilson said that he was concerned that the plaintiff's retained solicitor was focusing on the wrong issues and that as far as Mr Wilson was concerned, the case revolved around issues concerning administration of the contract and interference with the subcontracts.
38 A short summary of the affidavit of 30 June 1999 of Mr Nolasco is that it discloses a significant delay in the moving forward of the plaintiff's case apparently taking place, while Mr Nolasco spoke to various persons to assist him, including his lawyer.
39 There is a further parameter included in that affidavit which is Mr Nolasco's evidence that in February 1999 he had been involved in a personal dispute with his brother involving Supreme Court proceedings which he found to be distressing to the extent that he could not focus on the dispute with Mr Green. His evidence is that he relied totally on Mr Haralambis to guide him, being himself, totally inexperienced in matters of this nature.
40 Also filed on behalf of the plaintiff on the motion was an affidavit by Mr Wilson, a civil engineer, dealing with his initial contact during March 1999 with the plaintiff's representatives and the documents which he had received from the plaintiff's lawyers and his realising, but fairly late in the piece, that the settling of statements of evidence from Mr Nolasco and his personnel would take a considerable period of time. He gives evidence that he was not aware of the volume of documents that he had not seen or reviewed. Mr Wilson also descends to detail in respect of his otherwise commitments during the period of contact.
41 There was also filed an affidavit by Mr Massey, solicitor of Norton Smith & Co., who was first retained by the plaintiff only some sixteen or so days ago, and deposes that he received instructions to take over carriage of the matter from the plaintiff's previous solicitor, Mr Haralambis.
42 Mr Massey deposes that since being retained he has spoken to Mr Wilson, the consultant who had been retained to prepare evidence for the plaintiff and has himself commenced preparation of the plaintiff's evidence, having received some forty two lever arch files and two boxes of drawings and correspondence and files both from the plaintiff and the plaintiff's previous solicitors. Mr Massey deposes that he has arranged to meet with particular named witnesses and has generally completed a preliminary review of the summons and that based on his experience, the plaintiff has reasonable prospects of success.
43 Also read on the hearing of the motion on behalf of the defendant was an affidavit by the defendant’s solicitor, Mr Hansen, of 1 July 1999 in which he, inter alia, asserts that he has sighted papers in a number of court proceedings involving the plaintiff and Mr Nolasco which relate to construction disputes, and there are then set out some twenty one numbered sets of proceedings before the Local Court of New South Wales, the District Court of New South Wales and the Supreme Court of New South Wales. Additionally, Mr Hansen deposes that he is aware of another six sets of proceedings in the Supreme Court and of another four sets of proceedings in the District Court. In each case the proceedings number is given.
44 From the further evidence filed it appears that Mr Massey on 5 July 1999 had a lengthy discussion with Mr Nolasco about the question relating to security and, in particular, the security previously given by the plaintiff in September 1998. Mr Massey deposes that in the course of that discussion the issue of certain orders made by his Honour Young J in other proceedings was raised and as a result, Mr Massey formed the view that it was possible that Mr Nolasco had breached his undertaking which, I gather, was meant to be a reference to his undertaking to the court.
45 Emphasis has been placed by the defendant on the hearing of the motion upon evidence which indicates that Mr Harry Nolasco has indeed breached his undertaking given to the court on 4 September 1998. That evidence comprises a title search on the property at 148 Glenmore Road, Paddington, of 15 June 1998, in respect of which Mr Nolasco and Ms Zaharia are the registered proprietors. This title search discloses that at that point in time the property was encumbered by two mortgages, one to Permanent Custodians Limited and one to Desate Pty Limited and Panorama Metals Pty Limited. There is then annexed to Mr Hansen's affidavit of 6 July 1999, a title search on the same property of 2 July 1999, this time recording that neither of the two previous mortgages are shown as encumbrances but rather that there are now three new mortgages shown as encumbrances, one to Permanent Trustee Australia Limited, one to Ginelle Pty Limited and one to Richard Nolasco, whom I understand to be the brother of Mr Harry Nolasco.
46 The mortgage to Mr Richard Nolasco is also in evidence before me being dated 26 May 1999. Annexure A to that mortgage inter alia states:-
1. By heads of agreement dated 1 September, 1997, the Mortgagors, amongst others, agreed to:-
(i) indemnify the mortgagee against all and any liability incurred by him as a result of executing the registered first mortgage No. 3421092 registered on computer folio certificate C/100463 (“the First Mortgage”), and a deed of guarantee and indemnity limited to $770,000 in favour of Ronald Freeman, Sharon Freeman, P L Dyce Pty Limited and National Mutual Trustees Limited to support advances made by those parties to A. Nolasco Pty Limited (“the Deed”) (collectively “the Mortgagors’ Indemnity”).
(ii) inter alia, execute a second or subsequent mortgage over the property known as 148 Glenmore Road, Paddington to secure the Mortgagors’ Indemnity.
2. The mortgagors agree to pay to the mortgagee such sum as may be required to indemnify him against any lawful demand made upon him pursuant to the Deed, or the First Mortgage, or either of them (“the Sum Secured”).
3. The mortgagors and the mortgagee agree that this mortgage will secure the Sum Secured.
47 Plainly then the mortgage to Mr Richard Nolasco is to a limit of $770,000 by way of an indemnity to the mortgagee against liability incurred to that limit in the manner described in annexure A.
48 As I have understood the position, there is no issue but that no notice of these dealings was given to the defendant pursuant to the undertakings given to the court, nor was such notice given of any intent or proposal to deal with the assets which it is common ground had a value in excess of $10,000. Indeed, certain evidence sought to be relied upon by Mr Nolasco today includes his comment that the property is worth $1.6 million to $1.7 million.
49 Mr Nolasco's further evidence in his affidavit of 8 July 1999 goes into the difficulties which he apparently was under when in 1983 his father became liable to pay a very large sum pursuant to a judgment of the Federal Court. He deposes that in order that his father not be bankrupted, he agreed that he would both personally and through the business of the plaintiff, ensure that his father's debts were taken care of and that he would be able to live comfortably for the rest of his life, together with Mr Nolasco's mother.
50 Mr Nolasco deposes that in order to secure some of the borrowings necessary to settle his father's financial position it was necessary to encumber his mother's assets, including a particular home in which she lived at 146 Glenmore Road. When his mother died in May 1996, Mr Nolasco's mother left that property to his brother Richard.
51 Mr Nolasco deposes that Richard had been aware of his father's financial difficulties and of the acts which had been necessary to be undertaken to resolve those matters, including the encumbering of both 146 and 148 Glenmore Road and the sale of another property during his mother's life.
52 Mr Nolasco deposes that he had entered into a Heads of Agreement with his brother Richard on 1 September 1997 and those Heads of Agreement are before the court. Essentially those Heads of Agreement include the plaintiff company and Mr Harry Nolasco and Ms Maria Zaharia agreeing to indemnify Richard against any liability incurred by him pursuant to particular securities identified in paragraph 1 of the Heads of Agreement to a limit of $770,000.
53 Mr Nolasco's brother Richard commenced Supreme Court proceedings in respect of the Heads of Agreement in April 1998 and apparently Young J gave judgment in those proceedings on 21 October 1998.
54 Mr Nolasco deposes that pursuant to the orders of Young J, he organised for the sale of a particular factory owned by the plaintiff. He deposes that the orders of Young J:-
". . . effectively required me to carry out the matters in the heads of agreement."
55 Those orders have not been tendered before the court.
56 Further, Mr Nolasco deposes that as a result of the sale of that factory, he was able to provide to his brother Richard $620,000 of the $770,000 necessary to unencumber the inheritance pursuant to the Heads of Agreement. He deposes that Richard has refused to accept that money until such time as he is able to provide Richard with the full $770,000 and that the $620,000 is held in a trust account jointly by his solicitors and Richard's solicitors.
57 Mr Nolasco deposes that the mortgage to his brother, to which I have referred, being the third mortgage on the property at 148 Glenmore Road, is effectively to secure the remaining $150,000 that he must pay his brother.
58 He deposes that as a result of the judgment of Young J and the 1997 Heads of Agreement, he needed to refinance 148 Glenmore Road; that to do so he discharged the loan secured by the earlier mortgages to which I have referred and which were on the title as at 15 June 1998; and that the effect of the refinancing is that the previous mortgages which secured $970,000 are replaced by the new mortgages [which Mr Harper of counsel has informed me is intended to refer to the two mortgages, one to Permanent Trustee Australia Limited and one to Ginelle Pty Limited, securing the amount of $1,040,000.]
59 Mr Nolasco deposes that:-
"In entering into the sale of the factory and the refinancing of 148 Glenmore Road, I believed that I was carrying out all the obligations under the 1997 Heads of Agreement and the orders of Young J. It did not occur to me that the necessity to comply with the orders of Young J had any impact upon my undertaking in this matter".
60 Mr Nolasco also deposes that he has made inquiries in respect of the obtaining of a bank guarantee such as presently is sought on the motion but to date has not been successful in his inquiries and deposes that,61 Evidence has been given as to the expenditure of the defendant on legal costs relating to the proceedings up to this point of time and as to estimates of the future expenditure requirements of the defendant. That evidence is that up to 7 April 1999 the defendant's costs were in the order of $63,330. The evidence also is that up to 6 July 1999 the defendant's costs are in the order of $71,291. The evidence given by the defendant's solicitor, Mr Hansen, is that his estimate of the defendant’s costs up to a concluded hearing, which he believes will take at least ten days, is $177,757.
"I do not hold out much hope of obtaining such a guarantee".
62 Mr Massey does not disagree with the general estimates given by Mr Hansen but Mr Massey does not believe the trial will last ten days. In short, looking at annexure ‘G’ to Mr Hansen's 6 July 1999 affidavit, Mr Massey's estimate would appear to require that to be reduced by about $25,000 to let us say $150,000.
63 Returning to the plaintiff's explanation for delay, I accept the defendant's submission that Mr Nolasco's preoccupation with other proceedings is not of particular relevance to the defendant's entitlement to have these proceedings regularly proceed. The defendant submits that Mr Nolasco is unable to suggest that those other proceedings occupied one hundred percent of his time, nor that he was the only person who could give necessary instructions on the part of the plaintiff in those proceedings.
64 The defendant also makes the point that the plaintiff consented to the 18 September 1998 and 19 April 1999 directions, no doubt with the full knowledge and requirements of the other proceedings.
65 It is submitted by the defendant, and I accept, that Mr Haralambis' alleged incompetence being put forward by the plaintiff as one excuse is a matter in respect of which Mr Haralambis' evidence is not before the court.
66 It is submitted, and I accept, that Mr Wilson's apparently self confessed incompetence, is a matter for which Mr Nolasco must bear complete responsibility. It does seem to me that there is substance in the defendant's submission that one wonders how anyone involved in complex building litigation could seriously contemplate retaining a non lawyer to draft witness's statements. Mr Massey's conclusion, it will be recalled, was that the draft statement prepared by Mr Wilson "is wholly inadequate".
67 I accept generally the defendant's submission that up until the time when Norton Smith was retained, the plaintiff's camp could be said to have been in complete disarray. No witnesses had been spoken to and the assurances given by Mr Nolasco would have to be discounted given what he himself acknowledged was his inexperience, his failure to retain competent persons by this time and his record of non-compliance, even in the face of direct assurances to the Court.
68 I accept the defendant's submission that there are a number of aspects by which the defendant suffers prejudice from the unjustified prolongation of the proceedings. First, the defendant is an individual and the proceedings concern his place of residence. This is different to a commercial dispute between two significant companies. I accept that it is unacceptable that proceedings should hang over an individuals head for extended periods through no fault of his own.
69 There is further the fact that the proceedings concern building work which commenced almost five years ago and in which practical completion occurred almost two and a half years ago. The time lapses between those events and any hearing are becoming more and more significant.
70 Further, there is the defendant's submission of substance, that prima facie it is the defendant rather than the plaintiff who appears to be owed money within the contract. (See the final certificate for the plaintiff to pay $116,612 to the defendant.) Further, the defendant has, as I accept, given evidence on the motion that he has incurred costs by 24 June 1999 of over $63,000, increased by 6 July 1999, to $71,291.84.
71 I turn then to the appropriate approach for the court's discretion which requires to be exercised. There are, as Mr Harper of counsel for the plaintiff points out, the two applications put in the alternative in the same motion. The first is for the summons to be struck out and the second is for a series of alternative orders to be made.
72 The court is in a position in which the application for further security for costs should be treated as a parameter of the strike out application so that, as it were, in the exercise of its discretion the court might strike out the summons in the absence of further security of a particular type and in a particular amount being provided by a particular point in time. The court has a general discretion to exercise in terms of the dealing with the motion.
73 Insofar as the motion for security for costs is concerned, it is pursued both pursuant to the provisions to be found in Part 53 of the Supreme Court Rules and in terms of s 1335 of the Corporations Law.
74 The defendant's contention is that if the court is minded to grant to the plaintiff an indulgence of extending the time for preparing its case, a condition of doing so ought be that the defendant receive proper security for its costs. The defendant's submission is that the plaintiff apparently resists the order to provide security by way of a bank guarantee on the grounds more generally applicable in applications for security under s 1335, namely:-
(a) That its impecuniosity was caused by the defendant.
(b) That Mr Nolasco does not have the resources to do so.
75 Mr Nolasco asserts that it is the defendant who is responsible for his 1997 balance sheet showing a deficiency of assets over liabilities. Mr Nolasco suggests that the defendant has failed to pay over one million dollars due under the contract. The defendant disputes that claim and, in turn, claims that the final certificate shows that the defendant is owed by the plaintiff, $116,000.
76 I accept the defendant's submission that there is a real relevance that the alleged losses are “of a promissory kind rather than ‘reliance’ damages” - see FAI - Sel Pty Ltd v Brambles Holdings Ltd v. Elizabeth Holdings (1995) 3 ACLC 312 at 315.
77 Although Mr Nolasco asserts that the plaintiff incurred costs as a result of the defendant's conduct, he has not, I accept, identified nor quantified those costs. The summons, I accept, acknowledges that the plaintiff has received over $1.9 million from the defendant. I accept that without some concrete evidence that the plaintiff has incurred costs substantially in excess of that amount in carrying out the works, it is difficult for the court to accept the plaintiff's said assertion.
78 The defendant has, in written submissions, submitted that in any event a brief analysis of the 1997 accounts shows that during the 1996/97 year the plaintiff disbursed approximately $703,000 by movements in the loan against other related parties. The particulars given in those submissions which appear from the documents are:-
Loans to related parties
Associated debtors increase by DPN increase by the form of this entry suggests a loan to a member of Mr Nolasco’s family ARN increase by the form of this entry suggests a loan to a member of Mr Nolasco’s family Debilu Pty Ltd increase by Mr Nolasco and Benesi P/L, having its registered office at Mr Nolasco’s address, together hold 21,000 of the 42,008 issued shares; Mr Nolasco and Ms Zaharia apparently hold an interest in Benesisee Heads of Agreement clause 4 A&R Nolasco Pty Ltd increase by Dalvale Pty Ltd decrease by Mr Nolasco and Ms Zaharia are the directors; its business is carpenters and joiners; Ms Zaharia holds 2,000 of the 2,002 issued shares Silindale Pty Ltd decrease by Mr Nolasco is the sole director and holds one of the 3 issued shares; under administration Total increase by Loans from
related partiesHolding Company loans decrease by since Mr Nolasco is beneficially entitled to all the shares in the plaintiff, this presumably refers to him Portinex Pty Ltd decrease by Mr Nolasco is the sole director; its business is builders; Silindale holds 1,800 of the 8,800 issued A shares; under administration APN/MZ increase by apparently Mr Nolasco and Ms Zaharia Total decrease by
79 I accept the defendant’s submission that during the 1996/97 year the plaintiff's position has substantially deteriorated due to payments which ex facie, appear to have had nothing to do with the Green contract.
97 A question was raised as to whether the Court’s order 2 made on Friday last was to be in substitution of the existing security regime provided pursuant to orders made by the Court on 4 September 1998 whereunder Mr Nolasco and Ms Zaharia, in separate deeds and by separate undertakings to the Court as guarantors, each promised the defendant:
80 I further accept the defendant's submission that Mr Nolasco's strongly held optimism of June 1998 that the plaintiff would, by September 1998, have remedied its negative assets position so as to be able to meet the cost estimates of the proceedings then in place, was apparently misplaced. The plaintiff has not produced any evidence of its financial position as at 30 June 1997 and, in fact, it has ceased trading.
81 Also of relevance on this topic is the fact that the defendant serve the plaintiff with a notice to produce returnable this morning, requiring production inter alia of the accounts of the plaintiff for the financial years 1997/1998 and 1998/1999. The notice to produce was called. The documents were not produced. The principal objection appeared to be relevance. The notice to produce has been marked as exhibit A2 on the application. To my mind the court is entitled to infer from the failure to produce those documents and from the evidence given on affidavit and by Mr Nolasco in cross examination, that the plaintiff's financial position is one of particular difficulty and possibly that is the reason why no such evidence of its current financial position has been produced.
82 Mr Kerr has submitted on behalf of the defendant that on an application for security under Corporations Law s 1335 where those standing behind the company claim impecuniosity, they must prove that they are without means. (See Bell Wholesale Co Ltd v Gates Export Corp (1984) 2 FCR 1). Further that if they are willing to expose themselves to the risk of costs, the court may take that into account. (See K P Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 13 ACLC 437 at 440, 444-445 - see generally in terms of the appropriate principles to be dealt with on a security for costs application De Safo Pty Limited v South Sydney Leagues Club , (Unreported, Supreme Court of New South Wales, 22 May 1998, Einstein J.)
83 Of the two persons dealt with in the affidavits both of whom gave security, Mr Nolasco who owns all the shares beneficially and Ms Zaharia (to whom loan monies are owed), neither has given evidence of their personal financial position, other than Mr Nolasco's statement provided over a year ago that he does not have sufficient assets to provide security. Neither has set out even a basic statement of their assets and liabilities, when it is clear from the plaintiff's accounts that each owns shares in a number of other companies and that each is owed money by the plaintiff.
84 During the course of the argument on the motion, Mr Harper obtained instructions that Mr Nolasco and Ms Zaharia would be prepared to increase the current security from $95,000 to $150,000.
85 The plaintiff, as I have said, has adduced no evidence of its current financial position. Given that it has ceased trading, it seems to be a reasonable inference that other creditors stand to benefit from this litigation, yet those creditors are not identified, nor is there any evidence that they have been approached to provide security.
86 A very important factor, to my mind, to be taken into account in terms of the courts determination of the motion, is the breaches of undertaking given to the court. That has already been referred to. In fact, not only was the 26 May 1999 mortgage over the property at 148 Glenmore Road executed without notice, but the two additional mortgages to which I have referred over the same property, took the total amount secured from $970,000 to $1,190,000.
87 In short, if one accepts, and I have considerable doubt that this is the correct approach, but if one accepts that the monies now held in the trust account should be taken into account, there is quite plainly, on Mr Nolasco's own evidence, now secured over the property at 148 Glenmore Road, an amount of $1,190,000.
88 Mr Nolasco has deposed to the value of that property in glowing terms. He has annexed a valuation of the property said to be $1,350,000. He himself believes it to be worth $1.6 million to $1.7 million.
89 M A Productions v Austarama Television Pty Ltd & Anor (1982) 7 ACLR 97 at 100 sets out the view of Needham J, which I follow, that there is no predisposition to fetter the exercise of the court by its jurisdiction. The correct principle is that the discretion is untrammelled by any preconceived opinions and that the court should exercise a discretion in relation to security for costs applications, taking account of all relevant factors. Those factors Needham J held at page 100, include:-
90 1. The Court can consider the strength and bona fides of the plaintiff's case.
2. The Court can consider whether the defendant's application for security is oppressive in the sense that it is being used merely to deny an impecunious
plaintiff a right to litigate.
3. The Court can consider whether the want of assets experienced by the plaintiff is caused by the default of the defendants.
4. The Court can consider whether the order, if made, would stultify the plaintiff's action, and it is not bound in such an application to accept the
estimate by the defendant of the costs of the proceedings.
91 This is not, of course, an application which is simply to be regarded as an application for security for costs. It is an application to strike out and, in the alternative, an application for security for costs and for other orders.
92 There is a substantial body of principle, the gravamen of which identifies the generally extreme reluctance of a court to strike out a summons on the ground of want of prosecution. Peremptory relief in the form of a strike out application may be granted but is usually granted in exceptional cases and only where the application to strike out is very clearly made out on the evidence.
93 To my mind the defendant on the present application has made good the proposition that there has been a totally unsatisfactory attendance by the plaintiff to its obligations in terms of prosecuting the proceedings. The fact that the plaintiff has now, at the last moment, apparently retained yet a further firm of solicitors, one certainly hopes will augur well for the future prosecution of the proceedings and for no further recurrence of the plaintiff's conduct to this point in time.
94 Further, the blatant disregard of the Court's directions in the circumstances of the evidence before the Court today, when taken into account with the breaches of the undertaking to the Court forming part of the security for costs now in place, are factors which, to my mind, require the Court to be particularly careful in formulating the orders now made so as to ensure that not only is the plaintiff given a reasonable opportunity to put forward its further submissions on costs and to have its day in Court, but also to ensure in a realistic and practicable fashion, that the defendant is no longer exposed to what appears to have been a disastrous, to date, attempt by the plaintiff to prosecute the proceedings.
95 In all of those circumstances I am disposed not to make Order 2 in the summons but to make orders which are seen as, in effect, a conditional striking out or, alternatively, as in effect, orders within the Court's discretion, in terms of the application for security. Those orders will, to my mind, properly secure to the defendant an assurance that the plaintiff will move and will move expeditiously to file its further evidence. Hence, the orders which I propose to make will include a guillotine order that the proceedings stand dismissed in certain circumstances.
96 I do not accept Mr Harper's submission that the Court should simply permit, in an unsecured form, the security by way of personal guarantee by Mr Nolasco and Ms Zaharia to be increased to $150,000.
‘That if the plaintiff does not pay to the defendant all costs which the plaintiff may have been ordered to pay to the defendant in the above proceedings, the guarantor will pay to the defendant whatever is required to make good the plaintiff’s default to a limit of $95,000.’
98 To my mind, the question of the continuance of the existing security regime in the light of order 2 made on Friday, does require fairly close examination.
99 It will be recalled that at the end of the hearing, the defendant’s costs are likely to be in a range between $221,000 and $248,000 depending as the evidence of the defendant’s solicitor or plaintiff’s solicitor as to expected length of hearing period, prove correct.
100 The orders made on Friday last, 9 July, plainly require the plaintiff to provide further and altered security to that presently in place and provided pursuant to the Court’s orders of 4 September 1998.
101 If order 2 of the orders made on 9 July 1999 is complied with in terms, then the level of security provided by the plaintiff to be in place within five days after the date when the proceedings receive a final date fixture, will be in the sum of $120,000 provided by bank guarantee.
102 If either or both of the $80,000 and/or $40,000 bank guarantees the subject of order 2 made on 9 July 1999 are not provided, the defendant by order 4 of the orders of 9 July 1999 will be entitled to its costs on an indemnity basis.
103 If the $80,000 bank guarantee is not paid, the only security which will then be in place to secure the plaintiff’s obligation to pay indemnity costs will comprise the existing guarantees by Mr Nolasco and Ms Zaharia.
104 If the first bank guarantee for $80,000 is paid and the remaining $40,000 bank guarantee is not provided, the securities which will be in place to secure the plaintiff’s obligation to pay indemnity costs will be :105 The costs of the defendant on an indemnity basis up to a point in time being five days after the date when the proceedings receive a final hearing date fixture, are not estimated with any precision in the existing affidavits. They would, however, clearly be less than the $221,000 - $248,000 estimate for completion of a final hearing. They are likely to be well in excess both of the present costs of $71,291, and of the $80,000 amount which would by then have been secured by the provision of bank guarantee. This is because by a point in time which is five days after the date when the proceedings receive a final hearing date fixture, the defendant’s costs would include costs of the preparation of all evidence in answer - see the terms of order 1 of the orders made on 9 July 1999.
(a) The $80,000 first bank guarantee;
(b) The existing guarantees by Mr Nolasco and Ms Zaharia.
106 In order to cover the defendant’s costs on an assumed indemnity basis up to the point in time which is five days after the date when the proceedings receive a final hearing date fixture, it seems to me appropriate that the existing regime for security, including the guarantees provided by Mr Nolasco and Ms Zaharia, remain in place, but also that the defendant, Mr Nolasco and Ms Zoharia, if and only if both bank guarantees of $80,000 and $40,000 are provided as ordered by the due date, be granted leave to revisit the question of the continuance of the existing regime. For one thing, once both those bank guarantees have been provided, then the likelihood that the defendant will be entitled to indemnity costs falls dramatically.
107 To my mind, it is appropriate to add a further order to the orders made on 9 July 1999 to permit the question of the continuance of the existing guarantees provided by Mr Nolasco and Ms Zaharia to be revisited, should the two bank guarantees have been provided.
108 I therefore add the following order:
‘Order that upon the due compliance by the plaintiff with order 2 of the Court’s orders made on 9 July 1999, the plaintiff, Mr Nolasco and Ms Zaharia have leave to approach the Court as they may be advised to have varied or discharged order 1 of the orders made on 4 September 1998 and/or to have orders made permitting a variation of the deeds of guarantee so as to reduce the amounts now included in those Deeds of Guarantee.’
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