Aligned Investment Management v Aligned FM - [2018] NSWSC 1852

Supreme Court

New South Wales

Medium Neutral Citation: Aligned Investment Management v Aligned FM [2018] NSWSC 1852
Hearing dates: 30 November 2018
Date of orders: 30 November 2018
Decision date: 30 November 2018
Jurisdiction: Equity - Commercial List
Before: McDougall J
Decision:
Dismiss the first defendant’s application for security for costs.

Catchwords: CIVIL PROCEDURE – application for security for costs – whether jurisdiction to order security enlivened – where plaintiff’s sole asset is a right of indemnity out of the assets of a trust – whether enlivened discretion should be exercised to order security – where ordering security would have limited practical effect due to the existence of cross-claims – application dismissed.
Legislation Cited: Corporations Act 2001 (Cth)
Uniform Civil Procedure Rules 2005 (NSW)
Cases Cited: ACN 105 921 962 Pty Ltd v Wiggett [2012] NSWSC 1526
LSKF Holdings Pty Ltd v Shield Lifestone Holdings Pty Ltd [2018] NSWCA 109
Category: Procedural and other rulings
Parties: Aligned Investment Management Pty Ltd (Plaintiff/Respondent)
Aligned FM Pty Ltd (First Defendant/Applicant)
Boultwood Ho Investments (Second Defendant)
Representation:
Counsel:
M Cleary (Plaintiff/Respondent)
C Tam (First Defendant/Applicant)
Solicitors:
Baker McKenzie (Plaintiff/Respondent)
Squire Patton Boggs (First Defendant/Applicant)

File Number(s): 2018/179099

Judgment (EX TEMPORE – REVISED 30 NOVEMBER 2018)

HIS HONOUR: The plaintiff (AIM) and the second defendant (BHI) each holds 50% of the issued shares in the first defendant (AFM). The CEO and a director of AFM is Mr Glen Boultwood, who is the director and shareholder (directly or indirectly) of BHI.
AIM brings a number of claims against both AFM and BHI. Those claims arise out of the shareholders’ agreement between AIM and BHI and out of a notice of default given by BHI to AFM. It is BHI’s case that the notice of default was properly given, and that in the result, by the operation of cl 17 of the shareholders’ agreement, it is entitled to buy out AIM’s shares in AFM at 80% of the value established by an independent valuation performed in accordance with another clause of the shareholders’ agreement.
BHI says that the independent valuation was performed. The document that is in evidence establishes a range of values, the midpoint of which is about $2 million. It is not necessary to go into greater particularity. Thus, if BHI succeeds, it would be entitled to buy out the shares for $1.6 million.
AIM is a trustee. It holds the shares in AFM on the terms of a trust deed made on some date, buried somewhere in the back of the document, which quite frankly I am not sufficiently troubled to ascertain. It would appear that the trust deed may have been amended from time to time, but nothing turns on that.
The accounting records of AIM show that it has little, if anything, in the way of assets held by it beneficially. Thus, for present purposes, its sole relevant asset is its right of indemnity out of the assets of the trust for liabilities incurred by it in the execution or attempted…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2018] NSWSC 1852
Decision Date: 30 November 2018

CaseChat Overview and Summary

In the Federal Court of Australia, Aligned Investment Management sought security for costs from Aligned FM. Aligned Investment Management is the plaintiff in a proceeding seeking damages for breach of fiduciary duty and negligence, while Aligned FM is the defendant. The plaintiff's sole asset is a right of indemnity from the assets of a trust. Aligned FM applied for the plaintiff to provide security for costs, which the plaintiff opposed, arguing that the court lacked jurisdiction because its only asset was a right of indemnity. The court had to determine whether the jurisdiction to order security for costs was enlivened under these circumstances, and if so, whether the court should exercise its discretion to order security.

The court considered the relevant authorities and held that the jurisdiction to order security for costs was indeed enlivened. The plaintiff's right of indemnity from the trust assets constituted an asset that could potentially be used to satisfy a costs order. However, the court also noted that the practical effect of ordering security would be limited due to the existence of cross-claims between the parties. The court held that the plaintiff's right of indemnity from the trust assets was an asset that could potentially be used to satisfy a costs order, and therefore the jurisdiction to order security for costs was enlivened. However, the court exercised its discretion not to order security due to the limited practical effect of such an order given the cross-claims.

Ultimately, the court dismissed the application for security for costs. The court found that while the jurisdiction to order security was enlivened, the discretionary factors weighed against ordering security in this case. The limited practical effect of ordering security, coupled with the existence of cross-claims, led the court to conclude that ordering security would not serve a just or proportionate outcome. Therefore, the application was dismissed.

Orders