Bashto Pty Ltd v Gary Morrison

[2020] VCC 452

IN THE COUNTY COURT OF VICTORIA

AT MELBOURNE

COMMERCIAL DIVISION

Revised
Not Restricted
Suitable for Publication

BUILDING CASES LIST

Case No. CI-18-02432

BASHTO PTY LTD	Plaintiff
v
GARY MORRISON	Defendant

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JUDGE:	His Honour Judge Woodward
WHERE HELD:	Melbourne
DATE OF HEARING:	On the papers- final submission dated 16 April 2020
DATE OF RULING:	23 April 2020
CASE MAY BE CITED AS:	Bashto Pty Ltd v Gary Morrison
MEDIUM NEUTRAL CITATION:	[2020] VCC 452

REASONS FOR RULING
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ON THE PAPERS:	Counsel	Solicitors
For the Plaintiff	-	Just Law
For the Defendant	Robert Squirrell	Kahns Lawyers

HIS HONOUR:

1       By a summons issued on 18 March 2020, the defendant made an application for the plaintiff to give security for the defendant’s costs of and incidental to defending the proceeding. The application was supported by an affidavit sworn on 18 March 2020 by the defendant’s solicitor Mr Fraser.  Relevantly for present purposes, that affidavit sought to enliven the jurisdiction of the court to grant security based on evidence that:

·     the plaintiff had, despite demand, failed to pay $4,309.94 in costs, payable pursuant to an order made on 20 January 2020; and

·     the plaintiff’s most recent financial report showed that the plaintiff was operating at a loss and that its liabilities exceeded its assets.

2       Mr Fraser’s affidavit also deposed to him having sent a letter to the plaintiff’s solicitors on 3 March 2020, foreshadowing the application for security for costs and demanding both payment of the costs order and provision of security in the sum of $40,000.  Mr Fraser deposed that the plaintiff’s solicitors responded to that letter by email on 16 March 2020, attaching a purported valuation by Mr Horne of three items of earthmoving equipment owned by the plaintiff, ascribing a total value to that equipment of $123,000.  The email attaching the purported valuation is not in evidence, but there is no suggestion that at any time before the defendant brought his application, that the plaintiff either confirmed its intention to pay the costs order or sought to explain why its financial statements showed liabilities exceeding assets, despite the purported valuation.

3       In early April 2020, the plaintiff filed and served two affidavits in opposition to the defendant’s application.  The first affidavit was sworn by the sole director of the plaintiff Mr Wade and the second was an affidavit of Mr Horne verifying his valuation of the items of earthmoving equipment.  Each party has filed written submissions – the defendant’s are dated 14 April 2020 and the plaintiff’s 16 April 2020.

4 In its submissions, the defendant maintains that the jurisdiction of the court to grant security for costs was properly enlivened based on the information available to the defendant when he commenced his application, but that: “Having considered the recently provided evidence the Defendant does not now proceed with the application for security for costs”. Instead, the defendant seeks an order pursuant to Order 63A.03(3)(a) of the County Court Civil Procedure Rules 2018 (Vic) that the proceeding be stayed until the plaintiff pays the costs ordered against it.

5       The defendant also seeks the costs of its application for security for costs.  He argues that any submission by the plaintiff that the defendant has abandoned his application for security, “ignores the wilful disobedience of the Order of the Court as to costs” which, he notes, is ongoing.  He further submits that until the affidavit of Horne was served, there was no evidence other than a valuation of Horne unsupported by any qualification as to expertise, that the plaintiff had the means to satisfy an adverse costs order.

6       The plaintiff in reply argues that the $40,000 security sought by the defendant was excessive, considering that the defendant has since the proceeding was issued returned the two earthmoving machines at issue in the proceeding to the plaintiff.  It submits that these machines alone were sufficient to cover the $40,000 security sought by the defendant.  The plaintiff also points to:

·     Mr Horne’s valuation ascribing a value of $123,000 to three further items of earthmoving equipment owned by the plaintiff; and

·     the fact that the value of earthmoving equipment shown in the plaintiff’s financial statements are depreciated at 30% per annum and thus do not represent auction value – a matter it asserts would have been known to the defendant given his experience as an earthmoving contractor.

7       On this basis, the plaintiff argues that “the [defendant’s] security application was bound to fail from the outset because the Plaintiff had plenty of assets to satisfy a $40,000 costs order.  This was known by the Defendant, or ought to have been known”.  The plaintiff seeks its costs of the application which it assesses as $3,918.60.  On the issue of the unsatisfied costs order from 20 January 2020, the plaintiff submits that it has lost $334,337.90 in the period August 2016 to May 2019 by the defendant’s actions (being the actions the subject of the proceeding), “so the Plaintiff does not feel inclined to pay the January 2020 costs amount, but can do so if required”.

8       I should also note that the plaintiff has asserted in its submissions that Mr Horne was “known to” the defendant, apparently because he bought two trucks from the defendant over 10 years ago.  I presume this is raised to deflect the defendant’s submission that Mr Horne’s valuation was not accompanied by any evidence as to his expertise.  The defendant objects to the assertion on the basis that it is unsupported by evidence.  In my view, the assertion goes nowhere even if it was supported by evidence.  It does not establish that Mr Horne in fact had relevant qualifications and expertise and, in any event, does not answer the plaintiff’s failure to explain the apparent discrepancy between the valuation and the plaintiff’s financial statements.

9       Although the evidence supporting the defendant’s application at the time it was commenced was less than compelling, I am satisfied on balance that it was sufficient to enliven the jurisdiction of the court.  It is not unusual for applications of this kind to be commenced on relatively sparse material, particularly as defendants do not routinely have access to detailed and up to date financial information concerning a plaintiff.  Frequently, applicants are forced to rely on no more than evidence of only nominal share capital and no ownership of real property, as disclosed by publicly available data.

10      In this case the defendant had access to the plaintiff’s most recent financial statements, and these showed both deficient weak cash flows and an excess of liabilities over assets.  Further, in responding to the foreshadowed application, the plaintiff provided only limited information of the value of certain assets, but made no attempt to explain how this information responded to the net asset deficiency shown in the financial statements.  This was a matter that could easily have been explained in the plaintiff’s responding correspondence, as demonstrated by the plaintiff’s answering affidavits.

11      Perhaps more importantly, where the costs order against the plaintiff has not been stayed, the plaintiff’s failure to comply with the Court’s order, particularly in the face of repeated demands, is a serious matter.  In my view, the defendant was entitled to rely on the plaintiff’s apparent and unexplained disobedience of the order as a further basis for being concerned about the plaintiff’s capacity to pay an adverse costs order in the proceeding.  It is troubling that even at this late stage, the only explanation offered by the plaintiff for non-payment is that it has competing claims against the defendant for a significantly larger sum and so the plaintiff does “not feel inclined” to comply with the order.  Those claims are yet to be substantiated in this proceeding (or otherwise) and provide no excuse for the plaintiff’s ongoing and flagrant failure to comply with an extant order of this Court.

12      In the circumstances, I propose to accede to the defendant’s submission that the plaintiff should pay the costs of the application, but will discount the costs to reflect my view that the question whether the jurisdiction of the court was enlivened on the defendant’s initial evidence, was finely balanced.  I propose to fix the defendant’s costs at $2,911, being 50% of the sum he has claimed.  I will also order that the proceeding is stayed pending the payment by the plaintiff to the defendant of those costs and the costs ordered on 20 January 2020, being a total of $7,220.94.  However, that stay will not extend to the preparation for and conduct of the Judicial Resolution Conference fixed for next Tuesday, 28 April 2020.

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Certificate

I certify that these 5 pages are a true copy of the reasons for decision of His Honour Judge Woodward delivered on 23 April 2020.

Dated: 23 April 2020

Claire Findlay

Associate to His Honour Judge Woodward