Butler Market Gardens Pty Ltd v GG and PM Burrell Pty Ltd (Ruling)
[2018] VSC 461
•20 August 2018
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
MAJOR TORTS LIST
S CI 2016 00471
| BUTLER MARKET GARDENS PTY LTD (ACN 007 019 865) | Plaintiff |
| v | |
| G.G. & P.M. BURRELL PTY LTD (ACN 006 006 613) | Defendant |
| and | |
| GAVAN WILSON (trading as G.J. WILSON CONTRACTING) (ABN 41 501 575 931) | Third Party |
---
JUDGE: | Richards J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 13 August 2018 | |
DATE OF RULING: | 20 August 2018 | |
CASE MAY BE CITED AS: | Butler Market Gardens Pty Ltd v GG & PM Burrell Pty Ltd (Ruling) | |
MEDIUM NEUTRAL CITATION: | [2018] VSC 461 | First revision: 11 December 2018 |
---
PRACTICE AND PROCEDURE – Security for costs – Whether discretion enlivened – Weighing of discretionary factors – Significance of late timing of application – Defendant insured – Whether ordering security would stultify proceeding – Whether proceeding should be stayed pending provision of security.
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr D A Klempfner | Atticus Lawyers Pty Ltd |
| For the Defendant | Mr J A Richardson | Meridian Lawyers |
HER HONOUR:
The plaintiff, Butler Market Gardens Pty Ltd (BMG), claims damages in negligence and nuisance from the defendant, GG & PM Burrell Pty Ltd (Burrell). The claim is made in respect of damage to a spring onion crop grown by BMG on land it leased from Burrell at Beverford, near Swan Hill, in July and August 2014. The proceeding is listed for trial before me commencing on 3 September 2018.
The proceeding was commenced in February 2016 and was originally listed for trial on 13 November 2017. In October 2017 BMG applied for an adjournment, and the trial was relisted to commence on 25 June 2018. On 8 June 2018 I heard an interlocutory application made by Burrell in relation to discovery issues. At that hearing I made various case management orders and adjourned the trial to commence on 3 September 2018.
At the interlocutory hearing on 8 June 2018 counsel for Burrell foreshadowed a possible application for an order that BMG provide security for Burrell’s costs of the trial. Burrell made such an application on 30 July 2018, for an order that BMG provide security for its costs, and an order that the proceeding be stayed until security is provided.
For the reasons that follow I have decided to order BMG to provide security for Burrell’s costs in the amount of $200,000, by Friday 31 August 2018. Burrell’s application for a stay of the proceeding will be adjourned to 3 September 2018, the first day of the trial.
Security for costs – provisions and principles
The Court has jurisdiction to order security for costs under r 62.02 of the Supreme Court (General Civil Procedure) Rules 2015 (Rules), s 1335(1) of the Corporations Act 2001 (Cth) (Corporations Act), and in the inherent jurisdiction of the Court.
Rule 62.02(1) of the Rules provides, relevantly:
Where—
…
(b) the plaintiff is a corporation or … sues, not for the plaintiff's own benefit, but for the benefit of some other person, and there is reason to believe that the plaintiff has insufficient assets in Victoria to pay the costs of the defendant if ordered to do so;
…
(f) under any Act the Court may require security for costs—
the Court may, on the application of a defendant, order that the plaintiff give security for the costs of the defendant of the proceeding and that the proceeding as against that defendant be stayed until the security is given.
Section 1335(1) of the Corporations Act provides:
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.
The principles governing the determination of an application for security for costs apply equally to both provisions.[1] The Court’s inherent jurisdiction to order security for costs is exercised in the same way as the specific powers to grant security for costs under r 62.02 and s 1335.[2]
[1]Livingspring Pty Ltd v Kliger Partners (2008) 20 VR 377, [10] (Livingspring).
[2]Bryan E Fencott Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497, 504-5.
The jurisdiction is enlivened if there is reason to believe that a corporate plaintiff will be unable to pay the costs of the defendant if it is successful in its defence. The Court of Appeal in Livingspring cautioned against judicial embroidery of the statutory test.[3] The touchstone of the jurisdiction, ‘reason to believe’, is a low threshold that reflects the policy of the provision to protect a defendant against the risk of a corporate plaintiff’s impecuniosity.[4]
[3]Livingspring, [13]-[14].
[4]Livingspring, [15]-[16].
Once enlivened, the Court’s jurisdiction to order security for costs is open ended and not fettered by any rigid guidelines or principles.[5] There is, however, a wealth of authority that identifies the various discretionary factors that may bear on the determination of an application for security for costs. Those factors were helpfully summarised in KP Cable Investments Pty Ltd v Meltglow Pty Ltd[6] as follows:[7]
[5]Ariss v Express Interiors Pty Ltd [1996] 2 VR 507, 514 (Ariss); Epping Plaza Fresh Fruit & Vegetables Pty Ltd v Bevendale Pty Ltd [1999] 2 VR 191, 195.
[6](1995) 56 FCR 189 (KP Cable).
[7]KP Cable, 197-8, applied in Trility Pty Ltd v Ancon Drilling Pty Ltd [2013] VSC 577.
(a) whether the application for security for costs has been brought promptly;
(b) the strength and bona fides of the applicant's case;
(c) whether the applicant's impecuniosity was caused by the respondent's conduct the subject of the claim;
(d) whether the respondent's application for security is oppressive, in the sense that it is being used merely to deny an impecunious applicant a right to litigate;
(e) whether there are any persons standing behind the company who are likely to benefit from the litigation and who are willing to provide the necessary security;
(f) whether persons standing behind the company have offered any personal undertaking to be liable for the costs and, if so, the form of any such undertaking;
(g) whether the applicant is in substance a plaintiff or the proceedings are defensive in the sense of directly resisting proceedings already brought or seeking to halt the respondent's self-help procedures.
The circumstances that enliven the discretion – that give reason to believe that the plaintiff will be unable to meet an adverse costs order – are also a significant factor in the exercise of the discretion.[8] They do not, however, give rise to any predisposition in favour of making an order for security for costs.[9]
[8]Ariss, 513.
[9]Ariss, 511-4.
Is the discretion enlivened?
Burrell relied on an affidavit of David Randazzo of Meridian Lawyers, solicitors for Burrell, made on 30 July 2018. Among the exhibits to that affidavit were a national property search in relation to BMG, a company search in respect of BMG, and the financial statements for the Butler Family Trust for the 2016-17 financial year. Burrell also relied on various documents handed up at the hearing of the application, including the trust deed for the Butler Family Trust and the contract for the sale of the business ‘Butler Market Gardens’ by BMG to Butler Market Gardens (Aust) Pty Ltd, dated 30 June 2015. Based on this material, Burrell submitted that the following conclusions could be drawn:
(a) BMG has a paid up share capital of $12;
(b) BMG owns no real property, in Victoria or elsewhere in Australia;
(c) BMG is trustee of the Butler Family Trust, and its only asset is a right of indemnity from the assets of the Trust;
(d) As at 30 June 2017, the assets of the Trust consisted mainly of plant and equipment valued at $743,708. Its liabilities were greater than its assets, with a small negative net equity. The Trust’s main liability was an unsecured loan for $965,503.
(e) In June 2015, before the commencement of this proceeding, BMG sold the business that was the Trust’s principal asset to a related company;
Burrell submitted that this was more than sufficient to give rise to a reasonable belief that BMG would not be able to pay an adverse costs order, in the absence of any evidence from BMG to the contrary.
BMG relied on an affidavit of Alexandra Doig, of Atticus Lawyers, solicitors for BMG in this proceeding, made on 6 August 2018. The affidavit contained no additional information about the current financial position of BMG, other than a statement that Ms Doig was instructed that BMG would not be able to provide security in the amount sought in the limited time available before the trial. She did not identify the source of her instructions.
BMG submitted that the jurisdictional threshold was not established, on the basis that it was ‘far from impecunious’, being trustee of a trust with total assets in excess of $1,000,000.
I am satisfied that there is reason to believe that BMG would be unable to pay a costs order against it made at the conclusion of the proceeding. On the evidence before me, BMG’s only asset is a right of indemnity from the assets of the Butler Family Trust. While the Trust owned substantial assets as at 30 June 2017, these would be difficult to realise in a timely way in order to meet an adverse costs order,[10] and in any event were less than its liabilities. There is no evidence about the Trust’s current financial situation, which may well have altered over the last 14 months.
[10]Beach Petroleum NL v Johnson (1992) 7 ACSR 203, 205.
Should security for costs be ordered?
Burrell submitted that security for costs should be ordered in light of BMG’s impecuniosity, given that those standing behind the company, who stood to benefit from the litigation, were not willing to provide security or give an undertaking to be liable for any adverse costs order. While acknowledging that the application was made at a late stage of the proceeding, it submitted that it had acted promptly upon becoming aware that BMG sued as trustee for the Butler Family Trust and had sold the business that was the Trust’s main asset. In the absence of any admissible evidence about BMG’s capacity to provide security, if ordered, Burrell submitted that I could not be satisfied that an order would stultify the litigation.
For its part, BMG argued that the timing of the application, made just over a month before trial, was oppressive. It submitted that it was too late in the proceeding to grant a stay pending provision of security. To do so would, BMG argued, create uncertainty for the parties as to whether the trial could proceed on 3 September 2018, and would be an inefficient use of scarce judicial resources. BMG submitted that an order for security would have the effect of stultifying the litigation, based on Ms Doig’s evidence that she was instructed that BMG would not be able to provide the secured amount in the short time before trial. BMG also drew attention to the fact that Burrell has an insurer standing behind it in the litigation, and submitted that this weighed against making an order for security in Burrell’s favour. BMG emphasised that a proceeding should be stayed only as a last resort, if no alternative order would do justice between the parties.[11]
[11]Relying on Rozenblit v Vainer [2018] HCA 23, [23]-[25] (Kiefel CJ and Bell J); [65]-[67], [111]-[112] (Gordon and Edelman JJ).
I have found that there is reason to believe that BMG will not be able to pay an adverse costs order, if made. That is a significant factor in favour of ordering security for costs. Its significance is magnified by the fact that those who stand behind BMG, and who stand to benefit from the litigation, have not indicated any willingness to provide security or to meet an adverse costs order.
As to the merits of the proceeding, at this stage it is apparent only that BMG has an arguable claim that is brought in good faith, and that Burrell has an arguable defence. The parties were agreed that the strength and bona fides of BMG’s case was a neutral factor here. There is no suggestion that BMG’s impecuniosity was caused by Burrell’s conduct that is the subject of BMG’s claim, so that factor is also neutral.
I am not persuaded that the fact that Burrell’s insurer is involved in defending the litigation favours the exercise of my discretion. While the existence of insurance cover may be a relevant consideration in an application for security for costs, there is no general principle that an order for security should not be made in favour of an insured defendant.[12] More to the point, there is no evidence here about the nature and extent of the insurance cover that Burrell has in place, and whether Burrell is able to absorb its legal costs if BMG cannot meet a costs order against it.
[12]Remm Construction (SA) Pty Ltd v Allco Newsteel Pty Ltd (1992) 57 SASR 180, 186; Quichorn Pty Ltd v Board (unreported, Supreme Court of Victoria, Hayne J, 24 January 1994).
As I see it, whether I should order security for costs in this case turns on two issues. The first concerns the timing of the application and whether, given the proximity of the trial date, it would be unfair or oppressive to BMG to make an order for security for costs. The second issue is whether ordering BMG to provide security would stultify the proceeding.
It is the case that the application is made at a very late stage in the proceeding. Burrell explains its delay on the basis that it, or more particularly its solicitors, only became aware in May this year that BMG sues as trustee for the Trust and that it had sold the ‘Butler Market Gardens’ business. Burrell says that it acted promptly after receiving that information. BMG pointed to a number of documents that it said should have put Burrell on notice, at a much earlier time, of its trustee status and the sale of the business. Burrell responded by pointing to other documents that suggested that BMG owned the ‘Butler Market Gardens’ business well after the sale date, including a letter of instruction to an expert witness engaged by BMG dated 16 May 2017. It also noted that BMG has not pleaded that it sues in its capacity as trustee of the Trust.
Certainly, Burrell could have made the inquiries it made between May and July this year much earlier, and could have brought this application more promptly than it did. However, I accept that it was not until May 2018 that BMG squarely informed Burrell, in correspondence between solicitors, that it sued in its capacity as trustee and that the Trust no longer owned the business. In those circumstances, and given that Burrell does not seek security for past costs, I do not consider that the lateness of the application requires that it be dismissed.
As to BMG’s argument that ordering security for costs would stultify the proceeding, I am not satisfied that an order would necessarily have that effect. I am not prepared to make that finding based only on the bare assertion in Ms Doig’s affidavit, which does not identify the source of her instructions and provides no information about the financial resources of those who stand behind BMG. It is true that staying the proceeding pending the provision of security might put the trial date at risk but, as I discuss shortly, I am not inclined to order a stay at this stage.
In all of the circumstances, I consider that it is appropriate to order BMG to provide security for Burrell’s costs of the trial.
Amount, form and timing of security
Burrell seeks security in the amount of $306,910 to $357,750, based on Mr Randazzo’s estimate of the costs of this application, of preparation for trial, and for the trial itself. While I accept that Mr Randazzo has the expertise and experience to estimate Burrell’s costs,[13] it is fair to say that it is a generous estimate, made on a broad brush basis, and at the higher end of the possible range of Burrell’s future costs. In the circumstances here, I consider an amount of $200,000 to be fair and appropriate security in respect of Burrell’s costs of the trial. Those circumstances include the fact that the trial is due to start in two weeks, and BMG has only a short time in which to provide the security.
[13]Noting BMG’s submission to the contrary.
As to the timing of the security, counsel for Burrell suggested one available course would be to proceed to trial with security to be provided in some form, perhaps an indemnity or a bank guarantee, by a certain date. That suggestion has the benefit of securing Burrell’s future costs, while enabling both parties to continue their preparation for trial. I am content to leave the form of the security to be agreed between the parties.
I will order BMG to provide security for Burrell’s costs in the amount of $200,000, in a form to be agreed between the parties, by 4.00 pm on Friday 31 August 2018.
Stay application
There is considerable force in BMG’s submission that I should not stay the proceeding pending provision of security. I am mindful that a proceeding should be stayed only as a last resort, when there is no other way of doing justice between the parties. Given the timing of the application, it would be oppressive to stay the proceeding two weeks from trial without giving BMG time to provide the security ordered. Instead I will simply adjourn the balance of Burrell’s summons dated 30 July 2018 to 3 September 2018, the first day of the trial.
Disposition
The orders of the Court are:
(a) The plaintiff is to provide security for the defendant’s costs in the amount of $200,000, in a form to be agreed between the parties, by 4.00 pm on Friday 31 August 2018.
(b) The defendant’s application for an order that the proceeding be stayed pending provision of security is adjourned to 10.30 am on Monday 3 September 2018.
(c) The plaintiff pay the defendant’s costs of and incidental to the defendant’s summons dated 30 July 2018, on the standard basis.
2
7
0