Chris Poulson Insurance Agencies Pty Ltd v National Mutual Life Association of Australasia Ltd
[1998] TASSC 86
•17 July 1998
86/1998
PARTIES:CHRIS POULSON INSURANCE
AGENCIES PTY LTD
v
NATIONAL MUTUAL LIFE ASSOCIATION
OF AUSTRALASIA LIMITED
TITLE OF COURT: SUPREME COURT OF TASMANIA
JURISDICTION: ORIGINAL
FILE NO/S: M113/1998
FCA 29/1998
DELIVERED: 17 July 1998
HEARING DATE/S: 12 June 1998
JUDGMENT OF: Evans J
CATCHWORDS:
Corporations - Constitution and legal capacity - External litigation - Security for costs - Other matters - Plaintiff in Corporations Law, s1335(1), includes appellant and defendant counterclaiming.
J & M O'Brien Enterprises Pty Ltd v The Shell Company of Australia Ltd (1983) 7 ACLR 790; Buckley v Bennell Design and Constructions Pty Ltd (1974) 1 ACLR 301; Goliath Portland Cement Company Pty Ltd v McNalley Australia Pty Ltd & Others (No 6) A62/1993; Weily's Quarries Pty Ltd v The Owners of the Ship "Brooke D"; Devine Shipping Pty Ltd v The Owners of the Ship "Greshanne" B30/1994, applied.
Aust Dig Corporations [26]
Appeal and New Trial - Appeal - Practice and procedure - Tasmania - Security for costs - Rules of the Supreme Court - On what grounds ordered or refused - Capacity of those whom litigation would benefit.
Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1, applied.
Rules of the Supreme Court 1965 (Tas), O76, r29.
Aust Dig Appeal and New Trial [145 - 147]
Corporations - Constitution and legal capacity - External legislation - Security for costs - Impecuniosity of those whom litigation would benefit - Burden of proof.
Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1, applied.
Aust Dig Corporations [23]
Appeal and New Trial - Appeal - Practice and procedure - Tasmania - Stay of proceedings - Discretion as to granting.
Alexander and Others v Cambridge Credit Corporation Ltd (Receivers Appointed) and Another (1985) 2 NSWLR 685, applied.
Aust Dig Appeal and New Trial [145 - 147]
REPRESENTATION:
Counsel:
Chris Poulson Insurance Agencies Pty Ltd: G L Sealy, C G Rainbird
National Mutual Life Association of
Australasia Limited: D J Habersberger QC, A C Spence
Solicitors:
Chris Poulson Insurance Agencies Pty Ltd: Piggott Wood & Baker
National Mutual Life Association of
Australasia Limited: Page Seager
Judgment category classification:
Court Computer Code:
Judgment ID Number: 86/1998
Number of pages: 7
Serial No 86/1998
File No M113/1998
FCA 29/1998
CHRIS POULSON INSURANCE AGENCIES PTY LTD v NATIONAL MUTUAL LIFE ASSOCIATION OF AUSTRALASIA LIMITED
REASONS FOR JUDGMENT EVANS J
17 July 1998
National Mutual Life Association of Australasia Limited ("NM"), a life insurance company, had an insurance agency agreement with Chris Poulson Insurance Agencies Pty Ltd ("CP"). Disputes arising from their arrangement resulted in NM suing CP for monies paid under a mistake of fact. CP counterclaimed damages from NM for breach of contract and breach of fiduciary duty. An agreement was reached between the parties on NM's claim. The trial of CP's counterclaim was heard by Slicer J, who handed down reasons for judgment dismissing the counterclaim on 8 April 1998. He assessed the damages CP would have recovered had it substantiated its counterclaim at $2,161,025. The agreed sum of NM's claim is $29,975. Slicer J calculated interest payable on that amount at $18,903 and entered judgment for NM against CP on its claim for $48,878 plus costs.
Since the entry of judgment CP has appealed against:
(a) the inclusion of interest of $18,903 in the judgment; and
(b) the dismissal of its counterclaim.
NM has served CP with a statutory demand under Corporations Law, s459E(2)(e), for payment of the judgment debt of $48,878. The following consequential applications have been made to this Court:
NM has applied for an order that CP provide security for NM's costs of the appeal.
CP has applied for a stay of the enforcement of NM's judgment for $48,878.
CP has applied for an order setting aside NM's statutory demand.
Security for costs
The applications were heard together. I first deal with NM's application for security for its costs of the appeal.
NM relies on two separate sources of the Court's jurisdiction to order security for costs:
Rules of Court, O76, r29, which provides:
"Security for the costs of an appeal should not ordinarily be required, but the Court or a judge may, in a proper case, order any appellant to give security for the costs of the appeal."
Corporations Law, s1335(1), which provides:
"[Security given by corporation] 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."
Counsel for CP submits that NM cannot rely on s1335(1), as it is apparent from the words used in the section that it only applies to proceedings at first instance and not appeals. The scope of the section was considered in Uptown Sydney Development Corp Pty Ltd v BNZ (No 1) (1993) 11 ACLC 862. Kirby P (as he then was) said at 864:
"It would seem to me that the section should apply to appeals. I can see no reason in principle why it should not. The section appears in the national Corporations Law. It should not be given a narrow construction. The self-same problem which presents at first instance in the case of a corporation bringing proceedings as a plaintiff, although not able to pay the costs of the proceedings, presents when the corporation, as an appellant, brings an appeal and would not be in a position to pay the costs of the appeal if it were to fail.
The difficulty for the application of the section is presented by the use in it of the words 'plaintiff' and 'defendant' and the words 'action or other legal proceedings' and 'defence'. Those are words which, on their face, appear appropriate only to proceedings at first instance and not on appeal. A 'plaintiff' is a person who brings a plaint or action. On appeal, parties are normally described in this country as 'appellant' and 'respondent'. That would have been known to the legislature when it enacted s 1335(1) of the Corporations Law.
…
Recently in this Court in Maitland Hospital v Fisher [No 2] (1992) 27 NSWLR 721 (CA) a question arose as to the meaning of the words 'plaintiff' and 'defendant' in the rules of this Court dealing with indemnity costs. The court held that the words were to be construed as applicable to proceedings in the Court of Appeal in the circumstances. See ibid, 726. It was held that the words, in that context, were to be given the meaning ordinarily ascribed to them at first instance, namely that the plaintiff is the moving party at first instance and the defendant is the party resisting the proceedings at first instance. This was so whatever was their appellation in the Court of Appeal.
Reasons of policy and principle would seem to argue for a similarly broad interpretation of s 1335(1). Some decisions seem to support such an approach. See eg Re Mate & Sons Ltd [1920] 1 Ch 551 (Ch), 559. However, the language used by the legislature in the section appears to resist such a broad interpretation. Under the Companies Act 1862 (UK) it was suggested that a limited company, pleading a counter-claim, was not a 'plaintiff or pursuer' within the provision (s 69) permitting an order for the giving of security for costs by a company. See Accidental and Marine Insurance Co v Mercati (1866) LR 3 Eq 200. See also Star Fire and Burglary Insurance Co Ltd v C Davidson & Sons Ltd (1902) 39 SLR 768 and Kinnaird (Lord) v Field [1905] 2 Ch 361 (CA), 370f. These old cases suggest that the apparent gap in the Corporations Law may be deliberate. Certainly, the cases from the last century seem to show that the same, or a similar issue, has arisen before. Nevertheless, the apparent omission in the Corporations Law should be drawn to the attention of those who have responsibility for the ongoing revision of the Law. The section may need reconsideration for its application to appeals.
…
Although I am inclined to think that s 1335(1) of the Corporations Law is inapplicable to appeals I refrain from resolving that question finally …"
Whilst the views of Kirby P on whether the section applies to an appellant must be given very considerable weight, he expressly refrained from deciding the question. For me, the question has been decided in other authorities. In J & M O'Brien Enterprises Pty Ltd v The Shell Company of Australia Ltd (1983) 7 ACLR 790, Bowen CJ considered whether a section in the same terms as s1335(1) of the Corporations Law exposed an appellant corporation to an order for security for costs. He concluded that the section was remedial, the word "plaintiff" should be given a wide meaning and that it included an appellant.
In Buckley v Bennell Design and Constructions Pty Ltd (1974) 1 ACLR 301, the New South Wales Court of Appeal dealt with an application for security for costs against a defendant corporation which had made a cross-claim. Street CJ referred to authority that the use of "plaintiff" in a section in the same terms as Corporations Law, s1335(1), should not be given a restricted or technical meaning, and proceeded on the basis that the section covered the defendant cross-claimant. Hutley JA also accepted that the defendant cross-claimant was a "plaintiff" for the purposes of the section. In Goliath Portland Cement Company Pty Ltd v McNalley Australia Pty Ltd & Others (No 6) A62/1993, Underwood J accepted that the Corporations Law, s1335(1), covered a defendant corporation making a counterclaim. He cited Buckley v Bennell Design and Constructions Pty Ltd (supra) as authority. In Weily's Quarries Pty Ltd v The Owners of the Ship "Brooke D"; Devine Shipping Pty Ltd v The Owners of the Ship "Greshanne" B30/1994, Zeeman J applied the section to a defendant company making a counterclaim.
Consistent with these decisions, the word "plaintiff" should be given a wide meaning and it extends to a defendant making a counterclaim and an appellant. NM can rely on s1335(1) as an alternative source of the Court's jurisdiction as security for costs.
The application for security for costs should be considered separately in relation to each ground of jurisdiction. I first deal with the application pursuant to O76, r29.
The Court has an unfettered discretion in considering an application such as this, subject to the admonition in O76, r29, that security should not ordinarily be required (Burrell v Westpac Banking Corporation and Another B10/1993, Wright J, at 3).
The authorities identify many factors which are relevant to the exercise of the discretion. A useful source of reference for them is Stephen Colbran's text Security for Costs, 1st ed (1993).
The usual starting point is the capacity of the respondent to the application to pay the costs should the proceedings fail. In this case, it is conceded that CP will be unable to meet NM's costs should the appeal fail. CP is the trustee of a discretionary trust which is not trading. It has no assets besides paid up capital of $32. There is no trust property CP can look to for indemnification. This brings into play the capacity of those who stand behind CP and who will benefit from a successful outcome of the appeal, the beneficiaries of the trust. The onus is on CP to establish the incapacity of the beneficiaries to provide the security sought. In Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1, Sheppard, Morling and Neaves JJ said at 4:
"In our opinion a court is not justified in declining to order security on the ground that to do so will frustrate the litigation unless a company in the position of the appellant here establishes that those who stand behind it and who will benefit from the litigation if it is successful (whether they be shareholders or creditors or, as in this case, beneficiaries under a trust) are also without means. It is not for the party seeking security to raise the matter; it is an essential part of the case of a company seeking to resist an order for security on the ground that the granting of security will frustrate the litigation to raise the issue of the impecuniosity of those whom the litigation will benefit and to prove the necessary facts."
Christopher Poulson is the sole director and shareholder of CP. The trust deed, under which CP is trustee, is not in evidence and minimal evidence has been provided in relation to the trust. Its discretionary beneficiaries include Mr Poulson, his former wife Helen, his sons Stephen and Richard and his mother Earla.
The only evidence put before me by CP of the financial capacity of any of the beneficiaries was evidence in relation to Mr Poulson. That evidence is contained in an affidavit sworn by Mr Rainbird, one of CP's solicitors. Mr Rainbird avers that he has been informed by Mr Poulson that he is unable to provide security for NM's costs on behalf of CP. Mr Rainbird's affidavit also contained:
(a)a copy of a financial statement of affairs which was sworn by Mr Poulson on 17 March 1997 and filed in the Family Court; and
(b)a list of what Mr Poulson told Mr Rainbird were his assets and liabilities on 10 June 1998.
On its face, the information which has been provided shows that Mr Poulson does not have the means to provide security for NM's costs. However, the method chosen for providing information is most unsatisfactory and the information is inadequate. There is a significant difference between the assets and liabilities in the financial statement dated 17 March 1997 and the list of assets and liabilities of 10 June 1988. No effort has been made to explain the differences. No evidence has been given of Mr Poulson's current income. In the statement of 17 March 1997, it was said to be $372 per week.
I do not find it necessary to analyse the information on Mr Poulson with a view to reaching a final conclusion on his capacity to provide security, as he is only one of the beneficiaries who stand behind CP. As already mentioned, CP has not put in any evidence in relation to the financial circumstances of the other beneficiaries. Some information was provided by a solicitor for NM who extracted details of distributions from CP's trusts from evidence given at the trial of the counterclaim. That evidence shows the following distributions of income from the trust in 1989, 1990 and 1991.
30 June 1989 Christopher Poulson $22,000 Helen Poulson $9,883 Stephen Poulson $380 Richard Poulson $380 Earla Poulson $29,000 30 June 1990 Christopher Poulson $490,725 Helen Poulson $50,000 Stephen Poulson $400 Richard Poulson $400 Earla Poulson $50,000 30 June 1991 Helen Poulson $50,000 Stephen Poulson $400 Richard Poulson $339,862 Earla Poulson $50,000
Distributions totalling approximately $580,000 were shared between Helen Poulson, Richard Poulson and Earla Poulson during the three years referred to. Whilst those distributions occurred some years ago, if anything, they suggest that the beneficiaries can provide any necessary security. There is no evidence that the beneficiaries (other than Mr Poulson) do not have the means to provide security.
Further matters raised as being relevant in the exercise of the Court's discretion include:
(a) whether the appeal is made bona fide and has reasonable prospects of succeeding;
(b) whether CP's lack of funds has been caused or attributed to by NM;(c)whether CP is the party attacked and is, in essence, occupying the position of a defendant; and
(d) whether making an order would unduly stultify CP's ability to pursue the appeal.
CP's bona fides in pursuing the appeal have not been challenged. Whilst the appeal predominantly seeks to agitate issues of law, there is no point of law which enables me to make any clear assessment of the prospects of the appeal. The final outcome will involve an assessment of some of the evidence before the Court.
CP does not lack assets or means because of the actions of NM. There is no evidence of any assets of CP which have been lost because of the actions of NM or otherwise. CP claims it should have received further income from NM of approximately $2.1m. Had that income been received by CP, it would have been distributed to the beneficiaries under the discretionary trust. In that event, CP's financial situation would be precisely the same as it currently is, a company with a paid up capital of $32.
If CP's role in the litigation is, in substance, that of a defending party, security would be less readily ordered against it. Whilst CP was the defendant in the proceedings before the Court, it is properly conceded that its counterclaim was offensive and that it was the defacto plaintiff. CP's role in the proceedings does not militate against the making of an order.
I am not persuaded that the result of an order for security for costs will stultify CP's ability to pursue the appeal. With the exception of the evidence referable to Mr Poulson which has been referred to, there is no evidence that the beneficiaries who stand to gain from the successful outcome of the appeal are not able to provide security. In the absence of that evidence, I should not decline to order security on the basis that to do so would frustrate the litigation. I refer to the passage already quoted from the decision of Sheppard, Morling and Neaves JJ in Bell Wholesale Co Ltd v Gates Export Corporation.
I am satisfied that an order for security for costs should be made. If the appeal fails, NM will have no prospect of recovering its costs. It is fair and appropriate that those who stand to benefit from a successful outcome of the appeal should be expected to provide security for NM's costs.
In the circumstances, there is no reason for me to deal in any detail with the application for security of costs based on the Corporations Law, s1335(1). The pre-condition for exercising the discretion to make an order pursuant to that section is established, that is, it is conceded that if the appeal is unsuccessful, CP will be unable to pay NM's costs. For the reasons already given, I am satisfied that if it were necessary for me to consider the application for security for costs under this section, it would be appropriate to make an order.
I have considered each party's estimate of the likely duration and costs of the appeal and am satisfied that security of $17,000 should be provided.
Stay of execution
Rules of Court, O76, r32(1), provides:
"An appeal shall not operate as a stay of proceedings unless the Court or a judge so orders."
I approach this matter keeping in mind the principles canvassed by the New South Wales Court of Appeal in Alexander and Others v Cambridge Credit Corporation Ltd (Receivers Appointed) and Another (1985) 2 NSWLR 685. The onus is on CP to demonstrate a reason or an appropriate case to warrant the exercise of the Court's discretion on a basis that will be fair to all parties. Special or exceptional circumstances do not need to be made out. Relevant matters include whether the appeal will be abortive if a stay is not granted. I should not speculate about the appellant's prospects of success unless the failure of the appeal is plainly demonstrated. I should weigh-up considerations such as the balance of convenience and the competing rights of the parties, keeping in mind that the ordinary situation is that NM should not be deprived of the benefit of its judgment.
CP seeks a stay of the judgment to preserve the status quo pending the outcome of the appeal. By its appeal, CP challenges the dismissal of its counterclaim, the quantum of which has been assessed at $2,161,025. The appeal also disputes the inclusion of an interest component in NM's judgment. The judgment debt for $48,878 is comprised of an agreed amount of $29,975 plus interest of $18,903 as calculated by Slicer J. CP asserts that NM is not entitled to interest.
Before me, CP argued that it is not presently liable to NM for the agreed amount of $29,975. The parties reached agreement on that liability in an exchange of correspondence which concluded on 19 April 1996. A term of that agreement is that the agreed amount will not be payable "until after the determination of the counterclaim". CP says that the counterclaim will not be determined until the appeal process has been exhausted, and, accordingly, it is not yet liable to pay.
I reject this argument. In Kirk (DP) Pty Ltd v Ampol Petroleum Pty Ltd, unreported, Supreme Court of New South Wales, Equity Division, 30 January 1998, Young J held that where there was an agreement not to do anything pending the determination of a matter, that ordinarily meant the determination of the matter at first instance. In this case, there is nothing about the circumstances of the agreement between CP and NM to suggest that determination should be construed other than as a determination at first instance. CP's assertion that the effect of the agreement is that liability is deferred until all avenues of appeal have been exhausted is totally inconsistent with CP's acquiescence to Slicer J entering judgment against it for the agreed amount. This portion of the judgment has not been appealed. CP has only appealed the inclusion of interest of $18,903 in the judgment. That aspect of the appeal is bona fide and it has not been plainly demonstrated that it will fail.
Like any successful litigant, NM is entitled to the fruits of its victory. Not surprisingly, there has been no suggestion that NM has any unusual or pressing need to recover the amount of its judgment. In any event, it is clear that CP does not have the capacity to pay NM's judgment, whether it be for $29,975 or $48,878. A stay of the judgment will deny NM the opportunity of pursuing the winding up of CP with the potential that, via this process, it will stop CP from proceeding with its appeal. If anything, this consequence inclines me towards granting a stay. A stay will also deny NM the opportunity of utilising the threat of proceeding as above to put pressure on those who stand behind CP to pay the judgment. I do not consider NM's loss of this opportunity to be a significant factor. What can properly be expected of those who stand behind CP, and will benefit from a successful outcome of the appeal, differs in relation to the application for a stay from that which can be expected of them in relation to the application for security for costs. They, of course, have no personal obligation to pay the judgment or provide security for costs. However, unless they provide security for costs, NM will be obliged to incur the costs of opposing the appeal without having any prospect of recovering costs if the appeal fails. In those circumstances, it is appropriate that they should provide security for NM's costs. Their promotion of the appeal is putting NM to an expense it would not otherwise incur. The situation in relation to a stay of the judgment is different. A stay would not oblige NM to incur additional costs or provide CP with an opportunity to reduce its capacity to meet the judgment.
Balancing the matters adverted to in light of the principles referred to, I am satisfied that it is appropriate to exercise the discretion of the Court to grant a stay. Part of the judgment is the subject of the appeal, and there is a very substantial discrepancy between the amount of CP's counterclaim, $2,161,025, and NM's judgment $48,878. In these circumstances, the status quo should be preserved pending the outcome of the appeal.
Setting aside the statutory demand
The statutory demand can only have force if the judgment debt is due and payable (Corporations Law, s459E(1)(a)). As a stay of the judgment has been granted, the judgment debt is not due and payable and the statutory demand should be set aside.
Subject to hearing the parties, the orders I foreshadow to give effect to these reasons are:
That CP pay $17,000 into Court within twenty-one days as security for NM's costs of the appeal.
That failing the payment of security for NM as provided in order 1, the appeal will be stayed.
That subject to the payment of security for NM's costs as provided in order 1:
(a)execution of NM's judgments against CP be stayed until the determination of the appeal or further order; and
(b) the statutory demand be set aside.
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