Christou v Stanton Partners Australasia Pty Ltd

[2011] WASCA 176

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

TITLE OF COURT  :   THE COURT OF APPEAL (WA)

CITATION:   CHRISTOU -v- STANTON PARTNERS AUSTRALASIA PTY LTD [2011] WASCA 176

CORAM:   NEWNES JA

MURPHY JA

HEARD:   4 JULY 2011

DELIVERED          :   10 AUGUST 2011

FILE NO/S:   CACV 144 of 2010

BETWEEN:   NICK CHRISTOU

First Appellant

CORPORATE SYSTEMS PUBLISHING PTY LTD
Second Appellant

AND

STANTON PARTNERS AUSTRALASIA PTY LTD
First Respondent

STANTON ACCOUNTANTS & ADVISORS PTY LTD

Second Respondent

ON APPEAL FROM:

Jurisdiction              :  SUPREME COURT OF WESTERN AUSTRALIA

Coram  :MASTER SANDERSON

Citation  :STANTON PARTNERS AUSTRALASIA PTY LTD -v- CHRISTOU [2010] WASC 370

File No  :CIV 2252 of 2009

Catchwords:

Practice and procedure - Appeal against dismissal of application for security for costs - Delay in making application - Relevant principles - Whether failure by defendant to comply with case management directions a relevant factor in exercise of discretion to order security - Whether security should be ordered for costs incurred before application made

Legislation:

Corporations Act 2001 (Cth), s 1335
Rules of the Supreme Court 1971 (WA), O 25

Result:

Appeal upheld in part

Category:    B

Representation:

Counsel:

First Appellant              :     Mr A P Rumsley

Second Appellant          :     Mr A P Rumsley

First Respondent           :     Mr M P Bruce

Second Respondent       :     Mr M P Bruce

Solicitors:

First Appellant              :     Alan Rumsley

Second Appellant          :     Alan Rumsley

First Respondent           :     Bennett & Co

Second Respondent       :     Bennett & Co

Case(s) referred to in judgment(s):

Bryan E Fencott & Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497

Buckley v Bennell Design & Constructions Pty Ltd (1974) 1 ACLR 301

Corporate Systems Publishing Pty Ltd v Lingard [No 4] [2008] WASC 21

Darelvale Holdings Australia Pty Ltd v Waterjet Designs Pty Ltd [2003] FCA 863

Felsink Pty Ltd v City of Maribyrnong [2007] VSC 49

Gentry Bros Pty Ltd v Wilson Brown & Associates Pty Ltd (1992) 8 ACSR 405

Green v CGU Insurance Ltd [2008] NSWCA 148; (2008) 67 ACSR 105

Hismelt Corporation Pty Ltd v Pratt [2007] WASCA 192

Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 744

Livingspring Pty Ltd v Kliger Partners [2008] VSCA 93; (2008) 20 VR 377

Remm Construction (SA) Pty Ltd v Allco Newsteel Pty Ltd (1992) 57 SASR 180

Southern Cross Exploration NL v Fire & All Risks Insurance Co Ltd (1985) 1 NSWLR 114

Stanton Partners Australasia Pty Ltd v Christou [2010] WASC 370

The State of Western Australia v Bond Corporation Holdings Ltd (1991) 5 WAR 40

Town & Country Sport Resorts (Holdings) Pty Ltd v Partnership Pacific Ltd [1991] FCA 459

Warren Mitchell Pty Ltd v Australian Maritime Officers' Union (1993) 12 ACSR 1

Wilson v Metaxas [1989] WAR 285

1. NEWNES JA:  This is an appeal against a decision of Master Sanderson dismissing an application by the appellants (the defendants in the action) for security for costs.  The master refused the application on two grounds:  the appellants' delay in seeking security and their failure to comply with case management directions in the action.

2. As the master's decision was an interlocutory decision, the appellants require leave to appeal:  Supreme Court Act 1935 (WA) s 60(1)(f). On 1 March 2011, it was ordered that the application for leave to appeal be heard with the appeal.

The background

1. The current action is one in a web of litigation in which these parties have become embroiled arising out of their former partnership and the financial arrangements associated with it.  Fortunately, it is unnecessary to describe that litigation.  It is, however, necessary to refer briefly to one of the actions, which went to trial in late 2007 and early 2008.  Judgment was delivered on 28 March 2008:  Corporate Systems Publishing Pty Ltd v Lingard [No 4] [2008] WASC 21. In that action, Beech J ordered (relevantly) that:

   1.…

   2.The first respondent pay the first appellant the sum of $122,399.38 and interest on that sum in an amount of $42,212.70;

   3.The second respondent pay the second appellant the sum of $98,676.66 and interest on that sum in an amount of $34,031.28;

   4.The payment of the amount in par 2 discharges the debt in par 3 and payment of the amount in par 3 discharges, to the extent of the payment, the debt in par 2;

   5.The appellants are entitled to a distribution from trusts controlled by the respondents in the total sum of $747,954.19;

   6.The first appellant pay the sum of $150,000 and interest on that sum in an amount of $50,523.29 to two entities controlled by directors of the respondents;

   7.The appellants pay 80% of the respondents' costs of the action.

2. It was common ground that none of the amounts payable under that judgment have been paid.

3. The current action was commenced by the respondents by a generally indorsed writ of summons issued on 10 July 2009. The action was listed before Registrar Dixon for a case management conference on 25 August 2009. At the case management conference, Registrar Dixon ordered that the respondents file and serve a statement of claim by 8 September 2009 and the appellants file and serve a defence by 22 September 2009. The statement of claim was filed and served on 8 September 2009. However, the defence was not filed and served by 22 September 2009. Following a threat by the respondents' solicitors to enter default judgment, it was filed and served on 2 October 2009. On 21 December 2009, the respondents filed and served a reply. That was some two months outside the time required for the service of a reply under O 20 r 5(4) of the Rules of the Supreme Court 1971 (WA).

4. At a status conference on 22 December 2009, Registrar Dixon ordered the parties to give discovery by 1 March 2010.  Neither side complied with that order.  A series of extensions of time were given and ultimately the respondents provided their discovery to the appellants on 14 May 2010.

5. Ten days after receiving the respondents' discovery, the appellants requested a further seven day extension to provide their discovery.  The respondents consented and the time for the appellants to provide discovery was extended to 1 June 2010.  That deadline was not met.  On 11 June 2010, the respondents filed a notice of non‑compliance with case management directions.  The notice dealt with the appellants' failure to provide both discovery and particulars of its statement of claim against a third party in the proceedings.

6. On 15 June 2010, the parties attended a status conference before Registrar Dixon.  The appellants were ordered to provide discovery by 21 June 2010.  The matter was otherwise adjourned sine die as the appellants had advised the court that they were going to bring a security for costs application within seven days of the status conference.

7. The appellants again failed to give discovery as ordered and no application for security for costs was made.  The matter came on again before Registrar Dixon on 20 July 2010.  On that occasion, the appellants were ordered to provide discovery by 30 July 2010.  Once more, the appellants failed to comply with the order.  The respondents subsequently invited the appellants to submit a proposed revised timetable for discovery.  The appellants did not respond.  On 16 August 2010, the respondents wrote to the appellants to say that unless discovery was provided by 20 August 2010 the respondents would apply for a springing order.

8. The appellants did not respond to the letter but, on 20 August 2010, they filed an application for security for costs, supported by an affidavit of their solicitor.  The respondents wrote again inviting the appellants to provide a revised timetable for discovery but that request was also ignored. 

9. On 24 August 2010, the matter came back before Registrar Dixon. The registrar made an order that the respondents have leave to apply to enter judgment if discovery was not given by 6 September 2010.  On 2 September 2010, that order was suspended pending determination of the application for security for costs.

The decision of the master

1. The application for security for costs was heard by the master on 23 November 2010 and judgment delivered on 13 December 2010:  Stanton Partners Australasia Pty Ltd v Christou [2010] WASC 370. Whilst the master said he would deal with the application on the basis that it was brought under both s 1335 of the Corporations Act 2001 (Cth) and O 25 of the Rules, it seems the focus was on s 1335. Relevantly for present purposes, the master found that the first respondent was impecunious [1]. But he considered that he was not in a position to conclude that its impecuniosity was attributable to the appellants [5]. The master found there was no evidence as to the financial position of the second respondent, noting that the appellants' affidavit evidence and submissions had been directed entirely to the first respondent [26].

2. In weighing up the factors bearing upon the exercise of his discretion, the master noted that whilst the first respondent was impecunious, an order for security would not stultify the action as there was evidence that a director of the first respondent would provide any security ordered [23]. The master found, however, that the appellants' delay in bringing the application had not been satisfactorily explained and that the appellants had been guilty of inexcusable conduct in repeatedly failing to comply with case management directions [24]. He concluded that in light of those factors it was not an appropriate case to order security for costs [25]. He accordingly dismissed the application.

The ground of appeal

1. It is unnecessary to set out the ground of appeal.  In substance, the appellants contended that it followed from the findings of fact made by the master that security for costs should have been ordered and error was therefore to be inferred from the dismissal of the application.

2. In argument on the appeal, the appellants also contended (without objection by the respondents), in effect, that the master erred in taking into account an irrelevant factor, namely, the appellants' failure to comply with case management directions.  In addition, the appellants' counsel sought leave to add a further ground of appeal in the following terms:

   The master erred in not finding there was sufficient material to enliven the jurisdiction to make an order for security for costs against the second respondent.

   Particulars of the material

   1.The failure of the second respondent to comply with order 3 of the orders of Beech J of 28 March 2008.

   2.Evidence that the first respondent controlled the second respondent.

3. The court heard argument on whether leave to amend should be granted and on the substance of the proposed ground.  Leave to amend was reserved.

The disposition of the appeal

1. The principles which apply to an application for leave to appeal against an interlocutory decision are well‑settled.  Generally the appellant must show that the original decision was wrong, or at least attended by sufficient doubt to warrant the grant of leave, and that substantial injustice would be done if the decision was not reversed:  Wilson v Metaxas [1989] WAR 285, 294. Those principles are not, however, inviolable and leave may be granted whenever the interests of justice require it: TheState of Western Australia v Bond Corporation Holdings Ltd (1991) 5 WAR 40 [56] ‑ [57]; Hismelt Corporation Pty Ltd v Pratt [2007] WASCA 192 [14].

2. Turning to the substance of the appeal, the purpose of an order for security for costs is to protect the defendant, if successful, against the risk of being deprived of the benefit of a costs order through the plaintiff's inability to pay.  The task of the court on such an application was described in Remm Construction (SA) Pty Ltd v Allco Newsteel Pty Ltd (1992) 57 SASR 180 as follows:

   In considering security for costs the court ought to try to do justice as between the parties.  The court should protect a defendant against the loss which may result from inability to recover costs by reason of the impecuniosity of the plaintiff but should not go further than is reasonably necessary for that purpose.  The provision of security for costs, which it may never be liable to pay, may place an unreasonable burden upon a plaintiff or those for whose benefit the plaintiff is suing (189).

3. It is well‑established that the court's discretion to order security for costs must be exercised judicially, but it is a broad discretion and the factors which are relevant to the exercise of the discretion cannot be stated exhaustively.  The court must examine the circumstances of the particular case to determine where the interests of justice lie.  The weight to be given to any circumstance will depend upon its own intrinsic persuasiveness and its impact on other circumstances which have to be weighed:  Gentry Bros Pty Ltd v Wilson Brown & Associates Pty Ltd (1992) 8 ACSR 405, 411. However, the inability of a plaintiff to meet an order for costs, whilst it is not decisive, is an important consideration in the exercise of the discretion. The policy of s 1335 of the Corporations Act is to protect a defendant against the risk of the plaintiff's impecuniosity and it equips the court with the means to require that the defendant be secured against that risk:  Livingspring Pty Ltd v Kliger Partners [2008] VSCA 93; (2008) 20 VR 377 [16].

4. It is, however, incumbent upon a defendant who wishes to obtain security for its costs to apply promptly for that relief once it is, or ought reasonably be, aware that the plaintiff would be unable to meet an order for costs.  Security for costs is not a card that a defendant can keep up its sleeve and play at its convenience.  Delay is an important consideration in the determination of an application for security for costs because it is capable of causing prejudice or unfairness to the plaintiff.  A plaintiff is entitled to know at the earliest opportunity, before it has committed substantial resources to pursuing the litigation, whether it will be required to provide security.  The later an application is made the greater the likelihood that it will cause substantial disruption or distraction in the conduct of the plaintiff's case, and if the plaintiff is unable to provide security, the greater the costs that will have been wasted.  The oft‑cited words of Moffitt P in Buckley v Bennell Design & Constructions Pty Ltd (1974) 1 ACLR 301 are apposite:

   The right to seek security for costs and to stay proceedings, with the possible result that a claim for damages is frustrated, is a powerful weapon. Therefore, the litigant who seeks to use it against his opponent is at risk of not having it available, unless the application is made and persevered with in circumstances involving the least oppression of his opponent. The primary reason why the application should be brought promptly and pressed to determination promptly is that the company, which by assumption has financial problems, is entitled to know its position in relation to security at the outset, and before it embarks to any real extent on its litigation, and certainly before it is allowed to or commits substantial sums of money toward litigating its claim (309).

5. I would add that in an era when the need to ensure the efficient use of judicial resources has become increasingly important, delay may also be significant in that regard.  A late application which frustrates the action will mean that the judicial resources already devoted to the case will have been wasted.  Where it results in the adjournment of an imminent trial it will often have the result that the trial dates will be wasted:  see Town & Country Sport Resorts (Holdings) Pty Ltd v Partnership Pacific Ltd [1991] FCA 459.

6. There are, however, degrees of delay and the effect of delay will vary according to the circumstances.  The reason for the delay will also be an important consideration.  Where delay has occurred it will not necessarily bar an order for security for costs, but generally the longer the delay, the more proximate the hearing and the more that has been done by the plaintiff to advance the case, the greater will be the significance of the delay and the more difficult it will be for the defendant to persuade the court that an order for security for costs will not be unfair or oppressive:  Bryan E Fencott & Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497, 514.

7. In order to show prejudice it is not necessary for a plaintiff to establish what it would have done differently if the application had been made earlier (although such evidence would be an important consideration in the exercise of the discretion); prejudice will generally be regarded as inherent in substantial delay:  Green v CGU Insurance Ltd [2008] NSWCA 148; (2008) 67 ACSR 105 [57].

8. In the present case, the appellants first became aware of the first respondent's financial position on or about 11 September 2009, when they were served in other proceedings with an affidavit sworn on behalf of the first respondent to which was attached the first respondent's draft financial report for the year ended 30 June 2009.  However, there was no intimation that an application for security for costs might be made until the directions hearing before Registrar Dixon on 15 June 2010, when the appellants' solicitor informed the registrar that he had instructions to apply for security for costs.  He said the application would be made within seven days.  In the light of that, the registrar declined to make the programming orders for the action sought by the respondents, apart from an order that the appellants give discovery by 21 June 2010, and adjourned the directions hearing sine die.

9. The application for security for costs was not made within seven days.  It was not made until 20 August 2010, some nine weeks after the directions hearing.  The only explanation offered for that delay was the workload of the appellants' solicitor.  No explanation has been offered for the delay of some nine months between September 2009 and June 2010.

10. As I have mentioned, the master refused the application on the grounds of delay and the appellants' non‑compliance with case management orders.  In my respectful opinion, in the circumstances of this case the master erred in concluding that the appellants' non‑compliance with case management orders was itself a relevant factor.  There may well be cases where a defendant's non‑compliance with procedural orders will be relevant in determining whether or not an order for security for costs should be made.  That will depend upon the particular circumstances of the case.  But in this case I do not consider it was relevant.  While the appellants' non‑compliance undoubtedly contributed to the slow progress of the action, it was not relevant to the purpose for which an order for security for costs is made; that is, to ensure that, if successful, the defendant can recover costs which the plaintiff is ordered to pay.  There is nothing to suggest that the appellants' non‑compliance has contributed to the respondents' inability to meet a costs order or that it would lead to any relevant prejudice or unfairness if an order for security for costs were made.

11. Whilst the appellants' conduct in flouting case management directions was deplorable, there are remedies available to a party under the case management system where such default occurs and that is the way that such default should normally be dealt with.  The discretion to order security for costs is not a means by which a defendant may be punished for its non‑compliance with case management directions.

12. The question of whether an injustice would occur if the master's decision were not reversed depends upon whether the appellants' application should, in any event, have been refused solely on the ground of delay. In my view, it should not. Whilst the delay was significant, only a limited number of interlocutory steps had been taken and the interlocutory processes remain incomplete. The action was still some way from having a trial date fixed. There can, of course, be no doubt that the respondents will have incurred some legal costs in the matter to date. No useful indication of the amount was provided by the respondents, who were content for their solicitor to describe their legal costs in an affidavit as 'not insubstantial'. But given the stage the action had reached when the application was made, the amount involved is unlikely to be very large and it is not suggested that the costs will be wasted if an order for security is made. As the master noted, a director is prepared to emerge from behind the corporate veil to provide any security required to be given [2]. That was not in issue on the appeal.

1. However, a party which unreasonably delays in making an application for security for costs cannot ordinarily expect to obtain security for costs which it has incurred during the period of the delay.  Nor can it ordinarily expect to obtain security for costs in relation to interlocutory steps which it was ordered to complete before the application was made but which, by reason of the applicant's default, have not been completed.  In such circumstances, it would be unjust to require a plaintiff to provide security for costs which the defendant had incurred before it finally bestirred itself to take steps to seek security for costs:  see Southern Cross Exploration NL v Fire & All Risks Insurance Co Ltd (1985) 1 NSWLR 114, 125; Darelvale Holdings Australia Pty Ltd v Waterjet Designs Pty Ltd [2003] FCA 863 [15]; Felsink Pty Ltd v City of Maribyrnong [2007] VSC 49 [25].

2. In the present case, I consider that security is appropriate for future costs, but not for costs incurred prior to the application.  In relation to future costs, I would exclude the appellants' costs of providing discovery, as their discovery was not provided before the application was made only because they continually failed to comply with the orders of the case management registrar.

3. In relation to the second respondent, it was submitted in support of the application to amend the grounds of appeal that the master erred in concluding there was no evidence as to the financial position of the second respondent; in particular, that there was no credible evidence that there was reason to believe that the second respondent would be unable to meet an order for costs if it were unsuccessful in the action: see s 1335(1) of the Corporations Act.  The appellants submitted, in effect, that in so finding the master overlooked two matters:  the failure of the second respondent to pay the amounts for which it was liable pursuant to the orders of Beech J of 28 March 2008, and evidence that the first respondent controlled the second respondent.

4. It was submitted that the evidence established that the second respondent provided services for a fee to the first respondent's accounting practice.  It was also apparent that the first respondent had ceased to trade after 2008 and was impecunious.  It was submitted that the second respondent could not therefore have derived income from providing services to the first respondent.  It was also argued that a party resisting an application for security for costs should provide the court with full and frank disclosure of its financial position and the second respondent had failed to do so.  The appellants contended that having regard to those matters and the failure of the second respondent to pay the amounts for which it was liable pursuant to the orders of Beech J, the clear inference was that the second respondent was impecunious.

5. In my view, there is no substance in the proposed amendment.  It is notable that the appellants did not seek to adduce any evidence of the financial position of the second respondent in support of the application.  No searches were done of publicly available registers, such as land titles, and no enquiry was made of the second respondent as to its financial position.  On the hearing before the master, little attention was paid to the position of the second respondent.  At least in the context of the complex web of litigation in which these parties are involved, I do not consider that any inference can reasonably be drawn as to the second respondent's financial position simply from the fact that it has not paid the amounts ordered by Beech J.  That could have come about for a number of reasons.  In that regard, I note there is no evidence that any demand for payment has been made by the appellants or any attempt made to enforce the judgment.  And the fact that since 2008 the second respondent has apparently derived no income from providing the first respondent with services says nothing about the asset position of the second respondent.

6. I also do not accept that the filing by the appellants of an application for security for costs gave rise to some obligation on the second respondent to provide a full account of its financial position.  That is to put the cart before the horse.  In order to enliven the court's discretion there must be material before it which is sufficiently persuasive to permit a rational belief to be formed that, if ordered to do so, the second respondent would be unable to pay the appellants' costs if the second respondent were to be unsuccessful in the action; mere speculation as to the second respondent's insolvency or financial difficulties is not sufficient:  see Warren Mitchell Pty Ltd v Australian Maritime Officers' Union (1993) 12 ACSR 1; Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 744 [60] ‑ [61]. In circumstances where the appellants had not troubled themselves to put any material before the court relating to the second respondent's financial position, it was not incumbent upon the second respondent to fill that gap. The second respondent apparently took the view (rightly, in my opinion) that the discretion had not been enlivened and was content to leave the matter at that. It was entitled to do so.

7. In my opinion, none of the matters relied upon by the appellants, either individually or in combination, satisfied the threshold in s 1335 and the master correctly found that the appellants had failed to establish any entitlement to security for costs against the second respondent. I would refuse leave to amend the grounds of appeal and dismiss the appeal so far as it relates to the second respondent.

8. It is therefore unnecessary to deal with the respondents' notice of contention, by which they sought to uphold, on other grounds, the decision of the master so far as it related to the second respondent.

9. That leaves the question of the security to be provided by the first respondent.  As the question of the amount of the security was not considered by the master, it was submitted that in the event the appeal was upheld the matter should be remitted to the master to determine the amount and form of the security.  I would therefore so order.

Conclusion

1. I would make the following orders:

   (a)the application to amend the grounds of appeal is dismissed;

   (b)the application for leave to appeal is dismissed, so far as it relates to the second respondent;

   (c)the appellants have leave to appeal and the appeal be allowed, so far as it relates to the first respondent;

   (d)the decision of the master be set aside so far as it relates to the first respondent;

(e)the first respondent provide security for the appellants' costs of the action from the date of filing the application for security for costs, but excluding the appellants' costs of giving discovery; and

(f)the application for security for costs be remitted to the master to determine the amount of the security, and the time and manner in which it is to be provided.

1. MURPHY JA:  I agree with Newnes JA.