Citi Nominees Pty Ltd v Fenny

[2006] WASC 97

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION:   CITI NOMINEES PTY LTD -v- FENNY [2006] WASC 97

CORAM:   MASTER NEWNES

HEARD:   3 MARCH 2006

DELIVERED          :   31 MAY 2006

FILE NO/S:   CIV 1967 of 2005

BETWEEN:   CITI NOMINEES PTY LTD (ACN 085 859 945)

Plaintiff

AND

RICHARD EDMUND FENNY
Defendant

Catchwords:

Practice and procedure - Application to strike out defence - Whether discloses arguable defence - Distinction between agent for undisclosed principal and agent for unnamed principal - Whether words "or his nominees" in description of contracting party disclose agency - Whether defence embarrassing - Turns on own facts

Practice and procedure - Application for security for costs - Plaintiff trustee of family trust - Relevant principles - Turns on own facts

Legislation:

Corporations Act 2001 (Cth), s 1335

Rules of the Supreme Court 1971 (WA), O 1 r 4B, O 20 r 8(2), O 25 r 1

Result:

Defence struck out in part
Security for costs ordered by way of undertakings

Category:    B

Representation:

Counsel:

Plaintiff:     Mr D H Solomon

Defendant:     Mr M J Feutrill

Solicitors:

Plaintiff:     Solomon Brothers

Defendant:     Bradley & Bayly

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

Atkinson v Fitzwater [1987] 1 WLR 201

Banque Commerciale SA en Liquidation v Akhil Holdings Ltd (1990) 169 CLR 279

Blackbird Entertainment Pty Ltd v IO Research Pty Ltd, unreported; SCt of WA (White J); Library No 980297; 2 June 1998

BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266

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

Con‑Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226

Dalecoast Pty Ltd v Guardian International Pty Ltd, unreported; SCt of WA (Sanderson M); Library No 990168; 7 April 1999

Dare v Pulham (1982) 148 CLR 658

David Deane & Associates Pty Ltd v Bonnyview Pty Ltd [2005] QCA 270

Davison v Vickery's Motors Ltd (In Liq) (1925) 37 CLR 1

Davjoyda Estates Pty Ltd v National Insurance Co of New Zealand Ltd [1965] NSWR 1257

DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423

Eastern Construction Co Ltd v National Trust Co Ltd [1914] AC 197

Engel Pty Ltd (In Liq) v Leeds, unreported; FCt SCt of WA (Malcolm CJ); Library No 940403; 20 July 1994

Epping Plaza Fresh Fruit & Vegetables Pty Ltd v Bevendale Pty Ltd [1999] 2 VR 191

Fitzgerald & Anor v Masters (1956) 95 CLR 420

General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125

Gould & Birbeck & Bacon v Mount Oxide Mines Ltd (In Liq) (1916) 22 CLR 490

Harry v Fidelity Nominees Pty Ltd (1985) 41 SASR 458

Hawkins v Clayton (1988) 164 CLR 539

Hooker Corporation Ltd v Commonwealth (1986) 65 ACTR 32

Hospitals Contribution Fund of Australia v Hunt (1982) 44 ALR 365

Howard Smith & Company Ltd v Varawa (1907) 5 CLR 68

Imperial Bank of Canada v Begley [1936] 2 All ER 367

Intercraft Cabinets Pty Ltd v Sampas Pty Ltd (1997) 25 ACSR 623

Jones v Peters [1948] VLR 331

Keighley Maxsted & Co v Durant [1901] AC 240

Kelner v Baxter (1866) LR 2 CP 174

Lagarna Pty Ltd v Bridge Wholesale Acceptance Corporation (Australia) Ltd [1995] 1 VR 150

Laundry Coin‑Wash Nominees Pty Ltd v Dunlop Olympic Ltd (1985) 7 ATPR 40‑584

Lord v Trippe (1977) 14 ALR 129

Marsh & McLennan Pty Ltd v Stanyers Transport Pty Ltd [1994] 2 VR 232

Maynegrain Pty Ltd v Compafina Bank [1982] 2 NSWLR 141

Maynegrain Pty Ltd v Compafina Bank [1984] 1 NSWLR 258

McLean Bros & Rigg Ltd v Grice (1906) 4 CLR 835

McNally v Jackson Spanney (1938) 42 WALR 27

Meehan v Jones (1982) 149 CLR 571

Omaha Indemnity Co v Carpenter and Australian Transport Insurance Pty Ltd (1987) 5 ANZ Ins Cas 75,171

Pancontinental Mining Ltd v Posgold Investments Pty Ltd (1994) 121 ALR 405

Salter v Gilbertson (2003) 6 VR 466

Scanlan v Greenport Nominees Pty Ltd [2001] WASC 307

Summers v The Commonwealth (1918) 25 CLR 144

Tipperary Developments Pty Ltd v The State of Western Australia, unreported; SCt of WA (Murray J); Library No 960620; 31 October 1996

Tradestock Pty Ltd v TNT (Management) Pty Ltd (1977) 14 ALR 52

Watson v Swann (1862) 142 ER 993

Case(s) also cited:

A v Hayden (No 2) (ASIS case) (1984) 156 CLR 532

Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309

Appleglen Pty Ltd v Mainzeal Corporation Pty Ltd (1988) 79 ALR 634

Bass v Permanent Trustee Co Ltd (1999) 198 CLR 334

Biltoft Holdings Pty Ltd v Casselan Pty Ltd (1990) 8 ACLC 579

Castrol Australia Pty Ltd v Emtech Associates Pty Ltd (1980) 51 FLR 184

Codelfa Construction Pty Ltd v State Rail Authority (NSW) (Codelfa/Eastern Suburbs Railway case) (1982) 149 CLR 337

Commissioner of Taxation of the Commonwealth of Australia v Sara Lee Household & Body Care (Australia) Pty Ltd (2000) 201 CLR 520

Commonwealth Bank of Australia v Cooke [2000] 1 Qd R 7

Day v William Hill (Park Lane) Ltd [1949] 1 KB 632

FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd (2000) 22 WAR 241

Lane v Bushby (2000) 50 NSWLR 404

Lion Laboratories Ltd v Evans [1984] 2 All ER 417

MA Productions Pty Ltd v Austarama Television Pty Ltd (1982) 1 ACLC 404

Memutu Pty Ltd v Lissenden (1983) 8 ACLR 364

Nguyen v Taylor (1992) 27 NSWLR 48

Rapid Metal Developments (Australia) Pty Ltd v Anderson Formrite Pty Ltd [2005] WASC 255

Tallerman & Co Pty Ltd v Nathan's Merchandise (Vic) Pty Ltd (1957) 98 CLR 93

Tepko Pty Ltd v Water Board (2001) 206 CLR 1

Tilling v Whiteman [1980] AC 1

Warren Mitchell Pty Ltd v Australian Maritime Officers Union (1993) 11 ACLC 1238

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

Woodward v Hutchins [1977] 2 All ER 751

World Class Alpacas Pty Ltd v Ostrich Farms (Cook) Islands Ltd & Ors, unreported; Fed C of A; 30 October 1997

Yandil Holdings Pty Ltd v Insurance Co of North America (1985) 3 ACLC 542

1. MASTER NEWNES:  I have before me an application by the plaintiff to strike out certain paragraphs of the defence on the grounds that those paragraphs do not disclose any reasonable cause of defence or are embarrassing, and an application by the defendant for security for costs.  I will deal first with the strike out application.

Application to strike out the defence

1. It is necessary, in order to put the pleas complained of in their proper context, to refer first to the relevant parts of the plaintiff's statement of claim.

The statement of claim

1. The plaintiff is the trustee of the Citi Trust and sues in that capacity.  It alleges that the defendant was at all material times the registered proprietor of certain land in Albany.  The plaintiff pleads in par 3 that by a written agreement dated 3 June 2004 (the "Letter of Intent") the defendant engaged the plaintiff, by Peter Boccamazzo ("Mr Boccamazzo"), to act as the project manager for the development of the land as a residential subdivision.

2. It is alleged in par 4 that the Letter of Intent contained express terms that the defendant would be responsible for the costs of the development; that the plaintiff, by Mr Boccamazzo, as project manager must organise the development and be responsible for its own costs; and that the plaintiff was to receive from the sale of each block in the development an amount equal to 17 per cent of the net profit before tax from that block, calculated in the manner specified in the Letter of Intent.

3. The plaintiff pleads in par 5 that, in March 2005, the defendant informed the plaintiff, by Mr Boccamazzo, that the defendant had agreed to sell the land and the Letter of Intent would not be further implemented.

4. It is alleged in par 6 of the statement of claim that that conduct constituted a repudiation of the Letter of Intent by the defendant and, in par 7, it is pleaded that, on or about 27 May 2005, the plaintiff accepted the repudiation.

5. The plaintiff goes on to plead, in par 8, that by reason of the defendant's repudiation of the Letter of Intent, the plaintiff has suffered loss and damage.

The defence

1. In its further amended defence, the defendant admits in par 3 the existence of the Letter of Intent, but says that the Letter of Intent does not, and was not intended by the parties to, create a legally binding relationship between them.  The defendant then pleads, so far as relevant:

   "3.As to paragraph 3 of the Statement of Claim, the defendant:

   …

   (c)… says, if the Letter of Intent was intended to create a legally binding relationship:

   (i)on a proper construction of the Letter of Intent it is void for uncertainty;

   …

   (vi)in the alternative to sub‑paragraphs (i) to (va), inclusive, on a proper construction of the Letter of Intent the parties to the Letter of Intent were Flinders Real Estate Pty Ltd (as the defendant's nominee) and Mr Boccamazzo and, therefore, no binding contractual relationship came into existence as between the plaintiff and the defendant;

   (vii)in the alternative to sub‑paragraphs (i) to (vi), inclusive, the parties to the Letter of Intent, whether being Mr Boccamazzo and Flinders Real Estate Pty Ltd as pleaded in sub‑paragraph (vi), or the plaintiff and the defendant (which is denied), orally agreed to abandon it, alternatively to mutually rescind it, and regard it as discharged with neither party owing any obligation under it to the other on or about 2 July 2004 ('Abandonment');

   Particulars

   A.The Abandonment occurred during a conversation in a meeting between Mr Boccamazzo, Mr Porter and the defendant on or about 2 July 2005 [sic, 2004].

   B.The Substance of the conversation was to the effect:

   (1)the parties agreed that the Letter of Intent was not a binding contractual document and it was not sufficiently detailed to deal with all aspects of their legal relationship concerning the proposed development of the Relevant Land and that they needed to enter into a formal written contract drafted by the defendant's solicitors dealing with all aspects of their legal relationship concerning the proposed development of the Relevant Land ('Formal Contract').

   (2)the parties agreed that the only act Mr Boccamazzo was authorised to undertake as agent for the defendant was to engage Taylor Burrell Barnett to prepare a plan of sub‑division of part of Lot 760 Lower King Road, Albany into 277 lots ('Relevant Land') and lodge an application for sub‑division of the Land with the Western Australian Planning Commission ('WAPC') and Mr Boccamazzo was authorised to agree to pay Taylor Burrell Barnett $16,640.00 for those services.

   (3)the parties agreed that no development of the Relevant Land would take place and neither party would owe any binding contractual obligation to the other unless and until:

   (a)the parties entered into a Formal Contract; and

   (b)the defendant decided to do so after obtaining professional advice concerning the taxation implications of developing the Relevant Land, the entity through which and structure through which the defendant would undertake any development and the financial viability of the defendant undertaking and financing all the costs of any development.

   (d)otherwise denies each and every allegation therein pleaded."

2. The defendant denies the express terms of the Letter of Intent alleged by the plaintiff and, relevantly, pleads:

   "4.The defendant denies paragraph 4 of the Statement of Claim and, in further answer to the allegations therein pleaded:

   …

   (b)in the alternative to paragraph (a), if there was a written agreement between the plaintiff and the defendant as alleged in paragraph 3 of the Statement of Claim, or at all (which is denied), then, on a proper construction of the Letter of Intent, it contains the following:

   (i)an express term to the effect that the defendant, or his nominee, appoints Mr Boccamazzo as project manager for the development of the Relevant Land in accordance with plans prepared for the defendant on or before 3 June 2004 ('Proposed Development');

   (ii)an express term to the effect that the defendant, or his nominee, agrees to be responsible for all the costs of carrying out the Proposed Development, those costs to include, without limitation, land tax, shire rates, the cost of borrowing and interest at the interest rate charged to the defendant, or its nominee, for money borrowed to finance those costs ('Development Costs');

   …

   (iv)an express term to the effect that, the parties agree on the sale of each block of land in the Proposed Development the proceeds are to be applied as follows:

   (1)first, the defendant, or his nominee, will receive a capital payment for each block calculated as the unimproved value of the Relevant Land at the date of the sale divided by the total number of blocks in the Proposed Development ('Capital Payment'); and

   (A)the unimproved value of the Relevant Land is $2,770,000 valued at 1 July 2004 and the number of blocks in the Proposed Development is 277; and

   (B)the unimproved value of the Relevant Land will be recalculated each year, until all blocks are sold, on 1 July, as the greater of the mean market valuation by two independent valuers, or in accordance with any increase or decrease in the Australian Bureau of Statistics Consumer Price Index;

   (2)secondly, the defendant, or his nominee, will be repaid all Sub‑Division Costs; and

   (3)thirdly, after the sale of sufficient blocks to repay the defendant, or his nominee, all the Development Costs, then, after deduction of the Capital Payment, any amount received on the sale of any block will be divided 83% in favour of the defendant, or his nominee, and 17% in favour of the plaintiff.

   (v)implied terms, implied because they are reasonable and necessary and in order to give the agreement business efficacy, alternatively there were implied conditions precedent to the Letter of Intent becoming a binding contractual document, to the effect that completion of the parties obligations under the Letter of Intent is subject to and conditional upon:

   (1)WAPC approval of the Proposed Development within a reasonable period of time; and

   (2)the defendant, or his nominee, obtaining finance to pay for all Development Costs within a reasonable period of time."

The Letter of Intent

1. The Letter of Intent was put in evidence, without objection, on the basis that it was a document referred to in the pleadings.  It appears that it was prepared without the benefit of legal advice.  It provides, relevantly for present purposes, as follows:

   "Agreement made this 3^rd day of June 2004 whereby Richard Edmund Fenny or his nominees (hereinafter called 'the owner') hereby appoint Peter Boccamazzo of Citi Nominees PTY LTD as Project Manager for the development of Location 760 Lower King Road Albany.

   [the text is then set out]

   Signed

   Richard Edmund Fenny  Peter Boccamazzo

   Owner  Project Manager"

The plaintiff's submissions

1. The plaintiff seeks an order that par 3(c)(i), par 3(c)(vi), par 3(c)(vii) and par 4(b) of the defence each be struck out.

2. The plaintiff says that the plea in par 3(c)(i) is embarrassing because it does not plead the factual basis for the legal conclusion that the Letter of Intent is void for uncertainty.

3. It was submitted that the plea in par 3(c)(vi) was similarly embarrassing in that the plea that the parties to the Letter of Intent were Flinders Real Estate Pty Ltd ("Flinders Real Estate") and Mr Boccamazzo was unsupported by any material facts.  Moreover, it was submitted, the plea (and the plea in par 4(b)(i)) is misconceived in that a nominee clause does not result in the nominated party becoming a contracting party in place of the nominating party.  It was submitted that in a contract between A and B, where A elects to enter into a contract as "A or A's nominee" and C is then nominated by A, no contractual relationship is created between B and C.  The nominee does not become a party to the contract and a nomination does not, of itself, dispose of or create any interest in property.  It was submitted that the plea appeared to confuse a nomination clause with a novation.

4. The plaintiff argued that the plea in par 3(c)(vii) was defective in that the particulars of it were incapable of supporting either a mutual rescission or an abandonment of the Letter of Intent.  Counsel submitted that abandonment can be inferred where an inordinate length of time has passed during which neither party has performed, or called on the other party to perform, the obligations under the contract: Fitzgerald & Anor v Masters (1956) 95 CLR 420 at 432, or where, although there is no rescission, the parties' conduct is such that the contract has been abandoned: Summers v The Commonwealth (1918) 25 CLR 144 at 151 ‑ 152; DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 at 434. Where the contract is partly performed, the contract cannot be treated as abandoned. Counsel referred to Fitzgerald & Anor v Masters (supra) at 432.  Counsel submitted that particular (B)(2) of par 3(c)(vii) of the defence pleads part performance, so a plea of abandonment was not open on that ground alone.

5. It was submitted that the particulars to the plea appear to plead a variation to the contract constituted by the Letter of Intent, the variation bringing an end to the terms of the Letter of Intent and creating a new contract.  It was submitted that if the defendant wishes to rely on an alternative contract that has the effect of bringing to an end the Letter of Intent and substituting another, that must be specifically pleaded, including the intention of the parties as to the subsequent agreement.

6. It was argued that the particulars simply do not support any plea of mutual rescission.

7. It was submitted in relation to par 4(b)(v) that neither the plea of the implied terms, nor the alternative plea of implied conditions precedent (which, it was argued, must satisfy the same criteria), satisfied any test for the implication of a term.  Counsel argued that there were relevantly two bases upon which a term may be implied:

   (1)where there was a formal contract complete on its face, there existed the five conditions required to imply a term as stated in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266 at 282 – 283; or

   (2)where the parties had not attempted to spell out the full terms of their contract, the implication of the term is necessary for the reasonable or effective operation of a contract of that nature in the circumstances of the case: Deane J in Hawkins v Clayton (1988) 164 CLR 539 at 573.

8. It was submitted that the terms pleaded in par 4(b)(v) of the defence do not satisfy either.  The terms were not necessary in the circumstances for the reasonable and effective operation of the Letter of Intent and they were not consistent with the express terms of the Letter of Intent.  In addition, the alleged term that the agreement was conditional on the defendant obtaining finance would not be implied without a further term - which was not pleaded - that the defendant would use honest and best endeavours to obtain finance.  Counsel referred to Meehan v Jones (1982) 149 CLR 571.

9. It was further submitted that a term will not be implied where one party is detrimentally affected, as a term cannot be implied on the basis of business efficacy unless both parties to the contract would agree to its inclusion.  Counsel referred to Con‑Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226. In this case, the terms alleged were detrimental to the plaintiff and, moreover, they were not reasonably certain.

The defendant's submissions

1. Counsel for the defendant argued that the question of whether or not the Letter of Intent was void for uncertainty, as pleaded in par 3(c)(i), was a matter for legal argument at trial and no further factual basis need be pleaded.

2. In relation to par 3(c)(vi) and par 4(b)(i) of the defence, it was submitted that where an agent enters into a contract on behalf of an unnamed principal without the authority of the principal, a binding contract comes into existence between the unnamed principal and the other party if the contract is ratified by the unnamed principal.  Counsel referred to Keighley Maxsted & Co v Durant [1901] AC 240. He argued that ratification by the unnamed principal discharges the agent from any personal liability to the other party.

1. In this case, at the time the parties entered into the alleged contract constituted by the Letter of Intent the defendant was acting in his capacity as an agent for an unnamed principal, namely Flinders Real Estate, without its authority.  If the Letter of Intent constituted a contract, that contract was ratified by Flinders Real Estate.  It was submitted that on a proper construction of the agreement, the expression "Richard Edmund Fenny or nominees" is to be construed as meaning that it was the parties' intention that the defendant contracted on behalf of unnamed principals (without their authority) so that, in the absence of ratification, the defendant would be a party to the agreement, but if it were ratified by a nominee or nominees then the nominee or nominees would be the principal with whom Mr Boccamazzo contracted and the defendant would be discharged from any liability under the contract.  Counsel disavowed any plea of novation.

2. On the question of abandonment, it was submitted that whether a contract is to be regarded as abandoned or terminated by mutual rescission is a matter of semantics.  Inordinate delay may be a sufficient fact from which a court will infer that the parties intended to abandon (that is, mutually rescind) a contract.  Counsel referred to Fitzgerald & Anor v Masters (supra) at 432.  In any event, the defendant did not plead that an intention to abandon ought be inferred from delay.  The defendant pleaded an express intention on the part of each of the parties to abandon any contract comprised in the Letter of Intent.  It was argued that a contract may also be found to have been abandoned or mutually rescinded where there is direct evidence of the parties' intention to do so.  Counsel referred to DTR Nominees Pty Ltd v Mona Homes Pty Ltd (supra) at 434.

3. Counsel said that the defendant did not seek to plead any variation to the terms of any such contract constituted by the Letter of Intent.  Rather, the parties agreed to treat any contract as discharged and conducted themselves so as to mutually abandon or abrogate the contract.

4. Counsel argued in relation to the implied terms that whether or not the terms are to be implied is a matter for argument at trial.  It could not be said at this level that in the circumstances terms of the nature pleaded were not capable of being implied.

5. It was also submitted that written or oral evidence may be led to show that a contract, on its face apparently a complete contract, is in fact subject to a conditions precedent; that is, the contract is not to operate until fulfilment of that condition.  The plea, in the alternative, that the terms were conditions precedent to the existence of any binding contract constituted by the Letter of Intent was a valid plea in the circumstances.

The plaintiff's submissions in reply

1. Counsel for the plaintiff submitted that a contract naming "A or A's nominee" has never been construed as made by an agent for an undisclosed principal or as a contract involving an agent.  In any event, in Keighley Maxsted & Co v Durant (supra), the House of Lords had unanimously held that ratification does not apply to a contract made by an agent for an undisclosed principal.

Is the defence defective?

1. The general principles to be applied on an application of this sort are well known.  A court will not grant leave to amend a pleading into a form which is liable to be struck out: Hooker Corporation Ltd v Commonwealth (1986) 65 ACTR 32 at 38; Atkinson v Fitzwater [1987] 1 WLR 201 at 214 ‑ 215. A plea will be struck out as disclosing no reasonable cause of action or defence (as the case may be) only if it is so obviously untenable that it cannot succeed, and great care must be exercised to ensure that a party is not improperly deprived of their opportunity to put their case at trial: General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 130. In that regard, Courts at first instance should be careful not to risk stifling the development of the law: Hospitals Contribution Fund of Australia v Hunt (1982) 44 ALR 365 at 373.

2. In determining whether a pleading is likely to prejudice, embarrass or delay the fair trial of the action, it is fundamental that a party is entitled to a statement of the opponent's case sufficiently clear to allow the party a fair opportunity to meet it: Gould & Birbeck & Bacon v Mount Oxide Mines Ltd (In Liq) (1916) 22 CLR 490 at 517; Dare v Pulham (1982) 148 CLR 658 at 664. A pleading may therefore be struck out where it is vague, ambiguous or pleaded at too great a level of generality so as to leave the other party in doubt as to how to respond to the pleading: Pancontinental Mining Ltd v Posgold Investments Pty Ltd (1994) 121 ALR 405 at 413; Banque Commerciale SA en Liquidation v Akhil Holdings Ltd (1990) 169 CLR 279 at 286 per Mason CJ and Gaudron J.

3. The question of whether a pleading is likely to prejudice, embarrass or delay the fair trial of the action in any particular case invariably involves matters of judgment and degree. The approach to be taken to such an objection to a pleading, or proposed pleading, must be directed to the attainment of the objectives set out in O 1 r 4B. Such an approach requires a degree of flexibility that may not always be consistent with the practices of earlier times. The question of whether a pleading is so defective that it should be struck out is not to be answered by any mechanical application of the rules of pleading. It is generally to be answered by whether or not the pleading serves the fundamental objective of pleadings and whether any significant deficiencies in it can adequately be overcome by the provision of particulars or by some other means. While it is necessary that a pleading set out with reasonable clarity and detail the case that the other party must meet, the focus must be on whether the pleading is sufficient for the fair and proper disposition of the case, not whether it complies meticulously with the rules of pleading.

4. It is against that background that I turn to the objections raised by the plaintiff in this case.

5. I do not accept the plaintiff's submission that the plea in par 3(c)(i) of the defence should be struck out because it does not plead the factual basis for the allegation that the Letter of Intent is void for uncertainty.  To the extent that the plaintiff may be entitled to further particulars of the plea, those particulars can be requested in the usual way.

6. The pleas in par 3(c)(vi), and those in par 4(b) which refer to "his nominee", were attacked on the more substantial basis that the defendant could not arguably be said to have entered into the Letter of Intent as agent for Flinders Real Estate.

7. I did not understand counsel for the defendant to contend that a nomination by the defendant of Flinders Real Estate after the Letter of Intent had been executed would have the effect that Flinders Real Estate became the contracting party in place of the defendant.  The defendant's case is that, if the Letter of Intent gave rise to an enforceable agreement, at the time the agreement was made the defendant was acting, without authority, as agent for Flinders Real Estate as his unnamed (as opposed to undisclosed) principal and that the agreement was ratified by Flinders Real Estate.  The reference to "or nominee" is to be construed as meaning that the defendant contracted as an agent.

8. The difficulty, however, on the face of the pleading is that it does not follow (as is pleaded in par 3(c)(vi)) simply as a matter of the proper construction of the Letter of Intent that the contracting party was Flinders Real Estate.  On the defendant's case, that result would come about only if Flinders Real Estate subsequently ratified the agreement.  No such ratification is pleaded.  On that basis the plea does not disclose a reasonable cause of defence and should be struck out.

9. Moreover, the plea does not in its terms allege an agency but a nomination, so that a case in agency is not at all evident from the pleading.  Indeed, the plaintiff's initial written outline of submissions on this application proceeded, I think not unreasonably, on the basis that the defendant's case was based on a nomination of Flinders Real Estate as the contracting party.  The plaintiff appears to have become aware that the defendant's case was one of agency only when it subsequently saw the defendant's written outline.  In my view, as it stands the plea does not reasonably disclose the case that the plaintiff must meet and accordingly it is, in any event, embarrassing.

10. The question nevertheless remains whether the plea contended for by the defendant would be open at all and as that matter was argued on the application it is appropriate that I go on to deal with it.

11. The plaintiff contended that in this case any defence of agency necessarily depended upon the defendant being an agent for an undisclosed principal and it was clearly established that an undisclosed principal could not ratify, and thereby assume, a contract made by an agent without authority.

12. Counsel for the defendant, on the other hand, argued that the defendant was agent for an unnamed principal, not an undisclosed principal.  The reference in the Letter of Intent to "[the defendant] or his nominee" disclosed an agency, albeit the name of the principal had not been disclosed.  Perhaps not surprisingly, the defendant's counsel disclaimed any reliance upon an agency for an undisclosed principal, the general rule being that in such cases the third party may elect to sue the agent on the contract.

13. There is a clear distinction between an agent for an undisclosed principal and an agent for an unnamed principal, although the two terms are sometimes used interchangeably in some of the older cases.

14. An undisclosed principal is one of whose existence the other contracting party is unaware, so that the other contracting party does not know that the person with whom he is dealing is anybody's agent.  As far as the other contracting party is concerned, the agent is a principal, dealing on his own behalf, and in his own name: Fridman, "Law of Agency" 6th ed at 228.  As a general rule, the principal, once disclosed, can sue or be sued on the contract.  No ratification by the principal is necessary.  The other contracting party can elect to sue either the principal or the agent on the contract.

15. The foundation of liability of an agent to the other contracting party lies in the non‑disclosure of the existence of a principal.  On the other hand, non‑disclosure of the identity of a principal in circumstances where the agent contracts, to the knowledge of the other contracting party, solely in his capacity as an agent, does not provide such a foundation: Marsh & McLennan Pty Ltd v Stanyers Transport Pty Ltd [1994] 2 VR 232 at 244. Accordingly, the mere fact that an agent does not disclose the identity of the principal for whom he acts does not make the agent personally liable: McNally v Jackson Spanney (1938) 42 WALR 27.

16. The position is somewhat different where the agent enters into the contract without the authority of the principal.  Where a person professes to contract as an agent for a principal, albeit the principal is not named, in circumstances where the person has no authority to enter into the contract on behalf of the principal, the principal may subsequently ratify the act of the agent in entering into the contract on its behalf.  The effect of ratification is the same as if the agent had been duly authorised by the principal at the time the contract was made: Keighley Maxsted & Co v Durant (supra) at 246, 247; Davison v Vickery's Motors Ltd (In Liq) (1925) 37 CLR 1 at 19 per Isaacs J (in dissent but not on this proposition); Jones v Peters [1948] VLR 331 at 335 per Herring CJ. Where, however, a person contracts without disclosing that he is acting as an agent and where he has in fact no authority to enter into the contract on behalf of the contemplated principal, the latter cannot afterwards ratify the act of the agent in entering into the contract: Keighley Maxsted & Co v Durant (supra).

17. In Maynegrain Pty Ltd v Compafina Bank [1982] 2 NSWLR 141, Hope JA described the position as follows (at 150):

    "With some exceptions which it is not relevant to consider, a person may sue or be sued upon a contract although the other party to the contract did not know that the person with whom he was contracting was acting as an agent, if in fact that person was acting as agent for an undisclosed principal, unless the terms of the contract are inconsistent with the known person being an agent. …

    This position of the undisclosed principal arises only where the agent was in truth his agent at the time of the transaction; a person claiming as principal cannot purport to ratify as the act of his agent a transaction entered into without his authority by one who purports at the time to be a principal, and does not disclose that he is an agent: Keighley, Maxsted & Co v Durant [1901] AC 240. There are to be distinguished from these cases transactions where it is known to a party that the other party is an agent, although he does not know the identity of the principal. There are no problems in these cases in the principal suing or being sued upon the contract or being entitled to ratify. Indeed the agent is not a party to the contract at all."

18. (An appeal to the Privy Council was allowed in part: Maynegrain Pty Ltd v Compafina Bank [1984] 1 NSWLR 258 (PC), but does not affect these statements of principle.)

19. The first question, it seems to me, is whether on the pleading it is arguable that the defendant acted as the unauthorised agent for an unnamed principal; that is, that the defendant disclosed the fact that he acted as an agent but simply did not disclose the name of his principal.

20. It is, of course, common in contracts for the sale of land for the contract to refer to the purchaser "or its nominee".  That has generally been construed to refer to a power in the named purchaser to nominate a person to take a transfer of the property from the vendor, not to substitute a different contracting party as purchaser: Lord v Trippe (1977) 14 ALR 129, per Mason J at 141, Aickin J at 143; Harry v Fidelity Nominees Pty Ltd (1985) 41 SASR 458; Salter v Gilbertson (2003) 6 VR 466; David Deane & Associates Pty Ltd v Bonnyview Pty Ltd [2005] QCA 270.

21. In Salter v Gilbertson (supra), Phillips JA (with whom Winneke P and Batt JA agreed) summarised the general position (at 473) as follows:

    "Ordinarily, where there is an agreement of purchase and sale expressed to be between A (the seller) and B 'or the nominee of' B, B is regarded as having the power simply to nominate who shall be transferee (that is, B or another at the direction of B) and a transfer to B and a transfer to B's nominee are alike regarded as in fulfilment of the contract between A and B.  Such is well established … As has been pointed out often enough, although it must be so if the context so demands, it is a strong thing to regard the words 'or nominee' as authorising B, unilaterally and in his or her own absolute discretion, to nominate a purchaser to stand in the place of B, with all the attendant consequences for A.  For such a construction 'compelling language' is required ...

    Obviously every case must turn upon its own facts.  It is possible, as I have said, for the language of the contract as a whole to dictate that the power to nominate be taken to mean that a new party can be put in place of the original party who is given the power unilaterally to nominate another to stand in his or her shoes.  But very clear language is required to achieve such a result."

22. In Lord v Trippe (supra) the contract in issue provided that the agent would be entitled to commission "upon settlement of the sale of the said station to the said Mudginberri Station Pty. Limited or to its nominee …".  Ultimately, the property was sold to a nominee.  The question that arose was whether this was a sale within the contract, entitling the agent to its fee.  Mason J said (at 141):

    "In the context in which it appears in cl 1 the word 'nominee' appears to have its ordinary meaning, that is, a person who is nominated by another for a purpose, the purpose here being to be or become the purchaser of Munmalary Station.  In other contexts it may signify a person who has a particular relationship with the party by whom he is nominated or for whom he acts as nominee, eg where the nominee is a trustee or agent.  And in other circumstances there might be reason for saying that the word signifies a person who is nominated in pursuance of a right otherwise conferred or enjoyed, to nominate, as distinct from a mere capacity to nominate."

23. In this case, of course, the words "or his nominees" are relied upon by the defendant, not as entitling him to nominate another person to take his place as the contracting party, but as disclosing that he acted in the capacity as agent for an unnamed principal.  I was not, however, referred to any case where it had been found that those words referred to an agency relationship, much less where they referred to an agency where the "nominee" was the principal.

24. Nor is it easy, to say the least, to reconcile those words in the Letter of Intent with an agency.  In the first place, if the disclosure of the agency is said to have been made by the words "or his nominees", in the description "Richard Edmund Fenny or his nominees", then the agreement was made by the defendant, not solely as an agent for an unnamed principal which might assume the contract by ratification, but rather in alternate capacities, that is, in his personal capacity or in his capacity as an agent for an unnamed principal.

25. Moreover, the ordinary meaning of a "nominee" is a person nominated by the party entitled to do so or a person appointed to act for him, such as an agent or trustee: see the Macquarie Dictionary, and the cases referred to above.  It is therefore one thing to describe an agent as a "nominee" of the principal; it is quite another to describe the principal as a "nominee" of the agent.  The description in the Letter of Intent of the contracting party as "[the defendant] or his nominees" is not language that would ordinarily refer to a subsisting agency in which the nominator is the agent and the nominee is the principal.  If that result is contended for by the defendant it would, in my view, require something more to be pleaded than simply the words in the description of the contracting party in the Letter of Intent.

26. It is unnecessary to consider the question of whether ratification is only possible where the agent not only professed to act as agent, but the identity of the principal was also known or ascertainable at the time the contract was made: see Watson v Swann (1862) 142 ER 993 at 999; Kelner v Baxter (1866) LR 2 CP 174 at 184; Eastern Construction Co Ltd v National Trust Co Ltd [1914] AC 197 at 213. That matter was not argued before me and should be left to another day, if it arises at all.

27. I should say that in argument counsel for the defendant conceded (correctly in my view) that it was not open to the defendant to contend that he was acting in his own name, without authority, for Flinders Real Estate as his undisclosed principal and that Flinders Real Estate subsequently ratified the contract.

28. In Keighley Maxsted & Co v Durant (supra), it was held that a contract made by a person intending to contract on behalf of a third party, but without his authority, cannot be ratified by the third party so as to render him able to sue or liable to be sued on the contract where the person who made the contract did not profess at the time of making it to be acting on behalf of a principal.

29. That principle has been applied in England in numerous cases: see for instance, Eastern Construction Co Ltd v National Trust Co Ltd (supra) at 213; Imperial Bank of Canada v Begley [1936] 2 All ER 367 at 374. It has also been accepted in Australia: see, for instance, McLean Bros & Rigg Ltd v Grice (1906) 4 CLR 835 at 857 ‑ 8; Howard Smith & Company Ltd v Varawa (1907) 5 CLR 68 at 82; Davjoyda Estates Pty Ltd v National Insurance Co of New Zealand Ltd [1965] NSWR 1257 at 1264; Omaha Indemnity Co v Carpenter and Australian Transport Insurance Pty Ltd (1987) 5 ANZ Ins Cas 75,171.

1. In my view, the plea in par 3(c)(vi), and the pleas in each of par 4(b)(i), par 4(b)(ii) and par 4(b)(iv), in the reference to "or his nominee", disclose no reasonable cause of action and are embarrassing, and I would strike them out.

2. I do not accept that the plea in par 3(c)(vii) is objectionable.  While it could perhaps be pleaded more clearly, I consider it sufficiently emerges that the plaintiff relies upon an alleged discussion, on or about 2 July 2004, by which the parties agreed to release each other from any obligations they may have under the Letter of Intent.  The defendant seeks in par 3(c)(vii) to characterise the legal effect of the discussion in several alternative ways, but I do not consider that that creates any real difficulties for the plaintiff such as would warrant the plea being struck out.

3. I should also say that I do not accept the plaintiff's submission that Fitzgerald & Anor v Masters (supra) is authority for the proposition that a partly performed contract cannot be treated as abandoned.  In that case, Dixon CJ and Fullager J said that, on the facts of that case, it was impossible to infer from the "inordinate" length of time that had elapsed during which neither party had called on the other to perform, that the contract had been discharged by the tacit agreement of the parties.  As one of the parties had paid more than half the purchase price of the subject land, it could not be assumed that he intended simply to give up that money, and he had an equitable interest in the land which could not be lost or destroyed by mere inaction on his part.

4. I would not accede to the application to strike out par 4(b)(v) on the ground that the terms alleged are not capable of being implied.  I accept the submission on behalf of the defendant that the question of whether terms or conditions precedent to the effect pleaded are to be implied are properly matters to be left to trial.  There is, however, a difficulty in relation to the implied term (and implied condition precedent) pleaded in par 4(b)(v)(2), that the Letter of Intent was subject to the defendant or his nominee obtaining finance to pay for all development costs within a reasonable period of time.  There appears to be no allegation that that term was not satisfied or which would otherwise make the plea relevant.  As it stands, it raises a false issue and should be struck out.

5. The plaintiff also attacked par 4(b)(i) on the ground that it did not properly plead the effect of a document as required by O 20 r 8(2), in that it pleaded that the Letter of Intent contained an express term that Mr Boccamazzo was appointed as project manager, whereas the Letter of Intent expressly stated that the plaintiff was appointed as project manager. The plea was therefore contrary to the express terms of the document.

6. The Letter of Intent provides that the defendant or his nominee "hereby appoints Peter Boccamazzo of Citi Nominees PTY LTD [sic] as project manager for the development …".  The Letter of Intent was signed by Mr Boccamazzo over the description "Project Manager".  In the circumstances, the question of whether the plaintiff or Mr Boccamazzo was the contracting party is not a matter that I consider is appropriately to be determined on an application of this nature.  I might add that the plea in par 4(b)(i) is consistent with the earlier plea in par 3(c)(6) that if any contract was constituted by the Letter of Intent it was made between Mr Boccamazzo and Flinders Real Estate.

Conclusion

1. I would therefore strike out par 3(c)(vi), par 4(b)(i), par 4(b)(ii), par 4(b)(iv) and par 4(b)(v)(2) of the further amended defence but would otherwise dismiss the plaintiff's application.  I would give the defendant leave to replead.

The application for security for costs

1. It is now necessary to turn to the defendant's application for security for costs.

2. The application is brought under both s 1335 of the Corporations Act 2001 (Cth) and O 25 r 1 of the Rules of the Supreme Court1971 (WA). The focus, however, was on the former.

The relevant principles

1. Section 1335 provides, in effect, that the jurisdiction to order security for costs is enlivened where it appears by credible evidence that there is reason to believe the plaintiff will be unable to meet an order for costs if it is unsuccessful in the action. The Court then has a discretion whether or not to make an order for security for costs.

2. It is trite law that the discretion to order security for costs is unfettered and depends upon an examination of all of the circumstances of the case, but it is also accepted that some of the relevant factors are:

   (1)whether the plaintiff's claim is bona fide and has reasonable prospects of success;

   (2)whether the defendant has contributed to the plaintiff's likely inability to pay costs;

   (3)whether an order for security for costs may have the effect of stultifying the action;

   (4)whether it appears the applicant is seeking to stifle a legitimate claim;

   (5)whether there are others behind the corporate plaintiff who might reasonably be expected to contribute to the satisfaction of an order for security.

3. See Engel Pty Ltd (In Liq) v Leeds, unreported; FCt SCt of WA (Malcolm CJ); Library No 940403; 20 July 1994 at 4 ‑ 5 and Blackbird Entertainment Pty Ltd v IO Research Pty Ltd, unreported; SCt of WA (White J); Library No 980297; 2 June 1998.

4. In the exercise of its discretion the Court will be concerned to achieve a balance between ensuring the defendant is adequately and fairly protected, and avoiding injustice to an impecunious plaintiff company by unnecessarily shutting it out or prejudicing it in the conduct of the litigation: Buckley v Bennell Design & Construction Pty Ltd (1974) 1 ACLR 301 at 304; Tradestock Pty Ltd v TNT (Management) Pty Ltd (1977) 14 ALR 52 at 56.

5. The fact that the plaintiff will be unable to pay the defendant's costs if the defendant is successful is a factor of great weight in the exercise of the discretion, but it is not necessarily decisive and regard must be had to all of the circumstances of the case.  The fact that shareholders or other persons standing behind the plaintiff company are exposed to personal liability for whatever they may be worth is a relevant, but not necessarily decisive, consideration weighing against an order for further security: Intercraft Cabinets Pty Ltd v Sampas Pty Ltd (1997) 25 ACSR 623; Epping Plaza Fresh Fruit & Vegetables Pty Ltd v Bevendale Pty Ltd [1999] 2 VR 191 (CA). The issue has to be looked at in the light of all relevant considerations: Intercraft Cabinets Pty Ltd v Sampas Pty Ltd (supra) at 316.

The defendant's submissions

1. In this case the defendant relies upon essentially two grounds, first, that the plaintiff is a trustee and brings the action in that capacity, and secondly, that the plaintiff will be unable, either in its capacity as trustee or in its own right, to meet an order for costs.

2. It was submitted on behalf of the defendant that where the only tangible assets of a plaintiff company are held on trust and, as in this case, its solvency depends on its rights as trustee to indemnity from the trust assets, it is necessary for the Court to bear in mind the difficulties which a successful defendant may face in executing in respect of an order for costs.  Unless some step is taken to alleviate those difficulties it is just and reasonable to treat the plaintiff as if it were without assets.  It was incumbent upon such a plaintiff who sought to resist an order for costs to establish that recourse to property held by it or which will be available to satisfy an order for costs will be adequate.  Counsel referred to Laundry Coin‑Wash Nominees Pty Ltd v Dunlop Olympic Ltd (1985) 7 ATPR 40‑584 at 46,729.

3. Counsel argued that the plaintiff had no capacity to satisfy an order for costs.  It had a paid up capital of $4.  All of its assets and undertakings it held on trust for the Citi Trust.  Moreover, all of its current and future assets were subject to a registered charge in favour of Cashflow Debt Finance Pty Ltd ("Cashflow Debt Finance") for an unknown amount.  On the basis of its accounts, the plaintiff had made minimal profit on its trading activities in the financial year to 30 June 2003 and incurred a substantial loss in the financial year to 30 June 2004.  It recorded a profit in the latter year only because of receipt of a dividend from Southern Land Development Pty Ltd and from what appeared to be a one‑off sale of an asset.  There was no evidence that a dividend would continue to be received each year, let alone a dividend of the magnitude received in 2004.

4. Counsel pointed out that no evidence had been sought to be led by the plaintiff as to the plaintiff's trading results since 30 June 2004 or as to what, if any, dividend had been received from Southern Land Development since then.  No accounts for the financial year ended 30 June 2005 had been made available.

5. On the only available financial figures, the plaintiff was insolvent without recourse to the trust assets.  Moreover, the assets and income of the trust were insufficient to meet any order for costs.  It was submitted that trading up to 30 June 2004 clearly indicated a real risk, even likelihood, that the trust would become insolvent in the near future.  Accordingly, a right of recourse to the assets of the trust would be of no real value.

6. It was further submitted on behalf of the defendant that the plaintiff's case was not strong, depending as it did upon a claim that a brief Letter of Intent was intended to constitute a binding contract in respect of a complex land development project extending over some years.

The plaintiff's submissions

1. Counsel for the plaintiff submitted that the defendant's contentions regarding the financial position of the plaintiff and the trust were based upon a misconception of the 2004 financial statements which were in evidence.  Properly understood, those accounts showed that the plaintiff, as trustee, had derived a profit of $99,585 in the financial year ended 30 June 2004.  There were also in evidence summaries of the plaintiff's aged receivables and aged payables to 7 October 2005.  Counsel pointed out that the amount of aged receivables exceeded aged payables by $163,303.44.

2. It was submitted that for present purposes no significance attached to the fixed and floating charge over the plaintiff's assets.  It related to a factoring arrangement entered into by the plaintiff with Cashflow Debt Finance.  The factoring arrangement was explained in an affidavit in opposition to the application sworn by Mr Boccamazzo on 7 October 2005.  Mr Boccamazzo had explained in that affidavit that the plaintiff, as trustee for the Citi Trust, trades as Citi Plasterboards.  The plaintiff's terms of trade require its customers to pay its accounts within 60 days.  The plaintiff has entered into a factoring arrangement with Cashflow Debt Finance under which the latter purchases the plaintiff's accounts receivable for 75 per cent of their cash value.  Cashflow Debt Finance then takes responsibility for collecting the debts and, upon receipt of payment, remits the balance of their cash value of 25 per cent to the plaintiff, less a service fee.  A fixed and floating charge has been registered by Cashflow Debt Finance to secure any debts it is unable to recover and which are not repurchased by the plaintiff or set off against other amounts payable to the plaintiff.  Mr Boccamazzo has said in his affidavit that the plaintiff was not in default under the arrangement so no amount was owing under the charge.

3. Counsel also referred to an affidavit of Mr Boccamazzo of 1 December 2005, in which Mr Boccamazzo deposes to the sale, in March 2005, of one of the properties referred to in the plaintiff's 30 June 2004 balance sheet.  The effect of the transaction is that, as at 1 December 2005, the plaintiff held net assets to the value of $66,000.  Mr Boccamazzo says that an amount of $180,000 was owing in respect of the plaintiff's half‑interest in the North Road Property and that amount is secured by a mortgage over the property.  Annexed to Mr Boccamazzo's affidavit of 7 October 2005 is a valuation of that property by a licensed valuer, ascribing to it a total value of $530,000, or a value of $265,000 to the plaintiff's half‑interest.  The plaintiff thus has an unencumbered interest to the value of $85,000 in that property.

4. It was submitted on behalf of the plaintiff that the fact that the plaintiff was a corporate trustee was not of itself credible testimony that the plaintiff could not meet an order for costs: Tipperary Developments Pty Ltd v The State of Western Australia, unreported; SCt of WA (Murray J); Library No 960620; 31 October 1996, Dalecoast Pty Ltd v Guardian International Pty Ltd, unreported; SCt of WA (Sanderson M); Library No 990168; 7 April 1999.  On the evidence, the defendant had failed to show that there was reason to believe the plaintiff would be unable to meet an order for costs.

5. In any event, it was argued, even if the threshold under s 1335 had been satisfied, it was sufficient that the directors of the plaintiff gave an undertaking that the assets of the plaintiff would not be disposed of before the litigation was resolved and for those who stand behind the company to give an undertaking to make their personal assets available. Mr Boccamazzo, the sole director of the plaintiff and a beneficiary of the trust, proffered in lieu of any order for costs that might otherwise be made, such an undertaking in respect of his personal assets and an undertaking on behalf of the plaintiff not to dispose of its interest in the North Road Property before judgment, except on 14 days notice to the defendant. In the course of argument, counsel for the plaintiff said that the plaintiff's undertaking would be extended if necessary to an undertaking to exercise its right of indemnity from the trust assets to meet any order for costs made against the plaintiff in the action.

Should security for costs be required?

1. I am satisfied that there is reason to believe the plaintiff will be unable to meet an order for costs if it is unsuccessful in the action.

2. On the evidence, the Citi Trust is a discretionary trust, the current beneficiaries of which are Mr Boccamazzo and his children.  The latest accounts of the plaintiff which were put in evidence were for the financial year ended 30 June 2004.  No accounts for the financial year ended 30 June 2005 were produced in evidence.  At the time this application was heard, on 3 March 2006, no explanation was offered for the absence of the 2005 accounts, apart from the affidavit of Mr Boccamazoo of 1 December 2005 in which he says that they had not at that stage been prepared.

3. The plaintiff's profit and loss statement shows that for the financial year ended 30 June 2004 the plaintiff overall made a net profit of $99,585.  The trading results of the plaintiff's business activities for the same period, however, showed a loss of $93,479.  The profit result was due to a dividend of $159,871 received by the plaintiff from Southern Land Development, together with an amount of $33,193 from a one‑off sale of an asset.

4. In the previous financial year, to 30 June 2003, the plaintiff had a trading profit of $1642.  In that year, no dividend was received and the only other income was an amount of $20 as interest received.

5. The balance sheet for the financial year ended 30 June 2004 shows net assets of $20, from total assets of $545,187 and total liabilities of $545,167.  Of those assets, some $447,000 consists of land holdings.  The greatest liability is an amount of $450,000 by way of what are described in the balance sheet as unsecured loans, but which from Mr Boccamazzo's evidence appear to be secured loans.  An amount of $81,000 is owed to beneficiaries on their current accounts.  I should add that notes to the accounts reveal that Mr Boccamazzo, as a beneficiary, has overdrawn his current account by an amount of $8563.

6. It appears from Mr Boccamazzo's affidavit of 1 December 2005 that, as a result of a transaction subsequent to the 2004 accounts, as at 1 December 2005, the plaintiff, as trustee, had net assets of $62,000.  That included an interest in the North Road Property in respect of which its net equity was some $85,000.

7. In the course of argument, counsel for the plaintiff submitted that there was no reason to suppose that the dividend of $159,871 received by the plaintiff from Southern Land Development in 2004 was a one‑off payment; the only inference that could be drawn is that if Southern Land Development made that amount one year and it was a land developer, it would keep on making it.

8. I do not accept that submission.  There was no evidence as to how a dividend of that amount came to be paid and, in particular, no evidence from which it could properly be inferred that that level of income was likely to continue.  It is also notable that there was no evidence as to what dividend had been paid, or was payable, to the plaintiff for the financial year ended 30 June 2005.  It was not suggested that when this application was heard in March 2006 the plaintiff did not know what the dividend would, or was likely to, be.  In that connection, I should note that the plaintiff has a substantial interest in Southern Land Development.

9. On the material before me, I accept the defendant's submission that, absent continuing substantial dividends from Southern Land Development, if trading losses of the magnitude recorded in the financial year ended 30 June 2004 continue, it is inevitable that the plaintiff will very soon be in serious financial difficulty.  The plaintiff did not adduce evidence which was capable of demonstrating that the trading result in that year, following upon a marginal profit in 2003, was an aberration that could not be relied upon in assessing the plaintiff's likely capacity to meet an order for costs after trial.  As I have said, no evidence was sought to be led to demonstrate that the dividends were likely to continue, nor was any evidence sought to be led as to the financial results of the plaintiff for the financial year ended 30 June 2005 save for the figures for accounts payable and receivable to 7 October 2005.  In isolation those figures do not seem to me to carry any significant weight and the caution with which even those figures are to be approached is highlighted by the fact that a large "pre‑August" 2005 debt included in the accounts receivable is the subject of execution proceedings against the debtor.  Although Mr Boccamazzo says the debt is "secured by a caveat over [the debtor's] land", it is by no means evident that the debt will be recovered or recovered in full.  Any substantial shortfall in the recovery of that debt is likely to lead to a situation where, on the figures produced, the amount of the plaintiff's net payables exceed its net receivables.

10. On the basis of the material before me, then, the current net assets held by the plaintiff are very modest and its current and future profitability, at best, uncertain.  Cashflow Debt Finance holds a first charge over the plaintiff's assets and undertaking to secure any amount that might become owing to it by the plaintiff under the factoring arrangement.  On the evidence, I am satisfied there is reason to believe that if it is unsuccessful in the action the plaintiff will be unable to meet an order for costs.

11. It is also the case, as submitted by counsel for the defendant, that the persons who stand behind the plaintiff have chosen to conduct their business affairs in a form which in ordinary circumstances will make them personally immune from any adverse cost consequences they might otherwise have incurred.  It appears the plaintiff holds no assets in its own right.  As the only tangible assets of the plaintiff are held in trust and its solvency depends on its rights as trustee to indemnity as against the trust assets, it is necessary for the Court to have in mind the difficulties which the defendant would face in attempting to execute in respect of an order for costs: Laundry Coin‑Wash Nominees Pty Ltd v Dunlop Olympic Ltd (supra), at 46,729; Lagarna Pty Ltd v Bridge Wholesale Acceptance Corporation (Australia) Ltd [1995] 1 VR 150; Blackbird Entertainment Pty Ltd v IO Research Pty Ltd (supra); Scanlan v Greenport Nominees Pty Ltd [2001] WASC 307.

1. It was not suggested that there were any particular discretionary factors which weighed against an order for security for costs.

2. Having regard to all of the circumstances, I consider that it is appropriate to require the plaintiff to provide security for costs.

The amount and form of the security

1. The question then is the amount and form of the security.  The defendant has provided a draft bill of costs up to entry for trial in an amount of $100,000.  That includes an estimated amount of $50,000 for expert witness fees.  Counsel for the plaintiff attacked the amount claimed and, in particular, submitted that this was an appropriate matter for a separate trial on liability, for which expert evidence would not be required and the costs of which would be nothing like $100,000, or even $50,000.  Counsel said that no application for a separate trial on liability had yet been made because the pleadings were not yet in final form but the plaintiff would, as soon as it was appropriate to do so, be making such an application.  The costs estimate, it was submitted, should be made on that basis.

2. As I have mentioned, on the evidence, including the trust deed, the Citi Trust is a family trust for Mr Boccamazzo and his children.  The plaintiff's only activity is as trustee of the trust.  Mr Boccamazzo has offered undertakings on behalf of the plaintiff that it will not dispose of the North Road Property before the resolution of the action without giving the defendant 14 days notice and that it will exercise its right of indemnity as trustee to meet any costs order made against the plaintiff in the action.  Mr Boccamazzo has also offered to pledge his personal assets as security.  There is no evidence as to the value of Mr Boccamazzo's assets.

3. In the circumstances, I consider that if the undertakings on behalf of the plaintiff to which I have referred were extended to include an undertaking in similar terms not further to encumber the North Road Property, that would provide appropriate security for the defendant's costs up to entry for trial of the whole action.  As no order has yet been made, and one may never be made, for a separate trial on liability, I consider I must for the moment deal with the application on the basis that the action will proceed to trial in the normal way.

4. In the absence of such extended undertakings, I would order security to be provided in an amount of $75,000.  I would give the parties liberty to apply to vary the amount or form of the security should circumstances change in any material respect.

Conclusion

1. In summary, in relation to the plaintiff's application to strike out the defence, I would strike out par 3(c)(vi), par 4(b)(i), par 4(b)(ii), par 4(b)(iv) and par 4(b)(v)(2) of the defence but otherwise dismiss the application.

2. I would order that the plaintiff provide security for costs in the form of the undertakings to which I have referred and, in the absence of such undertakings, in the sum of $75,000 to entry for trial, with liberty to the parties to apply to vary the form or amount of security should circumstances change.

3. I will hear the parties on the appropriate form of orders and on costs.