CUE SPORTS S.A. Inc v Sideris Investments Pty Ltd - [2017] SADC 4

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil: Appeal Against a Master's Decision)
CUE SPORTS S.A. INC v SIDERIS INVESTMENTS PTY LTD
[2017] SADC 4
Judgment of His Honour Judge Dart
20 January 2017
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - SECURITY FOR COSTS - APPEAL OR REVIEW
Appeal against decision of a Master declining to make an order in respect of security for costs - appeal allowed - security for costs ordered.
Associations Incorporation Act 1985 (SA) s 20(3), s 21; Corporations Act 2001 (Cth) s 1335; District Court Civil Rules 2006 Rules 17, 194 and 286; Gaming Machines Act 1992 (SA) s 27B; Liquor Licensing Act 1997 (SA), referred to.
Adelaide (SA Pools & Spa) Manufacturing and Installation Pty Ltd & Ors Westcourt General Insurance Brokers Pty Ltd [2016] SASC 60; CSR Ltd & Anor v Arturo Della Maddalena (2006) 224 ALR 1; Goldedge Holdings Pty Ltd v Liquor and Gambling Commissioner & Anor (No 2) [2015] SASC 81; Harpur v Ariadne Australia Ltd [1984] 2 Qd R 523; Martin John Green in his capacity as liquidator of Arimco Mining Pty Limited (in liquidation) v CGU Insurance Limited & Ors (2008) 26 ACLC 323, considered.

CUE SPORTS S.A. INC v SIDERIS INVESTMENTS PTY LTD
[2017] SADC 4
JUDGE DART:

This is an appeal from a decision of a Master. The defendant made application seeking an order that the plaintiff provide security for its costs of action. The Master declined to make the order and dismissed the application.
Background
The plaintiff is an incorporated association. It carried on business as a licensed sporting and recreational club. It is, or has been, the holder of a club licence pursuant to the Liquor Licensing Act 1997 (SA). More relevantly, it is or has been, the holder of a gaming licence pursuant to the Gaming Machines Act 1992 (SA).
The plaintiff carried on its business at a premises on Marion Road at Plympton Park. It occupied those premises pursuant to a written lease. The defendant is the registered proprietor of the land and the lessor. The lease expired on 30 April 2012. For a period thereafter the plaintiff occupied the premises as a monthly tenant. On 30 July 2013 the plaintiff served notice terminating the tenancy and vacated the premises.
At the premises the plaintiff operated 19 gaming machines. This litigation is in respect of gaming machine entitlements. The plaintiff wishes to sell the entitlements. The Liquor and Gambling Commissioner has refused permission for the plaintiff to sell the entitlements pending the resolution of a dispute with the defendant. The dispute arises from a particular clause of the lease which the defendant says required the plaintiff to transfer to the defendant the gaming entitlements at the end of the term of the lease for no consideration. The plaintiff denies any such obligation.
Also in issue are the provisions of s 27B of the Gaming Machines Act 1992 which vests the District Court with a unique jurisdiction to determine whether it is fair and equitable to authorise the sale of a gaming machine entitlement. They provide the District Court with wide powers to impose conditions in respect of the proceeds of sale.
The dispute between the parties is essentially contractual. Both parties have an arguable case.
Nature of the appeal
An appeal lies of right from a judgment of a Master.[1] The appeal is by way of re-hearing.[2] The nature of a rehearing was considered by Kirby J in CSR Ltd & Anor v Arturo Della Maddalena where his Honour said: [3]
The relevant "requirements" are that the appellate court is obliged to conduct a thorough examination of the record and a real rehearing. It is not confined to reconsideration of the record in order to correct errors of law, although that will certainly be encompassed in such an appeal. It is required to consider suggested errors of fact-finding. Experience teaches that many errors of this kind arise at first instance, more perhaps than errors of law. Having conducted a rehearing as so described, the appellate court is obliged to "give the judgment which in its opinion ought to have been given in the first instance"[4]. This involves, where, as here, there is no jury, conducting a thorough review of the primary judge's reasons and engaging in the tasks of "weighing conflicting evidence and drawing … inferences and conclusions"[5].
[1]    District Court Civil Rules 2006, Rule 17.
[2]    District Court Civil Rules 2006, Rule 286.
[3] (2006) 224 ALR 1 at [16].
[4]    Dearman v Dearman (1908) 7 CLR 549 at 561 cited in Fox v Percy (2003) 214 CLR 118 at 125 [23].
[5]    Dearman v Dearman (1908) 7 CLR 549 at 564 cited in Fox v Percy (2003) 214 CLR 118 at 127 [25].
It is also relevant that the decision made by the Master was discretionary. That imposes a limitation on an appeal court’s ability to intervene. In Adelaide (SA Pools & Spa) Manufacturing and Installation Pty Ltd & Ors Westcourt General Insurance Brokers Pty Ltd Doyle J put the matter as follows: [6]
Before addressing the appellants’ submissions in relation to these issues, it is relevant to observe that the decision of the Master was a discretionary one, such that the appeal is subject to the principles in House v The King.[7]Accordingly, the appellant must establish that the Master acted on a wrong principle, allowed extraneous or irrelevant matters to guide or affect him, mistook the facts or did not take into account some material consideration. Alternatively, the appellant must establish that the result embodied in the orders made is, upon the facts, unreasonable or plainly unjust, such that it can be inferred that there has been a failure to properly exercise the relevant discretion despite the precise nature or source of the error not being identifiable.
Therefore, before this Court can intervene or alter the decision of the Master, the defendant must establish a relevant error in the approach of the Master.
[6] [2016] SASC 60 at [22].
[7] House v The King (1936) 55 CLR 499 at 504-505.
The plaintiff is an incorporated association. Whilst the Associations Incorporation Act 1985 (SA) adopts a number of provisions of the Corporations Act 2001 (Cth), it does not bring over the provisions of s 1335. That is the relevant provision in respect of the ordering of security for costs against corporations. As will be seen later in these reasons, the unavailability of s 1335 was a factor in the Master’s reasoning process.
The defendant relies on the provisions of Rule 194, which is as follows:
194—Security for costs
(1)The Court may order a plaintiff to provide security for costs if—
(a)the action is brought in a representative capacity and the plaintiff is insolvent or would have insufficient resources to meet an order for costs if the action were to prove to be unsuccessful; or
(b)the plaintiff is ordinarily resident outside Australia; or
(c)there are reasonable grounds to suspect that the action may have been brought for an ulterior purpose; or
(d)the order is authorised by statute; or
(e)the order is necessary in the interests of justice.
(2)Security for costs is to be given in the form and manner directed by the Court.
(3)If the Court orders security for costs, the action may be stayed until the security is given.
(4)The Court may, at any time, vary or revoke an order for security for costs and make consequential directions.
(5)An amount paid into the Court by way of security for costs may be paid out by consent of the interested parties.
(6)If the action has been stayed for 6 months, the action is automatically dismissed for want of prosecution.
(7)A dismissal effected by subrule (6) takes effect at 4.30 pm on the last day of the period.
(8)Despite the dismissal of an action under this rule, the Court may, for special reasons, reinstate the action.
In particular, the defendant relies on the provisions of 194(1)(e) and says that, in the interests of justice, the Court should order that the plaintiff provide security for costs.
Was there a relevant error made by the Master
In determining whether the Master made any error that would permit the appeal court to intervene, it is necessary first to consider the grounds of appeal, which are as follows:
1. The Master erred as a matter of law (reasons [134]) in ruling that the Court:
a.Needs to resolve the ownership of the disputed gaming machine entitlements; and/or
b.Should resolve the ownership of the gaming machine entitlements as soon as practicable;
2. The Master erred as a matter of law (reasons, [137]) in ruling that in exercising his discretion to order security against an incorporated association he should be guided by prior authorities concerning the order of security against natural persons, when the Master ought to have not so limited his discretion and ought to, instead, have followed the broader approach taken to the provision of security by incorporated associations in interstate authorities (which were identified at reasons, [92] but not referred to on the question of discretion).
3. The Master’s decision miscarried because in its exercise the Master took into account irrelevant considerations (ground 1) and considered his discretion limited (ground 2) such that security must be refused if there is arguable merit in the plaintiff's case (reasons, [151]). The Master’s approach is inconsistent with the ruling, correctly made (reasons, [90]), that there is a very broad discretion to grant security (necessary in the interests of justice” given by rule 194(1) that is coextensive with the inherent jurisdiction of a superior court of record to grant security as recognised by the High Court.
As the argument developed, the main submission on appeal was that the Master acted on a wrong principle when he determined that he would treat the plaintiff as being the equivalent of an impecunious natural person. That is appeal ground number 2. The Master was satisfied that the plaintiff was impecunious. The critical aspects of his reasoning are found in paragraphs 146, 147 and 148 of the judgment:[8]
146I remind myself that the mere fact that a plaintiff is impecunious is not per se sufficient to justify the making of a security order.
147In the exercise of my discretion, and given that incorporated associations do not fall within s 1335 of the Corporations Act, I have found assistance in the approach taken by courts to the ordering of security for costs against impecunious natural plaintiffs.
148It is accepted law that impecunious natural plaintiffs are not to be denied access to the Court merely on the ground of poverty: see S E Colbran Security for Costs (1992) at p.162.
[8] Reasons for Decision of Master Blumberg delivered 12 August 2016, FDN 24.
Having determined that he would treat the plaintiff as equivalent of an impecunious natural person, his Honour then went on to consider a number of authorities which, in general terms, support the proposition that security for costs would not ordinarily, or easily, be awarded against a natural person simply on the grounds of impecuniosity.
The plaintiff is a body incorporated under the Associations Incorporation Act 1985 (“the Act”). A body incorporated under the Act becomes a body corporate.[9] The rights and liabilities of members are provided for in s 21 of the Act, which is in the following terms:
[9] Associations Incorporation Act 1985 s 20(3).
21—Rights and liabilities of members
(1)Membership of an incorporated association does not confer on a member, except as may be provided by the rules of the association, any right, title or interest in any real or personal property of the association.
(2)Except as may be provided by the rules of the association, a member of an association is not liable to contribute towards the payment of the debts and liabilities of the association or the costs, charges and expenses of a winding up of the association.
(3)Subsection (2) does not apply in respect of debts or liabilities incurred by or on behalf of the association prior to incorporation.
Whilst the plaintiff is not a corporation for the purpose of the Corporations Act 2001 (Cth), it is nonetheless a body corporate and its members are not liable for its debts and other liabilities. In my opinion, such a body is much closer to a Corporations Act corporation than it is to a natural person. I accept the submission of the appellant that the Master acted on a wrong principle in determining that the plaintiff was, for relevant purposes, the equivalent of an impecunious natural person.
In the circumstances, it is not necessary to consider the other two grounds of appeal.
Should security for costs be awarded?
I find that the Court is entitled to intervene in this matter and to exercise the discretion afresh. I accept that the matter is finely balanced and that both sides presented sound arguments to support their position.
In Martin John Green in his capacity as liquidator of Arimco Mining Pty Limited (in liquidation) v CGU Insurance Limited & Ors[10] Einstein J considered a number of the principles applicable to applications for security for costs. Relevantly, he said as follows:[11]
3.The purpose of a security for costs order is protective, so as to ensure that the primary purpose of an award of costs (that is, indemnification of the successful party: Oshlack v Richmond River Council (1998) 193 CLR 72 at 97 [67], per McHugh J and the cases therein cited) is achieved. As stated in Idoport Pty Ltd v National Australia Bank Limited [2001] NSWSC 744 at [33].
“The jurisdiction to award security for costs should thus be seen as protecting the efficacy of the exercise of the jurisdiction to award costs. The discretion should be exercised with the same rationale in mind, namely that, to the extent it can be provided, the court should not permit a situation where a party’s success is pyrrhic.”
4. In exercising the discretion to make an order for the provision of security for costs, the court seeks to achieve a balance between ensuring that adequate and fair protection is provided to the defendant, and avoiding injustice to an impecunious plaintiff by unnecessarily shutting him out or prejudicing him in the proceedings: Rosenfield Nominees Pty Ltd v Bain & Co (1988) 14 ACLR 467 at 470 (Giles J); Idoport Pty Ltd v National Australia Bank Limited [2001] NSWSC 744 at [47].
[10] (2008) 26 ACLC 323.
[11] Martin John Green in his capacity as liquidator of Arimco Mining Pty Limited (in liquidation) v CGU Insurance Limited & Ors (2008) 26 ACLC 323 at [12].
The reason why an application for security for costs against a corporation is treated differently from an application for security for costs against a natural person was explained by the Court in Harpur v Ariadne Australia Ltd in the following terms: [12]
The mischief at which the provision is aimed is obvious. An individual who conducts his business affairs by medium of a corporation without assets would otherwise be in a position to expose his opponent to a massive bill of costs without hazarding his own assets. The purpose of an order for security is to require him, if not to come out from behind the skirts of the company, at least to bring his own assets into play.
[12] [1984] 2 Qd R 523 at 532.
This is litigation being pursued by a body corporate for its commercial advantage. The gaming machine entitlements are said to be valued at approximately $500,000. The plaintiff would not be in a position to meet the costs of the defendant should it lose the trial and a costs order be made against it. If the plaintiff succeeds at trial and obtains a cost order, the defendant would be able to satisfy the costs order. The decision-makers standing behind the plaintiff, by reason of it being a body corporate, will not be liable in respect of its debts and liabilities. Therefore, in the absence of a special order, any costs order made against the plaintiff will remain unsatisfied.
In applications for security for costs there are a number of well-established principles. The relevance of particular principles will vary from matter to matter. Of particular relevance in this matter is the fact that the plaintiff does not assert that the litigation will be stultified if an order for security for costs is made. The fact that litigation may be stultified in the event of the making of an order for security for costs is a factor against the making of such an order.[13] In my opinion, the lack of a submission in respect of stultification is relevant because it suggests that, in the event that an order for security for costs is made, the plaintiff will find a way to provide such security. Therefore, the litigation will be able to continue until resolved by agreement or by a trial.
[13] Goldedge Holdings Pty Ltd v Liquor and Gambling Commissioner & Anor(No 2) [2015] SASC 81.
In the circumstances, I am satisfied that it is in the interest of justice that an order for security for costs be made. Each party should be on an equal footing so far as the recovery of costs is concerned.
The issue then becomes one of the quantum of the security to be provided. The parties agree that this will be a short trial. They expect that there will be no expert evidence and only a handful of witnesses. The primary dispute that the Court will need to resolve relates to the nature of the contractual arrangements between the parties. There is unlikely to be a significant factual dispute.
The defendant’s solicitors filed an affidavit in which they set out the quantum of the claim in respect of security for costs. The amount claimed was in the sum of $85,000. That was the mid-range of the estimate of the defendant, which suggested a range of $60,500-$105,000 as being the costs likely to be incurred. The affidavit breaks the claim for costs up into a number of categories, but then quotes a global sum for each category. It does not break the claim down in to the number of hours likely to be required to perform the work in respect of each category, nor does it disclose what hourly rate was used to calculate the gross figures. The usual costs order made by the Court is a party/party costs order based on the fees allowed in the Supreme Court Scale of Costs.
It is difficult to perform any accurate calculation in respect of the sum claimed, due to the lack of detail. Using a broad axe approach, I propose to allow the appeal and to order security for costs in the amount of $40,000 up to and including the first day of trial. I will hear the parties as to the form of the order to be made and the form of security to be provided.