David Gurupatham v Jim Lim
[2017] VCC 948
•13 July 2017
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
Case No. CI-17-00073
| DAVID GURUPATHAM & ANOR |
| Plaintiffs |
| v |
| JIM LIM |
| Defendant |
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JUDGE: | His Honour Judge Cosgrave | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 6 July 2017 | |
DATE OF RULING: | 13 July 2017 | |
CASE MAY BE CITED AS: | David Gurupatham & Anor v Jim Lim | |
MEDIUM NEUTRAL CITATION: | [2017] VCC 948 | |
REASONS FOR RULING
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Subject:PRACTICE AND PROCEDURE – COSTS
Catchwords: Order for security costs – plaintiffs failed to pay security costs – whether the court had jurisdiction to make the orders – whether the making of a self-executing order was justified
Legislation Cited: Civil Procedure Act 2010 (Vic); Partnership Act 1958 (Vic)
Cases Cited:Anthony Hordern & Sons Ltd v Amalgamated Clothing and Allied Trades Union of Australia (1932) 47 CLR 1; Bell Corp Victoria Pty Ltd v Stephenson [2003] VSC 255; Freeman v Rabinov [1981] VR 539; Downey v Trans Waste Pty Ltd (1991) 172 CLR 167; David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265; R v Wallis; Ex parte Employers Association of Wool-Selling Brokers and HV McKay Massey Harris Pty Ltd (1949) 78 CLR 529; Sydmar Pty Ltd v Statewise Developments Pty Ltd (1987) 73 ALR 289; Todarello Consolidated Investments Pty Ltd v Finch and the Magistrates’ Court of Victoria [2007] VSC 492
Ruling:
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr J D McKay | Mills Oakley |
| For the Defendant | Mr B D Devanny | L & T Associates |
HIS HONOUR:
Summary
1 This is an application by the plaintiffs to revisit orders made by Judicial Registrar Burchell pursuant to which the plaintiffs’ claim was dismissed when the plaintiffs failed to pay an amount specified as security for the defendant’s costs of the proceeding.
2 I am satisfied that, whether by virtue of Rule 62.05 of the County Court Civil Procedure Rules 2008, or Rule 84.02 (including any extension of time if that be needed), I have the power to deal with the plaintiffs’ application.
Background
3 The parties in this case are solicitors. The plaintiffs are based in Malaysia and the defendant is a solicitor with offices in Box Hill. They entered into a written partnership agreement in July 2016. The plaintiffs paid the sum of $50,000 into the partnership bank account on 24 August 2016. The plaintiffs allege that by late September 2016 the relationship between the three partners had broken down irretrievably. By originating motion issued on 21 December 2016 the plaintiffs sought a declaration that the partnership was dissolved and an order that they recover the moneys contributed to the partnership.
4 By counterclaim dated 28 April 2017 the defendant claimed a declaration that the partnership agreement remained on foot and also claimed damages against the plaintiffs for breaches of the partnership agreement.
5 On about 19 May 2017 the defendant filed a summons seeking security for costs from the plaintiffs.
6 On 31 May 2017 at the hearing before Judicial Registrar Burchell, it was ordered that:
“1. Pursuant to Rule 62.02 of the County Court Civil Procedure Rules 2008, the plaintiffs give security for the defendant’s costs in defending their claim up to the first day of trial in the sum of $27,561.00, such security to be provided by payment of that amount into court within 14 days of the date of this order.
2. The plaintiffs’ claim is stayed until the security referred to in Order 1 is given. If the plaintiffs fail to give security as required by Order 1, the plaintiffs’ claim be dismissed.
3…
4. The plaintiffs pay the defendant’s costs of and incidental to this application on a standard basis to be taxed in default of agreement.”
7 The plaintiffs did not attend court on 31 May 2017. Nor were they represented at the hearing. This was because their previous solicitor, Peter Ng of Cornerstone Lawyers failed to advise the plaintiffs of the application and failed to arrange any representation.
8 Once Judicial Registrar Burchell made the orders on 31 May 2017, Ng failed to advise the plaintiffs of their existence. In particular, he failed to advise the plaintiffs that if they failed to give security within 14 days of the order, their claim would be dismissed.
9 On 15 June 2017 the defendant emailed the Associate to Judicial Registrar Burchell referring to Orders 1 and 2 made on 31 May 2017 in this proceeding and confirmed that he had served a copy of the orders upon Ng on 1 June 2017. He said that he had spoken to someone in Listings at the County Court and that he was advised that the plaintiffs had not paid security into court and he was not sure whether Order 2 took effect automatically. The defendant queried whether he needed to take any further action to dismiss the plaintiffs’ claim. He asked for guidance on whether he needed to do anything more.
10 Later the same day the Associate responded by email attaching orders made on the papers that day by Judicial Registrar Burchell and advising that because the matter was dismissed, the defendant was not required to take any further action. The orders forwarded by the Associate dated 15 June 2017 were in the following terms:
“Orders made of court’s own motion, requested by correspondence received from defendant via email on 15 June 2017, pursuant to the self-executing order of Judicial Registrar Burchell made on 31 May 2017.
1. Pursuant to paragraph 2 of the orders of Judicial Registrar Burchell made on 31 May 2017, the plaintiffs’ statement of claim is dismissed.
2. The plaintiffs pay the defendant’s costs of the proceeding.”
11 The plaintiffs did not know about the hearing on 31 May 2017 or the orders made on 15 June 2017 until after their proceeding was dismissed. On 16 June 2017 the plaintiffs engaged its present solicitors to act on their behalf in place of Ng.
12 The plaintiffs seek to have the orders made by Judicial Registrar Burchell on 31 May 2017 and 15 June 2017 set aside or vacated and the plaintiffs’ claim reinstated. The defendant opposes the application. The defendant says that there was a broad ranging discussion of the relevant issues in the hearing before Judicial Registrar Burchell on 31 May 2017 and there is no proper basis to set aside those orders. To the extent that the plaintiffs seek to review the orders under Rule 84.02, the defendant says that the application is made out of time and is, therefore, not properly made. While the point as to timing may be correct, in this case, I am prepared to extend the time for initiating the review to the extent that it is or might be required.
Plaintiffs’ submissions
13 The plaintiffs contended that the orders made should be set aside for a number of reasons.
14 First, the plaintiffs argued that the court lacked jurisdiction to make the orders because the applicable court rules required there to be a second considered exercise of the court’s powers before the proceeding could be dismissed for the plaintiffs’ failure to provide security. In making this submission, the plaintiffs relied upon the decision of Todarello Consolidated Investments Pty Ltd v Finch and the Magistrates’ Court of Victoria.[1] There, Todarello sought damages against Finch for professional negligence and negligent misstatement in relation to legal services which Finch provided as solicitor to Todarello. Finch applied for security for costs under Rule 31.02 of the Magistrates’ Court General Civil Procedure Rules 2010 (which is the equivalent rule to Rule 62.02 of the County Court Civil Procedure Rules 2008 (Vic).) Finch relied upon material showing that the plaintiff had capital of $2 and had no property or other known assets in Victoria and, therefore, might not be able to meet an order for costs if it were unsuccessful in the litigation. Finch sought $15,000 by way of security.
[1][2007] VSC 492
15 The Magistrate made the following orders:
“1…
2. On or before 14 May 2007 the plaintiff give security for the defendant (sic) costs is given (sic) the sum of $10,000.00 by way of filing and serving an irrevocable bank guarantee pursuant to rule 31.07.
3. The proceeding as against the defendant be stayed untill (sic) security for costs is given in accordance with order 2 above.
4. If the plaintiff fails to give security for costs in accordance with order 2 herein, the proceedings stand dismissed pursuant to rule 31.04.”
16 The plaintiff failed to provide security by the specified date. On 16 May 2007 the defendant’s solicitors filed an application for an order that the plaintiff pay the defendant’s costs of the proceeding following its failure to provide security for costs and the assumed dismissal of the claim. On 20 June 2007 the Magistrate made a formal order dismissing the plaintiff’s complaint “pursuant to self-executing order of 24/4/07”.
17 On the order to review in the Supreme Court, Todarello argued that rule 31.02 of the Magistrate Court Rules required the exercise of a fresh discretion by the court upon the plaintiff’s failure to pay the security. It was said that this must happen before the proceeding could be dismissed. On this reasoning, it was jurisdictionally flawed to make the self-executing order at the same time as the original order for security. Lasry J accepted Todarello’s argument and agreed that the Rules contemplated a two-step process. His Honour said that:[2]
“…the use of the word ‘may’ in Rule 31.04 surely means that there is a discretion to be exercised as a second stage of the process. There has been non-compliance and the action remains stayed. The question the magistrate must then consider is whether the action should be brought to an end by being dismissed. Thus, in this case a self-executing order was made in circumstances where, under the Rules, the authority for making such orders does not contemplate such a process.”
[2][2007] VSC 492 at [37]
18 In reaching this conclusion, Lasry J held that Rule 25.07(1) of the Magistrates’ Court Rules (being the equivalent of Rule 24.05 of the County Court Civil Procedure Rules) did not affect the outcome and could not override the specific provisions of Rule 31. Rule 25.07 empowered the magistrate to dismiss a proceeding if a plaintiff failed to comply with an order made under the Rules. The judge held that the general power in Rule 25.07(1) could not override the specific Rule 31.04. This is consistent with longstanding authority to the effect that where the legislature explicitly gives a power by a particular provision prescribing the manner in which it shall be exercised and the conditions or restrictions must be observed, it excludes the operation of general expressions in the same instrument which might otherwise have been relied upon.[3]
[3]Anthony Hordern & Sons Ltd v Amalgamated Clothing and Allied Trades Union of Australia (1932) 47 CLR 1, 7; R v Wallis; Ex parte Employers Association of Wool-Selling Brokers and HV McKay Massey Harris Pty Ltd (1949) 78 CLR 529, 550; Downey v Trans Waste Pty Ltd (1991) 172 CLR 167, 171-2, 180-2; David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265, 276.
19 In the present case, it was clear, not only from the terms of the order made on 15 June 2017 but from the facts revealed in the affidavit material, that there was no fresh exercise of the court’s discretion. Judicial Registrar Burchell considered that, by reason of the orders made on 31 May 2017 and the plaintiffs’ subsequent failure to make payment by the specified date, the proceeding had come to an end. The order of 15 June 2017 was no more than a confirmation of this fact – hence, the reference in the later order to the self-executing order made on 31 May.
20 In the circumstances, I am satisfied that the court ought not to have made the self-executing order which it did and such order should be set aside.
21 Secondly, the plaintiffs argued that the order should not have been made because the usual circumstances which would justify its making were not established on the evidence. In Freeman v Rabinov [1981] VR 539 at 544, the Full Court of the Victorian Supreme Court held that the making of self-executing orders was appropriate in cases of:
· contumacious behaviour;
· persistent non-compliance with orders or dilatory conduct;
· where it can be inferred that the party will not, or is unlikely to, comply with the order.
In this case, it is clear from the evidence that the plaintiffs’ behaviour does not fall within any of the above categories. To that extent, the making of the order was not justified. As noted by Ashley J in Bell Corp Victoria Pty Ltd v Stephenson [2003] VSC 255 at [51], “the remedy should be of last resort and not first resort”.
22 Thirdly, at the hearing on 31 May 2017, counsel for the defendant submitted orders in the usual form when the court decided to grant security. The orders submitted by the defendant did not include a self-executing order. Such an order was not sought by the defendant or the subject of any argument by the parties. Thus, the order was made without any notice to the plaintiffs and they had no opportunity to make submissions or otherwise be heard regarding the appropriateness of the court making such an order.
23 In my view, to make such an order and potentially affect the plaintiffs’ rights in this significant manner without a hearing constituted a breach of the rules of natural justice which this court should not condone or approve.
24 Fourthly, the defendant obtained the order for security on the basis of an affidavit in which he swore, in effect, that the plaintiffs had no assets within this jurisdiction which would be sufficient to meet any adverse order for costs. The absence of assets and the consequential inability of the defendant to obtain payment for his costs of the litigation in the event that he succeeded was the reason the order for security was granted. Although the second plaintiff and his wife did not become registered proprietors of the property at Unit 705, 5 Elgar Court, Doncaster until a couple of days after the hearing before Judicial Registrar Burchell, the defendant was aware at the time of the hearing that the second plaintiff had acquired that property. This was apparent from correspondence which passed between the parties in 2016.
25 The second plaintiff and his wife had purchased the Elgar Court property on 25 February 2015 for $397,500. In about June 2016 the second plaintiff sought assistance from the defendant in appointing a real estate agent to sell the property for him. The defendant therefore was well aware of the second plaintiff’s ownership of the property. Notwithstanding this, in his affidavit sworn in May 2017, the defendant said that he believed the plaintiffs would not be in a position to meet an order to pay the defendant’s costs of these proceedings.
26 The defendant’s affidavit material did not reveal that, before swearing the affidavit, the defendant undertook any search or check about whether the second plaintiff still owned the property. Nor was there any explanation as to why the defendant made the assertion about the plaintiffs’ financial position without undertaking a check.
27 The affidavit material indicates the existence of a kerbside market appraisal of the Elgar Court property at $375,000-$410,000 as at 5 July 2017. The current indebtedness secured against the property is approximately $183,000. On these figures, the second plaintiff has sufficient equity in the property to meet any order for costs, especially where the amount ordered was in the vicinity of $28,000. In seeking to set aside the orders of Judicial Registrar Burchell, the plaintiffs have proffered an undertaking not to dispose of, encumber or otherwise deal with the property without giving the defendant at least 60 days’ notice in writing.
28 Given the equity in the Elgar Court property I agree that the plaintiffs have sufficient assets in the jurisdiction to meet any order for costs. Further, as a matter of discretion, I am troubled by the defendant’s failure to disclose to the court on what was, in practical terms, an ex parte application, his knowledge of the second plaintiff’s ownership of the Elgar Court property and the unexplained failure to check whether that ownership persisted. Such significant omissions might fairly be construed as sharp practice designed to mislead the court. No party should engage in this practice, especially a solicitor who is an officer of the court and subject to the special obligations associated with that position.
29 All litigants have certain obligations to the court under the Civil Procedure Act 2010 (Vic) (“the Civil Procedure Act”). In my opinion, the performance of these obligations is even more important when the litigant is an officer of the court. The defendant’s behaviour was extremely disappointing.
30 Fifthly, when considering the application, the court did not have proper regard to the fact that the defendant’s counterclaim would cover the same general territory as the plaintiffs’ claim. To the extent that the counterclaim did not merely join issue with the plaintiffs’ claim, it contained a claim for damages where the defendant is effectively acting as the plaintiff. Where a defendant raises a cross-claim and substantially the same facts are likely to be canvassed in determining the claim and cross-claim, the court will ordinarily not require the plaintiff to provide security: Sydmar Pty Ltd v Statewise Developments Pty Ltd (1987) 73 ALR 289, 300.
31 The plaintiffs contend that the partnership ought be dissolved under the Partnership Act 1958 (Vic) (“Partnership Act”) because the parties lack the requisite trust and confidence to continue the partnership. It is not necessary in obtaining a declaration to this effect to establish that the defendant is responsible for the breakdown of the relationship. Also, the plaintiffs say that, in circumstances where the partnership agreement did not nominate a specific duration for the partnership, they are entitled to give a notice of dissolution at any time under the Partnership Act.
32 The defendant contends that the partnership agreement is still on foot and hence, no declaration should be given that it has terminated. The defendant contends that the plaintiffs’ claim regarding termination or dissolution is misconceived. To that extent, the claim and counterclaim cover the same factual territory.
33 In addition, the defendant claims damages against the plaintiffs for breach of the partnership agreement. This was said to occur by the plaintiffs diverting to themselves work which ought to have been performed by the partnership. This element of the case is likely to require extensive discovery as the defendant will need to prove which clients and/or which matters were improperly diverted from the Australian partnership to the benefit of the plaintiffs alone.
34 Accordingly, while both parties raise the issue of the dissolution or termination of partnership, the defendant’s damages claim is pursued purely for the benefit of the defendant. Hence, in an overall sense the plaintiffs have the narrower claim and ought not be the subject of an order for security.
35 More generally, the defendant sought orders that the plaintiffs provide security for the defendant’s costs in the sum of $27,561, failing which the plaintiffs’ claim be stayed. The defendant’s approach was, in my view, totally unrealistic and appeared to ignore the unusual events in relation to the breakdown of Ng’s health and the consequent failure of the plaintiffs to contest the hearing before Judicial Registrar Burchell. I consider that, in the circumstances set out in the affidavit material, justice demanded that the question of the plaintiff providing security be revisited and the plaintiffs have the opportunity to argue the matter. The defendant’s opposition on the point was ill judged and reflected his unsatisfactory attitude to this litigation.
Conclusion
36 In my opinion, for the reasons given, the orders made by Judicial Registrar Burchell should be set aside and no order for security for costs should be made. The matter should simply proceed to trial. I will hear the parties on the final form of order.
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