Diakos v Mason - [2010] SASC 108

Supreme Court of South Australia
(Applications Under Various Acts or Rules: Application)
DIAKOS v MASON
[2010] SASC 108
Judgment of The Honourable Justice Kourakis (ex tempore)
15 April 2010
APPEAL AND NEW TRIAL - APPEAL - PRACTICE AND PROCEDURE - SOUTH AUSTRALIA - SECURITY FOR COSTS
Appellant brought unsuccessful action against respondent in District Court - appellant appealed to Full Court - respondent made application for security for costs order - appellant impecunious - impecuniosity to be given greater weight when security sought on appeal than on application at first instance - appellant's prospects of success on appeal small - risk of injustice to appellant if order for security of costs prohibitive can be assessed with greater certainty than on application at first instance - high risk that respondent will be left without costs at conclusion of appeal - order for security for costs made.

DIAKOS v MASON
[2010] SASC 108
Application: Civil

KOURAKIS J: This is an application by the respondent that I order a security for costs in the sum of $16,945.
On the appellant’s own description of his financial affairs, deposed to in an affidavit filed by him, he can properly be described as impecunious. He is the owner of a relatively large suburban shopping centre complex. However, that property is mortgaged. The mortgagee has appointed a manager. I am told that almost all of the rentals received are used to pay interest. The little that remains is applied to reduce the capital of the loan. There is real doubt as to whether a sale of the complex would recover the capital that is secured by the mortgage.
The dispute between the parties arises out of arrangements that the appellant entered into for the redevelopment of the shopping centre. In particular, after some negotiation, the appellant entered into a Deed with the respondent who was a tenant of the centre. The Deed provided for the surrender of the respondent’s existing lease and set out the terms and conditions on which the respondent would operate his business from another place before returning to take up a tenancy within the redeveloped complex.
It seems to be common ground that the respondent drove a hard bargain for that surrender. It is part of that bargain that is at the centre of this dispute. The Deed, which was drawn by the appellant’s solicitors, provided that the respondent would receive certain rent-free periods and other benefits for the surrender. Clause 4.11 of the Deed provided that the appellant would also pay the respondent the sum of $250,000 if the Coles Supermarket planned for the centre did not commence trading by 31 December 2006.
The appellant contends that cl 4.11 is a penalty clause. That contention was rejected by the trial Judge. The order of the District Court that the appellant pay that sum to the respondent is the subject of this appeal. The appellant claims that, in effect, the payment required by cl 4.11 is a penalty incurred by him for breach of a warranty, which should be implied from the terms of the Deed, that Coles would trade from 31 December 2006. Indeed, some correspondence between the appellant’s agent and the respondent shortly before the Deed was entered into so described the obligation. That letter was marked for identification but was ruled inadmissible by the trial Judge. That is one of the grounds on which the judgment is appealed. So too is the Judge’s treatment of a conversation leading up to the execution of the Deed. In that conversation, according to the appellant’s evidence, a demand was made for the payment of the sum of $250,000. The appellant says that the way in which the demand was made supports his construction of the Deed.
In my view the appellant’s prospects of success are small. The form of cl 4.11 is not that of a penalty clause; it provides simply for the payment of an amount on the happening of a certain event. I accept that, on occasions, the Court will look at the substance of the effect of an impugned clause. A clause may take the form of an obligation to pay on the happening of an event, but the effect of such a clause might be to impose a penalty for breach of an implied warranty. However, the appellant has a difficult case even if one were to accept the need to go behind cl 4.11. That is so because the context in which the clause must be construed is one in which a price has been extracted for the surrender of an existing right of occupancy. That context distinguishes this case from the authorities on which the appellant relies. There is no reason why a party to an existing lease should not seek a particular sum of money by way of compensation for the surrender of his or her right of occupancy and a higher sum if advantageous contingencies do not eventuate. So, ultimately, both in form and in context, the appellant’s prospects cannot be described as great.
There is a further difficulty with the appellant’s contention that the Deed contains an implied warranty that Coles would commence trading on the specified date. If the Deed were so construed, a delay in opening Coles for business would have given the respondent a ground on which to terminate the Deed or at least claim to be free of the obligation to take up a tenancy in the redeveloped shopping centre. By framing the clause in a way which did not amount to a warranty that Coles would commence trading by the stipulated date gave the appellant a commercial advantage in that he could count on the respondent returning as a tenant. The advantage so gained by the appellant makes it more difficult to characterise the clause as a penalty.
Equally the appellant’s contentions that the trial Judge erred in her treatment of the oral evidence of the earlier conversation and her rejection of the letter from the agent to which I have just referred face considerable difficulties. The Deed appears on its face to be complete. Its construction would not ordinarily be affected by the conversation and letter which preceded it, particularly given the fact that the Deed was drawn by the appellant’s solicitors.
The remaining ground of appeal is a contention that the trial Judge erred in failing to find that the arrangement expressed in the Deed was frustrated. The frustrating event is said to have been the collapse of part of the building work which delayed the completion of the shopping centre and, therefore, the time at which Coles commenced to trade. It appears to me, with respect, that the appellant is proceeding on a view of the principle of frustration which is far too wide. I can understand that the building work was frustrated by the collapse. I can understand that the appellant might have personally felt frustrated at the collapse. However, the appellant will find it difficult to show that the building collapse was a legally frustrating event in the context of the Deed. In fact, to the contrary, the Deed specifically contemplates the possibility of a delay and provides for the payment on the happening of that event.
Turning now to the overall merits of the application for security for costs, I proceed on the basis that impecuniosity should be given greater weight when security is sought on an appeal than it is on an application at first instance. An order for security for costs by a trial Judge may deny a plaintiff the important right to a judicial determination of his or her claim for redress of a wrong. However, the appellant has had the benefit of a judicial determination of the underlying controversy. The statutory right of a further review by way of appeal is a safeguard against error, but the fact remains that the plaintiff has had his side of the controversy judicially determined and in fact determined adversely to him. Moreover, the risk of injustice to an appellant if an order for security is prohibitive can be assessed with greater certainty on an appeal than at first instance.
For the reasons I have given, my assessment is that the prospect of the appellant succeeding is small. That means, having regard to the appellant’s impecuniosity, that there is a high risk that the respondent will be left without his costs at the conclusion of this appeal. Those circumstances support the making of an order for security of costs and I therefore make the order. It will not be in the sum sought. My order is that the appellant pay into court to the credit of this action the sum of $10,000 being security for any costs order that may be made in the appeal in favour of the respondent.