Distilleria Pty Ltd v De Bourbel Pty Ltd
[2022] SASC 21
•9 March 2022
SUPREME COURT OF SOUTH AUSTRALIA
(Appeal to a Single Judge)
DISTILLERIA PTY LTD & ANOR v DE BOURBEL PTY LTD
[2022] SASC 21
Judgment of the Honourable Justice Nicholson
9 March 2022
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - SECURITY FOR COSTS - APPEAL OR REVIEW
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - SECURITY FOR COSTS - FACTORS RELEVANT TO EXERCISE OF DISCRETION
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - SECURITY FOR COSTS - FACTORS RELEVANT TO EXERCISE OF DISCRETION - PROSPECTS OF SUCCESS
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - SECURITY FOR COSTS - FACTORS RELEVANT TO EXERCISE OF DISCRETION - STIFLING OF LITIGATION
Appeal against dismissal of application for security for costs.
On 15 October 2020, the first applicant, Distilleria Pty Ltd, filed an interlocutory application for an order that the respondent, De Bourbel Pty Ltd, provide security for costs. The Master dismissed the application, finding that the order would stultify the litigation, that one of the claims, the distraint claim, appeared very strong and that another claim, the director’s duties breach claim, should be investigated and explored by litigation in the court.
On appeal, the applicants complained that the Master had: erred in both forming a view and as to the view he formed about the strength of De Bourbel’s case on the distraint issue and its case for breach of director’s duties (grounds 1, 3 and 5); failed to provide adequate reasons (grounds 2 and 4); and erred in the weight he gave various considerations (grounds 6 to 8). The respondent contended that it was open to the Master to find that the distraint claim was strong and that there was a triable issue with respect to the director’s duties claim, that the Master’s reasons are adequate when considered as a whole, and that the Master correctly addressed the remaining considerations.
Held:
1. Appeal dismissed.
Uniform Civil Rules 2020 (SA) r 213.1, r 213.2; Retail and Commercial Leases Act 1995 (SA), referred to.
House v The King (1936) 55 CLR 499; Lichaa v Boutros [2021] NSWCA 322, considered.
DISTILLERIA PTY LTD & ANOR v DE BOURBEL PTY LTD
[2022] SASC 21
Single Judge Appeal: Civil
Introduction
On 15 October 2020, the first appellant, Distilleria Pty Ltd (Distilleria), filed an interlocutory application for orders that the respondent, De Bourbel Pty Ltd (De Bourbel), provide security for costs and that the proceedings be stayed if De Bourbel fails to do so. On 24 September 2021, a Master of this Court dismissed the application.[1] Distilleria appeals against that dismissal.
[1] In the Matter of De Bourbel Pty Ltd (in liq) (Supreme Court of South Australia, Judge Dart, 24 September 2021) (Master’s reasons).
Background
De Bourbel operated a business in Victor Harbor, under the name Rochfort Distillery, that produced both whiskey and gin. Distilleria owns the land on which De Bourbel operated, which included a distillery, restaurant, function space and cellar door. Giuliano Ursini, the second appellant, is the sole director of Distilleria and is one of the three directors of De Bourbel, the other two being members of the Rochfort family.
The arrangement between De Bourbel and Distilleria to work together was oral or, perhaps, partly written and partly oral. There is no executed document identifying the agreement or the legal nature of the agreement pursuant to which De Bourbel operated on Distilleria’s land. De Bourbel argues that it had a licence to occupy while Distilleria contends that the arrangement comprised a lease.
The specifics of De Bourbel’s obligation to pay rent or a licence fee are also disputed. De Bourbel contends there was no obligation to pay anything until it began to make a profit and was in a position to afford to pay for its occupation. Distilleria submits that it granted De Bourbel an indulgence with respect to the rent, the specifics of which it has described as “complex”[2] but the expectation was that rent would start being paid within a month or two of occupation. Other aspects of the relationship, including who owns the plant and equipment in the distillery, are also contested.
[2] Distilleria written submissions dated 12 January 2022 (FDN 5) at [53].
De Bourbel commenced occupying Distilleria’s Victor Harbor premises in 2018.[3] No invoices were sent to De Bourbel until 27 February 2020, when Distilleria sent De Bourbel 16 invoices totalling $289,782.46 for the entire period of occupation. The invoices stated that they were due and payable within seven days.
[3] Master’s reasons at [7] record April 2018; Distilleria written submissions at [21] records October 2018.
On 25 March 2020, Distilleria purported to distrain De Bourbel’s goods on the Victor Harbor land and to terminate the lease.
On 27 March 2020, by a unanimous vote of all three directors, De Bourbel entered into voluntary liquidation. Distilleria maintains that it is the principal creditor being owed approximately $2 million which is unsecured.
On 19 June 2020, De Bourbel commenced proceedings in this Court against Distilleria seeking a number of orders. On 29 July 2021, De Bourbel filed an amended (revision 2) statement of claim (FDN 49). De Bourbel’s claims include:
(i)relief from unlawful distraint of goods and damages;
(ii)declaratory relief with respect to its purported ownership of plant and equipment;
(iii)damages for breach of director’s duties owed by Mr Urisni; and
(iv)declaratory relief with respect to certain barrels and contents alleged to be privately owned by third parties.
Of particular significance, for present purposes, are De Bourbel’s claims for a declaration that Distilleria’s distraint was unlawful, a declaration that the distrained goods belong to De Bourbel, and an order for damages for Mr Ursini’s breach of director’s duties. There are three other proceedings before the Supreme Court between the parties that arise out of the distillery dispute.[4]
[4] De Bourbel written submissions dated 12 January 2022 (FDN 7) at [5].
Distilleria’s interlocutory application for security for costs is brought on the bases: that De Bourbel would be unable to pay Distilleria’s costs if it were to succeed in defending the proceedings; that all claims brought by De Bourbel are company claims and not statutory claims; that there is no evidence that the liquidator had attempted to obtain funding for the litigation from creditors or any available insurance; and that De Bourbel’s claims lack merit.
De Bourbel argues that the order should not be granted because the proceedings were brought defensively with respect to Distilleria’s purported exercise of the self-help distraint remedy. Further, Mr Ursini is the cause of De Bourbel’s impecuniosity and an order for security would be oppressive and would stifle the litigation.
The Master’s reasons
The Master dismissed the application. His Honour observed that “It is not generally useful to try to determine the strength of the respective cases in the exercise of the discretion in relation to security for costs”.[5] However, his Honour went on to say that “In this case, I am not sure that that is the appropriate approach” because distraint requires a lease and “generally speaking, the creation of an interest in land should be in writing”.[6] His Honour expressed the view that “the claim in relation to the distraint appears very strong”.[7]
[5] Master’s reasons at [24].
[6] Master’s reasons at [25].
[7] Master’s reasons at [25].
His Honour found that it was unlikely that the remaining unsecured creditors would want to fund the litigation[8] and accepted that the litigation would be stultified if the order were to be granted.[9] These findings are not seriously challenged by Distilleria, if at all.
[8] Master’s reasons at [27].
[9] Master’s reasons at [29].
The Master found the matter to be finely balanced[10] but, ultimately, dismissed the application. His Honour explained as follows.[11]
In the result, I have decided it is not appropriate to award security. The main reason is that, on the facts presently before the court, it appears that [Mr Ursini], whilst a director of [De Bourbel], engineered an arrangement to protect his financial position and that of [Distilleria] to the detriment of [De Bourbel] and its other creditors. This is a matter that should properly be investigated and explored by litigation in the court.
I infer from this that the Master placed significant weight, in favour of De Bourbel, on the fact that an order for security would almost certainly stifle the litigation.
[10] Master’s reasons at [30].
[11] Master’s reasons at [31].
Grounds of appeal
Distilleria raised a substantial number of grounds on appeal:
1.Having observed (correctly) that it is not generally useful to try and determine the strength of the respective cases in the exercise of the discretion in relation to security for costs (paragraph 24 of the Decision (D) delivered 24 September 2021), the learned Master erred in finding (D p25) that the claim in relation to the distraint appears very strong, overlooking (and which ought to have been found):
1.1. That the company, DeBourbel Pty Ltd (the Company, or DeBourbel), occupied the land (and in respect of which s6(b) of the Retail and Commercial Leases Act 1995 (the Act) provides that a retail shop lease is taken to have been entered into when a person enters into possession of the retail shop as lessee under the lease), agreed to pay rent, negotiated the terms of a lease, operated a business and had exclusive possession of premises it occupied.
2. Further to proceeding appeal ground 1, the learned Master failed to describe the evidence and material on which he based the finding at D p25.
3. The learned Master erred in finding (D p5) that if the Act has application, then there has been a complete lack of compliance by the landlord with its obligation, the only suggestion of non-compliance by the landlord being the failure to provide a Form 1 - disclosure statement under s12 of the Act.
4. Further to proceeding appeal ground 3, the learned Master failed to describe the evidence or material on which he based the finding at D p5.
5. The learned Master erred in finding (D p31) that the main reason for refusing to make provision for security for costs was that the Second Respondent, whilst a director of the applicant, engineered an arrangement to protect his financial position and that of the First Respondent to the detriment of the Applicant and the other creditors inferring (but not finding) some wrong doing by the Second Respondent and perhaps the First Respondent whereas (and which ought to have been found):
5.1. The Company was making minimal sales;
5.2. The Company had become or was about to become insolvent;
5.3. The Company was unable to pay rent to the landlord and there was no prospect it could without ongoing financial support from the Second Respondent;
5.4. The directors of the Company resolved unanimously that the Company be placed into liquidation;
5.5. The landlord was entitled to protect its financial position and including regarding unpaid rent which was unpaid for the whole period of De Bourbel’s occupation of the land;
5.6. The Second Respondent was entitled to protect his financial position materially being his investment in the Company and to avoid insolvent trading by the Company.
6. The learned Master erred by failing to have sufficient regard to the inevitability that the Respondents would not recover any of their costs in the action from a company in liquidation without any assets if the Company’s claim be dismissed.
7. The learned Master erred by giving attention to the distraint claim made by the Applicant and mostly overlooking the following additional claims made by the Applicant:
7.1. In respect of plant and equipment;
7.2. Breach of directors duties;
7.3. In respect of private barrel owner barrels;
(the Additional Claims);
and not addressing the merits of the Additional Claims.
8. The learned Master erred by having either no or insufficient regard to there being neither creditor funding nor litigation funding nor adverse cost insurance for the claim brought by a company in liquidation.
Distilleria’s complaints can be distilled to the following:
(i)The Master erred in both forming a view and as to the view he formed about the strength of De Bourbel’s case on the distraint issue and its case against Mr Ursini for breach of director’s duties (appeal grounds 1, 3 and 5).
(ii)The Master failed to provide adequate reasons (appeal grounds 2 and 4).
(iii)The Master erred in the weight he gave various considerations (appeal grounds 6 to 8).
Legal principles: discretionary decisions
The necessary approach to an appeal regarding a discretionary decision is as set out in House v The King.[12]
The manner in which an appeal against an exercise of discretion should be determined is governed by established principles. It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in the exercise of the discretion. If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed, and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so.
[12] (1936) 55 CLR 499 at 504-505.
Legal principles: applications for security for costs where a company is the applicant
The Master’s summary of the relevant principles has not been disputed by either party. It is sufficient for present purposes and I repeat his Honour’s summary.[13]
[13] Master’s reasons at [17]-[21].
There have been provisions, in company legislation, providing for security for costs since the 19th century. The mere fact that there is a power to award security does not predispose the Court to act one way or the other. In John Arnold’s Surf Shop Pty Ltd (In Liq) v Heller Factors Pty Ltd & Anor[14] our Full Court was dealing with the relevant provision of the Companies Act 1962-1974. It was in very similar terms to the current provision. Mitchell J said:
[14] (1979) 22 SASR 20.
I am of the opinion that to approach s. 363 with a pre-disposition to make an order for security for costs would be to fetter the discretion which the legislation has left unfettered. It would be, as it seems to me, equally wrong to exercise the discretion in favour of making an order merely because the section enables such an order to be made as it would be to refuse an order merely because the company is impecunious.[15]
The comments of Mitchell J have been widely approved and referred to including in Ariss & Anor v Express Interiors Pty Ltd (In Liq),[16] a decision of the Court of Appeal of the Supreme Court of Victoria relied upon by the respondents. The case is relied upon by the respondents as an example of an order for security for costs being made against a company in liquidation, notwithstanding a claim of stultification. The principal judgment was written by Phillips JA.
In Ariss Phillips JA noted a proposition put by Megarry VC in Pearson v Naydler.[17] He said:
It seems plain enough that the inability of the plaintiff company to pay the defendant’s costs is a matter which not only opens the jurisdiction but also provides a substantial factor in the decision whether to exercise it. It is inherent in the whole concept of the section that the court is to have power to order the company to do what it is likely to find difficult in doing, namely, to provide security for the costs which ex hypothesi it is likely to be unable to pay. At the same time, the court must not allow the section to be used as an instrument of oppression, as by shutting out a small company from making a genuine claim against a large company.
I note two things about the Ariss case. The first is that it was stated in the judgment that if the litigation was successful, unsecured creditors were likely to recover their debts in full. That is an unusual factual situation. The second is that the Court only allowed security at about 25% of the amount sought.
There are an almost unlimited number of cases dealing with security for costs in relation to companies in liquidation. Those cases span a wide range of factual scenarios. It appears almost inevitable, in an argument for security for costs, that an authority can be found to support the position advanced by a party. In the end, the Court is dealing with an unfettered discretion and has to make an order balancing the interests of both parties and in the interests of justice.
[15] Supra at 34.
[16] [1996] 2 VR 507.
[17] [1977] 1 WLR 899 at 906.
Leave to appeal
The notice of appeal was filed pursuant to rules 213.1 and 213.2 of the Uniform Civil Rules 2020 (SA). Leave to appeal to a single Judge from such an interlocutory decision is required. The issue of leave can be considered and determined in conjunction with the appeal.
Consideration of the points of contention
The strength of the case and its relevance: distraint
Distilleria argues that his Honour was correct to state that “It is not generally useful to try to determine the strength of the respective cases in the exercise of the discretion in relation to security for costs”[18] and therefore erred when subsequently finding that De Bourbel’s claim in relation to the distraint appeared very strong and was a significant factor in favour of dismissing the application.[19]
[18] Master’s reasons at [24].
[19] Distilleria written submissions at [42]-[43], transcript on appeal (T) T7-8, 13.
Distilleria concedes that the distraint ground is a triable issue.[20] However, it submits that De Bourbel’s claim to set the distraint aside is not at all strong.[21] De Bourbel argues that it was open to the Master to find that the distraint claim is strong.[22] The parties made a number of submissions as to the strength or otherwise of the distraint claim, in particular in relation to whether the Retail and Commercial Leases Act 1995 (SA) (the Act) applied and, if so, what might follow on the facts of this case.
[20] T7.
[21] Distilleria written submissions at [46].
[22] De Bourbel written submissions at [26].
Distilleria contends that the parties entered into a lease and that the Act applied because the cellar door component of the distillery qualified as a retail shop.[23] De Bourbel contends that there was no lease agreed to. It also submits that Distilleria did not raise the applicability of the Act before the Master and should not be permitted to raise it on appeal.[24] In the alternative, according to De Bourbel, the Act did not apply and if it did apply, Distilleria did not comply with its requirements; hence it is not entitled to its protections.[25]
[23] T12-13 and Distilleria written submissions at [48]-[52].
[24] De Bourbel written submissions at [13], [15].
[25] De Bourbel written submissions at [21].
It is not the case that it can never be appropriate for a judicial officer hearing a security for costs application to form a view as to the strength of a plaintiff’s claim. However, in the circumstances of the present matter, in particular the nature of the pleadings and the affidavit evidence presently available, forming such a view has its challenges. The finding that this aspect of De Bourbel’s claim is strong was unnecessary. In the context of a security for costs application, such a “finding” adds little, if anything, to a finding that the plaintiff has raised in its pleadings a triable issue which has been conceded by Distilleria.
Nevertheless, I am satisfied that it was open to the Master to make the finding. De Bourbel in its written submissions puts four bases for such a finding. The first and primary one is that there was no lease, only a licence to occupy, and that, as a matter of law, the self-help remedy of distraint is not available against a licence to occupy. There is some evidence that draft or proposed lease documents were prepared. However, no written lease was executed. Distilleria submits, as one of its alternative contentions, that an equitable lease is the proper analysis. However, it is not necessary, nor would it be profitable given the limited state of the affidavit evidence, to explore Distilleria’s or De Bourbel’s other three contentions. They are properly matters for trial. The lack of a written lease alone, although not necessarily conclusive, does add strength to De Bourbel’s contention that an entitlement to distrain will not be made out.
The strength of the case and its relevance: Mr Ursini’s conduct
Distilleria submits that the Master was wrong to find that the application should be dismissed because of Mr Ursini’s conduct, arguing that his conduct was justified and reasonable.[26] Distilleria contends that Mr Ursini was justified in putting De Bourbel into liquidation; the company was not profitable and it had a substantial rent debt.[27]
[26] Distilleria written submissions at [56].
[27] Distilleria written submissions at [56], T64.
Distilleria also objects to the Master’s characterisation of Mr Ursini’s conduct as “a matter that should properly be investigated and explored by litigation in the court”,[28] and submits that the authorities do not support that as a factor to be weighed in determining whether security should be granted.[29]
[28] Master’s reasons at [31].
[29] T63.
De Bourbel contends that there was sufficient evidence before the Master to conclude that Mr Ursini had a conflict of interest and that his actions on behalf of, or in respect of, Distilleria were a breach of his duty to De Bourbel.[30]
[30] De Bourbel written submissions at [37]-[42].
The Master’s statement of the “main reason” for dismissing the application, set out earlier at paragraph [14], is concise. However, it represents a conclusion supported by the affidavit evidence (at least to the extent of a triable issue) as to the conduct of Mr Ursini as director of Distilleria, in having rent invoices issued, having a notice to remedy default issued and arranging for Distilleria to execute the distraint. In these circumstances, voluntary liquidation became inevitable. Whether Mr Ursini’s conduct caused or substantially contributed to this is a triable issue, as is the question of whether, in so behaving, Mr Ursini had a conflict of interest with respect to and/or breached his director’s duties owed to De Bourbel. Whether or not the finding that these are matters that should properly be investigated can be, of itself, a factor to be weighed in the exercise of the security for costs discretion, they are matters that inform the question of whether De Bourbel has a genuine, triable claim against the second respondent from which it is at risk of being shut out. The Master was saying no more than that, De Bourbel’s claim here is a genuine one that, ordinarily, should not be allowed to be stultified; it was an interests of justice point.
Insufficient reasons
Distilleria argues that the Master committed a process error because he did not identify the evidence he relied on in reaching the conclusions that the distraint claim is strong and that Mr Ursini’s conduct should be investigated.[31] Distilleria contends that it is not enough that the issues were raised before the Master during the hearing.[32]
[31] Distilleria written submissions at [45], [55], T15, 21.
[32] T22.
De Bourbel concedes that a lack of reasons can amount to a process error.[33] However, it contends that with respect to the distraint, the Master’s reasons when considered as a whole adequately explain the basis upon which his Honour exercised the discretion.[34]
[33] T38.
[34] De Bourbel written submissions at [27], [47]-[50].
De Bourbel further contends that just because a matter is not referred to in the reasons does not necessarily mean it was not considered;[35] reasons must perform their function, but they do not have to be perfect. This can particularly be so where a court, such as the Master’s court in this case, regularly deals with a large number of relatively routine interlocutory matters including those seeking security for costs.
[35] T38 and see Lichaa v Boutros [2021] NSWCA 322 at [47].
The parties’ respective contentions concerning the strength of the distraint claim and the relevance of Mr Ursini’s alleged conduct were ventilated at length before the Master. The factors relevant to the discretion to order security were well understood by both experienced counsel and the experienced Master at the hearing. In the circumstances of this matter, it was not necessary for the Master to set out (laboriously) all of the evidence and arguments taken into account in arriving at these two conclusions.
The Master, in his Honour’s reasons, set out the legal principles applicable to an application of the nature brought[36] which are not under challenge. His Honour then observed that the court had an unfettered discretion, albeit one that had to balance the interests of both parties and be in the interests of justice.[37] His Honour then set out the principal contentions of the parties[38] before observing that the matter was “finely balanced”.[39] His Honour’s “main reason” set out earlier at [14] is to be understood as not the only relevant factor or even the main factor considered in isolation, but rather the factor that tipped the otherwise evenly balanced case so as ultimately to favour rejecting Distilleria’s application.
[36] Master’s reasons at [15]-[21].
[37] Even an “unfettered” discretion must be exercised judicially and in accordance with House v The King (1936) 55 CLR 499 principles.
[38] Master’s reasons at [22]-[27] and [28]-[29].
[39] Master’s reasons at [30].
I am satisfied that, whilst concise, the Master’s reasons were adequate. It was made clear to Distilleria and to an appeal court why Distilleria failed and what findings and discretionary considerations it could or needed to challenge on appeal.
Consideration of the other grounds
Distilleria contends that the Master gave substantial consideration only to the distraint claim when weighing the merits of De Bourbel’s case, and did not give consideration to De Bourbel’s additional claims, which form a substantial part of its pleading.[40] Distilleria contends that the other pleaded claims are either weak or baseless and thus should have affected the overall balance with respect to the strength of De Bourbel’s case.[41] Distilleria also submits that the additional claims are not sufficiently connected to the distraint issue so as to infer that, in considering the distraint, the Master must have impliedly considered the rest.[42]
[40] Distilleria written submissions at [57]-[58], T17, 22-23.
[41] Distilleria written submissions at [59]-[60].
[42] T23-24, 26.
De Bourbel submits that his Honour must have considered the additional claims because they are inseparable from the distraint claim and because the Master said that the director’s duties issue was the “main” reason, not the only reason.[43] Further, the Master’s observations with respect to Mr Ursini’s alleged conduct showed that he did consider the merits of the director’s duties breach argument.[44]
[43] Master’s reasons at [31], De Bourbel written submissions at [48]-[49].
[44] De Bourbel written submissions at [50].
It is difficult to see what should follow from Distilleria’s complaint here. The additional claims, whether or not intrinsically connected with the distraint claim, would appear to be a relatively small aspect of De Bourbel’s overall claim. The distraint issue and the director’s duties issue will occupy most of the trial time and give rise to a large proportion of costs to be incurred. Having decided that the distraint and the director’s duties claims and the risk of stifling those claims were of such moment as to warrant dismissal of the application, there was no call for the Master to consider at length the additional, more minor (in terms of the time and cost) claims. Further, I accept De Bourbel’s submission that on the affidavit evidence presently available, De Bourbel’s claim pertaining to its ownership of certain of the plant and equipment may well need to be considered and dealt with in the context of the distraint claim. In issue between the parties is the question of the true owner of the assets purportedly distrained. Further, the fundamental issue that divides the parties and which is likely to dominate the litigation is the question of the legal basis on which De Bourbel occupied the property. This has given rise to a number of sub-issues of fact and law, all of which will need to be considered and determined as part of the wrongful distraint claim.
As far as the breach of director’s duties claim is concerned, I am satisfied that the Master did give consideration to the merits of that claim at a level sufficient in the context of a security for costs application.[45]
[45] Master’s reasons at [7]-[9], [12] and [31].
Lack of alternate funding
Distilleria submits that the Master failed to address and consider the fact that De Bourbel has not attempted to obtain funding from creditors or litigation funding assistance/insurance and the real possibility that such funding could not be obtained “because the claims were so maverick”.[46]
[46] Distilleria written submissions at [61], T4.
De Bourbel contends that because Distilleria is by far the most substantial creditor, it made no sense to require De Bourbel to ask its creditors for litigation funding.[47] Further, in the hearing, the Master noted that the litigation was too small for a commercial funder.[48] De Bourbel also contends that it is not a requirement for it to obtain funding so as to preclude the Master from exercising his discretion, hence there was no appealable error.[49]
[47] De Bourbel written submissions at [54]-[55].
[48] De Bourbel written submissions at [56].
[49] De Bourbel written submissions at [57].
The Master did consider the issue of available funding, albeit concisely.[50] However, again, it is difficult to see where this criticism goes. It was never in issue that De Bourbel would be unable to fund the litigation through external support nor meet costs incurred by Distilleria from De Bourbel’s own resources. Hence the accepted position that an order for security most likely would stultify the litigation. The Master was aware of and referred to this. It was a factor which he took into account when exercising the discretion.[51]
[50] Master’s reasons at [27].
[51] Master’s reasons at [27], [28](3), [29] and [30].
Furthermore, it was not necessary for the Master to address the possibility that external funding would not be forthcoming “because the claims were so maverick”. It was common ground that external funding was not or was most unlikely to be available. Whether or not that was because potential external funders would hold the view that the claims were “maverick” was irrelevant. It was the Master’s task to assess this matter based on the evidence before his Honour. Plainly, the Master did not consider that De Bourbel’s claims should be classified as “maverick”.
Cyclical money
Distilleria contends that even if De Bourbel were to be successful, any damages and plant and equipment awarded to it would almost entirely end up with Distilleria as the major unsecured creditor, subject to reduction for legal costs and the liquidator’s fees.[52]
[52] T18-19, 27-28.
De Bourbel contends that if the breach of director’s duties ground is made out, then Mr Ursini may be personally required to pay damages.[53] Further, if the distraint is found invalid, double damages will be awarded.[54]
[53] T47.
[54] T47-48.
I accept the fact that, on the present state of evidence, Distilleria appears to be by far the major unsecured creditor. I also accept that this bears on the utility of the litigation and is a consideration relevant to the discretion whether or not to order security for costs. The point was not lost on the Master. His Honour noted that Distilleria was the substantial creditor, that it is unlikely that other creditors would have an interest in funding the litigation and that any returns to creditors (generally) in the matter are likely to be modest.[55] Neither the Master nor this Court on appeal is in a position to give substantial weight to this issue. The questions of who are the creditors and what provable amounts are owed remain with the liquidator and are not for the Court to determine when having an application such as this. Any conclusions in this respect based on the presently available evidence would be quite premature. Further, even creditors of small value are entitled to have their interests taken into account. I am satisfied that the Master was alive to and had regard to this consideration.
[55] Master’s reasons at [27].
Causing impecuniosity
De Bourbel contends that Mr Ursini’s conduct “caused, or at least materially contributed to [De Bourbel’s] impecuniosity, making it unjust to require [De Bourbel] to give security”.[56] It relies, in this respect, on the manner in which he sent the rent invoices.[57]
[56] De Bourbel written submissions at [39]-[40].
[57] T54-57.
Distilleria contends that this is a highly controversial issue,[58] and that Mr Ursini cannot be found to have caused impecuniosity by deciding no longer to contribute funds to an unprofitable company and by calling in debts that had fallen due.[59]
[58] T15-17.
[59] T20.
The question of caused impecuniosity was not relied on by the Master. The question of whether Distilleria caused the impecuniosity ultimately will turn on whether it was entitled to take the steps complained of in this litigation. To form a view now would pre-empt the result. I take the view that it has not been established that Mr Ursini or Distilleria were the cause of De Bourbel’s present impecunious state in a sense relevant to the application for security.
Stultification
Distilleria concedes that it is likely that an order for security for costs would stultify the litigation, but argues that other factors outweigh this and that De Bourbel has not shown that it would be unable to obtain funding.[60] De Bourbel contends that the Court should consider the policy reasons in favour of liquidators being able to pursue claims, particularly against former directors.[61] On the evidence before the Master, stultification of De Bourbel’s claim is highly likely should an order for security for costs, in the amount sought ($350,750) or any practically useful (to Distilleria) amount, be made. The Master accepted the liquidator’s evidence that stultification would follow.[62] Plainly, his Honour took this into account.
[60] Distilleria written submissions at [74]-[76], T4, 27.
[61] T40-41.
[62] Master’s reasons at [29].
Late hearing
Through no fault of the parties, this appeal has been heard a long time after the application was filed and close to the present trial date of 22 April 2022. Neither party attributes fault to the other for this.
Distilleria contends that there is still a substantial amount of work to be done,[63] and that the prejudice that would be caused to Distilleria in not obtaining security for costs outweighs the prejudice caused to De Bourbel in having to throw away costs incurred if the order were to be granted.[64] Further, Distilleria resisted the matter being listed for trial and contends that it would be unfair for this factor now to prevent security being ordered.[65]
[63] T9-10.
[64] T9-10.
[65] T9, 28.
De Bourbel submits that the timing of this appeal “militates against the granting of an order”[66] as it would cause the liquidator’s costs for the last year to be thrown away. Further, if the order for security were to be granted there still would be the issue of quantum to be dealt with. This may require the filing of further affidavit evidence and lead to further delays.
[66] T35.
This was an important factor considered by the Master. In my view, it should have and continues to carry significant weight.
Defensive proceedings
De Bourbel submits that a strong consideration against ordering security for costs is that the proceedings are defensive in nature. Distilleria has exercised a self-help remedy with respect to property owned by De Bourbel of substantial value.[67] The only way that De Bourbel can recover its property is to demonstrate in these proceedings that the distraint was unlawful. In order to do so, it has to pursue other claims, in particular, the lease versus licence issue, and various sub-issues. As such, De Bourbel’s claim is really in the position of a defendant not an impecunious plaintiff with respect to the central aspect of its claim. It would have no choice other than to give up its entitlement to the distrained property if it were not able to pursue the litigation.
[67] De Bourbel written submissions at [26], T42, 44.
As far as this proximity issue is concerned, I accept that it is most unfortunate that this consideration has been allowed to arise. However, the situation is what it is. It can be expected that both parties have expended or committed resources in preparing for trial. Given the closeness of the trial date, I believe this to be a sound expectation notwithstanding that neither party has provided any evidence on this issue. As such, it would be most unfair to De Bourbel to order security for Distilleria’s costs incurred that predate the making of the order.
Conclusion
For the above reasons, none of the appeal grounds 1 to 8 have been made out. In any event, if I were to have erred in this respect, I would, in the interests of expediency, exercise the discretion afresh and would also refuse the application for security for costs. I would do so because, in my view, the high likelihood of stultification of the director’s duties breach claim and the defensive wrongful distraint claim, and the central sub-issue of whether there was a lease or licence, together with the proximity of trial, outweigh the considerations relied on by Distilleria as favouring an order for security. As earlier indicated, a further hearing on quantum would be necessary. Further, the usual order is one that provides for security for costs to be incurred up to and including the first day of trial. As such, any order that might be made in the future would be for a relatively small amount only. This is a consideration that would bear on the lack of utility from Distilleria’s perspective in making any order at all.
I dismiss the appeal and will hear the parties on the question of costs.
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