Edenham Pty Ltd v Meares [No 2]

[2016] WASC 302

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION:   EDENHAM PTY LTD -v- MEARES [No 2] [2016] WASC 302

CORAM:   LE MIERE J

HEARD:   16 DECEMBER 2015

DELIVERED          :   22 SEPTEMBER 2016

FILE NO/S:   CIV 2715 of 2013

BETWEEN:   EDENHAM PTY LTD

Plaintiff

AND

ALEX GOLDSMITH MEARES
First Defendant

KERRY ANNE MEARES
Second Defendant

PREMIER HOLDINGS PTY LTD
Third Defendant

(BY ORIGINAL ACTION)

PREMIER HOLDINGS PTY LTD
Plaintiff by Counterclaim

AND

EDENHAM PTY LTD
First Defendant by Counterclaim

PETER FRANK HARDING
Second Defendant by Counterclaim

KRIS GOLDSMITH MEARES
Third Defendant by Counterclaim

BSO DEVELOPMENT CONSULTANTS PTY LTD
Fourth Defendant by Counterclaim

(BY COUNTERCLAIM)
 

FILE NO/S              :CIV 1517 of 2014

BETWEEN             :EDENHAM PTY LTD

First Plaintiff

KRIS GOLDSMITH MEARES
Second Plaintiff

MICHELLE LORRAINE MEARES
Third Plaintiff

PETER FRANK HARDING
Fourth Plaintiff

JENNIFER ELLEN HARDING
Fifth Plaintiff

COLIN GEORGE MILLER
Sixth Plaintiff

CAROLINE LOUISE MILLER
Seventh Plaintiff

AND

PREMIER HOLDINGS PTY LTD
First Defendant

ALEX GOLDSMITH MEARES
Second Defendant

KERRY ANNE MEARES
Third Defendant

BRENDAN ROBERT JAGOE-BANKS
Fourth Defendant

MALCOLM GEORGE COCKMAN
Fifth Defendant

ANDREW JAMES LEANEY
Sixth Defendant

Catchwords:

Security for costs - Section 1335 Corporations Act - Whether party should give security for costs of opponents' counterclaim - Whether by credible testimony there is reason to believe a body corporate will be unable to costs - Threshold satisfied - Whether discretion should be exercised - Turns on own facts

Security for costs - Quantum - Turns on own facts

Security for cost - Where corporate and individual plaintiffs - Where claim defensive in nature - Turns on own facts

Legislation:

Consolidated Practice Directions 2009 (WA)
Corporations Act 2001 (Cth), s 1335
Legal Profession (Supreme Court) (Contentious Business) Determination 2014 (WA)

Result:

Application in CIV 2715 of 2013 successful
Application in CIV 1517 of 2014 refused

Category:    B

Representation:

CIV 2715 of 2013

Original Action

Counsel:

Plaintiff:     Mr P J Hannan

First Defendant              :     Mr M R B Hemery

Second Defendant         :     Mr M R B Hemery

Third Defendant            :     Mr M R B Hemery

Solicitors:

Plaintiff:     McAuliffe Legal

First Defendant              :     Hotchkin Hanly Lawyers

Second Defendant         :     Hotchkin Hanly Lawyers

Third Defendant            :     Hotchkin Hanly Lawyers

Counterclaim

Counsel:

Plaintiff by Counterclaim          :    Mr M R B Hemery

First Defendant by Counterclaim :    Mr P J Hannan

Second Defendant by Counterclaim :        Mr P J Hannan

Third Defendant by Counterclaim    :        Mr P J Hannan

Fourth Defendant by Counterclaim  :        Mr P J Hannan

Solicitors:

Plaintiff by Counterclaim          :    Hotchkin Hanly Lawyers

First Defendant by Counterclaim :    McAuliffe Legal

Second Defendant by Counterclaim :        McAuliffe Legal

Third Defendant by Counterclaim    :        McAuliffe Legal

Fourth Defendant by Counterclaim  :        McAuliffe Legal

CIV 1517 of 2014

Counsel:

First Plaintiff                  :     Mr P J Hannan

Second Plaintiff             :     Mr P J Hannan

Third Plaintiff                :     Mr P J Hannan

Fourth Plaintiff              :     Mr P J Hannan

Fifth Plaintiff                 :     Mr P J Hannan

Sixth Plaintiff                 :     Mr P J Hannan

Seventh Plaintiff             :     Mr P J Hannan

First Defendant              :     Mr M R B Hemery

Second Defendant         :     Mr M R B Hemery

Third Defendant            :     Mr M R B Hemery

Fourth Defendant           :     Mr M R B Hemery

Fifth Defendant              :     Mr M R B Hemery

Sixth Defendant             :     Mr M R B Hemery

Solicitors:

First Plaintiff                  :     McAuliffe Legal

Second Plaintiff             :     McAuliffe Legal

Third Plaintiff                :     McAuliffe Legal

Fourth Plaintiff              :     McAuliffe Legal

Fifth Plaintiff                 :     McAuliffe Legal

Sixth Plaintiff                 :     McAuliffe Legal

Seventh Plaintiff             :     McAuliffe Legal

First Defendant              :     Hotchkin Hanly Lawyers

Second Defendant         :     Hotchkin Hanly Lawyers

Third Defendant            :     Hotchkin Hanly Lawyers

Fourth Defendant           :     Hotchkin Hanly Lawyers

Fifth Defendant              :     Hotchkin Hanly Lawyers

Sixth Defendant             :     Hotchkin Hanly Lawyers

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

Christou v Stanton Partners Australasia Pty Ltd [2011] WASCA 176

Edenham v Meares [2016] WASC 301

Heller Factors Pty Ltd v John Arnold's Surf Shop Pty Ltd (1979) 4 ACLR 492

Interwest Ltd v Tricontinental Corporation Ltd (1991) 5 ACSR 621

LPH Developments Pty Ltd v Jamieson Moore Pty Ltd [2015] WASC 416

SP Hay Pty Ltd v Allcorp Pty Ltd [2004] WASC 77

Sydmar Pty Ltd v Statewise Developments Pty Ltd (1987) 73 ALR 289

Visco v Minta [1969] 2 All ER 714

LE MIERE J: 

Summary

1. The defendants in each of these actions apply for orders that Edenham Pty Ltd, which is the plaintiff in CIV 2715 of 2013 and one of the plaintiffs in CIV 1517 of 2014, give security for their costs.  For the reasons which follow Edenham should give security for the costs of the defendants up to and including the first day of the trial in CIV 2715 of 2013 in the sum of $60,000 and the defendants' application for security for costs in CIV 1517 of 2014 should be dismissed.

The proceedings

1. The plaintiff, Edenham Pty Ltd which is the trustee of the Osprey Unit Trust (the Trust) in CIV 2715 of 2013 claims damages, an account of profits, equitable compensation and injunctions against Alex Meares (Alex), Kerry Meares (Kerry) and Premier Holdings Pty Ltd.  The plaintiff claims that Alex and Kerry as directors of the plaintiff breached statutory duties and fiduciary duties owed to the plaintiff.  The plaintiff says that Premier Holdings is liable for the actions of Alex and Kerry as an accessory to the breaches of their fiduciary duties.  Amongst the grounds on which the defendants resist the plaintiff's claims is that the plaintiff is not authorised to maintain this proceeding because of resolutions passed by the Advisory Committee of the Trust including a direction to Edenham to enter into a deed of settlement and release and a direction to discontinue CIV 2715 of 2013 and COR 44 of 2014.  COR 44 of 2014 is an application by Edenham to set aside a statutory notice served on it by Premier Holdings in respect of a debt which Premier Holdings claims is owed to it by Edenham.  The deed of settlement and release provides for the plaintiff to release the defendants from the claims the subject of the proceedings in CIV 2715 of 2013.

2. The plaintiff, Kris Meares (Kris), Michelle Meares, Peter Harding, Jennifer Harding, Colin Miller and Caroline Miller commenced CIV 1517 of 2014 against Premier Holdings, Alex, Kerry, Brendan Jagoe‑Banks, Malcolm Cockman and Andrew Leaney.  Each of the plaintiffs, other than Edenham, and each of the defendants is a unitholder in the Trust.  In CIV 1517 of 2014 the plaintiffs seek relief including a declaration that the members of the Advisory Committee of the Trust have no power to direct Edenham to discontinue CIV 2715 of 2013 or COR 44 of 2014 or to execute the deed of settlement and release.

3. In CIV 2715 of 2013 Premier Holdings has brought a counterclaim against Edenham, Mr Harding, Kris and BSO Development Consultants Pty Ltd (BSODC).  Premier Holdings claims various declarations, setting aside of the transfer of shares and transfer of business from Edenham to BSODC, equitable compensation or an account of profits.  Premier Holdings also claims the sum of $237,164 owing under a loan agreement between Edenham and Premier Holdings or damages for breach of the loan agreement.

Premier Holdings applies for security for costs

1. Premier Holdings applied by chamber summons dated 20 February 2014 for orders, amongst others, that Edenham provide security for the defendants' costs of $122,599. The defendants now seek orders pursuant to s 1335(1) of the Corporations Act 2001 (Cth) that Edenham provide a first tranche of security for the costs of the defendants up to and including the completion of discovery in the sum of $75,000 by payment of that amount into court and that, until that sum is paid into court, 'the original action' be stayed and that the defendants have liberty to apply for further security for costs. In CIV 1517 of 2014 the defendants apply for orders pursuant to s 1335(1) of the Corporations Act that Edenham provide a first tranche of security for the costs of the defendants up to and including the completion of discovery in the sum of $25,000 by payment of that amount into court and that, until that sum is paid into court, the action be stayed and the defendants have liberty to apply for further security for its costs.  The plaintiff, Edenham, opposes any order that it gives security for the defendants' costs.

2. Two points should be made at the outset.  First, in CIV 2715 of 2013 the defendants seek security for their costs of 'the original action' not security for their costs of the counterclaim.  Secondly, in CIV 1517 of 2014 the defendants seek security for costs against Edenham only and not against the other plaintiffs.

3. It is not altogether clear that Premier Holdings does not seek security for its costs of its counterclaim in CIV 2715 of 2013. In their chamber summons the defendants applied for an order that the plaintiff's action be dismissed and in the event that the plaintiff's action is not dismissed the plaintiff provide security for costs by payment into court of the amount of $122,599. The defendants did not press for an order that the plaintiff's action be dismissed. In their written submissions the defendants stated that they sought an order pursuant to s 1335(1) of the Corporations Act 2001 (Cth) that Edenham provide a first tranche of security for the costs of the applicants up to and including the completion of discovery in the sum of $75,000 by payment of that amount into court and that until that sum is paid into court the original action be stayed. The 'original action' appears to be a reference to the plaintiff's action against the defendants not the defendants' counterclaim. However, the defendants have led evidence of the scale allowances with respect to the items of work that have been performed to date and that will be performed to trial. Those items of work include 'counterclaim' and 'reply to defence to counterclaim'. Further, the defendants appear to have calculated allowances for costs items without distinguishing between the costs of the plaintiff's action and the costs of the defendants' counterclaim.

4. A defendant who counterclaims may in substance be the plaintiff so far as the counterclaim is concerned.  In such a case the court will not require the plaintiff to give security for the defendant's costs of its counterclaim.  Indeed, the court may order the defendant to give security for the plaintiff's costs of defending the counterclaim.  In SP Hay Pty Ltd v Allcorp Pty Ltd [2004] WASC 77 Newnes M said:

   I accept that it would be inappropriate to order security for costs in respect of a counterclaim where the counterclaim is essentially a defensive measure or where it covers substantially the same factual ground as will be covered in the defence of the plaintiff's claim. But I do not accept it is unfair that a defendant who brings what is in substance a separate claim for damages by way of a counterclaim should be liable to provide security for costs. A defendant cannot, simply by bringing such a claim by way of a counterclaim, gain an advantage that it would not enjoy if it had brought the claim as a plaintiff. What is relevant is the fact that an offensive claim has been brought, not the procedural form in which it is brought. Where parties have distinct claims of such a nature against each other, the question of whether or not security for costs is available to a party cannot depend upon whether, by a circumstance of timing or otherwise, the other party is able to bring their claim as a counterclaim rather than by original proceedings. Any notion of "mutuality" requires that any party who brings a non-defensive claim against another is amenable to an application for security for costs and that a party cannot gain immunity from that by bringing it as a counterclaim [29].

5. In their counterclaim the defendants raise three principal matters.  First, Premier Holdings says that the plaintiff transferred the business assets and undertaking of the plaintiff held on trust for the unitholders of the Trust to Becobess Pty Ltd, which subsequently changed its name to BSODC, for a value less than and on terms less advantageous to the plaintiff than would have been entered into by commercial parties acting at arm's length and did so without the consent of one of the directors of the plaintiff, Mr Jagoe‑Banks, the plaintiff in general meeting, the advisory committee of the Trust or the unitholders of the Trust.  Premier Holdings says that the plaintiff thereby breached its trust obligations to the Trust unitholders including Premier Holdings and BSODC is liable to the unitholders as a trustee de son tort.  Further, Premier Holdings says that Mr Harding and Kris are liable to the unitholders for such breach of trust either by reason of receiving trust property knowing that the transfer of trust property was in breach of trust or inducing or procuring or dishonestly assisting a misapplication of trust property.  Secondly, Premier Holdings claims that the plaintiff breached its duty as trustee to the unitholders of the Trust, including Premier Holdings, by failing to act upon resolutions of the advisory committee of the Trust to discontinue CIV 2715 of 2013 and to execute the deed of settlement and release.  Thirdly, Premier Holdings claims payment of the sum of $237,164 owing to it by Edenham under the Commercial Loan Agreement or alternatively damages for breach of the agreement.

6. Those matters are relied upon by the defendants in their defence as well as in their counterclaim.  The first matter is said to be conduct amounting to unclean hands disqualifying the plaintiff from equitable relief.  The second matter is said to go to the authority of the plaintiff to bring the action.  The third matter is relied upon as an equitable setoff.  Notwithstanding that those matters are pleaded in the defence they relate to transactions independent of, or distinct from, the plaintiff's claim and are properly to be characterised as offensive in substance being in reality a separate and distinct claim from that of the plaintiff.  Ormrod J in Visco v Minta [1969] 2 All ER 714, 716 put the matter this way:

   The principle seems to be that where a defendant counter‑attacks on the same front on which he is being attacked by the plaintiff, it will be regarded as a defensive manoeuvre.  But if he opens a counter‑attack on a different front, even to relieve pressure on the front attacked by the plaintiff, he is in danger of an order for security for costs depending on the court's assessment of the position in each case.

7. The matters raised by the defendants in their counterclaim, particularly the claims of breach of duties in transferring to BSODC the assets and business held by the plaintiff on trust for the Trust and the debt allegedly owing under the loan agreement has very little to do with the plaintiff's claims against the defendants.  The defendants' counterclaim is essentially a counter‑attack on a different front.  The plaintiff will not be required to give security for the defendants' costs of their counterclaim.

8. I turn now to consider the defendants' claim that the plaintiff give security for their costs in defending the plaintiff's action against them in CIV 2715 of 2013.

Corporations Act s 1335(1)

1. Section 1335(1) of the Corporations Act provides that where a corporation is plaintiff in any legal proceeding, the court may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in their defence, require sufficient security to be given for those costs and stay all proceedings until the security is given.  The phrase 'if it appears by credible testimony that there is reason to believe that the body corporate will be unable to pay the costs of the defendant if successful' is a threshold jurisdictional requirement to the exercise of the court's discretion.  It is also relevant to the exercise of that discretion.

Threshold is satisfied

1. I find that it appears by credible testimony that there is reason to believe that Edenham will be unable to pay the costs of the defendants if they are successful in their defence.  Edenham is a trustee company and sues in that capacity.  It has a paid up share capital of $5.  Edenham admits that it transferred all of the trust assets to BSODC in consideration for a loan.  Edenham's only asset is its claim on BSODC for repayment of the loan and its only source of income is any return on the loan.  Edenham has led evidence that the loan balance is $120,155 as at 28 February 2015.  Edenham's financial statements disclose that it is not in a strong financial position.  The profit and loss statement contained in the financial statements of Edenham for the financial year ended 30 June 2014 discloses that Edenham derived no income and incurred expenses of $65,691.  The balance sheet of Edenham as at 30 June 2014 discloses that Edenham had total assets of $257,705, total liabilities of $540,323 and net liabilities or a deficiency of $282,617.  Edenham may have a right to indemnity from the Trust unitholders.  However, as counsel for Edenham submitted, where the only tangible assets of the plaintiff are held in trust for another entity and the plaintiff's solvency depends on its right as trustee to indemnity, it is necessary for the court to have in mind the difficulties which a successful defendant would have in attempting to execute in respect of an order for costs.  Edenham has not put forward any evidence of its ability to meet a costs order against it.  Indeed, Edenham did not make any submissions to contradict the proposition that the defendants have satisfied the threshold issue.

Discretion to order security for costs

1. Once the defendants have satisfied the jurisdictional requirement, the court is called upon to exercise a discretion, it does not dictate that security must be ordered.  The discretion must be exercised with regard to the circumstances of the case, specifically whether the interests of justice will be best served by making or refusing an order for security.

2. The strength of a plaintiff's case is a factor in considering whether or not to order security for costs.  If the court is of the opinion that the plaintiff's case is strong, to order security for costs may deny the plaintiff access to justice in circumstances where it has a legitimate and worthwhile cause of action.  On an application for security for costs it is not usual to attempt to investigate in detail the likelihood of the plaintiff being successful.  However, the defendants' application for security for costs was heard at the same time as the plaintiff's application for summary judgment in CIV 2715 of 2013 and the plaintiff's case was gone into in some detail.  Although I have refused the plaintiff's application for summary judgment:  Edenham v Meares [2016] WASC 301, the evidence adduced by the plaintiff demonstrated that the plaintiff has a strong case. That is not to say that the plaintiff will succeed. The summary judgment application was heard on less than complete material and without the cross‑examination of any witness. The defendants chose to lead evidence in the form of an affidavit verifying particulars of the defence and did not respond in detail to the affidavit evidence read by the plaintiff. Nevertheless, on the material presently before the court it appears that the plaintiff has a strong case. However, there is no evidence that to order security for costs may deny the plaintiff access to justice. The plaintiff did not submit that it will be prevented from proceeding if security for costs is ordered. The plaintiff expressly withdrew a statement in its written submissions that it will suffer prejudice as a result of the delay if security is ordered.

1. A relevant factor is whether the defendants' conduct which is the subject of the plaintiff's claim has caused the plaintiff's impecuniosity.  Mr Harding has calculated what he believes to be 'the anticipated losses sustained by the plaintiff as a result of the alleged breach of fiduciary duty by the defendants'.  The amount calculated by Mr Harding is $6,412,795.  Mr Harding says that the plaintiff's business was severely affected by the downturn in business at or about the time of the global financial crisis and unbeknown to the plaintiff at that time the defendants were continuing to derive significant income from project management that should rightfully have been conducted by the plaintiff.  Mr Harding says that had the lost income been received by the plaintiff, the plaintiff's financial position would be substantially stronger than it is today.  Mr Harding says that had the defendants not breached their fiduciary duties to the plaintiff, the plaintiff would not have been placed in the serious financial position that it is and that the plaintiff's limited resources can be directly attributed to the conduct of the defendants the subject of this action.  This is not a determining factor in this case for two reasons.  First, the defendants deny that Alex and Kerry breached their fiduciary duties on the ground that the project management activities undertaken by Premier Holdings was outside the scope of the business conducted by the plaintiff and in any event the plaintiff knew and impliedly consented to Alex and Kerry being directors of Premier Holdings and Premier Holdings conducting the business it undertook.  Secondly, I am not satisfied at this stage of the proceeding that the defendants' conduct is the material cause of the plaintiff's financial difficulties as distinct from being merely a contributing factor.

2. The plaintiff says that there is overlap between the subject matter and the issues raised in the defendants' defence and in the defendants' counterclaim.  In LPH Developments Pty Ltd v Jamieson Moore Pty Ltd [2015] WASC 416 [9] Beech J said that the substantial overlap between the subject matter and the issues under the counterclaim and the plaintiff's claim in that case militated strongly against the grant of security for costs. In Sydmar Pty Ltd v Statewise Developments Pty Ltd (1987) 73 ALR 289 Smart J held that a relevant factor was that the defence raised by the defendant effectively gave rise to a separate cause of action and that in that case at most the plaintiff could have been required to provide security for costs for the relatively short period which would be taken up in deciding the plaintiff's claim.

3. There is a substantial overlap between the subject matter and issues in the defendants' counterclaim and their defence to the plaintiff's claim.  I have referred earlier to the matters raised by the defendants in their defence to the plaintiff's claim or, by way of equitable setoff to that claim and in their counterclaim.

4. In LPH Developments Pty Ltd v Jamieson Moore Pty Ltd at [19] Beech J observed that in some cases a defendant with a counterclaim undertakes that, if security for costs is ordered against the plaintiff, and if a stay is granted of the plaintiff's action in the meantime, that the defendant will not prosecute its counterclaim. His Honour observed that the giving of such an undertaking removes the weight to be given in the discretion to order security for costs, to the existence of the counterclaim and its overlap with the primary claim. No such undertaking was proffered in that case and no such undertaking has been proffered in this case. However, this is not a case like Sydmar Pty Ltd v Statewide Developments Pty Ltd where all but a relatively short time would be taken up in deciding the plaintiff's claim apart from the issues raised in both the defence and counterclaim.  Nevertheless, it would be inappropriate to give the defendants security for their costs in prosecuting the matters in their defence which are also the subject of their counterclaim.  Those matters are pleaded in the defence as a discretionary matter going to the exercise of equitable relief, as a matter going to the authority of the plaintiff to bring the action and a claim for an equitable setoff.  Those are in substance a counter‑attack on a different front.

5. The plaintiff says that the defendants have delayed in bringing their application for security for costs.  An application for security may be made at any stage of the proceedings but application should be made promptly.  In Christou v Stanton Partners Australasia Pty Ltd [2011] WASCA 176 Newnes JA, with whom Murphy JA agreed, said:

   It is, however, incumbent upon a defendant who wishes to obtain security for its costs to apply promptly for that relief once it is, or ought reasonably be, aware that the plaintiff would be unable to meet an order for costs.  Security for costs is not a card that a defendant can keep up its sleeve and play at its convenience.  Delay is an important consideration in the determination of an application for security for costs because it is capable of causing prejudice or unfairness to the plaintiff.  A plaintiff is entitled to know at the earliest opportunity, before it has committed substantial resources to pursuing the litigation, whether it will be required to provide security.  The later an application is made the greater the likelihood that it will cause substantial disruption or distraction in the conduct of the plaintiff's case, and if the plaintiff is unable to provide security, the greater the costs that will have been wasted.  The oft-cited words of Moffitt P in Buckley v Bennell Design & Constructions Pty Ltd (1974) 1 ACLR 301 are apposite:

   'The right to seek security for costs and to stay proceedings, with the possible result that a claim for damages is frustrated, is a powerful weapon. Therefore, the litigant who seeks to use it against his opponent is at risk of not having it available, unless the application is made and persevered with in circumstances involving the least oppression of his opponent. The primary reason why the application should be brought promptly and pressed to determination promptly is that the company, which by assumption has financial problems, is entitled to know its position in relation to security at the outset, and before it embarks to any real extent on its litigation, and certainly before it is allowed to or commits substantial sums of money toward litigating its claim (309).'

   I would add that in an era when the need to ensure the efficient use of judicial resources has become increasingly important, delay may also be significant in that regard. A late application which frustrates the action will mean that the judicial resources already devoted to the case will have been wasted. Where it results in the adjournment of an imminent trial it will often have the result that the trial dates will be wasted … [20] ‑ [21].

6. CIV 2715 of 2013 was commenced on 12 November 2013.  The defendants filed a memorandum of appearance on 23 December 2013.  The plaintiff filed a statement of claim on 28 January 2014.  The defendants filed a defence on 11 February 2014 and on the same day by letter to the plaintiff's solicitors gave notice of the defendants' intention, subject to conferral, to seek security for their costs.  On 17 March 2014 the defendants filed a chamber summons seeking, amongst other things, security for their costs.  On the same day the parties submitted programming orders for the hearing of the security for costs application and the plaintiff's application for summary judgment.  On 16 April 2014 Edenham and others commenced CIV 1517 of 2014 concerning the validity or enforceability of the resolutions of the advisory committee of the Trust.  On 7 July 2014 the parties submitted consent orders to the court referring both actions to mediation and vacating programming orders with respect to the security for costs application.  On 18 February 2015 I made fresh orders programming the summary judgment and security for costs application for hearing.  The defendants say that the delay between 7 July 2014 and 18 February 2015 was a consequence of an agreement between the parties to mediate to avoid the costs of litigation.  That is not contradicted by the plaintiff.  The defendants have explained the delay between 11 February 2014 and 18 February 2015 in prosecuting their application for security for costs.  The plaintiff could not reasonably have inferred that the defendants did not intend to pursue their application for security for costs.  The plaintiff is not prejudiced by the delay in the defendants pursuing their application for security for costs.

7. Whether the court should in the exercise of its discretion order security for costs involves balancing the interests of the parties.  The court must determine whether the balance of the relevant considerations favours an order for security.

8. In my view CIV 2715 of 2013 is close to the borderline, there being significant factors for and against the making of an order. At the end of the day while impecuniosity must be no bar to a legitimate claim and s 1335(1) must not be resorted to, to stifle such a claim, those matters do not confer immunity from the operation of the statutory provision where a corporate trustee is suing for the benefit of others who have not been shown, and do not claim, to be unable to provide security. Having regard to the factors to which I have referred the justice of the case favours making an order for security for costs. However, the amount of security should exclude any allowance for the issues which are common to the counterclaim and the defence.

Quantum of security in CIV 2715 of 2013

1. In the third edition of Law of Costs Professor Dal Pont at [28.34] writes:

   An applicant for security bears the onus of adducing material that enables the court to estimate the costs of the litigation.  A skeleton bill of costs may be useful, provided that real consideration is given to the likely issues in the case and how it will be fought.  The court is certainly not bound to order the amount of security a defendant identifies as the amount of his or her costs.  In fact, judges have gone to some lengths to emphasise that the amount fixed as security that is appropriate is not ordinarily intended as a pre‑estimate of the actual amount of party and party costs, let alone indemnity costs, that might become payable should the case go to trial and the defendant succeed in its defence.  Hence, in ordering security for costs, the court does not set out to give a complete and certain indemnity to a respondent, instead courts have traditionally been conservative in relation to the quantum of orders for security for costs.

2. The court may order security in respect of costs that have already been incurred provided that those costs are not the subject of an existing costs order.  Nevertheless, a court is slow to make such an order, for in the ordinary case the defendant has chosen to incur those costs without seeking the protection of an order for security.

3. In his affidavit of 16 March 2015 Mr Hemery, the solicitor for the defendants, refers to items of work that had been performed to that date and that will be performed to trial. Mr Hemery said that the defendants' former solicitors performed work falling within the following allowances under the Legal Practitioners (Supreme Court) (Contentious Business) Determination 2012 (WA) (2012 Scale): memorandum of appearance, defence, status conference and consent orders. The defendants chose to undertake that work before applying for security for costs, and in the case of the defence before informing the plaintiff that they intended to apply for security for costs. I will not require the plaintiff to give security for those costs.

4. Mr Hemery then sets out items of work performed by the defendants' current solicitors up to 12 March 2015 and the amounts applicable to those items of work under the Legal Profession (Supreme Court) (Contentious Business) Determination 2014 (WA) (2014 Scale) and the Consolidated Practice Directions 2009 (WA).  The items of work include an amended defence.  The amendment was not made in response to any amendment to the statement of claim.  It is not appropriate to make any allowance in relation to that item.  Mr Hemery says that the defendants' solicitors have performed work in items within the allowances for discovery and inspection and in the attached table lists the maximum amount allowable for giving discovery and the hourly rate for inspection.  Mr Hemery does not say what costs were actually incurred by the defendants in relation to either of those items.  I will make some conservative allowance for those items of work to be included in the amount of costs for which the plaintiff should give security.

5. Mr Hemery says that having regard to the tasks to be completed and the allowances under the 2014 Scale the defendants' solicitors are likely to perform work and incur disbursements up to and including a trial of this proceeding within the specified items with allowances under the 2014 Scale and CPD as set out in the table in [15] of his affidavit of 16 March 2015.  It is not appropriate to make any allowance for some of those items.  For example, the first item is 'counterclaim'.  I have earlier given reasons why the defendants should not be given security for their costs in relation to their counterclaim.  The second item is 'further amended defence'.  Again, the defence was not amended in response to an amendment to the statement of claim and is not appropriate to make any allowance for an amended defence.  A third item is 'reply to defence to counterclaim'.  Again, it is not appropriate to make any allowance for that item.

6. The largest item in Mr Hemery's table is the sum of $56,760 for preparation of case.  That is the maximum amount allowed under the Scale.  That is not appropriate.  To the extent that some of the costs of the defendants will relate to the issues raised in the counterclaim it would be unjust to require the plaintiff to shoulder the costs of issues in respect of which it is in reality the defendant.  Further, the quantum of costs should be approached on a conservative basis.

7. The next highest item in Mr Hemery's table is $30,195 for 'the on brief for senior counsel (first day of trial and preparation)'.  Approaching the matter on a conservative basis I do not allow for the costs of senior counsel.  A conservative allowance should be made for the costs of counsel fees for fee on brief and the first day of trial.  The maximum amount allowed by the scale is $17,325.

8. The next item in the table is $6,710 per day for the second and each successive day for senior counsel.  I do not think it is practical at this time to estimate the likely length of trial, nor what part of the trial is likely to be taken up by the issues raised by the defendants in their counterclaim.  The appropriate way to approach the matter is to order that the plaintiff give security for costs up to and including the first day of the trial and the defendants have liberty to apply for further security for costs of the trial.

9. Taking all matters into account I assess that the plaintiff should give security for the defendants' costs in CIV 2715 of 2013 up to and including the first day of the trial in the amount of $60,000.

CIV 1517 of 2014

1. I refuse the defendants' application for security for costs against Edenham in CIV 1517 of 2014 for two reasons.  First, it is inappropriate to order security for costs because both a corporate and individual plaintiffs are before the court.  Secondly, the plaintiff's claim is defensive in nature.

2. There is a complete identity between the claims of Edenham and the individual plaintiffs in the proceeding.  Accordingly, the defendants have natural persons to whom they can look for payment of the entire costs they may incur in successfully defending the claims against them.  In those circumstances a proper exercise of the discretion may justify no security order being made against the company.  There is no evidence and no suggestion that the individual plaintiffs do not have adequate financial means to meet a costs order.  Furthermore, it would make no sense to stay the action as against the plaintiff whilst the same claims proceed at the instigation of the individual plaintiffs.

3. An order for security will ordinarily not be made against parties who are defending themselves and thus forced to litigate.  Proceedings have been characterised as defensive where, as Ormiston J stated in Interwest Ltd v Tricontinental Corporation Ltd (1991) 5 ACSR 621, 627:

   … they are … either directly resisting proceedings already brought or seeking to halt self‑help procedures.

   His Honour continued that in such circumstances:

   … it would seem that to require security would be oppressive, or at least would provide serious grounds for refusing to make an order.  At least it is a factor to be considered in the exercise of the discretion.

   In Heller Factors Pty Ltd v John Arnold's Surf Shop Pty Ltd (1979) 4 ACLR 492, 496 Mitchell J said that a court, in deciding whether or not to exercise its discretion to make an order for security for costs:

   is entitled to consider whether the company is a true plaintiff or is forced into the position of plaintiff because the defendant is empowered to take what White J described as 'self‑help' procedures.

4. The usual proceedings which fall into the category of defensive proceedings are cross‑claims brought by a defendant against a plaintiff in response to a plaintiff's claim.  However, a plaintiff's claim may be defensive in nature.  Edenham commenced CIV 2715 of 2013 to claim relief for breaches of fiduciary duty by Alex and Kerry to which Premier Holdings was alleged to be an accessory.  After the plaintiff had commenced that action and served its statement of claim and after the defendants had filed a defence Premier Holdings and other unitholders caused the advisory committee of the Trust to be constituted, gave notice of a meeting of the advisory committee and at the advisory committee meeting the unitholders then present resolved to direct Edenham to discontinue CIV 2715 of 2014 and COR 44 of 2014 and to execute a deed of settlement and release which had the effect of releasing the defendants from the claims the subject of CIV 2715 of 2014.  It was in response to those actions that Edenham and the other plaintiffs in CIV 1517 of 2014 then commenced that proceeding in which they seek relief including a declaration that the members of the advisory committee have no power to direct Edenham to discontinue CIV 2715 of 2013 or COR 44 of 2014 and orders under the Trustees Act or the court's inherent jurisdiction to remove any power which the members of the advisory committee have to direct Edenham to discontinue those proceedings.  In my opinion, the action brought by the plaintiffs in CIV 1517 of 2014 is defensive in nature; it seeks to prevent Premier Holdings and the other defendants in CIV 1517 of 2014 stopping Edenham from pursuing its claim in CIV 2715 of 2013.  The action may properly be characterised as a response to the 'self‑help' procedures adopted by the defendants.

5. I have one reservation.  The claims by the plaintiffs in CIV 1517 of 2014 are made in response to the claims by the defendants in the counterclaim in CIV 2715 of 2013.  They raise the same subject matter and should be managed together so as to avoid any duplication of costs.  If the two sets of proceedings are conducted in a way so as to cause any unnecessary duplication of costs then the defendants in CIV 1517 of 2014 may apply again for security for their costs.