Edmunds & Ors v Pickering & Ors No. Scgrg-88-2452 Judgment No. S282

EDMUNDS & ORS V PICKERING & ORS

[1999] SASC 282

Civil

LANDER J. The third, fourth and fifth defendants have applied by application dated 22 June 1999 for an order that the plaintiffs give security for costs in the sum of $70,937.55.
Importantly, and I will return to this, the application is not supported by the first and second defendants.
The third defendant was a beneficiary of a trust of which the first defendant was trustee. The third defendant was itself the trustee for the Cliff Edmunds Family Trust. The first and second plaintiffs were directors and shareholders of the third plaintiff and beneficiaries of the trust administered by the third plaintiff.
The fourth plaintiff became the trustee of the Cliff Edmunds Family Trust sometime I think in about October 1982, although the deed of assignment appointing it as trustee is dated 1 July 1982.
The third plaintiff claims that the first defendant was guilty of a breach of the trust of which he was trustee, as a result of which the third named plaintiff has suffered loss and as a result of which the first defendant has profited.
The fourth plaintiff only has any claim against the first defendant if the fourth plaintiff was the beneficiary of the trust, of which the first defendant was trustee, at the time when the breach of trust was committed.
It is not easy to understand on the pleadings how the first and second named plaintiffs have any claim against any of the defendants at all.
The third plaintiff also claims damages and compensation under the Corporations Law against the first defendant arising out of alleged breaches of his duties as a director of the third named plaintiff.
The second named defendant was a guarantor of obligations owned by the first named defendant to the third plaintiff and is sued by all of the plaintiffs pursuant to the guarantee.
The third, fourth and fifth defendants were joined as defendants during the currency of this trial because apparently it was perceived by the plaintiffs that the first defendant could not provide the relief which the plaintiffs sought, because the first named defendant was not in a position to transfer any of the assets the subject of the action or any other assets which would enable the plaintiffs to obtain damages.
The fifth defendant is married to the first defendant. The third defendant is a trustee of the family trust, of which the first and fifth defendants are beneficiaries. The fourth defendant is an investment company controlled by either the first defendant or fifth defendant or both of them.
This trial commenced 39 sitting days ago and has proceeded over something like about 15 weeks. The third, fourth and fifth defendants have only been joined for the purpose of obtaining whatever relief is available to the plaintiffs, or any of them in relation to the causes of action against the first defendant.
Proceedings were issued by the first three plaintiffs against the first and second defendants in 1988 and were served some time in 1989 or 1990. The proceedings have limped into court largely due to inactivity on the part of the plaintiffs or their previous legal advisers.
This action was originally heard at the same time as another action brought by the plaintiffs against their solicitors. That matter settled some time last week and consent orders were entered. The fifth defendants have been separately represented ever since their joinder, but have not taken any part in this trial until the hearing of this trial resumed last week.
The trial, as I say, has already occupied 39 sitting days. It is expected, and I was told from the bar table by Mr Walsh QC, who appears for the plaintiffs, that the evidence in the trial will finish some time late next week and addresses will occupy a further week. It can be seen therefore, that by far the majority of the time which must be devoted to this trial has already expired.
The third, fourth and fifth defendants claim they need to be separately represented from the first and second defendants. There is no need to explore that assertion which must be accepted, I think, for the purpose of this application.
They claim that there is evidence to suggest that the plaintiffs would not be in a position to meet an order for costs in the event that the plaintiffs were unsuccessful. The plaintiffs, on the other hand, claim that they have more than sufficient resources to meet any claim for costs on the part of the third, fourth and fifth defendants. As is usual in cases such as this, the truth in relation to both the claim and the counterclaim lies somewhere between the competing claims.
The first and second plaintiffs own four pieces of land, two at Streaky Bay, one at Elliston and an estate in the remainder in a property at Crafers. They claim in an affidavit sworn by the second plaintiff that the value of the properties is somewhere in the vicinity of $660,000.
Mrs Edmunds was cross-examined in relation to her assertion of the value of those pieces of land and it was put to her that, in truth, the total value of the four pieces of land did not exceed $300,000. She would not accede to that proposition even though it was put to her that the capital value placed upon the properties by the Valuer General was no greater than $300,000. I think the value of the properties is probably somewhere between $300,000 and $660,000. I am prepared to assume that the properties are worth substantially more than $300,000, although I am not convinced their worth exceeds $660,000. The properties are unencumbered except the Crafer’s property which is subject to a life interest to Mrs Edmunds parents.
The third named plaintiff, Smoothpool Nominees Pty Ltd’s financial accounts for year ended 30 June 1998 show that its assets exceed its liabilities by $516,379. However, included in its non-current assets, are two items, a receivable and a property, which Mr Crawley, who appeared for the third, fourth and fifth defendants, claimed would not realise in full the amounts shown. The receivable is a sum of $513,510 from Dadeeton Pty Ltd, the fourth plaintiff. Mr Crawley claimed that only some part of that sum would be recoverable by Smoothpool Nominees Pty Ltd. He also claimed that a property owned by Smoothpool Nominees Pty Ltd at Streaky Bay was overvalued at $250,000.
I cannot comment on the second item but I can on the first item. I think it is right to say that Smoothpool Nominees Pty Ltd’s assets must depend upon the recovery of the receivable from Dadeeton Pty Ltd.
The financial accounts of that company were also tendered by the third, fourth and fifth defendants. That company’s balance sheet showed that its assets exceed its liabilities by, in the order of $101. It is not surprising that its assets only exceeded its liabilities by that amount because Dadeeton Pty Ltd operates solely as a trustee for the Cliff Edmunds Family Trust. Its solvency, however, depends upon its non-current assets, which include a loan to Mr and Mrs Edmunds of $754,084. If that sum is not recoverable in full, then the company’s liabilities will exceed its assets by the amount of shortfall less the $101, by which the assets already exceed its liabilities.
In argument I pointed out to Mr Crawley that assuming Mr and Mrs Edmunds, Dadeeton Pty Ltd and Smoothpool Nominees Pty Ltd operated as a group then, in fact, the assets of the two persons and the two entities exceeded their combined liabilities by the extent of the amount of the value of the properties owned by Mr and Mrs Edmunds. I think, as Mr Crawley said, that may be a little simplistic. In fact the group assets exceed liabilities by a little more than the amount of the properties because one could expect that all of the other non-current liabilities of Dadeeton Pty Ltd would be paid out.
I think therefore, that the group assets, if I can use that phrase, exceed liabilities by in the order of about $350,000.
There is a further liability which has, since the preparation of the accounts, been discharged. A sum in excess of L$200,000 was owed by Smoothpool Nominees Pty Ltd to Westpac. That amount has since been discharged by Acquaculture Researches Pty Ltd, so probably the total amount available to the group creditors in excess of the present creditors would be in the order of a half a million dollars.
One of the matters which triggered this application was a transfer away by Dadeeton Pty Ltd of its major asset, the abalone authority. That authority, so I am told, is valued in excess of $4 million. Very recently, Dadeeton Pty Ltd has transferred that authority to Aquaculture Researches Pty Ltd, which immediately prior to this month was a company under the directorship of Mr and Mrs Edmunds, and of which they were the sole shareholders.
Apparently Dadeeton Pty Ltd has, for reasons connected with the litigation itself, thought it necessary to transfer the abalone authority to an independent company so that it may argue, in due course, that it is entitled to the abalone authority presently owned by Mr Pickering or trusts associated with him.
In transferring the authority away from the group, the group assets have diminished to the extent of the value of the authority, which would be in the order of L$4 million. At the same time, I am told, Aquaculture Researches Pty Ltd has recently incurred a liability by borrowing in the order of 700 to 800 thousand dollars for the purpose of maintaining this litigation. Part of that borrowed sum was used for the purpose of discharging Smoothpool Nominees Pty Ltd’s debt of $200,000 to Westpac.
After the transaction to transfer the abalone authority to Aquaculture Researches Pty Ltd was put in place, that company apparently issued further shares and the company now has as its majority shareholders Mr and Mrs Edmunds’ children. They own now either one thousand and two, or one thousand and four issued shares. Mr and Mrs Edmunds own no more than two or four of the shares of the company. Mr and Mrs Edmunds have deprived themselves, by this transaction, of the greater part of their interest in the abalone authority. Mr Edmunds originally owned that authority which was later transferred to Mr Bird, Mr Holmes and Dadeeton Pty Ltd and lately Aquaculture Researches Pty Ltd.
In the end result, I am satisfied that the plaintiffs are not impecunious. I am satisfied as Mr Crawley argued, that the plaintiff’s assets are not as great as they were a month ago. I think that has to follow from what he has established in the evidence. But I am satisfied that they still are not impecunious.
In those circumstances, one has to consider whether or not it would be appropriate to make an order for security for costs; where the application is not supported by the first and second defendants; where the proceedings have been in place since 1988, and the first and second defendants served in 1990; where the parties have vigorously contested interlocutory proceedings over a period of years; where injunctions have been put in place; where the trial commenced some months ago, and has completed probably eleven of its fourteen or fifteen sitting weeks, and where the third, fourth and fifth defendants have only, very lately, played a relatively insignificant part in the case.
In my opinion, even if the plaintiffs were not in a position to meet an order for costs, and that is a matter of which I am not satisfied, this application would not succeed. It would not succeed, in my opinion, because the application has not been supported by the first and second defendants. In that event, it would lead to an extraordinary result; if I were to stay the proceedings only against the third, fourth and fifth defendants.
I would not, in the absence of any application made by the first and second defendants, stay the proceedings against them. If I were to accede to the application made by the third, fourth and fifth defendants, that would lead to the result that the plaintiffs would and could continue against the first and second defendants and might obtain a judgment against them, but not be entitled to any relief because the proceedings as against the third, fourth and fifth defendants had been stayed on this application for security for costs.
The proceedings in the matter are nearly complete. No criticism can be made of the third, fourth and fifth defendants for the lateness of this application because they were not joined until very late. Those defendants could not have contemplated such an application before the time they made it. However, notwithstanding that the application was made at the first available opportunity it would be inappropriate to grant the application. First, because the trial is nearly complete and secondly, because it would be inappropriate to stay the proceedings against only some of the defendants in circumstances where those defendants have only been joined for the purpose of the plaintiffs obtaining whatever relief to which the plaintiffs are entitled.
The application in my opinion should be dismissed and I order accordingly.

[1999] SASC 282

29 June 1999