Emond v Loft Developments (Security for Costs Ruling)
[2022] VCC 1042
•8 July 2022
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
Case No. CI-20-04732
| ROBERT CHARLES EMOND and MLBS AUSTRALIA PTY LTD (ACN 114 694 067) | First plaintiff Second plaintiff |
| and | |
| LOFT DEVELOPMENTS (VIC) PTY LTD (ACN 604 982 461) | Defendant |
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JUDGE: | Her Honour Judge Brimer | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | On the papers | |
DATE OF RULING: | 8 July 2022 | |
CASE MAY BE CITED AS: | Emond & Anor v Loft Developments (Security for Costs Ruling) | |
MEDIUM NEUTRAL CITATION: | [2022] VCC 1042 | |
RULING
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Subject:PRACTICE AND PROCEDURE
Catchwords: Security for costs – whether threshold test enlivened – total paid up share capital and no real property in Victoria together with late payment of amounts ordered to be paid as security for the interest component of a sum held in trust – discretionary factors – merits of plaintiffs case a neutral factor – delay does not preclude award of security – reduction of security amount due to delay – security for costs ordered
Legislation Cited: County Court Civil Procedure Rules 2018 (Vic) r62.02; Corporations Act 2001 (Cth) s1335(1)
Cases Cited:Livingspring Pty Ltd v Kliger Partners (2008) 20 VR 377; Amcor v Barnes & Ors [2015] VSC 90; Epping Plaza Fresh Fruit & Vegetables Pty Ltd v Bevendale (1999) 2 VR 191; Trility Pty Ltd v Ancon Drilling Pty Ltd [2013] VSC 577; Colmax Glass Pty Ltd v Polytrade Pty Ltd [2013] VSC 311; Trailer Trash Franchise Systems Pty Ltd v GM Fascia & Gutter Pty Ltd [2017] VSCA 293
Ruling: For the defendant
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Ms V. Bell | Keypoint Law |
| For the Defendant | Mr N. Paterson | Jem Lawyers |
HER HONOUR:
Introduction
1By way of summons filed 23 May 2022, the defendant, Loft Developments (Vic) Pty Ltd (Loft), sought security for its costs of defending the plaintiffs’ claim.
2For the reasons set out below, in my view, the second plaintiff, MLBS Australia Pty Ltd (MLBS) ought provide security for Loft’s costs up to and including the trial of the proceeding in the sum of $90,000.[1]
[1] In support of its application, the defendant relied on the following affidavits:
• Affidavit of Jennie Tran affirmed 7 March 2022;
• Affidavit of Jennie Tran affirmed 23 May 2022;
• Affidavit of Jennie Tran affirmed 13 June 2022;
• Affidavit of Charles Harris affirmed 21 February 2022 (exhibited to the Affidavit of Jennie Tran affirmed 13 June 2022);
• Affidavit of Neil McDonald affirmed 15 June 2021; and
• Affidavit of Vaughan Hager sworn 7 March 2022
The plaintiffs relied on the affidavit of Eliza Jane St Hill affirmed 16 June 2022 with exhibits marked EJS-3. At paragraph 2 of their Outline of Submissions filed on 16 June 2022, the plaintiffs referred to two affidavits of Eliza Jane St Hill made on 16 June 2022. However, at 8.57am on 17 June 2022, Ms St Hill sent an email to chambers wishing to confirm that for the purposes of the application, “the plaintiffs do not read or rely upon my affidavit of 16 June [2022] exhibiting EJS-1”.
The defendant filed a written outline of submissions on 13 June 2022. The plaintiffs filed a written outline of submissions on 16 June 2022. At the Court’s request, the defendant filed written submissions in reply on 21 June 2022.
Background
3The substantive claim arises out of an alleged joint venture agreement between the first plaintiff, Mr Emond, and Loft. In summary, Mr Emond claims that:
(a) at all material times, he worked as a real estate agent for Sea Land Property Group Pty Ltd (Sea Land). The director of Sea Land was also the director of Loft;
(b) he entered into a joint venture agreement with Loft whereby commission monies owed to him by Sea Land were used to fund the purchase and development of a property purchased by Loft; and
(c) Loft holds the property on trust for him, and that commissions, superannuation and wages remain unpaid.
4Loft denies Mr Emond has any interest in the property, denies Mr Emond is owed commissions and denies that the property is held on trust for Mr Emond.
5On 15 February 2021, an order was made joining MLBS to the proceeding as the second plaintiff. On the same day, Loft was ordered to produce documents, including sales contracts and bank statements, to the plaintiffs. The plaintiffs were ordered to pay the defendant’s reasonable costs of obtaining and producing the documents, which costs were taxed and allowed in the sum of $7,030.00.
6By amended statement of claim dated 8 October 2021, Mr Emond pleaded that he entered into a debt assignment deed with MLBS in July 2020, a further deed of assignment in January 2021 and a further deed of assignment in August 2021. In the deed of 15 January 2021, MLBS agreed with Emond to “cover all Expenses (including but not limited to Legal Recoveries, adverse costs orders…) required to recover the Debt…”.
7On 21 November 2021, Loft’s solicitors wrote to the plaintiffs’ solicitors foreshadowing the making of an application for security for costs in circumstances where MLBS has paid up share capital of $1000 and does not own any real estate in Victoria. Loft requested the plaintiffs provide details of assets of MLBS. No reply to the letter was received.
8On 14 January 2022, the property was sold with settlement due to take place on 25 February 2022.
9In February 2022, as part of the resolution of a caveat proceeding, $200,000 from the sale of the property was ordered to be retained in trust pending resolution of the plaintiffs’ claims.
10At a pre-trial directions hearing on 8 March 2022, the plaintiffs sought an adjournment of the trial listed on 21 March 2022. Judicial Registrar Muller ordered that the trial be vacated and relisted. He also ordered (at paragraph 11) that:
“Until judgment or further order of the Court, the plaintiffs pay into Court the sum of $3,000 by the 19th of each month (commencing by 19 March 2022) as security for the interest component on the sum of $200,000 as set out in the unsworn affidavit of Jennie Tu Tran dated 7 March 2022.”
11On 21 April 2022, Loft received a costs estimate report from Ms Dipal Prasad of Blackstone Legal Costing estimating professional costs and disbursements up to and including trial of $210,618.89.
12On 18 May 2022, Loft’s solicitors sent to the plaintiffs’ solicitors an email requesting confirmation that the payments ordered by Judicial Registrar Muller on 8 March 2022 had been made. No reply was received.
Application for security for costs
13On 23 May 2022, Loft filed a summons seeking security for costs. Loft’s summons was listed for hearing on 6 June 2022.
14On 3 June 2022, Her Honour Judge A Ryan made orders adjourning the hearing of the summons to 17 June 2022. Her Honour also ordered that:
3. By 4.00pm on 14 June 2022, the plaintiffs is [sic] to file and serve any affidavit material and outline of submissions in response to the defendant’s summons dated 23 May 2022.
4. If the plaintiffs do not file any materials as ordered under paragraph 3 of these Orders by 4.00pm on 14 June 2022, the defendant’s summons dated 23 May 2022 will thereafter be determined on the papers (or listed for hearing if the presiding Duty Judge prefers).
15On 6 June 2022, Loft’s solicitor sent an email to the plaintiffs’ solicitor advising them that:
“In light of the recent adjournment and absent of confirmation that the $3,000 instalments have been paid, then my instructions are to amend the summons for an order that the plaintiff’s claim be dismissed pursuant to Rule 24.05 of the County Court Civil Procedure Rules 2018.”
16As at 13 June 2022, no response to the email of 6 June 2022 had been received by Loft’s solicitor.
17On 13 June 2022, Loft filed and served an amended summons and an outline of written submissions. Loft sought to amend its summons to include an additional, self-executing order in respect of the failure of the plaintiffs to comply with paragraph 11 of the orders made by Judicial Registrar Muller on 8 March 2022.
18The plaintiffs did not file and serve any affidavit material and outline of submissions in response to Loft’s summons by 4.00pm on 14 June 2022 pursuant to the Orders of Judge A Ryan dated 3 June 2022.
19At 3.45pm on 16 June 2022, the Court sent an email to the parties advising them that in light of the plaintiffs’ failure to file and serve any affidavit material and outline of submissions by 4.00pm on 14 June 2022, Loft’s summons would be determined on the papers.
20On 16 June 2022, the plaintiffs’ solicitor filed an affidavit with a bundle of documents marked “EJS-3”. The plaintiffs’ solicitor deposed that:
(a) On 5 April 2022, MLBS made a $3,000 payment into the Court in satisfaction of the payment due on 19 March 2022; and
(b) On 16 June 2022, MLBS made a $6,000 payment into the Court in satisfaction of payments due on 19 April 2022 and 19 May 2022.
21At 4.01pm on 16 June 2022, the plaintiffs’ solicitor sent an email to the Court advising that submissions would be filed by 6.00pm.
22At 10.21pm on 16 June 2022, the plaintiffs’ solicitor filed the plaintiffs’ outline of submissions. The plaintiffs opposed Loft’s application for security for costs and its application to amend its summons.
23At 10.59am on 17 June 2022, the Court sent an email to the parties requesting that Loft file and serve an outline of submissions in reply by 4.00pm on 21 June.
24At 4.11pm on 21 June 2022, Loft’s solicitor filed its outline of submissions in reply. Loft no longer pressed the amendments to its summons in light of the plaintiffs’ solicitor deposing that MLBS had belatedly paid the April and May instalments of the security ordered by Judicial Registrar Muller on 8 March 2022.
Legal principles
25The Court may order a plaintiff to give security for a defendant’s costs under r62.02(1) of the County Court Civil Procedure Rules 2018 (Rules) and s1335(1) of the Corporations Act 2001 (Cth) (Corporations Act).
26Rule 62.02(1) of the Rules provides that:
(1) Where—
(a) a plaintiff is ordinarily resident out of Victoria;
(b) the plaintiff is a corporation or (not being a plaintiff who sues in a representative capacity) sues, not for the plaintiff's own benefit, but for the benefit of some other person, and there is reason to believe that the plaintiff has insufficient assets in Victoria to pay the costs of the defendant if ordered to do so;
(c) a proceeding by the plaintiff in another court for the same claim is pending;
(d) subject to paragraph (2), the address of the plaintiff is not stated or is not stated correctly in the plaintiff’s originating process;
(e) the plaintiff has changed the plaintiff’s address after the commencement of the proceeding in order to avoid the consequences of the proceeding;
(f) under any Act the Court may require security for costs—
the Court may, on the application of a defendant, order that the plaintiff give security for the costs of the defendant of the proceeding and that the proceeding as against that defendant be stayed until the security is given.
(2) The Court shall not require a plaintiff to give security by reason only of paragraph (1)(d) if in failing to state the plaintiff’s address or to state the plaintiff’s correct address the plaintiff acted innocently and without intention to deceive.
27Section 1335(1) of the Corporations Act provides that:
Where a corporation is plaintiff in any action or other legal proceeding, the court having jurisdiction in the matter 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 his, her or its defence, require sufficient security to be given for those costs and stay all proceedings until the security is given.
28Whilst the provisions are expressed in different terms, the relevant principles have been developed and applied on the assumption that they apply equally to both.[2]
[2]Livingspring Pty Ltd v Kliger Partners (2008) 20 VR 377, 380-1 [10] (Maxwell P and Buchanan JA) (Livingspring).
29The Court may order a plaintiff to give security for costs if there is reason to believe that it will be unable to pay the defendant’s costs if the defendant is successful.[3] This is the threshold condition for the exercise of the power, which must be satisfied before the discretionary power to order security for costs is enlivened.[4]
[3]Ibid at [11].
[4]Ibid.
30If the Court’s jurisdiction to order security for costs is enlivened, the Court has a discretion to award security.[5] This discretion is open ended and not to be restricted by rigid guidelines or principles.[6] Certain factors are relevant to the exercise of the discretion, including whether the orders sought would frustrate the claim, the merits of the claim, whether the defendant was the cause of the plaintiff’s impecuniosity, and whether there was delay on the part of the application.[7] However, whether the discretion should be exercised will depend on all of the circumstances of the case.[8]
[5] Amcor v Barnes & Ors [2015] VSC 90, [19] (Amcor).
[6]Epping Plaza Fresh Fruit & Vegetables Pty Ltd v Bevendale (1999) 2 VR 191, 195 [16].
[7]Trility Pty Ltd v Ancon Drilling Pty Ltd [2013] VSC 577, [15].
[8]Livingspring at [19].
31The onus is on the applicant for security to persuade the Court that the order for security should be made with respect to both the threshold question and whether the discretion to grant security should be exercised.[9] However, there are particular discretionary matters of which the plaintiff must necessarily have carriage if asserted.[10] These are matters which lie uniquely within the knowledge of the plaintiff.[11] If, for example, the plaintiff corporation asserts that an order for security would impose on it such a financial burden as would stultify the litigation, the plaintiff must establish the facts which make good that assertion.[12] In these cases an evidentiary burden falls on the plaintiff to prove the necessary facts.[13]
[9] Ibid at [21].
[10] Ibid at [22].
[11] Amcor at [19].
[12] Livingspring at [22].
[13] Amcor at [19].
Defendant’s submissions
32Loft contended the threshold test is satisfied because the MLBS has a total paid up share capital of $1,000 and no real property in its own name in Victoria. It was late making the payments ordered by Judicial Registrar Muller and has failed to pay the outstanding costs order against Mr Emond in circumstances where it agreed to cover all expenses including adverse costs orders required to recover the debt.
33In relation to the exercise of discretion, Loft contended that:
· impecuniosity of the plaintiffs is a significant discretionary factor and often a most significant factor.
· the lack of merit remains a relevant consideration: the lack of particularisation in the plaintiffs’ claim goes to the heart of the plaintiffs’ inability to substantiate their claim. Loft has given discovery on oath. The plaintiffs cannot blame Loft for their failure to provide adequate particulars to support their claim.
· the delay is explicable: MLBS was joined to the proceeding only in October 2021. Until then, Mr Emond was the only plaintiff, a natural person against whom security would not ordinarily be ordered. The plaintiffs’ solicitors simply failed to respond at all to the correspondence of the defendant’s solicitors regarding security. They cannot reasonably assert that they might not have spent funds on the litigation had they been forced to consider the prospect of an application for security at an earlier time. There is no evidence of prejudice to the plaintiffs due to delay in making the application.
· if the court is minded to take account of the delay in bringing the application, that might best be reflected in reducing the allowance for past costs.
34The defendant made a number of concessions in respect of the quantum of security sought, adjusting down the estimate arrived at by Ms Prasad.
Plaintiffs’ submissions
35On the threshold question, the plaintiffs contended that the fact the second plaintiff has total paid up share capital of $1,000 and no real property in its own name in Victoria alone is insufficient to establish a reason to believe that the second plaintiff will be unable to meet a costs order. It paid the $9,000 pursuant to the orders of Judicial Registrar Muller, albeit belatedly. MLBS is under no obligation to adduce evidence of its financial position and the rule in Jones v Dunkel cannot be used to fill gaps in the evidence. It is only MLBS’s inability to meet any costs orders that is relevant for the purpose of this application. The unpaid costs order made against Mr Emond on 15 February 2021 should not be taken into account because MLBS was not a party at the time. There is insufficient evidence to demonstrate that MLBS would be unable to meet a costs order.
36In relation to the exercise of discretion, the plaintiffs contended that:
· the Court should not treat the merits of the proceeding as a factor relevant to the exercise of its discretion. There is no evidence to suggest that the plaintiffs’ claim lacks merit. The documents Loft complains have not been discovered ought to be in its possession or control. The plaintiffs issued a subpoena to Sea Land and no documents were produced in response.
· Loft has delayed making the security for costs application. It merely raised it as a prospect in correspondence sent on 22 November 2021. Where Loft delayed in making an application for security such that the plaintiffs were left with the impression that no claim for security would be pressed, it is prejudicial to the plaintiffs for security for costs to be awarded in respect of costs incurred prior to the application.
· in the event the court does determine to make an order for security, the quantum of security sought is excessive.
Defendant’s submissions in reply
37In reply, Loft submitted that where MLBS chose not to put its financial position before the Court, publicly searchable information is the only evidence that the Court has before it. It is not necessary to draw an adverse inference. The evidence simply discloses that the MLBS does not have assets sufficient to meet a substantial costs order.
Conclusion
38I am satisfied that the Court’s jurisdiction to order security for costs is enlivened. When taken together, the paid up share capital of $1,000, the absence of real property in the second plaintiff’s name in Victoria and the late payment of the security for interest payments ordered by Judicial Registrar Muller, establish reason to believe MLBS will be unable to pay Loft’s costs if they are unsuccessful in the litigation. There is no evidence to the contrary.
39Weighing all the circumstances, including the matters addressed in respect of the threshold question, I am satisfied that an order for security for costs ought be made.
40In relation to the merits of the plaintiffs’ case, as a general rule, where a claim is prima facie regular on its face and discloses a cause of action, in the absence of evidence to the contrary, the Court should proceed on the basis that the claim is bona fide with reasonable prospects of success.[14] It will ordinarily not be practicable to reach any clear view about the merits of the plaintiffs’ claim, and the Court is not obliged to consider the merits of the plaintiffs’ claim at length.[15] However, that is not to say that the merits are always irrelevant or that the bona fides of the claim may be disregarded.[16]
[14]Colmax Glass Pty Ltd v Polytrade Pty Ltd [2013] VSC 311, [20].
[15]Ibid.
[16]Ibid.
41Whilst the lack of particulars of the alleged commissions and further payments, which go to the heart of the claimed joint venture agreement, raises some scepticism as to the merits of the plaintiffs’ claim, I consider this a neutral factor in the exercise of discretion as it is not practicable to reach a clear view at this stage.
42In relation to delay, MLBS was not joined to the proceeding until October 2021. The plaintiffs were put on notice that an application for security would be made about a month later. The plaintiffs did not respond. In my view, delay ought not preclude an order for security. Rather, there ought be a reduction in the allowance for past costs taking account of the delay in bringing the application. There is no evidence of prejudice to the plaintiffs.
43The plaintiffs did not contend that an order for security for costs would stultify the proceeding, or that Loft was the cause of the plaintiffs’ impecuniosity.
Quantum
44In deciding what constitutes sufficient security, the Court does not seek to provide full protection for the estimated costs of the party seeking security, but rather an amount that it considers adequate in all the circumstances of the case.[17] The amount ultimately fixed by the Court must not be so low that it fails to provide any real protection to the party seeking security, or so high that it is oppressive to the party required to provide the security.[18]
[17]Trailer Trash Franchise Systems Pty Ltd v GM Fascia & Gutter Pty Ltd [2017] VSCA 293, [63] (Tate and Kyrou JJA).
[18]Ibid at [65].
45In determining a sufficient amount for security for costs, the Court does not undertake precise mathematical calculations.[19] Rather it adopts a “broad brush” approach involving “guesstimates as much as estimates”.[20] However, the broad brush approach does not involve an abstract process.[21] It must have an evidentiary basis. The Court must have regard to the evidence adduced by the parties as to quantum — whether in the form of an affidavit by an experienced litigation lawyer or an expert report by a costs consultant — although it is not bound by the parties’ estimates.[22]
[19]Ibid at [64].
[20]Ibid.
[21]Ibid.
[22]Ibid.
Conclusion
46Having considered the costs estimate report of Ms Prasad dated 21 April 2022, the plaintiffs’ submissions and Loft’s concessions with respect to quantum, I consider that MLBS ought provide security for Loft’s costs up to and including the trial of the proceeding in the sum of $90,000. Such security is to be provided by payment into the Court or by providing security otherwise in a manner satisfactory to Loft.
47An allowance for the costs of this application is not included, because Loft is awarded the costs of the application.
48The proceeding is stayed until the security is provided.
49The plaintiffs pay the costs of and incidental to Loft’s application, fixed at $12,000.
50Reserve liberty to the parties to apply by email to the Commercial Division Registry ([email protected]) for further directions upon giving reasonable notice to all other parties.
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Certificate
I certify that these 50 paragraphs are a true copy of the Ruling of Her Honour Judge Brimer delivered on 8 July 2022.
Ilias Tsirogiannis
Associate to Her Honour Judge Brimer
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