Envirogrind Recycling Australia Pty Ltd v Devine Pty Ltd

[2009] VSC 466

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

PRACTICE COURT

No. S CI 2008 09259

ENVIROGRIND RECYCLING AUSTRALIA PTY LTD (ACN 110 347 209)	Plaintiff
v
DEVINE PTY LTD (ACN 010 769 365)	Defendant

---

JUDGE:	HARPER J
WHERE HELD:	MELBOURNE
DATES OF HEARING:	6 AND 7 OCTOBER 2009
DATE OF JUDGMENT:	7 OCTOBER 2009
CASE MAY BE CITED AS:	ENVIROGRIND RECYCLING AUSTRALIA PTY LTD v DEVINE PTY LTD
MEDIUM NEUTRAL CITATION:	[2009] VSC 466

---

PRACTICE AND PROCEDURE – Appeal from Associate Judge – Security for costs – Impecunious incorporated plaintiff – Whether the plaintiff has established that those standing behind the incorporated plaintiff and who stand to gain should the proceeding be successful can satisfy the Court that they are unable to provide security for costs – Appeal upheld.

---

APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr J.L. Smith	John X. Smith
For the Defendant	Mr M. Wise	HWL Ebsworth Lawyers

HIS HONOUR:

1. This is an appeal from a decision of an associate justice on an application by an incorporated defendant for security for costs against an incorporated plaintiff.  The judgment in question was delivered on 14 August 2009 after a hearing on 23 July this year.

1. The action is one for damages for breach of contract and for breaches of the Trade Practices Act.  The quantum of the claim is fractionally over $1 million.

1. The plaintiff is a $2 company.  I accept that it has no assets from within its own resources to finance this litigation.  I also accept that the plaintiff has a claim that cannot be said to be without any foundation.  Indeed, I have been asked to conclude that the plaintiff's claim is a strong one.  For the purposes of this application, I will assume that that is so.  I note in this context that the associate justice from whose decision this appeal is brought, held that the plaintiff's case was indeed one of considerable strength.

1. If I differ from the associate justice, it is about whether those individuals who stand behind the plaintiff and who will gain should this proceeding be successful, have the means to provide security where the plaintiff itself cannot.  It is trite law that those who stand behind an impecunious incorporated plaintiff, and who will profit on the successful conclusion of a law suit brought by that plaintiff, must where possible shoulder the risk of failure.  The alternative would transfer the cost consequences of failure to the opposition, which would be unable to recover its costs from the impecunious plaintiff.

1. Both sides have, since the judgment from which the appeal is taken, sought to file additional affidavit material.  One of these was sworn on 22 September 2009 by Darren Osborne Milne.  There was no opposition to its use before me, although I respectfully endorse an important principle enunciated by a number of my colleagues – that is, that proceedings before an associate judge should never be taken to be merely a dry run, with the real contest and the important evidence being delayed until the hearing of any appeal.  I nevertheless allowed the plaintiff to rely on Mr Milne’s affidavit, and I allowed the defendant to rely on one sworn by Ross John Grant on 1 October 2009.  I did so for reasons which require a little elaboration.

1. It is for the impecunious incorporated plaintiff to satisfy the court, if it can, that those who stand behind it and who will benefit from a judgment in its favour are themselves unable to provide security for costs.  When the application came before the associate justice, that evidence was in my opinion too thin to discharge that onus.  It was in the form of an affidavit sworn on 22 July 2009 by Daniel James Gaylor, who was one of the two individuals who fell within the relevant category (of those who will profit from the plaintiff’s success).  Mr Milne (who did not go on affidavit until after the hearing before the associate judge) was the other.  Mr Gaylor said enough about his own financial circumstances to satisfy the associate judge, and to satisfy me, that he was not and is not in a position to meet an order for security.  But Mr Gaylor’s evidence about Mr Milne’s capacity to provide security was in my opinion such as to indicate that his position might well be different.  Accordingly, the defendant was, I think, justified in going to the associate justice on the basis that the plaintiff had not discharged the burden which on this aspect of the case rested with it.  In any event, Mr Gaylor’s affidavit was filed on the day before the hearing and, therefore, the defendant had no opportunity to respond.

1. For these reasons, I allowed the defendant to rely, for the purposes of the appeal, on an affidavit (that of Mr Grant sworn on 1 October) filed after the original hearing.  Another consideration in allowing the defendant to rely upon Mr Grant's second affidavit is that it would be otherwise be unfair to shut him out while allowing the plaintiff to rely upon its additional material.

1. The defendant seeks an order for security for costs in the sum of $90,000.  That sum has been calculated on the basis that it would cost the defendant that amount plus some 25 per cent more to bring the case to the close of the first day of trial.  There has been no challenge, certainly no serious challenge, to the evidence put forward in relation to the defendant's costs.  I accept that evidence.

1. I also accept that, appropriately discounted, the sum of $90,000 represents the defendant's costs up to and including the first day of trial, including too a mediation to take place at some time before trial.  I have taken into account, in addition, the fact that, by an agreement between the two original shareholders in the plaintiff, Mr Milne and Mr Gaylor, Mr Milne is to be paid half of the proceeds of any judgment in the plaintiff's favour.  It follows that if the plaintiff is wholly successful and receives judgment for the amount of its claim, just over $1 million, Mr Milne will receive fractionally over $500,000.  Putting up $90,000 to gain $500,000 seems to me to be a reasonable demand so long as the $90,000 is not, for practical purposes, unattainable.  I do not think that it is.  Indeed, I find that (a) Mr Milne has assets which could be used as security to raise the sum of $90,000 by way of security for costs and (b) that he could afford to finance the raising of that sum.   

1. In those circumstances, it seems to me to accord with justice to require Mr Milne to meet, at least to the extent of $90,000, the deficiency in the plaintiff's finances.  In my opinion, an order for security in that amount would not prevent the plaintiff from continuing with its litigation, and would grant the defendant an appropriate sum which, by way of justice, it is entitled to receive as security for its costs, up to and including the first day of trial.

1. For those reasons it seems to me that the appeal should succeed.

---