Form8 Constructions Pty Ltd v Ives Road Custodian Pty Ltd

[2021] VCC 454

IN THE COUNTY COURT OF VICTORIA

AT MELBOURNE

COMMERCIAL DIVISION

Revised
Not Restricted
Suitable for Publication

GENERAL LIST

Case No. CI-20-05073

Form8 Constructions Pty Ltd	Plaintiff
and
Ives Road Custodian Pty Ltd	Defendant

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JUDICIAL OFFICER:	Judicial Registrar Muller
WHERE HELD:	Melbourne
DATE OF HEARING:	19 March 2021
DATE OF JUDGMENT:	23 April 2021
CASE MAY BE CITED AS:	Form8 Constructions Pty Ltd v Ives Road Custodian Pty Ltd
MEDIUM NEUTRAL CITATION:	[2021] VCC 454

REASONS FOR RULING
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Subject:  SECURITY FOR COSTS

Catchwords:               Security for costs – relief against forfeiture – whether relief against forfeiture a defensive proceeding

Legislation Cited:       COVID-19 Omnibus (Emergency Measures) Act 2020 (Vic); COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020 (Vic); County Court Civil Procedure Rules 2018 (Vic); Corporations Act 2001 (Cth)

Cases Cited:Epping Plaza Fresh Fruit & Vegetables Pty Ltd v Bevendale Pty Ltd [1999] 2 VR 191; Sydmar Pty Ltd v Statewise Developments Pty Ltd (1987) 73 ALR 289; Pun v Poon [2019] NSWSC 918; Interwest Ltd v Tricontinental Corporation Ltd (1991) 5 ASCR 621; Saint-Gobain RF Pty Ltd v Maax Spa Corporation Pty Ltd [2004] VSC 335; Colmax Glass Pty Ltd v Polytrade Pty Ltd [2013] VSC 311; Livingspring Pty Ltd v Kliger Partners (2008) 20 VR 377; Oswal v Australia and New Zealand Banking Group Ltd [2016] VSC 52; Olbers Co Ltd v Commonwealth of Australia [2002] FCA 1269; Aquatown Pty Ltd v Holder Stroud Pty Ltd (1995) 13 ACLC 1,847; Willey v Synan (1935) 54 CLR 175

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APPEARANCES:	Counsel	Solicitors
For the plaintiff	B Petrie	Rigby Cooke
For the defendant	S Gannon	B2B Lawyers

JUDICIAL REGISTRAR:

Summary

1. On 24 February 2021, the defendant issued a summons seeking orders that the plaintiff provide security for the defendant’s costs of the proceeding or such part of those costs as the Court considers appropriate. The defendant also seeks an order that if the plaintiff fails to pay the security for the defendant’s costs by the time specified by the Court that the plaintiff’s claim be dismissed with costs.
2. For the reasons that follow, I find that the power to order security is enlivened but in the circumstances of this case it is not appropriate to order that the plaintiff provide security for the defendant’s costs because I find that  that the defendant is in fact the aggressor in this proceeding and that either as a significant factor weighing against the exercise of my discretion in favour of the defendant, or as a prohibition on the making of an order, I decline to order that the plaintiff provide security for the defendant’s costs.

1. Assuming that my finding is that the defendant is the aggressor is only to be taken as a significant factor (and not a prohibition), I also find that when the other relevant factors are considered and weighed, the proper exercise of my discretion in this proceeding is exercised against the ordering of security.  

Background
The nature of the claims made in the proceeding

4. From around April 2017, the plaintiff claims that it leased from the defendant, either directly or via a sub-lease (Lease), the property at 7-11 Ives Road Altona North 3025 (Premises). Pursuant to the Lease, the plaintiff was obliged to pay the defendant rent and to obtain the consent of the defendant prior to doing alterations and fit-out works.
5. The plaintiff also claims that it qualified for, and participated in, the jobkeeper scheme. It says that as a result, the Lease is an eligible lease within the meaning of section 13 of the COVID-19 Omnibus (Emergency Measures) Act 2020 (Vic) (COVID Act).
6. It says that it requested rent relief from the defendant under regulation 10(1) of the COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020 (Vic) (COVID Regulations) and that as a result, it was entitled to certain protections, including that it was not to be regarded as being in breach of the lease by reason of non-payment of rent and the defendant must not evict or attempt to evict it for non-payment of rent (COVID Protections).
7. The plaintiff also claims that the installation of a gantry crane at the Premises did not require the consent of the defendant.
8. On about 7 October 2020, the defendant served a notice pursuant to section 146 of the Property Law Act 1958 (Vic) asserting a number of breaches of the Lease arising from the installation of the gantry crane, the alleged failure to pay rent and outgoings, the alleged failure to maintain the required security deposit, the sub-letting of part of the Premises by the plaintiff, and an alleged failure by the plaintiff to disclose to the defendant that a person named Feeney was an undischarged bankrupt. The notice required the plaintiff to remedy the alleged breaches within 14 days.
9. The plaintiff says that on 19 October 2020, it told the defendant that it had remedied the alleged breaches of the Lease regarding the gantry crane and that otherwise the alleged breaches were either not proper breaches of the lease or were in breach of the protections afforded to it by the COVID Act and the COVID Regulations.
10. The defendant did not accept the plaintiff’s position and on 15 November 2020, re-entered and took possession of the Premises. The plaintiff then commenced a proceeding in this Court, and on 19 November 2020, the Court ordered that, until the hearing and determination of this proceeding, the plaintiff could re-enter and remain in possession of the Premises.

11. The plaintiff claims declarations in respect of the alleged breaches of the Lease, damages for what is said to be the defendant’s breach of the Lease and, alternatively relief against forfeiture.
12. In February 2021, further claims were added by amendments to the plaintiff’s statement of claim being matters that had arisen essentially from the further conduct of the parties after the commencement of the proceeding and the issuing of a further notice by the defendant.
13. The defendant claims that the plaintiff has not met its obligations under the COVID Act and COVID Regulations (including by refusing to provide certain information) and that the plaintiff was not entitled to the COVID Protections. As a result, the defendant claims it was not obliged to offer rent relief pursuant to the COVID Regulations.
14. The defendant also sues by counterclaim for unpaid rent and alleged breaches of the Lease which it alleges entitled it to terminate the Lease and enter into possession of the Premises. The counterclaim also introduces a new party as a defendant to the counterclaim and pleads further alleged breaches of the Lease by the plaintiff.
15. The counterclaim seeks a declaration that the Lease is determined, forfeited and at an end, an order for possession of the Premises and damages. In the alternative that the Lease is not at an end, the counterclaim seeks a declaration as to the entitlement or not of the plaintiff to rent relief and the quantum, period, and terms of any such rent relief. It also seeks mesne profits.

Threshold Question

16. The power to order security for costs where the plaintiff is a company arises under rule 62.02(1)(b) of the County Court Civil Procedure Rules 2018 (Vic) (Rules) and section 1335(1) of the Corporations Act 2001 (Cth) (Corporations Act). Rule 62.02(1)(f) of the Rules also refers to the Corporations Act authority to require security for costs.
17. Rule 62.02(1)(b) provides that the Court may order security for costs “where the plaintiff is a corporation… 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”. Section 1335(1) of the Corporations Act provides:

(1)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.

18.This is the threshold question as to whether the jurisdiction of the Court to order security for costs is enlivened.

19.The defendant submits that the plaintiff would be unable to pay any costs order against it as the plaintiff is an impecunious company. The defendant submits that among other things, the facts that the plaintiff is or has been in arrears in rent payments, owns no property and has no known assets of substance amounts to credible testimony that there is reason to believe that the plaintiff will be unable to pay the costs of the defendant if successful. The plaintiff concedes and I accept, that the affidavit evidence of the plaintiff does not detail any assets and does not attempt to show that the plaintiff has capacity to pay any costs order and that the guarantors of the plaintiff are also unlikely to be able to pay any costs order.[1]

20.I find that the threshold test is passed and the jurisdiction of the Court is enlivened.

[1] Exhibits RB-1 to RB-4 of the Affidavit of Reid Bettridge sworn 23 February 2021

Discretionary Factors

21.The threshold test being passed, I must now determine how to exercise my discretion whether to order security for costs based on the facts of the case and guided by the factors set out in the authorities. This discretion is said to be “‘open-ended’ and not to be fettered by rigid guidelines or principles”.[2] However, the authorities set out factors to be considered by the Court, including:

[2]Epping Plaza Fresh Fruit & Vegetables Pty Ltd v Bevendale Pty Ltd [1999] 2 VR 191, 195.

a.the plaintiff’s prospects of success;

b.whether the making of the security order would stultify the pursuit of a legitimate claim;

c.whether the plaintiff’s financial difficulties were caused by the defendant;

d.whether the applicant has delayed in applying for security;

e.whether the plaintiff’s claim is merely defensive against self-help measures taken by the defendant; and

f.whether the defendant’s cross-claim raises the same facts and issues in dispute.[3]

[3]Sydmar Pty Ltd v Statewise Developments Pty Ltd (1987) 73 ALR 289, 299‑300 (Sydmar).

Prospects of success

22.The defendant submitted that the plaintiff was in breach of its obligation pursuant to the COVID Act and the COVID Regulations through non-payment of the plaintiff’s requested reduced rent in the period of August to December 2020. Noting that on 2 February 2021 the plaintiff made a second request for rent relief for the period of 1 January 2021 to 28 March 2021. On 5 January 2021, the plaintiff paid the defendant the rent owing for January 2021 in full totalling $45,626.90 and has paid reduced rent to the defendant for February and March 2021. That is, two payments of $20,988.37 on 10 March 2021 and 18 March 2021, as deposed by Mr Edward Cormie on 18 March 2021.

23.The plaintiff submitted that the defendant’s reading of the regulations was over technical and not within the spirit of the regulations which were implemented to protect tenants from eviction or forfeiture during the COVID-19 pandemic.

24.The case law establishes that where a plaintiff’s claim is prima facie regular and discloses a cause of action then, in absence to the contrary, the court should proceed on the basis that the claim is bona fide with reasonable prospects of success. Henry J noted in Pun v Poon that:[4]

[4] [2019] NSWSC 918.

It is an unusual case where a court is able to form any view as to the strength of a party’s case on an application for security for costs, which would influence its discretion in ordering security for costs.[5]

[5] ibid [26].

25.I find that the plaintiff’s case, based on its pleadings, is regular and discloses a cause of action. There being no evidence to the contrary, I give this factor no weight.

Plaintiff’s claim defensive

26.In my view, the critical factor is whether the plaintiff’s claim is defensive and whether the defendant and plaintiff by counterclaim is in fact the aggressor in this proceeding.

27.In Interwest Ltd v Tricontinental Corporation Ltd, Ormiston J held that:

[T]he fact that a plaintiff, or counterclaimant, has instituted essentially defensive proceedings, must be a significant factor in the exercise of the court’s discretion… we have to consider whether in substance, upon the facts of the particular case, the defendants in the original action are to such an extent plaintiffs in the cross-action, that they ought according to the general practice in the matter to be ordered to give security for costs, because they have taken up the position of plaintiffs, irrespective of defence to the original action.[6] 

[6] (1991) 5 ASCR 621, 626 (Interwest) as cited in Saint-Gobain RF Pty Ltd v Maax Spa Corporation Pty Ltd [2004] VSC 335, [39] (Saint-Gobain).

28.The defendant submitted that the plaintiff is “the aggressor in the subject litigation in commercial sense”.[7] In oral submissions the defendant conceded that they would have been forced to bring the counterclaim had the plaintiff not brought their claim.

[7] Defendant’s written submissions [9] citing Civil Procedure Victoria [62.01.25].

29.The plaintiff on the other hand submits that its claim is defensive in nature as they ‘arise in consequence of the Landlord’s failure to offer or provide rent relief, the landlord’s attempts to terminate the Lease and evict the plaintiff, and the landlord’s re-entry of the premises’. The plaintiff submitted that it would be “unjust to in effect prevent [the plaintiff] from pressing its claims in circumstances where those claims have been made as a last resort in response to the landlord’s own conduct”.[8]

[8] Plaintiff’s written submissions [40].

30.In Olbers Co Ltd v Commonwealth of Australia[9], French J (as he was then) held that the case before him was one in which the applicant brought proceedings to avoid condemnation of a ship by the Commonwealth and that, in that sense the proceeding was defensive and that this was either a significant factor weighing against an order for security (as Ormiston J held in Interwest)[10] or preventative of an order (as Sundburg J held in Aquatown Pty Ltd v Holder Stroud Pty Ltd[11]). 

[9] [2002] FCA 1269.

[10]Interwest (n 6).

[11] (1995) 13 ACLC 1,847 at 1,850.

31.His Honour Justice French also cited with approval Willey v Synan[12]. 

[12] (1935) 54 CLR 175 (Willey)

32.Willey stands for the proposition that where certain provisions of the Customs Act enable the officers of the Crown to take the preliminary steps by simple notices out of Court so that it is the claimant who must then issue proceedings to protect their interest, then the claimant is in substance not the attacker and is not liable to give security for the costs of the action.[13]

[13] Willey at 185 per Dixon J. Latham CJ, Rich and McTiernan JJ were all in substantive agreement.

33.In my view, that proposition applies to the present case, albeit by extension or analogy. The preliminary steps were taken here by the defendant by simple notice, forcing the plaintiff to issue proceedings to protect their interests. Further, the fact that the counterclaim would have been issued in any event is a further factor supporting a finding that the defendant is the true aggressor and weighing against the ordering of security.

34.The defendant’s counterclaim also raises the same facts and issues in dispute as the plaintiff’s claim in the original proceeding. The defendant’s counterclaim is a significant claim and it can no longer be said that the defendant is simply a compulsory party.

35.Accordingly, either as a significant factor weighing against the discretion or as a prohibition on the making of an order, I decline to order security for costs in this proceeding.

36.Assuming that Ormiston J’s position is to be preferred as the binding authority in Victoria, I also consider below the other factors relevant to the exercise of the discretion.

37.When those factors are weighed in totality with the finding that the defendant is the aggressor in this proceeding, I find that the proper exercise of my discretion in this proceeding is weighed against ordering security.  

Stultification of the plaintiff’s claim

38.The plaintiff submits that it would be stultified if security for costs was granted to the defendant as it is "highly unlikely to satisfy any order requiring it to give security, with the result it is then prevented from taking advantage of the protections which Parliament intended Form8 to have”.[14] The plaintiff also submitted during oral submissions that they have embarked on litigating this matter; pleadings have been filed and the matter is timetabled to trial.

[14] Plaintiff’s written submissions [42].

39.The defendant submits that “it is no answer to say an order for security would stultify the proceedings. The possibility that a plaintiff may be deterred from proceeding by an order for security is not, without more, a sufficient reason to order security”.[15] The onus to prove that the consequence of an order for security for costs would stultify the plaintiff’s claim lies with the plaintiff.[16]

[15] Defendant’s written submissions [18] citing Keary Developments Ltd v Tarmac Construction Ltd [1995] 3 All ER 534, referred to in Civil Procedure Victoria at [62.02.90], 5593.

[16]Colmax Glass Pty Ltd v Polytrade Pty Ltd [2013] VSC 311 [21] (Colmax), citing Livingspring Pty Ltd v Kliger Partners (2008) 20 VR 377, 383 [22].

40.Since this proceeding has commenced, the plaintiff has paid:

a.$100,000.00 into the defendant’s solicitor’s trust account pursuant to the orders of Trapnell J dated 19 November 2020 as payment of outstanding rent and outgoings on a non-admission basis on 19 November 2020;

b.$45,626.90 to the defendant as payment for January’s rent on 5 January 2021;

c.$20,988.37 to the defendant as payment of reduced rent for February on 10 March 2021; and

d.$20,988.37 to the defendant as payment of reduced rent for March on 18 March 2021,

totalling $187,603.64.

41.The plaintiff made no submissions as to the source of these payments. Clearly, when pressed, it has been able to make payment from its own resources, or obtain funds from others to make payments but it did not adduce evidence which shows a limit to the resources available to it which would result in a stultification of its claim if security for costs is ordered.

42.Therefore, I cannot find that the ordering of security would likely stultify the plaintiff’s claim and it therefore is not a factor which weighs against the granting of security.

Impecuniosity of the plaintiff cause by the defendant

43.The plaintiff submits that their financial difficulties have been caused by the defendant itself given that the plaintiff seeks damages for the Landlords illegal re-entry of the premises on 16 November 2020. The plaintiff claims to have suffered loss in consequence of the defendant’s unauthorised conduct.[17]

[17] Plaintiff’s written submissions [43].

44.The defendant did not make submissions as to the cause of the plaintiff’s impecuniosity.

45.For the purpose of determining this application, I find that the plaintiff’s financial difficulties commenced before 16 November 2020. The affidavit of Ms Karakatsanis deposes that the plaintiff was trading at a net loss is May 2019 and that the size of the net loss in May 2020 was increased due to COVID-19.[18] Further while the plaintiff had requested a reduction in rent from the defendant, the plaintiff had not paid rent from August 2020 to December 2020. Therefore, it cannot be said that the financial difficulties of the plaintiff are caused by the defendant’s re-entering the property.

[18] Exhibit NK-3 of the Affidavit of Nicola Karakatsanis sworn 18 November 2020.

Delay

46.In Oswal v Australia and New Zealand Banking Group Ltd, Sifris J said that “delay in making an application for security for costs… is a most important and often critical factor, essentially because it unfairly allows a plaintiff to proceed and incur costs on the assumption that no application is to be made.”[19]

[19] [2016] VSC 52 (Oswal).

47.The defendant submitted that this application is not a late application given that on 21 January 2021, a request was made to plaintiff that it give security for the defendant’s costs.[20]

[20] Exhibit RB-5 of the Affidavit of Reid Bettridge sworn 23 February 2021.

48.On 1 February 2021, the plaintiff requested that no application for security for costs be made until such time as a response was provided by them. The plaintiff stated that the response would be provided by 4 February 2021.[21] On 5 February 2021, the defendant notified the plaintiff that an application would now be made.[22] On 8 February 2021 the plaintiff confirmed that security would not be provided by consent.[23]

[21] Exhibit RB-6.

[22] Exhibit RB-7.

[23] Exhibit RB-8.

49.The initial request for security for costs came 7 days after the hearing of the second injunction application made by the plaintiff which was heard on 14 January 2021. The defendant then, however, did not file its summons with the Court until 24 February 2021.

50.The plaintiff submitted there has been evident delay in the defendant bringing this application. The plaintiff filed its statement of claim on 1 December 2020 and since that date the defendant has filed and served a defence and counterclaim and served a second s146 Notice. The plaintiff submitted that the defendant could have made its application for security before taking these steps.

51.I find that while the defendant has delayed to some extent in the bringing of an application for security, that delay would not warrant, by itself a complete refusal to grant security, particularly as the plaintiff was on notice of the defendant’s position by 21 January 2021.

52.However, as Sifris J observed in Oswal “if a plaintiff proceeds on the assumption that no [security for costs] application will be made, it may be harsh and unfair to require security for such past costs.”[24]

[24]Oswal [34].

53.In my view, that statement is apposite here. If I had exercised my discretion in favour of ordering security, then I would have limited security given to the period after 21 January 2021. I would also have limited it to the period up to the first day of trial.

Counterclaim on the same facts

54.As observed by Derham AsJ in Colmax, “the court would ordinarily seek to avoid the situation where the claim is stayed because of the inability of the plaintiff to provide security while the defendant’s cross-claim covering the same factual areas proceeds”.[25]

[25]Colmax [20(g)].

55.The original claim and the counterclaim in this proceeding arise out of substantially the same facts and issues in dispute. It would be unjust to allow the defendant’s counterclaim to run if the plaintiff’s proceeding did not because of an inability to satisfy a costs order, particularly as the second defendant to the counterclaim would be entitled, as the guarantor, to run much of the plaintiff’s case as a defence to the counterclaim and a factor that weighs strongly against the making or an order for security.

56.Combined with the fact that I have found the defendant to be the aggressor and balancing all the factors above, I find that an order for security for costs should not be made.

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Certificate

I certify that these 8 pages are a true copy of the judgment of Judicial Registrar Muller delivered on 23 April 2021.

Dated: 23 April 2021.

Julia Despard

Associate to Judicial Registrar Muller