G and R Rossen Pty Ltd v Buchanan
[2019] WASC 373
•16 OCTOBER 2019
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: G & R ROSSEN PTY LTD -v- BUCHANAN [2019] WASC 373
CORAM: KENNETH MARTIN J
HEARD: 20 SEPTEMBER 2019
DELIVERED : 16 OCTOBER 2019
FILE NO/S: CIV 1898 of 2016
BETWEEN: G & R ROSSEN PTY LTD
Plaintiff
AND
PETA ANN BUCHANAN
Defendant
Catchwords:
Practice and procedure - Application for further and better discovery - Redacted documents - Relevance of redacted information - Relevance to equitable account of profits against defendant - Further and better discovery ordered
Costs - Application for security for costs - Whether jurisdictional threshold of s 1335(1) of the Corporations Act 2001 (Cth) is met - Alleged delay - Reason to believe inability to pay legal costs - Further security ordered - Turns on own facts
Legislation:
Corporations Act 2001 (Cth)
Result:
Plaintiff's application for further and better discovery granted in part
Plaintiff to provide security for the defendant's costs in the further amount of $75,000
Category: B
Representation:
Counsel:
| Plaintiff | : | Mr P Mendelow |
| Defendant | : | Mr J M Healy |
Solicitors:
| Plaintiff | : | Williams & Hughes |
| Defendant | : | Bailiwick Legal |
Case(s) referred to in decision(s):
Christou v Stanton Partners Australasia Pty Ltd [2011] WASCA 176
FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69
Fiduciary Ltd v Morningstar Research Pty Ltd [2004] NSWSC 664; (2004) 208 ALR 564
Gartner v Ernst & Young (No 3) [2003] FCA 1437
M'Intosh v Great Western Railway Co [1850] 2 Mac & G 74; (1850) 42 ER 29
Opes Prime Group Ltd (in liquidation) v Niako Investments Pty Ltd [2014] VSC 414
Patrick Jebb as trustee for the Trafalgar West Investments Trust v Superior Lawns Australia Pty Ltd [2019] WASC 121
Rowe v National Australia Bank Ltd [2019] WASCA 140
Swansdale Pty Ltd v Whitcrest Pty Ltd [2010] WASCA 129
Western Areas Exploration Pty Ltd v Streeter [No 2] [2008] WASC 217
KENNETH MARTIN J:
I am dealing with two distinct interlocutory applications in this action (the applications). The litigation was commenced in 2016 and is edging towards an anticipated trial of seven days' duration, although the matter is not yet entered for trial. There is a likelihood that after the present applications the plaintiff's amended statement of claim of 27 February 2019 ('ASOC') will require some further adjustment.
Plaintiff's application for further and better discovery
The first interlocutory dispute concerns the plaintiff's application by a chamber summons of 19 September 2019, seeking further and better discovery (the application for further and better discovery). Further and better discovery was sought under par 1(a) of the chamber summons in respect of three documents which have been discovered by the defendant, documents numbered 25, 31 and 44, being Western Suburbs Real Estate ('WSRE') management agreements. WSRE is controlled by the defendant and is a corporate entity established by the defendant after she left the employ of the plaintiff in March 2016. In effect, she left then to set up her own competitive real estate management business in the western suburbs and against the plaintiff's business in the same area.
The issue underlying the application for further and better discovery concerns the objection by the plaintiff made against the defendant's unilateral redaction of information within the three WSRE management agreements. Specifically, the information which has been redacted and which the plaintiff presses for as relevant, is the financial remuneration commission rate that is to be be paid under each management agreement to WSRE.
As filed, the plaintiff's chamber summons had also sought under par 1(b) further and better discovery in respect of any further WSRE management arrangements with former clients of the plaintiff that had not already been discovered. This has ultimately become unnecessary to consider, as counsel for the plaintiff accepted that relief could not legitimately be pressed, as the required legal threshold for showing confidence in a likely existence of such documents, was not met (see ts 88). In my view, that concession was properly made.
In addition, some further discovery related relief was sought under pars 3 and 4 of the plaintiff's chamber summons - as regards obtaining an affidavit from the defendant fully explaining the circumstances in which the defendant came to have destroyed or disposed of a mobile telephone handset that she had once used during the time of her former employment in 2015 with the plaintiff. But that relief came to be essentially overtaken and satisfactorily addressed by an affidavit sworn by the defendant subsequent to the filing of the plaintiff's chamber summons (see the affidavit of Peta Ann Buchanan sworn 12 July 2019 and ts 85 - 86). That affidavit also addressed the subject matter of par 4 of the plaintiff's chamber summons, which sought leave to administer an interrogatory to the defendant concerning an alleged deletion of SMS messages from the said mobile telephone handset, in or about early April 2016.
Hence, the issue of costs is now all that remains outstanding on the handset and SMS deletion issues. Naturally enough, the plaintiff seeks its costs associated with needing to prove that aspect of the application, on the basis that its position was essentially vindicated by the defendant's affidavit and so that the plaintiff ought to have its costs of bringing the application in those now redundant respects.
Defendant's application for further security
The second interlocutory dispute concerns the defendant's application by chamber summons of 7 June 2019, seeking an order for further security for her trial costs against the plaintiff, to be provided on the basis that the criteria for security for costs to be ordered against the plaintiff pursuant to s 1335(1) of the Corporations Act 2001 (Cth) is met and on the assumption that she will succeed at trial and will then be at risk of not recovering back her costs (the application for further security). This order is sought in circumstances where the plaintiff has already paid some $75,000 as security for costs.
Essentially, the application for further security is resisted by the plaintiff for two main reasons. First, it says that the jurisdictional threshold to order security for costs is not met. By reference to the terms of s 1335(1) of the Corporations Act, the plaintiff's position is that the defendant has failed to establish by credible testimony that there is any reason to believe that the plaintiff will be unable to pay the costs of the defendant, if the defendant wins at the forthcoming trial and afterwards is awarded her costs of the trial and of defending this action.
Secondly, the plaintiff contends the defendant has delayed unacceptably in advancing the present application for further security and her lassitude in that respect is alone sufficient for her to be debarred from receiving any further security.
Only in the event that those two plenary negative bulwarks against security are surmounted does the plaintiff then contend that, in any event, that the most any further security that ought be provided beyond what is already held, is a further $50,000.
The underlying procedural background behind both these interlocutory applications is of necessary assistance to their respective resolutions. With this in mind, I first turn briefly to the parties' current pleadings at this time, particularly to the ASOC.
The parties' pleadings
The current pleadings are the ASOC, that is responded to by the defendant's further amended defence of 27 May 2019 (FAD).
I am looking at the pleadings essentially because issue relevance is a key determinant to any resolution of the application for further and better discovery brought in respect of the disputed redacted information in the three WSRE management agreements, as regards the redacted remuneration payable thereunder paid by clients whose properties are managed by WRSE. Likewise, an understanding of the commercial dispute and the contentious issues involved, along with a high altitude view of the potential merits of the litigation necessarily forms part of the context for evaluating the application for further security.
In short, the pleadings display a contract dispute (with extras) over the employment relationship that once existed between the plaintiff and the defendant and which ended under the defendant's departure notice period being served out by her at 31 March 2016. There is also an equitable relief dimension to the ASOC which, as will appear, is important to any end determination of relevance which I have reached on the application for further and better discovery.
The plaintiff is the trustee of the G&R Rossen Family Trust, which trades as Rossen Real Estate. The litigation relates to the plaintiff's (recently sold) business of managing properties as a part of the business of Rossen Real Estate. More colloquially, it seems that the plaintiff had, as part of the business, established what is known as a rent roll and had derived commission income that was assessed and calculated by reference to the level of the rents paid by the occupiers of the managed properties.
There seems to be little dispute that Mr Gregory Rossen was the sole director and had overall governance responsibility for the business of Rossen Real Estate. Nevertheless, it would also appear that the defendant had been a long term and senior employee of that business. She is referred to at par 10 of the ASOC as being its 'senior property manager and general manager', albeit some issue is joined over that by her in par 10 of the FAD, where she contends that she was simply employed by Rossen Real Estate as a property manager.
During the course of arguments of the applications before me it was said from the bar table that the defendant had been engaged by the plaintiff for quite a number of years before her departure, was a well regarded and very senior, if not the most senior, employee within Rossen Real Estate, and that prior to her voluntary departure at the end of March 2016 had received remuneration of about $200,000 per annum, reflecting her skills and the high regard (then) of her employer (see ts 92). However, most of that is yet to be pleaded.
One important counter‑point to note is that the defendant is not contended to have ever been a director or co-venture partner with the plaintiff or Mr Rossen in this business. She was simply an employee, albeit, it would seem, a senior and long standing one, held then in high regard by the plaintiff and, it would appear, widely respected by clients of the plaintiff's business for her management skills and her diligence in her particular field of managing rental properties.
Interestingly, in such circumstances, the ASOC, albeit referring at par 10 to the defendant's employment under an 'employment agreement', then pleads no express terms at all of that agreement. Thus, none of the usual express employment relationship terms concerning restraint of trade, confidentiality obligations post departure or, indeed, any of the multitude of commonly seen express employment terms arising under an everyday employer/employee relationship, are pleaded here. The only 'terms' of the defendant's employment agreement contended for by the plaintiff are those as seen under pars 14.1 and 14.2 of the ASOC, which terms are said to be implied and to arise as a matter of law. Those two contended implied terms are to the effect that the defendant:
14.1owed Rossen Real Estate a duty of good faith and fidelity;
14.2would comply with the lawful and reasonable instructions of Mr Rossen.
Neither implied term of law is admitted under the FAD (see FAD, par 14).
The plaintiff's breach of contract and resultant damages argument against the defendant manifests under par 30 of the ASOC, contending a breach by the defendant of her employment agreement by breach of the respective implied terms. The breach conduct is contended for under par 29 (by reference to pars 15, 26, 27, 28 and/or 28A of the ASOC). Essentially the defendant is alleged to have breached her employment agreement by failing to cause or attempt to cause Rossen Real Estate's property owner clients to renew, or to enter new management agreements with Rossen Real Estate. By that conduct, the defendant is said to have failed to comply with Mr Rossen's instructions to her to not tell any of Rossen Real Estate's property owner clients that she was leaving her employment and/or, allegedly solicited business from plaintiff client property owners who had existing management agreements in place with Rossen Real Estate (before she left her employment with Rossen Real Estate at the end of March 2016).
The heart of the plaintiff's currently pleaded breach of contract and damages grievance seems to be tied to a contention that from some time around October 2015, the defendant had been receiving verbal instructions from Mr Rossen to take steps to see that existing Rossen Real Estate clients were signed up further to longer fixed term management agreements for their properties (either for further 12‑month or 24‑month fixed periods). That grievance of breach seems to be asserted in circumstances where it is said that a number of the subsisting management agreements then subsisting as between Rossen Real Estate's clients making up part of the business rent roll had, in a temporal sense, run on beyond their initial fixed periods, and so, were only continuing to be performed on a periodic basis - thereby rendering such management agreements liable (unless renewed) to be lawfully terminated by the property owner client, on 28 day's notice.
The plaintiff's pleaded breach of contract and damages grievance appears to be that before 31 March 2016, many of Rossen Real Estate's property owner clients then operating under periodic management arrangements, would have been amenable, had they been asked, or perhaps presented with renewable fixed term management contract terms, to enter further fixed arrangements. But they were not so approached or asked then to renew with Rossen Real Estate (as Mr Rossen had asked the defendant to do), leaving the plaintiff vulnerable to those clients later on leaving the business on only 28 days notice to then pursue in future the benefit of a more competitive market in the provision of management services for their properties.
The correlative grievance of the plaintiff is that when the defendant left her employment with Rossen Real Estate at the end of March 2016, a number of the former clients of Rossen Real Estate who had not then renewed, as a matter of choice, chose to follow the defendant, and then to enter into new management agreements for their properties with her new business, operating under the corporate structure of WSRE. Hence, it seems to be said that the capital value of the plaintiff's rent roll diminished, as former clients left and followed the defendant to use her new property management business.
As is also seen from the terms of the current ASOC, it is contended that prior to her departure, the defendant had allegedly solicited business from property owners who held existing management agreements in place with Rossen Real Estate (see par 26 of the ASOC). This is explicitly denied by the defendant (see par 26 of the FAD).
For her part, the defendant by her FAD denies any wrongdoing at all. She admits that she left her employment with the plaintiff at the end of March 2016, having served out an extended period of notice. Since then she accepts, basically, she has set up her own competitive property management business in the western suburbs of Perth (ie, WSRE) and using her personal management skills and enjoying the good personal business reputation she holds, having worked successfully in the local industry for many prior years.
In addition to the damages action for breach of contract, the plaintiff also runs an alternate equitable cause of action, predicated on the defendant's alleged breach of her fiduciary duty allegedly owed to the plaintiff - in terms both of her preferring her own interests, above the interests of her then employer, and by wrongly obtaining for herself benefit or gain from a use of her former position - to the disadvantage of her former employer. To that end, I refer to pars 31, 32 and 33 of the ASOC, noting that under its prayer for relief that the plaintiff seeks relief further or alternatively above and beyond the primary damages relief under common law, an account of profits, or alternatively, equitable compensation arising out of the same material facts put against the defendant.
During the course of arguments of the applications, I was taken to the pleadings by counsel for the plaintiff. Arising out of that dialogue, it would appear the breach of contract claim as is currently pleaded, requires some future modification and augmentation. That is particularly so in the area as regards the breach conduct alleged against the defendant, where it seems to have emerged that the intended plea of breach conduct put against the defendant ought more correctly contend that the defendant failed to take reasonable steps by way of making attempts to secure the entry and execution of further fixed term contracts by the plaintiff by existing clients, whose management arrangements were then on a periodic basis.
That future need for amendments as regards the current ASOC has emerged in circumstances where there appears to be little conceptual disagreement that the plaintiff could not have reasonably expected the defendant to sign up its then clients to further fixed term agreements, in circumstances where the clients were personally either unwilling or unable to enter such extended management arrangements with the plaintiff. It also then emerged that the plaintiff's common law damages case was intended to be pursued, essentially, as a loss of chance, or a loss of opportunity to, effectively, sign up clients of the plaintiff's business (if any) to further fixed term arrangements who, if approached, would then have been willing to enter such arrangements, but not otherwise (see ts 96).
Taking the plaintiff's intended common law loss of opportunity and breach damages case as so articulated focuses attention on the true nature of its damages or loss contended to arise as a result of the breach conduct of the defendant. In the context of the application for further and better discovery as regards the redacted information over the rate or level of remuneration payable to the defendant's rival business, the question that must be posed is: what is the character and level of the lost opportunity remuneration that the plaintiff contends was otherwise lost by reason of the defendant's alleged omission conduct in not signing up amenable existing clients to extended period further contracts with the plaintiff?
I am now in a position to deal with the two substantive interlocutory applications in the light of this background.
Determination: the application for further and better discovery
On my assessment, under the current state of the pleadings, it is relevant for the plaintiff to know and so, to have access to the rates of remuneration which are being paid under property management agreements entered into with the defendant's controlled corporation WSRE - which financial information stands as currently redacted.
The redacted information, in my assessment, is relevant to an aspect of the pleaded case of the plaintiff - by it seeking equitable relief from the defendant by way of an account of profits from the defendant's rival business. This is so in circumstances where it is put that those profits arise from the defendant's illegitimate conduct by the preferring of her own interests, or by her acting in the interests of third parties (her rival corporations) and against the interests of her former employer. That (mis)conduct allegedly began by her not signing up existing clients to further management agreements, when they were or would have been amenable to making a further commitment and using the services of the plaintiff. Clearly, this cause of action stands or falls on the plaintiff being able to prove such a fiduciary obligation or duty as being owed to the plaintiff, arising out of and during the defendant's former employment with the plaintiff.
As to the equitable account of profits remedy itself, see the recent decision of the Court of Appeal in Rowe v National Australia Bank Ltd [2019] WASCA 140. In that decision, Murphy JA and Sofronoff AJA (with whom Quinlan CJ agreed) discussed 'Accounting - General Principles' commencing at [55] of those reasons. See particularly reference at [62] to the case of M'Intosh v Great Western Railway Co [1850] 2 Mac & G 74; (1850) 42 ER 29, 37 and to observations of Lord Cottenham concerning an interplay between an action for damages for breach of contract with equitable relief by way of assistance in support of a legal right. See also Rowe at [64] referring to ten categories, as identified by Meagher Gummow & Lehane's Equity: Doctrines and Remedies (5th ed, 2015) where equity may decree an account in support of a legal right. In particular, note category (2), for fiduciary or quasi fiduciary relationship.
Were it not for the plaintiff's pleaded claim for equitable relief by way of an account for profits under the ASOC, I would have struggled otherwise to uphold the application for further and better discovery, if only grounded on the alleged relevance of the redacted information for its common law loss of opportunity damages case. The reason for that, as canvassed with counsel at the hearing, is that the true character of such common law damages for loss of opportunity, on my assessment, would be for the loss of the potentiality of signing up existing clients of the plaintiff to extended terms of agreement under new and extended management contracts. But those fresh contracts as so hypothesised for the plaintiff must surely then have been struck at the rate of management commission or remuneration that was then being asked for by the plaintiff and not at the rate sought by some hypothetical future property management business rival. In other words, the rate of remuneration later agreed to be paid to WSRE under post March 2016 management contract relationships with its clients would not represent the lost potential common law opportunity damages arising out of a loss of any lost opportunity, held prior to the end of March 2016. What would hypothetically have been lost was the chance to sign up existing clients to new agreements at the plaintiff's rates of remuneration, no‑one else's.
The written submissions of the plaintiff filed in support of the application for further and better discovery, as, indeed, was most of counsel for the plaintiff's argument, was grounded on the relevance of the redacted information to the common law breach of contract claim for lost opportunity damages. As now seen, had that been the sole basis for contending relevance in the redacted information, the application for further and better discovery would have failed. Nevertheless, the pleaded claim for equitable relief under the ASOC has been in situ for some years. It, as I have explained, suffices to establish a basis in relevance for the redacted information to be given. So, in the end, the application for further and better discovery succeeds as regards the relief sought under par 1(a) of the chamber summons.
Costs
That success upon relevance, however, in the context of the costs of the present application for further and better discovery has sprung, essentially, from arguments that did not find their way into the written submissions of the plaintiff. Moreover, there is also the question of the ultimately not pressed wider further and better discovery application under par 1(b) of the plaintiff's chamber summons. Moreover, there is also what became the redundant interlocutory relief arising by reason of the subsequent affidavit as sworn by the defendant. The question of interlocutory costs in the present smallish commercial dispute takes on a significance greater than it normally would.
Given mixed successes as overall considerations, I am of the end view that the appropriate order as to the costs on the plaintiff's application for further and better discovery should be that the defendant is to pay the plaintiff's costs lying in the cause of this action. In other words, the plaintiff will need to succeed at the trial in order to obtain its taxed costs of pursuing this application for further and better discovery. If the plaintiff loses at the trial, then there will be no costs awarded concerning this application for further and better discovery. In my assessment, that would be a just costs outcome, given all the divergent underlying factors presenting around the application as they unfolded.
Determination: the application for further security
A considerable array of affidavit material was assembled and read for the purposes of the defendant's opposed application for further security for her costs.
In terms of the evidence, the defendant read and relied upon three affidavits sworn by herself, respectively on 6 June, 8 August and 16 September 2019. In addition, she relied upon an affidavit by her lawyer, Philip George Brunner, sworn 7 June 2019 (the Brunner affidavit). The Brunner affidavit at par 26 displays an exercise broadly in the nature of something approaching an assembly of a draft bill of costs - for the purpose of the defendant preparing for and participating in a defence of a future seven‑day trial in this court. Items 26(a) - 26(i) as seen within the Brunner affidavit aggregate his estimation of fees for work and disbursements assembled at scale rates, including expert fees, amounting to $176,279. Mr Brunner's assessment is said to not include any allowance for the cost of pursuing the presently opposed security for costs application itself.
Whilst clearly an estimation, my general impression is that the exercise under par 26 of the Brunner affidavit is, broadly speaking, 'within the ballpark' for what is an inherently imprecise predictive exercise of future trial costs. No real substantive criticism was directed at the hearing at that estimate by counsel for the plaintiff, other than to observe that the present application for further security seeks, in effect, a full indemnification, were a further $100,000 security ordered, albeit by reference to amounts as estimated by Mr Brunner compiled in accord with presently applicable costs allowance scales.
Opposing the application for further security, the plaintiff read and relies on three affidavits of the plaintiff's sole director and shareholder, Mr Gregory Rossen, sworn respectively on 2 August, 15 August and 27 August 2019. In addition, reliance is placed upon an affidavit of his daughter, Ms Emily Rossen, sworn 27 August 2019, and on an affidavit by one of the plaintiff's lawyers of record, Mr John Andrew Robertson, sworn 15 August 2019.
Beyond that rival evidentiary material of an unusually high level for a commercial dispute of smallish dimensions, there were extensive written outlines of submissions exchanged for the purposes of the hearing. To that end, I hold the defendant's written submissions of 15 August 2019, citing what are now very well settled principles in respect of security for costs sought under s 1335(1) of the Corporations Act.
Opposing any further security, the plaintiff, as I mentioned, says first that the jurisdictional threshold to order security for costs under s 1335(1) of the Corporations Act, is not met. As regards that jurisdictional issue, the plaintiff contends that there is no reason to believe it is impecunious, or would be unable to pay awarded taxed costs of the defendant were she ultimately to be successful after a seven day trial and thereafter be awarded her costs of defending this action.
The plaintiff points out that it has, in effect, recently ceased to conduct a property management business. It has recently sold off its rent roll. That has happened under an instalment acquisition contract, resulting in it receiving an initial payment of $311,633 and with further tranches of purchase price due and expected in the amount of $198,377 by 1 October 2019 and with a final payment instalment of $109,913 at 1 February 2020.
The plaintiff further points out, as regards its suggested secure financial position to comfortably meet a future costs exposure to the defendant, that Mr Rossen has undertaken not to call for the payment of any amount from his beneficiary loan account (currently standing at $1,240,307) as is due to him from the G&R Rossen Family Trust unless and until any adverse costs order that may be made against the plaintiff in this action is satisfied (see Mr Rossen's 27 August 2019 affidavit, par 5).
The plaintiff also rejects the assertion that the mere fact that it is a corporate trustee (and would therefore need to seek indemnification against the assets of the G&R Rossen Family Trust, should it ultimately fall under a taxed costs exposure liability to the defendant) creates any prima facie exposure in it to a costs order. The plaintiff, in effect, points to the suggested healthy state of the trust's balance sheet, particularly after the recent realisation of the proceeds of the sale of the rent roll asset and the likely receipt of the forthcoming instalment purchase proceeds.
The plaintiff contends its claim against the defendant should be assessed from the pleadings, essentially as prima facie regular on its face, disclosing what are arguable causes of action. It submits the court should proceed on the basis of merely assessing the plaintiff's claims against the defendant as being bona fide and with reasonable prospects of success - applying observations from Opes Prime Group Ltd (in liquidation) v Niako Investments Pty Ltd [2014] VSC 414 at [28], a decision of Derham AsJ in the Supreme Court of Victoria.
However, beyond jurisdictional issues for the defendant to meet as regards a risk of non-payment of her costs, the major resistance bulwark as put by the plaintiff contends the defendant has delayed for a period of approximately three years in the bringing of the present application for further security following the commencement of the action against her. It submits the litigation is now considerably advanced towards trial (albeit not yet entered for a trial and with some structural pleading amendments by the plaintiff now on the horizon to the ASOC). To the end of a disqualification by reason of asserted undue delay, reliance is placed on the observations in the Court of Appeal of this State in Christou v Stanton Partners Australasia Pty Ltd [2011] WASCA 176 [20] ‑ [23] and [32] (per Newnes JA, Murphy JA agreeing).
The plaintiff also takes issue against the defendant's suggestion that its prior payment into court of $75,000 amounted to any sort of concession made by the defendant concerning the legitimacy of a security for costs claim. A review of the correspondence associated with that payment bears out that observation. As I observed during oral arguments, I accept the submission that the $75,000 already held in court as security was paid by the plaintiff on a no admission basis, when made (see ts 129). Nevertheless, the $75,000 consequently as now held is a factor to be acknowledged in terms of weighing the present need for a further $100,000 'top up' - which is, in effect, what is sought under the present application for further security by the defendant.
In present circumstances, however, there is no further contention put by way of resistance by the plaintiff to the effect that it is unable or would be unduly prejudiced in any way from an access to justice perspective, by it being required to render to the defendant a (further) security payment, in the order of $100,000. Consequently, this is not a case where a plaintiff that is in somewhat strained financial circumstances, says that it has made a significant past investment in pursuing the litigation over prior years and, effectively then, would be fiscally barred, prejudiced or unduly hampered by needing to raise extra funds to meet an unduly late security for costs application made by a defendant.
No such specific fiscal prejudice is contended for by the plaintiff. Nor is it contended the plaintiff suffers any level of impecuniosity, or that it is hampered in providing the requested level of security by reason of subject matter litigious misconduct of the defendant - which grounds the very causes of action brought against her.
It is not put, therefore, that the plaintiff's pathway to a trial would be thwarted or emasculated by a further security for costs order to the extent of an extra $100,000, if the court otherwise assessed that course appropriate, in all the circumstances.
General security for costs principles
The parties each disproportionately assembled numerous case authorities in support of their rival respective positions contending either for or against the present security for costs application by the defendant.
There is no need in the circumstances to recanvass what are well settled principles in this area. I have already mentioned the observations of the Court of Appeal in Christou v Stanton Partners Australia Pty Ltd. In terms of further statements of general principle around a security for costs application that is brought exclusively by reference to s 1335(1) of the Corporations Act, I mention my observations in Swansdale Pty Ltd v Whitcrest Pty Ltd [2010] WASCA 129 and authorities discussed between [65] ‑ [74] in those observations (with which Pullin JA agreed).
As I said at [74] of Swansdale, by reference to observations of Austin J in Fiduciary Ltd v Morningstar Research Pty Ltd [2004] NSWSC 664; (2004) 208 ALR 564 [37] - [38]:
Each case will be different and present its own unique considerations ...
Earlier in Swansdale at [72] I had observed by reference to observations of Mansfield J in Gartner v Ernst & Young (No 3) [2003] FCA 1437, as regards assessing the merits of an action that a court 'will generally not be required to investigate in considerable detail the likelihood or otherwise of success in the action': see Gartner [10].
I also mention generally the observations made by Le Miere J in assessing a security for costs application in Western Areas Exploration Pty Ltd v Streeter [No 2] [2008] WASC 217 [24] - [29], [43] - [50] and [58] - [60]. As his Honour had observed at [25]:
… Section 1335 [of the Corporations Act] carries both a threshold test and a discretionary test. The threshold test is whether it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the legal costs of the defendant.
See also his Honour's reference at [35] to observations of Pidgeon and Owen JJ in FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69 [11], also mentioned in Swansdale [68].
With such general observations in mind, I turn to the s 1335(1) jurisdictional threshold issue, namely, whether it appears by credible testimony that there is 'reason to believe' that the plaintiff would be unable to pay the costs of the defendant, if she is successful in her defence of the present action at the trial.
Jurisdictional threshold
Too much material as a matter of proportionality in the present dispute has been assembled concerning the parties' rival positions over the threshold question. In the end, I am of the view that, as regards what remains a predictive exercise, that the threshold has been met by the defendant: see observations in Swansdale [68] - [69].
Four main considerations lead me to that conclusion. First, the plaintiff corporation is, as seen, the trustee of a trading trust. As such, it stands reliant upon its indemnity against trust assets, which it will ordinarily enjoy in the event of the trustee incurring a legitimate costs liability to a defendant in the wake of an unsuccessful action.
Here, I am left not so impressed by the state of the trust's balance sheet as it currently looks, following the asset sale of the trust's rent roll business and a realisation of the sale consideration in return for that formerly non-current asset. I do not reach any level of comfort that there is no or minimal risk to the defendant in possibly 24 to 36 months' time when, or if, a costs liability ever befalls the plaintiff, that the defendant's cost recovery position is comfortably assured against the level of the trust assets available to indemnify the plaintiff.
Although the trust's rent roll business has been sold and the consideration for that asset will have been realised, I was told at the hearing that the plaintiff as a trustee of this trading trust, continues to actively trade into the future - in the plaintiff's retained and continued real estate business (see ts 136 and 157). But the vicissitudes of business are such that a capital amount realised upon the sale of the rent roll is not permanently secured against the negative vicissitudes of future business trading. Nor does the net balance sheet position of the trust on the material put before me present as so demonstrably in surplus as to lead to a level of comfortable satisfaction about the state of the plaintiff's long term future financial health. In short, I detect some level of cost recovery risk for the future (if the defendant is successful).
Second, I have taken cognisance of the undertaking given by Mr Rossen as regards him not calling upon the trust's liability to him to pay his beneficiary loan account for an amount in the order of $1.2 million. Whilst that is something, in my view, it does not go far enough. It falls some way short, in my view, of Mr Rossen affirmatively standing behind the plaintiff and expressly accepting a personal responsibility to also meet the defendant's taxed award of costs, in the eventuality that the plaintiff's action is lost and that she becomes entitled to her costs of defending the action.
I accept a submission of counsel for the defendant that the present undertaking of Mr Rossen as regards his beneficiary loan account with the trust has been carefully tailored (see ts 123 - 124). In short, it does not go far enough.
Third, having case managed the present action in the CMC List from its inception in 2016, I detect on both sides a little too much underlying personal 'niggle' and overall a somewhat less than commercial approach by the plaintiff on what presents as a somewhat dogged pursuit of this defendant. I detect a strong whiff of pure revenge and uncommerciality in the pursuit of a seven day trial in the Supreme Court giving it, in my eyes, the somewhat unusual flavour of an action possibly seeking personal payback against someone who is (rightly or wrongly) perceived by Mr Rossen as exhibiting disloyalty. This, on my assessment, is not the more typical cold and clinical commercial action. In an atypical litigious context, my assessment as case manager is that were the plaintiff's action to be lost, and then, were the plaintiff to then incur a significant taxed costs liability to the defendant, the plaintiff would not necessarily be all that concerned about a shortfall in trust assets to satisfy a costs liability to the defendant, to the extent that liability exceeded $75,000.
Fourth, there is from all the evidence before me as collected within Ms Buchanan's affidavits concerning Mr Rossen's fluctuating living arrangements, including living for a period on his yacht, and the fluidity in his travel movements, including spending substantial periods of time outside Australia, a risk of the trust's assets being vulnerable to movement or to a future dissipation (not necessarily to Mr Rossen).
Given those circumstances, I am, at the end, satisfied that the s 1355(1) jurisdictional threshold is met, presently. I now turn to the delay issue.
Delay
As mentioned, the substantial plank of resistance raised against the application for further security was grounded upon the argument of delay in the bringing of the application.
Whilst, of course, I acknowledge that the present application for further security might have been formally pursued at a somewhat earlier time in the present litigation, I do not think it necessary to rehearse in minute detail all the back and forth passing correspondence put to me as between the respective parties' lawyers over the request for security, requests for information about the assets of the trust, denial of that information by the plaintiff and all the many allegations and counter allegations flying back and forth over time. Descent in the minutiae of all that dispiriting correspondence serves no sensible purpose.
Whilst I do not assess what was the voluntary payment into court of $75,000 by the plaintiff as being anything other than an entirely neutral factor, that was then implemented on a no admissions basis by the plaintiff, the fact of the matter is that the parties have, as between themselves, over time already discussed the issue of security and then addressed that issue to some extent. I do not, in those past circumstances, assess the present position as one of those cases where a defendant has left it too late to press a formal application for what is, in the present context, an application for further security. I have been privy to far more complex commercial litigation where parties just get on with sorting these issues out sensibly. Here, as was almost to be expected, there needed to be a time consuming interlocutory argument. That level of recalcitrance should not be encouraged more widely as between commercial litigants.
As I earlier mentioned, there is no suggestion that the plaintiff would be prejudiced in the pursuit of this action by providing all of the further security (ie, a further $100,000) as currently pressed for by the defendant.
The issue of delay and its ramifications will always require a bespoke evaluation within the presenting facts and circumstances of an individual case as regards security.
Here, I am not persuaded at the end that delay consideration is fatal. That the defendant might have pressed for a higher amount of security somewhat earlier is not a plenary determinant negative against the present application for further security.
A question remains as to the level of further security that should be ordered in the present circumstances.
The level of further security to be ordered
An order for security for costs is, as a matter of discretion, is designed to afford a level of protection to a defendant against an unmet future costs award at the end of a trial. By no means, however, is it meant to provide a perfect indemnification: see Vaughan J's reasons in Patrick Jebb as trustee for the Trafalgar West Investments Trust v Superior Lawns Australia Pty Ltd [2019] WASC 121. The nature of the quantification evaluation exercise is broad and impressionistic. It ought not to descend into arithmetic minutiae concerning a precise derivation of predicted consumed hours and rates.
For present circumstances, I am of the end view, bearing in mind that $75,000 has already been paid into court, that a payment of a further $75,000, taking the level of security to $150,000 all up, would then provide a reasonable and sufficient level of security, for the purposes of the looming seven day trial. Of course, that further amount is $25,000 below the level of the 'top up' amount that is sought by the defendant. But it is also $25,000 above the 'top up' amount the plaintiff was suggesting under its alternative fall back suggestion.
In all the circumstances then, I am persuaded at the end that I should order that the plaintiff secure or pay into court (within a period of 28 days from the issuance of orders implementing these reasons) to abide the defendant's costs of the action, if successful, an amount of $75,000.
I would also see it as appropriate that the plaintiff should pay the defendant's costs of the present application for further security in respect of which the defendant has been substantially vindicated to the extent of that further $75,000. Those costs payable to the defendant should be taxed and paid forthwith, if not agreed.
Conclusion on each application
As regards the two interlocutory applications, appropriate orders prima facie present as set out below.
First, in respect of the plaintiff's application further and better discovery, orders should issue in terms:
1.The defendant is within 14 days to provide further and better discovery of copies of the WSRE management agreements ('WSRE management agreements') that already have been listed within the defendant's discovery and numbered 25, 31 and 44, that are unredacted as to the level of remuneration payable to WSRE under each such agreement.
2.The plaintiff's further and better discovery application by its chamber summons of 19 September 2019, is otherwise dismissed.
3.The costs of the plaintiff's further and discovery application are to be the plaintiff's taxed costs lying in the cause of this litigation.
Second, as regards the defendant's application for further security, orders should issue in terms:
1.The plaintiff is to provide security for the defendant's costs of defending the action in the further amount of $75,000 by a payment into court (or by the provision of such other medium of security as shall be acceptable to the defendant, or to the court in the absence of agreement) within 28 days of the issuance of these reasons.
2.In the event that the security amount the subject of order 1 above is not paid by the plaintiff within the 28 day period allowed, then all further proceedings in the action shall thereafter be stayed.
3.The plaintiff is to pay the defendant's costs of the present application for further security to be taxed, or agreed.
The parties have 48 hours to consider and confer over the above suggested orders or to agree upon variations thereto. If they cannot agree upon a minute of orders giving effect to those reasons, as might be expected, then I will deal with such an eventuality on the papers.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
DW
Associate to the Honourable Justice Martin16 OCTOBER 2019
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