Gautam (SA) Pty Ltd as trustee for Gautam Trust v Mossop Group Pty Ltd

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
GAUTAM (SA) PTY LTD AS TRUSTEE FOR GAUTAM TRUST v MOSSOP GROUP PTY LTD
[2023] SASC 59
Judgment of the Honourable Justice McIntyre
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - SECURITY FOR COSTS - FACTORS RELEVANT TO EXERCISE OF DISCRETION
Gautam (SA) Pty Ltd appeals from a decision of the Magistrates Court of South Australia.
Mossop Group Pty Ltd brought an application for security for costs of the appeal. While it is uncontentious that Gautam is impecunious and does not have the funds to pay Mossop’s costs of this appeal if Gautam is unsuccessful, Gautam’s director stated that he is able to any order for costs if the appeal is unsuccessful from credit cards he holds in his personal capacity, but does not presently have available cash to pay an amount into Court. Gautam contended that this, combined with other factors, meant the Court should not exercise its discretion to make the order.
The parties also dispute the quantum of any order for security for costs.
Held:
1. Application for security for costs granted in the amount of $10,000.
Uniform Civil Rules 2020 (SA) r 115.1; Corporations Act 2001 (Cth) s 1335(1), referred to.
John Arnold’s Surf Shop Pty Ltd (in liq) v Heller Factors Pty Ltd (1979) 22 SASR 20; Dictating Machine Centre Pty Ltd v Combe (1981) 26 SASR 316; Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [2013] WASC 57; Epping Plaza Fresh Fruit & Vegetables Pty Ltd v Bevendale Pty Ltd [1999] 2 VR 191; Intercraft Cabinets Pty Ltd v Sampas Pty Ltd (1997) 142 FLR 71, considered.

GAUTAM (SA) PTY LTD AS TRUSTEE FOR GAUTAM TRUST v MOSSOP GROUP PTY LTD
[2023] SASC 59
Civil: Application

This is a decision on an interlocutory application seeking security for costs. The appellant, Gautam (SA) Pty Ltd (Gautam), appeals against a decision of the Magistrates Court of South Australia dismissing Gautam’s claim for payment of outstanding invoices directed to the respondent, Mossop Group Pty Ltd (Mossop).
Background
Gautam is a trustee company for the Gautam Trust with one director and shareholder.
Mossop made an application for security for costs in the Magistrates Court proceedings. On 15 June 2022, it was ordered that Gautam provide, within 28 days, security for Mossop’s costs by paying the sum of $17,000 into Court or otherwise providing security for that amount in a manner satisfactory to Mossop.
There has been no change in the position of Gautam since the making of that order. It is uncontentious that Gautam is impecunious and does not have the funds to pay Mossop’s costs of this appeal if Gautam is unsuccessful.
There has however been a change in the position of Gautam’s director, Mr Khaneja, since he swore an affidavit in the Magistrates Court proceedings on 13 May 2022 (AMC Affidavit). Mr Khaneja swore an affidavit in these proceedings on 4 April 2023 in which he undertakes personally to pay the costs in the event of an unsuccessful appeal and an inability on the part of Gautam to pay any order for costs. He says that at the time of swearing the AMC affidavit he was suffering from ill health and undergoing treatment for a serious illness which adversely impacted his ability to work for a period of 12 months. On 26 September 2022, he began working for a building company and is now able to work four days per week. He sets out details of his income and expenditure together with details of two credit cards he holds in his personal capacity. Mr Khaneja states he has the financial capacity to make good the undertaking but does not presently have available cash funds to pay an amount into Court.
If an order for security for costs is made, the parties also dispute the quantum that should be ordered.
Security for Costs
Mossop makes this application under r 115.1 of the Uniform Civil Rules 2020 (SA) and s 1335(1) of the Corporations Act 2001 (Cth). Section 1335(1) provides as follows:
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 cost and stay all proceedings until the security is given.
Gautam concedes that there is “credible testimony” and that the power to require security is enlivened. The Full Court of the Supreme Court of South Australia dealt with a provision in very similar terms in John Arnold’s Surf Shop Pty Ltd (in liq) v Heller Factors Pty Ltd.[1] Justice Mitchell said that:[2]
I am of the opinion that to approach s 363 with a pre-disposition to make an order for security for costs would be to fetter the discretion which the legislation has left unfettered. It would be, as it seems to me, equally wrong to exercise the discretion in favour of making an order merely because the section enables such an order to be made as it would be to refuse an order merely because the company is impecunious.
[1] (1979) 22 SASR 20.
[2] Ibid at 34.
Gautam refers to several factors relevant to the exercise of the discretion with which Mossop does not disagree:[3]
[3]    Dictating Machine Centre Pty Ltd v Combe (1981) 26 SASR 316; Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [2013] WASC 57 at [6].
1.     The existence of any relevant special relationship between the parties;
2.     The stage at which the application is made and whether this is timely;
3.     Whether the claim appears to be bona fide;
4.The true role of the appellant and, in particular, whether it appears that the action is prosecuted for the benefit of a third party;
5.     The prospects of the appeal succeeding;
6.     Whether the application for security is oppressive;
7.Whether the appellant’s want of means was induced by the conduct of the respondent; and
8.Whether the shareholders or directors of an impecunious company are prepared to stand behind the company to pay any adverse cost orders that might arise.
The first two factors do not arise. There is no suggestion that there is any relevant special relationship between the parties, nor does Gautam submit that the application has been bought late.
There does not appear to be any contest that Gautam’s claim is bona fide or any contention that the action is prosecuted for the benefit of a third party. However, there are real questions about the prospects of success on appeal. I am unable to resolve these issues based on the limited material before me, but I accept, for the purpose of this application, that Gautam has an arguable case on appeal.
Gautam contends that Mossop’s application for security is, in the circumstances, oppressive and further that Gautam’s want of means has been induced by Mossop’s conduct. Specifically, Gautam says that the failure of Mossop to pay Gautam’s invoices has caused great financial hardship and that the application is oppressive as it further accentuates the “financial peril” that Mossop has occasioned to Gautam.[4] I reject these contentions. At most, it is only potentially possible to infer that Mossop’s actions have caused financial hardship to Gautam. However, Mossop’s conduct in relation to the invoices is the subject of the appeal. As I have said, I am not able to assess Gautam’s prospects of success. Subject to the outcome of the appeal, there is a decision that Mossop has complied with its obligations.
[4] Written submissions of appellant at [31]-[32].
The remaining factor relates to Mr Khaneja’s undertaking to fund any costs orders made by the Court. I was referred in argument to two cases relevant to this factor.[5] The Victorian Court of Appeal in Epping referred to with approval stating:[6]
In Intercraft Cabinets Pty Ltd v Sampas Pty Ltd the Full Court in Western Australia was concerned with an undertaking to accept personal responsibility for costs against an impecunious company, and after reviewing the authorities Malcolm CJ, speaking for the court, firmly espoused the view that “the availability of an undertaking of personal liability by the persons who stand behind the company is no more than a factor, albeit an important factor, to be taken into account in the exercise of discretion”. With respect, that is our view too.
(citations omitted)
[5] Epping Plaza Fresh Fruit & Vegetables Pty Ltd v Bevendale Pty Ltd [1999] 2 VR 191; Intercraft Cabinets Pty Ltd v Sampas Pty Ltd (1997) 142 FLR 71.
[6] Epping Plaza Fresh Fruit & Vegetables Pty Ltd v Bevendale Pty Ltd [1999] 2 VR 191 at [17].
The Full Court rejected the proposition that an undertaking by those behind a company to pay costs is of “critical importance or decisive significance” to the exercise of the discretion.[7] Rather it is but one factor to be taken into account. I also note the Full Court’s comments:[8]
Furthermore, in our view the court should not readily accept an undertaking to pay costs from impecunious individuals who, at least at the time when such an undertaking is given, have no chance of making it good. Such an undertaking could not be an effective alternative security because it could only be enforced (at least for the time being) by proceedings for contempt. Perhaps, as contended in Intercraft, such an undertaking could have some worth if given by established businessmen who, though impecunious for the time being, might feel impelled by the threat of bankruptcy to honour the undertaking by gaining assistance, perhaps, elsewhere. But, if so, that can be but a relevant consideration; no rule can be laid down — which is how the matter was approached in Intercraft…
(references omitted)
[7] At [23].
[8] At [24].
It is apparent from Mr Khaneja’s affidavit that, whilst he is in remunerative employment, he has no present ability to fund the undertaking. The evidence in his affidavit concerning his income and expenditure, whilst suggesting that he may be able to fund the undertaking at some future date, does not account for the normal exigencies of life such as, for example, ill health and inability to work. In saying that, I note Mr Khaneja’s affidavit refers to a significant health issue that adversely affected his ability to work for some 12 months. The information concerning Mr Khaneja’s access to credit card funds is limited and may, in any event, be subject to change prior to any costs order in the appeal proceedings. Accordingly, the undertaking to pay costs offered by Mr Khaneja is of limited comfort.
In all the circumstances, I consider it appropriate to make an order for security for costs.
Quantum
The quantum of that order is in contest. Affidavits sworn by the parties’ solicitors deal, inter alia, with the topic of quantum if the Court exercises its discretion to grant the order sought by Mossop. Mossop’s solicitor, Mr Anderson, has sworn two affidavits, the first on 20 March 2022 and the second on 28 March 2022. In summary, he estimates the costs of the appeal as at least $12,000 plus GST. Gautam’s solicitor, Mr Grace, made an affidavit on 4 April 2022 in which he estimates the costs of the appeal as approximately $8,000 plus GST.
I accept Gautam’s submissions that the appeal is relatively confined, that the appeal books will be prepared by Gautam and that the allowance for conferring as to the hearing date is excessive. However, I reject Gautam’s submission that the costs occasioned by Mossop’s alternative contentions should be ignored in calculating the quantum of security. These are matters that competent representatives are required to consider in preparing for an appeal and accordingly I do not consider that they ought to be ignored. I also do not consider the estimate of counsel fees to be excessive. Doing the best that I can with the material before me, I consider that an appropriate sum for security is $10,000.
I will hear the parties on the form of the order.

[2023] SASC 59

21 April 2023