Go for Your Life Pty Ltd v Charas Constructions Pty Ltd (No 2)
[2020] NSWDC 944
•06 November 2020
District Court
New South Wales
Medium Neutral Citation: Go For Your Life Pty Ltd v Charas Constructions Pty Ltd (No 2) [2020] NSWDC 944 Hearing dates: 6 November 2020 Date of orders: 6 November 2020 Decision date: 06 November 2020 Jurisdiction: Civil Before: P Taylor SC DCJ Decision: Dismiss the application for security for costs.
Catchwords: COSTS — Security for costs — Relevant factors — Strength of the claim
Legislation Cited: Uniform Civil Procedure Rules 2005, r 42.21
Category: Procedural rulings Parties: Go For Your Life Pty Ltd (plaintiff)
Charas Constructions Pty Ltd (defendant)Representation: Counsel:
Solicitors:
Mr N Li (plaintiff)
Mr J O’Sullivan (defendant)
Boskovitz Lawyers (plaintiff)
& Legal (defendant)
File Number(s): 2020/00249425 Publication restriction: None
Judgment
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The defendant applies for security for costs in the sum of $115,527.75, in proceedings by the plaintiff for the non‑payment of invoices. The plaintiff’s claim is one able to be commenced by a short form pleading but, in this case, the plaintiff chose to incur the expense of pleading a 59-paragraph statement of claim.
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The first question on the application is whether the threshold indicated in r 42.21(1)(d) of the Uniform Civil Procedure Rules 2005 is satisfied, namely, whether there is reason to believe that the plaintiff, being a corporation, will be unable to pay the costs of the defendant if ordered to do so.
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The primary evidence in respect of the plaintiff’s inability to meet an adverse costs order is constituted by accounts that were provided in answer to a notice to produce. The accounts are for the year ended 30 June 2020. The form of those redacted accounts in evidence omit a number of details: many expense items, although referenced by a number in the accounts, have no description against them.
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The accounts show that the plaintiff had a net profit in the last financial year of $444,312. In a claim of this magnitude, that profit might be thought sufficient to establish that there is no reason to believe the plaintiff would not be able to meet an adverse costs order. However, the accounts also show a negative equity position of $68,652. Although, there is no evidence fully explaining the reason for this adverse equity position on the balance sheet, it was submitted, and the accounts provide some support for the conclusion, that there were approximately $2 million worth of unsecured loans. These loans constitute an unsecured liability that diminishes the net value of the company.
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The plaintiff could have but did not provide any information about these unsecured liabilities. In the circumstances where that evidence could have been provided, I would not draw an inference in the plaintiff’s favour that those liabilities were or are unlikely to be called upon. The plaintiff, in submissions, ultimately conceded that the evidence would allow that possibility and that if a call was made on those liabilities or loans, that the plaintiff’s financial position would not enable them to be repaid, and would indicate the plaintiff would be unable to meet an adverse costs order.
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The plaintiff submitted that a call on the loan was unlikely. Why would a creditor with an interest in a company making approximately $440,000 a year call on loans so as to end the operation of the company, it submitted. That submission might have some force if the loans were established to be by persons who had an interest in the company, but that was not established. I would not draw that inference when the plaintiff could have put on evidence about that. The question of the continuance of the company therefore may have no bearing on a decision by a creditor to call upon those loans; the creditor may have other reasons for demanding the repayment.
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I am not satisfied, on the balance of probabilities, that the plaintiff will be unable to meet an adverse costs order. But because of the limited financial accounts, I am satisfied of the lesser test imposed by the rule that there is reason to believe that the plaintiff would be unable to meet an adverse costs order. The threshold requirement in r 42.21(1)(d) of the Rules is satisfied.
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I come to the question of discretion, informed by the factors set out in r 42.21(1A). Should an order for security be made? Perhaps the most significant factors are those that appear at the beginning of that list in subr (1A) at paras (a) and (b): the prospects of success or merits of the proceedings, and the genuineness of the proceedings. In this case, the plaintiff seems to have strong prospects of success and the proceedings have merit. The documents provided in the application show that the plaintiff had a claim based on a contract for two substantial amounts. The amount claimed in the statement of claim is the summation of the outstanding part of each of those amounts.
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As to the first outstanding part, an amount of $425,482.40 inclusive of GST was shown to be agreed, in a written contract, to be payable by the defendant in the event of an appropriate introduction being made. Whilst the circumstances of that introduction are not the subject of evidence, what is in evidence is that on 15 occasions, the plaintiff issued invoices for one-seventeenth of that total amount and all of those 15 invoices were paid. Some 18 months ago, the last two invoices were issued for the remaining two-seventeenths and that outstanding part was not paid.
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The same arrangement pertains to the second outstanding part claimed, where five invoices were issued, each for one-seventh of the amount agreed in a written document and each of those five invoices were paid, but the last two invoices issued some 18 months ago were not paid.
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These invoices, and their non-payment constitute plain prima facie evidence of the debt.
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No defence has yet been pleaded. Ordinarily, an application for security for costs by a defendant does not require the defendant to incur the costs of filing a defence. But that is no reason for the defendant to refrain from indicating the substance of its defence, including evidence on information and belief.
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Nothing to answer the strength of the plaintiff’s claim was proffered. The defendant asserts an oral collateral agreement that the plaintiff would not issue invoices unless the defendant was paid by its debtor, that the plaintiff had introduced, and that the debtor had not paid or fully paid the defendant at the time of the invoices. There is no evidence to support those assertions. How a collateral agreement sat with regular payments of the instalments invoiced was also not explained.
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In these circumstances, I am unsatisfied on the evidence before me that the defendant has a genuine defence or answer to the debt. That is a matter that goes to the merits of the defence and the genuineness of the proceedings.
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The other factor of significance in r 42.21(1A) is para (j), the costs of the proceedings. The plaintiff’s claim is for a total amount of $115,000. The costs of defending that claim, in excess of $100,000 claimed by the defendant, seem wholly disproportionate to the claim. [1]
1. See also Uniform Civil Procedure Rules 2005, r 42.21(1A)(k).
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The defendant’s affidavit dealing with the question of the costs of the proceedings contains a number of errors indicative of a lack of care, such as the defendant being repeatedly referred to as the plaintiff. This causes me to approach the defendant’s solicitor’s assessment of the costs with some caution. The amounts of costs asserted in that affidavit seem to me to be excessive, such as the claim in a one-day case for junior counsel for two days at $5,000 per day.
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I prefer the figures in the affidavit of the plaintiff’s solicitor, although I accept that the costs of the defendant are likely to be increased a little by reason of the length of the statement of claim, a matter to which I referred earlier.
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Another consideration for the application of security is that it should be bought promptly so that the defence does not incur wasted costs in the event that security is ordered. Here the defendant has not yet filed a defence though it says it has already incurred $6,000 of costs. Nevertheless, the delay in bringing the application while that amount of costs were incurred would not alone cause me to reject the application.
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I am not persuaded that an order for security is appropriate, principally because I am not satisfied, due to an absence of evidence, that there is any genuine defence, and also because of the relative simplicity and size of the claim and its apparently strong prospects of success.
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If I were minded to give security, I would order the sum of $20,000 to be paid by the plaintiff to its solicitor to be held pending a final costs order in the proceedings, bearing in mind the nature and size of the proceedings and the circumstance that security is not intended to indemnify the defendant against all its costs.
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This decision is not intended to preclude another application by the defendant if it can establish a bona fide defence having some merit, which it has failed to do on this application.
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Accordingly, for these reasons, I dismiss the application for security for costs.
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Endnote
Decision last updated: 21 October 2022
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