Groove Is in the Park Pty Ltd v Big Xity Entertainment - [2010] SADC 93

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil: Appeal Against a Master's Decision)
GROOVE IS IN THE PARK PTY LTD v BIG XITY ENTERTAINMENT & ORS
[2010] SADC 93
Judgment of His Honour Judge Lovell
22 July 2010
PROCEDURE - COSTS - SECURITY FOR COSTS
Appeal against a decision of a Master refusing an application by the third defendant for security for costs - appeal pursuant to s 43 of the District Court Act 1991 and District Court Civil Rules 2006 r 286 - appeal dismissed.
District Court Act 1991 (SA) s 43; District Court Civil Rules 2006 (SA) r 194, r 286; Corporations Act 2001 (Cth) s 1335, referred to.
House v The King (1936) 55 CLR 499; Mullett v Gabriel (1989) 52 SASR 330; Mac Audio & Acoustical Consultants Pty Ltd v Eddy & Anor [1999] SASC 443; Lucke v Cleary & Ors [2009] SADC 137; Jewel River Pty Ltd v Captured Pty Ltd [2009] SADC 2; Bennett v WMC (Olympic Dam Corporation) Pty Ltd & Ors [2008] SADC 42; FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd (2000) 22 WAR 241, [11] and [12]; Olivaylle Pty Ltd v Flottweg GMBH & Co KGAA [2007] FCA 56; Microcorp Pty Ltd v Terran Computers Pty Ltd, Peter Desmond Nunn, Philip Robert Hempel, Phillip Andrew Grasso and Vlado Joseph Dancevic (unreported Fed Court 19 December 1991); Epping Plaza Fresh Fruit and Vegetables Pty Ltd v Bevendale Pty Ltd [1992] 2 VR 191; Second Lenbourne Pty Ltd v Beagle Management Pty Ltd [1999] FCA 486; Warren v Coombes (1979) 142 CLR 531; Appleglen Pty Ltd v Mainzeal Corporation Pty Ltd (1988) 79 ALR 634; Fox v Percy (2003) 214 CLR 118, considered.

GROOVE IS IN THE PARK PTY LTD v BIG XITY ENTERTAINMENT & ORS
[2010] SADC 93

Nasir bin Olu Dara Jones who performs under the mononym Nas is an American rapper and actor.[1] The plaintiff is a promoter of concerts in Australia and the first defendant organizes tours in Australia for American artists. The plaintiff alleges that the first defendant contracted to obtain the services of Nas. The plaintiff alleges that it paid $50,000 to the first defendant and that the third defendant, as agent for the first defendant, personally guaranteed the obligations of the first defendant. The services of Nas were not obtained and the tour did not proceed. The plaintiff alleges that the third defendant has failed to repay the sum of $50,000 and has brought proceedings seeking payment. The third defendant denies any such obligation.
[1] Wikipedia.
The third defendant made application to the learned Master for security for costs. The learned Master refused the application and the third defendant has appealed that decision.
The Right of Appeal
The third defendant/appellant exercises her rights to appeal pursuant to s 43 of the District Court Act 1991. That states:
43—Right of Appeal
(1)     A party to an action may, in accordance with the rules of the appellate court,          appeal against any judgment given in the action.
(2)     The appeal lies—
(a)     in the case of a judgment given by a Master or the Court constituted of                   a Master—to the Court constituted of a Judge.
Rule 286 of the District Court Civil Rules 2006 (hereafter referred to as DCR) governs the hearing of the appeal.
It states as follows:
286    (1)     An appeal is to be by way of rehearing (unless the law under which the appeal is brought provides to the contrary).
(2)     Subject to any limitation on its powers arising apart from these rules, the Court may determine an appeal as the justice of the case requires despite the failure of parties to the appeal to raise relevant grounds of appeal, or to state grounds of appeal appropriately, in the notice of appeal.
(3)     Subject to any limitation on its powers arising apart from these rules, the Court may—
(a)     draw inferences of fact from evidence taken at the original hearing and, in its         discretion, hear further evidence on a question of fact;
(b)     amend or set aside the judgment subject to the appeal and give any judgment          that the justice of the case requires;
(c)     remit the case or part of the case for rehearing or reconsideration;
(d)     make orders for the costs of the appeal.
Appeals were previously governed by District Court Rule 97.01. Under that rule “the judge was to exercise his or her own discretion without regard to the manner in which it was exercised in the decision, order or direction appealed against”.
That direction is not to be found in the new rule.
The appeal is by way of rehearing and not by way of rehearing de novo. It is an appeal against the exercise of the discretion by the learned Master. In my view it is necessary, in order to succeed in an appeal against an exercise of discretion, to show that an error has been made in its exercise. It is not sufficient that the appellate court might have exercised its discretion to reach a contrary view: House v The King (1936) 55 CLR 499, Mullett v Gabriel (1989) 52 SASR 330 and Mac Audio & Acoustical Consultants Pty Ltd v Eddy & Anor [1999] SASC 443. Thus in the case before me, I am not at liberty to exercise my discretion in preference to that of the learned Master, unless and until the latter is shown to have been flawed in its exercise. I note other Judges of this Court have adopted the same approach.[2]
[2] Lucke v Cleary & Ors [2009] SADC 137, Jewel River Pty Ltd v Captured Pty Ltd [2009] SADC 2, Bennett v WMC (Olympic Dam Corporation) Pty Ltd & Ors [2008] SADC 42.
A further affidavit of Mr Gilchrist was filed prior to the hearing of the appeal. Given the decision I have reached it is not necessary for me to decide whether to admit the affidavit as fresh evidence.
Facts - Common Ground
It was common ground before me and before the Master that the plaintiff is in fact a trustee company for the Groove Is In The Park Trust. The plaintiff is a corporation with a paid-up capital of $3. It owns no land.
Before the learned Master, an affidavit of Mr Blake Gilchrist a director of the plaintiff was tendered. Annexed to his affidavit amongst other things were copies of bank statements in the name of the company and the Trust. I refer to those later in these reasons. In addition Mr Gilchrist stated that the plaintiff was solvent and trading profitably.
It is common ground that the plaintiff although a trustee company was the entity which contracted with the third defendant.
As the learned Master noted no application was made to cross-examine Mr Gilchrist as to the veracity of the assertions made in his affidavit.
Law
Security for Costs
DCR 194(1)(a) provides that the court may order security for costs where the action is brought in a representative capacity and the plaintiff is insolvent or would have insufficient resources to meet an order for costs if the action proves to be unsuccessful. The plaintiff in this case is not suing in a representative capacity.
DCR 194(1)(d) provides that a court may order security where the order is authorised by statute or (e) the order is necessary in the interests of justice.
Further, where the party is a company, security may be ordered pursuant to s 1335 of the Corporations Act 2001. That section states:
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.
Before the learned Master and this Court the argument centred on the test in the Corporations Act rather than the District Court Rules. It was accepted generally that if the third defendant was unable to satisfy the test under the Corporations Act then they would also not qualify under DCR 194.
The argument proceeded before the learned Master as to whether the test under s 1335 of the Corporations Act had been satisfied. It proceeded before me in the same manner.
The learned Master set out in some detail the authorities dealing with the interpretation of s 1335 of the Corporations Act. It was not suggested that he had incorrectly directed himself as to the law. The learned Master correctly described the process as involving two stages. The first stage is to consider the question “if it appears by credible testimony that there is reason to believe that the company will be unable to pay the costs of the defendant if successful in her defence”. That has sometimes been referred to as the “threshold test”. Assuming an applicant can satisfy the “threshold test” the court has then jurisdiction to continue to determine the matter and there is an unlimited discretion as to whether to grant the application.[3]
[3] FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd (2000) 22 WAR 241 [11] and [21].
An applicant for security for costs against a company is required to do no more than place on the record credible testimony and the role of the court at that stage is in judging the testimony and its quality. An applicant does not have to prove the state of the company’s finances. If there is credible testimony, then the court has jurisdiction and a company that called no evidence to show it could meet a costs order would run the risk of having an order made against it.[4]
[4] Ibid at [11].
It was accepted before me that the learned Master identified the appropriate test to be applied. The learned Master identified case law to the effect that the mere fact that a corporate plaintiff has a minimal paid-up capital and acts as a trustee company is sufficient to constitute “credible evidence”. Reference was then made by the learned Master to Olivaylle Pty Ltd v Flottweg GMBH & Co KGAA[5] where Finn J referred (with approval) at paragraph 12 to an earlier decision of the Federal Court where Heery J had said:
Today’s companies with very small paid-up capital may be solvent and prosperous while others with balance sheets showing impressive sums in this regard may have no more than wistful memories of past glories to show creditors.[6]
[5] [2007] FCA 56.
[6] Microcorp Pty Ltd v Terran Computers Pty Ltd, Peter Desmond Nunn, Philip Robert Hempel, Phillip Andrew Grasso and Vlado Joseph Dancevic (unreported Fed Court 19 December 1991 at page 3).
It was submitted by Mr McCarthy for the appellant that the learned Master erred in referring to the Olivaylle case. He argued that the case is distinguishable and therefore of no relevance.
I do not agree that the learned Master was in error in making reference to the case. I agree it is distinguishable on its facts but the learned Master was not relying on its facts. Read in context his reference to it was no more than the identification of factors that may need to be looked at when approaching the evidence. In my view it was appropriate that he do so. Indeed he referred to other cases that supported the third defendant’s position.[7]
[7] Epping Plaza Fresh Fruit and Vegetables Pty Ltd v Bevendale Pty Ltd [1992] 2 VR 191.
The learned Master having cited the cases referred to, assessed the evidence in issue. He accepted that the plaintiff had paid-up capital of $3 and owned no land.[8] He then asked himself the rhetorical question, “What other evidence is there?” That was the appropriate question to ask. It was incumbent on the learned Master to assess all the evidence before him to determine the question whether there was “credible evidence that is reason to believe that the plaintiff would be unable to pay the costs of the defendant if she was successful in her defence”.
[8] Paragraphs 12, 69 and 75, Reasons for Decision, 9 April 2010.
The learned Master referred to the evidence that had been provided by the plaintiff. There was the affidavit of Mr Blake Gilchrist a director of the plaintiff. As mentioned he stated in the affidavit that the plaintiff is “solvent and trading profitably”.[9] He exhibited to his affidavit the following documents:
1.Trading statement for Groove Is In The Park Trust (my underlining).
2.NAB National Online Statement Report for 1/2/2010 – 2/3/2010 for the account Groove Is In The Park Pty Ltd. It showed that as at 3/2/2010 the account was in credit in the sum of $141,251.59 and by the end of the period it was in credit in the sum of $12,786.40.
3.NAB Term Deposit in the name of Groove Is In The Park Pty Ltd in the sum of $100,000. The term of the deposit was from the 10/2/2010 to 10/10/2010 a period of eight months.
[9] Affidavit dated 4 March 2010, [7].
The learned Master correctly noted that no application was made by the third defendant to cross-examine Mr Gilchrist. He noted Mr McCarthy’s criticisms of the affidavit of Mr Gilchrist[10] and further that Mr McCarthy had submitted that the affidavit confirmed that the plaintiff was a “mere” trustee.
[10] Paragraph 13, Reasons for Decision, 9 April 2010.
Mr McCarthy submitted that the learned Master was in error in relying on the affidavit of Mr Gilchrist, the assertion that the “plaintiff was solvent and trading profitably” and that it had the assets of the $12,786.40 in one account and the term deposit of $100,000 in another. He submitted that the learned Master erred in accepting that statement at face value. As Mr McCarthy submitted, it is not a question of Mr Gilchrist’s opinion it is more a question of what is available to the court.
Mr McCarthy relied on Second Lenbourne Pty Ltd v Beagle Management Pty Ltd[11] to support an argument that whilst the plaintiff in this case had assets (bank deposits) they were “not available to the court”. By that he meant the assets in reality were held on trust and, being cash, could easily be shifted to defeat any order for costs. Mr McCarthy submitted that in factual circumstances very similar to this case, Goldberg J considered that a trustee company, with paid-up capital of $2 and effectively (as he found) no assets of its own established before him that the “credible evidence” threshold test had been established and he therefore went on to consider the question of the discretion.
[11] [1999] FCA 486.
Here the facts were not disputed. An appellate court is in as good a position as the Master to decide on the proper inference to be drawn from facts which are undisputed. In deciding what proper inference should be drawn, an appellate court will give respect and weight to the conclusion of the Master, but if it reaches a different conclusion, namely that the learned Master was wrong, it should not shrink from giving effect to it.[12]
[12] Warren v Coombes (1979) 142 CLR 531, Fox v Percy (2003) 214 CLR 118.
It was common ground that the plaintiff is a trustee company. It acts as trustee of “Groove Is In The Park Unit Trust”. Apart from the assertion by Mr Gilchrist there was no evidence that the plaintiff was trading. Rather the evidence was, and Mr Gilchrist almost certainly meant, that the Trust for which the plaintiff was trustee was trading profitably. The plaintiff may be trading but it is trading on behalf of the Trust. It is not a “trading company” in its own right.
The cash in the two accounts mentioned was undoubtedly held on trust by the plaintiff.
Dr Bleby, counsel for the plaintiff/respondent forcefully argued that the learned Master was correct to rely on the affidavit of Mr Gilchrist. Dr Bleby submitted that the profit position of the Trust and the cash assets of the Trust were matters that the learned Master was entitled to take into account when assessing the evidence relating to the “threshold test”.
In my view there is merit in the submission of Mr McCarthy. It appears that the learned Master placed weight upon the opinion of Mr Gilchrist as to the fact that the plaintiff was trading profitably when the correct position was that the Trust was trading profitably. It could be argued that in a technical sense that meant that the plaintiff itself was trading profitably but there was no evidence before the learned Master to establish that the plaintiff itself traded independently of managing the funds of the Trust.
In my view the learned Master erred in accepting the statement of Mr Gilchrist at face value. There was no evidence that the plaintiff was trading at all. It was no doubt solvent as demonstrated by its cash assets.
However, as Mr McCarthy submitted, those assets are undoubtedly to be held on trust and could be transferred easily.
The matters relied on by the appellant, namely that the plaintiff is a trustee company that owns no assets itself and has a paid-up capital of $3, amounted to credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in her defence. The evidence put before the court by the plaintiff did not change that position.
I find the learned Master erred in relying on the affidavit of Mr Gilchrist and finding that the “threshold test” was not satisfied. In my view, on the evidence before him the “threshold test” was satisfied.
The learned Master then went on to consider the exercise of his discretion even though he had found that the “threshold test” was not satisfied.
The learned Master identified a number of factors that bore on the question of the exercise of his discretion.
First, he noted that it was not suggested that the plaintiff’s claim was not bona fide.
Secondly, he acknowledged the submission of Mr McCarthy that the plaintiff’s case was weak. The learned Master correctly noted that a court does not generally investigate whether an action is likely to succeed as part of an application for security for costs;[13] that does not mean that he did not take into account the submission.
[13] Appleglen Pty Ltd v Mainzeal Corp Pty Ltd (1988) 79 ALR 634.
It is clear from the context of the remarks of the learned Master that he was not rejecting that submission; he was simply indicating that a court does not investigate whether it is “likely to succeed”. It may be clear from the pleadings that a case is not particularly strong. It is clear from other remarks in the judgment that the learned Master appreciated the arguments in relation to liability. It was not suggested by the third defendant that the plaintiff did not have an arguable case. While the documents relied on by the plaintiff were identified (emails) there was in reality little before the learned Master that would have enabled him to make any sensible assessment of the case in any event.
Thirdly, he identified that, although the plaintiff was a trustee company, it was also a “true” plaintiff in the sense that it was the entity that contracted with the third defendant. The learned Master went on to say that it was still trading in the business of promotion of concerts in Australia. In the sense that it entered into contractual arrangements in its own name that is correct.
Finally, he noted that there was a 12 month delay from the issue of proceedings before the application for security of costs was brought.
It was also argued that the learned Master erred in not giving sufficient weight to the explanation of the delay in bringing the application. The third defendant argued that, once she was legally represented, the application was brought within a few months.
The learned Master did take into account the delay in bringing the application.[14] It could not be said that he ignored the third defendant’s submission. He simply stated the fact that the application was not raised by the third defendant until “about 12 months later”. This is correct. The learned Master does not suggest the delay was a particularly significant factor against the granting of security.
[14] Paragraph 83, Reasons for Decision, 9 April 2010.

The learned Master identified the factors he relied upon when exercising his discretion. He was entitled to take into account the uncontested evidence of Mr Gilchrist when exercising his discretion. It cannot be shown that he erred in the weight that he gave to those factors. It may be that other judicial officers may have exercised the discretion differently. As Dr Bleby correctly argued, that is not the test. An appellate court is not entitled to substitute its own discretion for that of the judicial officer in the court below unless an error in the exercise of the discretion can be detected.[15]
[15] Mullett v Gabriel (1989) 52 SASR 330; Mac Audio & Acoustical Consultants Pty Ltd v Eddy & Anor [1999] SASC 443.
The third defendant has not demonstrated that the learned Master erred in the exercise of his discretion in refusing the application for security.
The appeal is dismissed.