In the matter of Eastmark Holdings Pty Limited (receivers and managers appointed) and 1 Denison Street Holdings Pty Ltd (receivers and managers appointed; In the matter of Eastmark Holdings Pty Limited (receivers..

[2015] NSWSC 2071

Supreme Court

New South Wales

Medium Neutral Citation:

In the matter of Eastmark Holdings Pty Limited (receivers and managers appointed) and 1 Denison Street Holdings Pty Ltd (receivers and managers appointed; In the matter of Eastmark Holdings Pty Limited (receivers and managers appointed) (subject to a deed of company arrangement) & ors [2015] NSWSC 2071

Hearing dates:

25 June 2015

Date of orders:

25 June 2015

Decision date:

25 June 2015

Jurisdiction:

Equity - Corporations List

Before:

Brereton J

Decision:

Order for security for costs made.

Catchwords:

PROCEDURE – costs – security for costs – where reasonably likely that plaintiff corporation will be unable to pay costs – where plaintiff would be under duty to strike further levy on each owner to contribute to administrative fund – ability of plaintiff to have recourse by way of indemnity to trust fund or similar no answer to application for security for costs – where defendant would not be able to enforce indemnity with cooperation of plaintiffs – held, order for security for costs made.

Cases Cited:

Beach Petroleum NL v Johnson (1992) 10 ACLC 525; (1992) 7 ACSR 203
Jadwan Pty Ltd v Rae & Partners [2015] TASSC 11
Laundry Coin-Wash Nominees Pty Ltd v Dunlop Olympic Ltd (1985) ATPR 40-584
Owners-Strata Plan No 50530 v Walter Construction Group Ltd [2001] NSWSC 820
Pitcairn Investments Pty Ltd and John Edward Local v Birwick March Pty Ltd and Anthony Stanley Marwick [1993] FCA 327

Category:

Procedural and other rulings

Parties:

In proceedings 2015/22409:
The Owners Corporation of Strata Plan 74602 (plaintiff)
Eastmark Holdings Pty Limited (receivers and managers appointed) (ACN 003 921 953) (first defendant)
1 Denison Street Holdings Pty Limited (receivers and managers appointed) (ACN 156 399 727) (second defendant)

  In proceedings 2015/155286:
The Owners – Strata Plan No 74602 (plaintiff)
Eastmark Holdings Pty Limited (receivers and managers appointed) (subject to a deed of company arrangement) (ACN 003 921 953) (first defendant)
1 Denison Street Holdings Pty Limited (receivers and managers appointed) (subject to a deed of company arrangement) (ACN 156 399 727) (second defendant)
Absolute Investment Opportunity II Limited (ACN 160 726 358) (third defendant)
Secured Asia Pacific Limited (ACN 158 527 130) (fourth defendant)
Philip Patrick Carter (fifth defendant)
Marcus William Ayres (sixth defendant)

Representation:

Counsel:
C R C Newlinds SC w T E O’Brien (plaintiff)
C Withers (first and second defendants)
E Holmes (receivers of first and second defendants)
M Izzo w J Burnett (third and fourth defendants)

 

Solicitors:
In proceedings 2015/22409:
Jones Day (plaintiff)
Gilbert + Tobin (first and second defendants)

  In proceedings 2015/155286:
Jones Day (plaintiff)
Gilbert + Tobin (first and second defendants)
King & Wood Mallesons (third and fourth defendants)

File Number(s):

2015/22409; 2015/155286

Judgment (ex tempore)

1. HIS HONOUR: The evidence shows that, although it has some liquid assets, the plaintiff's liabilities exceed its assets by a very substantial margin, and absent a right of recourse to others, that would provide, within the words used by von Doussa J in the well-known passage in Beach Petroleum NL v Johnson (1992) 10 ACLC 525; (1992) 7 ACSR 203 (at 205):

reason to believe there is a real chance that in events which can fairly be described as reasonably possible the plaintiff corporation will be unable to pay the costs of the defendant on service of the allocatur, if judgment goes against it [notwithstanding that] in other events which can also be fairly described as reasonably possible the plaintiff corporation would be able to pay the costs.

2. The real question is the significance of the circumstance that, in this case, the plaintiff would have a duty to strike a further levy on each owner to contribute to the administrative fund, an amount to be determined by the general meeting to cover the additional liability.

3. Generally speaking, the cases take the view that the ability of a plaintiff to have recourse by way of indemnity to a trust fund or similar is not an answer to an application for security in this type of situation. In what is probably the leading case in this area, Laundry Coin-Wash Nominees Pty Ltd v Dunlop Olympic Ltd (1985) ATPR 40-584, Smithers J said, speaking of a trustee’s right of indemnity:

With respect to the indemnity, unless the applicant itself cooperated or the applicant company were wound up, benefit could not be obtained by the respondents thereunder. No direct process of execution would be available for the purpose of obtaining that benefit. Further, the extent to which the indemnity would, in any event, be productive would depend upon the state of the finances of the trust and the possibility of some defence cannot be ignored.

4. That passage has been adopted and followed in this State and in other States on numerous occasions, most recently in Tasmania by Holt AsJ in Jadwan Pty Ltd v Rae & Partners [2015] TASSC 11. Notably also, in Pitcairn Investments Pty Ltd and John Edward Local v Birwick March Pty Ltd and Anthony Stanley Marwick [1993] FCA 327, French J (as his Honour the Chief Justice of Australia then was) said (at [9]):

In my opinion, it is not sufficient for the first applicant to point to the right of indemnity out of the Trust assets as its answer to the application for security. A successful respondent ought not to have to resort to the enforcement of derivative rights to recover its costs [referring to Laundry Coin-Wash and the passage to which I have just referred in that case].

5. His Honour then went on to demonstrate why, in that particular case, those rights were of not much value, but that does not detract from the general proposition that his Honour stated.

6. The same applies in this case: it seems to me that, unless the plaintiff itself cooperates or unless it were wound up, the defendants could not enforce any right and duty of the plaintiff to raise an additional levy from the unit holders. The defendants would have no direct process of execution against the unit holders for the purposes of doing so. The extent to which the levy would be productive in any event would depend upon the terms of the resolution determined at a general meeting of the Owners Corporation by the people liable to pay and it cannot be excluded that they, or some of them, might have some defence to a levy being struck.

7. It is true that, in the case of Owners-Strata Plan No 50530 v Walter Construction Group Ltd [2001] NSWSC 820, Bergin J (as her Honour the Chief Judge in Equity then was) said (at [36]) that for the defendant to have discharged its burden, it needed to call evidence upon which, viewed objectively, the Court could be satisfied that the plaintiff was not entitled to raise a special levy to pay the costs or, if able to do so, that such levies would not be paid, and in the absence of evidence of recalcitrance on the part of the unit holders to pay the special levies, was not so satisfied. However, that was a rather different case from the present. In particular, as I understand it, there does not appear to have been evidence of the impecuniosity of the plaintiff itself in the way in which there is in this case. Her Honour does not appear to have been referred to the line of authority descending from Laundry Coin-Wash and Pitcairn Investments.

8. I am satisfied that an order for security should be made.

9. As to quantum, there is no issue with the amount of $76,000 sought by the third and fourth defendants. So far as the first and second defendants are concerned, they seek an amount of $384,000 approximately, the calculation of which has been set out in an affidavit by their solicitor. While that has not been contradicted by contradictory evidence or challenged by cross-examination, on an application of this kind, the Court takes a fairly broad-axe and robust view of what is appropriate to be allowed.

10. This matter is, at this stage, set down for a two-day hearing. No doubt there will be some such complexities as those to which Mr Withers has referred, but the notion of $384,000 being payable on a party-party basis in respect of a two-day hearing is one which I am unable comfortably to embrace. I have come to the conclusion that an amount of $150,000 should be allowed, bearing in mind that a security for costs is not intended to be a perfect indemnity and that it is, in any event, in respect of party-party costs.

11. The Court orders that:

1. The plaintiff give security for the first and second defendants' costs in the sum of $150,000, and for the third and fourth defendants' costs in the sum of $75,000, in a form acceptable to the registrar.

2. The defendants have liberty to apply for a stay of the proceedings if such security has not been given by 9 July 2015.

12. Costs of the various interlocutory applications heard today will be costs in the proceedings.

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Decision last updated: 11 March 2016