Instyle Estate Agents Gungahlin Pty Ltd v Hambrook

[2018] ACTSC 195

SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

Case Title:

Instyle Estate Agents Gungahlin Pty Ltd v Hambrook

Citation:

[2018] ACTSC 195

Hearing Date:

2 July 2018 and 5 July 2018

DecisionDate:

5 July 2018

Before:

Elkaim J

Decision:

See [21]  

Catchwords:

PROCEDURE – Costs – Application for security for costs – where the plaintiff is a corporation in the proceeding – whether there is reason to believe that the plaintiff will not be able to pay the defendant’s costs if ordered to pay them

Legislation Cited:

Corporations Act 2001 (Cth) s 1335

Court Procedures Rules 2006 (ACT) rr 1900, 1901 and 1902

Cases Cited:

Feltafield Pty Ltd v Heidelberg Graphic Equipment (Unreported, Federal Court of Australia, Beazley J, 12 August 1994)

Sydmar Pty Ltd v Statewise Developments Pty Ltd (1987) 73 ALR 289

Parties:

Instyle Estate Agents Gungahlin Pty Ltd (Plaintiff)

Richard James Hambrook (Defendant)

Representation:

Counsel

Mr D Robens (Plaintiff)

Mr B Buckland (Defendant)

Solicitors

Kamy Saeedi Law (Plaintiff)

Maxwell & Co Lawyers(Defendant)

File Number:

SC 502 of 2017

ELKAIM J:

1. This is an application by the defendant for security for costs. The application is made pursuant to r 1900 of the Court Procedures Rules 2006 (ACT) (‘the Rules’) and s 1335 of the Corporations Act 2001 (Cth) (‘the Act’).

1. In particular, r 1901(a) is applicable. There is no real difference if the application is made under the Rules or the Act.

1. The application was filed on 27 June 2018. It is supported by three affidavits:

(a)Mr Alexander See-Hang Wong, the defendant’s solicitor, affirmed on 25 June 2018;

(b)Mr James Dryden Page, a paralegal employed by the defendant’s solicitor, sworn on 8 June 2018; and

(c)Ms Christine Wing Har Lui, Mr Wong’s assistant, affirmed on 7 June 2018.

1. The substance of the application is that the plaintiff, a corporation, has no assets, is not trading and will not be able to meet any adverse costs order that it might face. These facts are not in dispute. They combine to create significant discretionary factors in favour of the application.

1. The principles applicable to an application of this sort were concisely stated by Beazley J (as she then was) in Feltafield Pty Ltd v Heidelberg Graphic Equipment (Unreported, Federal Court of Australia, Beazley J, 12 August 1994) (‘Feltafield’). I summarise them as follows:

(i)Whether the respondent is impecunious and could not meet an adverse costs bill.

(ii)The application should be brought without undue delay.

(iii)The merits of the applicant’s case are relevant.

(iv)Whether the application is oppressive in that it is being used to stultify the litigation.

(v)Whether there is a person or entity “standing behind the company” who is likely to benefit from the litigation and is able to provide the security.

(vi)Whether the respondent is impecunious because of the applicant’s conduct.

1. In addition, r 1902 lists a number of discretionary factors that a court may take into account. The plaintiff referred in particular to subparagraphs (e), (f), (j) and (m). These factors overlap to a large degree with the guidelines set out in Feltafield.  In addition, I was also referred to the ‘checklist’ set out in Sydmar Pty Ltd v Statewise Developments Pty Ltd (1987) 73 ALR 289 at 299.

1. By way of background to the litigation, the defendant was a director and secretary of the plaintiff company. He was and is a shareholder. The plaintiff operated as a real estate agency. The Statement of Claim alleges that, when the defendant was a director of the plaintiff, he misappropriated funds in excess of $400,000. The defendant denies any misappropriation and says that all of his expenditure occurred in the ordinary course of business.

1. The defendant has a counterclaim for unpaid wages and commissions.

1. Looking now at the above guidelines and relevant discretionary factors in r 1902, the contents of the affidavits shows that the plaintiff is not trading and has no assets. I have not been provided with any information to suggest that it could meet a substantial costs bill.

1. Although there has been some delay in filing the application, it is not excessive and is not to such an extent that it should influence the result of the application.

1. It is difficult to assess the strength of either party’s case. The matter is likely to be resolved by the acceptance, or otherwise, of the witness’ testimony. This point is important to the main argument raised by the plaintiff. It was submitted that the proceedings involve, effectively, a switching of roles of plaintiff and defendant because the defendant, by his conduct, has forced the plaintiff to take action against him.

1. The plaintiff pointed to a number of amounts referred in the Statement of Claim (for example in [8], [11], [14], [15], [20] and [21]) which were paid to the defendant in the months leading up to his removal as a director and which, in his Defence, he admits to having received. The plaintiff says that he should not have taken these amounts and the plaintiff had no choice but to sue in order to recover them.

1. The Defence does concede receipt of the monies but says that there was an entitlement to them. This dispute is central to the litigation and is not one that I can result in this application. It is, however, a point that I can properly take into account, if only as a possibility in the plaintiff’s favour, in the exercise of my discretion.

1. The next significant point taken by the plaintiff is that, if the allegations in the Statement of Claim are correct, there is a basis for asserting that the plaintiff’s lack of funds is due to the defendant’s (mis)conduct. Once again, however, this is a matter which is central to the dispute which I cannot decide.

1. There is no obvious source for monies to be paid by way of security for costs, so that there may be an element of stultification of the litigation. However, the litigation is being pursued, and presumably is being funded. I have been informed that there are other shareholders, besides the defendant, who are interested in the plaintiff’s cause and it seems to be a reasonable inference that they are behind the plaintiff’s pursuit of the proceedings so far.

1. An attack was made by the plaintiff on the defendant’s estimate of costs. The estimate, made by Mr Wong, covers a somewhat wide range ($45,000 - $105,000). The plaintiff pointed out that Mr Wong is relatively inexperienced and that I should have some concerns about accepting his opinion on costs. I agree that Mr Wong is relatively inexperienced, especially compared to the sorts of opinions often found in applications of this type. However there is no competing estimate and it was plain from the defendant’s submissions that an amount below the bottom of the estimate could be seen as appropriate. On any basis, the likely cost of this litigation will be substantial.

1. I should note here that the plaintiff’s point arising from there being a costs order already made in its favour is of little consequence. The costs order is only in respect of a directions hearing and is not likely to amount to a large sum.

1. Fundamentally, this defendant is faced with defending proceedings, which will no doubt be costly, and in respect of which he has no chance of recovering any costs should he succeed.  

1. I have a discretion to order security on terms. The case has not been to mediation. I was informed that the pleadings have not yet closed so that a mediation is currently premature. The outstanding pleadings are a Reply to the Counterclaim. I see no reason why this document should not be filed within, say, a further 28 days.

1. I am of the view that, as a first step, the matter should go to mediation. I will, therefore, set a timetable for the pleadings to be finalised and the matter to be referred for mediation. If mediation is not successful, then I think an amount of money by way of security for costs should be provided, but not to the extent sought.

1. I think the necessary balance to achieve a just result is reached by the following orders:

(i)A Reply is to be filed and served by 3 August 2018.

(ii)The parties are to attend a court ordered mediation to be organised through the Senior Deputy Registrar.

(iii)The matter is listed before the Senior Deputy Registrar on 9 August 2018 for the allocation of a mediation date.

(iv)The mediation is to take place by 30 November 2018.

(v)If the mediation is not successful, the plaintiff is to provide security for costs in the sum of $25,000 by way of a bank guarantee or a payment into court.

(vi)The security is to be provided within 30 days of the completion of the mediation.

I certify that the preceding twenty-one [21] numbered paragraphs are a true copy of the Reasons for Judgment of his Honour Justice Elkaim.

Associate:

Date: 5 July 2018