Irving & Anor v Starmaker (No 51) Pty Ltd - [2005] SASC 162

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
IRVING & ANOR v STARMAKER (NO 51) PTY LTD
Reasons of Judge Lunn a Master of the Supreme Court
3 May 2005
PROCEDURE
Security for costs - both natural and corporate plaintiffs - held no order to be made against corporate plaintiff under s 1335 of Corporations Act or R101 as if defendant successful it would be adequately protected by an order for costs against the natural plaintiff.

IRVING & ANOR v STARMAKER (NO 51) PTY LTD
[2005] SASC 162
Reasons of Judge Lunn on the Defendant’s Application for Security for Costs.

JUDGE LUNN By an application issued on 1 March 2005 the defendant sought an order for security for costs against the plaintiffs. However on the hearing of the application counsel for the defendant limited her application to one for security against only the second corporate defendant. The plaintiffs did not file any affidavits in answer and accordingly the application is to be determined on the affidavit evidence put forward by the defendant.
The application can be disposed of on a single ground which was only mentioned in passing during the course of the argument. As the plaintiffs are pressing to have this action set down for trial, I am not delaying my ruling by dealing with the many other arguments canvassed by counsel.
Of prime importance on this application are the respective roles in the action of the two plaintiffs, John Irving and Mawson KLM Holdings Pty Ltd (in liquidation). The first plaintiff is a natural person, who is the liquidator of the second plaintiff by virtue of an order of this Court.
The nature of the respective claims made by the two plaintiffs are set out in the Application and the statement of claim. (Because the action was commenced under the Corporations Law Rules 2000 (South Australia) the originating process was described as an Application.) I am referring to the amended third Application and the third amended statement of claim which were both filed on 7 April 2005. (The defendant has appealed against some aspects of the order under which this third amended Application and statement of claim was filed, but for my present purposes there is no material difference between that third amended Application and statement of claim and the prior second amended Application and second amended statement of claim filed on 5 March 2003).
The action is concerned with three transactions entered into between the second plaintiff and the defendant in 1995 and 1996 which are respectively referred to as the loan transaction, the option agreement and the joint venture agreement. The first plaintiff as liquidator of the second plaintiff seeks orders under Division 2 of Part 5.7B of the then Corporations Law to avoid each of these three transactions and for consequential repayments flowing from such avoidances. Under s588F(1) of the Corporations Law it is the liquidator personally who is the proper plaintiff for such applications under Division 2 and not the company in liquidation: Horn v York Paper Co Ltd (1991) 5 ACSR 112.
On the Application and the statement of claim the second plaintiff is only claiming in respect of the third transaction, ie the joint venture agreement. The effect of the statement of claim is that if the first plaintiff’s application to avoid the joint venture agreement fails, then the second plaintiff claims an account and inquiry as to the amount due to it on the joint venture. (There is a pleading that in 1999 the defendant sold land which was the subject of the joint venture and has retained the proceeds of sale.) Of particular significance is that this sole claim by the second plaintiff only arises for consideration if the claim by the first plaintiff for the avoidance of the joint venture agreement fails. The second plaintiff’s claim cannot succeed if the joint venture is avoided because it is based on there being a legally effectual joint venture agreement. If the first plaintiff fails in having the joint venture agreement avoided, it seems almost inevitable that an order for costs will be made against him in favour of the defendant (Rule 101.02(1).
Insofar as it can be gauged from the pleadings it would seem that almost all, if not all, of the evidence which would be material to the second plaintiff’s claim against the defendant would be put before the Court on the first plaintiff’s claims against the defendant. In other words, there is no likelihood that any significant amount of trial time or preparatory work would be referrable only to the second plaintiff’s claim.
In stating above what were the respective claims of the plaintiffs shown by the Application I inferred that there was an error in the Application as pleaded. The fifth line on page 2 reads:
The plaintiffs claim that:
I infer that it must be read as “The first plaintiff’s claim” as this is consistent with the Application subsequently setting out the second defendant’s claim and then at the end “the plaintiffs claim”.
The defendant seeks its order for security under s1335(1) of the Corporations Act and/or R101 of the Supreme Court Rules. Both give the Court a general discretion whether security should be ordered and the same considerations apply to both heads of power.
There is copious authority that security for costs will not be ordered against a natural plaintiff other than in the special circumstances set out in R100.01. It was not suggested here there was any basis for an order for security to be made against the first plaintiff. The decided authorities are to the effect that where there are both natural and corporate plaintiffs in the one action the Court will not exercise its discretion to order security against the corporate plaintiff if there is such a high degree of overlapping between the claims of the natural and corporate plaintiffs that if the defendant was successful it would obtain an order for its costs against a natural plaintiff. Stack v Brisbane City Council (1996) 71 FCR 523 at 529-30; Fiduciary Ltd v Morningstar Research Pty Ltd (2004) 208 ALR 564 and 576-581; Harpur v Ariadne Australia Ltd [1984] 2 QdR 523; John Bishop (Caterers) Ltd v National Union Bank [1973] 1 All ER 707; Pearson v Naydler [1977] 3 All ER 531.
For the reasons set out above it seems almost inevitable that if the first plaintiff fails to have the joint venture agreement avoided, he will be ordered to pay the defendant’s costs. (It is theoretically possible that the first plaintiff could succeed on either the loan transaction and/or the option transaction but fail on the joint venture transaction, but in that event it is likely that he will be penalised in the overall costs order for having failed on a distinct major cause of action.) This means that if the Court gets to the point of having to consider the second plaintiff’s claim arising under the joint venture the defendant will almost certainly have an order against the first plaintiff for its costs of the action or at least that part of it represented by the joint venture agreement. If the second plaintiff then also failed on its claim it is most unlikely that there would be any costs ordered against it which would not also have already been ordered against the first plaintiff.
In the circumstances of this matter there is a high degree of likelihood that the defendant, if successful, would obtain an order for its costs against the natural plaintiff. This is sufficient protection for it against any costs it would incur in successfully defending the second plaintiff’s claim against it. Accordingly, on this ground alone it is proper to exercise the discretion to refuse security for costs against the second plaintiff.
There is some suggestion in the authorities referred to above that even where there is substantial overlapping of claims between natural and corporate plaintiffs the discretion may not be exercised to refuse security against the corporate plaintiff if there are doubts whether the natural plaintiff could satisfy an order for costs made against him: Harpur v Ariadne Australia Ltd above. Any order for costs made against the first plaintiff is enforceable against him personally and is not limited to whatever funds he might hold as liquidator: re Speedifix Building Products Pty Ltd (1987) 11 ACLR 683. There is no evidence of the first plaintiff’s personal financial position. In any event unless there are exceptional circumstances a liquidator who is a plaintiff in person is not required to show that he has means to meet any adverse order for costs or to be made liable for security. I have recently dealt with this issue in Dwyer & Maxted v Canning Vale 11 March 2005, Judgment No [2005] SASC 80, unreported, and I do not repeat here what I have said in those reasons. The evidence discloses that in other related proceeding (883/00) an order for costs has been made against the first plaintiff and a short form bill has been presented claiming $48,409 but those costs have not yet been taxed and are therefore not due for payment by him. That in itself is not a ground for granting for security: Lines v Tana Pty Ltd [1987] VR 641. Here there is no reason to conclude that if a costs order was ultimately made against the first plaintiff in this action it would not be satisfied.
I make the following order:
1The defendant’s application for security for costs is dismissed.
2Costs of the application as agreed or taxed to be the plaintiffs’ costs.
3Time for any appeal against this order extended to 10 days after receipt of the posted reasons by the defendant’s solicitors.
4Action adjourned to a Further Directions Hearing on 9 June 2005 at 11.30 am. to await the outcome of the defendant’s appeal against the order of 23 March 2005.