J M Properties Pty Ltd v Strata Corporation No 13975 Inc - [2006] SASC 227

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
J M PROPERTIES PTY LTD v STRATA CORPORATION NO 13975 INC & ORS
[2006] SASC 227
Reasons for Decision of The Honourable Justice Layton
2 August 2006
PROCEDURE - COSTS - SECURITY FOR COSTS
APPEAL AND NEW TRIAL - APPEAL - PRACTICE AND PROCEDURE - SOUTH AUSTRALIA - SECURITY FOR COSTS
Appellant appealed against two decisions of a Judge of the District Court in related matters - first respondent and third, fourth and sixth respondents applied for security for costs on the appeals - whether security for costs should be ordered - whether special circumstances exist - appellant company impecunious - appellant company a trustee company - inadequate disclosure of the financial position of the appellant - whether orders for security would operate as an oppression on the appellant - Held: special circumstances exists and security for costs should be ordered in favour of the first respondent and the third, fourth and sixth respondents.
Supreme Court Rules 1987 r 95.13(b); Corporations Act 2001 (Cth) s 1335, referred to.
Dictating Machine v Combe (1981) 26 SASR 316; Cowell v Taylor (1886) 31 Ch D 34, applied.
Archer Pty Ltd v Woodhead Australia Pty Ltd (Unreported, Supreme Court of South Australia, 5020 Lander J, 29 March 1995); Citicorp Australia Ltd v Cirillo [2003] SASC 204; Foxgold v Paterson [2005] SASC 376; Lagaona Pty Ltd v Bridge Wholesale Acceptance [1995] 1 VR 150; New Trend Pty Ltd v Oceanic Life Ltd [1990] WAR 1; Octocane Pty Ltd v S R J Property Development Pty Ltd (1999) 74 SASR 471; Bell Wholesale Co Pty Ltd v Gates Export Corp (No 2) (1984) 2 FCR 1; Yandil Holdings Pty Ltd v Insurance Co of North America (1985) 3 ACLC 542; Shannon v ANZ Banking Group Ltd (No 2) (1994) 2 Qd R 563, considered.

J M PROPERTIES PTY LTD v STRATA CORPORATION NO 13975 INC & ORS
[2006] SASC 227

LAYTON J: These matters comprise two applications for security for the costs of appeal. The first application was taken out by Strata Corporation No. 13975 Inc (“the first respondent”) in Supreme Court Action 473 of 2006. The second application was taken out by Duke Constructions Pty Ltd (“the third respondent”), Duke Properties Pty Ltd (“the fourth respondent”) and the Anglican Superannuation Australia Ltd (“the sixth respondent”) in Supreme Court Action 562 of 2006. The appellant in both actions, J M Properties Pty Ltd, opposes any orders for security for costs.
On 7 July 2006, I ordered that the appellant provide security for costs to both the first respondent and the third, fourth and sixth respondents. I also indicated that I could publish reasons for decision at a later date. I now take the opportunity to do so.
As indicated, the applications for security relate to two separate appeals although they are interlinked. The third, fourth and sixth respondents are only concerned with Supreme Court Action 562 of 2006 and not with Supreme Court Action 473 of 2006, whereas the first respondent is concerned with both appeal actions.
Both the appeals relate to two separate actions decided in the District Court. The common factor to both of the actions in the District Court and also in the Notices of Appeal, is the liability for and recoverability of strata contributions/levies due to the first respondent by the appellant as a registered proprietor and holder of three units in a shopping arcade. The first respondent is a corporate body and the strata corporation under the Strata Titles Act 1988. The third, fourth and sixth respondents are also unit holders in that arcade. Whilst this is the simple expression of the subject matter of the litigation, the litigation itself was lengthy and complex.
The appellant was unsuccessful in the primary action in the District Court being Action 1030 of 2003 in which the appellant was the plaintiff and had sought a number of declarations. The declarations sought by the appellant involved inter alia challenges to the validity of the Articles which purported to bind the unit holders, challenges to the validity of meetings and resolutions conducted by the first respondent; alleged breaches of the Act; alleged unreasonable and oppressive decisions of the first respondent and also sought variations to the percentages of the contributions and levies due by unit holders under the Articles.
District Court Action 394 of 2003 was the first proceeding initiated in point of time. In that action, the first respondent as plaintiff, sought recovery from the appellant as the defendant, of contributions and levies alleged to be due by the appellant under the Articles. It was agreed that District Court Action 394 of 2003 would abide the event of District Court Action 1030 of 2003. Judgment was entered against the appellant for unpaid strata contribution/levies up to and including April 2006 of $178,405.85 together with interest of $5,252.97.
Supreme Court Action 562 of 2006 is an appeal against the decision in District Court Action 1030 of 2003 and Supreme Court Action 473 of 2006 is an appeal against the decision in District Court Action 394 of 2003.
The respondents in their respective applications for security for costs essentially relied on the submissions of each other. I note however that the application for security for costs in respect of the first respondent sought security for costs by reference to three separate sources of jurisdiction of this Court, namely the inherent jurisdiction, Supreme Court Rule 95.13(b) or s 1335 of the Corporations Act 2001 (Cth). On the other hand, the third, fourth and sixth respondents relied only on SCR 95.13(b). Therefore the reliance on SCR 95.13(b) was common to both applications.
Supreme Court Rule 95.13 provides:
Without restricting the generality of the jurisdiction powers and authority conferred on the Full court by the Act or by any other enactment the Court when dealing with proceedings under this Rule:
…
Security for costs
(b) may if there are special circumstances order that such security as the Court thinks fit be given for the costs of the appeal.
Section 1335 of the Corporations Act provides:
Costs
(1)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.
There is a preliminary nice question as to the operation of these two sources of jurisdiction. The question is whether SCR 95.13(b) modifies the application of s 1335 of the Corporations Act such that the need for “special circumstances” also qualifies applications made under s 1335 of that Act on the basis that it is encompassed by the phrase “by any other enactment” in the rule.
I do not need to express a view on this question as in my opinion in the circumstances of this case, for reasons discussed hereafter, it would be appropriate for me to exercise my discretion under SCR 95.13(b) as well as s 1335 of the Corporations Act.
Evidence before the Court
The respondents relied upon the following affidavits and material in support of their respective submissions namely:
·Affidavit of Jack Balalis filed in Supreme Court Action 473 of 2006 on 22 May 2006.
·Affidavit of Marina Balalis filed in District Court Action 1030 on 22 July 2005.
·Affidavit of Marina Balalis filed in District Court Action 1030 on 29 November 2005.
·Affidavit of Marina Balalis filed in District Court Action 1030 on 21 March 2006.
·Affidavit of Michael Fotheringham filed in Supreme Court Action 242 of 2006 on 15 March 2006.
·Affidavit of Shaun Berg filed in Supreme Court Action 473 of 2006 on 5 May 2006.
·Affidavit of Shaun Berg filed in Supreme Court Action 562 of 2006 on 26 May 2006.
·Affidavit of Michael Fotheringham filed in Supreme Court Action 562 of 2006 on 31 May 2006.
·Affidavit of Shaun Berg filed in Supreme Court Action 473 of 2006 on 1 June 2006.
·Affidavit of Peter Tierney filed in Supreme Court Action 473 of 2006 on 1 June 2006.
·Exhibit 1 of the third, fourth and sixth respondents being copies of Land Title Office searches.
In addition to this information, I also had the benefit of extensive outlines of argument as well as written and oral submissions from the parties.
Rule 95.13
The general principles which are relevant in determining whether security for costs should be given are considered in the case of Dictating Machine v Combe.[1] The principles discussed in that case were in the context of security for costs prior to trial, whereas in this case costs are sought in regard to appeals from decisions of a Judge of the District Court. However, in my view the principles are still relevant and there is a stronger argument for their application in the context of an appeal as distinct from an application for security for costs before trial. I note that the general principles are not necessarily all relevant in a particular case and they have not been expressed exclusively.
[1] (1981) 26 SASR 316.
Essentially the matters identified as relevant in that case were:
·Whether there is a special relationship between the parties.
·The timing of an application for security.
·The conduct of the parties.
·The bona fides of the plaintiff or appellant.
·The plaintiff/appellant’s prospects of success.
·Whether the application for security is being used to stultify or oppress the plaintiff/appellant’s claim.
The major argument which was addressed in this case by the respondents with respect to SCR 95.13(b) as well as s 1335 of the Corporations Act, is the question of the impecuniosity of the appellant and the consequences of that to the respondents. I will therefore discuss this argument first.
Impecuniosity of the appellant
Whilst it has been said that “the general rule is that poverty is no bar to a litigant”,[2] that general rule is subject to two possible exceptions. The first is if the security for costs relates to an appeal as distinct from pre-trial,[3] and the second exception is where the impecuniosity concerns a corporation rather than an individual.[4]
[2] Cowell v Taylor (1886) 31 Ch D 34, 38.
[3] Cowell v Taylor (1886) 31 Ch D 34, 38.
[4] Corporations Act s 1335.
The submissions made by all respondents on SCR 95.13(b) were essentially the same, save a different argument adduced by the first respondent to the effect that its need for security was even greater than the other respondents who had some protection available to them by reason of a guarantee and injunction to which I will refer later in these reasons.
It was argued by the respondents that impecuniosity in itself could amount to special circumstances.[5] In this case it was submitted by the respondents that there was no doubt that the appellant was impecunious. The appellant through its counsel Ms Nelson QC also conceded that “the appellant is impecunious in the sense that it would be unable to meet the judgment and costs if it were unsuccessful in the appeal.”
[5] Archer Pty Ltd v Woodhead Australia Pty Ltd (Unreported, Supreme Court of South Australia, 5020 Lander J, 29 March 1995); Citicorp Australia Ltd v Cirillo [2003] SASC 204, Sulan J; Foxgold v Paterson [2005] SASC 376, Perry ACJ.
The appellant is a trustee company for “the Balalis Unit Trust” and the “J & M Balalis Family Trust”. The directors of J M Properties Pty Ltd are Jack Balalis and Marina Balalis.[6] The proceedings in the District Court were financially supported by Jack Balalis, Marina Balalis and Allendy Holdings Pty Ltd. Allendy Holdings Pty Ltd is a company which conducts a catering business in Adelaide and Marina Balalis is the sole director.[7]
[6] J M Properties Pty Ltd v Strata Corporation No. 13975(No 2) [2005] SADC 105, [9].
[7] J M Properties Pty Ltd v Strata Corporation No. 13975(No 3) [2006] SADC 46 [19]-[20]; Submissions of the Respondent in Relation to the Security For Costs Application, paras 19-20.
The only disclosed assets of the appellant are real estate property consisting of the three units in the arcade plus a further property at 3 - 8 Railway Terrace, Port Elliott.[8] As to the units, it is not clear what equity exists as the net asset position after liabilities on the units is deposed as being over a broad span, between “approximately negative $156,000 and approximately $919,000”.[9] The only income which the appellant discloses is the rent from the units of the arcade, but the outgoings in respect of those units having regard to the liabilities for mortgages to Bank West Ltd and a collateral security held by Macquarie Bank Ltd are submitted by the appellant to be $5,500 per month. In July/August 2005 the appellant was not in a position to meet its debts as and when they fell due without the assistance of Allendy Holdings.[10]
[8] Affidavit of Jack Balalis filed in Supreme Court Action 473 of 2006 para 71 and the affidavit of Shaun Berg filed in Supreme Court Action 473 of 2006 on 1 June 2006 paras 4 and 5.
[9] Affidavit of Marina Balalis filed in District Court Action 1030 of 2003 on 22 July 2005 para 10 and the affidavit of Shaun Berg filed in Supreme Court Action 473 of 2006 on 1 June 2006 para 4.
[10] J M Properties Pty Ltd v Strata Corporation No. 13975(No 2) [2005] SADC 105 [35] – [36].
With regard to the Port Elliott property, this is deposed as being under a contract for sale for $400,000, but the mortgagee of the property, Macquarie Bank, requires that the whole of the proceeds of that property be applied to reduce the debt to it.[11]
[11] Affidavit of Jack Balalis filed in Supreme Court Action 473 of 2006 paras 71.2 and 73.
It was submitted by the respondents that the fact of the appellant being a trustee company in itself might lead to an order for security.[12] The reason for the appropriateness of an order for security against a trustee company is the vulnerability of the assets of the trustee company as the beneficiaries can call upon them at any time. This would expose the respondents to a real risk that the appellant will be unable to meet any order for costs made against it unless there is a security for those costs. It was submitted in this case that there had been no appropriate disclosure to the respondents of the trust deeds of either trust and no identification of the beneficiaries under the trusts in spite of requests being made for such disclosure. These factors give no comfort to the respondents.
[12] Lagaona Pty Ltd v Bridge Wholesale Acceptance [1995] 1 VR 150, 153-154.
In considering the relevance of the appellant’s financial situation, it is necessary to also have regard to the impact of this impecuniosity on the respondents having regard to their costs to the present time and the extent of indebtedness of the appellant to them as a consequence of the litigation.
The judgment against the appellant in District Court Action 394 of 2003 (the subject of notice of appeal in Supreme Court Action 473 of 2006) is for an amount of $183,658.82 including interest up until April 2006. This judgment sum does not include later accruals and special levies. It was submitted that inclusive of special levies the amount owed by the appellant to the first respondent was approximately $244,111.30.
The first respondent has filed a short form bill of costs in District Court Action 394 of 2003 in the sum of $23,500 and for a sum of $700,000 in District Court Action 1030 of 2003. With regard to District Court Action 1030 of 2003, the third, fourth and sixth respondents are claiming a sum of $580,000 for costs.
In summary the total amount owed by the appellant to the respondents including judgment, continuing strata contributions and levies as well as costs is in the order of more than $1.5million.
In the context of this case, the impecuniosity of the appellant in itself would in my view amount to a special reason justifying orders for security for costs on appeal, but there are other matters which in my opinion fortify the appropriateness of orders for security.
Conduct of the appellant
The respondents put forward two major concerns of the respondents as to the conduct of the appellant and Mr and Mrs Balalis, including failure to comply with court orders as well as issues regarding dissipation of assets.
On 22 June 2005 the appellant was ordered by the trial Judge in the District Court to pay two instalments of strata arrears of $31,612.65 each, the first within 14 days and the second within six weeks. In breach of that order the appellant did not pay the second instalment. I note at this point that apart from relatively small amounts paid by the appellant for electricity supply to the units, there have been no strata levies paid by the appellant since before January 2005.
In relation to the dissipation of assets, as a consequence of concerns about the intermingling and shifting of assets between the appellant and related parties, the third, fourth and sixth respondents successfully applied for asset preservation orders against the appellant, its directors Mr and Mrs Balalis and their company Cos Holdings Pty Ltd. The reasons for decision confirm the concern.[13] The later application made by the appellant to vary or discharge the injunctions was also refused with reasons.[14] I also note that subsequent to the order for injunctions obtained on 15 August 2005, a separate application was required to be taken out by the said respondents to vary the terms of the injunctions on discovering information that Allendy Holdings was had changed its name from Cos Catering Pty Ltd to Cos Holdings Pty Ltd.[15] Clearly, any divesting of assets which adversely affects the ability of a successful respondent to recover costs, may itself amount to a special circumstance.[16]
[13] J M Properties Pty Ltd v Strata Corporation No. 13975(No 2) [2005] SADC 105 [44]-[47].
[14] J M Properties Pty Ltd v Strata Corporation No. 13975(No 3) [2006] SADC 46 [57]-[65].
[15] It would appear that Cos Holdings Pty Ltd later became Allendy Holdings.
[16] Shannon v ANZ Banking Group Ltd (No 2) (1994) 2 Qd R 563.
Further, the appellant and Mr and Mrs Balais appear to have dealt with properties the subject of the injunctions, contrary to the orders made against them on 15 August 2005. In particular:
(a)     A caveat dated 1 March 2006 was registered over Mrs Balalis’ Allenby Gardens property by Mr Frank Borg. The interest claimed by Mr Borg is an equitable mortgagee pursuant to an agreement dated “24 March 2006” between he and Mrs Balalis.
(b)     A caveat dated 14 September 2005 was registered over Mr and Mrs Balalis’ Townsville property by Finance Co Pty Ltd claiming an interest as an equitable mortgagee pursuant to an agreement between that company and Mr and Mrs Balalis dated 10 September 2005 wherein they agreed to mortgage that land in favour of Finance Co Pty Ltd.
(c)     A caveat dated 25 November 2005 was registered over the appellant’s Renaissance Arcade properties by Ralph Mitrovic and Giuseppe Sidari. The interest claimed is an equitable mortgagee pursuant to an agreement dated 25 November 2005 wherein the appellant agreed to mortgage that land in favour of the caveator.
Whilst Ms Nelson informed the Court that she understood the caveats had been revoked, a Lands Titles Office search tendered by the third, fourth and sixth respondents suggests otherwise.

Matters allied to the concern about the dissipation of assets and disregard of court orders and their requirements, is the lack of frank disclosure about the income and asset situation of those entities which have been funding the appellant, which include Mr and Mrs Balalis and Allendy Holdings Pty Ltd.
To the extent that one is able to glean any reliable information about the financial circumstances of Mr and Mrs Balalis, the appellant made reference to the affidavits of Mr and Mrs Balalis.
The effect of these affidavits is conveniently summarised in the written submissions of the third, fourth and sixth respondents.
Mrs Balalis
31.321 Caroline Drive, Allenby Gardens
31.3.1Offer to purchase procured for $580,000.00.
31.3.2Has a corresponding debt to the mortgagee of approximately $425,000.00.
31.3.3Secures a loan to Macquarie Bank in the sum of approximately $520,000.00 (in respect of which interest is payable at the rate of approximately $3,400.00 per month).
Mr and Mrs Balalis
31.450 Clifford Street, Torrensville
31.4.1Contract for sale procured for $350,000.00.
31.4.2Has a corresponding debt to the Mortgagee of approximately $290,000.00.
31.4.3Secures a loan to Macquarie Bank in the sum of approximately $320,000.00 (in respect of which interest is payable of approximately $2,100.00 per month).
31.5One $1.00 share each in the business of Cos Catering.
31.6Furniture and personal effects (which Mrs Balalis deposed have a market value of approximately $250,000.00). (Footnotes omitted)
In addition, counsel for the first respondent points to the fact that the affidavit of Mrs Balalis referred to by counsel for the appellant for the purpose of indicating the disclosure of the circumstances of Allendy Holdings Pty Ltd, referred to a budget not an actual expense and that there are no taxation returns, no profit and loss accounts or balance sheets to support the information. Therefore there has not been full disclosure with regard to the overall circumstances of those who stand to benefit from any appeal and from those that might otherwise be able to fund an appeal.
A further concerning factor is that there has been an application taken out by the Deputy Commission of Taxation in the Federal Court on 16 May 2006, to wind-up Allendy Holdings Pty Ltd for alleged failure to comply with a statutory demand served on 6 February 2006. A sum of $375,754.85 is claimed.[17]
[17] Affidavit of Michael Fotheringham filed in Supreme Court Action 562 of 2006 on 31 May 2006.
In summary there is no comfort to be gleaned from the information before the Court that the respondents will be able to recover what is already owed to them, let alone any further costs of defending their judgments in the appeal processes. Further, the poor conduct of the appellant and related bodies as referred to above, reinforces that there are special reasons why security should be ordered.
However, there are still some further matters to consider.
Oppression or stultification of the appellant
The appellant argues that if an order for security is made as sought by the respondents, it will operate as an oppression on the appellant proceeding with its appeals. In support for this argument, counsel for the appellant referred to the bases upon which the appellant sought to defend the liability for strata corporation contributions and levies and to argue for declarations to be made. Essentially it highlighted the unconscionability of the quantum of the levies being imposed upon it under the Articles of the strata corporation and the gross imbalance between the percentage of area of the titles, the percentage of strata fees payable and the extent of its voting power.
With regard to this argument, the respondents strongly argued that if the appellant wished to proffer this as a basis for objection to any order for security for costs, the onus was on the appellant to prove a causal link between the actions of the respondent and the impecuniosity of the appellant.[18] The respondents submitted that the appellant’s argument was contradictory in that there would have had to be some payment due by it for contribution and levies. It has paid no levies for more than a year. The impecuniosity it alleges appears not to be associated with the contributions/levies of which it complains. The respondents submitted that it is the litigious actions of the appellant which have significantly contributed to the extent of its impecuniosity, particularly in instituting the unsuccessful action in 1030 of 2003 and all the associated interlocutory applications it took, which gave rise to the greatest amount of costs.
[18] New Trend Pty Ltd v Oceanic Life Ltd [1990] WAR 1; Octocane Pty Ltd v S R J Property Development Pty Ltd (1999) 74 SASR 471.
I agree with the respondents’ submissions and I am not satisfied that an argument for oppression can properly be mounted by the appellant in the circumstances of this case.
Turning now to the issue of whether an order for security would stifle the appeals. It is for the appellant to disclose the true financial position of those who stand to benefit from the appeals.[19] The argument of the respondents was that there had been inadequate disclosure of the true financial position of those entities which have in the past funded the appellant company and that the Court could not be satisfied that an order for security would prevent the appellant from proceeding with its appeals.
[19] Bell Wholesale Co Pty Ltd v Gates Export Corp (No 2) (1984) 2 FCR 1; Yandil Holdings Pty Ltd v Insurance Co of North America (1985) 3 ACLC 542; Octocane Pty Ltd v S R J Property Development Pty Ltd (1999) 74 SASR 471.
I am concerned about the fragmented nature of the information before me. Counsel for the appellant acknowledged this fragmentation. Such information as I do have indicates that the respondents are likely to have little success in pursuing their costs and judgment if the appeals fail. However, I am not satisfied that there is sufficient information disclosed by the appellant and its related entities which would satisfy me that if an order for security is made, that the appellant would be prevented from prosecuting its appeals.
In relation to the argument that the third, fourth and sixth respondents have the security of a guarantee and the injunctions, for the reasons discussed above, these securities appear unlikely to satisfy the present indebtedness of the appellant to them, let alone any additional costs. Also such securities do not assist the first respondent.
Other discretionary issues
A further consideration is the relationship between the parties. I note that the parties are not strangers, they have a special relationship by being unit holders under the Strata Titles Act administered by the first respondent and they continue to remain in that legal relationship. This circumstance may have some relevance although the case of Dictating Machine v Combe indicated that this did not necessarily mean that a Court should be slower to order security than if the relationship was one in which the parties were strangers.[20]
[20] (1981) 26 SASR 316, 318.
It was also submitted by the appellant that these appeals concerned a matter of public interest by reason of the nature of the conduct complained of by the appellant and the oppression of the appellant as a minority shareholder in the unit of the arcade. I do not see this to be a matter of such public interest simply on the basis of the contentions of the appellant, which arguments have already been rejected. Whilst the protection of minority shareholders against oppressive or unfair conduct has been historically regarded as a matter which may attract equitable protection and is in a general sense a matter of public interest, that does not mean that an individual case will attract any special protection. I do not see this as an applicable argument in this case.
Finally, on the matter of the bona fides of the appellant and the chances of success on appeal, the respondents did not submit a lack of bona fides of the appellant, in spite of its initial appeals having been instituted prematurely and which were incompetent as well as prolix and confusing. No further point was taken by the respondents in respect of the chances of success, which it was submitted would await the outcome of the appeals. I do not consider that these matters are relevant in the circumstances.
Conclusion
I consider that there are grounds upon which I am satisfied that special circumstances exist and that orders for security for costs should be made pursuant to SCR 95.13. I also consider that there are grounds which would justify orders under s 1335 of the Corporations Act.
Having regard to the quantum of costs sought by the respondents, namely $100,000 sought by the first respondent and $70,000 sought by the third, fourth and sixth respondents, I consider that they are greater than seems apposite. Whilst the appeals will be more complex than many, I do not see the appeal as progressing for the length of time estimated and I also consider that there is a greater amount allowed for preparation than is warranted. I also have some regard to the fact that the arguments of the third, fourth and sixth respondents on appeal, although different in a number of respects, will have aspects in common with the first respondent and that it is likely that there will be some collaboration between them on preparatory matters.
I therefore consider it is appropriate to order that the appellant give security for the costs of the first respondent in the sum of $50,000 and for the third, fourth and sixth respondents of $30,000. I will hear the parties as to the form of the security.