Jownal v Commonwealth Bank of Australia

[1999] SASC 72

JOWNAL v COMMONWEALTH BANK OF AUSTRALIA

Magistrates Appeal

LANDER J: This is an appeal pursuant to leave granted by Mullighan J from a decision of a magistrate made in the Christies Beach Magistrates Court on 20 November 1998.
On that occasion the learned Magistrate was called upon to consider two applications made by the defendant/respondent: an application for summary judgment and in the alternative an order for security for costs. The learned Magistrate dismissed the application for summary judgment but granted the application for security for costs and ordered the appellant/plaintiff to lodge $8500 with the Registrar within twenty-eight days of the date of his order and stayed the appellant’s claim until the amount was paid.
The appellant sought leave to appeal from the order providing for security for costs. The matter came before Mullighan J on 4 December 1998 when his Honour gave leave to appeal against the orders made in the Magistrates Court. His Honour also ordered a stay of the orders made by the learned Magistrate until a determination of this appeal.
The plaintiff issued its own proceedings in this matter. The particulars of claim are:
“Whereas the defendant, acting as the Controller of a property situated at Murrawong Road Willowbanks via Murray Bridge, and known as Murrawong Water Ski and Riverbank Resort, detained certain items of plant and equipment and also stock of (sic) trade belonging to plaintiff and refused to release the said items of plant and equipment and stock of (sic) trade into the plaintiffs (sic) possession upon request, the plaintiff hereby ask the honourable court (sic) to order the defendant to release the said articles to plaintiffs (sic) possession forth with (sic).”
The plaintiff then identified a list of items of plant and equipment including stock of (sic) trade totalling $21220.
The plaintiff’s claim is briefly stated but I think the claim is in conversion and/or detinue.
In affidavits filed in relation to the application for summary judgment and the application for security for costs, the plaintiff has asserted that J and W Labaj Plumbing Contractors Pty Ltd acquired the leasehold estate of the Murrawong Resort at Murray Bridge. That company agreed with the plaintiff, which was formerly called Ski World Pty Ltd, for the plaintiff to operate a business from those premises. As part of that agreement it sold to the plaintiff all of the items of plant and equipment referred to in the plaintiff’s particulars of claim. The plaintiff became indebted to J and W Labaj Plumbing Contractors Pty Ltd in the sum of the value of the items of plant and equipment sold. The plaintiff has asserted that it has repaid that debt to J and W Labaj Plumbing Contractors Pty Ltd. The plaintiff claims by reason of the transaction to which I have referred that it was the owner of all of the chattels set out in the particulars of claim and the owner of the stock in trade.
The plaintiff and J and W Labaj Plumbing Contractors Pty Ltd attempted to sell the leasehold and the business operated from the leasehold at the Murrawong Resort but were unsuccessful.
J and W Labaj Plumbing Contractors Pty Ltd gave an equitable charge to the defendant over the whole of its undertaking. The plaintiff, on the other hand, was never at any stage indebted to the defendant and offered no security whatsoever to the defendant.
On 16 January 1998 the defendant took possession of the property. The defendant thereafter refused entry to the plaintiff or any of its officers, including its directors and managers.
The plaintiff says that it owns the assets the subject of the litigation and owns an interest in real estate. The interest in real estate is more relevant to the application for security for costs. The plaintiff has exhibited a Lands Title Office search, to an affidavit of one of its directors, John Labaj. The Lands Title Office search shows that the plaintiff is the proprietor of an estate and fee simple of twenty-five undivided 187th parts of property at Jerilderie Drive, Happy Valley. The registered proprietor of the other 162 parts is Ondrej John Labaj. I am not sure whether that person is the same person as the deponent.
The plaintiff claims it first became aware that the defendant intended to sell the leasehold estate, which it had entered pursuant to its equitable charge, and the various chattels and stock in trade, (which the plaintiff claims it owns) on 1 May 1998. On that day the plaintiff wrote to the defendant seeking the return of the chattels and the stock in trade but the defendant has refused to return the chattels.
The appellant claims, by reason of those facts, that it has a good claim against the respondent in conversion or detinue.
The learned Magistrate refused the respondent’s application for summary judgment and, in my opinion, rightly so.
The respondent also sought and obtained an order for security for costs.
Rule 81 of the Magistrates Court Rules provides a power to make an order for security for costs. Rule 81(1) provides:
“The Court may order a party to pay a sum of money, or give other security, to the Registrar in respect of the whole or part of the costs of an action, or the claim itself, and such sum or security will be held by the Registrar to abide the event.”
The Court can also, pursuant to r81(2) and (3) order a party to give a bond or an undertaking or require the party to obtain a guarantee or other surety in respect of the whole or part of the costs of an action of that party.
The Magistrates Court Rules do not provide any indication as to how the Court ought to exercise its discretion to make an order for security for costs.
In August Investments Pty Ltd v Poseidon (1971) 2 SASR 65 at 69, four circumstances were recognised as being appropriate to give rise to an order for security for costs. Those circumstances were:
(1) .. Where the plaintiff is a mere nominal plaintiff and is in a condition of poverty or insolvency.
(2) Where the plaintiff is ordinarily resided out of the jurisdiction.
(3)... Where the residence of the plaintiff is incorrectly stated in the summons with an intention to deceive.
(4) In circumstances authorised by any statute.
Those four categories have been recognised as circumstances which could give rise to an order for security for costs in r100.01 of the Supreme Court Rules. The Supreme Court Rules now recognise a further category apart from those referred to in August Investments Pty Ltd v Poseidon and that is where for special circumstances the justice of the case so requires.
The plaintiff does not come within categories (1), (2) or (3) of the categories recognised in August Investments Pty Ltd v Poseidon, but it does come within category (4).
The plaintiff is a corporation and is therefore subject to s1335 of the Corporations Law. That provides:
“(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 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.”
A consideration of s1335 requires, in my opinion, the court being first satisfied that there is credible evidence that the plaintiff will be unable to pay the costs of the defendant if the defendant is successful in his, her or its defence. If so satisfied, the court then must apply its mind to whether, in the circumstance of the case, it is appropriate to make that order which, of course, involves the exercise of a discretion on the part of the court: Southern Cross Exploration NL v Fire and All Risks Insurance Co Ltd [1985] 1 NSWLR 114.
However the evidence is or becomes available it is always upon the moving party to establish the affirmative proposition in the section. The onus of proof is undoubtedly upon the party asserting that security should be given. That party must produce credible testimony that there is reason to believe that the plaintiff will be unable to pay that party’s costs. However, that does not mean that it must establish that the plaintiff will not be able to pay the party’s costs.
There will be circumstances where the applicant will produce sufficient evidence to require an answer from the plaintiff. In those circumstances the evidential onus might move but in the end the applicant has to be able to convince the Court that credible testimony exists.
The evidence available to the moving party will usually be in the possession of the plaintiff. That evidence may sometimes also be in the public domain where, for example, the plaintiff is in liquidation or receivership. Sometimes the evidence will also be in the possession of the moving party, for example, when the moving party has that evidence by reason of its commercial relationship with the plaintiff. Sometimes the evidence will be obtained upon discovery being given.
The respondent’s application to the learned Magistrate relied upon a number of affidavits but, in particular, two affidavits of a solicitor in the employ of the respondent sworn on 7 September 1998 and 14 October 1998.
In support of the respondent’s application, the only evidence adduced in those affidavits was that the plaintiff had a share capital of $2.00 and some evidence that the appellant did not own any real estate.
I think the second matter has been answered by the appellant in establishing that the appellant has an interest in twenty-five undivided 187th parts of the property Jerilderie Drive, Happy Valley. I think it must be inferred, from the evidence before the learned Magistrate and which is before me, that the appellant does have an interest in real estate to the extent mentioned.
However, the value of that interest does not appear to be great. The transfer of that interest which was exhibited to Mr Labaj’s affidavit to the appellant includes a declaration that the property has a value of $187000, but the property is subject to a mortgage to the Westpac Banking Corporation.
The mortgage has been given by the appellant and the other tenant in common, Oudrej John Labaj, in consideration of Westpac forbearing to demand immediate payment of moneys owing by both tenants in common to Westpac. The mortgage is stamped up to $165000. If the stamp duty on the mortgage reflects the amount due to Westpac and the declaration of value is correct then the appellant’s interest in the property would be worth about $3000.
The appellant also claims that it is the owner of the items the subject of the litigation. In an affidavit filed in reply to this application Mr Labaj exhibited a depreciation schedule and an Asset Register, no doubt to establish that the items are assets of the appellant. Mr McCarthy who appeared for the respondent said that a comparison of those exhibits and the Particulars of Claim shows that the written down value of the items, the subject of the litigation, is about $8000. Mr Keith who appeared for the appellant did not submit otherwise.
The evidence filed on both sides establishes that the appellant has a share capital of $2.00, probably an interest in land to the value of about $3000 and possibly personal property with a written down value of $8000. There is the assertion by Mr Labaj that the appellant is a trading company but the appellant was not prepared to put its financial statements before the Court other than on the basis that the respondent not have access to those statements. The learned Magistrate rightly, in my opinion, rejected the tender on that basis.
There was, therefore, no further evidence of the appellant’s ability to meet an order for costs other than that to which I have referred.
That meant that the learned Magistrate was entitled to conclude that the appellant’s assets did not exceed $11002. He had no information about the appellant’s debts but he could have inferred that the appellant had a liability or at least a contingent liability to its solicitors in respect of the costs of this action and other actions. I have referred to other actions because Mr Labaj, in his affidavit, indicated that there are other proceedings between the appellant and the respondent.
Assuming that the plaintiff does have assets of $11000, it may be inferred that if it was to fail in the proceedings against the defendant, it would not be able to meet the respondent’s costs. That is because it will have an obligation to its own solicitors in relation to this action and it would have an obligation to its solicitors in relation to the solicitor and client costs of the other actions.
I think that there is credible evidence that the appellant would not itself be able to pay the costs of the respondent if the appellant was unsuccessful.
The respondent has established that in the event that the respondent is successful in its defence it is unlikely that the appellant will be able to meet its costs.
The object of the section is to protect a party against the possibility that if that party is successful then the plaintiff will be unable to meet an order for costs.
In determining whether it is appropriate to make an order for security for costs some regard has to be had to the principle that an impecunious party will not be prevented from bringing a claim against another party merely by reason of the party’s impecuniosity.
The making of an order of this kind must, in all circumstances, be a hardship to any plaintiff because the order cannot be made unless it is first recognised that the plaintiff is unlikely to be able to meet a successful defendant’s costs.
In this State, at least, the exercise of the discretion given under this section is unfettered: Spiel v Commodity Brokers Australia Pty Ltd (In Liquidation) (1983) 35 SASR 294; John Arnold’s Surf Shop Pty Ltd v Heller Factors Pty Ltd (1979) 22 SASR 4 at 34. There is no statutory bias in favour of making the order. In exercising that discretion a number of matters would ordinarily be relevant. The Court would have regard to whether the defendant has made any admissions in its pleadings. It might be relevant to know whether the defendant has made a payment into Court or filed an offer to consent to judgment. It might be relevant if the plaintiff’s case is that its impecuniosity has been brought about by the defendant and if that is the subject matter of the litigation.
It would also be relevant to determine whether the application is being made oppressively and with the purpose of stifling the litigation rather than protecting the defendant. The parties conduct generally may well be relevant.
There will be other relevant matters depending upon the circumstances of the case.
None of these matters arise in this case. The respondent denies any liability to the appellant. No offers have been made. The appellant’s impecuniosity is not due to the fault of the respondent.
The application by the defendant is apparently made for the purpose of protecting itself and not for the purpose of stifling the litigation.
In this case the appellant has elected not to bring forward any information in relation to its assets and liabilities except that to which I have referred.
It has elected not to give any evidence of its current financial position or its ability to raise money or lines of credit through its bankers or other financiers or its shareholders or directors.
In the absence of the appellant saying so, I am not prepared to infer that the appellant does not have recourse to other sources of funds to meet an order for security for costs. I am not prepared to infer that its directors and shareholders will not support it in this litigation.
If it is without support then the appellant should have said so in answer to this application. Indeed it was the appellant’s contention before the learned Magistrate that the appellant was not impecunious and that the respondent had not proved the appellant to be impecunious.
More importantly Mr Labaj said, in his affidavit, that the appellant would be able to supply security to the extent of $5000 ‘forthwith’.
There is nothing in the Magistrate’s reasons which indicates that the learned Magistrate had regard to any irrelevant information or did not have regard to relevant information. There is nothing to suggest that the exercise of his discretion miscarried.
Having regard to the information before the learned Magistrate it was within the proper exercise of his discretion to make an order for security for costs and in the sum that the order was made.
In those circumstances I cannot say that the learned Magistrate erred.
In my opinion the appeal should be dismissed.

[1999] SASC 72

23 March 1999