Kingsley Brown Properties Pty Ltd (in liquidation) v; Floriston Nominees Pty Ltd

[2011] VCC 144

IN THE COUNTY COURT OF VICTORIA Revised

(Not) Restricted

AT MELBOURNE
COMMERCIAL LIST

GENERAL DIVISION

Case No. CI-10-04037

KINGSLEY BROWN PROPERTIES PTY LTD (IN LIQUIDATION)	Plaintiff
v.
FLORISTON NOMINEES PTY LTD	Defendant

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JUDGE:	His Honour Judge Anderson
WHERE HELD:	Melbourne
DATE OF HEARING:	24 February 2011
DATE OF JUDGMENT:	24 February 2011 (Revised 25 February 2011)
CASE MAY BE CITED AS:	Kingsley Brown Properties Pty Ltd (in liquidation) v. Floriston Nominees Pty Ltd
MEDIUM NEUTRAL CITATION:	[2011] VCC 0144

REASONS FOR JUDGMENT

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Catchwords:  Practice and Procedure – Security for costs application – Exercise of
discretion – Inter-company loan by director of both companies – Claim
that monies held on trust for plaintiff – Abortive earlier pleading based
on statute barred loan and acknowledgement of debt.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Ms P. Neskovcin	Minter Ellison
For the Defendant	Mr A. Schlict	Strongman & Crouch
HIS HONOUR:

1           The defendant by summons dated 16 December 2010, seeks an order for security for its costs of the proceeding. The plaintiff is a company in liquidation and concedes it is impecunious and if the defendant were to be successful in the action, the plaintiff

would be unable to pay its costs. The plaintiff submits that the effect of an order for
security would be to stifle its claim against the defendant in circumstances where, it is
said, the Court should exercise its discretion and not make an order for security for
the defendant’s costs.

2           The claim is based upon a loan by the plaintiff to the defendant in 1999. The loan was in the sum of $157,500 and the liquidator has identified, from the books of account of the plaintiff, two amounts of $145,000 and $12,500 which were paid by the plaintiff to the defendant.

3           The claim, when the proceeding was issued, was that a debt was owed by the defendant to the plaintiff. The proceeding was defended on the basis that the statute of limitations applied to the debt. As a consequence, the statement of claim has been amended so that the present basis of the claim is a constructive trust and the relief sought in the alternative is “a declaration that the plaintiff holds the loan on constructive trust for the plaintiff”.

4           The amended statement of claim pleads that Robert Kingsley Brown was, until the plaintiff went into liquidation, the sole director of the plaintiff and, at the time of the alleged loan, a director of the defendant and, until recently, a shareholder in the

defendant company. When the plaintiff went into provisional liquidation, a letter was
sent by the provisional liquidator to the defendant on 30 August 2004, requesting
repayment of the sum of $157,500. In a letter dated 1 September 2004, Mr Kingsley
Brown, responded on behalf of the company as follows “I advise that the amount

referred to therein was a loan to the company by Kingsley Brown Properties Pty Ltd.
The loan was not repayable at call. It was a long-term debt, repayable at some time in

the future. The Company is not in a position to repay the loan at this time”.

5           Mr Kingsley Brown had completed a report as to the affairs of the company, which he verified as correct on 20 August 2004. In the report, Mr Kingsley Brown included the defendant as a debtor of the plaintiff in the sum of $157,500.

6           The plaintiff submits that the Court should consider the circumstances of the loan, and the relationship between the two companies and Mr Kingsley Brown’s involvement in both companies when determining whether the plaintiff should be required to provide security for the defendant’s costs in this proceeding. In the statement of claim, as initially pleaded, the letter written by Mr Kingsley Brown on behalf of the defendant on 1 September 2004, was relied upon as an acknowledgement of the debt. However, the present proceeding was not issued until more than six years later on 10 September 2010, outside the limitation period.

7           What was originally pleaded as a simple debt has now been pleaded in the amended statement of claim as a transaction which it is said, because of the circumstances, gives rise to a constructive trust in favour of the plaintiff. Mr Schlicht of counsel, who appeared for the defendant, submitted that this was an artificial description and that the straightforward pleading of the matter in the original statement of claim reflected the actual position. I do not accept that submission. It seems to me that whilst it is correct that the claim might have been brought as a simple debt, but for the limitation period, the factual background to the transaction, as it appears from the documents which have been produced on this application, supports the contention of the plaintiff that the advance of moneys by the plaintiff to the defendant were in circumstances in which those moneys might arguably be said to be held on trust for the plaintiff.

8           The defendant’s costs consultant has calculated of the future costs of the proceeding on the basis that there will be one witness called on behalf of the defendant. It appears that the witness would be Mr Kingsley Brown. In the circumstances, it seems clear that the nature of the claim and the defence to that claim are going to be determined upon a consideration of the circumstances in which the original payments were made by the plaintiff to the defendant, at a time when both of those entities were under the effective control of Mr Kingsley Brown. In these circumstances, I consider that the Court should generally exercise its discretion in favour of the plaintiff, at least to the stage of permitting the action to proceed to the conclusion of the mediation of the dispute.

9           The proceeding has gone through a number of interlocutory steps, including the finalisation of the pleadings and discovery. If the matter were to proceed to trial after an unsuccessful mediation, I consider that it may be appropriate for the defendant’s application to be revisited. The matters which have led me to the present conclusion I have reached are unlikely to change. However, in part, I have been influenced by the fact that this application has been made at a time when significant interlocutory steps have been completed and the cost of taking the next steps to the completion of a mediation ought not be unduly expensive. However, the question as to whether the matter should be permitted to proceed to trial without reconsideration of these issues is a matter that I expressly keep open.

10 as a sum that would, in my judgment, be sufficient to cover the costs of the
defendant’s summons, filed 22 October 2010, which His Honour Judge Ginnane on

I consider that some security should be provided and I have fixed the sum of $6,000 costs thrown away by the plaintiff’s amendment to its statement of claim, which follow as a consequence of the amendment being made and no specific order to the contrary. The sum of $6,000 would also provide some security if it were considered that the defendant should be entitled to the costs of the present summons.

11         Although the plaintiff’s submissions were reliant on the fact that if an order were made, the plaintiff’s claim would be stifled, it must be recognised that someone has made a decision to proceed with this claim and, on the plaintiff’s behalf, to incur what are probably quite significant costs to date and in anticipation of the matter proceeding to trial. Plaintiff’s counsel, Ms Neskovcin, has informed me that those decisions were made by the liquidator. If the action were successful, the creditors of the plaintiff will benefit. There are secured creditors, although it is unclear whether these secured creditors have or would be appropriately paid upon realisation of their securities. The major unsecured creditor is the Deputy Commissioner of Taxation. There is no evidence presently before me as to whether the views of the Deputy Commissioner of Taxation or other creditors have been sought as to the appropriateness of proceeding with the present claim or, if required, whether those creditors would be prepared to either fund the litigation and/or, if called upon, meet any order for security of the defendant’s costs.

12         In relation to the present orders I have made, I do not propose to explore those issues further because of the other factors which I consider are relevant to the limited orders I have made. I have ordered limited security in this case, not simply on the basis of the nature and strength of the plaintiff’s claim as presently framed, but also because I consider it is appropriate that the liquidator and the creditors of the plaintiff should accept responsibility for the initial pleading of the claim which has largely become redundant as a result of the defence filed by the defendant and the way in which the plaintiff’s claim has been re-pleaded.

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Certificate

I certify that these 3 pages are a true copy of the reasons for decision of His Honour Judge

Anderson delivered on 24 February 2011 and revised on 25 February 2011.

Dated: 25 February 2011

Caroline Dawes

Associate to His Honour Judge Anderson