Koufos v Kailahi

[2025] NSWSC 436

Supreme Court

New South Wales

Medium Neutral Citation:

Koufos v Kailahi [2025] NSWSC 436

Hearing dates:

2 May 2025

Date of orders:

2 May 2025

Decision date:

02 May 2025

Jurisdiction:

Equity - Real Property List

Before:

Pike J

Decision:

(1)   The second defendant’s motion filed 14 March 2025 be dismissed.

(2)   The costs of the motion be costs in cause.

Catchwords:

COSTS – security for costs – inherent jurisdiction of the Supreme Court – where plaintiff is a natural person – whether plaintiff’s case is hopeless – whether plaintiff is impecunious – no security ordered - no question of principle

Legislation Cited:

Uniform Civil Procedure Rules 2005

Cases Cited:

King v Liverpool City Council [2017] NSWSC 1148

Mohareb v Harbour Radio Pty Ltd [2020] NSWCA 231

Texts Cited:

Nil

Category:

Procedural rulings

Parties:

Jim George Koufos (Plaintiff/Respondent)
Isiosaia Kailahi (First Defendant)
Moana Vanessa Keepa (Second Defendant/Applicant)
Australian Mutual Bank Ltd (Third Defendant)

Representation:

Counsel:
Mr M Morgan (Plaintiff/Respondent)
Mr T J Morahan (Second defendant/Applicant)

Solicitors:
Gavin Parsons and Associates (Plaintiff/Respondent)
Mason Parkes Lawyers (Second Defendant/Applicant)

File Number(s):

2024/00199481

Publication restriction:

Nil

JUDGMENT – (EX TEMPORE REVISED FROM TRANSCRIPT)

1. By motion filed on 14 March 2025, the second defendant seeks the following substantive order:

1. That there be an order that the plaintiff provide, by way of payment into court or other suitable means, security for costs in the amount of $111,695.24 plus GST. The proceedings are stayed until such security is provided.

2. In support of the motion, the second defendant relies upon the affidavit of the second defendant's solicitor John McIntosh made 14 March 2025 together with its annexures. There was one objection to that affidavit made by Mr Morgan for the plaintiff. The objection was to paragraph 3 which sets out a conversation that the second defendant's solicitor had with the second defendant in which she expressed her concern, based on what she had heard from a couple of people, as to the plaintiff's financial situation. I admitted that paragraph only as evidence of the state of mind of the second defendant and not truth of the contents of the statements made.

3. In opposition to the motion, the plaintiff relies upon the affidavit of the plaintiff's solicitor Gavin Mitchell Parsons sworn 27 March 2025 together with the annexures to that affidavit.

4. Each of the parties has helpfully prepared written submissions on the motion which I have had regard to. I have also heard brief supplementary submissions from counsel this afternoon.

5. The proceedings were commenced by statement of claim filed in May 2024. An amended statement of claim was filed on 2 July 2024.

6. A defence was filed on behalf of the second defendant on 14 August 2024.

7. The proceedings have not progressed too far because of difficulties that the plaintiff has encountered in serving the first defendant. I recently made orders for substituted service so as to permit the first defendant to be served.

8. In brief terms, the proceedings involve an alleged loan agreement between the plaintiff and the defendants pursuant to which the first defendant was the alleged borrower and, at least the second defendant, was a guarantor under the loan agreement.

9. The defence of the second defendant does not admit that the alleged agreement contains the terms alleged by the plaintiff in the amended statement of claim, nor does she admit the advances that are alleged in para 4 of the amended statement of claim. Paragraph 5 of the amended statement of claim, which relates to an alleged variation of the original loan agreement, is denied by the second defendant. The remainder of the allegations in paras 6, 7 and 8 are not admitted by the second defendant, and para 9 is denied. The second defendant denies that the plaintiff is entitled to the relief sought in the statement of claim.

10. The motion for security is brought pursuant to the inherent jurisdiction of the Court, rather than relying upon the provisions in the Uniform Civil Procedure Rules 2005 (UCPR).

11. In King v Liverpool City Council [2017] NSWSC 1148 at [21], Garling J stated:

… as is clear, the Court retains an inherent jurisdiction with respect to such applications. On such an application and the exercise of the Court's inherent jurisdiction, the Court should not make an order for security for costs unless satisfied that it is in the interests of justice so to do. Relevant to, although not determinative of, an application for security for costs are those matters listed in r 42.21(1A) of the UCPR.

12. In Mohareb v Harbour Radio Pty Ltd [2020] NSWCA 231, the Court (Bell P; Leeming JA; Simpson AJA) stated at [13]-[15]:

By subr (1B) an order for security for costs may not be made under r 42.21 against a natural person merely on account of impecuniosity.

Rule 42.21 is generally reflective of principles developed in earlier decisions. It may be taken that the considerations itemised in subr (1A) are relevant to the exercise of the inherent jurisdiction. The prohibition on ordering security for costs against a natural person only on the ground of impecuniosity reflects a principle of common law applicable to the exercise of the inherent jurisdiction.

Generally speaking, courts are reluctant to make security for costs orders against litigants who are natural persons: see Mr D v Ms P [2020] NSWCA 174 at [31] [39].

13. Mr Morahan, who appears for the second defendant on the application, outlined to me the procedural history leading up to the motion for security for costs. That procedural history shows that the second defendant made a number of requests to the solicitors for the plaintiff for details to be provided in relation to the plaintiff's financial position. No substantive material was provided in response to those requests, and on 14 March 2025 the motion was filed.

14. On 27 March 2025 the affidavit of the plaintiff's solicitor was made and filed and served in the proceedings setting out, inter alia, some details as to the plaintiff's financial position. Those details relevantly include that the plaintiff is an owner of a property at Arcadia Vale in New South Wales. It would appear from the evidence filed in the Parsons affidavit that the plaintiff holds equity in that property of about $200,000 at a minimum and potentially a significantly higher figure in the order of $450,000.

15. Further, in addition to the plaintiff's personal interest in the Arcadia Vale property, the plaintiff is the sole director of a company called J & G Koufos Pty Ltd, which currently holds an interest in a property located in Earswick Crescent in Buttaba. The evidence suggests that that company, of which the plaintiff is the sole director, secretary and shareholder, has equity to the value of at least $150,000 and potentially as high as in the order of $250,000. It would appear that that property is subject to a caveat in favour of two persons concerning a debt of $25,000 owed by the company.

16. As I understood the submissions of Mr Morahan, security is sought principally relying upon two factors - first, the strength, or perhaps more accurately described lack of strength, of the plaintiff's case. Second, reliance is placed on the financial position of the plaintiff. Reliance is also placed on the fact that although the plaintiff is a natural person, the activities engaged in by the plaintiff giving rise to these proceedings are of a commercial flavour - namely, the loaning of moneys.

17. Dealing with each of these matters.

18. First, in relation to the strength of the plaintiff's case, I accept that it is probably best to describe, on the present application, the plaintiff's claim as weak. I stress, however, that this is an initial observation purely based on the fact that although the second defendant is relevantly described in the loan agreement as a guarantor, the loan agreement does not appear to contain any positive obligations setting out the nature of any guarantee by the second defendant. Mr Morgan wishes to run a case that there is an implied term in the guarantee requiring the second defendant to guarantee the loans made to the plaintiff.

19. Reliance is also placed on the fact that the loan moneys do not appear to have gone entirely to the borrower under the loan agreement, but rather to third parties. In this regard, the allegation in the amended statement of claim is that the moneys were paid at the direction of the borrower.

20. In my view, whilst there may be difficulties with the plaintiff's case, it is not hopeless. Mr Morahan did not suggest that it was hopeless. There are many authorities that make clear that a court, on an application such as this, is not to delve too far into the prospects of success of the plaintiff's claim. No application has been made by the second defendant to summarily dismiss the claim. I proceed on the basis that, for present purposes, the claim may be described as weak.

21. Dealing with the financial position of the plaintiff, it appears to me, on the evidence before the Court, that the plaintiff does have some assets in his own name, including his share in the company referred to above. The plaintiff cannot be described as impecunious in any relevant sense. I accept, however, that the costs of the Supreme Court litigation are likely to be significant and that there is a substantial prospect that the costs of the plaintiff, and of the second defendant, may erode a substantial part of the plaintiff's assets.

22. In relation to the third matter relied upon, namely that the activity engaged in by the plaintiff, although in his capacity as a natural person, has a commercial flavour, I do not regard this as overly significant in the circumstances of the present case. Mr Morahan candidly accepted that he could not point to any authority to the effect that a natural person engaging a commercial activity was a factor to be taken into account against the ordinary reluctance of the Courts to order security against an impecunious plaintiff natural person.

23. I am not satisfied, having regard to all of the circumstances, that it is in the interests of justice to order security for costs in the present case. I am principally motivated by the Court's general reluctance, as set out in the UCPR, sourced from the common law principle applicable to the exercise of the inherent jurisdiction, to order security against natural persons. In my view, no compelling reason has been demonstrated in the circumstances of the present case, to depart from that approach – whilst the plaintiff’s claim could be described for present purposes as weak, the plaintiff is not impecunious.

24. Accordingly, I dismiss the second defendant's motion filed 14 March 2025.

[Counsel addressed on costs]

25. I order that the costs of the motion filed 14 March 2025 be costs in the cause.

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Decision last updated: 07 May 2025