L Eurythmic Pty Ltd v Zhi Xiong Ru
[2021] VCC 623
•24 May 2021
a
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
GENERAL LIST
Case No. CI-20-02131
| L EURYTHMIC PTY LTD (ACN 617 239 504) and M EURYTHMIC PTY LTD (ACN 617 239 906) | First Plaintiff Second Plaintiff |
| V | |
| ZHI XIONG RU and CTM INVESTMENTS GROUP PTY LTD (ACN 635 730 871) | First Defendant Second Defendant |
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JUDGE: | HER HONOUR JUDGE A RYAN | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 16 March 2021 (further submissions filed 19 March 2021) | |
DATE OF RULING: | 24 May 2021 | |
CASE MAY BE CITED AS: | L Eurythmic Pty Ltd & Anor v Zhi Xiong Ru & Anor | |
MEDIUM NEUTRAL CITATION: | [2021] VCC 623 | |
RULING
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Subject:PRACTICE AND PROCEDURE
Catchwords: Competing applications for security for costs – plaintiffs’ application for freezing order against the first defendant
Legislation Cited: County Court Civil Procedure Rules 2018; Evidence Act2008; Corporations Act 2001 (Cth)
Cases Cited:Zhen v Mo and Ors [2008] VSC 300; Suzhou Haishun Investment Management Co Limited v Zhao (No 2) [2018] VSC 176; Ninemia Maritime Corp v Trav ShiffahrtsgesellschaftmbH & Co KG [1983] 1 WLR 1412; Hera Project Pty Ltd v Gino Bisognin & Anor [2017] VSC 112; Visco v Minter (1969) 2 All ER 714; Sydmar Pty Ltd v Statewise Developments Pty Ltd (1987) 73 ALR 289
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr L Virgona | Madgwicks Lawyers |
| For the Defendants | Mr T Wodak | Lincolns Lawyers and Consultants |
HER HONOUR:
1Three interlocutory applications were listed in duty court on 16 March 2021. By summons filed on 23 February 2021, the plaintiffs sought security for costs from the second defendant (“CTM”) in the sum of $116,735.57. This figure represented the plaintiffs’ estimated costs of and incidental for the preparation and attendance of a five-day trial. The plaintiffs also sought a freezing order against the first defendant (“Ru”). Ru is the sole director of CTM. The plaintiffs sought to restrain Ru from dealing with his assets up to the unencumbered value of $550,000 and, in particular, not to dispose of or otherwise deal with a property known as 323 Gallaghers Road, Glen Waverley[1] (“the Ru property”).
[1]More particularly described in Certificate of Title Volume 08416 Folio 530
2The plaintiffs relied upon the affidavits of Aleksander Kovaceski, solicitor, sworn on 23 February 2021, and Moses Sawiris, property developer and director of the second plaintiff, affirmed on 23 February 2021.
3The defendants/counterclaimants filed a summons on 19 February 2021. This summons sought security for costs from the plaintiffs in the sum of $120,000, representing the defendants’ costs of and incidental to the plaintiffs’ claim up to and including the fifth day of trial. By the time the application was heard, the amount of security sought had increased to $150,000. The defendants relied upon the affidavits of Regina Min Suan Tan, solicitor, affirmed on 19 February 2021 and 12 March 2021 and Ru sworn on 14 March 2021.
4Both parties filed supplementary submissions on 19 March 2021 on the issue of delay, following an invitation to do so by the court.
5For the reasons set out below, the plaintiffs’ application for a freezing order against Ru is refused. I was also not persuaded that an order for security for costs should be made against CTM.
6As for the defendants’ application for security from the plaintiffs, I will order the plaintiffs provide security for costs in the sum of $60,000, representing the costs which are likely to be incurred up to and including a judicial resolution conference in July 2021.
Background
7The plaintiffs were the former registered proprietors of a property at 4 Eurythmic Street, Mordialloc[2] (“the Mordialloc property”). The plaintiffs owned the Mordialloc property as tenants in common in their capacity as trustees of two trusts.
[2]More particularly described in Certificate of Title Volume 8105 Folio 657
8On 20 September 2018, the plaintiffs entered into a contract of sale for the Mordialloc property with Ru for the sum of $2,150,000. Ru paid a deposit of $100,000 on or around 10 April 2019. Settlement was initially due on 5 September 2019 but was extended by agreement on several occasions.
9In August 2019, Ru nominated CTM as the substituted purchaser.
10The plaintiffs issued a default notice on 6 December 2019. The plaintiffs allege the defendants failed to remedy the default which resulted in the contract of sale being brought to an end.
11On 14 March 2020, the plaintiffs entered into a further contract of sale to sell the Mordialloc property to a subsequent purchaser for the reduced sum of $1,785,000.
12The plaintiffs commenced this proceeding by writ on 13 May 2020. The plaintiffs seek to recover losses from the defendants under the terms of the contract of sale, deed of nomination, and guarantee and indemnity. The amount of the damages claimed is $515,852.22, being the losses said to have been caused by the defendants’ alleged failure to settle the initial contract of sale.
13By defence and counterclaim dated 30 June 2020, the defendants rely upon alleged misrepresentations made to them by the plaintiffs in breach of the Australian Consumer Law (“ACL”). It is alleged the plaintiffs’ agent failed to inform the defendants that one of the directors of the plaintiffs’ companies worked for the real estate agent engaged to sell the Mordialloc property. In addition, the defendants claim that a feasibility study provided by the plaintiffs regarding the development of the Mordialloc property was misleading. As a result of these matters, the counterclaim seeks a declaration that the contract of sale be declared void ab initio and the return of the deposit paid by Ru in the sum of $100,000. Buxton Real Estate is also joined as a third defendant to the counterclaim. If the plaintiffs succeed against the defendants, then the defendants will seek to be indemnified by the third defendant for any damages payable by them to the plaintiffs.
14The matter was listed for hearing on 1 March 2021 but has since been refixed on 25 August 2021. A judicial resolution conference is listed on 19 July 2021.
(1) Plaintiffs’ application for a freezing order
15The principles relating to the grant of a freezing order are well-established and were summarised by Forrest J in Zhen v Mo and Ors[3] as follows:
[3][2008] VSC 300, [22]-[30]
“22.First, that a freezing order, by its very nature, is a drastic remedy and a court must exercise a high degree of caution before taking a step which will interfere with a party’s capacity to deal with his or her assets.
23.Second, the order is not designed to provide security for the applicant’s claim. It is solely directed to preserving assets from being dissipated, thereby frustrating the court process.
24.Third, the applicant bears the onus both in satisfying the Court that the order should be continued and in satisfying the Court as to the amount which is to be the subject of the order.
25.Fourth, that an order can only be made on the basis of admissible evidence which supports the contentions made by the party seeking the order. Speculation and guesswork is no substitute for either the facts or inferences properly drawn from proved facts.
26.Fifth, that before such an order can be made it is necessary that the applicant establish –
(a)an arguable case against the defendant; and
(b)that there is a danger that the prospective judgment will be wholly or partly unsatisfied as a result of the defendant’s actions in either removing the assets or disposing or dealing with them so as to diminish their value.
27.Sixth, the balance of convenience must favour the granting of the freezing order.
28.Seventh, that there is no set process determining the exact nature of an order. The order will be framed according to the circumstances of the case.
29.Eighth, the applicant must establish with some precision the value of prospective judgment. The order should not unnecessarily tie up a party’s assets and property.
30.Finally, there may be discretionary considerations which militate against the granting of a freezing order, such as delay in bringing the application on before the court or a lack of candour in the materials placed before the court.”
16The plaintiffs say they have established a prima facie case which is plainly arguable against the defendants. In order to satisfy the requirement that there is a risk that assets will be dissipated, it is not necessary that a plaintiff establish the risk will probably materialise. What must be established is a sufficient likelihood of risk which, in the circumstances of a particular case, justifies an asset preservation order. This test may be satisfied where the risk of dissipation is less probable than not.[4]
[4]Suzhou Haishun Investment Management Co Limited v Zhao (No 2) [2018] VSC 176 at [26]
17In support of the application for the freezing order, the plaintiffs rely upon the Sawiris affidavit. He refers to conversations with the agent actively engaged in selling the Ru property during which Sawiris was informed of Ru’s intentions regarding the sale of that property. It was submitted this evidence is entirely consistent with an online advertisement listing the Ru property for sale as at 19 February 2021.[5]
[5]Exhibit MS-10 to the Sawiris affidavit
18The plaintiffs referred to the Ru affidavit in which he alleged the online advertisement of the Ru property was in error and had been done without the authority of Ru. Whilst Ru deposed to having conversations in the presence of the agent who advised Sawiris of the relevant facts, Ru provided no detail of when those conversations took place or indeed the content of those conversations. It was submitted the recent production of this evidence was a last minute response to the irrefutable position that the Ru property has until recently been listed for sale, and the substantial risk that listing creates – that the first defendant is or was actively seeking to divest the only asset which either of the defendants hold in the jurisdiction.
19The defendants noted the summons had been addressed only to CTM, but that the form of freezing order attached to the summons was directed at Ru. The plaintiffs clarified during the hearing that the application for a freezing order was only made against Ru.
20The defendants raised the following objections to the admission into evidence of various parts of the Sawiris affidavit affirmed on 23 February 2021:
Evidence
Objection
(i) Paragraph 15
Infringes the opinion rule and no exception applies. The affidavit does not disclose that Sawiris has relevant specialised knowledge.
(ii) Paragraph 17
Liable to mislead as it proceeds on a flawed factual premise. At paragraph 16, Sawiris refers to a property index search as having been conducted. Exhibit MS-5 shows a Victorian real property search conducted by the second defendant. At paragraph 17, Sawiris deposes that the searches of the second defendant shows that it does not own any assets. It was noted that this proceeds on the flawed factual premise that a nil result in the search of the register in relation to Victorian real property means that the second defendant owns no assets.
(iii) Paragraph 22
Objection liable to mislead as it proceeds on the flawed factual premise that the searches in respect of which Sawiris gives evidence at 16 in Exhibit MS-9 reveal that the defendants own no assets other than the Glen Waverley property. However, the searches show only the ownership of real property assets in Victoria.
Objection double hearsay, so exceptions to hearsay rule in Division 2 of Part 3.2 of the Evidence Act 2008 do not apply. Sawiris purports to give evidence as to what Mr Care told him as to Ru’s motivations. Alternatively, the evidence has low probative value.
(iv) Paragraphs 22-25 (including Exhibit MS-11)
Objection or to be excluded pursuant to s 135 of the Evidence Act. Its probative value substantially outweighed by the danger it might be unfairly prejudicial to the defendants:
· It provides the sole evidentiary foundation for the submission that Ru intends to move to China. However, the plaintiffs had not adduced evidence from the makers of the statements relied on. As Sawiris simply reports things he has been told, the defendants have no opportunity to test the evidence (for example, by requiring the deponents to attend for cross-examination).
· The email extracted at paragraph 24 and reproduced at Exhibit MS-11 is a response to an email by which Sawiris did not reveal the true reason for his enquiries. Its reliability is thereby diminished.
21Dealing with the objections in turn, Sawiris deposed that he had been a real estate agent from 2009 and 2019. He estimated the value of the Ru property at $2.5 million. The first objection was that he was not qualified to give that opinion as he was not a valuer and had not identified a geographical area where he had worked as an estate agent. I consider there is little substance in this objection. In my view, given his lengthy experience as a former real estate agent, Sawiris can give his opinion about the likely value of the Ru property. As it turns out, the precise value of the Ru property is neither here nor there in terms of these applications. I disallow the first objection.
22The second objection is that the search shows that CTM holds no property in Victoria. I accept the point made that this does not then equate to proving CTM has no assets but is restricted only to property. But in any event, the defendants concede that there is no evidence before the court to establish that CTM has any assets.
23It can be accepted that the search referred to in the third objection is confined to real property. The other more substantial objection is that the paragraph contains double hearsay which is not admissible. Sawiris deposes to a conversation he had had with a Mr Care, an estate agent, who told him about Ru’s intentions of selling. Hearsay evidence is admissible in interlocutory applications providing the basis for the information and belief is stated.[6] I disallow the objection but accept that the probative value of this evidence should be treated with a degree of caution.
[6] Section 75 of the Evidence Act2008
24I will not exclude the evidence under s 135 as is sought under the fourth objection. However, I agree that the weight to be given to this evidence is lessened by the inability of the defendants to cross-examine the persons involved who did not provide affidavits, namely Mr Care and Mr Ievoli.
25The defendants argue the application is misconceived for several reasons. Ru is an Australian citizen as is his wife and daughter. He came to live in Australia in 1989. Australia is his home, as well as that of his wife and daughter. Neither Ru, his wife, nor his daughter are citizens of any other country. Ru does not live in China nor does he intend to relocate there or to any other country. His business interests require him to travel frequently between Australia and China. He travelled to China for business purposes in August 2020 and has not yet returned due to border restrictions. His extended stay in China is a result of the COVID-19 pandemic. Ru’s return flight to Australia on 1 March 2021 was cancelled by the airline. He does intend to return to Australia.
26Ru and his wife, Ching Kong, were registered as joint proprietors of the Ru property on 13 September 2011. In December 2017, they appointed Barry Plant (Wheelers Hill) to auction the Ru property. The decision to sell their home was made prior to the entry into the contract to purchase the Mordialloc property and the listing was unrelated to the present dispute. The property went to auction but there were no offers. In June 2018, they appointed Barry Plant (Glen Waverley) to market the property. The authority was for 120 days, commencing on 4 June 2018 and expiring in early October 2018. As no satisfactory offers were received, Ru and his wife then decided not to sell the Ru property. Ru deposes that no potential purchasers had inspected the Ru property since October 2018. Mr Ru believed that the for-sale sign was taken down at the end of March 2018. Since October 2018, neither Ru nor his wife have taken any steps towards selling the Ru property. Ru’s wife and daughter continue to live at the Ru property, and he deposes that he will resume living there once he returns to Australia.
27The agent with whom Ru dealt was Mr Freeman Li. He dealt with him because they were able to communicate in Chinese. Ru only recently learned through his solicitors that the property remained on property listing websites with Barry Plant listed as the sales agent. Upon hearing this, Ru contacted Li and demanded that the listing be removed as he and his wife do not intend to sell the Ru property.
28Ru denied that he had ever met or spoken with Mr Care. He had seen Mr Ievoli at up to three meetings but had not spoken with him. Li had attended and he conversed with him in Mandarin. Ru said he had not told Li that he intended to migrate to China, and he has no intention of doing so. For all these reasons, it was said that the application was hopelessly misconceived. Ru is not seeking to sell the Ru property. In any event, he is an Australian citizen who usually lives in Australia and is entitled to deal with his assets in any ordinary course without being exposed to a freezing order.
29It was noted the jurisdiction is not capable of being exercised simply to prevent a prospective debtor from dealing with his assets or to provide security for a plaintiff’s claim. This is so even if the claim is strong and the grant of an injunction would not cause hardship to the defendants.[7] It was also said that the evidence did not establish a finding that the defendants were seeking to frustrate or inhibit the process of the court by creating a danger that a prospective judgment would be unsatisfied. Self-evidently, such an order requires a high degree of caution.
[7]Ninemia Maritime Corp v Trav ShiffahrtsgesellschaftmbH & Co KG [1983] 1 WLR 1412 at 1422
Analysis
30The plaintiffs need to show a prima facie case there is a danger that by reason of the defendant absconding or of assets being removed from the jurisdiction or dissipated within the jurisdiction, the plaintiffs will not have a judgment satisfied.[8] In the end, I am of the view that the plaintiffs have not shown there is such a danger.
[8] Suzhou at [17]
31The evidence of Sawiris ultimately had little probative value. He relied upon what others had told him about the vendor’s supposed intentions about selling and moving to China. This evidence was vague and unsubstantiated. Additionally, some of the matters he referred to were equivocal. For example, the statement that inspections were on hold and that the vendors’ plans about moving to China had changed is consistent with there being no imminent risk of sale.
32In contrast, Ru’s evidence was direct and confirmed that he and his wife had no intention of selling the Ru property and that he would return to live in Australia once he was able to do so and reunite with his wife and daughter at their family home. Ru’s evidence, which was not challenged under cross-examination, reveals that he and his wife do not have any present intention of disposing of their home. Despite the plaintiffs’ concerns about the Ru property remaining on the property listing website as at February 2021, the reason why this oversight occurred was explained by Ru.
33I am satisfied there is no real imminent risk of dissipation of the Ru property held by Ru and his wife. There is no persuasive evidence to suggest that it is about to be sold or that an inference can be drawn that Ru intends to dispose of this asset to frustrate a potential judgment in favour of the plaintiffs. Ru is not absconding from the jurisdiction and intends to return to his family and home once he is able to travel back to Australia.
34Given this type of order should only be made with extreme caution, I was not ultimately persuaded that a freezing order should be granted on the evidence placed before the court. Nor was I persuaded that the balance of convenience favoured the making of such an order.
(2) Plaintiffs’ application for security for costs against CTM
35The application is made under Rule 62.02 of the County Court Civil Procedure Rules 2018 (“Rules”) or, alternatively, s 1335 of the Corporations Act 2001 (Cth).
36Rule 62.02 provides that where the plaintiff is a corporation and there is reason to believe that the plaintiff has insufficient assets in Victoria to pay the costs of the defendant if ordered to do so, the court may order the plaintiff to give security.
37Section 1335 of the Corporations Act provides that if it appears by credible testimony there is reason to believe the corporation will be unable to pay the costs of the defendant if successful, then the court may require sufficient security to be given.
38Before the jurisdiction is enlivened under s 1355 or Rule 62, there must be credible testimony to demonstrate there is reason to believe the corporation will be unable to pay the costs of the defendant if successful. This requirement is often described as the threshold test. If the threshold test is met, the court will then have regard to various well-known discretionary factors when considering such applications.
39In Hera Project Pty Ltd v Gino Bisognin & Ors,[9] Matthews JR set out the relevant applicable principles as follows:
“(a) for the jurisdiction to be enlivened, one of the grounds set out in r 62.02 or in section 1335 of the Corporations Act 2001 (Cth) must apply. Here, the relevant ground is the plaintiff’s financial position: if it appears by credible testimony that there is reason to believe that the plaintiff will be unable to pay the defendants’ costs if the defendants are successful, then the Court may order that security for those costs be given;
(b) once the jurisdiction is enlivened, it is then a matter for the Court’s discretion as to whether security ought be awarded. That discretion is unfettered, although it must be exercised judicially;
(c) the defendants bear the burden of proof in persuading the Court to order security for costs, however if the plaintiff asserts, as it does here, that an order for security would stultify the litigation, then the plaintiff bears the onus of proof in that regard;
(d) whether the plaintiff’s lack of funds has been caused or contributed to by the conduct of the defendants in relation to the transaction the subject of the claim is a factor to be taken into account;
(e) relevant to the exercise of the Court’s discretion is whether the plaintiff’s claim is made bona fide and has reasonable prospects of success;
(f) delay in applying for security may be a factor against granting security: it is incumbent on a defendant who wishes to obtain security once it is (or ought reasonably be) aware that the plaintiff company would be unable to meet an order for costs to apply promptly for that relief. The plaintiff company is entitled to know its position in relation to security at the outset, before it embarks to any real extent on its litigation and before it makes a substantial financial commitment to litigating its claim;
(g) where the defendants make a counterclaim which is likely to canvass substantially the same facts as that required for the plaintiff’s claim, or where the relationship between the parties and the subject matter of the dispute is one where the plaintiff’s claim can be seen as defensive in character, the Court may see it as inappropriate to order security for costs; and
(h) as noted in US Realty, exercising its discretion involves the Court in carrying out a balancing exercise between the injustice to the plaintiff if the grant of security prevents it from pursuing a proper claim against the injustice to the defendants if no security is ordered and they are ultimately successful but unable to recover their costs from the plaintiff.”
[9][2017] VSC 112, [6]
40The defendants have not put into evidence any details of the financial position of either of the defendants. Counsel for the defendants acknowledged that CTM did not own any assets. Consequently, the plaintiffs contend the threshold requirement has been established.
41Turning to the discretionary factors, in respect of delay, the plaintiffs note the proceeding has been on foot since 13 May 2020. The plaintiffs’ application was brought after the original trial date was vacated and in circumstances where the plaintiffs only recently discovered the only asset held by the defendants was actively being advertised for sale. Consequently, the plaintiffs say they have not unduly delayed in bringing the application.
42It was submitted that the plaintiffs have a bona fide claim based on breach of contract.
43The plaintiffs say their application should be granted even though there is a counterclaim on foot. As a matter of principle, generally a party will not be ordered to pay costs where the counterclaim is regarded as a defensive manoeuvre. If the counter attack is on a different front, then an order for security costs may well be made depending on the court’s assessment of the position in each case.[10] It was said that here the defendants have brought a wide range series of allegations, including a claim against an additional party. The extent of the representations goes beyond the plaintiffs’ claims. The defendants have brought in another party, namely Buxton Real Estate, which has increased the length of the hearing from three to five days and the consequential costs associated with the litigation.
[10]See Visco v Minter (1969) 2 All ER 714 at 716 per Ormrod J
44Additionally, the defendants bring a claim for the payment of money by the plaintiffs pending the return of the deposit. The plaintiffs argued that in the circumstances, it cannot be said the position of the defendants as counterclaimants should be an impediment to the orders now sought by the plaintiffs.
45The plaintiffs submitted the defendants’ counterclaim based on a misrepresentation that the agent was required to disclose a connection was highly speculative. The feasibility study was not put into evidence. In contrast the plaintiffs’ contractual claim was strong. It was submitted the court needed to consider the relative strengths of the parties’ claims.
46The defendants also referred to the fact that costs claimed by the plaintiffs did not differentiate between the costs of pursuing the claim as opposed to the costs which would be incurred in defending the counterclaim. It was only the latter costs which the plaintiffs should receive if their application were to succeed.
47Delay was raised by the defendants as a reason why the application should be refused. It was said the application was brought very late and the reason for the delay was not properly explained.
48The defendants contended the counterclaim is defensive in nature. It was also argued the making of such an order would be futile because Ru, as the first defendant, could still continue to pursue the counterclaim, even if it were stayed against CTM assuming the latter could not meet an order for security.
Analysis
49As CTM has no assets, which is not disputed, the threshold test is met. I accept the plaintiffs have not unduly delayed in bringing the application and did so promptly once they became aware of the possibility of Ru selling the Ru property. I am also satisfied that the plaintiffs have an arguable or prima facie case given the breach of contract claim pleaded.
50But contrary to the plaintiffs’ submissions, I consider the counterclaim is defensive in nature and the facts of the claim and counterclaim are inextricably linked. The defence and counterclaim raise a basis as to why the plaintiffs cannot rely upon the contract of sale because it is said that agreement should be set aside due to the alleged misrepresentations made under the ACL. If that defence succeeds, then the plaintiffs’ claim will fail. I consider it inaccurate to say that the counterclaim is opening up a whole new front.
51As the claim and counterclaim are interwoven, then this is a discretionary factor which in my view militates against an order for security being made. If security were ordered against CTM, then it may have the effect that it could not pursue its counterclaim which in essence is a defence to the plaintiffs’ claim. Additionally, I accept the defendants’ submission that such an order would prove futile in circumstances where Ru could continue to defend the claim and prosecute the same counterclaim.
52Consequently, I am not persuaded that there should be an order for security for costs against CTM.
(3) Defendants’ application for security for costs
53The plaintiffs resist the defendants’ application for security for costs. Whilst they did not consent to give security, they provided proof of an account balance in the name of the first plaintiff showing $216,690.52 at a bank on 12 February 2021. This had later reduced to $166,142.52 by 23 February 2021. Given this, the court should find that the jurisdiction does not arise in respect of the defendants’ application.
54The directors of the plaintiffs proffered a conditional undertaking that those funds will not be dispersed or otherwise dealt with until such time the proceedings are resolved.[11] However, the undertaking was conditional on an agreement being reached about the resolution of the three applications before the court, which did not occur.
[11]Kovaceski affidavit paragraph 10
55The defendants note the plaintiffs have failed to provide any financial records such as balance sheets and profit and loss statements for each financial year. It was said that the only information that is known to the defendants regarding the plaintiffs’ financial position is that:
(a) they retained a deposit of $100,000 paid by Ru;
(b) on 21 December 2020 they settled the sale of the Mordialloc property, which was sold for $1,785,000;
(c) the first plaintiff, on 12 February 2021, held $216,690.52 at the bank which, by 23 February 2012, had reduced to $166,142.52.
56The defendants say that the plaintiffs have not put on proper evidence as to their financial position. There is no evidence at all regarding the financial position of the second plaintiff.
57The defendants contend their prospects on the counterclaim are strong. The principal counterclaim is to the effect that the plaintiffs engaged an estate agent to market and solicit offers for the purchase of the Mordialloc property. The property was marketed as having a planning permit, permitting the construction of townhouses. The plaintiffs’ agent provided Ru with a document described as a feasibility study for the development of the property.
58The defendants’ expert evidence is to the effect that the feasibility study was inaccurate. It was said that in providing an inaccurate feasibility study, the plaintiffs and their agents engaged in misleading and deceptive conduct in contravention of the ACL. The principal relief sought against the plaintiffs is an order under the ACL declaring the contract of sale void ab initio.
59The plaintiffs self-evidently continue to incur costs in pursuing their claims in the present proceeding. Therefore, there is reason to believe the plaintiffs will be unable to pay the defendants’ costs if they are successful in their defence.
60As to delay, the defendants explain the delay on their part by the fact that they only became aware on February 2021 that the Mordialloc property sale had settled on 21 December 2020. The settlement had been due to take place in March 2021 and after the original trial date. The plaintiffs say this explanation is disingenuous given the defendants already knew the Mordialloc property had been sold. The plaintiffs contend the defendants left their application until the initial trial date was imminent, which the plaintiffs say is a factor weighing considerably against granting security now.
61The defendants maintain the counterclaim is essentially defensive and the costs of defending the claim include the costs of prosecuting the counterclaim. The defendants have incurred costs to date of $91,395.34. Ms Tan, who is an experienced solicitor, estimated the total costs up to the end of trial at $216,242.84. The defendants seek an order that the plaintiffs provide security for the defendants’ costs in the amount of $150,000, being roughly 70 per cent of the defendants’ estimated total costs. Counsel confirmed the higher sum represented the actual costs expended or estimated and the reduction of 30 per cent was applied to represent the likely costs recoverable on a party/party basis. Whilst it is trite law, the court does not sit as taxing master when assessing costs for the purpose of these applications, I consider the party/party costs recoverable would be more likely to be in the range of 50 to 60 per cent of the total costs claimed rather than 70 per cent.
62It was said that the same facts will be traversed. In those circumstances, the courts will ordinarily seek to avoid the position where the claim is stayed because of an inability of the plaintiff to provide security while the defendants’ crossclaim covering the same factual areas proceeds.[12] The plaintiffs conceded however, there was no evidence of any prejudice they would suffer if the court ordered security be given.
[12]Sydmar Pty Ltd v Statewise Developments Pty Ltd (1987) 73 ALR 289
Analysis
63The plaintiffs say the threshold requirement has not been met because the first plaintiff has funds in its bank account. The defendants note this sum is rapidly diminishing and there is no undertaking on foot to preserve any of those funds. The conditional undertaking given previously to retain those moneys was conditional on the defendants agreeing to provide security and accede to a freezing order, which agreement was not forthcoming.
64There is no other evidence of the plaintiffs holding any assets. The plaintiffs have a paid-up share capital of $12. The plaintiffs are trustee companies and it is not known whether they can claim indemnity from trust funds in respect of legal costs. No information has been given as to the disbursement of the funds received at settlement of the Mordialloc property, so again it is unknown whether any of those funds were retained by the plaintiffs. Additionally, the plaintiffs will continue to incur costs in this litigation which may well be significant given the estimates provided by the parties’ solicitors. In these circumstances, I accept that the defendants have established there is reason to believe the plaintiffs may not be able to pay their costs if the defendants succeed following a trial and the threshold requirement is therefore met.
65As to the discretionary factors, both parties appear to have arguable cases so that element is neutral.
66I consider there has been some delay on the part of the defendants in making the application but in my view, the proffered reason for the delay provides an adequate explanation as to why the application was not have earlier. The defendants brought the application soon after they became aware that the only asset held by the plaintiffs had been converted into liquid funds following the settlement of the Mordialloc property. Prior to that, the settlement was not due to occur until after the initial trial date which is why the defendants did not apply earlier. Consequently, I find that the delay does not militate against the making of an order for security.
67I will order security for the defendants’ costs up to and including the judicial resolution conference to be held in July 2021. Should the matter not resolve, the defendants can then make an application for further security in respect of the anticipated trial costs, if they wish to do so.
68The second Tan affidavit set out revised costs up to and including the judicial resolution conference on 19 July 2021 at $91,395.34. Estimates are then given for counsel’s fees including a five-day trial, as well as the defendant’s solicitors’ costs for preparation and a five-day trial. Doing the best I can, and having regard to the estimates contained in the second Tan affidavit, I will allow the sum of $60,000 to cover the party/party costs of the defendants until 19 July 2021. This represents approximately 50 per cent of the solicitors’ actual costs claimed to 19 July 2021, together with an amount to cover counsel’s fees up to that point, which I have allowed for three days.
Conclusion
69The plaintiffs’ summons filed 23 February 2021 will be dismissed. Given their application failed, I consider costs should follow the event. Unless the parties bring to my attention any basis for ordering otherwise, I propose ordering that the plaintiffs pay the defendants’ costs of the plaintiffs’ summons, to be taxed on the standard basis, in default of agreement.
70The defendants have succeeded in their application for security which I will order in the sum of $60,000. Similarly, unless the parties wish to contend otherwise, the plaintiffs should pay the defendants’ costs of the defendants’ summons filed 19 February 2021, to be taxed on the standard basis, in default of agreement.
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Certificate
I certify that these 19 pages are a true copy of the Reasons for Ruling of Her Honour Judge A Ryan delivered on 24 May 2021.
Dated: 24 May 2021
Associate to Her Honour Judge A Ryan
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