Leadenhall Australia Pty Ltd v Doman - [2018] SADC 43

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil: Appeal Against a Master's Decision)
LEADENHALL AUSTRALIA PTY LTD v DOMAN & ANOR
[2018] SADC 43
Judgment of His Honour Judge Dart
4 May 2018
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - SECURITY FOR COSTS
Master ordered appellant (plaintiff) to provide security for costs - second order in the action - appellant says the Master erred in the exercise of his discretion - review of Master's exercise of discretion - no error in the exercise of the Master's discretion has been established.
Held: Appeal dismissed.
Corporations Act 2001 s 1335; Legal Practitioners Act 1981 ; Supreme Court Civil Rules 2006 r 194, referred to.
Adelaide (SA Pools and Spa) Manufacturing and Installation Pty Ltd & Ors v Westcourt General Insurance Brokers Pty Ltd [2016] SASC 60; Leadenhall Australia Pty Ltd v Cape Lambert Resources Ltd [2018] FCA 558, considered.

LEADENHALL AUSTRALIA PTY LTD v DOMAN & ANOR
[2018] SADC 43
JUDGE DART:

This is an appeal from an order made by a Master of the Court. The Master ordered that the plaintiff (appellant) should provide security for costs in the amount of $65,000. In my opinion, for the reasons that follow, it is appropriate that the appeal should be dismissed.
Background
The plaintiff initially sued a range of defendants in these proceedings. There are now only two defendants (respondents). The dispute is in respect of whether, by reason of contractual arrangements between the plaintiff and defendants, the plaintiff is entitled to be paid a success fee in the amount of $795,318. The defendants deny the entitlement. The matter turns on a letter of engagement entered into between the parties in August 2014.
An order requiring the appellant to provide security for costs in the amount of $90,000 was made in 2016. At that time there were five defendants. The appellant no longer pursues a claim against three of the defendants. Those defendants may have an entitlement to costs that would potentially come out of the original sum paid into Court.
This appeal deals with a second order requiring the plaintiff to pay additional security for costs. The order was made on 28 September 2017. The two remaining defendants made an application for an additional amount of security. The application was based on an extensive interlocutory history. The interlocutory history shows that a number of failed applications means that there are now a number of costs orders against the plaintiff.
In their application seeking additional security for costs the defendants sought further security in the amount of $161,638. As mentioned above, the Master allowed $65,000. The plaintiff has paid that amount into the Suitors Fund.
The Master analysed the financial documents provided to the Court, including the balance sheet and a profit and loss statement. The Master was applying both Rule 194 and the provisions of s 1335 of the Corporations Act 2001. That provision provides an ability for the Court to order security for costs if it appears by credible testimony there is reason to believe a corporation will be unable to pay the costs of the defendant.
The reasoning of the Master is set out in the following paragraphs:[1]
26    The analysis of the balance sheet and the profit and loss statement taken together with the substantial movement in asset balances over a relatively short period of time, in my view, supports the conclusion that there is credible testimony for believing that the plaintiff will not be in a position to meet an order for costs should such an order be made in these proceedings.
27    In my earlier decision, I referred to the remark of von Doussa J in Beach Petroleum NL v Johnson (1992) 7 ACSR 203. At [123] of my reasons published in August 2016, I quoted the remark which was to the effect that the court must form an opinion as to the financial position of the plaintiff at the time of judgment and immediately thereafter. Von Doussa J remarked that the financial position of the plaintiff at the time of the application may well be an important guide but is not the sole consideration.
28    In my view, the nature of the trading of investments and the nature of the investments themselves taken in context with the financial statements, shows that the court cannot be confident that at the time of judgment, the plaintiff will necessarily have assets available from which a costs order could be satisfied.
[1]    Reasons of Master Keith, Decision No 35 of 2017.
The task of an appeal court in respect of a security for costs order was considered by Doyle J in Adelaide (SA Pools and Spa) Manufacturing and Installation Pty Ltd & Ors v Westcourt General Insurance Brokers Pty Ltd:[2]
Before addressing the appellants’ submissions in relation to these issues, it is relevant to observe that the decision of the Master was a discretionary one, such that the appeal is subject to the principles in House v The King. Accordingly, the appellant must establish that the Master acted on a wrong principle, allowed extraneous or irrelevant matters to guide or affect him, mistook the facts or did not take into account some material consideration. Alternatively, the appellant must establish that the result embodied in the orders made is, upon the facts, unreasonable or plainly unjust, such that it can be inferred that there has been a failure to properly exercise the relevant discretion despite the precise nature or source of the error not being identifiable.
[2] [2016] SASC 60 at [22].
Grounds of appeal
The grounds of appeal are that:
1There was no credible testimony before the Court to suggest that the appellant could not meet a costs order should one be made in the proceedings.
2There is a dispute in respect of quantum by reason of the fact that the defendants’ principal solicitors are interstate solicitors and that may have an impact on their entitlement to claim costs.
3There was a failure to consider the prospects of success of the plaintiff.
The first issues relates to the question of whether there was credible testimony that there was reason to believe that the plaintiff will be unable to pay a costs order if one was made.
The evidence before the Court included an unaudited balance sheet and profit and loss statement, each as at 30 June 2017. The evidence showed that the plaintiff was “an active investment vehicle”. That was said to mean that it engaged in the active management of selected securities. There were two particular securities set out in the balance sheet. The first was something in the nature of an option in respect of a company called XPED Limited. The second was a shareholding of 10 million shares in Cape Lambert Resources Limited, which is a mining exploration company. Its business is mainly conducted in the Democratic Republic of Congo, Zambia and Sierra Leone. The shares were valued at about 2 cents each. Such assets are obviously extremely liquid.
The Master noted that the financial records showed that the current expenses were not covered by recurrent earnings. There had been a trading asset revaluation. It was that revaluation that created a profit for the year. The Master delivered his reasons for judgment on 28 September 2017.
I note that in a recent Federal Court decision of Leadenhall Australia Pty Ltd v Cape Lambert Resources Ltd[3] the Federal Court was provided with evidence, not disputed, that the appellant disposed of all of its shareholding in Cape Lambert Resources Ltd on 27 September 2017. On the appeal the appellant was still referring back to the assets listed in the balance sheet for 30 June 2017. Clearly the position has changed significantly since that time. The value of the Cape Lambert Resources Ltd shares was more than half of the value of the assets shown in the balance sheet.
[3] [2018] FCA 558 (26 April 2018).
I am satisfied that the Master correctly analysed the financial records and made no error of the type that would give rise to entitlement of an appeal court to further consider the matter in respect of appeal ground 1.
The plaintiff, on appeal ground number 2, pressed an argument that, because the defendants’ solicitors were based interstate, they may not have an entitlement to be awarded costs in a South Australian court. It follows, says the plaintiff, that any costs that might be awarded to the defendants in the event that they succeed in the proceedings would be much less than claimed. The argument turns on definitions in the Legal Practitioners Act 1981 and the definition of an unrestricted practicing certificate found in the Act. The appellant argues that the Court should apply a strict interpretation of the definition of “unrestricted practicing certificate” and that the respondents’ interstate solicitors are ineligible to practice the law in South Australia. It follows that no costs order would be made in favour of the defendants in respect of the charges of those solicitors.
It would be surprising in an era where there is mutual recognition legislation that a litigant who retained the services of an interstate-based solicitor would be disentitled to costs. It appears to be a difficult argument that the plaintiff wishes to pursue. It can pursue the argument after the trial of the action if it is unsuccessful. At the present time it would be prudent to proceed on the basis that, if the defendants succeed in defending the claim, they would be entitled to recover their legal costs from the plaintiff. The Master made no error in respect of that issue.
The third appeal issue relates to the strength of the plaintiff’s claim. It asserts that it has a very strong contractual claim. That is in dispute. The defendants do not dispute that the parties had a contractual relationship. They wish to dispute the entitlement to claim the success fee and whether the work claimed was actually done. It appears that the defendants have a credible defence. If the plaintiff is of a contrary view, an application for summary judgment could be made. The strength or otherwise of a claim or defence can be a relevant consideration on an application for security for costs. Where, as here, on my reading of the pleadings, there is a credible claim and a credible defence, it is usually a neutral issue. There was no error by the Master.
I dismiss the appeal and will hear the parties on any other orders.