Lepple Pty Ltd v Locke - [2007] WASCA 170

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

TITLE OF COURT : THE COURT OF APPEAL (WA)

CITATION: LEPPLE PTY LTD -v- LOCKE [2007] WASCA 170

CORAM: PULLIN JA
BUSS JA

HEARD: 3 AUGUST 2007

DELIVERED : 3 AUGUST 2007

FILE NO/S: CACV 30 of 2007

BETWEEN: LEPPLE PTY LTD
Appellant
AND
MAXWELL THOMAS LOCKE
Respondent

ON APPEAL FROM:
Jurisdiction              :  DISTRICT COURT OF WESTERN AUSTRALIA
Coram  :MULLER DCJ
Citation  :LOCKE -v- LEPPLE PTY LTD [2007] WADC 7
File No  :CIV 987 of 2006

Catchwords:

Security for costs - Whether Judge should have exercised discretion to order security - Third party providing financial assistance to the plaintiff - Turns on own facts

Legislation:

Supreme Court Act 1935 (WA), s 37

Result:

Application for leave to appeal dismissed

Category: B

Representation:

Counsel:

Appellant: Mr A P Hershowitz
Respondent: Mr P A Kyle

Solicitors:

Appellant: Griffiths & Godecke
Respondent: Kyle & Co

Case(s) referred to in judgment(s):

27th Yeneb Pty Ltd v Brunswick NL, unreported; SCt of Vic (Hedigan J); 25 November 1997
Abraham v Thompson [1997] 4 All ER 362
Dorajay Pty Ltd v Aristocrat Leisure Ltd (2005) 147 FCR 394
Elfic Ltd v Macks [2003] 2 Qd R 125
State of Western Australia v Bond Corporation Holdings Ltd (1991) 5 WAR 40
Wilson v Metaxas [1989] WAR 285

PULLIN JA: I agree with the reasons of Buss JA and add, only in relation to grounds 1 and 2, that I agree that it is apparent, upon a consideration of the learned Judge's reasons as a whole, that he took into account all relevant considerations in deciding to allow the appeal and set aside the Deputy Registrar's order. I refer in particular to the last sentence in [14] of the learned Judge's reasons where he refers specifically to the balancing of the various competing considerations, which led him to the conclusion that it would be unjust to make an order in the circumstances. The result is that the application for leave to appeal should be dismissed.
BUSS JA: This is an application for leave to appeal from a decision of Judge Muller in the District Court on an application for security for costs. The appellant is the defendant and the respondent is the plaintiff in pending proceedings in that Court. The issues in the litigation are summarised in the learned Judge's reasons, at [2] ‑ [3]:
"The Amended Statement of Claim reveals that the plaintiff was a director of a company named Locke Holdings Pty Ltd. Locke Holdings Pty Ltd carried on business as a registered insurance broker. On or about 27 June 2001 Locke Holdings transferred its insurance client base to the defendant in return for payments over a 3 year period of varying percentages of the annual commissions earned by the defendant on insurance policies transferred under the contract. The statement of claim alleges that following the transfer the defendant received commissions on the policies it had acquired under the contract of sale in 2002, 2003 and 2004 but, in breach of the agreement, did not make any of the payments to Locke Holdings as the contract required. Locke Holdings subsequently went into liquidation and assigned its alleged cause of action for the outstanding payments to the plaintiff.
In its Defence and Counterclaim the defendant admitted the essential elements of the agreement but said it was a term of the contract that Locke Holdings would transfer to the defendant all insurance premiums held in its trust account which had been received for the 2001/2002 period. While the defendant admitted it had received broker's fees on the policies it had acquired from Locke Holdings in 2002, 2003 and again in 2004 it claimed Locke Holdings never paid the trust premiums totalling $50,458 that were due to the defendant under the agreement. The defence alleged this failure constituted a material breach of the contract with Locke Holdings which

absolved the defendant of the obligation to pay Locke Holdings any percentage of the commissions it had earned on the policies it acquired. In the alternative, the defendant submitted it had been induced to enter into the contract by a false representation that the trust premiums held by Locke Holdings would be paid to the defendant."

On 10 November 2006, a Deputy Registrar in the District Court ordered that the respondent's action against the appellant be stayed until the respondent provided security for costs in the sum of $20,000. The respondent appealed against that order. The learned Judge allowed the appeal and set aside the Deputy Registrar's order.
His Honour said, at [14]:
"In the end I am unconvinced that the plaintiff should be required to give security for the defendant's costs. While I readily see the strength of the defendant's argument that the plaintiff is unlikely to be able to meet the costs of the action if he is unsuccessful and that this is a factor of great weight, I also accept that the plaintiff has a bona fide claim with reasonable prospects of success. In reaching this conclusion I have relied mainly upon the defendant's admission in the pleadings that it has not made any of the payments it was required to make under the contract. While the defendant may have a legitimate defence to the plaintiff's claim I believe that on the material before the Court the plaintiff has a good cause of action. I am satisfied his prospects of pursuing his claim would be seriously stultified, if not entirely destroyed, by an order requiring him to give security for costs. Balancing the various competing considerations I have decided that it would be unjust to make such an order."
On 12 March 2007, McLure JA ordered that the appellant's application for leave to appeal to this Court be heard together with the appeal.
Leave to appeal is required in that the learned Judge's decision was interlocutory. In general, an applicant for leave must demonstrate that the relevant decision was wrong or at least attended with sufficient doubt to justify the grant of leave, and that substantial injustice would occur if the decision were left unreversed. See Wilson v Metaxas [1989] WAR 285 at 294. It must be emphasised, however, that these are not rigid or exhaustive requirements, and leave may be granted if, in all the circumstances, it is in the interests of justice to grant leave. See State of Western Australia v Bond Corporation Holdings Ltd (1991) 5 WAR 40 at 56 - 57.
The grounds of appeal are these:
"1.The learned primary Judge erred in law in exercising his discretion to refuse to order the Respondent (plaintiff) to provide security for the costs of the action in the primary court.
2.The learned primary Judge erred in law in holding that 'everything turns upon the merits of the Respondent's claim' in circumstances where there were concurrent findings that:
(a)he was unable to say how strong the Respondent's claim is; and
(b)the Appellant has a legitimate defence to the Respondent's claim.
3.The learned primary Judge erred in law in holding that the ordering of security for costs would stultify the action."
The appellant submitted, in relation to grounds 1 and 2, that in stating, at [10] of his reasons, that "everything turns on the merits of the plaintiff's claim", the learned Judge accepted a starting point, in his analysis of the application for security, that was erroneous. It was submitted that his Honour allowed the exercise of his discretion to be coloured by only one relevant consideration, when there were other relevant considerations to be taken into account.
In my opinion, it is apparent upon a consideration of the learned Judge's reasons as a whole, that he took into account all relevant considerations in deciding to allow the appeal, set aside the Deputy Registrar's order and exercise his discretion against ordering security. His Honour said, in the final sentence of [14], that "Balancing the various competing considerations I have decided that it would be unjust to make such an order". In particular, his Honour took into account:
(a)the apparent merits of the respondent's claim and the apparent merits of the appellant's defence;
(b)the delay in commencing the District Court action;
(c)the respondent's impecuniosity and his inability to provide security;
(d)whether the respondent was merely a nominal plaintiff;
(e)the financing by the respondent's son of the respondent's costs of prosecuting the District Court action;
(f)the sworn evidence of the respondent's son that he does not have a financial interest in the outcome of the District Court action, other than the possibility of recovering the money which he has lent the respondent to pay his legal fees, in the event that the respondent is successful and recovers costs;
(g)the respondent's contractual obligation to pay to the liquidator of Locke Holdings Pty Ltd, for the benefit of its creditors, 5 per cent of any amount which the respondent recovers in the District Court action;
(h)the extreme unlikelihood that either the liquidator or the creditors of Locke Holdings Pty Ltd would be willing to provide security for the appellant's costs; and
(i)the making of an order for security would stultify the respondent's action against the appellant.
His Honour's findings of fact in relation to those considerations were reasonably open to him.
The appellant also submitted, in relation to grounds 1 and 2, that the learned Judge should have made an order for security in that it would be unreasonable and unjust for the appellant to be unable to recover any costs of the action if it were to be successful, in circumstances where:
(a)the liquidator of Locke Holdings Pty Ltd and its creditors will benefit, to some extent, from the litigation if the respondent succeeds, and there is no specific evidence as to their ability or inability to provide security;
(b)the respondent, as a director of Locke Holdings Pty Ltd, allegedly permitted the company to incur significant debts and then purchased the cause of action against the appellant for a modest amount;
(c)the respondent allegedly permitted Locke Holdings Pty Ltd to use insurance premiums held on trust, and which were payable to the appellant, to fund expenses of the company and himself, contrary to s 25 of the Insurance (Agents and Brokers) Act 1984 (Cth);
(d)the respondent can litigate without being at risk financially;
(e)the appellant's ability to make an offer under O 24A of the Rules of Court is rendered nugatory in that any offer which the appellant may wish to make will not place the respondent at risk as to costs;
(f)the respondent's son refuses to provide security and does not assert that he is unable to provide security; and
(g)there was a substantial delay in commencing the action.
I am not persuaded that the circumstances I have recounted require this Court to conclude that his Honour's discretion miscarried.
If a proceeding is not an abuse of process, the fact that a third party provides financial assistance to a plaintiff to enable the plaintiff to prosecute the proceeding is not, in itself, a ground for ordering a stay unless security is provided for the defendant's costs. The preferable course is to permit the plaintiff to prosecute the proceeding and, if the plaintiff's action fails, to give consideration to whether the third party should be ordered to pay the defendant's costs. See Abraham v Thompson [1997] 4 All ER 362 at 376 ‑ 377, 379; Dorajay Pty Ltd v Aristocrat Leisure Ltd (2005) 147 FCR 394 at 410 ‑ 411 [55] ‑ [56]; Elfic Ltd v Macks [2003] 2 Qd R 125 at 137 ‑ 138 [67]; 27th Yeneb Pty Ltd v Brunswick NL, unreported; SCt of Vic (Hedigan J); 25 November 1997 at 4 ‑ 8. Also see s 37 of the Supreme Court Act 1935 (WA) and Seaman, Civil Procedure Western Australia, Vol 1 at [66.1.3].
The learned Judge did not find that the appellant had a legitimate defence to the respondent's claim, as asserted in ground 2(b). Rather, his Honour remarked, at [14], that:
"While the defendant may have a legitimate defence to the plaintiff's claim, I believe that on the material before the Court the plaintiff has a good cause of action."
It is apparent, on a fair reading of his Honour's reasons as a whole, that in stating the respondent has "a good cause of action" he meant that, merely on the information before the Court at that time, the respondent had a reasonable cause of action with reasonable prospects of success.
Grounds 1 and 2 fail.
In my opinion, ground 3 has not been made out. It was reasonably open to the learned Judge to find that the respondent was not a nominal plaintiff and that, on the evidence before him, the ordering of security would stultify the action. On the evidence, the respondent's son does not have a financial interest in the cause of action, as distinct from the possibility of recovering the money he has lent to his father to prosecute the action (and any additional money he may lend for that purpose). Further, on the evidence, although the liquidator of Locke Holdings Pty Ltd has a financial interest in the cause of action, it is an interest which, in the circumstances, could properly be characterised as insignificant in the context of an application for security.
The learned Judge's decision is not attended by sufficient doubt to justify the grant of leave to appeal. I would dismiss the application.