Locke v Lepple Pty Ltd
[2007] WADC 7
•14 FEBRUARY 2007
LOCKE -v- LEPPLE PTY LTD [2007] WADC 7
| Link to Appeal : | [2007] WASCA 170 |
| DISTRICT COURT OF WESTERN AUSTRALIA | Citation No: | [2007] WADC 7 | |
| Case No: | CIV:987/2006 | 7 FEBRUARY 2007 | |
| Coram: | MULLER DCJ | 13/02/07 | |
| PERTH | |||
| 9 | Judgment Part: | 1 of 1 | |
| Result: | Appeal allowed | ||
| PDF Version |
| Parties: | MAXWELL THOMAS LOCKE LEPPLE PTY LTD |
Catchwords: | Security for costs Appeal against decision of Deputy Registrar ordering plaintiff to provide security Plaintiff assigned cause of action by company in liquidation Plaintiff impecunious and unable to provide security Whether plaintiff a nominal party only Whether plaintiff obliged to obtain security from liquidator or family |
Legislation: | Nil |
Case References: | Bride as Trustees of the Pinwernying Family Trust v The Australian Bank Ltd, unreported; FCt SCt of WA; BC9904150; 2 July 1999 His Grace Metropolitan Petar & Ors v Macedonian United Society of Western Australia Incorporated & Ors [2007] WASC 19 Yandil Holdings Pty Ltd v Insurance Co of North America (1985) 3 ACLC 542 Bell Wholesale Co Pty Ltd v Gates Export Corporation (No 2) (1984) 2 FCR 1 Coyne v West Australian Newspapers Ltd (No 1) (1996) 15 WAR 51 Drumdurno Pty Ltd v Braham (1982) 42 ALR 563 Hazart Pty Ltd v Rademaker (1993) 11 WAR 26 Hunt v Knabe (No 2) (1992) 8 WAR 96 John Arnold's Surf Shop Pty Ltd (In Liq) v Heller Factors Pty Ltd and Allert (1979) 22 SASR 20 M A Productions Pty Ltd v Austrama Television Pty Ltd & Anor (1982) 7 ACLC 97 McSharry v Railway Commissioners (1897) 18 LR (NSW) 33 Memuto Pty Ltd v Lissenden (1983) 8 ACLR 364 Pacific Acceptance Corporation v Forsyth (1967) 2 NSWR 402 Riot Nominees Pty Ltd v Suzuki Australia Pty Ltd (1981) 34 ALR 653 Semler v Murphy [1968] Ch 183 |
JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Plaintiff
AND
LEPPLE PTY LTD
Defendant
Catchwords:
Security for costs - Appeal against decision of Deputy Registrar ordering plaintiff to provide security - Plaintiff assigned cause of action by company in liquidation - Plaintiff impecunious and unable to provide security - Whether plaintiff a nominal party only - Whether plaintiff obliged to obtain security from liquidator or family
Legislation:
Nil
Result:
Appeal allowed
(Page 2)
Representation:
Counsel:
Plaintiff : Mr P A Kyle
Defendant : Mr A P S Hershowitz
Solicitors:
Plaintiff : Kyle & Company
Defendant : Griffiths & Godeke
Case(s) referred to in judgment(s):
Bride as Trustees of the Pinwernying Family Trust v The Australian Bank Ltd, unreported; FCt SCt of WA; BC9904150; 2 July 1999
His Grace Metropolitan Petar & Ors v Macedonian United Society of Western Australia Incorporated & Ors [2007] WASC 19
Yandil Holdings Pty Ltd v Insurance Co of North America (1985) 3 ACLC 542
Case(s) also cited:
Bell Wholesale Co Pty Ltd v Gates Export Corporation (No 2) (1984) 2 FCR 1
Coyne v West Australian Newspapers Ltd (No 1) (1996) 15 WAR 51
Drumdurno Pty Ltd v Braham (1982) 42 ALR 563
Hazart Pty Ltd v Rademaker (1993) 11 WAR 26
Hunt v Knabe (No 2) (1992) 8 WAR 96
John Arnold's Surf Shop Pty Ltd (In Liq) v Heller Factors Pty Ltd and Allert (1979) 22 SASR 20
M A Productions Pty Ltd v Austrama Television Pty Ltd & Anor (1982) 7 ACLC 97
McSharry v Railway Commissioners (1897) 18 LR (NSW) 33
Memuto Pty Ltd v Lissenden (1983) 8 ACLR 364
Pacific Acceptance Corporation v Forsyth (1967) 2 NSWR 402
Riot Nominees Pty Ltd v Suzuki Australia Pty Ltd (1981) 34 ALR 653
Semler v Murphy [1968] Ch 183
(Page 3)
1 MULLER DCJ: This is an appeal by the plaintiff against an order by the Deputy Registrar made on 10 November 2006 that the action against the defendant be stayed until security for costs in the sum of $20,000 is provided by the plaintiff.
2 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.
3 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.
4 The defendant has submitted that an order for security for costs to be given by the plaintiff is necessary on a number of grounds. These grounds are set out in an affidavit of Daniel Jones in support of the application for security of costs sworn 18 August 2006. They can be summarised as follows. First, the plaintiff's impecuniosity. The plaintiff is now aged 75 and, though discharged from bankruptcy, has no assets of any significance and, on his own admission, is simply unable to satisfy any order for payment of security of costs. He is being assisted by his family to finance the action.
(Page 4)
5 The second ground relied upon by the defendant is that the plaintiff is a nominal plaintiff and that other parties will benefit if the litigation is successful.
6 The third ground is that security for costs could be obtained from the liquidator and creditor of Locke Holdings. The final ground is the alleged delay by the plaintiff in bringing the action.
7 Order 25 of the Rules of the Supreme Court lists the grounds for an order for security of costs to be made. Rule 3 of O 25 emphasises that the granting of a security is a matter for discretionary judgment and requires a court to take into account several matters including the merits of the plaintiff's claim. The principles applicable to applications of this kind were explained in detail by Master Newnes in His Grace Metropolitan Petar & Ors v Macedonian United Society of Western Australia Incorporated & Ors [2007] WASC 19 where he said:
"It is trite law that the discretion to order security for costs is unfettered and depends upon an examination of all of the circumstances of the case. The circumstances in which the discretion should be exercised cannot be stated exhaustively. In Gentry Bros Pty Ltd v Wilson Brown and Associates Pty Ltd (1992) 8 ACSR 405, Cooper J said (at 415):
'[i]t is not possible or appropriate to list all of the matters relevant to the exercise of the discretion. The factors will vary from case to case. The weight to be given to any circumstance depends upon its own intrinsic persuasiveness and its impact on other circumstances which have to be weighed.'
It is, however, accepted that some of the relevant factors are:
(1) whether the plaintiff's claim is bona fide and has reasonable prospects of success;
(2) whether the defendant has contributed to the plaintiff's likely inability to pay costs;
(3) whether an order for security for costs may have the effect of stultifying the action;
(4) whether it appears the applicant is seeking to stifle a legitimate claim;
(Page 5)
- (5) whether there are others behind the corporate plaintiff who might reasonably be expected to contribute to the satisfaction of an order for security.
See Engel Pty Ltd (In Liq) v Leeds, unreported; FCt SCt of WA (Malcolm CJ); Library No 940403; 20 July 1994 at 4 - 5 and Blackbird Entertainment Pty Ltd v IO Research Pty Ltd, unreported; SCt of WA (White J); Library No 980297; 2 June 1998.
The fact that the plaintiff will be unable to pay the defendant's costs if the defendant is successful is a factor of great weight in the exercise of the discretion, but it is not necessarily decisive and regard must be had to all of the circumstances of the case.
In the exercise of its discretion the Court will be concerned to achieve a balance between ensuring the defendant is adequately and fairly protected, and avoiding injustice to an impecunious plaintiff company by unnecessarily shutting it out or prejudicing it in the conduct of the litigation: Buckley v Bennell Design & Construction Pty Ltd (1974) 1 ACLR 301 at 304; Tradestock Pty Ltd v TNT (Management) Pty Ltd (1977) 14 ALR 52 at 56.
If a plaintiff seeks to resist an order for security on the ground of stultification, then it must establish the necessary factual basis before the argument can be weighed in the exercise of the discretion.
Generally, a court is not justified in declining to order security on the ground that to do so will frustrate the litigation unless the plaintiff establishes that those who stand behind it and who will benefit from the litigation if it is successful (whether they be shareholders or creditors or beneficiaries under a trust) are also without means. It is not for the party seeking security to raise the matter; it is an essential part of the case of a company seeking to resist an order for security on the ground that the granting of security will frustrate the litigation to raise the issue of the impecuniosity of those whom the litigation will benefit and to prove the necessary facts: Bell Wholesale Co Pty Ltd v Gates Export Corporation (No 2) (1984) 2 FCR 1.
Accordingly, unless a plaintiff establishes that those who stand behind it and who will benefit from the litigation if it is successful are also without means, no conclusion can properly
(Page 6)
- be reached that the effect of an order for security will be to frustrate the plaintiff's claim: BPM Pty Ltd v HPM Pty Ltd, unreported; FCt SCt of WA; Library No 960206; 17 April 1996.
Different considerations may, however, arise where the plaintiff does not rely upon want of means but upon "commercial impracticability", meaning the practical difficulty facing the plaintiff in gaining any advantage from such means as may exist in others. There is no reason why that should not be a relevant circumstance when the plaintiff seeks to demonstrate that any order for security cannot be met. The onus is on the plaintiff to establish that fact. See Ariss v Express Interiors Pty Ltd (In Liq) (1995) 13 ACLC 1,585 per Phillips JA at 1,592 - 1,593.
8 There was a significant delay in the commencement of these proceedings. The defendant's default is alleged to have occurred in 2001. The writ of summons was only issued on 25 May 2006. In his submissions counsel for the plaintiff argued that this delay could not be attributed to any fault of the plaintiff. It was submitted that while the cause of action effectively accrued in August 2001 Locke Holdings Pty Ltd was wound up in July 2002. In August 2001 the plaintiff was declared bankrupt. He was discharged from bankruptcy in November 2004. It was then that the liquidator assigned the company's right of action against the defendant to the plaintiff. I should say at the outset that the reasons for the delay in commencing the action seem to be reasonable. The liquidator of Locke Holdings chose not to pursue an action against the defendant when the cause of action was said to have arisen. At that time the plaintiff was an undischarged bankrupt. There was nothing he could do until released from bankruptcy. Once this had been achieved and the cause of action had been assigned to the plaintiff I am satisfied there was no unreasonable delay on his part.
9 The plaintiff's admitted impecuniosity is not a ground for the making of an order although it is a factor that necessarily has to be taken into account in considering whether the plaintiff will be able to meet an order for costs if his action is unsuccessful. Bride as Trustees of the Pinwernying Family Trust v The Australian Bank Ltd, unreported; FCt SCt of WA; BC9904150; 2 July 1999. I believe there is merit in the defendant's submission that it will probably be unable to recover any costs of the action if it is successful. That consideration, though important, is not determinative of the situation. I must also take into account that the order for security for costs will, according to the plaintiff, frustrate his
(Page 7)
- right to pursue the claim he has acquired. Yandil Holdings Pty Ltd v Insurance Co of North America (1985) 3 ACLC 542 at 543.
10 As I see it everything turns upon the merits of the plaintiff's claim. If his claim is bona fide and appears to have merit it would be unjust to frustrate or bring it to an end by requiring him to comply with an order he is unable to meet. In his affidavit the plaintiff has sought to quantify his claim in an amount of approximately $500,000. I believe that figure is largely speculative. The pleadings do not disclose what commissions were earned by the defendant on the policies it acquired from Locke Holdings. What is significant, however, is the defendant's admission that it did receive commissions in each of the years ending 2002, 2003 and 2004 but has not made any payment to Locke Holdings. The reason for this, according to the defendant, is that Locke Holdings was in breach of a material term of the contract by failing to transfer the premiums it held in trust to the defendant. That amount has been quantified at $50,458. What can be said is that on the material before the Court the plaintiff has a bona fide claim against the defendant for the payment of a percentage of the commissions earned by the defendant on the policies it acquired from Locke Holdings. I am unable to say how strong the plaintiff's claim is or whether it was negated by the non-payment of the trust premiums or the alleged misrepresentations relating to those premiums. That is a matter for evidence. The bottom line, however, is that the defendant admits it has not made any payments at all for the client base it purchased from the plaintiff. It may not have received the insurance premiums from Locke Holdings. But it paid nothing to Locke Holdings for the benefits it did receive. That is a matter which, in my view, the plaintiff must be allowed to pursue. His claim is a bona fide one and he may have a reasonably good prospect of obtaining an order for payment, or at least part payment, of the amount he is seeking.
11 I am unable to accept the defendant's submission that the plaintiff is simply a nominal party who is suing for the benefit of another person. This submission substantially ignores the fact that the plaintiff purchased the cause of action from the liquidator. The affidavit material before the Court tends to show that neither the liquidator nor any creditor of the company has at any time sought to pursue the claim against the defendant. It is true that the plaintiff is contractually obliged to pay the liquidator and creditors a small percentage of any amount he may be awarded in the action. The amount payable to the liquidator is limited to 5 per cent of any amount recovered with a guaranteed minimum payment of $20,000 if the amount recovered is greater than 20 per cent. This shows that, if the action is successful, the substantial gain will be for the plaintiff's benefit
(Page 8)
- and not anyone else. I am unable to see how the plaintiff can be said to have the liquidator and creditors standing behind him ready to benefit from the action. The extent of any benefit they may gain is, in my view, too small to warrant a finding that they are standing behind him at all.
12 It has been submitted by the defendant that the plaintiff ought to have sought an amount of security for costs from the liquidator or creditors of the company. I do not believe that argument is tenable. The liquidator has made it clear that he has no substantial interest in the action. By assigning the right of action to the plaintiff upon payment of $7,000 the liquidator made his intentions plain enough. It is extremely unlikely that the liquidator would agree to provide security for costs even if he were in a position to do so. Any likely benefit the liquidator might obtain from the plaintiff's action would, at most, equal the amount required by the Deputy Registrar as security for costs. The affidavit material before the Court also demonstrates that the creditors have little, if any, interest in the action.
13 The suggestion that the plaintiff's family may benefit from the litigation because they are providing him with financial support in the action is contradicted by the affidavit material filed by the plaintiff. The plaintiff must demonstrate that those financing or standing behind the liquidation are unable to provide security for costs. It is true, as counsel for the defendant has emphasised, that the plaintiff's son, who has admitted financing the action, does not say he is unable to offer security for costs. But the plaintiff's son does assert he will not benefit from the action. Unless he has some beneficial interest in the outcome I am unable to see how the son could be said to stand behind the plaintiff.
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.
(Page 9)
15 I would allow the appeal and set aside the order requesting the plaintiff to provide security for costs.
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