Neo Modular Pty Ltd v Enderby Apartments Investment Pty Ltd
[2020] WASC 304
•24 AUGUST 2020
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: NEO MODULAR PTY LTD -v- ENDERBY APARTMENTS INVESTMENT PTY LTD [2020] WASC 304
CORAM: REGISTRAR WHITBY
HEARD: 31 JULY 2020
DELIVERED : 24 AUGUST 2020
FILE NO/S: CIV 1238 of 2020
BETWEEN: NEO MODULAR PTY LTD
Plaintiff
AND
ENDERBY APARTMENTS INVESTMENT PTY LTD
Defendant
Catchwords:
Order 25 r 5 Rules of the Supreme Court - Security for costs - Consent order constitutes contract between parties - Construction of consent order where defendant is truly a plaintiff - Order for security refused
Legislation:
Nil
Result:
Defendant's application for security for costs dismissed
Category: B
Representation:
Counsel:
| Plaintiff | : | M A MacLennan |
| Defendant | : | G D Cobby SC |
Solicitors:
| Plaintiff | : | Bennett + Co |
| Defendant | : | Murfett Legal |
Case(s) referred to in decision(s):
Bevwizz Group Pty Ltd v Transport Solutions Pty Ltd [2008] NSWSC 1399
Mabrouk Minerals Pty Ltd v Mabrouk Holdings Ltd [2008] WASC 132
McKessar v John Durham Pascoe as trustee for Samson Street Superannuation Fund [2020] WASCA 106
Norilya Minerals Pty Ltd v Easterday [2009] WASC 191
Siebe Gorman & Co Ltd v Pneupac Ltd [1982] 1 WLR 185
Spence Financial Group Ltd v GE Commercial Corporations (Australia) Pty Ltd [2007] WASC 15
Sugarloaf Hill Nominees Pty Ltd v Reward Projects Limited [2011] WASC 19
Tudor Furnishers Ltd v Montague & Co and Finer Production Co Ltd [1950] Ch 113
Visco v Minter [1969] P 82
Weily's Quarries v Divine Shipping Pty Ltd (1994) 14 ACSR 186
Westonia Earth Moving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [2013] WASC 57
REGISTRAR WHITBY:
This is the defendant's application dated 10 June 2020 for proposed orders for further security for costs in the amount of $20,000. The defendant seeks the following orders:
1.Pursuant to O 25 r 5 of the Rules of the Supreme Court 1971 (WA) (RSC) the plaintiff do within seven days give further security for costs by way of payment into court in the sum of $20,000 for the defendant's reasonable costs of pleading a defence and providing discovery and preparing for and attending at a mediation conference.
2.In the event that the plaintiff fails to comply with order 1 of these orders, the proceedings be stayed until such time as the plaintiff pays the further sum of $20,000 into court.
3.The defendant have liberty to apply for further security for costs.
4.The plaintiff pay on an indemnity basis the defendant's costs of the defendant's application dated 10 June 2020 for further security.
5.In the alternative to order 4 the plaintiff pay the defendant's costs of the defendant's application dated 10 June 2020 for further security.
6.Such other order as this honourable court deems appropriate.
The defendant relies upon the following in support of its application:
(a)affidavit of Kevin Joseph Morgan in support of the dismissal of the summary judgment application and the application for further security for costs sworn 10 June 2020 (first Morgan affidavit);
(b)affidavit of Kevin Joseph Morgan pursuant to order 7 of Registrar Whitby made on 15 June 2020 sworn 29 June 2020 (second Morgan affidavit); and
(c)the defendant's outline of submissions in support of application for security for costs dated 29 June 2020.
In opposition to the defendant's application for security for costs the plaintiff relies upon:
(a)the affidavit of Paul Anthony Jennings affirmed 3 April 2010 (Jennings affidavit);
(b)affidavit of Darren Kurt Zusman in opposition to the defendant's application for security for costs sworn 22 June 2020 (Zusman affidavit); and
(b)the plaintiff's submissions in opposition to the defendant's application for security for costs dated 6 July 2020.
Background
The issues in these proceedings concern the proceeds of sale of 1 Enderby Close, North Coogee (Property) and whether it is the plaintiff or the defendant who is entitled to the proceeds of sale of the Property.
Pilbara Metro Developments Pty Ltd (Metro) was the registered proprietor of the Property from 18 June 2014 to 10 February 2020.[1]
[1] Zusman affidavit page 26; Jennings affidavit pages 675 ‑ 676.
The plaintiff is a company incorporated to advance a loan to Metro for the development of the Property.[2] The plaintiff entered into a facility agreement to secure the funds it loaned to Metro.[3]
[2] Jennings affidavit par 222, 226.
[3] Jennings affidavit par 249.
The defendant is a company incorporated for the purposes of investors being able to provide loan funds for Metro to develop the Property.[4] The defendant entered into a loan agreement and general security agreement with Metro in order to secure the funds it had loaned to Metro.[5]
[4] Jennings affidavit par 75.
[5] Jennings affidavit par 90 and 116.
On 5 February 2019 the defendant appointed receivers to Metro[6] in order to affect a sale of the Property.
[6] Jennings affidavit par 256.
On 7 February 2020, the receivers, the defendant, the plaintiff and Paul Jennings (the sole director of Metro) entered into a deed of settlement and release to permit the sale of the Property (deed of settlement).[7]
[7] Jennings affidavit par 257.
On 10 February 2020, the receivers sold the Property to Tree Field Holdings Pty Ltd.[8]
[8] Jennings affidavit par 258; Zusman affidavit page 5 ‑ 24.
On 23 April 2020, the receivers paid the proceeds of sale of the Property into court pursuant to cl 4.1(b) and cl 4.2 of the deed of settlement.
Each of the plaintiff and the defendant asserts it was a first ranking security over the Property.
Consent order for provision of security for costs
On 26 March 2020 I made, inter alia, pursuant to O 43 r 16 RSC by consent, the following orders:
…
11.Pursuant to O 25 r 5 RSC the plaintiff do give security by way of payment into court in the sum of $15,000 for the defendant's reasonable costs up to and including determination of the plaintiff's summary judgment application.
12.In the event that the plaintiff fails to comply with order 1 of these orders by 3 April 2020 the proceeding be stayed until such time as the plaintiff pays the sum of $15,000 into court.
13.The defendant have liberty to apply for further security following the hearing and disposition of the plaintiff's summary judgment application
(March Security Orders).
The issue to be determined is whether the March Security Orders reflect an underlying agreement between the parties that the defendant would provide further tranches of security for costs and that any application would only be in relation to the amount of any further tranches of security (if that could not be agreed).
The defendant says that, by the March Security Orders, the parties have agreed that:
(a)the plaintiff will provide further security for costs following the determination (or in this case dismissal) of the summary judgment application; and
(b)the defendant would only be required to make an application to the court to determine the amount of any further tranche of security to be provided by the plaintiff, in the event that amount could not be agreed.
The defendant relies upon the case of Norilya Minerals Pty Ltd v Easterday (Norilya)[9] in support of its position. In Norilya, the consent order considered by the court was in the following terms:
The plaintiff do, within 14 days of the date of this order, pay into an interest bearing trust account … the sum of $30,000 as security for the defendants' costs of these proceedings to the close of the amended pleadings.[10]
[9] Norilya Minerals Pty Ltd v Easterday [2009] WASC 191.
[10] Norilya [72].
The defendant sought an order for further security for costs in the sum of $125,500 (in addition to the $30,000 already paid) to the close of the amended pleadings. The plaintiff opposed a further order for security for costs on the basis that the parties had agreed that the amount of $30,000 was to be security for costs until the close of pleadings. Le Miere J held:[11]
In this case, the evidence, sparse as it is, leads me to the conclusion that the order for security for costs was a consent order in the sense that it evidenced a real contract between the parties. Many procedural orders which are made by consent may be accurately described as the result of two solicitors conferring for the purpose of formulating an order which could be made without argument. Orders setting out steps to be taken by each party leading to the trial of the action, and the date by which each step is to be taken, are commonly consent orders of that sort. However, the order for security for costs in this case was not of that sort. There was a difference between the parties as to the security for costs to be provided by the plaintiff. The plaintiff made a proposal about the amount of security to be provided. That proposal was accepted by the defendants. The language employed by the defendants' solicitors in their letter of 27 April 2007 to which I have referred is consistent with an intention to make a binding agreement.
Assuming that the court has jurisdiction to vary such a contract on grounds other than those on which it interferes with contracts other than those relating to the making of consent orders, the defendants must show that there is good reason to do so. In Paino v Hofbauer, McHugh J made the following comment:
Nevertheless, when a party asks that a consent order based on a contract should be set aside or varied and the underlying contract could not be set aside or varied, the case would need to be exceptional before the court would exercise its discretion in favour of an applicant (198).
I am not satisfied that the defendants have established that there are circumstances sufficient to justify the court to vary the consent order. The defendants say that since the consent order was made the plaintiff has produced numerous versions of a proposed amended statement of claim. The defendants also say that the plaintiffs have issued a number of subpoenas and the defendants have inspected the very large volume of documents produced in answer to those subpoenas. However, the defendants have produced no evidence of the amount of work done, or the costs incurred in considering and conferring in relation to the proposed amendments to the statement of claim or in inspecting the subpoenaed documents. Counsel for the defendants referred to the likely burden of discovery. However, the pleadings are not yet closed and it is premature to be seeking further security for costs in relation to steps in the action subsequent to the close of pleadings. The defendants have not led any evidence that satisfies me that it would be unjust to hold them to the agreement made which gave rise to the consent order for security for costs.
It is in the public interest that the court should discourage parties from resiling from agreements by varying consent orders except in circumstances which render it unjust to hold the parties to the agreement. It is not in the public interest to enable a defendant to secure a plaintiff's agreement to an amount of security for costs and having got that to then come back to the court to try and vary it to increase the amount, unless the circumstances demonstrate that there are changed circumstances or other good reason why it would be unjust not to vary the order. The defendants have not established such circumstances.
[11] Norilya [75] ‑ [78].
In response, the plaintiff submits that Norilya does not assist the defendant because this is not a case where the plaintiff seeks to vary the March Security Orders. The plaintiff has complied with the March Security Orders and has paid $15,000 into Court. The plaintiff says that the March Security Orders do not constitute an agreement between the parties that the plaintiff will provide a further tranche of security (with only the amount of that tranche to be determined by application if not agreed).
In applying the reasoning in Norilya, it is clear that the March Security Orders are consent orders in the sense that they evidence a real contract between the parties. However, in my view, neither party seeks to vary the March Security Orders. Rather, the issue on this application is how those March Security Orders are to be interpreted.
The plaintiff says the March Security Orders constitute an agreement between the parties that $15,000 would be paid by the plaintiff into court as security for the defendant's costs up to and including the determination of the plaintiff's summary judgment application, and that the defendant then has liberty to apply for security for costs (not merely a further tranche of security).
The defendant says that the March Security Orders constitute an agreement between the parties that the plaintiff must provide security for costs and that the defendant only needs to make an application in relation to the amount of further tranches of security at various stages of the proceedings.
Where consent orders evidence a real contract between parties, Lord Denning in Siebe Gorman & Co Ltd v Pneupac Ltd:[12]
the word 'by consent' may evidence a real contract between the parties. In such a case the court will only interfere with such an order on the same grounds as it would with any other contract.
[12] Siebe Gorman & Co Ltd v Pneupac Ltd [1982] 1 WLR 185.
By analogy, the legal principles governing the construction of the March Security Orders are the same as they are for any other contract. These principles are not contentious - the meaning of the terms of a contract is determined according to what a reasonable person would have understood those terms to mean.[13] The determination is an objective one, which depends upon the language of the contract, what the conduct of one party would have led a reasonable person in the shoes of the other party to believe and the purpose and object of the transaction.[14]
[13] Electricity Generation Corporation t/as Verve Energy v Woodside Energy Ltd (2014) 251 CLR 640 [35] (French CJ, Hayne, Crennan & Kiefel JJ); Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 [47] (French CJ, Nettle & Gordon JJ); Westgyp Pty Ltd v Northline Ceilings Pty Ltd [No 2] [2019] WASCA 145 [6] (Quinlan CJ).
[14] Byrnes v Kendle (2011) 243 CLR 253 [98] (Heydon & Crennan JJ); Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 [40] (Gleeson CJ, Gummow, Hayne, Callinan & Heydon JJ). Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544 [16] (Kiefel, Bell & Gordon JJ); Westgyp Pty Ltd v Northline Ceilings Pty Ltd [No 2] [2019] WASCA 145 [6] (Quinlan CJ); Condor Developments Pty ltd v Helsby [2010] WASCA 16 [42] (Newnes JA).
In order to construe the March Security Orders, regard must be had to the circumstances leading up to, and following entry into, that contract. The relevant circumstances are:
(a)On 20 March 2020, the solicitors for the plaintiff advised the solicitors for the defendant that they would not agree to sign consent orders in the following terms:
1.The plaintiff to give security for the defendant's reasonable costs of the proceedings.
2.The provision of security be by way of payment into court:
a.By 27 March the amount of $15,000.00, representing a first tranche of security for the defendant's costs up to and including determination of the plaintiff’s summary judgment application (with the defendant having liberty to apply for additional security pending that determination); and
b.Thereafter, upon application by the defendant for further tranches (or by agreement between the parties) and in such amounts and at such time as this honourable court thinks fit [15].
[15] First Morgan Affidavit pages 23 - 25.
(b)On 24 March 2020, the plaintiff informed the defendant that the terms of the proposed orders were not accepted and proposed alternate consent orders, in relation to security for costs, in the following terms:
10.Pursuant to Order 25 r 5 RSC, by 3 April 2020, the plaintiff do give security by way of payment into Court in the sum of $15,000 for the defendant’s reasonable costs up to and including determination of the plaintiff's summary judgment application.
11.In the event that the plaintiff fails to comply with order [10] of these orders by 3 April 2020, the proceeding be stayed until such time as the plaintiff pays the sum of $15,000 into Court.[16]
[16] First Morgan Affidavit pages 26 - 29.
(c)On 25 March 2020, the solicitors for the defendant proposed changes to the last version of the proposed consent orders (set out in par (b) above) by adding the order '13. The defendant have liberty to apply for further security.'[17]
(d)On 25 March 2020, the solicitors for the plaintiff proposed final amendments to the consent orders (in the terms of the March Security Orders). The solicitors for the defendant agreed with those changes. The solicitors for each of the plaintiff and the defendant signed the Memorandum of Consent Orders containing the March Security Orders.[18]
(e)On 25 May 2020 the defendant’s solicitors advised the plaintiff's solicitors that the defendant’s summary judgment application would not be pressed.[19]
(f)On 3 June 2020, the solicitors for the defendant requested the plaintiff to pay a further tranche of security of $20,000 for defence, discovery and mediation.[20]
(g)On 8 June 2020, the solicitors for the plaintiff responded to the request for a further tranche of security for costs as follows:
8.The Plaintiff previously consented to security for costs being paid into Court in respect of its application for summary judgment. That decision was made to circumvent the need for an additional interlocutory application to determine whether the Defendant was in fact entitled to security for costs.
9.Notwithstanding the above, the Defendant does not have any entitlement to security for costs of the action.[21]
[17] First Morgan Affidavit pages 31 - 34.
[18] First Morgan Affidavit pages 36 - 40.
[19] First Morgan Affidavit page 41.
[20] First Morgan Affidavit page 50.
[21] First Morgan Affidavit page 58.
In my view, the March Security Orders are to be construed in accordance with the position is that proffered by the plaintiff. A reasonable person, in this case a reasonable solicitor, would have understood the terms of the March Security Orders to mean that the defendant would have to apply for security for costs afresh after the determination of the summary judgment application, rather than just make an application as to the amount of a further tranche of security. I accept that a reasonable solicitor would have consented to the March Security Orders in order to prevent an interlocutory argument as to security for costs at that stage of the proceedings. The plaintiff's construction is further supported by the fact that that the terms of consent orders initially proposed by the solicitors for the defendant, which expressly provided for an application for further tranches of security, were not accepted by the solicitors for the plaintiff. The consent orders reflected in the March Security Orders does not refer to further tranches of security.
I find that in order for the defendant to be entitled to security for costs, it must make an application for the same.
Having found that the defendant is required to apply for security for costs pursuant to O 25 r 5 RSC, I will consider the substance of the defendant's application.
Security for costs - legal principles
Order 25 r 1 RSC provides:
The Court may order security for costs to be given by a plaintiff, but no order shall be made merely on account of the poverty of the plaintiff or the likely inability of the plaintiff to pay any costs which may be awarded against him.
Order 25 r 3 provides:
The granting of security shall be in the discretion of the Court, and in determining whether an order should be made the Court shall take into consideration ‑
(a)the prima facie merits of the claim;
(b)what property within the jurisdiction may be available to satisfy any order for costs against the plaintiff; and
(c)whether the normal processes of the Court would be available within the jurisdiction for enforcement of any order for costs made against the plaintiff.
The court has an unfettered discretion to award security for costs. The discretion is to be exercised having regard to the circumstances of each particular case.[22]
[22] Spence Financial Group Ltd v GE Commercial Corporations (Australia) Pty Ltd [2007] WASC 15 [33] ‑ [34].
In Mabrouk Minerals Pty Ltd v Mabrouk Holdings Ltd,[23] Newnes J said:
It is well-established that the discretion to order security for costs is unfettered and depends upon an examination of all of the relevant circumstances. The circumstances in which the discretion should be exercised cannot be stated exhaustively. They will vary from case to case and the weight to be given to any circumstance in a particular case will depend not only upon its own intrinsic persuasiveness but upon the impact of the other circumstances which have to be weighed (citations omitted).
[23] Mabrouk Minerals Pty Ltd v Mabrouk Holdings Ltd [2008] WASC 132 [57].
The defendant bears the onus of satisfying the court that it should exercise its discretion and order for security for costs.[24]
[24] Sugarloaf Hill Nominees Pty Ltd v Reward Projects Limited [2011] WASC 19 [34(f)].
The principles in relation to security for costs were outlined in George 218 Pty Ltd v Bank of Queensland Limited[25] and summarised in McKessar v John Durham Pascoe as trustee for Samson Street Superannuation Fund (McKessar)[26] (Murphy JA, Mitchell JA):
1.The power to order security is exercised to serve the interests of justice.
2.The discretion to order security is unfettered but must be exercised judicially. 'Special circumstances' do not have to be shown before an order for security for costs is made against an appellant.
3.An appellant's inability to satisfy a costs order should the appeal fail is generally a significant factor in favour of an order for security for costs. However, if the respondent has caused the appellant's impecuniosity, that may be a relevant countervailing factor.
4.Impecuniosity is not in itself generally the sole ground for the making of an order for security. Even where the appellant is impecunious, in all the circumstances, the interests of justice may properly be served by not making such an order.
5.Other factors generally include the appellant's prospects of success, whether the appellant would be shut out of the appeal if security for costs were ordered, and whether there has been any delay in the respondent filing the application for security for costs.
6.Ultimately, each case will turn on its own circumstances, and it is not possible to set out an exhaustive list of the relevant considerations.
7.Where security is ordered against an impecunious appellant, the amount ordered should not be greater than is absolutely necessary.
[25] George 218 Pty Ltd v Bank of Queensland Limited [2016] WASCA 56 [41] - [48]
[26] McKessar v John Durham Pascoeas trustee for Samson Street Superannuation Fund [2020] WASCA 106, 73.
The issue is whether I should exercise my discretion in favour of the defendant and grant security for costs in the amount sought by the defendant.
The plaintiff concedes that it would not be able to meet any adverse cost order. This is a significant factor in favour of an award for security for costs. However, it is not the only factor. It may be that the interests of justice are served by not making an order for security.
The issue at the heart of the disagreement between the plaintiff and the defendant as to whether security should be ordered is how the defendant's position in the proceedings is characterised.
Is the defendant truly a plaintiff in these proceedings?
The plaintiff submits that the defendant is a defendant in these proceedings by name only and that the defendant is truly a plaintiff seeking similar relief to the plaintiff.
The plaintiff says, in circumstances where the plaintiff is effectively defending itself and forced to litigate, the court will not ordinarily make an order for security for costs against that party. The plaintiff relies upon the decision of Weily's Quarries v Divine Shipping Pty Ltd (Weily's Quarries)[27] where Zeeman J held:
The general proposition that security ought not to be ordered where the proceedings are defensive in the sense of directly resisting proceedings already brought or seeking to halt self-help procedures is no more than that, a general proposition. It ought not to be elevated to being a rule of law. In many cases of that nature it could be considered oppressive to require security and that in itself may be sufficient to refuse to make an order.
[27] Weily's Quarries v Divine Shipping Pty Ltd (1994) 14 ACSR 186, 189.
The plaintiff submits that even if the plaintiff's claim was to fail, there is still a question as to whether the court has the power to order that the monies paid into court are released to the defendant in the absence of the defendant claiming any positive relief in the proceedings. The plaintiff says the defendant is required to file a counterclaim in order to have the funds paid into court by the receivers paid out to the defendant.
The plaintiff says that it would be unjust for the court to exercise its discretion to grant security for costs for the following reasons:
(a)although the plaintiff commenced this proceeding, the reality is that both parties are effectively claimants in relation to the proceeds of sale of the Property, and on that basis a security for costs order against either party is not warranted; and
(b)by ordering the plaintiff to pay security for costs, the court would be condoning a practice where the party that commences proceedings is penalised in circumstances where either party had an equal obligation to do so.
The defendant submits that it has a first ranking security in time over the proceeds of sale of the Property and, in the event that the plaintiff does not succeed on its claim, the defendant is entitled to the funds that have been paid into court without the need to file a counterclaim in these proceedings.
The defendant submits it is truly a defendant and it is the plaintiff who seeks to displace the legal position that the defendant holds the valid security. The defendant submits that the plaintiff's claim is not that the defendant's security is invalid, its claim is that the plaintiff's security is paramount to that of the defendant. Accordingly, the plaintiff is truly a plaintiff.
In Bevwizz Group Pty Ltd v Transport Solutions Pty Ltd (Bevwizz),[28] Brereton J in finding that, as a matter of discretion, the court will not make an order against a cross claimant where the cross claim arises out of the same matter as the claim and is purely by way of defence, said:
In the present case, it seems to me that in substance the plaintiff's claim is one to recover property of the plaintiff which is retained by the defendant, and to restrain the defendant from exercising a power of sale over that property. The defendant’s position is that it is entitled to retain and sell the plaintiff's property, over which it claims security as a result of various services said to have been rendered to it. The cross‑claim plainly arises out of the same facts as the claim … essentially it is maintained as a defence to the plaintiff's claim, propounding a basis on which the defendant is said to be entitled to retain the goods and exercise a power of sale over them.
…
… I give decisive weight to the consideration that, as I have foreshadowed, this cross-claim is in substance a defensive cross-claim, which seeks to set up the defendant’s basis for retaining possession and exercising a power of sale, which the plaintiff by these proceedings seeks to prevent.
[28] Bevwizz Group Pty Ltd v Transport Solutions Pty Ltd [2008] NSWSC 1399, 20, 33
In the case of Visco v Minter,[29] Ormrod J said:
So, if the defendant wishes to raise a counterclaim by way of defence, he is allowed to do so without incurring the liability of having to provide security for the costs of the counterclaim. But this rule is subject to certain limits, because otherwise it would enable a defendant, sued in this court, to bring a cross-action about something quite different. … The principle seems to be that where a defendant counter‑attacks on the same front on which he is being attacked by the plaintiff, it will be regarded as a defensive manoeuvre. But if he opens a counter‑attack on a different front, even to relieve pressure on the front attacked by the plaintiff, he is in danger of an order for security for costs depending upon the court's assessment of the position in each case.
In interpleader proceedings different considerations arise because both parties, whether they be called plaintiff or defendant, are in substance claimants, and both may be ordered to give security: see Tudor Furnishers Ltd v Montague & Co and Finer Production Co Ltd [1950] Ch. 113.
[29] Visco v Minter [1969] P 82 [85].
In Tudor Furnishers Ltd v Montague & Co and Finer Production Co Ltd (Tudor Furnishers),[30] Wynn‑Parry J said:
… In view of the interpleader proceedings, I have, as directed by the authorities, to look at the substance of the matter and not merely at the form in order to see what is the true position in the issue between the parties. I find that their position as regards the point in dispute in the issue is the same: the parties are, in effect, both claimants, and it is a fortuitous circumstance that in the issue Tudor Furnishers Ld. appear as plaintiffs and Finer Production Company Ld., as defendants.
…
… this is a case in which I ought to exercise my discretion either by directing that no security should be given by either of the parties, … or by declining to order security to be given by Tudor Furnishers Ltd …
… it is clear … in a case such as this [the Court] has the two alternatives I have mentioned, either to order that security be provided by both, or to make no order against either.
[30] Tudor Furnishers Ltd v Montague & Co and Finer Production Co Ltd [1950] Ch 113.
In Westonia Earth Moving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd (Westonia),[31] Edelman J made the following observations in considering whether the defendant (and applicant for security for costs) was in substance a plaintiff and the plaintiff's proceedings were defensive in nature:
Some examples of circumstances in which a defendant applicant for security for costs is in substance a plaintiff or brings defensive proceedings include:
(i)proceedings brought to resist 'self-help' measures available to the defendant under the contract;
(ii)where the plaintiff had no practical alternative but to commence proceedings to defend its property or rights;
(iii)where the other party should have been the one to commence proceedings had they acted appropriately; or
(iv)where a cross-claim arises out of the same facts (citations omitted).
[31] Westonia Earth Moving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [2013] WASC 57.
Determination
In order to determine whether the defendant is truly a defendant, it is necessary to consider the terms of the deed of settlement.[32] The deed of settlement provides, relevantly, as follows:
[32] Zusman affidavit DKZ1.
Recitals
A[the defendant] and [the plaintiff] have such provided financial accommodation to [Metro] under [the defendant's] Facility and [the plaintiff's] Facility respectively.
B…
CThe indebtedness of [Metro] to [the defendant] pursuant to [the defendant's] Facility was, and is, secured by, amongst other things, [the defendant's] security.
DThe indebtedness of [Metro] to [the plaintiff] pursuant to [the plaintiff's] Facility was, and is, secured by, amongst other things, [the plaintiff's] security.
EBy reason of defaults by [Metro] pursuant to the terms of:
(a)[the defendant's] Facility; and
(b)[the defendant's] Security,
[The defendant's] appointed the receivers as the joint and several receivers and managers of [the Property] …
…
IA dispute exists between [the plaintiff] and [the defendant] as to:
(a)the priority position as between [the plaintiff] and [the defendant] in relation to [the defendant's] Security and [the plaintiff's] Security; and
(b)accordingly, the order in which the Receivers should distribute the Net Sale Proceeds of [the Property] to [the defendant] and [the plaintiff].
…
K[the Plaintiff]:
(a)wishes for the settlement of the Property to complete … so that the entitlement of [the plaintiff] and [the defendant] to the Proceeds can be determined by the Court post‑settlement; and
(b)has informed the Receivers that if the Proceeds are paid by the Receivers to [the defendant] without the written consent of [the plaintiff] or a Court order, [the plaintiff] will make a claim against the Receivers and [the defendant].
L[the Defendant]:
(a)wishes for the settlement of the sale of the Property to complete under the Contract of Sale so that the entitlement of [the plaintiff] and [the defendant] to the Proceeds of Sale can be determined by the court post‑settlement; and
(b)has informed the Receivers that if the Proceeds of Sale are paid by the Receivers to [the plaintiff] without the consent of the defendant or a Court order, [the defendant] will make a claim against the Receivers and [the plaintiff].
MNeither [the defendant] nor [the plaintiff] wish for the Receivers to adjudicate their respective priority positions or to be party to any Court proceedings regarding such matters. Further, [the defendant] and [the plaintiff] wish to have those matters determined by a Court in inter parties proceedings between [the defendant] and [the plaintiff].
…
4.1Application to be made to Court
(a)If [the defendant] and [the plaintiff] fail to reach agreement as to the manner in which the Proceeds of Sale are to apportioned between them within 21 days after the settlement of the sale of the Property, [the defendant] or [the plaintiff] must, as soon as is reasonably practicable thereafter, commence proceedings to resolve the dispute.
(b)As soon as reasonably practicable following the commencement of proceedings, [the defendant] and [the plaintiff] must use their best endeavours to procure an order from the Court that, the Proceeds … be paid into Court. Save for any delay by the Court in making any orders agreed by [the defendant] and [the plaintiff] in respect of the monies paid into Court, if [the defendant] or [the plaintiff] have not obtained such an order by 3 April 2020, the Receivers may, in their discretion, apply to the Court for interpleader relief.
…
7.No representations, warranties or undertaking
The Parties warrant to each other that, save as expressly set out in this Deed, they have not relied on any representation, warranty or undertaking of any kind made by each other Party or any of their respective employees, advisers and agents.
In my view the terms of the deed of settlement, which provide that either the plaintiff or the defendant 'must' commence proceedings in order to determine to whom the receiver is to pay the proceeds of sale of the Property (and in the absence of either party bringing a claim the receiver may commence interpleader proceedings) persuades me that the defendant is in fact equally a plaintiff in these proceedings.
I do not accept the defendant's submission that the defendant is automatically entitled to have the proceeds of sale of the Property paid to the defendant in the absence of these proceedings. The deed of settlement provides otherwise. In accordance with the deed of settlement, if the plaintiff did not commence proceedings, the defendant 'must' would have had to commence proceedings, or in the absence of either doing so, the receiver may commence proceedings.
This is a case where the plaintiff had no choice but to commence proceedings to defend its rights and therefore, falls squarely within one of the examples, as set out in Westonia, where a defendant is properly classified as a plaintiff. The issue in dispute in these proceedings is which party is entitled to the proceeds of sale of the Property. Both parties are essentially claimants. Tudor Furnishers is authority for the proposition that where both parties are properly claimants, either both or none should be ordered to provide security for costs.
The plaintiff submits that the defendant must file a counterclaim in these proceedings in order for the court to ultimately determine which party is entitled to the proceeds of sale of the Property. The plaintiff says that if the defendant does not make a counterclaim, but ultimately seeks to have the funds paid out of court to the defendant (in the event that the plaintiff is unsuccessful) the defendant would not be entitled to those funds in the absence of making an application to the court. The plaintiff says that where there is a failure to raise a counterclaim in earlier proceedings and such a claim is intimately connected with the plaintiff's claim in the earlier proceedings Anshun estoppel applies to preclude the defendant from making the claim. [33]
[33] Gibbs v Kinna [1998] VSCA 52 at [27] approved in Stewart v Biodiesel Producers Ltd [2009] WASC 145 at 59 - 61.
The defendant cannot be required by the court to file a counterclaim in these proceedings. If it chooses not to do so, it takes the risk that the plaintiff is correct and the defendant is not entitled to be paid the money out of court unless it files an application seeking those orders (accompanied by the attendant risk of Anshun estoppel applying). It is not an issue I am required to determine on this application.
I do consider, in all the circumstances, notwithstanding the inability of the plaintiff to meet any adverse costs order, that the interest of justice are properly served by not making an order for security against the plaintiff. The plaintiff ought not be penalised for being the party to commence proceedings.
In all the circumstances I consider it would be unjust to make the plaintiff the subject of a security for cost order and I decline to do so. The defendant's application for security for costs is dismissed.
The parties are required to confer in relation to proposed orders. In the event that agreement cannot be reached, each party is required to file a Minute of Proposed Orders.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
TG
Court Officer24 AUGUST 2020
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