North Groongal Pty Ltd v ANZ McCaughan Ltd (Defendant L)

[1993] SASC 3905

COURT IN THE SUPREME COURT OF SOUTH AUSTRALIA PERRY J

CWDS
Costs - Security for costs - receiver and manager of plaintiff appointed by bank holding debenture over plaintiff's assets - having sold all of the plaintiff's assets, receiver and manager's appointment terminated - application then brought by defendant for security for costs - plaintiff's managing director and principal shareholder effectively conducting the proceedings - held that nonetheless the plaintiff was not a "nominal" plaintiff within the meaning of SCR R.l00.0l(a), and the application could not succeed under that rule - consideration of s.1335 of the Corporations Law - held that there were no circumstances justifying an order for security for costs under that section - the mere fact that the plaintiff was impecunious and more than likely could not pay the defendant's costs if the defendant was successful did not warrant the making of an order for security.
Supreme Court Rules R.l00 and Corporations Law (1990) s.1335. Troisi Steel Fabrications Pty Ltd (Receiver and Manager appointed) v Johns Perrv Industries Pty Ltd (unreported) Perry J, 5.6.92, Judgment No 3448; Sent and Anor v Jet Corporation Australia Ptv Ltd (1985) 3 ACLC 397; Spiel v Commodity Brokers Australia Ptv Ltd (In Liquidation) (1983) 35 SASR 294; John Arnold's Surf Shop Pty Ltd (In Liquidation) v Heller Factors Pty Ltd and Anor (1979) 22 SASR 20 and Southern Cross Exploration NL and Ors v Fire and All Risks Insurance Co Ltd and Ors (1985) l NSWLR 114, considered.

HRNG ADELAIDE, 5 April 1993 #DATE 23:4:1993
Counsel for the plaintiff:         Mr S W Tilmouth QC with
   Mr C A Haywood
Solicitors for the plaintiff:     Wallace Degaris and Co
Counsel for the defendant ANZ Mccaughan Ltd: Mr Nicholas
   QC with Mr N.G. Rochow
Solicitors for the defendant ANZ Mccaughan Ltd: Knox and
   Hargrave
Defendant Galliott Pty Ltd: Represented by Mr K S Hanel
Defendant Fred Ffovaleff Pty Ltd: Represented by Mr F
  Kovaleff
Third Party Kerry S Hanel:            In Person
Third Party Fred Kovaleff:            In Person
Third Party Tillett Nominees Pty Ltd: Represented by Mr F
  Kovaleff

ORDER
Application dismissed.

JUDGE1 PERRY J The first defendant, ANZ McCaughan Ltd ("ANZ"), seeks an order that the plaintiff provide security for its costs (see Application document No 69). 2. The action was instituted by a summons issued on 17 December 1990. At that stage there were four plaintiffs, but the three other plaintiffs, apart from the remaining plaintiff, North Groongal Pty Ltd, have since discontinued the action. 3. The plaintiff's claim is for damages and other relief to which it asserts that it is entitled by reason of alleged breaches of fiduciary and other duties said to be owed by ANZ in failing properly to manage and advise the plaintiff as to off-shore loans made to the plaintiff in 1984. ANZ in its defence denies the existence of any relevant duty of care, and denies any liability to the plaintiff. 4. On 6 August 1992, Bruce James Carter was appointed receiver and manager of the plaintiff by the State Bank of South Australia ("State Bank") pursuant to a registered charge over the assets of the plaintiff. Subsequently, the receiver realised certain assets for the benefit of State Bank, following which his appointment ceased. 5. Given the length of time which has elapsed since the institution of the proceedings, at the outset of the hearing I suggested to Mr Nicholas QC, who appeared for ANZ, that the application had every appearance of having been made late, and that this would count heavily against the application succeeding. However, I am now satisfied that there is nothing to suggest that ANZ was aware of the impecuniosity of the plaintiff before the appointment of the receiver and manager. I have proceeded, therefore, to deal with the application without taking the timing of it into account against ANZ. 6. The application is endorsed to indicate that it is brought pursuant to s.1335 of the Corporations Law and R.100 of the Supreme Court Rules. 7. Unless any of the particular circumstances set out in R.100.01(b)-(e) (inclusive) are of application, which would not seem to be the case, the application under the rules requires proof that the plaintiff is a "mere nominal plaintiff", as well as proof of poverty or insolvency. 8. ANZ has not produced evidence that the plaintiff is a "mere nominal plaintiff" in the sense in which that expression is used in the rules (see, for example, Troisi Steel Fabrications Pty Ltd (Receiver and Manager Appointed) v Johns Perry Industries Pty Ltd (unreported) Perry J, 5.6.92, Judgment S3448). Accordingly, quite apart from any other considerations, it does not appear to me that the application can successfully be advanced under Rule 100. This is so, despite the fact that Mr Tilmouth QC for the plaintiff conceded during the course of argument that Robert Norman Cameron is "behind" the proceedings in the sense that he is giving instructions and, presumably, putting up costs. I do not think, however, that in the circumstances of this case, that makes him a nominal plaintiff in the sense in which that expression has been used in applications of this kind. The plaintiff was the contracting party, and brings the action for its own benefit. If Mr Cameron benefits, it will only be in his capacity as a shareholder. This is an entirely different situation from that which applies where a secured creditor controls the proceedings by a receiver and manager with a view to recovering the secured creditor's debt. In such a case, the secured creditor would normally not be entitled to take the benefit of the action without risk as to costs if unsuccessful (see Sent and Anor v Jet Corporation Australia Pty Ltd (1985) 3 ACLC 397 per Smithers J at 400). 9. It seems to me, therefore, that for ANZ to succeed it must satisfy me that is proper to make an order under s.1335 of the Corporations Law. 10. The relevant part of that section provides: "(1) Where a corporation is plaintiff in any action or other legal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his, her or its defence, require sufficient security to be given for those costs and stay all proceedings until the security is given." 11. There is abundant evidence that the plaintiff " will be unable to pay the costs" of ANZ if the latter is successful in its defence. 12. Two affidavits were filed in support of the application, both sworn by Ms Maureen Jiew, exhibiting financial statements and other information obtained as a result of searches of the records of Australian Securities Commission. A report as to the affairs of the plaintiff detailing its assets and liabilities as at 6 August 1992, the date of the appointment of the receiver, indicates that the sole asset of the plaintiff then comprised its interest in various parcels of land valued, in all, at $4.5 million. Amounts owing and secured by debentures or floating charges in favour of State Bank and Dalgety Bennetts Farmers ("Dalgety") were said to total $8 million, leaving a deficiency of $3.5 million. 13. A further account filed by the receiver said to be a "final account date ceasing 29.01.93" indicates that the value of the property the subject of the charge in favour of State Bank had been reduced to nil, from which I assume that it had been disposed of by sale, and at the date of that account the balance then due to State Bank had been reduced to $389,707.20. I was informed by Mr Tilmouth QC that Dalgety is still owed $349,000. 14. Although the returns made by the receiver, which have been exhibited to Ms Jiew's affidavits are, to say the least, lacking in detail, it seems clearly to have been established that the plaintiff now has no assets, and is saddled at least with the indebtedness to which I have just referred. 15. At the outset of his argument, Mr Nicholas pointed to the fact that in the receiver's report as to the affairs of the plaintiff as at 6 August 1992, the amount shown against "contingent liabilities" was nil. He contrasted this with the same item in the receiver's accounts for another company in receivership, Swinging Shovel Pty Ltd, which was formerly a plaintiff, in which $2 million was shown as a contingent asset, identified in a schedule to the receiver's report as "ANZ Bank legal action". Upon that somewhat narrow foundation, Mr Nicholas put forward the argument that in its own accounts, the plaintiff could not be taken to place any value on its action against ANZ. I am not prepared to make that assumption on that material. While it is true that Mr Cameron may have signed the receiver's returns, they were no doubt prepared by the receiver. The manner in which a chose in action is accounted for in accounts prepared by the receiver is not reliable evidence of the prospects of success, or of the company's bona fides in bringing an action to enforce the chose in action. 16. The relevant principles to be brought to bear in determining an application of this kind have been made clear in Spiel v Commodity Brokers Australia Pty Ltd (In Liquidation) (1983) 35 SASR 294. While that case concerned an application for security for costs under s.533 of the Companies (South Australia) Code, that section does not differ in any material respect from s.1335 of the Corporations Law. (See also John Arnold's Surf Shop Pty Ltd (In Liquidation) v Heller Factors Pty Ltd and Anor (1979) 22 SASR 20.) 17. In Spiel v Commodity Brokers (supra) at 300, Bollen J (with whom Zelling and Wells JJ agreed) said:
    "The discretion is a wide one. The judge or magistrate
    asked to order security for costs should not approach
    the application with any predisposition at all. I think
    it follows that the circumstances in which the
    discretion should be exercised in favour of making an
    order cannot be stated exhaustively. Nor should there
    be any attempt to do so. The judge or magistrate must
    decide according to his view of the justice of the case.
    There should be no complaint at the imprecision of that
    statement. Beyond saying that the judge or magistrate
    must behave judicially one cannot define or delimit or
    categorise the circumstances in which security should be
    ordered to be given. It is quite another thing to speak
    of some matters which are capable of assuming importance
in an application for security." 18. Mr Nicholas QC referred to Southern Cross Exploration NL and Ors v Fire and All Risks Insurance Co Ltd and Ors (1985) 1 NSWLR 114, and in particular what he suggested to be the particular significance attached by Waddell J in that case to the "failure of the plaintiff against whom security was being sought to call any evidence on the matters concerning the financial situation". It is true that Waddell J said (117): ".... the plaintiff's failure to call any positive evidence on the matters of doubt mentioned below should be taken into account." 19. But that was a case where there was some doubt as to whether or not the Court could be satisfied that the plaintiff would be unable to meet its potential liability for costs. 20. In this case that is not an issue. It has been conceded by Mr Tilmouth that the plaintiff is insolvent. Indeed, the plaintiff has filed an affidavit of Mr Haywood, a solicitor employed by the plaintiff's solicitors, who swears on information and belief that the "only asset now remaining in North Groongal Pty Ltd" is the present action. This is not a case where anything turns on the evidence as to the financial position of the plaintiff, except that it clearly provides a proper basis upon which to invoke the jurisdiction under s.1335. 21. I note in passing that it would appear from Southern Cross Exploration (supra) that in New South Wales an application for security is approached with a "predisposition in favour of the defendant party" (see Street CJ in Buckley v Bennell Design and Constructions Pty Ltd (1974) 1 ACLR 301 at 305, cited in Southern Cross Exploration (supra) at 122). It is clear from the passage which I have cited from Spiel v Commodity Brokers Australia Pty Ltd (In Liquidation) (supra) that in this State such an application should not be approached with any predisposition at all. 22. Mr Nicholas also drew attention to an article in Vol 10 Australian Bar Review (March 1993) (11) by Stephen Colbran entitled "Application for Security for Costs". In the course of that article (21) the learned author referred to an unreported decision of Kearney J sitting in the Supreme Court of the Northern Territory, namely, Wrenfeld Pty Ltd t/as Compudraft Australia v G.D. Finch (23.7.91, No 631 of 1990) in which Kearney J is reported as having said:
     "A plaintiff corporation seeking to resist an application for security
    should place before the Court a full and frank statement of its assets
    and liabilities as well as those of its shareholders." 23. Whatever may be the position with respect to applications made where there is a conflict of evidence as to the financial position of the plaintiff, as I have said, there is no such conflict in this case. Apparently, the plaintiff was not a trading company, and simply held land the realisation of which appears to have been fully accounted for in the receiver's accounts put before the Court by ANZ. Although there may be cases where information as to the assets and liabilities of the shareholders may be of significance, I cannot see that such information would assist in determining the present application. 24. Mr Tilmouth called in aid of his defence to the application a principle which has been well recognised by the authorities, namely, that the fact that the impecuniosity of the plaintiff has been caused by the actions of the defendant seeking security is a matter which tells against the grant of security. It must be observed, however, that there is no sworn evidence from the plaintiff to support Mr Tilmouth's contention in that regard. 25. Be that as it may, the plaintiff asserts in its Statement of Claim (at a time before the other three plaintiffs had discontinued the action):
    "25. As a result of the transactions pleaded herein:
    25.1 the Plaintiffs and each of them are unable to
    afford the interest payments on capital loans
    outstanding against the security of their assets and are
    currently losing equity in their assets, a receiver and
    manager has been appointed to the Second and Third
    Plaintiffs and at the date of filing this claim is in
    the process of realising the assets of the Third and
    Fourth Plaintiff;
    25.2 the Second Plaintiff was forced to sell an asset at
    an amount less than its true market value (more
    particularly property referred to as "Tressant") which
    was the property yielding the greatest proportion of the
    plaintiffs income." 26. An assertion in the pleadings is not the same as evidence, but I am entitled, in my opinion, to take into account that the plaintiff's case is that its financial position had deteriorated by reason of the subject transactions. 27. But the application does not turn upon any such consideration. It seems to me that there really is very little to be said in favour of the application, apart from the fact that the plaintiff lacks the means to pay the costs of ANZ should the latter be successful in defending the proceedings. It cannot successfully be suggested that the proceedings are a sham. It appears to me that the plaintiff clearly has an arguable case. I would not attempt to go further and attempt to evaluate whether it is likely to succeed. Although that is an exercise which may possibly be performed in some cases, I do not think that it is an appropriate exercise to attempt in a case so complex as this. 28. The law is clear that the mere fact that a plaintiff who has brought a bona fide claim, as I believe this claim to be, happens to be impecunious should not, on that account, be ordered to pay security for costs. 29. The application must be dismissed. I so order. I will hear the parties as to the costs of the application.