Nui Ann Williams (As Administratrix of the Estate of Robert Rua Tainui Karetai (Dec)) v Purvis
[2006] WASC 34
NUI ANN WILLIAMS (As Administratrix of the Estate of ROBERT RUA TAINUI KARETAI (Dec)) & ANOR -v- PURVIS & ANOR [2006] WASC 34
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2006] WASC 34 | |
| Case No: | CIV:2404/2004 | 12 DECEMBER 2005 | |
| Coram: | MASTER NEWNES | 1/03/06 | |
| 14 | Judgment Part: | 1 of 1 | |
| Result: | Application dismissed | ||
| B | |||
| PDF Version |
| Parties: | NUI ANN WILLIAMS (As Administratrix of the Estate of ROBERT RUA TAINUI KARETAI (Dec)) STARCLASS HOLDINGS PTY LTD (ACN 084 975 897) ERIC ALBERT JAMES PURVIS CENTURYSIDE CORPORATE PTY LTD (ACN 097 982 280) |
Catchwords: | Practice and procedure Application by defendants for security for costs Relevant considerations Failure by defendants to disclose nature of defence to plaintiffs' claim Turns on own facts |
Legislation: | Corporations Act 2001 (Cth), s 601AB, s 1335 Real Estate and Business Agents Act 1978 (WA) Rules of the Supreme Court 1971 (WA), O 25, O 25 r 1, O 25 r 3 |
Case References: | Barton v Minister for Foreign Affairs (1984) 54 ALR 586 Bell Wholesale Co Pty Ltd v Gates Export Corporation (1984) 52 ALR 176 Blackbird Entertainment Pty Ltd v IO Research Pty Ltd, unreported; SCt of WA; Library No 980297; 2 June 1998 BPM Pty Ltd v HPM Pty Ltd (1996) 14 ACLC 857 Buckley v Bennell Design & Construction Pty Ltd (1974) 1 ACLR 301 Engel Pty Ltd v Leeds, unreported; FCt SCt of WA (Malcolm CJ); Library No 940403; 20 July 1994 Gentry Bros Pty Ltd v Wilson Brown and Associates Pty Ltd (1992) 8 ACSR 405 Intercraft Cabinets Pty Ltd v Sampas Pty Ltd (1997) 18 WAR 306 J & M O’Brien Enterprises Pty Ltd v The Shell Company of Australia Ltd (1983) 70 FLR 261 Newtrend Pty Ltd v Oceanic Life Ltd [1990] WAR 1 Sarac v Croatian House Hrvatski Dom (Inc), unreported; FCt SCt of WA; Library No 950675; 12 December 1995 Tradestock Pty Ltd v TNT (Management) Pty Ltd (1977) 14 ALR 52 Uptown Sydney Development Corporation Pty Ltd v Bank of New Zealand (No 1) (1993) 11 ACSR 300 Yandil Holdings Pty Ltd v Insurance Co of North America (1985) 3 ACLC 542 Bryan E Fencott and Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 Connop v Varena Pty Ltd [1984] 1 NSWLR 71 DS Parklane Developments Pty Ltd v Korea First Finance Limited, unreported; SCt of NSW; 20 August 1997 Energy Drilling Inc v Petroz NL (1989) ATPR 40954 Marand Holdings Pty Ltd v Cateus International Pty Ltd [2003] WASC 238 MindShare Communications Ltd v Orleans Investments Pty Ltd [2000] FCA 521 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- First Plaintiff
STARCLASS HOLDINGS PTY LTD (ACN 084 975 897)
Second Plaintiff
AND
ERIC ALBERT JAMES PURVIS
First Defendant
CENTURYSIDE CORPORATE PTY LTD (ACN 097 982 280)
Second Defendant
Catchwords:
Practice and procedure - Application by defendants for security for costs - Relevant considerations - Failure by defendants to disclose nature of defence to plaintiffs' claim - Turns on own facts
(Page 2)
Legislation:
Corporations Act 2001 (Cth), s 601AB, s 1335
Real Estate and Business Agents Act 1978 (WA)
Rules of the Supreme Court 1971 (WA), O 25, O 25 r 1, O 25 r 3
Result:
Application dismissed
Category: B
Representation:
Counsel:
First Plaintiff : Mr M H Zilko SC
Second Plaintiff : Mr M H Zilko SC
First Defendant : Mr C Touyz
Second Defendant : Mr C Touyz
Solicitors:
First Plaintiff : Halperin Fleming Meertens
Second Plaintiff : Halperin Fleming Meertens
First Defendant : Hammond King Touyz
Second Defendant : Hammond King Touyz
Case(s) referred to in judgment(s):
Barton v Minister for Foreign Affairs (1984) 54 ALR 586
Bell Wholesale Co Pty Ltd v Gates Export Corporation (1984) 52 ALR 176
Blackbird Entertainment Pty Ltd v IO Research Pty Ltd, unreported; SCt of WA; Library No 980297; 2 June 1998
BPM Pty Ltd v HPM Pty Ltd (1996) 14 ACLC 857
Buckley v Bennell Design & Construction Pty Ltd (1974) 1 ACLR 301
Engel Pty Ltd v Leeds, unreported; FCt SCt of WA (Malcolm CJ); Library No 940403; 20 July 1994
Gentry Bros Pty Ltd v Wilson Brown and Associates Pty Ltd (1992) 8 ACSR 405
(Page 3)
Intercraft Cabinets Pty Ltd v Sampas Pty Ltd (1997) 18 WAR 306
J & M O’Brien Enterprises Pty Ltd v The Shell Company of Australia Ltd (1983) 70 FLR 261
Newtrend Pty Ltd v Oceanic Life Ltd [1990] WAR 1
Sarac v Croatian House Hrvatski Dom (Inc), unreported; FCt SCt of WA; Library No 950675; 12 December 1995
Tradestock Pty Ltd v TNT (Management) Pty Ltd (1977) 14 ALR 52
Uptown Sydney Development Corporation Pty Ltd v Bank of New Zealand (No 1) (1993) 11 ACSR 300
Yandil Holdings Pty Ltd v Insurance Co of North America (1985) 3 ACLC 542
Case(s) also cited:
Bryan E Fencott and Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497
Connop v Varena Pty Ltd [1984] 1 NSWLR 71
DS Parklane Developments Pty Ltd v Korea First Finance Limited, unreported; SCt of NSW; 20 August 1997
Energy Drilling Inc v Petroz NL (1989) ATPR 40954
Marand Holdings Pty Ltd v Cateus International Pty Ltd [2003] WASC 238
MindShare Communications Ltd v Orleans Investments Pty Ltd [2000] FCA 521
(Page 4)
1 MASTER NEWNES: This is an application by the defendants for security for costs against the first plaintiff under O 25 of the Rules of the Supreme Court 1971 (WA), and against the second plaintiff under s 1335 of the Corporations Act 2001 (Cth) ("the Act").
The plaintiffs' claim
2 It is necessary, before turning to the specific issues which arise on this application, to outline the nature of the plaintiffs' claim. In the action, the plaintiffs plead that the first plaintiff has at all material times been the administratrix of the Estate of her son, Robert, who died intestate on 11 June 1998. Robert had been injured in a motor vehicle accident on 9 July 1991 and proceedings had been taken in the District Court for damages for personal injury. The first plaintiff acted as Robert's next friend in the District Court action. After Robert's death, the action was settled by the first plaintiff on a basis which resulted in a net amount of $541,249.71 being paid to Robert's Estate.
3 The first plaintiff says she has had minimal education and has no experience of commercial matters or investments. The plaintiffs allege that at various times in 1997 and 1998 the first defendant ("Mr Purvis") visited the first plaintiff at her home and in the course of discussions told her that he was experienced in real estate and investments. It is alleged he suggested to the first plaintiff that, upon resolution of the District Court proceedings, she should pay the proceeds to him to be invested in property for the benefit of Robert's Estate.
4 The plaintiffs plead that in late October or early November 1998 the first plaintiff and Mr Purvis agreed that Mr Purvis would invest the proceeds of the District Court action on behalf of the first plaintiff in property that would yield a good rate of return. Pursuant to that agreement, in about November 1998 the first plaintiff authorised her solicitors, Ilbery Barblett, to pay the net proceeds of the District Court action (the "Estate funds") to the trust account of another firm of solicitors, Michael Whyte & Co. The total sum of $541,249.71 was subsequently paid into the trust account of Michael Whyte & Co.
5 The plaintiffs allege that, in the meantime, on about 3 November 1998, Mr Purvis informed the first plaintiff that for the purposes of properly managing and investing the proceeds he would need to incorporate a new company. At Mr Purvis' request, the first plaintiff signed an authority for Michael Whyte & Co to use funds from the Estate funds to acquire a shelf company and then to pay the balance of the Estate funds into the bank account of the company. The first plaintiff also
(Page 5)
- instructed Michael Whyte & Co to take instructions from Mr Purvis as to the allocation of shares and office bearers of the company.
6 According to the plaintiffs, pursuant to that arrangement the second plaintiff ("Starclass") was acquired and Mr Purvis was appointed the sole director and shareholder of Starclass. The balance of the Estate funds, in the sum of $540,299.71, was paid into a bank account opened in the name of Starclass.
7 It is pleaded that in about February 1999 Mr Purvis caused Starclass to advance $10,000 from the Estate funds to Griffin Pty Ltd ("Griffin"), a company of which he was the sole director and shareholder. In about April 1999 Mr Purvis advanced a further $300,000 from the Estate funds to Griffin. It is alleged that no security was obtained from Griffin for the advances. The plaintiffs say that, in or about April 1999, Griffin used part of the total sum of $310,000 to purchase a real estate business known as "Century 21 Northside Realty".
8 According to the plaintiffs, on about 30 September 2001 Griffin ceased to operate the business of Century 21 Northside Realty and then, or very shortly afterwards, the goodwill of the business was acquired by the second defendant ("Centuryside"). Centuryside was incorporated on 12 September 2001 and Mr Purvis was, and is, the sole director and shareholder of Centuryside.
9 In the meantime, on 17 September 2001 Mr Purvis resigned as the sole director of Starclass and the first plaintiff's husband ("Mr Williams") was appointed in his place. Mr Purvis remains the sole shareholder of Starclass. The plaintiffs say that, despite demand, Mr Purvis has failed to deliver up to Mr Williams the books and records of Starclass.
10 The plaintiffs say that since about 30 September 2001, Centuryside has carried on the real estate business of "Century 21 Northside Realty" using the same telephone and facsimile numbers and, until April 2004, operating from the same premises as the business had been operated by Griffin. The business moved premises in April 2004. Mr Purvis is and has at all material times been the person in bona fide control of the real estate business of "Century 21 Northside Realty" for the purposes of the Real Estate and Business Agents Act 1978 (WA), both when it was owned by Griffin and now it is owned by Centryside.
11 Griffin was de-registered on 30 September 2004 pursuant to s 601AB of the Act, the company at that stage apparently being defunct. Starclass has not recovered any of the money advanced to Griffin. The plaintiffs
(Page 6)
- say that, of the sum of $540,299.71 paid to Starclass at the end of 1998, an amount of $428,991.63 remains unaccounted for.
12 The plaintiffs claim against Mr Purvis damages or equitable compensation for breach of fiduciary duty, and damages for breach of contract and/or negligence. The plaintiffs seek a declaration that Mr Purvis holds his shares in Centuryside on trust for the first plaintiff and seek an account of profits, together with interest and costs. The first plaintiff claims against Centuryside damages or equitable compensation for its alleged knowing participation in Mr Purvis' breach of trust. The first plaintiff also seeks an account of profits and a declaration that Centuryside holds the real estate business and assets on constructive trust for her.
The plaintiffs' evidence
13 A number of affidavits have been filed on behalf of the plaintiffs in relation to the matters alleged in the statement of claim. The affidavits include a detailed affidavit of the first plaintiff, and affidavits of the solicitors who were instructed on behalf of the first plaintiff in connection with the various transactions.
14 In one of those affidavits, Mr Harford, a partner in Michael Whyte & Co, says that at a meeting on 2 August 1999 he was told by Mr Purvis that, of the moneys received by Starclass, approximately $400,000 had been advanced by Starclass to Griffin on an interest free basis, repayable on demand, with no security and that Griffin had used the funds to purchase the business of Century 21 Northside Realty.
15 Mr Harford says that on 5 October 1999 he was told by Mr Purvis that the first plaintiff or associated entities had advanced $400,000 to Starclass as a loan over five years at an interest rate of 6.25 per cent with interest on the sum of $25,000 payable each year during the term of the loan. Starclass had on-lent the money to Griffin on the same terms and the first plaintiff was to become a director of Starclass. Mr Harford says that, following his discussion with Mr Purvis, he wrote to the first plaintiff on 5 October 1999 recommending the preparation of loan documents and debenture charges in respect of the advances to Starclass and Griffin. At the same time Mr Harford expressed concern about the ability of his firm to continue to act for the first plaintiff because of a potential conflict of interest.
16 Mr Harford says he was subsequently instructed, he believes by Mr Purvis, to prepare a loan agreement for the advance of $400,000 by the
(Page 7)
- first plaintiff to Starclass, a fixed and floating charge over the assets of Starclass to secure the loan, a loan agreement between Starclass and Griffin for the $400,000 advance, and a fixed and floating charge over the assets of Griffin in favour of Starclass. Mr Harford says he prepared the documents in draft form. Each of the loan agreements included Mr Purvis as a guarantor.
17 According to Mr Harford, he received no further instructions. He says, however, he has recently been provided by the plaintiffs' solicitors with a copy of the executed loan agreement between the first plaintiff and Starclass. Mr Harford says that, although it still bears his firm's cover sheet, the agreement has been substantially altered from the document he prepared. The amendments include a "honeymoon" interest period, a lower interest rate, the deletion of the personal guarantee by Mr Purvis and the insertion of a provision to the effect that if Starclass goes into liquidation the loan funds cease to be owing by it to the first plaintiff.
The defendants' evidence
18 An affidavit of Mr Purvis has been filed in support of the application for security for costs. In it Mr Purvis deals with some of the matters set out in the affidavits to which I have referred. He does not, however, indicate the nature or substance of the defence which the defendants intend to raise to the plaintiffs' claim. In his affidavit, Mr Purvis says that he does not intend to give full details of the basis of his defence to the claim because his solicitors have advised him that those details are to be set out in pleadings filed on his behalf. Mr Purvis expressly confines his affidavit to what he describes as "some of the more glaring allegations" made against him in the affidavits filed on behalf of the plaintiffs.
19 In his affidavit Mr Purvis says he accepts that the first plaintiff may not have had much education but says that he left school at 15 and that he used to be a truck driver. He denies that he ever stated that he was experienced in investments. I should interpose that in the course of argument, Senior Counsel for the plaintiffs referred to a pamphlet in the name of Centuryside Corporate, annexed to the affidavit of the plaintiffs' solicitor, in which it is said, among other things, that Mr Purvis has been registered to practise in the real estate industry since 1989 and that "[h]e has vast experience in the areas of commercial/industrial sales and leasing, residential sales, investments, project marketing and business broking."
20 Mr Purvis says, among other things, that Starclass loaned the funds to Griffin with the knowledge and agreement of the first plaintiff and her
(Page 8)
- husband. He says the purpose of the advance to Griffin was so that Griffin, which then held a real estate agent's licence and already operated a real estate agency with the necessary infrastructure and staff, could acquire the real estate business of Century 21 Northside. Mr Purvis says that "[i]n this way the Williams' could invest their funds in the business real estate [sic] which was all in accordance with what was originally agreed."
21 According to Mr Purvis, he changed the loan document prepared by Michael Whyte & Co in order to record what he described as a "back to back loan situation", with the money lent by the first plaintiff to Starclass being lent in turn by Starclass to Griffin on the same terms and conditions. He says the first plaintiff was aware of that and the fact that he had amended the documents. He says, in particular, that he told the first plaintiff he had deleted the reference to him as a personal guarantor because he was not prepared to undertake the responsibility. Mr Purvis says he omitted to remove the name of the solicitors from the cover sheet of the loan document. Mr Purvis does not refer to the fixed and floating charges which were to secure the advances to Starclass and Griffin respectively.
22 Mr Purvis says that he did not undertake responsibility for making decisions on behalf of the plaintiffs, and any investments made by them were made after the details had been discussed with the first plaintiff and Mr Williams.
The defendants' case for security for costs
23 In his affidavit Mr Purvis says that Starclass has never traded or carried on any business. It was formed for the sole purpose of holding the funds from the settlement of the District Court action. He says that at the time he resigned as a director, in about October 2001, he closed the bank account and gave the balance of the company's funds, an amount of approximately $1500, to Mr Williams. He says he also gave Mr Williams all the books and records of the company. Mr Purvis says he is still a shareholder in Starclass. In fact it appears from a company search attached to his affidavit that he is the only shareholder. I should say that Mr Purvis does not say why it was thought necessary to form Starclass for the sole purpose of holding the Estate funds.
24 Mr Purvis says Starclass has no funds or assets to meet any costs order that might be made against it and it has at least one debt. That is an amount of $72,000 owing to him by way of director's fees, being $24,000
(Page 9)
- per year for three years. Mr Purvis says the director's fees were the subject of an oral agreement made at the time that Starclass was formed.
25 It was submitted that, as the first plaintiff was now ordinarily resident out of the jurisdiction and, on her own admission, has no capacity to meet any order for costs that might be made against her, an order for security for costs should be made against her.
26 It was also submitted on behalf of the defendants that it was relevant to this application that the plaintiffs are receiving free legal services from instructing solicitors and Senior Counsel, a facility that the defendants do not have.
The threshold issue
27 I did not understand the plaintiffs to contest that Starclass would be unable to pay the defendants' costs of the action if the defendants were successful at trial and on the evidence it is plainly the case that it would not be able to do so. It has neither assets nor income.
28 The first plaintiff is now ordinarily resident in New Zealand and it is clear that she would not be in a position to meet any order for costs that might be made against her. The first plaintiff has no assets and a very modest income. The Estate now has no funds. Mr Williams has no assets and a modest income. The first plaintiff and Mr Williams separated in 2001.
29 It was not therefore in issue that the defendants have satisfied the threshold for an order for security for costs against the second plaintiff under s 1335 of the Act and that the first plaintiff is amenable to an order for security for costs under O 25.
The exercise of the discretion
30 It is necessary then to turn to the question of whether, as a matter of discretion, an order for security for costs should be made.
31 The plaintiffs say there are several reasons why security should not be ordered in this case.
32 First, it is said that the plaintiffs' claim would be stultified if security were ordered as neither the first plaintiff nor Starclass, nor those who stand behind Starclass, have the means to provide security. Where that is made out, it is generally inappropriate to order security: Yandil Holdings Pty Ltd v Insurance Co of North America (1985) 3 ACLC 542.
(Page 10)
33 It was submitted on behalf of the plaintiffs that it has never been the case that impecuniosity on the part of a plaintiff who is a natural person is a ground for ordering security for costs. The normal rule is that a natural person who sues will not be ordered to give security for costs on the basis of impecuniosity.
34 It was also submitted that the fact that the first plaintiff is outside the jurisdiction does not necessarily lead to an order for costs. Counsel referred to Barton v Minister for Foreign Affairs (1984) 54 ALR 586 at 591, where Morling J noted that it would be an odd result if an impecunious plaintiff was ordered to give security merely because he was ordinarily resident outside Australia, although his absence from Australia had little, if any, prejudicial effect on the defendant's prospects of recovering his costs. Historically, a foreign plaintiff was required to give security because the defendant had to sue on the judgment in the country where the plaintiff resided, but that was no longer the case. In Barton (supra) the Court ordered the plaintiff to give security for the costs of registering a judgment in the United Kingdom.
35 It was submitted that where, as here, a relatively small amount would be required to enforce judgment in the jurisdiction in which the plaintiff was resident, the Court ordinarily will not order security at all.
36 It was also submitted that where one plaintiff is a natural person and the other a corporate body, the provisions of the Act should not be used to order security by the corporate body, even if the criteria for ordering security for costs are otherwise met, where to do so would lead to a differential treatment of a corporate body and the natural person. Counsel referred to Uptown Sydney Development Corporation Pty Ltd v Bank of New Zealand (No 1) (1993) 11 ACSR 300.
37 It was further submitted that it was a relevant factor that the plaintiffs have a strong claim to which no defence has been proffered. Senior Counsel also argued that on the first plaintiff's case, which at this stage is uncontroverted, the first plaintiff's inability to pay costs or provide security for costs is due wholly or in part to the defendants' conduct.
Whether security for costs should be ordered
38 It is well established that the discretion to order security for costs is unfettered and must be exercised having regard to 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):
(Page 11)
- "[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."
39 The considerations to be applied on an application for security for costs against a natural person and a corporation respectively are not identical, however.
40 Whilst the discretion under s 1335 of the Act, in relation to a corporation, is unfettered, some of the factors to be taken into account in an application 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 would have the effect of stultifying the action;
(4) whether it appears that the applicant is seeking to stifle a legitimate claim;
(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 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; Library No 980297; 2 June 1998.
41 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 company by necessarily shutting it out or prejudicing it in the conduct of 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. The ability of a plaintiff to pay the defendant's costs should the defendant succeed not only goes to the jurisdiction of the Court to order security, but is a factor, often a significant factor, in the exercise of the Court's discretion. It is not, however, necessarily decisive and regard must be had to all of the circumstances of the case.
(Page 12)
42 While security may be refused where such an order would stultify the action, the onus lies on the plaintiff company to establish that those who stand behind the company and will benefit from the litigation if it is successful, are also without means: BPM Pty Ltd v HPM Pty Ltd (1996) 14 ACLC 857; Bell Wholesale Co Pty Ltd v Gates Export Corporation (1984) 52 ALR 176 at 179; Newtrend Pty Ltd v Oceanic Life Ltd [1990] WAR 1 at 3.
43 The fact that shareholders or other persons behind a plaintiff company are exposed to personal liability for whatever they may be worth is a relevant, but not necessarily a decisive, consideration. The issue has to be looked at in the light of all the relevant circumstances: Intercraft Cabinets Pty Ltd v SampasPty Ltd (1997) 18 WAR 306 per Malcolm CJ at 314.
44 Where an application for security for costs is made under O 25, there are three factors that O 25 r 3 expressly requires the Court to take into account; namely, the prima facie merits of the case, whether there is any property within the jurisdiction to satisfy any order for costs and whether normal court procedures are available to enforce any order for costs made against the plaintiff. Those are not, however, exclusive considerations and the discretion is unfettered. The fundamental question, once again, is how the interests of justice would best be served.
45 Order 25 r 1 expressly provides that an order for security for costs shall not be made merely on account of the poverty of the plaintiff or the plaintiff's likely inability to satisfy any costs order that may be made. Nevertheless, one of the primary issues to be considered in exercising the discretion is whether the plaintiff will be able to meet any adverse costs order: Sarac v Croatian House Hrvatski Dom (Inc), unreported; FCt SCt of WA; Library No 950675; 12 December 1995.
46 In determining an application for security for costs under O 25, as with an application under s 1335 of the Act, it is relevant to consider whether an order for costs would have the effect of stultifying the action.
47 I am satisfied on the material before me that if security is ordered it would have the effect of stultifying the action. The plaintiffs do not have the capacity to meet their own costs, let alone the defendants' costs if the latter are successful at trial. Mr Williams says he paid legal fees to the plaintiffs' solicitors until he could no longer afford to do so. The plaintiffs' counsel and solicitors have since agreed to act on the basis that the disbursements are paid but otherwise they will charge a fee (at their
(Page 13)
- usual rates) only if the action is successful and sufficient funds are recovered from the defendants. On the evidence, the plaintiffs have no assets or other sources from which the funds to meet an order for security for costs could be obtained.
48 It is, of course, not appropriate that I embark upon a detailed examination of the plaintiffs' claim in an endeavour to reach any firm view as to the plaintiffs' prospects of success in the action. But that does not mean that the plaintiffs' prospects of success are not a relevant consideration, both generally and, in particular, where it is said that an order for security for costs would have the effect of stultifying the action.
49 In J & M O’Brien Enterprises Pty Ltd v The Shell Company of Australia Ltd (1983) 70 FLR 261 Bowen CJ said (at 264):
"One matter which is generally considered in relation to applications for security for costs in relation to proceedings at first instance is what prospects of success the plaintiff has in the proceedings. If the plaintiff has a strong and apparently meritorious case the court is reluctant to make an order which may have the effect of shutting the plaintiff out."
50 While no firm view can be reached on the plaintiffs' ultimate prospects of success, in the present case it is significant, in my view, that although the plaintiffs have put on substantial affidavit evidence as to the matters relied upon for their claims against the defendants, the defendants have chosen not to disclose the grounds or basis of their defence, apart from contending that the transactions concerned were discussed with the first plaintiff before they were implemented. The defendants have taken that course despite the fact it seems the undisputed effect of the various transactions is that the money invested by the first plaintiff (as administratrix of her late son's Estate) through Mr Purvis has been used to purchase a real estate agency which is now owned by a company controlled by Mr Purvis, and the first plaintiff has lost the money she invested. How that result - on the face of it, a rather surprising result - came about is far from clear on the papers before me.
51 A defendant who, faced with such a case supported by affidavit evidence, chooses not to disclose what will be the substance or basis of their defence must, in my view, expect that that will be a factor which will weigh in the balance against an order for security for costs.
52 Having regard to all the circumstances, I do not consider that it is in the interests of justice to order security for costs. I am satisfied that to so
(Page 14)
- order would stultify the plaintiffs' claim. On the material before me the transactions involving the Estate funds plainly call for an explanation from the defendants. In that connection, it is, as I have said, significant that the defendants have chosen on this application not to explain the nature of their defence, preferring to leave that to a later occasion – an occasion that may never arise if this application were to be successful. Moreover, on the affidavit evidence before me, there appear to be strong grounds for concluding that the defendants have contributed to the first plaintiff's inability to pay costs.
53 I would dismiss the application.
1
15
0