Oliver v Temwood Holdings Pty Ltd
[2000] WASCA 351
•15 NOVEMBER 2000
OLIVER & ANOR -v- TEMWOOD HOLDINGS PTY LTD & ANOR [2000] WASCA 351
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2000] WASCA 351 | |
| THE FULL COURT (WA) | |||
| Case No: | FUL:67/2000 | 16 OCTOBER 2000 | |
| Coram: | SCOTT J PARKER J | 15/11/00 | |
| 10 | Judgment Part: | 1 of 1 | |
| Result: | Leave to appeal refused | ||
| PDF Version |
| Parties: | OSCAR NEIL BLACKBURNE OLIVER ASEAN AUSTRALIAN ASSETS PTY LTD TEMWOOD HOLDINGS PTY LTD SLY & WEIGALL (A FIRM) |
Catchwords: | Costs Security for costs deed of priority adequacy of security in that form turns on own facts |
Legislation: | Nil |
Case References: | Bruce Pie & Sons Pty Ltd v Mainwaring [1985] 1 Qd R 401 Dwight v Commissioner of Taxation (1992) 37 FCR 178 P S Chellaram & Co v China Ocean Shipping Co (1991) 65 ALJR 642 Temwood Holdings Pty Ltd v Oliver & Ors [1999] WASC 251 Harpur v Ariadne Australia Ltd [1984] 2 ACLC 356 Merribee Pastoral Industries Pty Ltd v ANZ Banking Group Ltd [1998] HCA 41; (1998) 193 CLR 503 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA TITLE OF COURT : THE FULL COURT (WA) CITATION : OLIVER & ANOR -v- TEMWOOD HOLDINGS PTY LTD & ANOR [2000] WASCA 351 CORAM : SCOTT J
- PARKER J
- First Applicant (First Defendant)
ASEAN AUSTRALIAN ASSETS PTY LTD
Second Applicant (Second Defendant)
AND
TEMWOOD HOLDINGS PTY LTD
First Respondent (Plaintiff)
SLY & WEIGALL (A FIRM)
Second Respondent (Third Defendant)
Catchwords:
Costs - Security for costs - deed of priority - adequacy of security in that form - turns on own facts
Legislation:
Nil
(Page 2)
Result:
Leave to appeal refused
Representation:
Counsel:
First Applicant (First Defendant) : Mr N W McKerracher QC & Mr C E Chenu
Second Applicant (Second Defendant) : Mr N W McKerracher QC & Mr C E Chenu
First Respondent (Plaintiff) : Mr D H Solomon
Second Respondent (Third Defendant) : No appearance
Solicitors:
First Applicant (First Defendant) : Durack & Zilko
Second Applicant (Second Defendant) : Durack & Zilko
First Respondent (Plaintiff) : Solomon Brothers
Second Respondent (Third Defendant) : No appearance
Bruce Pie & Sons Pty Ltd v Mainwaring [1985] 1 Qd R 401
Dwight v Commissioner of Taxation (1992) 37 FCR 178
P S Chellaram & Co v China Ocean Shipping Co (1991) 65 ALJR 642
Temwood Holdings Pty Ltd v Oliver & Ors [1999] WASC 251
Case(s) also cited:
Harpur v Ariadne Australia Ltd [1984] 2 ACLC 356
Merribee Pastoral Industries Pty Ltd v ANZ Banking Group Ltd [1998] HCA 41; (1998) 193 CLR 503
(Page 3)
1 JUDGMENT OF THE COURT: This is an application for leave to appeal from the decision of a Master of this Court as to the form in which provision for security of costs in this action should be given.
2 The decision to make an order for security for costs in favour of the first and second defendants was made by the learned Master on 10 December 1999 in Temwood Holdings Pty Ltd v Oliver & Ors [1999] WASC 251. No issue is taken with the decision to order security for costs.
3 Following the decision of the learned Master, further argument ensued as to the appropriate form which the security should take. Ultimately the Master determined that the security for costs should be in the form of a deed of priority, which was ultimately given by the first respondent and its parent company, Goldcore Investments Ltd ("Goldcore").
4 It is not necessary to descend into details of the action between the parties except to say that there are claims and counterclaims in relation to the development of a large area of land at Singleton in this State.
5 In terms of the overall picture, the first respondent owns property at Singleton valued at something over $11M and has debts to its bankers of just over $4M. The development of the land at Singleton has been financed by Goldcore. The first respondent owes Goldcore close to $10M.
6 The first respondent is a company almost wholly owned by Goldcore, a Liberian registered corporation with an address in Hong Kong. Little more is known about that company.
7 The learned Master in Temwood Holdings Pty Ltd v Oliver ordered that the first respondent provide security for costs in the sum of $75,000. He added in his reasons:
"Once the matter is entered for hearing, the defendants can apply to top up the security. By that stage the issues might be more clearly defined and the parties will have a better idea of how long a trial might last. Furthermore, any potential for settlement should, by that late stage, have been explored."
8 The learned Master indicated that he was not satisfied that a directors' guarantee would be appropriate because all of the directors of the first respondent, save one, lived outside Western Australia.
(Page 4)
9 Following further argument, the Master decided that the appropriate course was for the plaintiff to give security by way of a deed of priority, thus giving the applicants (the first and second defendants) priority as against Goldcore with respect to the payment by the first respondent of its outstanding debt. By that means it was intended that the security for costs should take priority over the discharge of any debt between the first respondent and Goldcore.
10 The parties entered into negotiations concerning the deed of priority and ultimately a deed in the form approved by the Master was executed by the first respondent and Goldcore. The deed is undated but amongst its covenants the deed provides:
"1 Goldcore hereby grants the defendants priority, up to $75,000, over the Goldcore debt for any claim by the defendants against the plaintiff for taxed costs which may be ordered to be paid by the plaintiff to the defendants in the action, other than costs in relation to any counterclaim brought in the action or costs which were incurred before 10 December 1999.
…
3 The plaintiff covenants with the defendants, for so long as the priority given in clause 1 continues, not to;
3.1 repay any part of the Goldcore debt;
3.2 declare or pay any dividend to Goldcore; or
3.3 encumber any of the plaintiff's property,
without giving the defendants 21 days prior written notice of the proposed payment or declaration of the dividend."
11 The deed of priority also provides in cl 4.2 that Goldcore will not assign the Goldcore debt without giving the proposed assignee prior notice in writing of the terms of the deed.
12 The applicants contend that the deed of priority does not provide sufficient security for its costs in all the foreseeable circumstances and seeks to have this Court order security in a more conventional form. It is said that the deed of priority does not provide the applicants with any or adequate protection for costs in all the circumstances of the case. The reasons for that will be discussed later.
(Page 5)
13 It is necessary to mention some of the factual matters surrounding this dispute. The first and second applicants were at one time managers of the respondents' land developments at Singleton. As security for the payment of their fees, the second applicant was granted a mortgage against the land registered in the name of the first respondent. That mortgage became a second mortgage in due course after arrangements were made by the first respondent to borrow money from its bankers, the National Bank. As we indicated earlier in these reasons the debt to the National Bank is now somewhere in the vicinity of $4M.
14 As part of the second mortgage terms, the second applicant is required to execute partial discharges of the mortgage as the land is progressively sold. At the date of the hearing of this appeal, it is common ground that there is a substantial amount of land left unsold, the value of which is considerably greater than the security for costs.
15 The complaint of the applicants is that whilst an order for security for costs was appropriate, the deed of priority does not protect the applicants in relation to their legal costs. The second mortgage in favour of the second applicant only protects it for fees in acting as manager of the development and offers no protection for legal costs. It is contended by the applicants that the deed of priority puts them in no better position.
16 Senior counsel for the applicants submitted that Goldcore is a Liberian company registered in Hong Kong, which (for practical purposes) wholly owns the first respondent. The deed of priority is dependent upon Goldcore honouring its terms. It is contended that the court has no jurisdiction over Goldcore and it would be futile for the applicants to pursue Goldcore in the event of there being any breach of the deed of priority. It is also contended that the first respondent depends entirely upon funding from Goldcore for its survival, so that the deed of priority is only of value to the applicants to the extent that Goldcore is prepared to honour its terms.
17 On the other hand, it is contended by the respondents that the second mortgage in favour of the applicants ensures that the applicants are given notice of the progress of the development in that the progressive discharge of the mortgage will alert them to the stage the development has reached and the balance of land remaining. In addition, the deed of priority requires notice to be given to the applicants of any proposed payment to Goldcore or declaration of any dividend in favour of that company.
(Page 6)
18 The applicants contend that the deed of priority offers them no adequate protection for a number of reasons, including the possibility that Goldcore may assign the debt owing by the first respondent to a third party, without notice to the applicants, thus defeating the deed of priority. In addition, the applicants contend it is not possible for them to monitor the relationship between the respondent and Goldcore so as to determine the exact relationship at any given time between those two parties. It is common ground that the court has been provided with no information concerning the beneficial ownership of Goldcore, its directors or its assets. There is little difficulty in our concluding that any attempt by the applicants to take action against Goldcore or its directors could well prove to be an exercise in futility.
19 On the other hand, however, the first respondent at least at this stage of the action, has a substantial asset in Western Australia in the form of land. Whilst that asset is encumbered by way of the first and second mortgages discussed earlier, the applicants will, from time to time, be able to determine the extent of the assets that remain. In that respect it is pertinent to recall that the learned Master indicated that after the matter is entered for trial, the defendants can apply to top up the security. In addition, of course, the applicants would be able to come back to this Court in the event of there being evidence to suggest that the first respondent is either disposing of the balance of its land or dealing with Goldcore in such a way as to defeat the security for costs. Should that event occur, no doubt the applicants could apply to the court for either further or varied security to better protect their position.
20 It was open to the learned Master to regard the use of the deed of priority rather than a more conventional form of security for costs in the circumstances of this case as an appropriate means of providing security. In Bruce Pie & Sons Pty Ltd v Mainwaring [1985] 1 Qd R 401, McPherson J said at 403:
"As a matter of policy one would expect a court to encourage arrangements whereby some form of security other than money is furnished if by that means it can ensure that the order for security does not become an instrument of oppression to the plaintiff. To hold that the defendant must bear the risks of depreciation to the value of that security will only serve to encourage defendants to insist, in many cases quite unnecessarily, on the provision of security in money form."
(Page 7)
21 In that respect, counsel for the respondents maintains that to provide security in the form of either a cash payment into court or bank guarantee would occasion the first respondent financial difficulty in that the development of the land is totally funded by borrowings. Whilst it may not be impossible for the first respondent to borrow sufficient funds to make payment into court, in our view at this stage at least, it was open to the learned Master to regard such a course as unnecessarily oppressive in the circumstances.
22 Whilst the order for security for costs is not in issue in this appeal, it is our view that the order of the Master in all the circumstances was appropriate. In P S Chellaram & Co v China Ocean Shipping Co (1991) 65 ALJR 642, McHugh J said at 643:
"To make or refuse to make an order for security for costs involves the exercise of a discretionary judgment. That means that the court exercising the discretion must weigh all the circumstances of the case. The weight to be given to any circumstance depends not only upon its own intrinsic persuasiveness but also upon the impact of the other circumstances which have to be weighed. A circumstance which may have very great weight when only two or three circumstances have to be weighed may be of minor significance when many circumstances have to be weighed. However, for over 200 years, the fact that a party, bringing proceedings, is resident out of the jurisdiction and has no assets within the jurisdiction has been seen as a circumstance of great weight in determining whether an order for security for costs should be made. Indeed, for many years, the practice has been to order such a party to provide security for costs unless that party can point to other circumstances which overcome the weight of the circumstance that the person is resident out of or has no assets within the jurisdiction."
23 As the facts already outlined indicate, this case is, however, quite different in that the first respondent has not only assets but substantial assets within the jurisdiction of this State. That will remain so until the stage is reached when all of the land at Singleton is sold and the applicant will not be at risk until the stage is reached that the land remaining is valued at the equivalent of, or less than, the debt to the National Bank secured by the first mortgage. Should that happen before the resolution of this action the position would become quite different and a different order for security for costs may be necessary.
(Page 8)
24 The question of the appropriate form for security for costs in this matter was the subject of contest before the Master. It was a matter for the exercise of his discretion as to the appropriate form which that security should take. It is only where this Court is of the view that the form selected by the Master was not open as an appropriate exercise of such a discretion that the court should interfere. The form of security selected in this case was determined by the learned Master after hearing argument by counsel and in our opinion absent evidence of any variation in the relationship between Goldcore and the first respondent is adequate to protect the applicants in the present circumstances. The learned Master was aware of the nature of the concerns now advanced by the applicants and those problems and the determination of the appropriate form of security was a matter for him: Dwight v Commissioner of Taxation (1992) 37 FCR 178 per Hill J at 186.
25 While the various possibilities suggested by the applicants which could diminish the value of the security ordered can be foreseen as possibilities, there was nothing advanced to the Master and there is no sufficient reason in the existing circumstances to conclude that there is a present prospect of any of them becoming a reality, particularly because of, or to avoid a possible liability for some $75,000.
26 The grounds of appeal are:
"1 Having held that the Appellants (First and Second Defendants) were entitled to an order for security for costs on the grounds that:
1.1 the First Respondent (Plaintiff) was in an uncertain financial position and was dependant upon support from its controlling entity for its continued existence; that support could be withdrawn at any time, and if so the Plaintiff could not continue as a trading entity;
1.2 the controlling entity was the party which stood to benefit from the litigation and it worked an injustice to allow it to take none of the risks associated with the litigation while leaving the Appellants (First and Second Defendants) exposed to the prospect that they may not recover costs;
(Page 9)
- 1.3 there were no factors which operated in the First Respondent's (Plaintiff's) favour and precluded an order for security for costs;
- the learned Master erred in law in ordering that the First Respondent (Plaintiff) should provide security in the form of a deed of priority to be executed between the First Respondent (Plaintiff), its controlling entity and the Appellants (First and Second Defendants) in that:
1.4 a deed of priority as between unsecured creditors provides no security for the grantee of the priority as the benefit of the priority is dependant upon the grantor (the controlling entity) and the debtor (the First Respondent (Plaintiff)) complying with the covenants in the deed to act in a manner consistent with the grant; unless there is compliance with the deed, the benefit of the priority (and therefore the security) is lost;
1.5 the risk of non-compliance with the deed of priority was unacceptably high, given that the controlling entity was an unregistered Liberian corporation of which nothing more was known, and the First Respondent (Plaintiff) was controlled by it;
1.6 the purpose of an order for security for costs is to make the successful applicant, upon a costs order being made in its favour, a secured creditor; a deed of priority between unsecured creditors does not operate to make the Appellants (First and Second Defendants) secured creditors, and does not provide any security.
2 The learned Master should have ordered that security for costs be provided by way of payment into court, or alternatively by the provision of a banker's guarantee."
27 We are not persuaded that any of the grounds of appeal have been made out. In our view the applicants are at this stage, adequately protected by the order of the Master. The applicants can return to the court to review the question of security for costs when the matter is entered for trial.
(Page 10)
28 We would refuse leave to appeal.
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