Phoenix Court Pty Ltd v Highpoint Shopping Centre (Leasing) Pty Ltd
[1997] FCA 178
•20 MARCH 1997
CATCHWORDS
PRACTICE AND PROCEDURE - Application for security for costs - Factors relevant to exercise of discretion - Prospects of success - Role of respondent - Bona fides - Risk that litigation will be stultified - Public interest - Existence of a cross claim - No security sought from second applicant
Bell Wholesale Co Pty Ltd v Gates Export Corporation (1984) 2 FCR 1
Interwest Ltd v Tricontinental Corporation Ltd & Anor (1991) 5 ACSR 621
Jodast Pty Ltd v A & J Blattner Pty Ltd (1991) 104 ALR 248
PHOENIX COURT PTY LTD and ROGALSKY v HIGHPOINT SHOPPING CENTRE (LEASING) PTY LTD
VG 418 of 1996
Before: NORTH J
Place: MELBOURNE
Date: 20 MARCH 1997
IN THE FEDERAL COURT
OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
AT MELBOURNE
VG 418 of 1996
B E T W E E N :
PHOENIX COURT PTY LTD (ACN 007 410 899)
and DAVID ANTHONY ROGALSKY
Applicants
AND
HIGHPOINT SHOPPING CENTRE (LEASING) PTY LTD
(ACN 008 617 829)
Respondent
MINUTE OF ORDERS
BEFORE: North J
PLACE: Melbourne
DATE: 20 March 1997
THE COURT ORDERS THAT:
The first applicant provide security in the sum of $3,000 to be paid in two equal instalments in a form acceptable to the Victoria District Registrar, the first by 4 pm on 3 April 1997 and the second by 4 pm on 17 April 1997.
In default of payment of either of the said instalments, the application of the first applicant will be stayed until further order.
NOTE: Settlement and entry of orders is dealt with by Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT
OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
AT MELBOURNE
VG 418 of 1996
B E T W E E N :
PHOENIX COURT PTY LTD (ACN 007 410 899)
and DAVID ANTHONY ROGALSKY
Applicants
AND
HIGHPOINT SHOPPING CENTRE (LEASING) PTY LTD
(ACN 008 617 829)
Respondent
BEFORE: North J
PLACE: Melbourne
DATE: 20 March 1997
REASONS FOR JUDGMENT
By a motion, notice of which was filed on 9 August 1996, the respondent seeks an order for the payment by the first applicant of $25,000 for security for costs of the proceedings.
The first applicant is a company which leased a shop from the respondent to sell gourmet hotdogs at Highpoint Shopping Centre, Maribyrnong. The second applicant is a director of the first applicant and guarantor of the obligations contained in the lease. The lease was for five
years commencing in June 1991. The first applicant traded until July 1996, when the respondent re-entered the premises as a result of the first applicant’s failure to pay rent due in March, April, May and June 1996. The first applicant’s claim is based on alleged misrepresentations or breaches of warranty by Steven Nicholls, an agent of the respondent, at the time the lease was negotiated, to the effect that the respondent had no plans to extend the Centre. In fact, 86 shops were added to the Centre and the extension was opened on 15 August 1995. The first applicant alleges that the respondent had those plans for the extension of the Centre in 1991 when the lease was negotiated. The first applicant claims damages for breaches of the Trade Practices Act 1974 (Cth), the Fair Trading Act 1985 (Vic) and at common law, and seeks associated relief. The second applicant seeks orders terminating the guarantee and releasing him from any liability under it.
The first applicant is a $2 company and is unable to pay $25,000 or any amount of security for costs of the proceedings.
The discretion to order security for costs is unfettered and each case must depend on its own circumstances: Bell Wholesale Co Pty Ltd v Gates Export Corporation (1984) 2 FCR 1 at 4. The task of the Court is to balance the interests of an applicant in proceeding with litigation although impecunious, and the interest of a respondent in recovering costs of the litigation if the applicant fails, with a view to doing justice between the parties to the proceedings. In the present case, the following considerations are important in determining the question.
THE FIRST APPLICANT’S PROSPECTS OF SUCCESS IN THE PROCEEDINGS, AND THE ROLE OF THE RESPONDENT IN THE FIRST APPLICANT’S FINANCIAL PLIGHT
The turnover of the first applicant’s business conducted at the Centre in the following financial years was:
1992 1993 1994 1995 1996
$248,006 $222,043 $185,135 $228,085 $205,329
The central contention of the first applicant is that the building of the extension of the Centre led to a significant downturn in business. Consequently, the damages claimed are made up of reduction in turnover, loss of profit, loss on shop fitout costs and loss of opportunity to dispose of the goodwill of the business. On the face of the sales figures, the case is not strong. Of course, my consideration of this issue is necessarily superficial. But nearly the whole of the 1996 financial year would have been affected by the extension. At first sight the sales figures for 1996 are not so far out of the general range as to suggest that they were caused by the extensions rather than the ordinary fluctuations in business evidenced, for instance, in the 1994 year, even after taking into account the better figures for 1995 which allegedly resulted from the renovations to the shop.
Further, the lease expired in July 1996. Thereafter, the first applicant had no legal right to further occupation. The loss on fitout costs and goodwill may well have occurred on the expiration of the lease. The case sought to be made by the first applicant, that these losses resulted from the completion of the extension of the Centre, is not immediately compelling. That is not to say that the claim will necessarily fail. For instance, there is evidence that the respondent offered the first applicant a new lease of the premises in March 1996.
Overall, the picture which emerges at this early stage of the proceedings is that, even assuming that the alleged misrepresentations were made, there is not a strong case that the losses flowed from the alleged misrepresentations. Similarly, there is not a strong case that the respondent was responsible for the financial plight of the first applicant.
BONA FIDES
The respondent pointed to the fact that these proceedings were instituted on 15 July 1996, just after the respondent had re-entered the shop on 2 July 1996, and just after the respondent had made a demand on 5 July 1996 for outstanding rent and other moneys amounting to about $18,000. There is some force in the suggestion that the first applicant appears to have issued the proceedings as a pre-emptive action. If the first applicant had, as alleged, been suffering losses since the opening of the extensions to the Centre in August 1995, there was no apparent reason to wait for almost a year to issue proceedings. The first applicant did not give any evidence of the reason for such delay.
THE RISK THAT THE LITIGATION WILL BE STULTIFIED BY AN ORDER FOR SECURITY FOR COSTS
The first applicant argued that, as it could not pay security for costs, an order requiring it to do so would mean that it could not pursue the litigation and that such result was unjust in all the circumstances. The onus is on the first applicant to show that the shareholders, or any other persons with an interest in the company, cannot provide security for costs: Bell Wholesale at 4. It was not suggested that there were any parties other than the two shareholders in the first applicant who had an interest in the outcome of the litigation by the first applicant. The second applicant was one shareholder in the first applicant and, in an affidavit sworn on 21 August 1996, he deposed as to his ability to provide security for costs as follows:
“.... nor am I able to provide any such security for the firstnamed applicant from my savings. I currently rent my home at 11 Oban Street, South Yarra. I am not married. I have few assets. My annual income is approximately $12,000. I have just obtained work with Becton Group.”
In a supplementary affidavit sworn on 3 March 1997 and filed after the hearing concluded, the second applicant deposed that his salary from Becton Group is $3,143 net per month, and his living expenses, which he itemised, are $3,135. He said that he had no savings from which he could pay security for costs. The only other shareholder in the first applicant is Louise Ann Rogalsky, the sister of the second applicant. In the financial year 1991/92 she was employed by the first applicant. In the financial year 1992/93 she did some unpaid work for the first applicant. Since June 1993, she has had nothing to do with the affairs of the company. She is employed as an office manager and her entire income is used for living expenses. She has no savings, and is not able to provide security for costs of the proceeding.
I am satisfied that the second applicant and Ms Rogalsky could not provide security in the sum of $25,000, and therefore such an order would have the effect of stultifying the litigation. However, as the second applicant is working and earning some income, there is a chance that he will be able to accumulate some money before the trial of the proceeding. It is appropriate, in these circumstances, to limit any order for security for costs to the costs incurred prior to the commencement of the hearing. The respondent can renew its application for further security for costs immediately before the trial of the proceeding. In determining whether to order further security for costs at that time, the Court will be able to determine whether such order would stultify the litigation, having regard to the financial position of the second applicant at that time.
PUBLIC INTEREST
The first applicant argued that security for costs should not be ordered as there was a public interest aspect to this case: Jodast Pty Ltd v A & J Blattner Pty Ltd (1991) 104 ALR 248. In my view, this case is essentially a private commercial dispute and, consequently, the argument is not available to the first applicant.
THE EXISTENCE OF A CROSS CLAIM
The respondent has filed a cross claim against the first applicant for rent and other amounts due under the lease amounting to $23,310.81, and against the second applicant for indemnity under the guarantee. A factor to be taken into account in the exercise of the discretion to order security for costs where a cross claim has been filed is whether the applicant’s proceedings were brought as a defensive measure to pre-empt litigation to be brought by the respondent. If so, the argument against award of security for costs is enhanced: Interwest Ltd v Tricontinental Corporation Ltd & Anor (1991) 5 ACSR 621. This is particularly so where the issues which will have to be litigated in respect of the cross claim include the issues which would be litigated in pursuit of the claim. It is obviously unfair to order security for costs in respect of a claim which will have the practical effect of causing the claim to be stayed, and yet to allow the cross claim to proceed.
In the argument concerning bona fides, the respondent described the application as having been brought as a pre-emptive measure. The application was filed within days of the respondent retaking possession of the premises. The issues to be litigated in the defence to the cross claim include the same issues as are raised in the claim. The circumstances and nature of the cross claim tend against an order for security for costs in this case.
NO SECURITY SOUGHT FROM SECOND APPLICANT
The respondent has not sought security from the second applicant. If an order for security for costs was made against the first applicant and the security was not paid, the proceeding brought by the second applicant would continue and the respondent would incur the costs of defending that claim, without the protection of an order for security for costs in the event that the second applicant’s claim failed. The additional costs incurred to defend the claim of the first applicant would be minimal. Thus, it would be unreasonable to require the first applicant to pay security for costs in an amount representing the entire costs of defending the proceedings. A significant reduction in any amount of security to be ordered is appropriate to take account of this factor.
CONCLUSION
In all the circumstances, the first applicant should provide some security for the costs incurred up to the time of the trial of the proceeding. The amount sought for those costs is $10,300. This sum includes $1,400 for costs associated with the application for security for costs, and $1,200 for costs associated with an application for leave to interrogate. Both these amounts will be the subject of separate orders of the Court when the applications are determined. Those costs, therefore, should not be part of the order for security for costs. Hence, the costs properly subject of the order for security would be $8,700. Balancing all the factors discussed in these reasons, in my view the first applicant should pay security for costs in the sum of $3,000. Further, that sum should be paid in a form acceptable to the Victoria District Registrar in two equal instalments, the first by 4 pm on 3 April 1997 and the second by 4 pm on 17 April 1997. In default of either payment, the application of the first applicant will be stayed until further order. Although the respondent has succeeded in obtaining an order for security for costs, the amount of the order is very much less than the respondent sought. I will therefore make no order as to the costs of this application.
I certify that this and the preceding
seven (7) pages are a true copy of the reasons
for judgment of his Honour Justice North.
Associate:
Dated: 20 March 1997
APPEARANCES
Counsel appearing for the applicant: R. Miller
Solicitors for the applicant: Taylor Splatt & Partners
Counsel appearing for the respondent: I. Martindale
Solicitors for the respondent: Holding Redlich
Date of hearing: 21 February 1997
Date of filing of last written submission: 14 March 1997
Date of judgment: 20 March 1997
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