Powell Custodian Pty Ltd v Tsabalas

[2024] NSWSC 192

Supreme Court

New South Wales

Medium Neutral Citation:

Powell Custodian Pty Ltd v Tsabalas [2024] NSWSC 192

Hearing dates:

20 September 2023

Date of orders:

1 March 2024

Decision date:

01 March 2024

Jurisdiction:

Common Law

Before:

Harrison AsJ

Decision:

(1) The decision of the Registrar dated 7 November 2022 is affirmed.

(2) The plaintiff’s notice of motion filed 20 December 2022 is dismissed.

(3) The plaintiff is to pay the defendants’ costs.

Catchwords:

Order for security of costs – Judicial review – Contracts – Leases – Licence agreement – Conversion – Breach – Discretionary factors – Impecuniosity.

Legislation Cited:

Corporations Act 2001 (Cth)

Uncollected Goods Act1995 (NSW)

Uniform Civil Procedure Act 2005 (NSW)

Cases Cited:

Australian Equity Investors, An Arizona Ltd Partnership v Colliers International (NSW) Pty Ltd (No. 5) [2011] FCA 1041

Bunnings Group Ltd v CHEP Australia Ltd (2011) 82 NSWLR 420; [2011] NSWCA 342

Dalma Formwork Pty Limited (Administrator Appointed) v Concrete Constructions Group Limited [1998] NSWSC 472

Fiduciary Ltd v Morningstar Research Pty Ltd [2004] NSWSC 664

House v The King [1936] HCA 40; 55 CLR 499

Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd [2002] NSWSC 609

Live Board Holdings Ltd v Cody Live Pty Ltd [2017] NSWCA 302

Luo v Windy Hills Australian Game meats Pty Ltd (No. 2) NSWSC 1139

Maroubra Pool café Pty Ltd v Fedele [2017] NSWSC 1722

Sachs v Miklos [1948] 2 KB 23

Tomko v Palasty (No. 2) [2007] NSWCA 369

Trojan Marketing & Consultants Pty Limited v Kirela Pty Limited [2018] NSWSC 1786

Wollongong City Council v Legal Business Centre Pty Limited [2012] NSWCA 245

Category:

Procedural rulings

Parties:

Powell Custodian Pty Limited (Plaintiff)
Dezie Tsabalas (First Defendant)
Costas Tsabalas (Second Defendant)

Representation:

Counsel:
Justin O’Connor (plaintiff)
Charles Alexander (defendant)

Solicitors:
Pelosi & Associates (plaintiff)
Tully & Chiper Lawyers (defendant)

File Number(s):

2022/00030417

JUDGMENT

1. This hearing involves a review from a decision of Registrar Jones (‘Registrar’) relating to an order for security of costs.

2. By notice of motion filed 2 December 2022, the plaintiff seeks an order pursuant to r 49.19 of the Uniform Civil Procedure Rules 2005 (NSW) (‘UCPR’) that the Registrar’s decision dated 7 November 2022 and orders be set aside. The Registrar ordered that the plaintiff pay the defendants the sum of $71,502 as security for costs.

3. The plaintiff is Powell Custodian Pty Limited. The first defendant is Dezie Tsabalas. The second defendant is Costas Tsabalas They are wife and husband. The plaintiff is represented by C. Alexander of counsel. The defendant is represented by J. O’Connor of counsel. The parties relied on a joint Court Book marked Exhibit A (‘Ex A’) and a piece of corsetry boning (‘Ex B’). The plaintiff also relied on a tender bundle of documents (‘Ex C’).

Background

4. The plaintiff is the trustee of the Powell Family Trust (‘the trust’) and through its principal Mark Powell (‘Mr Powell’). Mr Powell operates a business known as Metro Fabrics, that specialises in the sale of fabrics and accessories, such as boning.

5. The defendants are the registered proprietors of commercial premises at 2B/XXX Kingsgrove Road Kingsgrove NSW (‘the premises’). The premises are located within a commercial strata complex. The premises is Lot 2B within strata scheme SPXXX.

6. From June 2017 to February 2018, the plaintiff occupied the premises pursuant to a commercial lease agreement (‘the lease’) and subsequently pursuant to a licence agreement from February 2018 to April 2018 (‘the licence agreement’).

7. On the 2 February 2022, by way of statement of claim (‘SOC’), the plaintiff claims damages against the defendants in the sum of $3,024,283 for breach of the licence agreement and for conversion in respect of the loss of the value of the plaintiff's business stock and equipment. The plaintiff claims that after locking the plaintiff out of the premises on the 29 April 2018, the defendants unlawfully disposed of the plaintiff's stock and equipment by arranging a free public giveaway of the property on or about 8 May 2018. The plaintiff claims loss of accessories valued at, $1,490,021, loss of fabrics valued at $1,455.984 and loss of equipment valued at $78,278.

The Law – review of a Registrar’s decision

8. Rule 49.19 reads as follows:

49.19   Review of registrar’s directions, certificates, orders, decisions, and other acts

If in any proceedings a registrar gives a direction or certificate, makes an order or decision, or does any other act, the court may, on application by any party, review the direction, certificate, order, decision or other act and make such order, by way of confirmation, variation, discharge or otherwise, as the court sees fit.

9. In Tomko v Palasty (No. 2) [2007] NSWCA 369, Basten JA (‘Tomko) stated at [52]:

“It follows that the proper approach to an application in relation to the review of a decision of the Registrar is under rule 49.19:

(1) the application should be treated as a "review", pursuant to s 121(3) of the Supreme Court Act and the UCPR, r 49.19;

(2) a review, unlike an appeal, does not require demonstration of error, nor is it restricted to a reconsideration of the material before the primary decision-maker;

(3) authorities with respect to the conduct of appeals against the exercise of discretionary powers, such as House v The King [1936] HCA 40; 55 CLR 499, do not in terms apply to a review;

(4) nevertheless, similar policy considerations may arise in relation to a review, including:

(a) a court may be less inclined to intervene in relation to a decision concerned with the management of an on-going proceeding, as opposed to one which terminates the proceeding or prevents its commencement;

(b) different factors may need to be addressed in relation to breach of time limits in relation to the commencement of proceedings, as compared with breach of time limits for steps to be taken in the course of proceedings properly commenced, and

(c) a court may be more inclined to intervene on a review based on fresh evidence, changed circumstances or where error is demonstrated in the decision under review.”

10. Both parties have relied upon additional evidence. My approach is reviewing the Registrar’s order considering any fresh evidence and making my own decision as to whether error is demonstrated in the decision under review.

The notice of motion for security for costs before the Registrar

11. On 19 May 2022, the defendants filed a notice of motion seeking an order pursuant to rule 42.21 of the UCPR that the plaintiff provide security for the defendants' costs of the proceedings.

12. In support of the notice of application, the defendants relied on the affidavit of their solicitor, Stephen Tully, (‘Mr Tully’) dated 19 May 2012.

13. In opposing orders sort in the notice of motion, the plaintiff relied on written submissions and the following affidavits:

1. of Mr William Powell (‘Mr Powell’) dated 27 June 2022;

2. of Mr Powell dated 24 June 2022, which was relevant to establishing, as a beneficiary of the Trust, his financial inability to provide security;

3. of Kathryn Powell dated 23 June 2022, which was relevant to establishing, as a beneficiary of the Trust, her financial inability to provide security and as a witness to the free public giveaway of the plaintiff's stock and equipment on 8 May 2018;

4. of Thomas Powell dated 23 June 2022, which was relevant to establishing, as a beneficiary of the Trust, his financial inability to provide security;

5. of Susan Powell dated 23 June 2022, which was relevant to establishing a family law settlement between herself and the plaintiff, that she no longer holds any beneficial interest in the trust or Metro Fabrics business;

6. of Wayne Beckwith (‘Mr Beckwith’) dated 25 June 2022, which was relevant to a stock take he and Mr Powell undertook in April 2018 prior to the lockout on 29 April 2018;

7. of Jamie Bond (‘Mr Bond’) dated 18 June 2022, which was relevant to the free public giveaway of the plaintiff's stock and equipment on 8 May 2018.

14. The additional affidavit of Mr Powell included a number of exhibits, including,

1. a stocktake undertaken by Mr Powell and Mr Beckworth in early April 2018 of all stock and equipment in the premises prior to the lockout on 29 April 2018;

2. a stock take undertaken by Mr Powell of the stock and equipment Mr Powell was able to remove from the premises and move to another premises in Rosebury prior to the lockout on 29 April 2018;

3. a list of all items of stock and equipment that was taken by the public during the free public giveaway on 8 May 2018 (this list was created by comparing the two stock takes that were undertaken before and after the lockout on 29 April 2018);

4. a list as to the value of the items of stock and equipment taken by the public during the free public giveaway on 8 May 2018.

15. Before the Registrar, both parties also relied on written submissions. I have read them.

16. On 23 September 2022 the Registrar heard the defendants' security for costs application.

17. On 7 November 2022, the Registrar gave judgment and provided written reasons on the applications by the defendants for security for costs. She ordered the plaintiff to provide security for the defendant’s costs in the sum of $71,502 (‘the security for costs order’).

The pleading framework

18. The plaintiff's claim, and the following facts and matters pleaded in the SOC are admitted by the defendants in the defence filed on 20 April 2022. Hence, these issues are not in dispute:

1. on 7 February 2018, the defendants gave notice that the lease was terminated;

2. on 27 February 2018, the parties entered into the Licence agreement, the terms of which include the terms pleaded at paragraph 17(a), (b) and (c)(i), (ii) and (iii) of the SOC;

3. pursuant to the terms of the licence agreement, on 27 February 2018, the plaintiff paid the defendants $14,000 which gave the plaintiff the right to uninhibited access to the premises from 28 February 2018 to 31 March 2018;

4. on 14 March 2018, the defendants gave the plaintiff notice that the lease had been terminated and there was no relationship of lessor and lessee between the parties;

5. on 28 March 2018, the defendants received and retained the monthly licence occupation fee of $5,500 including GST from the plaintiff, which was paid to the defendants pursuant to the term of the licence agreement pleaded at paragraph 17(c)(i) of the SOC and for the purpose of the plaintiff being granted uninhibited access to the premises from 1 April 2018 to 30 April 2018;

6. on 6 April 2018, the defendants gave notice to the plaintiff that the licence agreement was revoked;

7. on 18 April 2018, the defendants informed the plaintiff that they refused to extend the license agreement, the locks to the premises were to be changed on 27 April 2018 and that the plaintiff will need to remove all stock and equipment and vacate the premises prior to 27 April 2018;

8. prior to and on 27 April 2018, Mr Powell commenced moving the plaintiff's stock and equipment from the premises and placed 12 wheelie bins full of corsetry boning on the common property so that could be moved to alternative premises;

9. on or about 29 April 2017, after the defendants changed the locks of the premises on 27 April 2017, the first defendant moved the 12 wheelie bins from common property outside the premises back into the premises;

10. on 3 May 2018, Mr Powell was informed that the 12 wheelie bins had been moved back into the premises, the plaintiff had failed to remove property from the premises, under the lease that property had become property of the defendants, and the defendants would dispose of the property;

11. on 4 May 2018, the plaintiff requested additional time and access to the premises to remove the plaintiff's remaining equipment, products, and material from the premises;

12. on and from 4 May 2018 the defendants refused the plaintiff's requests to be granted access to the premises to remove the plaintiff's stock and equipment;

13. the defendants did not return to Mr Powell any of the plaintiff's equipment, products and material that were in the premises as at the lockout on 29 April 2018;

14. on or about 8 May 2018, the defendants arranged a free public giveaway of the plaintiff’s stock, equipment, and materials. They allowed members of the public to enter the premises and freely take any of the items that had been left.

19. In addition to the facts and matters referred to above that are admitted by the defendants, the plaintiff relied on evidence, including photographic evidence, that:

1. on 7 May 2018 Mr Powell and Mr Bond became aware the defendants had advertised online that a free stock clearance of the plaintiff's equipment, products and material was to be held at the premises on 8 May 2018.

2. on 8 May 2018 Mr Powell and his daughter Kathryn Powell attended the premises and witnessed the first defendant overseeing members of the public freely removing and taking the plaintiff's equipment, products, and material from the premises; and

3. the contents of the 12 wheelie bins were taken by members of the public who attended the premises during the free give-way that was arranged by the defendants on 8 May 2018.

20. The defendants claim they were entitled to dispose of the plaintiff's equipment, stock and materials on the basis that items left in the premises vested in the defendants from:

1. about 8 February 2018 upon termination of the lease; and

2. on or about 29 April 2018 upon the defendants retaking possession following the termination of the licence agreement.

The plaintiff’s submissions

21. Kathryn Eileen Powell, daughter, deposed an affidavit that describes the events of the 8 May 2018. In the affidavit she states that she witnessed many people inside and outside the premises of Kingsgrove, taking stock that belonged to her father. Prior to these events, Ms Powell recalls helping her father fill approximately 24 bins of corsetry boning and wheeling 12 of the bins outside the premises to be picked up the following Monday.

22. While at the property on 8 May 2018, Ms Powell confirmed that the 12 bins that had been previously wheeled outside of the premises had been taken back inside and were now empty.

23. The defendants' claim, that all the plaintiff's equipment, stock, and materials in the premises vested in the defendants from 8 February 2018 upon termination of the lease, is unlikely to succeed because:

1. Following the termination of the lease the defendant's solicitor sent a letter to the plaintiff's then lawyer on 19 February 2018, which stated:

"If we have not received a response by Wednesday, the 21 February 2018 by close of business our client intends to exercise its rights under Clause, 12 of the lease which states;

Anything not removed becomes the property of the lessor who can keep it or remove and dispose of it and charge the lessee the cost of the removal, making good and disposal."

2. by letter dated 20 February 2018, the plaintiff's former solicitor responded in writing to the defendants' former solicitor proposing terms of the licence agreement that was subsequently entered into by the parties after further negotiations;

3. the defendants and the plaintiff proceeded on the basis that the defendants had not, and would not, be exercising their rights under clause 12.3 of the lease, which was the sole term of the lease that granted the defendants the right to regain possession of their property and to keep or dispose of the contents left within;

4. the defendants admit that they subsequently entered into the licence agreement with the plaintiff in or about late February 2018, that granted the plaintiff uninhibited access to the premises, and stipulated in what circumstances the defendants might become entitled to dispose of anything within the premises not removed;

5. the defendants’ claim that the licence agreement was agreed upon to provide the plaintiff with time to remove its property and stock from the premises.

6. by letter dated 6 April 2018 titled "Termination of Licence", the defendants' former solicitor wrote to the plaintiff's former solicitor and referred to "your client's lack of progress in vacating the premises and removing all of their items";

7. during the term of the licence agreement, the defendants' former solicitor referred to the stock and equipment in the premises as the plaintiff's stock and equipment;

8. the defendants have admitted the terms of the licence agreement as pleaded at paragraph 17 of the SOC, including sub-paragraph 17(c)(i) - (iv), which provided the circumstances in which the defendants shall be entitled to immediately retake possession of the premises and anything within the premises not removed "shall become the property of the defendants";

24. At the hearing of the application before the Registrar on 23 September, counsel for the defendants expressly raised an issue with paragraph 17 of the defence. This issue only became apparent after receiving the plaintiff’s written submissions, dated 21 September.

25. Paragraph 17 of the defence pleads that the terms of the licence agreement that were agreed upon by the plaintiff and the defendants contained inter alia the following express terms and conditions.

1. The plaintiff was required to pay the sum of $14,000 incl GST to the defendants as a condition precedent to the commencement of the licence;

2. Upon the plaintiff paying the sum of $14,000 to the defendants, the defendants would grant the plaintiff uninhibited access by way of a licence to the premises commencing 28 February 2018 and ending 31 March 2018;

3. In the event the plaintiff required additional time for the clearance of the plaintiff’s stock, the plaintiff had an option to further periods of uninhibited access on the following terms:

1. In the event the plaintiff wishes to continue access for a further period of 1 month commencing from 1 April 2018 and ending 30 April 2018, the plaintiff is to provide notice in writing to the defendants for such additional 1 month access no later than 17 March 2018 and is to pay by the 31 March 2018 a further monthly sum of $5,500 plus GST, plus any arrears of rent owing for March (‘the first option’)

2. In the event that the plaintiff provides notice for the 3 periods referred to herein, and fails to pay the further occupation fee by the due dates being 31 March 2018, 30 April 2018, 31 May 2018, then the defendants shall be entitled to immediately retake possession of the premises and anything within the premises not removed shall become the property of the defendants who may keep it or remove and dispose of it and charge the plaintiff the cost of removal, making good and disposal, and any bond held will be credited to any such cost.

26. The defence establishes the defendants will rely at trial on their contractual right to dispose of any items left behind after lockout, both upon termination of the lease and upon termination of the licence agreement.

27. A proposed amended defence is annexed to Tully’s affidavit served with these submissions, addressing the point at paragraph 17 of the defence.

28. Paragraph 17 of the proposed amended defence pleads:

“In answer to paragraph 17 of the SOC, the defendants:

a. admit the terms of the licence agreement as pleaded in paragraph 17 of the SC; but

b. say there were additional terms to the licence agreement, including that:

i. the grant of the licence and each option to extend was for the sole purpose of the plaintiff removing the contents and goods in the premises as soon as possible, and that this was an essential term of the licence agreement/

ii. the plaintiff was not permitted to trade from the premises; and

iii. the plaintiff was to pay the defendant’s legal fees in the amount of $4,417.75 by 12 March 2018.”

The lease between the plaintiff and the defendant

29. On or about 16 June 2017, the plaintiff as tenant entered a 3-year lease with the defendants as landlord. The rent was $5,000 per month (plus GST).

29. Clause 49.2 of Annexure “A” to the Lease, relevantly provides:

“Notwithstanding anything else contained herein if the lessor has taken possession of the leased premises or this lease is determined by the lessor in relation to any breaches of the lease and/or in accordance with clause 49.1 above, any and all of the lessee’s property, items, equipment, fixtures, furniture and goods contained in the leased premises will become the absolute property of the lessor and can be used as a set off for any monies owing to the lessor and used at its own discretion.”

31. Similarly, clauses 12.2 and 12.3 of Annexure “B” to the lease, relevantly provide:

“12.2   The lessor can enter and take possession of the property or demand possession of the property if –

…

12.2.2   rent or any other money due under this lease is 14 days overdue for payment; or

…

12.3    When this lease ends … the lessee must –

12.3.1   return the property to the lessor in the state and condition that this lease requires the lessee to keep it in; and

12.3.2   have removed any goods and anything that the lessee fixed to the property and have made good any damage caused by the removal.

32. The defendant submitted that anything not removed becomes the property of the lessor who can keep it or remove and dispose of it and charge to the lessee the cost of removal, making good and disposal.

33. The plaintiff’s business traded as “Metro Fabrics” and specialised in the sale of fabrics and accessories. There are photos of the rolls of fabric contained in Ex A and there is a piece of boning marked as Ex B.

34. On 25 December 2017, the plaintiff paid rent up to and including this date. Thereafter, it failed to pay rent.

35. On 7 February 2018 the defendants terminated the lease for non-payment of rent. The termination notice, sent by the solicitor for the defendants, noted that as at the date of the letter, two months’ rent was unpaid (being $10,000) and as more than 14 days’ rent was owing, the landlord was exercising its rights to terminate, pursuant to clause 12.2.2.

36. Thereafter, it appears that there were various discussions and correspondence between the parties and their legal representatives. Those communications culminated in the grant of a licence agreement by or about 28 February 2018, permitting the plaintiff to return to the premises on a limited basis.

37. The terms of the licence agreement are in dispute. The defendants allege:

1. The terms were not agreed until about 28 February 2018;

2. the grant of the licence and each option to extend was for the sole purpose of the plaintiff removing the contents and goods in the premises as soon as possible (which date was originally 31 March 2018);

3. that this was an essential term of the licence agreement;

4. ultimately, the plaintiff breached this essential term by continuing to trade from the premises, which breach was discovered by the defendants on 5 April when conducting an inspection with representatives of council.

38. There is correspondence between the plaintiff’s former solicitor and the defendant’s solicitor. In relation to Unit 2 of XXXX was being used as two separate occupancies without council approval. Also, there is much correspondence in relation to the termination of the lease or the licence: see Ex A. Here I have summarised the most relevant documents.

39. On 6 April 2018, the defendants gave notice that the licence agreement was revoked and that locks would be changed within 21 days. The notice also relevantly stated:

“…

Take this as notice, that the license is now being revoked and your client is to immediately vacate the premises, and should your client not do so within the next twenty-one (21) days, the locks will be changed, and our client will take possession of the premises.

…

Any items left behind, our client will organise skip bins and the items will be disposed of accordingly and without any further notice.

…

Please advise your client that the locks to the premises will be changed on 27 April 2018 without any further notice to be provided to your client and it will need to remove all stock and equipment and vacate prior to this date.”

40. It would appear there were then further oral discussions between the parties and their legal representatives. On 18 April 2018, the defendants’ solicitor sent a further letter, advising:

“We refer to the above matter and to previous discussions.

We confirm the extension of a reinstated and further extension of a licence is refused due to your client’s continuous offending conduct and non-compliance with the terms of the licence.

Please advise your client that the locks to the premises will be changed on 27 April 2018 without any further notice to be provided to your client and it will need to remove all stock and equipment and vacate prior to this date.

Our client intends to exercise its rights and to dispense of all items left on the property in accordance with the lease. …”

41. On 20 April 2018, the solicitor for the plaintiff confirmed in writing that the plaintiff would vacate the premises by 5.00pm on Friday, 27 April 2018. The plaintiff’s solicitor’s email relevantly stated:

“I acknowledge your position over the telephone this morning.

I have again spoken to my client this morning and he confirmed that he will vacate the premises and remove all stock and equipment by 5PM Friday 27 April 2018.

I request you instruct your client to come to the premises at 5 p.m. on Friday, 27 April 2018 to collect the keys and receive possession of the premises.”

42. Mr Powell’s evidence is that between Monday, 23 April to Friday, 27 April 2018 he organised a truck and four other people to assist him move stock. This evidence equates to at least five people with a truck moving stock across a period of four days.

43. By the evening of 27 April 2018, the plaintiff’s agents had left the property. It is common ground that there were goods and chattels remaining inside the premises. There were also twelve wheelie bins which the plaintiff says were filled with boning. He left the wheelie bins in the common property area. The first defendant admitted that he moved the wheelie bins back into the premises.

44. The evidence does not disclose what, if anything, the plaintiff’s agents did on 28 April 2018. The next day on the 29 April 2018, the defendants changed the locks to the property.

The defendants’ submissions

45. The Registrar’s decision was one of practice and procedure regarding an order that the plaintiff pay security for costs in the sum of $71,502 in circumstances where the plaintiff’s claim exceeds $3 million.

46. As a preliminary point, the Court ought to consider whether the Registrar’s decision ought to be reviewed: see Trojan Marketing & Consultants Pty Limited v Kirela Pty Limited [2018] NSWSC 1786 (‘Trojan’) per Rees J at [55]. In this current application, the parties both relied on additional evidence. In these circumstances it is appropriate that I review the decision of the Registrar, in the light of the additional evidence.

47. The plaintiff is a trustee company of a discretionary trust. In contrast, the defendants are natural persons.

48. The plaintiff’s net asset position set out in its financial statements and tax returns has, for many years, been zero. This appears to have been the financial situation both before and after the matters complained of by the plaintiff.

49. The Court ought to adopt a “practical common-sense approach” to the examination of the plaintiff’s affairs: Wollongong City Council v Legal Business Centre Pty Limited (‘Wollongong’) [2012] NSWCA 245 at [28]. On such an approach, there is reason to believe that the plaintiff will be unable to pay costs, if ordered to do so. The plaintiff has conceded before the Registrar that it will be unable to pay the defendants costs if ordered to do so.

50. The onus then shifts to the plaintiff to establish a reason why security should not be ordered: Wollongong at [30].

51. The defendants submitted, where a plaintiff wants to run a $3 million case that will likely take at least three to four days of Court time, it is in the interests of justice to require the plaintiff or those standing behind it to come up with some security. There is new evidence from the family members of the plaintiff that shows that they are unable to provide any security. This will be referred to in more detail later in this judgement. The hearing of this matter will deprive other litigants of valuable court time. If those standing behind the plaintiff cannot stump up some security or convince someone else to advance it, it is not in the interests of justice to force the defendants to pay and prepare this matter for trial or for the Court to proceed to hear it when there are so many other matters demanding the Court’s limited time.

52. I shall now consider the Registrar’s decision on the issue of security for costs (‘the decision under review’).

The law – security for costs

53. Rule 42.21 of the UCPR, relevantly reads:

42.21 Security for costs

(1) If, in any proceedings, it appears to the court on the application of a defendant:

...

(d) that there is reason to believe that a plaintiff, being a corporation, will be unable to pay the costs of the defendant if ordered to do so ...

the court may order the plaintiff to give such security as the court thinks fit, in such manner as the court directs, for the defendant's costs of the proceedings and that the proceedings be stayed until the security is given.

(2) Security for costs is to be given in such manner, at such time and on such terms (if any) as the court may by order direct.

(3) If the plaintiff fails to comply with an order under this rule, the court may order that the proceeding on the plaintiff's claim for relief in the proceedings be dismissed.

54. I shall refer to s 42.21(d) as the threshold issue. It is common ground that the plaintiff will be unable to pay the costs of the defendant if ordered to do so before the Registrar and also before me, the threshold issue has been satisfied, it is then necessary to consider the discretionary factors. There are only three relevant factors in contest in this review.

55. Although the plaintiff conceded at the hearing of the application for security that it is impecunious and will be unable to pay the defendant's costs if the defendants are able to defend the plaintiff's claim, the plaintiff submitted that the Registrar erred in relation to these three discretionary factors, they are:

1. the plaintiff has a very strong claim against the defendants and the strength of the plaintiff's claim is a factor which the court ought to consider in not granting security.

2. the plaintiff's impecuniosity was caused by the defendants' conduct; and

3. the effect of the order for security will be to stultify the action.

The Registrar's decision dated 7 November 2022

56. The Registrar stated, turning to those discretionary matters to which the parties have referred pursuant to Rule 42.21(1A) of the UCPR, I address each matter in turn:

The prospects of success/genuineness of the proceedings.

57. The plaintiff's claim for breach of the Licence Agreement and for conversion is based on a complex factual matrix which will require some considerable evidence at the hearing. From a broad-brush review of the pleadings and the supporting evidence I have no reason to doubt that the plaintiff's claim is reasonably arguable. Further, it is not the role of this Court for the purpose of this application to conduct a detailed analysis of prospects in the exercise of its discretion — see Fiduciary Ltd v Morningstar Research Pty Ltd [2004] NSWSC 664 (‘Morningstar’) at [37]-[39].

Whether the plaintiff's impecuniosity is attributable to the defendants' conduct.

58. I am not persuaded that the plaintiff's impecuniosity has been caused by the defendants' conduct. For the reasons outlined at subparagraph 13.3 below, the plaintiff's evidence and financial records are inconsistent, which make a consideration of this discretionary factor particularly difficult.

Whether an order for security for costs would stultify the proceedings.

59. I have considered the plaintiff's affidavit evidence and written, and oral submissions and I am not satisfied that the plaintiff has discharged the onus of establishing that it does not have funds available to pay an order for security. This is the plaintiff's onus: see Wollongong at [30].

60. The plaintiff has not provided any evidence as to what stock it did remove from the premises prior to the lock out or during the free stock clearance. Importantly, in his Affidavit sworn on 27 June 2022, Mark Powell deposes (at paragraph 17) that he organised a truck and for four people to assist in the moving of the stock and equipment from 23 to 27 April 2018. The assistance of 4 people over a four-day period with the use of a truck may lead to a reasonable conclusion that a considerable volume of material may have been moved during that time and yet the details of that stock are not particularised.

61. The plaintiff has not provided any evidence as to whether it has continued to trade since the lock out and free stock clearance.

62. The plaintiff has not provided any taxation returns or financial records to evidence its current financial position.

63. The plaintiff's evidence provides however that:

1. 'The plaintiff presently holds approximately $250,000 of stock and equipment" (Paragraph 55 of the Affidavit of Mark Powell sworn on 27 June 2022).

2. "In the financial year from 1 July 2020 to 30 June 2021, the plaintiff incurred a loss and / do not anticipate that the plaintiff will record a significant profit for the financial year ending 2022" (Paragraph 61 of the Affidavit of Mark Powell sworn on 27 June 2022).

64. The plaintiff's evidence is vague and non-specific, in circumstances where it bears the onus to satisfy the Court that it does not have funds available to pay an order for security. I am not satisfied that there is sufficient evidence to establish that an order for security for costs will stultify the proceedings.

Summary of the plaintiff’s submissions

65. The exercise of the power to order security for costs is a balancing act requiring the doing of justice between the parties. In this matter, to do justice between the parties, the court ought not have exercised its discretion in favour of ordering security in circumstances where:

1. the first defendant had no right to move the 12 wheelie bins of corsetry boning back (see Ex B) into the premises after they had been removed from the premises by Mr Powell prior to 27 April 2018;

2. the defendants had no right to arrange and permit the free give-way of the plaintiff's stock and equipment on 8 May 2018 in circumstances where they were aware from 4 May 2018 that the plaintiff had not abandoned the property and Mr Powell had requested permission to remove the property from the premises;

3. the facts and matters that are admitted by the defendants establish the plaintiff's claim in conversion is a very strong claim;

4. the plaintiff's impecuniosity was caused by the defendants having advertised and arranged the free give-away of the plaintiff's stock and equipment on 8 May 2018;

5. the acts of the defendants disabled the plaintiff from complying with an order for security; and

6. the plaintiff has established that the order for security will stultify the claim.

66. This court should exercise its discretion in favour of setting aside the security for costs order for the following reasons:

1. in circumstances where the plaintiff demonstrated that it has prima facie a very strong case against the defendants, the Registrar failed to find that this was a factor that mitigated against providing security;

2. in finding that the plaintiff's evidence did not establish that the plaintiff's impecuniosity was caused by the defendants' conduct, the Registrar ignored evidence relevant to that issue including evidence that:

1. the first defendant admitted to moving 12 wheelie bins ‘the 12 wheelie bins’, that had been filled by Mr Powell with corsetry boning and placed outside the premises on 27 April 2018, back into the premises before the lockout on 29 April 2018;

2. the subsequent action of the defendants in allowing the public to freely take the plaintiff's stock and equipment, including the corsetry boning within the 12 wheelie bins moved by the first defendant back into the premises;

3. Mr Powell's evidence of the stock takes he undertook prior to and after the lockout on 29 April 2018, from which he was able to list all items of stock and equipment that were taken by the public during the free give way on 8 May 2018;

3. In finding that the plaintiff did not satisfy the onus of establishing that the plaintiff does not have funds available to pay security to establish that an order for security will stultify the proceedings, the Registrar ignored the evidence which established that the plaintiff and those behind the plaintiff are without means to provide the security. Now, there is new evidence, from the plaintiff in his additional affidavit dated 14 March 2023. There is also new evidence from his family members.

Summary of defendant’s submissions

67. On the 2 February 2022 by way of SOC, the plaintiff seeks damages against the defendants in the sum of about $3,024,283. That sum is said to be the value of remaining stock the plaintiff left behind when it was locked out of commercial premises on or about 29 April 2018, after being given several months to vacate, and multiple extensions to permit it to collect the goods left there.

68. In essence, the plaintiff says its claim is worth about $3 million but says it has no realisable assets. Although there are various reasons why the plaintiff’s submissions ought to be rejected, the nub of the defendants’ point is that if a claimant says they have a good case for damages in the order of $3 million, then it and those standing behind it, could and should be able to come up with $71,502 by way of security. I interpose here, in additional evidence the plaintiff’s family members, as named above, have no assets to assist the plaintiff.

69. I shall deal with each of the three discretionary issues referred to in the Registrars’ reasons for her decision.

(a) The strength of the plaintiff's claim was a factor that mitigated against providing security

70. In considering the strength of the plaintiff's claim, the Registrar noted that she had no reason to doubt that the plaintiff's claim is reasonably arguable and relied on Morningstar to state that it is not the role of the court in this application to conduct a detailed analysis of prospects.

71. The defendant referred to additional authorities including, Luo v Windy Hills Australian Game meats Pty Ltd (No 2) NSWSC 1139 (‘Luo’) and Trojan and Live Board Holdings Ltd v Cody Live Pty Ltd [2017] NSWCA 302 (Live Board Holdings)

72. In Live Board holdings, the Court of Appeal (per Bathurst CJ, Leeming JA and Barrett AJA), at [97]-[102], stated that, on an application for security, the court is entitled to have regard to the prospects of success or merits of the proceedings and that the proposition that the "merits" factor was neutral if a claim was not frivolous placed a gloss on rule 42.21(1A)(a): The Court of Appeal stated, at [98]- [99]:

“[98] That constrained approach does not reflect the broad discretion conferred by the rules. UCPR r 42.21(1A)(a) entitles the court in terms to have regard to "the prospects of success or merits of the proceedings". It is true that in many cases it will not be possible to form a meaningful view as to the strength or weakness of a plaintiff's claim for the purposes of an application for security for costs. Such applications are ordinarily brought before pleadings are closed and evidence filed. But that does not mean that, for example, there may never be a case in which a court can be satisfied that an impecunious corporate plaintiff has prima facie a very strong case, such as to inform the exercise of discretion on an application for security for costs. The starting point in the exercise of discretion is the legislation conferring the power, not some gloss upon it.

[99] The authorities on which the primary judge relied for the narrower proposition that the strength of a claim was neutral so long as it was advanced bona fide and gave rise to real issues should not be understood as denying an ability on the part of the Court, in an appropriate case, of relying on its assessment of the strength or weakness of the case, in accordance with UCPR r 42.21(1A)(a). In Fiduciary v Morningstar Research [2004] NSWSC 664 at [37] Austin J was speaking of the particular facts of the claim before him, and accepted what appears to have been an uncontroversial submission in the particular application before him that the merits of the underlying claims should be regarded as neutral. That is particularly plain from the closing sentence in [39]. ("In the present case, the merits of the Rich interests' case against the Morningstar interests are a neutral factor)."

73. In Luo, Stevenson J referred to Live Board Holdings and noted at [19]:

"The Court of Appeal has recently emphasised that when looking at the merits of the proceedings it may be necessary to go further than concluding that the proceedings are not frivolous and that there are real issues to be tried."

74. In Luo, Stevenson J assessed the strength of the plaintiff's claims and concluded at [45] that "Mr Luo has prima facie a very strong case against each of the defendants and that this is a factor that mitigates against providing security."

The plaintiff’s submissions

75. In Trojan, the plaintiff argued that there was in the rare category of case where it is "possible to form a meaningful view as to the strength or weakness of a plaintiff's claim for the purposes of an application for security for costs" [98], and that the appropriate conclusion was that plaintiffs have "prima facie a very strong case" [37] which weighed against an order for security for costs.

76. The fact that the plaintiff’s claim in these proceedings is very strong and submitted that this is a factor which mitigates against ordering security. The Registrar held that it is not the court's role to conduct a detailed analysis of prospects in the exercise of the discretion to order security and found that there was no reason to doubt that the plaintiff's claim is reasonably arguable.

77. In so doing, the Registrar failed to consider the plaintiff's evidence and the admissions made by the defendants in their defence filed 22 April 2022, in considering the strength of the plaintiffs claim as a relevant factor in the exercise of the discretion to order security.

78. The Registrar ought to have examined the evidence and the admissions made by the defendants in the defence (which did not require a detailed analysis of the prospects of success) and found that the plaintiff has a very strong claim which was a factor that mitigated against ordering security.

79. The defendants admitted that the plaintiff's stock and equipment in the premises following the termination of the lease, and at the time the parties entered into the licence agreement in or about late February 2018, remained the plaintiff's property;

80. The proposition, that the parties entered into the licence agreement in or about late February 2018 to grant the plaintiff uninhibited access to the premises to enable the plaintiff to remove stock and equipment from within the premises that had by then become vested in the defendants, is non-sensical.

Whether the plaintiff’s equipment, stock and materials vested in the defendants

81. The defendants' claim, that all the plaintiff's equipment, stock, and materials in the premises vested in the defendants on or about 29 April 2018 upon the defendants’ retaking possession of the premises following the termination of the licence agreement, is unlikely to succeed because:

1. the defendants claim that the plaintiff's equipment, stock and materials in the premises vested in the defendants on or about 29 April 2018 pursuant to the terms of the licence agreement;

2. the defendants have admitted the terms of the licence agreement as pleaded at paragraph 17 of the SOC, including sub-paragraph 17(c)(iv) which provided that in the event that:

1. the plaintiff provides notice to extend the 3 periods of the licence (1 April 2018 to 30 April 2018, 1 May 2018 to 31 May 2018 and 1 June 2018 to 30 June 2018); and

2. the plaintiff fails to pay the occupation fee by the due dates of 31 March 2018, 30 April 2018 and 31 May 2018;

3. then the defendants shall be entitled to immediately retake possession of the premises and anything within the premises not removed "shall become the property of the defendants" who may keep it or remove and dispose of it and charge the plaintiff the cost of the removal;

4. the defendants did not give the plaintiff the opportunity to provide notice to extend the licence for the second period (1 May 2018 to 31 May 2018) or the third period (1 June 2018 to 30 June 2018), such that the term of the licence agreement as pleaded in the SOC at 17(c)(iv), which allowed the defendants to retake possession of the premises and dispose of anything within the premises not removed, did not apply, had no effect and could not be relied upon by the defendants to claim that on 29 April 2017 the plaintiff's stock and equipment vested in the defendants;

5. on the defendants' own case, the corsetry boning placed by Mr Powell in the 12 wheelie bins and removed from the premises on 27 April 2018 had not at that time vested in the defendants as the defendants claim the plaintiff's property vested in the defendants on 29 April 2018;

6. the corsetry boning placed by Mr Powell in the 12 wheelie bins and removed from the premises on 27 April 2018 would not have been in the premises after 29 April 2018 but for the first defendant having returned the bins to the premises.

82. As the plaintiff's stock and equipment did not vest in the defendants from 8 February 2018 upon termination of the lease or on 29 April 2018 upon the defendants’ retaking possession of the premises, the plaintiff's claim in conversion ought to succeed because:

1. the essence of the plaintiff's action in conversion is "an intentional act or dealing with goods inconsistent with or repugnant to the rights of the owner, including possession and any right to possession" (see Bunnings Group Ltd v CHEP Australia Ltd (2011) 82 NSWLR 420; [2011] NSWCA 342 at [124]);

2. the defendants have admitted that on 4 May 2018, after the defendants had taken possession of the plaintiff's stock and equipment on or about 29 April 2018, the plaintiff requested additional time and access to the premises to remove the plaintiff's remaining equipment, products and material from the premises;

3. as such, from 4 May 2018 the defendants were aware that the plaintiff was maintaining title in the stock and equipment in the premises and had not abandoned the plaintiff’s property or given an implied consent to the defendants to dispose of the property (see Sachs v Miklos [1948] 2 KB 23 at [37]);

4. in those circumstances, the defendants' act in arranging for the free giveaway of the plaintiff's stock and equipment on 8 May 2018 amounted to a conversion of that property as it was an act inconsistent with or repugnant to the rights of the plaintiff as owner. Although it would have been open to the defendants to avail themselves of the provisions of the Uncollected Goods Act1995 (NSW), as they did not do so they are liable to the plaintiff in conversion (see Maroubra Pool Café Pty Ltd v Fedele [2017] NSWSC 1722.

83. In this matter, the Registrar failed to give appropriate weight to the very strong claim the plaintiff has in conversion and failed to consider that the strength of the claim was a key factor that tends against ordering security for costs. The exercise of the discretion is a balancing act between those factors that support an order for security for costs being made and those factors that do not. The scales were tipped in favour of ordering security for costs without regard to a factor that was relevant to not ordering security.

The defendants’ submissions

84. The Registrar considered the claim to arise from a “complex factual matrix which will require some considerable evidence at hearing”: This characterisation was both appropriate and accurate.

85. There is a contractual dispute as to the proper construction and effect of clauses in the lease, the Licence Agreement, together with the correspondence. There is also a further argument in relation to conventional estoppel. At best, any assessment of prospects is a neutral matter, tending neither for nor against the order of security. The plaintiff pitches the defendants’ position as no lower than “unlikely to succeed”. This is akin to saying both sides have arguments about the proper construction of the parties’ contractual rights and obligations and nothing more meaningful can be said on this point at this stage of the proceedings.

86. Cases such as Luo are in a completely different category to the present case. In Luo underscore the types of cases where a plaintiff might be found to have a “very strong claim” which is absent here. It was common ground that the plaintiff had paid US$1,455,581 for the international supply of tripe. There were substantial contemporaneous documents, including emails, to the effect that the goods were never delivered, and salt had been delivered instead. There were also photographs of containers full of salt taken by inspectors at customs. None of these compelling evidentiary matters feature here.

87. In Trojan, Rees J found the plaintiff had a prima facie good claim (at [68]). Relevantly the plaintiff was a tenant of a supermarket, suing its landlord and there were videos and photographs of flooding and many instances of water ingress for a sustained period. Her Honour said (at [68]):

“Having regard to the number of occasions on which the plaintiffs’ builder and staff thought it necessary to record water leaks into the supermarket, and having looked at the photographs and videos which were tendered on the review, it seems to me prima facie that the plaintiffs have a good claim that this was a recurring problem in their occupation of the supermarket. It might be thought that flooding, on at least two occasions, and leaks on some 12 other occasions, may have been viewed by customers as less than satisfactory in a supermarket offering food for sale. Such a sustained problem, unaddressed by [the defendant], could impact the plaintiffs’ business.”

88. Her Honour went on to find that the plaintiff’s impecuniosity was caused by the landlord [75] and ultimately declined to order security.

89. Insofar as an analysis of each parties’ respective cases might be relevant to the exercise of the Court’s discretion, properly considered, it is a matter supporting an order for security.

90. These matters raise substantial doubt as to the strength of the plaintiff’s case. Although this matter is usually a neutral one in security for costs applications (and that is how the Registrar approached it), the plaintiff’s own documentary evidence is so starkly inconsistent with the plaintiff’s own claim, that it should weigh substantially against the exercise of a discretion in favour of the plaintiff to decline to order security.

Resolution

91. On 20 April 2018, the plaintiff’s solicitor confirmed in writing that the plaintiff would vacate or remove all stock and equipment by 5pm Friday 27 April 2018. It did not do so.

92. It is my view that it is difficult to ascertain the strength and weaknesses of the plaintiff’s case, as it is a complex one. The court will need to consider a number of issues, including the party’s oral evidence, that will include findings on their credibility as well as the proper interpretation of the lease and the licence agreement. However, so far as the two letters above are concerned, it appears that the plaintiff did not remove all stock and equipment from the premises by 27 April 2018. While the plaintiff refers to paragraph 17 of the defence as favourable to his case, the defendants intend to amend it as set out in the proposed amended defence referred to earlier in this paragraph. If I had to move from the neutral position, I would assess the plaintiff’s case as lacking in strength. However, it is a more appropriate course to treat the strength and weakness of the plaintiff’s case as being neutral. That is the approach the Registrar adopted.

The plaintiff’s submissions

(b) Whether the plaintiff's impecuniosity was caused by the defendants' conduct

93. In resisting the security for costs application, the plaintiff alleged that there is a causal connection between its impecuniosity and the defendants' conduct. The plaintiff therefore needed to substantiate that claim by appropriate evidentiary material, not mere assertion or submissions (see, for example, Hy-Way Sunvisors (sales) Pty Ltd v Aussie Protection Inc [1987] FCA 783 at [9] per Gummow J and Australian Equity Investors, AnArizona Ltd Partnership v Colliers International (NSW) Pty Ltd (No. 5) [2011] FCA 1041 at [31]-[34] per Cowdroy J).

94. It was necessary for the plaintiff to establish "a real causal connection between the conduct and the impecuniosity which, in the exercise of the Court's discretion, would make it unjust to require security": Dalma Formwork Pty Limited (Administrator Appointed) v Concrete Constructions Group Limited [1998] NSWSC 472 per Rolfe J. Without evidence of the financial position of the plaintiff prior to and following the alleged wrongdoing by the defendants, the court is unable to satisfy itself of that causal connection (see Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd [2002] NSWSC 609 at [96]).

95. The evidence relied on to oppose the application established a real causal connection between the defendants' conduct and the plaintiff's impecuniosity. That evidence included the two stocktakes undertaken by Mr Powell prior to and following the lock out and free give way on May 2018, and the plaintiff's income tax returns and BAS statements from 2015 to 2021. The Registrar did not consider this evidence in exercising the discretion to order security.

96. The first basis upon which the Registrar held that she was not persuaded that the plaintiff's impecuniosity has been caused by the defendants' conduct was due to the plaintiff's evidence and financial records being inconsistent, which the Registrar stated made a consideration of this discretionary factor particularly difficult.

97. As to the first matter, the defendants submitted that the plaintiff's 2017 tax return did not disclose the plaintiff's business as owning stock and equipment to the value of approximately $3,000,0000 which is the amount claimed by the plaintiff in the proceedings. The Registrar noted that Mr Powell gave evidence in his affidavit dated 27 June 2022 that he had always included a notional figure in the plaintiff's tax returns for the value of its stock and equipment as he believed the value did not affect the tax payable by the plaintiff. The Registrar did not consider this evidence in finding that the plaintiff had not established that it's impecuniosity has been caused by the defendants' conduct.

98. Further, the plaintiff submitted that its impecuniosity was caused by the fact that:

1. the first defendant returned the 12 wheelie bins placed outside before 27 April 2018 into the premises, which meant the plaintiff was deprived $600,000 worth of stock which it could have used to pay security;

2. the defendants refused to return the 12 wheelie bins to the plaintiff or allow Mr Powell time to remove the plaintiff's stock or sell the stock on an online auction before the free give away on 8 May 2018;

3. the defendants advertised the plaintiff's stock and equipment on the internet for a free giveaway and allowed members of the public to enter the premises to take the plaintiff's stock and equipment for free.

99. The Registrar noted the plaintiff submitted that the fact the first defendant admitted to moving the 12 wheelie bins back into the premises on 27 April 2017 has deprived the plaintiff of $600,000 worth of stock which it could have used to pay security. However, the Registrar did not refer to this evidence in finding that the plaintiff had not established that its impecuniosity was caused by the defendants' conduct.

100. In Trojan, the plaintiffs submitted that the court should infer from the financial statements that the defendant caused their impecuniosity.

101. In Trojan, the plaintiffs argued that had the defendant not taken possession of the plaintiffs' stock and equipment, it could have sold some of that stock and equipment. Rees J held at [74] and [75]:

“[74] I agree that the fact that fixtures, fittings and equipment, which cost the plaintiffs a great deal of money, are now in the possession of Kirela has the result that the plaintiffs cannot sell the fixtures, fittings and equipment which may enable the plaintiffs to satisfy a costs order in favour of Kirela.

[75] Taking these matters into account, it seems to me that plaintiffs have discharged the onus of establishing that Kirela's actions have materially contributed to the plaintiffs' inability to meet an order for security for costs. This is a matter which tends against ordering security for costs."

102. Even assuming, which is denied, that the defendants had, under the licence agreement, a right to "anything within the premises not removed", the 12 wheelie bins full of boning had been removed from the premises by Mr Powell by 27 April 2018 prior to the lockout on 29 April 2018. Mr Powell's evidence was that the 12 wheelie bins of corsetry boning had a value in the vicinity of $600,000.

103. As in Trojan, the plaintiff had discharged the onus of establishing that Kirela's actions have materially contributed to the plaintiffs' inability to meet an order for security for costs. This fact ought to have been taken into account by the Registrar as a factor that did not support ordering security.

104. The second basis the Registrar held that she was not persuaded that the plaintiff's impecuniosity has been caused by the defendants' conduct was that although Mr Powell gave evidence that prior to the lock out on 28 April 2018, he and 4 other people used a truck to move stock and equipment from the premises from 23 to 27 April 2018, the plaintiff did not provide any evidence as to what stock was removed from the premises prior to the lock out and free stock clearance.

105. That finding ignored Mr Powell's evidence that he conducted two stock takes which allowed him to identify the items, stock and equipment that were taken by members of the public during the free giveaway on 8 May 2018. The first stocktake listed the items of stock and equipment in the defendants' premises in early April 2018 and was undertaken by Mr Powell and Mr Beckworth. The second stocktake was in relation to the items of stock Mr Powell was able to move from the defendants' premises before the lockout on 29 April 2018 to new premises at Rosebery. By comparing the two stocktakes, Mr Powell was able to prepare the list of all items of stock and equipment that was taken from the premises by members of the public during the free give away on 8 May 2018.

106. The evidence as to nature and value of the items of stock and equipment taken from the premises by the public during the free giveaway was relevant to establishing the causal link between the defendants' conduct and the plaintiff's impecuniosity. The Registrar did not consider that evidence in deciding to order security. That evidence was evidence which tended against ordering security for costs.

107. The third basis the Registrar held that she was not persuaded that the plaintiff's impecuniosity has been caused by the defendants' conduct was that the plaintiff failed to provide any evidence as to whether it has continued to trade since the lock out and free stock clearance.

108. In finding that the plaintiff failed to provide any evidence as to whether it has continued to trade since the lock out and free stock give away on 8 May 2018, the Registrar ignored the following evidence:

1. Mr Powell gave evidence that the plaintiff's business has continued trading;

2. Metro Fabric's BAS for the financial years ending 30 June 2019, 30 June 2020, and 30 June 2021 were included in Mr Tully's affidavit dated 19 May 2022;

3. the Trust's tax returns for the financial years ending 30 June 2018, 30 June 2019, and 30 June 2020 describe the plaintiff's main business as a fabric wholesaler;

4. the Trust's tax returns for the financial years ending 30 June 2018, 30 June 2019, and 30 June 2020 were included in Mr Tully's affidavit dated 19 May 2022;

5. the plaintiff produced a copy of the Trust's tax return for the financial year ending 30 June 2021 at the hearing;

6. it was agreed by the parties that the plaintiff's financial position had not really changed in the 2021 tax return from that in the 2019 and 2020 tax returns.

109. The fourth basis the Registrar held that she was not persuaded that the plaintiff's impecuniosity has been caused by the defendants' conduct was that the plaintiff failed to provide any taxation returns or financial records to evidence the plaintiff's current financial position. That finding ignored the fact that the evidence included Metro Fabric's BAS for the financial years ending 30 June 2019 to 30 June 2021 inclusive, and the Trust's tax returns for the financial years ending 30 June 2018 to 20 June 2021 inclusive.

110. Exhibited to Mr Powell's affidavit dated 14 March 2023 are copies of the income tax returns for the Trust for the financial years ending 30 June 2015 to 30 June 2022 inclusive, and copies of Metro Fabric's BAS for the financial years ending 30 June 2015 to 30 June 2021 inclusive. In his March 2023 affidavit Mr Powell has given evidence at [12] to explain that the plaintiff suffered a loss in 2017 of $43,944 since it cost the plaintiff $60,000 to move the plaintiff's business to the defendants’ premises and that the plaintiff was able to trade into a profit and pay its debts.

111. In his 14 March 2023 affidavit, Mr Powell has deposed that the primary factors which caused the loss suffered by the plaintiff in the financial year ending 30 June 2018 of $58,236 were the impact the following factors had on the plaintiff's ability to trade:

1. a water leak in the premises from June 2017 to November 2017;

2. the entrance to the premises was blocked by the defendants’ tradesman from 5 November 2017 to 5 December 2017;

3. the defendants' locked the plaintiff out of the premise from 7 February 2018 to 27 February 2018;

4. the defendants' locked the plaintiff out of the premise from 29 April 2017;

5. the plaintiff lost the opportunity to sell the stock that was taken by the public during the free give away on 8 May 2018; and

6. the plaintiff's customers and competitors believed Metro Fabrics had ceased trading as a result of the advertisement placed on the internet by the defendants to promote the free give-away on 8 May 2018 and the fact that the give-away occurred.

112. Further, in his 14 March 2023 affidavit, Mr Powell deposes at [17] that the free give-away of the plaintiff's stock and equipment on 8 May 2018 severely impacted the plaintiff's business because:

1. the plaintiff's business is no longer a one stop shop;

2. the plaintiff's customers believed Metro Fabrics had been liquidated and moved their business to the plaintiff's competitors.

113. The causal connection between the defendants' conduct and the plaintiff's impecuniosity is established because:

1. the defendants admit to having arranged the free give-away of the plaintiff's stock and equipment on 8 May 2018;

2. there is photographic evidence of the 12 wheelie bins containing the corsetry boning and of the volume of stock in the premises on 8 May 2018 and of members of the public within the premises at that time;

3. the give-away caused the plaintiff to lose the value of the stock and equipment that was taken by members of the public from the premises on 8 May 2018; and

4. the financial loss the plaintiff suffered as a result of the free give-away materially contributed to the plaintiff's inability to provide security.

114. The court ought to find that the actions of the defendants, particularly the action of the first defendant to move the 12 wheelie bins back into the premises and the unauthorised disposal of all of the plaintiff's stock and equipment on 8 May 2018, caused or materially contributed to the plaintiff's inability to provide security for the defendants' costs.

The defendants’ submissions

115. It ought to be recalled that before the matters complained of the plaintiff found itself in the position it was in because it had been failing to pay its rent for two months.

116. The defendant submitted that the defendants' conduct did not cause the plaintiff's impecuniosity because the plaintiff's 2017 income tax return reveal that the plaintiff was impecunious prior to the lockout and give way in May 2018.

117. The plaintiff’s 2017 tax return demonstrates that, before the matters complained of and as at 30 June 2017:

1. It had made a loss of $43,922 for that financial year;

2. It had closing stock of $252,878; and

3. Its net asset position of zero.

118. Had the plaintiff, as a company, sued a defendant prior to the matters complained of, an order for security would likely have been made on the financial material filed by the plaintiff with the Australian tax office (‘ATO’). Thus, there is no causal connection between the defendants’ conduct in 2018 and the plaintiff’s impecuniosity.

119. The twelve wheelie bins that were left on the common property on 27 April 2018 of the plaintiff’s submission do not assist this argument:

1. First, the contents of the twelve wheelie bins were arguably the property of the defendants either by February 2018 or alternatively by April 2018;

2. Secondly, the contents of the twelve wheelie bins are in dispute and there is no reliable evidence as to the value of what was inside them or how this might have assisted the defendant overcome an order for security; and

3. Thirdly, as the Registrar pointed out, the plaintiff’s director’s evidence is that four people across four days had already moved stock to the new premises. It was open to the Court to draw the inference that a considerable volume of material may have been moved during that time to the new premises. If, on the plaintiff’s evidence, all that is left behind is $3 million worth, then it is open to infer from this that what has already been moved is worth at least that amount, if not more. Yet if that is the case, then the plaintiff would have no trouble in coming up with $71,502 by way of security.

Resolution

120. Prior to the defendants selling the plaintiff’s stock, the plaintiff was 2 months in arrears on its rent.

121. From an examination of the plaintiff’s tax returns his business was not profitable. Mr Powell had already expended his superannuation funds.

122. The plaintiff’s tax return for 2018 is starkly inconsistent with the plaintiff’s case. Relevantly, the tax return:

1. lists its total assets as being $463,222, and assets equalled liabilities.

2. Its opening stock for that year (being 1 July 2017) was $252,878 and its closing stock (as at 30 June 2018) was $208,303.

3. In relation to the opening stock of $252,878, there were purchases of stock $4,293 and total income of $48,868. Thus: $252,878 + $4,293 - $46,868 = $210,303. This leaves a discrepancy of only $2,000.

123. Based on this tax return, it is unclear how throughout that financial year there might have been room for the plaintiff to also have accessories worth $1,409,021; plus fabrics worth $1,455,984; and also equipment worth $78,278, all of which the plaintiff alleges were situated in the premises when locked out on 29 April 2018 (totalling $3,024,283). As the Registrar has concluded, there are inconsistencies regarding the financial records presented by the plaintiff as evidence, in contrast with claims made by the plaintiff himself as to the amount of stock the business retained as well as the plaintiff’s own impecuniosity. This makes it difficult to evaluate this discretionary factor.

124. On 6 April 2018 the plaintiff was told that the licence agreement was terminated and after 21 days the defendant would have the right to organise skip bins and dispose of any items left behind by the plaintiff. The plaintiff submitted that he should have been given the opportunity by the defendant to reclaim his stock, which did not vest with the defendant until the 30 April 2018 constituting the end of the first period identified in the licence agreement. However, from my understanding, the stock was left on common property by the plaintiff’s own oversight, it was wheeled out on the 27 April 2018, which was a Friday. The plaintiff’s daughter in her affidavit states that her father had arranged a truck to pick it up the following Monday, being the 30 April 2018.

125. On the 18 April 2018 the plaintiff was again advised of the locks being changed and that the defendants intended to exercise their rights and dispose of all the items left on the premises in accordance with the licence agreement.

126. On the 20 April 2018 the defendant confirmed that it would vacate the premises and remove all stock and equipment by 5pm 27 April 2018, however, this did not happen. Apparently, the plaintiff had arranged four people to assist with the transport of the stock, fixtures and fittings but was unable to remove it all and give vacant possession to the defendants although he had agreed to do so.

127. The plaintiff left 12 wheelie bins with contents worth over $600,000 (as estimated by the plaintiff) in the common area of a property over the course of a weekend. On 29 April 2018, the defendants had the locks on the premises changed. On the 8 April 2018 the defendants offered to the public a free giveaway of the remaining stock and equipment.

128. The plaintiff admits that he left 12 wheelie bins full of boning on the common property. After the locks were changed on 29 April 2018, the first defendant admitted to moving the wheelie bins from the common property back into the premises. Whether this action constitutes conversion of goods, I am unable to say. This is really a matter that can only be properly dealt with at trial. As to the value of the stock and equipment is concerned, there is only the plaintiff’s valuation of them in evidence at $3 million. However, as there is no expert evidence. The documentary records do not assist the plaintiff.

129. It is my view that the plaintiff was the author of his own misfortune and the defendants’ actions did not cause the impecuniosity. In any event, the plaintiff had removed stock from the premises but was unable to rely on this stock and equipment that Mr Powell presumably had in his possession as security to raise funds to satisfy the security for costs order. Even though the plaintiff relied upon new evidence that I have taken into account in relation to this discretionary factor. I have nevertheless come to the same conclusion as the Registrar.

The plaintiff’s submissions

(c) Whether the order for security will stultify the proceedings

130. The Registrar was not satisfied the plaintiff established that it does not have funds available to pay security to establish that an order for security will stultify the proceedings.

131. In finding that the plaintiff failed to provide any evidence as to whether it has continued to trade since the lock out and free stock clearance the Registrar ignored the following evidence:

1. Mr Powell gave evidence that the plaintiff's business has continued trading;

2. the evidence included the plaintiff's BAS statements from 30 June 2015 to 30 June 2022 which showed sales figures for the business;

3. the evidence included the plaintiff's 2019, 2020 and 2021 tax returns which describe the plaintiff's main business as a fabric wholesaler.

132. In finding that the plaintiff failed to provide any taxation returns or financial records to evidence the plaintiff's current financial position, the Registrar ignored the evidence included the plaintiff's 2021 tax return.

133. In finding that the plaintiff had not established that the security order would stultify the proceedings, the Registrar noted that the plaintiff admitted to holding approximately $250,000 worth of stock and equipment. In his affidavit dated 14 March 2023, Mr Powell gives evidence at [18] to [21] of his unsuccessful attempts to raise funds to pay security in reliance upon the value of the plaintiff's stock and equipment.

134. In finding that the plaintiff had not established that the security order would stultify the proceedings, the Registrar noted that Mr Powell gave evidence that he did not anticipate the plaintiff would record a significant profit for the 2022 financial year. In his affidavit dated 14 March 2023 at [15], Mr Powell refers to a copy of the plaintiff's draft 2022 tax return which indicates that the plaintiff made a profit of $8,669 in the financial year ending 30 June 2022.

135. I have already referred to the 2018 tax return. I have also examined the 2019, 2020, 2021 tax returns. My analysis of the plaintiff’s financial position is as follows:

1. The 2019 returns showed a net income loss of $30,297. Total assets of $424,111 equalled total liabilities of $424,111.

2. The 2020 returns showed a net income loss of $32,616. Total assets of $410,005 equalled total liabilities of $410,005.

3. The 2021 returns showed a net income loss of $6792. Total assets of $383,662 equalled total liabilities of $383,662.

136. It is my view that the plaintiff’s business was not profitable between 2018 to 2021.

Additional affidavits relied upon from the plaintiff’s family members

137. The plaintiff relied on additional affidavits from Mr Powell’s family members. The defendant did not object to the introduction of additional evidence, that now addresses the issue as to whether the plaintiff has any access to any other funds. This evidence was not before the Registrar.

138. The following affidavits were relied upon. William Patrick Powell (son of Mark Powell) dated 27 June 2022, Kathryn Eileen Powell (daughter of Mark Powell) dated 27 June 2022, Thomas Joseph Powell (son of Mark Powell) 27 June 2022 and Susan Mary Powell (former wife of Mark Powell) 27 June 2022.

139. William Patrick Powell, son of the plaintiff has filed an affidavit that outlines Mr Powell’s (son) employment and financial status. He is currently an employee of XXX and earns approximately $977.11 per week. He does not own any real property or any assets of significant value. He is required to pay $300 a week in rent and the rest of his earnings are used to pay for his general living expenses. Mr Powell (son) makes the representation in his affidavit, that he is not financially able to help the plaintiff meet the security of costs order.

140. Ms Powell confirmed in her affidavit that she earns $1583.46 per week working for XXXX – Labour Hire, she confirms that most of that income is spent on her rent and living expenses which include several medications for numerous conditions from which she suffers. She does not own any real estate or any assets other than a car that is valued at approximately $10,000. She states that she is not in a financial position to help the plaintiff meet the security of costs order.

141. Thomas Powell, Mark Powell’s son in his affidavit dated 27 June 2022 deposed that he earned $789.79 weekly working for XXXX Pty Limited. He deposed that he does not own any real estate or assets of value and that he’s weekly earnings are spent on rent and living expenses. He says that he is not in a financial position to assist the plaintiff with a monetary contribution towards the security for costs order.

142. Susan Mary Powell, former wife of Mark Powell in her affidavit dated 27 June 2022 deposed that after the breakdown of their marriage in 2013, she agreed to resign as a director of Powell Custodian and surrender any beneficial interest or income that may have flowed from the Trust, Powell Custodian, or the Metro fabrics business.

143. From this evidence, I conclude that Mr Powell’s family members are unable to contribute to the payment of funds towards the security for costs order.

The defendants’ submissions

144. It is a matter for the plaintiff to establish stultification. The plaintiff’s case, balances improbably on the horns of a dilemma: based on the plaintiff’s evidence, how is it that after four full days of four people moving stock with a truck, only $250,000 worth of stock was moved, whereas $3 million worth was purportedly left behind?

145. At final hearing, the Court may accept or reject this evidence. But whichever way one approaches this problem at the interlocutory level, the answer cannot assist the plaintiff’s case on the application for security for costs.

146. The plaintiff maintained before the Registrar that it has at least about $250,000 worth of stock. If true, one would reasonably expect that it, together with those standing to benefit behind it, would be able to come up with some funds by way of security. To the extent that there is doubt or vagueness about this situation, the plaintiff will have failed to have established this issue.

147. Mr Powell’s financial position as set out in his affidavit evidence and compared to other documents in evidence is vague and unclear. Properly considered, he has not established that he is similarly without resources to pay by way of security. He may well have other resources at his disposal by which he could raise security on the plaintiff’s behalf. Ultimately, the plaintiff has not discharged its onus on this issue.

148. Even if stultification were established, that would still be just one factor in the Court’s discretion. It ought to be borne in mind that a corporate trustee of a discretionary trust has many natural financial advantages, including separate legal personality and limited liability. But one important natural disadvantage is that such an entity may well be liable to pay security for costs in litigation where a natural person might not be so liable.

149. It is relevant that no one has volunteered to come out from under the skirt of the Company, this point was expressly made in submissions before the registrar (T-24.27). The evidence discloses that there are people who would stand to benefit from the litigation and could undertake to make their personal assets liable for any costs order. Even if such undertakings were proffered that would not be determinative, especially when all those individuals go on to say it would be a hollow indemnity in any event. But it would be a factor in the exercise of the Court’s discretion, if it were offered, which it is not.

Resolution

150. From the financial records of the plaintiff, it appears that the plaintiff was impecunious prior to suffering any loss referred to in the SOC. I accept that the Mark Powell’s children and ex-wife are unable to contribute to the payment of the order for security for costs. They can only afford their living expenses. Mr Powell cannot use the stock he retains as security to raise funds for the payment of the security for costs order. There are no additional avenues for the plaintiff to pursue to raise the capital required for payment of the security for costs order. I have already referred to the fact that Mr Powell has no funds left in his superannuation policy. In these circumstances, it is my view that the order for security of costs will stultify the proceedings.

151. After taking into account the new evidence of Mr Powell’s family members, I have reached a different conclusion to that of the Registrar, but it is only one factor that mitigates against making an order for security for costs.

Consideration

152. The plaintiff’s impecuniosity has been established. That has been conceded by the plaintiff. Therefore, the threshold jurisdictional requirement pursuant to rule 42.21(1) of the UCPR has been met for an order to be made for security of costs, subject to discretion. The Registrar has made an order for payment of security for costs. While I have come to a different conclusion in that an order for security for costs will stultify the proceedings, the consequence of which is that the plaintiff will most likely be denied the right to litigate its claim.

152. The Registrar was correct in her approach of treating the strength of the plaintiff’s case as a neutral factor. The Registrar was also correct in finding that the plaintiff’s impecuniosity was not caused by the defendants’ conduct. While I have reached the view, an order for security for costs will stultify the proceedings, in the exercise of my discretion, I consider that if the plaintiff’s proceedings fail, the defendants will find themselves having to deal with the financial loss of rent unpaid as well as any legal fees from these proceedings that they incur in defending their rights. In exercising my overall discretion, I consider that an order for security for costs should be made.

153. There is no utility in reducing the amount ordered by the Registrar for the security for costs as the plaintiff simply has no access to funds except by selling the fabrics he has in his possession, which Mr Powell estimates a retail value of $300,000. The defendants are facing the costs of a four-to-five-day trial. The amount of security in these circumstances is reasonable.

154. I have considered the Registrar’s reasons and the fresh evidence. I have also arrived at my own decision. It is that the plaintiff should pay the security for costs as ordered by the Registrar.

The result

156. The result is that I affirm the decision of the Registrar dated 7 November 2022 for security for costs.

157. The plaintiff’s notice of motion filed 20 December 2022 is dismissed.

Costs

158. Normally costs follow the event. The plaintiff is to pay the defendants’ costs.

THE COURT ORDERS THAT:

1. The decision of the Registrar dated 7 November 2022 is affirmed.

2. The plaintiff’s notice of motion filed 20 December 2022 is dismissed.

3. The plaintiff is to pay the defendants’ costs.

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Decision last updated: 01 March 2024