RLT Holdings (WA) Pty Ltd v Rosinta Nominees Pty Ltd - [2018] WASC 1

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: RLT HOLDINGS (WA) PTY LTD -v- ROSINTA NOMINEES PTY LTD [2018] WASC 1

CORAM: ACTING MASTER STRK

HEARD: 28 JULY 2017, ADJOURNED PART HEARD; FORM OF SECURITY PROFFERED BY PLAINTIFFS AFTER CONFERRAL ON 14 AUGUST 2017

DELIVERED : 4 JANUARY 2018

FILE NO/S: CIV 1062 of 2017

BETWEEN: RLT HOLDINGS (WA) PTY LTD
First Plaintiff
INVESTMENTS WA PTY LTD
Second Plaintiff
AND
ROSINTA NOMINEES PTY LTD
First Defendant
BIRAMONT PTY LTD
Second Defendant

Catchwords:

Practice and procedure - Security for costs - Threshold jurisdiction condition conceded - Discretion - Directors willing to accept personal liability for costs - Appropriate quantum and form of security - Turns on own facts

Legislation:

Corporations Act 2001 (Cth), s 1335
Rules of the Supreme Court 1971 (WA), O 25

Result:

Security for costs ordered

Category: B

Representation:

Counsel:

First Plaintiff                :     Mr D A Lenhoff
Second Plaintiff            :     Mr D A Lenhoff
First Defendant             :     Mr L J D Barker
Second Defendant         :     Mr L J D Barker

Solicitors:

First Plaintiff                :     Holborn Lenhoff Massey
Second Plaintiff            :     Holborn Lenhoff Massey
First Defendant             :     GV Lawyers
Second Defendant         :     GV Lawyers

Case(s) referred to in judgment(s):

BBC Nominees (WA) Pty Ltd v Yangebup Developments Pty Ltd [2008] WASC 81
Brundza v Robbie & Co (No 2) [1952] HCA 49; (1952) 88 CLR 171
Construction Industries Australia Ltd (in liq) v WFI Insurance Ltd [2016] WASC 404
Crosswest Corporation Pty Ltd v Allstrike Enterprises Pty Ltd [2014] WASC 27
Darwin Offshore Logistics Base Pty Ltd v Cox [2010] WASC 356
FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69; (2000) 22 WAR 241
Field Camp Services Pty Ltd v Site Accommodation Pty Ltd [2011] WASCA 118
Four Vanguard Servicos E Navagacao Lda v ENI Australia Ltd [2014] WASC 473
Gentry Brothers Pty Ltd v Wilson Brown & Associates Pty Ltd (1992) 8 ACSR 405
Global Finance Group Pty Ltd (in liq) v Marsden Partners (a firm) [2004] WASC 52
Heller Factors Pty Ltd v John Arnold's Surf Shop Pty Ltd (in liq) (1979) 4 ACLR 492
Intercraft Cabinets Pty Ltd v Sampas Pty Ltd (1997) 18 WAR 306
Jaddcal Pty Ltd v Minson [No 2] [2011] WASC 138
Sugarloaf Hill Nominees Pty Ltd as Trustee for the Richard and Anna Trust v Rewards Projects Ltd [2011] WASC 19
TSDack Pty Ltd v Australian Water Holdings Pty Ltd [2015] FCA 931; (2015) 108 ACSR 379
Unified Pty Ltd v The Cancer Council Western Australia Inc [No 3] [2011] WASC 161
Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [2013] WASC 57

ACTING MASTER STRK: By a chamber summons filed on 4 April 2017, the defendants applied for an order that the plaintiffs pay the sum of $32,768.34 into court by way of security for the defendants' costs. The defendants sought that the amount be paid into court from funds of the first plaintiff held in the trust account of the defendants' solicitors.
The application was listed for hearing at a special appointment on 27 June 2017. The hearing did not proceed on that day as the defendants pressed for an adjournment. Leave was granted to the defendants to file and serve supplementary affidavits and submissions. The plaintiff was also granted leave to file materials in response.
At the relisted hearing on 28 July 2017 and in support of the application, the defendants relied on the affidavit of Michael Van Leeuwen, a director of the second defendant, sworn 20 March 2017 (first Van Leeuwen affidavit); a supplementary affidavit of Mr Van Leeuwen sworn 6 July 2017 (second Van Leeuwen affidavit); the affidavit of Colin Maxwell King sworn 5 July 2017 (King affidavit); and the affidavit of Luke James Durack Barker, solicitor for the defendants, sworn 7 July 2017 (Barker affidavit). Various written outlines of submissions were also filed on behalf of the defendants. They were the first and second defendants' submissions in support of application for security for costs filed 7 June 2017; the defendants' brief outline of supplementary submissions filed 26 June 2017; and the defendants' consolidated submissions in support of security for costs filed 7 July 2017.
The plaintiffs relied on the affidavit of Joseph Tilli sworn 24 May 2017 (Tilli affidavit); and the affidavit of Paul Nathan Holmes, solicitor for the plaintiffs, sworn 27 July 2017 (Holmes affidavit). The plaintiffs also relied on a written outline of submissions filed on 9 June 2017; and supplementary submissions dated 27 July 2017.
At the hearing on 28 July 2017, it became clear that the real issue in dispute between the parties was the appropriate form of security to be provided. The 'threshold jurisdictional question' under s 1335(1) of the Corporations Act 2001 (Cth), that is, whether it appears by credible testimony that there is reason to believe that the plaintiff corporations will be unable to pay the defendants' costs, was conceded by the plaintiffs.
At the conclusion of the hearing on 28 July 2017, I made an order that within 14 days, the plaintiffs were to file and serve a form of security to be proffered on behalf of the plaintiffs following conferral with the defendants in relation to the form of security. The application was otherwise adjourned part heard, to be determined on the papers after receipt of the form of security to be proffered on behalf of the plaintiffs.
On 14 August 2017, a draft undertaking was filed on behalf of the plaintiffs. In short, Joseph Tilli and Peter Tilli, the directors of the second plaintiff, offer to jointly and severally undertake to pay to the defendants, or either of them, any costs of the action that may be awarded in their favour up to a maximum of $70,000 in the event of the plaintiffs failing to do so within 14 days of such costs having been taxed or agreed.
I was informed by the solicitors for the plaintiffs that conferral had failed to resolve the dispute between the parties.

Status of the proceedings

The proceedings were commenced by a writ of summons filed on 18 January 2017. At the commencement of the proceedings, there were three plaintiffs: Primestyle Pty Ltd as first plaintiff; RLT Holdings (WA) Pty Ltd as the second plaintiff; and Investments WA Pty Ltd as the third plaintiff.
A memorandum of appearance was filed on behalf of the defendants on 19 January 2017.
By consent, on 7 March 2017, the plaintiffs were given leave to amend the writ of summons. Primestyle Pty Ltd was removed as a plaintiff, leaving RLT Holdings (WA) Pty Ltd as the first plaintiff; and Investments WA Pty Ltd as the second plaintiff. The second plaintiff is the trustee of the Pieros Family Trust.
The chamber summons for security for costs was filed on 4 April 2017, with a first return date of 2 May 2017. By reason of an administrative error on the part of the solicitors for the defendants, the chamber summons was not promptly served. The hearing on 2 May 2017 was vacated at the defendants' request and relisted on 9 May 2017.
A statement of claim was filed on behalf of the plaintiffs on 4 May 2017. A defence was filed on behalf of the defendants on 18 May 2017.

Nature of the proceedings

The plaintiffs' claim is for damages and/or equitable compensation against the defendants. The plaintiffs say as follows.[1]
[1] The summary is taken from the amended writ of summons, indorsement of claim; and the statement of claim filed on behalf of the first and second plaintiffs. A more detailed explanation of the factual background is provided in the Tilli affidavit.
(a)The plaintiffs' claim arises from the conduct of the defendants by entering into possession and selling the land situated and known as 57 Mills Street, Cannington, being Lot 9000 on Deposited Plan 40925, being the whole of the land in certificate of title vol 2565 folio 253 (the Secured Property).
(b)The second plaintiff was the registered proprietor of the Secured Property.
(c)The defendants held a first ranking mortgage dated 20 March 2015, which was registered in their favour over the Secured Property, and which secured a loan in the amount of $1,390,000.
(d)The first plaintiff held a second ranking mortgage, assigned to the first plaintiff on 19 August 2015, which was registered over the Secured Property, and which secured a loan in the amount of $300,000.
(e)During or in about April 2015, the second plaintiff defaulted under the terms of the first ranking mortgage by failing to pay an instalment due. On 23 April 2015, the defendants issued noticed calling up all moneys secured by the first ranking mortgage.
(f)Pursuant to a deed of settlement and release entered into between the second plaintiff and the defendants in June 2016, the defendants agreed to postpone the exercise of their power of sale of the Secured Property until 18 September 2016 in order to enable the second plaintiff to refinance the first ranking mortgage or to find a buyer for the Secured Property.
(g)By 18 September 2016, the second plaintiff had been unable to refinance the first mortgage or to find a buyer for the Secured Property, as a consequence of which the defendants relisted the Secured Property for sale.
(h)On 7 November 2016, the defendants exercised their power of sale and sold the Secured Property for $1,650,000. Settlement took place in January 2017.
(i)The plaintiffs claim that the defendants acted unconscionably, alternatively in breach of their duty of care to the plaintiffs, to market and sell the Secured Property for its market value; and in breach of that duty, sold the Secured Property for an amount less than its market value. The plaintiffs say that the Secured Property had a value of $2,000,000 excluding GST.
In short, the defendants say in their defence that:[2]
(a)the defendants obtained a valuation of the Secured Property dated 7 November 2016 from licenced valuers Burgess Rawson, stating that $1,600,000 was the fair and reasonable market value of the Secured Property;
(b)the defendants negotiated a sale price with the purchaser of $1,650,000, being $50,000 greater than the licenced valuer's advice of the market value of the Secured Property; and
(c)the first plaintiff through its solicitors offered to purchase the Secured Property for $1,500,000 on 4 November 2016, being $150,000 less than the sale price attained by the defendants.
[2] The summary is taken from the defence filed 18 May 2017.

The plaintiffs' financial circumstances

In the Tilli affidavit, Mr Tilli said the following in relation to the application for security for costs:[3]
[3] Plaintiffs' submissions filed 9 June 2017 [5.1] ‑ [5.6].
5.1the second plaintiff, as trustee for the Pieros Family Trust, owns real property located in York within the jurisdiction to the value of $23,500,000 ('the Property');
5.2the valuation of $23,500,000 is supported by an appraisal dated 9 December 2016 obtained from Caruso Property Group, annexure K to the affidavit;
5.3the second plaintiff, in its aforesaid capacity, owns all the units in the unit trust of York Land Holdings Pty Ltd a.t.f. for the York Land Holdings Unit Trust;
5.4the total amount of the mortgages registered against the Property is the sum of $18,513,178.57;
5.5the unencumbered equity in the Property is the amount of $4,986,821.43;
5.6Mr Tilli is prepared to:
5.6.1provide an undertaking not to amend the trust documents which provide the unit holding in favour of the second plaintiff;
5.6.2permit a caveat to be lodged over, inter alia, the Property.
It was the plaintiffs' position prior to the hearing on 28 July 2017 that the second plaintiff had established a prima facie case that it has sufficient assets to cover any adverse costs order that may be made against the plaintiffs. The plaintiffs also said that there was money properly payable to the first plaintiff being held by the defendants' solicitors. In this regard, Mr Tilli deposed as follows:[4]
50.Pursuant to the power of sale, the First and Second defendants sold the Land for $1,650,000.00. Despite numerous requests by Holborn Lenhoff Massey, solicitors for the First and Second Plaintiffs, to obtain a settlement distribution statement, one was only provided on 16 February 2017. Annexed hereto and marked 'Annexure M' is that settlement statement ('Statement').
51.That Statement amongst other things provides that the amount available to the First Plaintiff as second mortgagee is $32,768.34, the money sought by the First and Second Defendants to be paid into Court for security of costs.
52.The First and Second Plaintiffs also dispute that the amount $37,807.00 claimed in respect of legal fees and disbursements $1,038.02, are reasonable having regard to the work completed by GV Lawyers for and on behalf of the First and Second Defendants. Annexed hereto and marked 'Annexure N' is the bill of costs which the plaintiffs submit should be taxed.
[4] Tilli affidavit [50] ‑ [52].
The defendants filed affidavits and submissions in response. In summary, the defendants said that:
(a)there is no evidence before the court that the plaintiffs have any ability to generate income or own any assets in their own right;
(b)neither plaintiff is a registered proprietor of land in Western Australia and both plaintiffs have a paid up share capital of $1.00 each;[5]
(c)in relation to the York Land (described by Mr Tilli at 5.1 at [16] above as 'the Property'), there is a mortgagee in possession. Further, interest has not been paid by the borrower, which continues to accrue, and land tax and council rates are not being met by the borrower, which accrue ahead of the first ranking mortgagee;[6]
(d)the selling agent appointed by Angas Securities Ltd is seeking expressions of interest in the range of $5.5 million to $6 million for the York Land;[7]
(e)at an auction on 31 May 2017, the York Land was passed in and the auction was ended after only one bid was made for the York Land, by Peter Tilli in the amount of $2 million.[8]
[5] First Leeuwen affidavit, MVL-3 and MVL-4; defendants' consolidated submissions [10].
[6] Barker affidavit, LJDB-1.
[7] King affidavit [3].
[8] King affidavit [5] ‑ [6].
The defendants acknowledge that settlement proceeds (from the sale of the Secured Property) continue to be held in the trust account of their solicitors. The basis on which the defendants' solicitors continue to hold sale proceeds in their trust account for a sale which settled on 19 January 2017 was not explained and cannot be readily discerned from the materials filed.
At the hearing on 28 July 2017, the plaintiffs did not seek to press that the second plaintiff has established a prima facie case that it has sufficient assets to cover any adverse costs order that may be made against the plaintiffs. Instead, the plaintiffs noted that there had been various offers and counteroffers exchanged as between the parties in relation to the form of security that would be proffered by the plaintiffs, and informed the court that agreement had not been reached as to the appropriate form of security, nor the appropriate cost order in relation to the application for security for costs. In the Holmes affidavit, Mr Holmes attached a copy of the open settlement correspondence.
In the draft undertaking filed on 14 August 2017, Mr Joseph Tilli and Mr Peter Tilli, directors of the plaintiffs, offer to provide an undertaking to the court to be jointly and severally liable for a maximum amount of $70,000 in respect of any adverse costs orders made against the plaintiffs in this matter, to be paid within 14 days of such costs having been taxed or agreed.

Security for costs under s 1335 of the Corporations Act

The chamber summons filed on behalf of the defendants did not disclose whether the application for security for costs was made pursuant to s 1335 of the Corporations Act or O 25 of the Rules of the Supreme Court 1971 (WA). While the defendants' submissions filed 7 June 2017 and 7 July 2017 refer to both s 1335 and O 25, the submissions focus on s 1335(1), which provides as follows:
Where a corporation is plaintiff in any action or other legal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his, her or its defence, require sufficient security to be given for those costs and stay all proceedings until the security is given.
The precondition for the exercise of the court's jurisdiction under s 1335(1), sometimes described as the 'threshold jurisdictional question', is whether it appears by credible testimony that there is reason to believe that a plaintiff corporation will be unable to pay a defendant's costs. If that condition is satisfied, the court has jurisdiction to make an order for security for costs, and the question is whether it should exercise its discretion to make such an order.[9] The jurisdictional condition must be satisfied before the discretionary power to order security for costs is enlivened.
[9] FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69; (2000) 22 WAR 241; Construction Industries Australia Ltd (in liq) v WFI Insurance Ltd [2016] WASC 404 [27].

Threshold jurisdiction question

There is no requirement for proof that a party will not be able to meet a costs order against it. Rather, s 1335(1) requires an evaluation of the evidence to see whether that leads to a reason to believe that a plaintiff will be unable to pay the costs of a defendant.[10] The question whether a plaintiff will be unable to pay costs requires the court to form an opinion about what the financial position of a plaintiff will be at the time of judgment.[11]
[10] Darwin Offshore Logistics Base Pty Ltd v Cox [2010] WASC 356 [3].
[11] Darwin Offshore Logistics Base Pty Ltd v Cox [4].
At the hearing of the application, the plaintiffs conceded that the jurisdictional condition had been satisfied.
Had the point not been conceded, having regard to the evidence and submissions filed, and adopting a practical, common sense approach to the examination of the plaintiffs' affairs, I would have found that there was credible testimony that there is reason to believe that the plaintiffs will be unable to pay the defendants' costs if successful in their defence. As such, the defendants would have satisfied the threshold test for jurisdiction under s 1335(1).

Discretion

If the threshold condition is satisfied, the court has jurisdiction to make an order for security for costs, and the question is whether it should exercise its discretion to make such an order.[12] The court is not bound to make such an order.
[12] FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd; Construction Industries Australia Ltd (in liq) v WFI Insurance Ltd [27].
Once the court has jurisdiction under s 1335(1) there is an unlimited discretion that is to be exercised considering all of the circumstances of the case.[13] Essentially, the section requires a balance to be struck between protecting a defendant from the possible consequences of being sued by an impecunious corporation with limited liability and avoiding injustice to the corporation by unnecessarily prejudicing it in the conduct of litigation.[14]
[13] Unified Pty Ltd v The Cancer Council Western Australia Inc [No 3] [2011] WASC 161 [10].
[14] Sugarloaf Hill Nominees Pty Ltd as Trustee for the Richard and Anna Trust v Rewards Projects Ltd [2011] WASC 19 [31]; Unified Pty Ltd v The Cancer Council Western Australia Inc [No 3] [10].
Various factors may be relevant to that exercise of discretion. They may include (but will not be limited to) the strength and bona fides of the plaintiff's case; the likelihood of the plaintiff being able to pay the defendant's costs; whether the plaintiff's impecuniosity was caused by the defendant's conduct which is the subject of the claim; whether the application for security is oppressive; whether the award for security would deny the impecunious plaintiff a right to litigate; whether there are persons standing behind the plaintiff who are likely to benefit from the litigation; whether the persons standing behind the plaintiff have offered any security or personal undertaking; whether the plaintiff is in substance a plaintiff or whether the proceedings are defensive in the sense of directly resisting proceedings already brought or seeking to halt the defendant's self‑help procedures; whether the application for security has been brought promptly; whether the defendant has any rights which it can exercise against the assets of the plaintiff to satisfy an order for costs in its favour; and any factors relating to public interest.[15] The same principles as to the exercise of the discretion identified above apply to applications brought under O 25 of the Rules of the Supreme Court.[16]
[15] Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [2013] WASC 57 [6]; Construction Industries Australia Ltd (in liq) v WFI Insurance Ltd [28].
[16] Crosswest Corporation Pty Ltd v Allstrike Enterprises Pty Ltd [2014] WASC 27 [14].

The defendants press for the discretion to be exercised and for the court to order that the sum of $32,768.34 be paid into court by way of security for the defendants' costs. The defendants seek that the amount be paid into court from funds held in the defendants' solicitors trust account. Mr Van Leeuwen deposes at [40] of the first Van Leeuwen affidavit that following settlement of the mortgagee sale, there was a surplus of funds of $32,768.34, which funds continue to be held in the defendants' solicitors' trust account.
In considering whether to exercise the discretion, I have had regard to the following.
First, I have considered whether the plaintiffs' claim is bona fide and I am satisfied of the same. There is no suggestion that the plaintiffs' claim has not been brought in good faith.
Secondly, I have taken into account the strength of the plaintiffs' case. In this regard, I note that it is not necessary nor is it appropriate that I attempt any detailed consideration of the plaintiffs' case at this stage. Given the very limited evidence before the court as to merits of the case, it is not possible to do so in any event.
As to this factor, the plaintiffs say that the defendants have filed a defence to the statement of claim and there are no proceedings on foot to strike out any portion of the statement of claim.[17]
[17] The plaintiffs' submissions filed 9 June 2017 [4.3].
Having carefully considered the plaintiffs' statement of claim, and all of the evidence filed by and on behalf of the parties, I find that, although it is not without difficulties, there is a prima facie case against the defendants.
Thirdly, I note that the inability of the plaintiffs to pay the defendants' costs not only enlivens the jurisdiction to require security but it is also a substantial factor in the decision whether to exercise it.[18] Having regard to the evidence bearing on the plaintiffs' financial position, I find that it is unlikely that the plaintiffs will be able to pay the defendants' costs if it were unsuccessful in the proceedings.
[18] Sugarloaf Hill Nominees Pty Ltd v Rewards Projects Ltd [36]; TSDack Pty Ltd v Australian Water Holdings Pty Ltd [2015] FCA 931; (2015) 108 ACSR 379 [35].
Fourthly, I have considered whether the plaintiffs' impecuniosity was caused by the defendants' conduct which is the subject of the claim. Having regard to all of the evidence filed, I find that it is not possible to conclude that the plaintiffs' impecuniosity was caused by the defendants' conduct which is subject of the claim.
Fifthly, I find that the application for security for costs in this proceeding is not oppressive in all of the circumstances. Indications of an application for security that is oppressive include (but are not limited to) where a defendant has made the application as a means to stifle a genuine claim,[19] or where a defendant has conducted its defence in a manner that prolongs the proceedings.[20] Having regard to all of the circumstances, I find no indications of oppression. Further, on the evidence filed by the defendants, it would appear that the defendants have a serious defence to the claims against them.
[19] Jaddcal Pty Ltd v Minson [No 2][2011] WASC 138 [15].
[20] Jaddcal Pty Ltd v Minson [No 2] [15]; Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [31].
Sixthly, I find that there was conferral prior to and no significant delay in making the application.
I have also had regard to whether an award of security might deny the plaintiffs the right to litigate. The defendants seek payment into court of an amount presently held by the defendants' solicitors on trust. There is no evidence before the court to suggest that should the defendants' application succeed, the plaintiffs might be denied the right to litigate. Indeed, the proceedings have been pursued to date by the plaintiffs without the benefit of the funds of the first plaintiff held by the defendants' solicitors in trust. However, there is no evidence as to whether the directors who have proffered undertakings would be able to put up a significant amount by way of cash deposit as security.
I have also had regard to whether the plaintiffs have been forced to defend their interests because of the conduct of the defendants. In particular, I considered Heller Factors Pty Ltd v John Arnold's Surf Shop Pty Ltd (in liq).[21] In that case, Mitchell J, with whom King CJ and Legoe J agreed, held that the court, in deciding whether or not to exercise its discretion to make an order for security for costs, is entitled to consider whether a corporation is a true plaintiff on the one hand or, on the other hand, is forced into the position of plaintiff because the defendant is empowered to take what may be described as 'self help' procedures. In this action, the enforcement by the defendants of the security (in all of the circumstances) might be described as a 'self help' procedure. However, given the competing affidavit evidence of Mr Van Leeuwin in which he describes the background to the proceedings,[22] I have not given this factor significant weight.
[21] Heller Factors Pty Ltd v John Arnold's Surf Shop Pty Ltd (in liq) (1979) 4 ACLR 492.
[22] First Van Leeuwin affidavit [3] ‑ [32].
Finally, I have had careful regard to whether there are persons standing behind the plaintiffs who are likely to benefit from the litigation; and whether the persons standing behind the plaintiffs have offered any security or personal undertaking. In this regard, I note that prior to the hearing on 28 July 2017, two directors agreed to accept, jointly and severally, personal liability for any judgment of costs against the plaintiffs, to a maximum amount of $70,000.

Determination

As stated above, the inability of the plaintiffs to pay the defendants' costs not only enlivens the jurisdiction to require security but it is also a substantial factor in the decision whether to exercise it. Having taken into account all of the circumstances, in particular the factors discussed above, I find that this is a case where it is appropriate to require security to be given for costs.
As to quantum, the task for the court in determining quantum of security for costs is to determine what amount would provide the defendants with an adequate security for their costs, if they were successful at trial.[23] The aim is not to provide the defendants with a complete indemnity for their costs.[24] Rather, the task for the court is to calculate the sum which it thinks just to order to be secured, having regard to a reasonable estimate of the likely taxable costs of the defendants in question.[25] As his Honour the Chief Justice cited in Four Vanguard Servicos E Navagacao Lda v ENI Australia Ltd, 'the determination of the appropriate amount to be provided by way of security involves the exercise of the discretion by reference to matters of impression rather than mathematics'.[26]
[23] Global Finance Group Pty Ltd (in liq) v Marsden Partners (a firm) [2004] WASC 52 [71]; Construction Industries Australia Ltd (in liq) v WFI Insurance Ltd [45].
[24] Brundza v Robbie & Co (No 2) [1952] HCA 49; (1952) 88 CLR 171, 175; Construction Industries Australia Ltd (in liq) v WFI Insurance Ltd [45].
[25] Global Finance Group Pty Ltd (in liq) v Marsden Partners (a firm) [53] ‑ [58]; Construction Industries Australia Ltd (in liq) v WFI Insurance Ltd [45].
[26] Four Vanguard Servicos E Navagacao Lda v ENI Australia Ltd [2014] WASC 473 [4] (Martin CJ); Field Camp Services Pty Ltd v Site Accommodation Pty Ltd [2011] WASCA 118 [27].
Attached to the second Van Leeuwen affidavit is the defendants' draft bill of anticipated costs in defending the matter. The professional fees and disbursements total $67,770. The defendants' seek security of $32,768.34 by way of payment into court. They seek that the moneys held by their solicitors in trust following settlement of the Secured Property, which moneys would otherwise be payable to the first plaintiff as second mortgagee, be paid into court. Two directors have however offered to accept, jointly and severally, personal liability for an amount greater than $32,768.34. They have offered to accept personal liability for any judgment of costs against the plaintiffs, to a maximum amount of $70,000.
In my view, in all of the circumstances of this case, it is appropriate to proceed to order security for costs of the action up to the point of mediation. In a case such as this, prior to mediation, it would be appropriate for pleadings to be filed, particulars provided and for discovery and inspection to occur.
I have considered the pleadings and all of the materials filed in relation to this application. Having also reviewed the draft bill of costs prepared by the defendants' solicitors; having made my own estimates of the likely costs of these proceedings up to and including mediation; and having estimated the costs likely to be recovered after taxation, I find that security in the amount of $20,000 is appropriate. In fixing security in that sum, I take into account that the security amount is not intended to be a complete indemnity for the actual costs likely to be incurred by the defendants.
As to the form of security, I note that the making of an order which secures the personal liability of a director or shareholder has been found, in itself, to be provision of security.[27] Further, while not necessarily determinative, the offer by the directors to accept personal liability for costs is one factor, albeit an important and sometimes determinative factor, to be taken into account in the exercise of a discretion.[28]
[27] Gentry Brothers Pty Ltd v Wilson Brown & Associates Pty Ltd (1992) 8 ACSR 405, 415.
[28] Intercraft Cabinets Pty Ltd v Sampas Pty Ltd (1997) 18 WAR 306, 316 (Malcolm CJ), 319C (Steytler J).
The question of whether the undertakings offered are adequate security is a question of fact. The only evidence before me as to the defendants' anticipated costs of defending the proceedings is the draft bill of costs attached to the second Van Leeuwen affidavit at MVL‑5. The plaintiffs did not prepare an alternative bill of costs. Mr Van Leeuwen says that the draft bill of costs was prepared by the defendants' solicitors and indicates the defendants' anticipated costs in defending the matter to trial. The professional fees and disbursements total $67,770. The directors have proffered an undertaking to meet those anticipated costs entirely. However, there is no evidence before the court of the financial position of the directors. The fact that there is no evidence as to the financial means of the directors is relevant in assessing the weight to be given to the personal undertakings.[29]
[29] BBC Nominees (WA) Pty Ltd v Yangebup Developments Pty Ltd [2008] WASC 81 [34] ‑ [35]; Intercraft Cabinets Pty Ltd v Sampas Pty Ltd (317D ‑ G) (Malcolm CJ).
As to the form of security, in all of the circumstances, I find that the security proffered by the directors, absent any evidence as to their financial means, fails to strike a fair balance between protecting the defendants from the possible consequences of being sued by impecunious corporations with limited liability and avoiding injustice to the corporations by unnecessarily prejudicing it in the conduct of litigation. However, the payment into court of the amount of $20,000 as security for the defendants' costs of these proceedings up to and including mediation would strike a fair balance in all of the circumstances.

Determination

For the reasons set out above, I am satisfied that the following orders for security for costs should be made, subject to hearing from the parties:
1.The first and second plaintiffs do pay $20,000 into court as security for the first and second defendants' costs of these proceedings up to and including mediation, by not later than 25 January 2018.
2.In the event that the first and second plaintiffs do not pay $20,000 into court by 25 January 2018, these proceedings as between the first and second plaintiffs and the first and second defendants will be stayed until further order.
3.Any party has liberty to apply in respect of these orders.
4.Without limiting order 3, the defendants have liberty to apply to increase the amount of security for their costs of the action.
5.The costs of the first and second defendants' application for security for costs will be reserved.

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Citations

RLT Holdings (WA) Pty Ltd v Rosinta Nominees Pty Ltd [2018] WASC 1

Cases Citing This Decision

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Cases Cited

16

Statutory Material Cited

2

FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69

Construction Industries Australia Ltd (in liq) v WFI Insurance Ltd [2016] WASC 404

FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69