Rosebridge Nominees Pty Ltd v Commonwealth Bank of Australia
[2004] WASC 60
ROSEBRIDGE NOMINEES PTY LTD -v- COMMONWEALTH BANK OF AUSTRALIA & ORS [2004] WASC 60
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2004] WASC 60 | |
| Case No: | CIV:1235/1999 | 6 FEBRUARY, 12 MARCH 2004 | |
| Coram: | MASTER SANDERSON | 6/04/04 | |
| 11 | Judgment Part: | 1 of 1 | |
| Result: | Security for costs to be provided by the plaintiff to each defendant | ||
| B | |||
| PDF Version |
| Parties: | ROSEBRIDGE NOMINEES PTY LTD COMMONWEALTH BANK OF AUSTRALIA CORRS CHAMBERS WESTGARTH (A FIRM) WFB PTY LTD |
Catchwords: | Corporations Act Application for security for costs Turns on own facts |
Legislation: | Corporations Act, s 1335 |
Case References: | Commonwealth v Cable Water Skiing (Aust) Ltd (1994) 14 ACSR 760 Crypta Fuels Pty Ltd v Svelte Corporation Pty Ltd (1995) 19 ACSR 68 January Force Pty Ltd v Tricon Restaurants Australia Pty Ltd [1999] FCA 1746 Rosebridge Nominees Pty Ltd v Commonwealth Bank of Australia [2001] WASC 358 Bell Wholesale Co Ltd v Gates Export Corp (1984) 2 FCR 1 Blackbird Entertainment Pty Ltd v 10 Research Pty Ltd, unreported; SCt of WA; Library No 980297; 2 June 1998 Epping Plaza Fresh Fruit & Vegetables Pty Ltd v Bevendale Pty Ltd [1999] 2 VR 191 Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241 Fat-sel Pty Ltd v Brambles Holdings Ltd (1935) 3 ACLC 312 Hill v Van Earp (1977) 188 CLR 159 Indaba Pty Ltd v McVeigh [2000] WASCA 332 Intercraft Cabinets Pty Ltd v Sampas Pty Ltd (1997) 18 WAR 306 Southern Cross Exploration NL v Fire & All Risks Insurance Co Ltd (1985) 1 NSWLR 114 Yandil Holdings Pty Ltd v Insurance Company of North America & Ors (1985) 3 ACLC 542 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Plaintiff
AND
COMMONWEALTH BANK OF AUSTRALIA
First Defendant
CORRS CHAMBERS WESTGARTH (A FIRM)
Second Defendant
WFB PTY LTD
Third Defendant
Catchwords:
Corporations Act - Application for security for costs - Turns on own facts
Legislation:
Corporations Act, s 1335
(Page 2)
Result:
Security for costs to be provided by the plaintiff to each defendant
Category: B
Representation:
Counsel:
Plaintiff : Mr R H B Pringle QC
First Defendant : Mr P A Sheiner (6 February), Mr G D Cobby (12 March)
Second Defendant : Mr L M Wilk
Third Defendant : Mr P K Walton
Solicitors:
Plaintiff : Vincent Partners
First Defendant : Christensen Vaughan
Second Defendant : Blake Dawson Waldron
Third Defendant : Jackson McDonald
Case(s) referred to in judgment(s):
Commonwealth v Cable Water Skiing (Aust) Ltd (1994) 14 ACSR 760
Crypta Fuels Pty Ltd v Svelte Corporation Pty Ltd (1995) 19 ACSR 68
January Force Pty Ltd v Tricon Restaurants Australia Pty Ltd [1999] FCA 1746
Rosebridge Nominees Pty Ltd v Commonwealth Bank of Australia [2001] WASC 358
Case(s) also cited:
Bell Wholesale Co Ltd v Gates Export Corp (1984) 2 FCR 1
Blackbird Entertainment Pty Ltd v 10 Research Pty Ltd, unreported; SCt of WA; Library No 980297; 2 June 1998
Epping Plaza Fresh Fruit & Vegetables Pty Ltd v Bevendale Pty Ltd [1999] 2 VR 191
(Page 3)
Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241
Fat-sel Pty Ltd v Brambles Holdings Ltd (1935) 3 ACLC 312
Hill v Van Earp (1977) 188 CLR 159
Indaba Pty Ltd v McVeigh [2000] WASCA 332
Intercraft Cabinets Pty Ltd v Sampas Pty Ltd (1997) 18 WAR 306
Southern Cross Exploration NL v Fire & All Risks Insurance Co Ltd (1985) 1 NSWLR 114
Yandil Holdings Pty Ltd v Insurance Company of North America & Ors (1985) 3 ACLC 542
(Page 4)
1 MASTER SANDERSON: This is an application by all three defendants for security for costs of the action brought by the plaintiff. All three applications are made under s 1335 of the Corporations Act. The plaintiff concedes that if called upon to do so, it would not be in a position to meet any costs order made against it. The jurisdiction then to make an order for security is enlivened. The question is whether, in the exercise of discretion, such an order ought be made.
2 It was the primary position of the plaintiff that in the circumstances of this case, no order for security for costs was warranted. Essentially, counsel for the plaintiff relied on what was said to be the strength of the plaintiff's claim against the defendants. However, that claim is by no means straightforward. I provided a summary of the facts in an earlier decision when dealing with a pleading summons: Rosebridge Nominees Pty Ltd v Commonwealth Bank of Australia [2001] WASC 358 at [2] to [4]. It is unnecessary for me to repeat what I said in that earlier decision. It is always difficult at an interlocutory stage to form a clear assessment of the relative merits of a case. I am satisfied that in this case the plaintiff's position is arguable. But I am not satisfied that it is such a strong case that it will inevitably succeed at trial. I am simply not in a position to make that determination. Accordingly, in exercise of my discretion, I would not be prepared to refuse to make an order for costs based solely upon the strength of the plaintiff's claim against the defendants. It was also submitted on behalf of the plaintiff that delay in bringing the application was a ground for refusing an order for security. So far as this issue is concerned, there is a difference in the positions of the first and third defendants as against the second defendants. It is convenient if I deal with the first and third defendants positions, before saying something about the position of the third defendant.
3 The first and second defendants first raised the question of security for costs in correspondence in late April/early May 2000. Although they did not receive a satisfactory response from the plaintiff, they did not take the matter any further until June 2003. In a letter dated 13 June 2003, which appears as annexure "ADB1" to the affidavit of Anthony David Bereyne, sworn 27 June 2003, the third defendant's solicitors refer to the earlier correspondence and seek security for their costs in an amount of $250,000. It appears the plaintiff's solicitors did not respond to that letter. Accordingly, on 15 July 2003 this application for security was brought. There is no detailed explanation in the affidavit evidence as to why it was that the question of security was not pursued by the third defendant's solicitors (and the first defendant's solicitors) between June 2000 and June 2003. It would appear that the solicitors were not entirely sure of the
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- financial position of the plaintiff. It was not until the early part of 2003 that they became aware of a judgment obtained by the Commissioner of State Taxation against the plaintiff for unpaid stamp duties. They thereafter moved to have the plaintiff provide security for costs.
4 So far as the second defendant is concerned, the position is explained in an affidavit of Julian Louis Sher ("Mr Sher"), sworn 5 February 2004, and filed in support of the application. Mr Sher is a partner in the second defendant. He says (in par 9) that there were three reasons why no application was made until early 2004. First, he says it has taken the plaintiff an inordinate amount of time to get its statement of claim into order. Second, he says that the second defendant regarded the plaintiff's case as without merit, suggesting perhaps that the second defendant expected the plaintiff to drop its case against the second defendant. Thirdly, he says that the plaintiff "has displayed little enthusiasm" (or at least sluggishness) in the prosecution of the claim. I think it is fair to say that the second defendant's application rides on the coat tails of the applications of the first and third defendants. There is more than just an element of the one-in-all-in principle.
5 It is convenient at this point to trace the history of this action since the writ was issued on 8 March 1999. The positions of each defendant differ slightly. I will simply refer to the action against the second defendant by way of example. The writ was generally endorsed and on 23 November 1999 the plaintiff was ordered to file and serve a statement of claim by 7 December 1999. The statement of claim was filed on 11 January 2000. On 1 February 2000 the second defendant filed and served an application to strike out the statement of claim. On 14 June 2000 the plaintiff filed and served an amended statement of claim. On 15 June 2000 the second defendant's application to strike out the plaintiff's statement of claim was dismissed. On 17 August 2000 the plaintiff filed and served a reamended statement of claim. On 19 December 2001 (16 months later) the plaintiff was granted leave to file a further amended statement of claim. On 23 January 2002 the plaintiff filed and served a substituted statement of claim. On 15 February 2002 the second defendant filed and served a request for further and better particulars of that substituted statement of claim. On 15 August 2002 the plaintiff filed and served answers to the second defendant's request for further and better particulars of the statement of claim. On 21 November 2002 the second defendant filed and served an application for orders that the plaintiff provide further and better particulars of the plaintiff's substituted statement of claim. These answers were filed on 5 December 2002. On 31 January 2003 the plaintiff obtained leave to amend the substituted
(Page 6)
- statement of claim and the particulars. In February 2003 the plaintiff filed and served reamended answers to the second defendant's request for further and better particulars of the statement of claim.
6 That history is not a happy one. Mr Sher is right - it has taken the plaintiff an inordinate amount of time to put its statement of claim in order. This is certainly not a case where the defendants have allowed the plaintiff to proceed with its action, only to bring an application for security late in the day. It might well be said that it lies ill in the mouth of a party in the position of the plaintiff to complain about delay on the part of its opponents.
7 In January Force Pty Ltd v Tricon Restaurants Australia Pty Ltd [1999] FCA 1746, Goldberg J had this to say about delay in the context of a security for costs application (at par 17):
"Delay, of itself, is not a disentitling factor, but rather a matter which must be taken into account in considering and, if necessary, balancing other considerations relevant to the exercise of the Court's discretion."
8 His Honour referred to the decision in Commonwealth v Cable Water Skiing (Aust) Ltd (1994) 14 ACSR 760, and in particular to what was said by Lehane J in Crypta Fuels Pty Ltd v Svelte Corporation Pty Ltd (1995) 19 ACSR 68. In this latter case, his Honour said (at 71):
"Without referring in any greater detail to those authorities (to which he had already referred), my conclusion from a consideration of them is that there is first and foremost a proposition accepted in every one of the cases which is that if an application for security for costs is to be made, it must be made promptly.
Obviously, there are degrees of promptness and obviously, equally, security for costs being a discretionary matter, there are cases where delay will weigh more heavily with the Court than it does in other cases. In Southern Cross Exploration, for example, Waddell J held that it was appropriate to order that security be provided for costs well into a very long hearing. It is notable, however, that in the cases where, despite delay, an order has been made for the provision of security, there have been present at least one and usually two other factors. One is that the hearing or resumed hearing is not immediately imminent, certainly not as immediately imminent as it is in
(Page 7)
- these proceedings. The other is that there has been some form of forewarning: usually correspondence concerning the financial standing of those who might benefit from the success of an applicant or plaintiff, and detailed correspondence often foreshadowing an application for security for costs."
9 By no stretch of the imagination could it be said that a hearing in this case is imminent. Defences have been filed but given the plaintiff's toing and froing with the statement of claim, it may well be that the defences require further amendment. The position, so far as particulars of the statement of claim is concerned, is murky but it seems, on balance, that the defendant's concerns are yet to be resolved. No discovery has been given and of course there has been no expert evidence order. Furthermore, this application was not made without notice to the plaintiff. As far back as 2000, the defendants indicated their concerns about the plaintiff's financial position. Although they did not thereafter pursue their concerns, the plaintiff was on notice that security for costs might be an issue. The application made in July 2003 could not have come as a surprise.
10 On balance then, I am not satisfied that this is a case where the delay on the part of the defendants is such as to refuse an order for security. It is a factor which I have taken into account in the overall exercise of my discretion, but standing alone, delay in itself does not disentitle any of the defendants.
11 It has frequently been said that the discretion to order security is unfettered. However, the authorities indicate that matters to be taken into account, apart from delay and the strength and bona fides of the plaintiff's case, are the bona fides of the application for security, whether the making of an order would shut out the plaintiff from prosecuting its case and whether the inability of the plaintiff to meet a costs order has been caused by the conduct of a defendant. Also of relevance is the capacity of those standing behind the company and who are likely to share the benefits of any successful litigation to provide security from their own means.
12 Two of these considerations can be disposed of quickly. There was no suggestion that this application was not brought bona fides. Nor was it argued that the conduct of the defendants was responsible for the impecuniosity of the plaintiff. Of course, if the plaintiff succeeds in its claim, then it may be said that its present impecunious position results from the actions of the defendants. But that really raises in a slightly different guise the merits of the action. I have already dealt with those
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- and I need say nothing more. There is nothing else in the evidence from the merits which suggests that the defendants have somehow caused the plaintiff's impecuniosity.
13 There is also no evidence that an order for security for costs in this case will stultify the plaintiff's claim. As I understand the submissions made by counsel for the plaintiff, if an order is made then those standing behind the company will have to consider their position. But certainly there is nothing in any of the affidavit material filed which suggests that if an order is made, the action will be brought to an end. I need say nothing more about that discretionary consideration.
14 From time to time there have been a number of directors of the plaintiff. Two of those directors have sworn affidavits in opposition to this application. The deponents are Tony Grego ("Mr Grego") and Erigo Fazio ("Mr Fazio"). None of the directors, including Mr Grego and Mr Fazio, has offered to meet the costs of the defendants, should the plaintiff fail in its action. Nor have any of the shareholders offered such an undertaking. However, Mr Grego has made a limited and slightly unusual offer. Mr Grego has an interest in certain property in Mandurah. The ownership of that property is somewhat complicated and I will deal with that issue below. However, it is convenient at this point to set out what Mr Grego offers by way of security. In his affidavit sworn 26 February 2004, Mr Grego says (par 14):
"I am willing to provide a personal guarantee for any security that might be ordered up to amount (sic) of $200,000 secured by my interests in the land. My position as director of the plaintiff is that there should not be an order for security for costs. However, should the Court decide that this is an inappropriate order, then I am prepared to offer my limited personal guarantee secured by my interest in the land. I am prepared to have that limit divided as to $100,000 for each of the first and third defendants if necessary."
15 There are a number of points to be made about that offer. First, it is limited to $200,000. Second, it is a guarantee which is secured over an interest in land. That stands apart from an undertaking which is often offered by those standing behind a company. Third, the offer is made as to $100,000 to each of the first and third defendants - no offer for security is made to the second defendant.
(Page 9)
16 The first and third defendants reject this offer. First they say that $100,000 by way of security is inadequate. Each has filed a bill of costs which shows the anticipated taxed party and party costs at well over $300,000 for each of the defendants. It was submitted that, even taking the most benign view of costs after what is expected to be a 10-day trial, the costs would not be less than $200,000. On that basis alone it is said that the offer is entirely inadequate and would not provide the plaintiff with proper security.
17 However, the defendants have a more fundamental objection. They say that Mr Grego's interest in the land may not be worth $200,000. Indeed, counsel submitted that it really was "worthless". This was due in part to the difficulties the defendants would face if they were called upon to realise the security. Those difficulties largely relate to the complex ownership structure of the land and the difficulties the defendants may have in affecting a forced sale.
18 The land itself is Lot 1, Mandurah Road, Lakelands. It is said to be just outside the City of Mandurah and it is bounded by Mandurah Road on the west and Stock Road on the east. In recent times part of the land has been made the subject of a taking order by the State Government. It would seem that the Mandurah to Perth rail line will run through the property. As yet, the owners have not made a claim for compensation and what, if any, amount each individual owner might receive is unclear.
19 As I have mentioned above, the ownership structure is complicated somewhat by the existence of an agreement between the owners. This agreement appears as annexure "E" to the affidavit of Mr Grego sworn 26 February 2004. Relevantly, for present purposes, the agreement contains a provision that if an owner wishes to deal with their interest in the property, they must obtain the approval of the other owners. It was submitted on behalf of the defendants that this clause is an impediment to Mr Grego offering the security as proposed. The answer to that, I think, is to say that if an order is made and because of the deed, the security cannot be provided, then the order will not be complied with and certain consequences would follow. It is not, in my view, a proper approach to say that because there are impediments in the way of providing the proposed security, an order ought not be made.
20 Of more concern are pre-emptive rights which are contained in an agreement which appears as annexure "G" to Mr Grego's affidavit. It would appear that if Mr Grego wishes to sell his interest in the land, or indeed if a party seeking to enforce the security wishes to sell the land, it
(Page 10)
- must first offer the property to certain of the other owners. It was submitted on behalf of the defendant that this further complication is another reason why the provision of the land as security is inappropriate.
21 In the circumstances, it is understandable that the defendants should have reservations about the adequacy of any security.
22 There are a number of other matters referred to by counsel for the defendants and which might be described as material omissions on behalf of those standing behind the plaintiff. I have already mentioned that there is no direct evidence that if an order for security were made, the action would be stultified. In other words, it is nowhere stated in the evidence that those standing behind the plaintiff do not have the means to provide security. Secondly, it is only Mr Grego, and to a lesser extent, Mr Fazio, of the directors who have provided evidence of their capacity to provide security for costs. Even that evidence is scant. It is as well to ask, as the defendants have done, why other directors have not set out their means. Thirdly, there is the matter of the annual return of the company. In the latest return filed with ASIC, Mr Grego certified that the directors of the company had resolved that they were of the opinion that there were reasonable grounds to believe that the company would be able to pay its debts as and when they became due: see annexure "JRGP22" to the affidavit of Jeffrey Ross Grant Pearlman, sworn 2 October 2003. Despite being invited on a number of occasions to do so, the solicitors for the plaintiff have not explained how it is that Mr Grego could make that statement. Counsel for the third defendant submitted that it was patently untrue. I could not reach that conclusion. It would involve an assessment of credibility of Mr Grego based upon the affidavit material. But given that it was admitted that the company could not, from its own assets, meet any costs orders that might be made against it, it is reasonable to assume that the company can continue with the support of its directors or shareholders. That may mean (and I put it no higher than that) that the directors and shareholders have the wherewithal to stand behind the company if an adverse costs order is made against it.
23 On balance, I am satisfied that there ought be an order for security for costs in favour of each of the three defendants. I am not satisfied that the delay in bringing the application is sufficient to decline to make an order. Taking into account all of the other discretionary factors, I am satisfied that an order is warranted. It is a question of the amount of the security and how it should be provided.
(Page 11)
24 In my view, the plaintiff should provide security for costs for each of the three defendants in an amount of $100,000. That security should be provided by way of a guarantee from Mr Grego in favour of each of the three defendants. That personal guarantee should be secured over Mr Grego's interest in the Mandurah property. I appreciate that the security may not be sufficient to meet the full $300,000. I also appreciate that difficulties may arise in realising the security. Nonetheless, Mr Grego has offered a personal guarantee and he has put himself at risk were a costs order to be made against the plaintiff. For the present, that is sufficient.
25 I would, however, give leave to the defendants to bring an application to top up the security after the matter is entered for trial. I would emphasise that this would not be a new or fresh application for security for costs. Rather, it would be an application to top up the security. At the time the matter is entered for trial the length of the trial will be known and the respective positions of the parties will (or should be) clear. A better estimate can be made of the likely costs should the defendants succeed. On that application, what can be determined is whether the position is such that there should be a topping up of the security and if so, in what amount.
26 It is my intention to provide the parties with an advance copy of these reasons to allow them to discuss the position with their clients and to make submissions as to the precise mechanism by which the orders I proposed in these reasons can be put into effect.
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