Russell Young Abalone Pty Ltd v Traders Prudent Insurance Company Limited

[1990] TASSC 110

Serial No B33/1990
List "B"

COURT:  SUPREME COURT OF TASMANIA

CITATION:Russell Young Abalone Pty Ltd v Traders Prudent Insurance Company Limited [1990] TASSC 110; B33/1990

PARTIES:  RUSSELL YOUNG ABALONE PTY LTD
  v
  TRADERS PRUDENT INSURANCE COMPANY LIMITED

FILE NO/S:  2807/1984
DELIVERED ON:              2 July 1990
JUDGMENT OF:                 Master Southee

Judgment Number:  B33/1990
Number of paragraphs:  19

Serial No B33/1990
List "B"
File No 2807/1984

RUSSELL YOUNG ABALONE PTY LTD
v TRADERS PRUDENT INSURANCE COMPANY LIMITED

REASONS FOR JUDGMENT  MASTER SOUTHEE

2 July 1990

1. The defendant filed an interlocutory application on 6 February 1990, seeking an order that the plaintiff provide sufficient security for costs pursuant to the provisions of s533(1) of the Companies (Tas) Code and that all proceedings in respect of the plaintiff's claim be stayed until such security is given.

1. Section 533(1) is as follows:

"Where a corporation is plaintiff in any action or other legal proceedings, 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 defence, require sufficient security to be given for those costs and stay all proceedings until the security is given."

1. The plaintiff's cause of action, as pleaded in the statement of claim, is for damages arising out of the failure of the defendant to indemnify it under a policy of insurance in respect of premises and contents at 340 – 342 Murray Street, Hobart, which were damaged by fire on 10 September 1983. The amount claimed under the indemnity policy was $40,000 for the premises and $5,000 for the contents.

1. The defendant in its defence admits the above facts, but alleges that the policy of insurance is null and void and of no effect because of breaches by the plaintiff of various terms and conditions of the policy. The alleged breaches concern material non–disclosures of matters relating to the tenancy, occupancy and maintenance of the premises during periods to which the terms and conditions of the policy applied and, further, that the policy was obtained through an omission to state material facts or by a mis–statement of material facts which was in breach of a condition of the policy.

1. The plaintiff in its reply has joined issue with the defendant upon the allegations contained in the defence and the defendant subsequently supplied the plaintiff with further and better particulars of its defence.

1. Upon the pleadings as they stand it is not for me to endeavour to assess the strength or otherwise of the defence at this interlocutory stage. The defendant has sufficiently particularised its defence to indicate that there are questions of fact and law which can only be determined at trial. It cannot be said on the pleadings that the defendant is using the application for an order for security for costs oppressively so as to try to stifle the genuine claim of the plaintiff. (See Heritage Boats Pty Ltd v GRE Insurance Ltd Tas Unreported Serial No B5/1986). As Nettlefold J said in that case the threshold test is, "does it appear 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 defence".

1. The affidavit evidence which was tendered upon this application, and upon which there was no cross–examination of the deponents, satisfies me that the plaintiff is what is colloquially known as "a $2 company" in that in its last balance sheet, as filed, it had an issued capital of two shares of $1 each and net assets of $2 in cash. The plaintiff is the trustee of a family trust of Russell Kenneth Young, his wife and children. The plaintiff holds land, subject to the terms of a trust deed, which it appears is of significant value, but the evidence of its value was not deposed to in admissible form. The defendant would have no direct recourse against this asset if successful in its defence nor is there any evidence as to the nature of any indemnity which the plaintiff might have against the trustees or beneficiaries. Thus the threshold test has been satisfied, but it remains whether or not, having regard to all the other circumstances prevailing upon this application, the discretion to order security should be made. The discretion, which must be exercised judicially, is a very wide one and cannot be applied by analogy to other cases, but must be exercised on the particular facts now present upon this application. As Bowen LJ said in Gardner v Jay (1885) 29 Ch D 50 at p58:

"That discretion, like other Judicial discretions, must be exercised according to common sense and according to justice, and if there is a miscarriage in the exercise of it it will be reviewed, but still it is a discretion and for my own part I think that when a tribunal is invested by Act of Parliament or by Rules with a discretion, without any indication in the Act or Rules of the grounds upon which the discretion is to be exercised, it is a mistake to lay down any rules with a view of indicating the particular grooves in which the discretion should run, for if the Act or the Rules did not fetter the discretion of the Judge why should the Court do so?"

1. Mr Sealy of counsel for the plaintiff submitted that because of the long delay which has occurred since the institution of proceedings in this action, and the requirement that applications for security for costs should be made promptly, I should refuse the application. The following interlocutory steps have taken place:

1The writ and the statement of claim was filed on 5 October 1984. At that stage the plaintiff's claim for indemnity was in the sum of $45,000 and damages.

2On 24 June 1985, an order was made for the plaintiff to provide the defendant with full particulars of loss and damage under its claim.

3On 25 October 1985, an order was made that the plaintiff make discovery to the defendant.

4On 18 December 1986, an order was made that the plaintiff answer interrogatories administered by the defendant.

5On 16 April 1987, an order was made that the plaintiff give further and better answers to interrogatories.

6On 24 July 1987 the costs of the above interlocutory applications were taxed in the sum of $800 and subsequently paid by the plaintiff.

7On 16 December 1987, the plaintiff sought an order that the defendant give further and better particulars of its defence, but the application was adjourned.

8On or about 22 November 1989, the plaintiff delivered a proof of the evidence of an accountant, David William Lancaster, in which the quantum of the plaintiff's claim was calculated by him in the sum of $149,433.

9This application for an order for security for costs was filed on 6 February 1990.

1. It is apparent that the plaintiff's claim has increased from $45,000 since the issue of the writ to a figure of $149,433. The delay in complying with a number of interlocutory steps rested with the plaintiff. Mr Pickard of counsel for the defendant stated that it was only upon the receipt of Mr Lancaster's proof that it was realised that the action would be much more protracted and costly than previously envisaged. The application for security was made after instructions had been received on Mr Lancaster's proof of evidence. Mr Sealy indicated that the plaintiff is now ready to proceed to trial, but Mr Pickard stated that there are a number of unspecified pre–trial steps which the defendant desires to take before certifying that the action is ready for trial.

1. In some cases the failure to seek an order for security for costs promptly may be fatal. As Ward J said in PG Gabel Pty Ltd (In Liq) v Katherine Enterprises Pty Ltd (1977) 29 F.L.R. 108 at p110:

"A number of authorities were relied on by both parties on the application for the plaintiff to give security for costs. To me they all seem to boil down to the proposition that the application for security should be made without undue delay, but that delay is not a bar if good reason be shown why, despite it, the application should be granted."

1. In Pacific Enterprise Corporation Pty Ltd v The Lord Mayor, Aldermen and Citizens of the City of Hobart, Tas Unreported, Serial No B27/1990, Cox J considered that a delay of nearly six years in making such an application, without just reasons, was too long and refused an application for security. In an earlier decision in Electrona Carbide Industries Pty Ltd & Anor v The Tasmanian Government Insurance Board & Ors [1985] Tas R 68, his Honour considered that the delay in that action occurred in such circumstances that, whilst the security should not be ordered for costs incurred by the defendant prior to the date of the application, security should be provided for the future course of the action. I shall not detail the facts of these two cases for, as Windeyer J said in Hall v The Nominal Defendant (1966) 117 CLR 423 at p425:

"This case has, I think, shewn how much trouble can arise from an attempt to translate particular reasons given for the exercise of a discretion in one set of facts as a test of the validity of the exercise of a similar discretion in a different set of facts."

1. After taking into account all the circumstances which have occurred in this action, including the recent delivery of Mr Lancaster's proof of evidence in which the plaintiff's claim has been substantially increased, I am of the view that I should make an order for security for costs, but only as to the costs to be incurred from the date of this application. (See Southern Cross Exploration NL & Ors v Fire & All Risks Insurance Co Ltd & Ors [1985] 1 NSWLR 114).

1. Mr Sealy submitted that the trustees in a case such as the present are not ordinarily required to provide a security for costs and referred me to Delaney on Security for Costs, (see p40). But that is not necessarily the attitude of the courts. As the learned author states at p40:

   "Whilst not clothed by the court with powers, traditionally a trustee whose duty it is to carry out the terms of a trust deed would not be required to provide security when bringing an action in its capacity as trustee. An examination of recent authorities reveals the position is changing. Frequently, corporate trustees are now being required to provide security. They are often impecunious, save for the right of indemnity from trust assets, Rivot Nominees Pty Ltd v Suzuki Australia Pty Ltd (1981) 34 ALR 653 at 655; Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 at 367; cf. Dartmouth Harbour Commissioners v Dartmouth Hardness Corp. (1886) 55 LJQB 483, and will that right be of any assistance at the end of the day?"

2. There is no reason why trustees, beneficiaries or directors should not be given an opportunity to provide security if they will be the recipients should the litigation prove successful. (See Heritage Boats Pty Ltd v GRE Insurance Ltd (supra at p8). In the present instance there is no evidence before me to demonstrate that the trustees and beneficiaries, who will benefit under this litigation, do not have the means to give security and that to make such an order would stifle the plaintiff's bona fide claim. In Bell Wholesale Co Pty Ltd v Gates Export Corporation (1984) 52 ALR 177 at p179, l.41, the Full Court of the Federal Court of Australia stated:

   "In our opinion a court is not justified in declining to order security on the ground that to do so will frustrate the litigation unless a company in the position of the appellant here establishes that those who stand behind it and who will benefit from the litigation if it is successful (whether they be shareholders or creditors or, as in this case, beneficiaries under a trust) are also without means. It is not for the party seeking security to raise the matter; it is an essential part of the case of a company seeking to resist an order for security on the ground that the granting of security will frustrate the litigation to raise the issue of the impecuniosity of those whom the litigation will benefit and to prove the necessary facts."

3. In the present action the plaintiff holds land in which the beneficiaries of the family trust appear to have significant equity.

1. In an affidavit sworn on 28 February 1990 by David John Gunson, a member of the firm of solicitors who has the carriage of this action on behalf of the defendant, he deposed that he estimated that the costs of the defendant, incurred up until the date of the filing of this application, were in the vicinity of $6,183, and that upon taking into account the further pre–trial preparation and a trial of at least four days the total costs will, at least, reach a figure of $20,000.

1. The amount for which security should be given is again a matter for discretion and there is no fixed rule as to whether the whole of the estimated costs or only a proportion of them should be ordered. (See Sabaza Pty Ltd & Anor v AMP Society [1981] 6 ACLR 194). As Needham J said in M A Productions Pty Ltd v Austarama Television Pty Ltd & Anor [1982] 7 ACLR 97 at p101:

"I think in this case, taking all those matters into consideration, that some security for costs should be provided. As I have said I do not think the court is bound by the estimate made by the defendants that the litigation which it is said would take about two to three days would cost the defendant $40,000, but I think it is just that the plaintiff, if it has sufficient faith in its own case, should be permitted to litigate it, but not entirely at the expense of the defendants."

1. After taking into account the relevant circumstances appertaining to this application, I consider that an amount of $6,000 is an appropriate sum for security for costs.

1. I shall hear the parties as to the form of the order for providing such security and order that the proceedings in the action be stayed pending the determination of such order for security.