Scandi International Pty Ltd (ACN 082 473 747) v Larkfield Industrial Estate Pty Ltd (ACN 006 067 965)
[2016] VCC 1073
•28 July 2016
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
Case No. CI-16-02981
| SCANDI INTERNATIONAL PTY LTD (ACN 082 473 747) | First Plaintiff |
| AND | |
| CASUALIFE FURNITURE INTERNATIONAL LTD (a Hong Kong Corporation) | |
| v | |
| LARKFIELD INDUSTRIAL ESTATE PTY LTD (ACN 006 067 965) | Defendant |
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JUDGE: | HER HONOUOR JUDGE COHEN | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 25 and 27 July 2016 | |
DATE OF DECISION: | 28 July 2016 | |
CASE MAY BE CITED AS: | Scandi International Pty Ltd (ACN 082 473 747) & Anor v Larkfield Industrial Estate Pty Ltd (ACN 006 067 965) | |
MEDIUM NEUTRAL CITATION: | [2016] VCC 1073 | |
DECISION
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Subject: Security for costs; corporate plaintiffs, one foreign
Catchwords: Insufficient assets in jurisdiction; problematic valuations; whether plaintiff’s action defensive
Legislation Cited: Australian Consumer Law and Fair Trading Act 2012
Cases Cited:Harmonious Blend Building Corporation Pty Ltd v Keene & Anor [2014] VSC 649; Vasiliades v Commissioner of Taxation [2016] FCA 420; Willey v Synan [1935] 54 CLR 175; De Bry v Fitzgerald [1990] 1 WLR 552
Decision: Security of $45,000 to be paid
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr L Watts | Jeffrey P Salinger & Associates |
| For the Defendant | Mr M McKillop | HWL Ebsworth Lawyers |
HER HONOUR:
1 This is an application by the defendant seeking orders that the plaintiffs give security for costs, and that the proceeding be stayed if they do not do so. The application is opposed, both as to whether security should be ordered, and as to quantum of any such order if made.
2 The application for security for costs is brought under Rule 62.02 of the County Court Rules and s1335 of the Corporations Act (2001) (Cth). It is not disputed that the Court has jurisdiction to make such an order where the plaintiff is a corporation or is ordinarily resident outside of Victoria.
3 Both plaintiffs are corporations. The first plaintiff has an issued share capital of only $12. The second plaintiff is a foreign corporation being registered in Hong Kong.
Principles to be applied
4 Once the basis for an application for security is established, here being that the plaintiffs are both corporations and one is a foreign company, various factors are to be considered in exercising the Court’s discretion as to whether an order for security should be made. Such factors were summarised by Dixon J in Harmonious Blend Building Corporation Pty Ltd v Keene & Anor [2014] VSC 649, as follows:
(a) the merits of the claim,
(b) whether the orders being sought would frustrate the claim,
(c) whether the defendant was the cause of the plaintiff’s impecuniosity;
(d) whether there was delay on the part of the applicant,
(e) whether there are any persons standing behind the company [plaintiff] who are likely to benefit from the litigation and who are willing to provide the necessary security,
(f) whether the persons standing behind the company have offered any personal undertaking to be liable for the costs and if so, the form of any such undertaking, and
(g) whether the company is in substance a plaintiff, as an order ought not be made against parties who are defending themselves and thus forced to litigate.
5 It is conceded for the plaintiffs that this list of discretionary factors should not be seen as exhaustive, and that they are all aspects going to a discretionary decision and none of them can be decisive.
6 In considering the application, the court assumes that the defendant will be successful and obtain an order that its costs of the proceeding be paid by the plaintiff(s).
The proceeding and its background
7 The background to the proceeding is that in October 2013, Mr Joseph Guss, on behalf of one or more companies or business entities, arranged to hire storage space from the defendant. Shed 43A at the defendant’s Footscray premises was allocated under an occupancy agreement, and goods delivered to and stored there. There was a monthly fee payable and it was initially paid but fell into arrears in 2014, and a dispute arose about electricity costs. Dispute then unfolded as to the identity of the contractual party or parties and who might be bound to pay the fees under the occupancy agreement.
8 In late 2015, the defendant took the actions of first locking the shed, but after it was found opened and goods being removed, and Mr Guss and his daughter present, the defendant then gave notices and pursued what it claims were its rights under Part 4.2 of the Australian Consumer Law and Fair Trading Act 2012, being those provisions dealing with disposal of uncollected goods. All goods which had been stored in Shed 43A were removed by the defendant in December 2015, and have been stored ever since in an adjoining area to which no one on behalf of the plaintiffs has been given access despite demands for access to remove the goods. The defendant engaged auctioneers to sell the goods.
9 The dispute came before this court on 11 July 2016. The plaintiffs applied for and were granted an interim injunction by his Honour Judge MacNamara to restrain a proposed auction of goods set for the following day. On 12 July a Writ was issued in which the first plaintiff claims to be owner of certain goods and the second plaintiff claims an entitlement under various charges over other goods which had been stored in Shed 43A and are now held by the defendant. The second plaintiff claims an entitlement to goods that had been owned by companies which have been deregistered, over which it claims a security. The plaintiffs claim that in December 2015 the defendant wrongfully took possession of such goods, and since then has held and threatened to sell them, and denied the plaintiffs access to them. They seek orders restraining disposal of the goods, and giving them access to collect the goods.
10 The defendant claims that it is entitled to hold the goods, under both contractual and statutory rights, until what is defined as “the relevant charge” is paid, and in that respect it claims amounts up to issue of the proceedings totalling approximately $108,000 being for hire fees for the storage space as well as expenses relating to legal costs, removal and alternative storage charges and costs associated with sale. It has foreshadowed a defence to this effect and a counterclaim for payment of the amounts it claims are outstanding.
Application for security
11 There have been multiple affidavits with exhibits filed by both sides which I shall not list as some of the evidence on this application also embraces by reference affidavits and exhibits relied upon before Judge MacNamara. I shall refer to some specifically where relevant.
12 The defendant’s application is based on the contention that the Court should not be satisfied that either plaintiff has the funds to satisfy any order for the defendant’s costs of the proceeding if the defendant were successful.
13 The only assets in the jurisdiction to which the plaintiffs have pointed are the goods the subject of the dispute between the parties. The defendant has not conceded the plaintiffs’ claims to ownership or other possessory entitlement. Further, the defendant argues that the court should not be satisfied that the amount or value of those goods would be enough to meet an order for the defendant’s costs of the proceeding.
14 In relation to those goods, the plaintiff argues as follows.
(i)If the defendant is successful in the proceeding, there will be recourse to those goods to satisfy the amount owed to the defendant and for which it holds the goods as security. Therefore the court should consider whether the goods are likely to have realisable value not just to the extent of being able to satisfy an order for the defendant’s costs, but to the extent of both the claim ($108,000 and further storage fees accruing at $5500 per month) as well as costs.
(ii)Valuation of those goods is problematical, should not be relied upon insofar as it purports to be opinion of value by Ms Guss who is not qualified as an expert to give such opinion of either wholesale or retail value, and does not allow for costs in realising either wholesale or retail value. Having regard to the age of the goods if they are those shown in the invoices produced by Ms Guss, and which anyway seem to have been in storage since at least October 2013 which is almost three years ago, it is by no means clear what alternative prices or values might now apply, nor the effect of age or long-term storage on their value.
(iii) The quantities of the goods in storage is in dispute, this based in part on a partial stocktake said to still be underway by the defendant which is said to show substantial shortfall between what is now held by the defendant and quantities of items in Ms Guss’s lists[1].
Whether the Value of the goods the subject of the dispute is a sufficient fund
[1]Affidavit of Mr Ades sworn 27 July 2016
15 It is clearly impossible for me on the material before me to assess the value of the goods and I have not attempted to do so. What I have done is consider whether I can be satisfied that the goods are likely to be realisable for a large enough sum to satisfy the defendant’s costs if it is successful in this proceeding.
16 To establish the value of the goods as assets of the plaintiffs in Victoria capable of satisfying an order for the defendant’s costs, the plaintiffs primarily rely on an affidavit of Ms Marilla Guss[2]. She exhibits invoices for which she says she placed the orders for the first plaintiff and which she says are typical of all invoices related to such shipments[3]. Of those invoices the most recent is dated November 2012, some others September 2012, and others dating back through 2011, 2010, and as far back as May 2008. All of the invoices pre-date considerably the initial hiring of Shed 43A for these or any other of Mr Guss’s companies’ furniture storage. Ms Guss further produces a stock listing and valuation at landed cost which she says was prepared by her from the first plaintiff’s records[4], and which she verifies from her knowledge of the stock stored at Shed 43A is an accurate record of the goods bought from Kingsley Bates “stored thereat”[5] . She says this list was based on landed cost as shown on the invoices and converted from US dollars into Australian dollars at current exchange rates – that is July 2016 exchange rates. From this she says the landed cost of the Kingsley-Bate[6] goods is $153,682.
[2]Affidavit of Marilla Suzanne Guss sworn 22 July 2016
[3]Para 3 & Exhibit MG-3
[4]Exhibit MG-4
[5]Paragraph 4
[6]Which I understand are said to be owned by the first plaintiff
17 The list that is Exhibit MG-4 states that it is stock of Kingsley-Bate at landed cost 2014, with fine print stating that the file is the same as cost prices for January 2006 except for some different freight charges where ex-USA items had been calculated. There is a column for landed cost as at February 2014 in US dollars, another apparently converted into Australian dollar value using 2016 exchange rates. However, the column on the right claims to be the quantity of stock at the warehouse 31/12/16 (that is five months into the future from now). I regard that document as of minimal reliability insofar as it purports to reflect either realistic current value of stock or what was actually in shed 43A when the defendant took possession of the contents of that shed.
18 Ms Guss also produces a list[7] of European goods at landed price. She says that from her knowledge of what was stored at the premises and computer records, that listing is correct[8], was paid for in Euro currency, with freight charges in US dollars, and she has used current exchange rates to show its landed cost in Australian dollars. She arrive at the wholesale price for these and the Kingsley Bate goods she applied a margin of approximately 60%, and says the recommended retail price is approximately 100% (including GST) over wholesale price. I do not find her estimates of those at all convincing if they are relied upon to estimate current value of the goods held by the defendant. In particular there is no evidence before me that the first plaintiff actually sold any furniture at wholesale or retail prices at any stage.
[7]Exhibit MG-5
[8]Paragraph 7
19 Most reliance is placed by the plaintiffs on Exhibit MG-6 and what Ms Guss says about it. It is said to be a stock listing and landed cost valuation of (most of) the second plaintiff’s goods[9], and Ms Guss says that from her knowledge and the computer records such listing is correct as possible without further physical stocktake.. she says these goods comprise goods imported by Casualife Furniture International Pty Ltd or LHV Pty Ltd or cleared on importation by LHV, and are accordingly covered by charges in favour of the second plaintiff as set out in paragraph 6 of the statement of claim. The paragraph of the statement of claim pleads, inter alia, that Casualife Furniture International Pty Ltd was deregistered on 3 November 2013, and LHV Pty Ltd was deregistered on 23 December 2013. There is also evidence from a company search that Casualife Furniture International Pty Ltd was ordered to be wound up in 2004. I cannot clarify the real date of that company being wound up, but I regard the claim as very tenuous that any of the goods stored in shed 43A was truly likely to have been legitimately imported by it. What I regard as even more doubtful is that what is said to be landed value of goods owned by companies subsequently deregistered or wound up, could be relied upon as an appropriate means of valuing them as at December 2015 or now.
[9]Para 12
20 The plaintiffs also rely as an indicator of value of the goods, on the advertisement placed by the defendant’s auctioneer for the scheduled auction this month, which describes the goods as “$130,000 Wholesale New Stock Imported outdoor furniture”[10]. Without confirming the expertise of the auctioneers in valuation, the plaintiffs submit that this supports a finding that the goods have substantial value.
[10]Exhibit JG-3 to Affidavit of Joseph Guss sworn 11 July, 2016
21 On the other hand, the defendant relies on the same auctioneer’s experience in assessing value, pointing to a reserve price having been set by them recently at a total of only $22,534.
22 In the circumstances and without hearing any explanation, I do not place much weight on either value used by the auctioneer.
23 I accept that the goods the subject of the proceedings do have value, and their value may well be considerably in excess of the $22,500 reserve price set by auctioneers for them. However, based on what evidence I have of the value of the subject goods, I cannot be satisfied on the balance of probabilities that a realistic realisable value of those goods is likely to be sufficient to meet both the claim and costs of the defendant if it is successful. While usually it is only the potential costs of the defendant that are considered in this context in an application for security for costs, the nature of the dispute in this case is that for the defendant to be successful, it must be found entitled to have taken possession of the goods as security for amounts owing to it. As that amount is secured against the goods, it should be regarded as having first priority for payment from the value of the goods, so the amount of the defendant’s costs should be considered after that, and whether the value would still be sufficient to pay those expected costs. Even if the amounts found owing to the defendant were not as much as the $108,000 presently claimed, they would likely be in the range of over $50,000 (based on storage costs running at $5500 per month). Therefore I have estimated that only if the plaintiffs have a fund or assets in this jurisdiction capable of realising at least $100,000 would I be able to find that it is likely that such fund could meet an order for the defendant’s potential costs.
Other relevant factors
24 The plaintiffs argue that a significant factor in this case is that the nature of their claim is defensive, and they rely on the authorities which recognise as a significant factor, where it applies, that an order ought not be made against parties who are defending themselves and thus forced to litigate. Justice Dixon in Harmonious Blend Building Corporation recognised this although as but one of the various factors to be considered. Another decision relied upon is that of Davies J in Vasiliades v Commissioner of Taxation[11] in which her Honour said:
“There is a strong line of authority that a court should be reluctant to order security where the proceeding is essentially defensive in nature.”[12]
[11][2016] FCA 420
[12]At para [18]
25 That was a longstanding proposition, and supported by the High Court decision of Willey v Synan, where Dixon J said:
“The principle is that a party to judicial proceedings who resides beyond the jurisdiction should not be required to give security for costs unless, however the parties are arranged upon the record, he is the person invoking or resorting to the jurisdiction for the purpose of establishing rights or obtaining relief. If he does avail himself of the remedies the jurisdiction provides in order to obtain affirmative relief or redress, he may be ordered to give security, although he becomes a defendant in the action.”[13]
[13](1935) 54 CLR 175 at 184
26 The High Court case decided against ordering security against a plaintiff who was a member of the crew of a ship travelling to Australia, he not being resident within the Commonwealth, and the Collector of Customs having made a claim for coins he was carrying and there being a statutory scheme under the Customs Act requiring a notice to be sent to him and him to take action against the authority for recovery of the coins. In Vasiliades there was an analogous situation where an individual having received from the Commissioner of Taxation a notice of assessment which stood as conclusive evidence that the assessment was properly made, was required to take proceedings to challenge the substantive liability imposed by the assessment and therefore to become a plaintiff.
27 Those decisions are strong authority for the proposition that a plaintiff whose claim is essentially defensive ought not to be ordered to pay security merely by reason of being a non-resident of the Commonwealth. However as analysed by Davies J, there are other cases in the Federal court where the defensive nature of the proceedings against the Commissioner of Taxation was found not to outweigh other factors bearing upon whether security should be granted, although her Honour disagreed and in her case found it to be a significant factor. However, her citation[14] of a passage by Hill J in my view sheds more light on the basis for that approach. Hill J observed that “it would be a rare case where security for costs would be awarded at the instance of the commissioner of Taxation against a natural person seeking to appeal from a decision of the AAT reviewing an objection decision where it was conceded that there was a real issue to be decided between the parties.”[15]
[14]At para [29]
[15]Fletcher v Commissioner of Taxation (1992) 37 FCR 288
28 In the current case, not only are the plaintiffs corporations rather than natural persons, but they are commercial parties who have brought proceedings against another commercial party. Whether or not the plaintiffs are ultimately found to be privy to the agreement to pay for the storage space of the defendant, in my view this litigation is fundamentally based on a commercial dispute and is not truly to be categorised as purely defensive by them. Notwithstanding that the defendant relies upon what it alleges are statutory rights to take possession and dispose of the goods, it was not until the imminent sale of the goods that the proceeding was issued, and the defendant also relies upon contractual rights. To the extent that there is a defensive aspect to the issuing of this proceeding, I do not regard it as solely defensive, nor as of as much significance as a factor relevant to whether security should be granted as to outweigh the lack of evidence of an ability of the plaintiffs to pay a costs order in favour of the defendant.
29 Another relevant factor is whether there is any person behind the plaintiffs willing to pay a costs order against them. There has been no suggestion that there is any such person, including Mr Guss who with his daughter swears to their involvement with the businesses of the plaintiffs. On the contrary, there is evidence that the background to this proceeding was a dispute that developed as to which persons or entity or entities Mr Guss was acting for when he arranged to hire Shed 43A, as a result of which fees for use of that shed remained unpaid for more than a year.
30 I take into account what I can glean at this stage of the merits of the case. I have heard both sides outline their positions on the substantive issues in the proceeding, and I accept that there are real issues to be decided, so the merits are not obviously one-sided.
31 I do not consider that an order for security is likely to unfairly cut out the plaintiffs from litigating those issues.
32 Finally, in an attempt to respond to the defendant’s submissions in response, Mr Watts on behalf of the plaintiffs sought to rely on an English case, to the use of which the defendant’s counsel objected as coming too late. I have nevertheless read and considered the passage relied upon by the plaintiffs. In De Bry v Fitzgerald[16], Lord Donaldson said that since the purpose of an order for security against a plaintiff ordinarily resident outside the jurisdiction, is to have a fund within the jurisdiction which will guarantee that any order for costs in favour of the defendant will be met, “it is a complete answer to an application for such an order that a fund already exists, at least if the Court can ensure that the fund will not be dissipated.”[17]
[16][1990] 1 WLR 552
[17]At 555
33 In my view, it is not a complete answer in the current case to point to the goods in question. That is because, for reasons already explained, I do not regard those goods as the equivalent of a fund within the jurisdiction to which recourse could be had to satisfy an order for the defendant’s costs of the proceeding. If the defendant is successful in this proceeding, the first call on those goods’ value will be the amounts for which they are being held as security, leaving the defendant’s costs to be paid out of remaining value of the goods, if any. Further, as in my view none of the supposed valuations is likely to be a reliable guide to the realisable value of those goods, I am not satisfied that the goods are realistically a fund within the jurisdiction which will guarantee that any order for costs in favour of the defendant will be met.
Decision
34 Taking into account all of the factors mentioned, and giving them the weight or level of significance I have outlined on each, I am not satisfied that the plaintiffs are likely to be able to pay an order for the defendant’s costs if it is successful in this proceeding. Further, I do not consider that there are other circumstances that outweigh that consideration in this case. I am therefore satisfied that I should order that the plaintiffs pay security for the defendant’s costs.
Amount of security
35 The defendant’s solicitors originally demanded an amount of some $93,000 as security for costs. That was at a stage that various usual interlocutory steps were anticipated. When the return of the interim injunction came before the Court on Monday, the parties agreed to shorten interlocutory steps and indeed to have the matter determined at a final hearing which has been set for barely a month away; namely, 26 August, when it is estimated that there will be a hearing taking up to one day only. It was also foreshadowed that once pleadings have been amended, both sides would prepare written submissions for the Court so as to confine what is to be decided in that hearing. On that basis, the defendant’s solicitor revised his estimate of costs to approximately $56,000.
36 On the morning this application was coming back before the Court, an affidavit from Mr Linsdell, a costs consultant, was served on behalf of the plaintiffs, being emailed in the very early hours of 27 July. In response and before the hearing commenced on 27 July, the defendant had sought an answering affidavit from a costs consultant, Ms Penelope Van den Berg of Mahlab Costing Pty Ltd.
37 Mr Linsdell pointed to estimates for both solicitors’ and counsel’s fees including GST, which the defendant’s consultant agrees should not be included. Mr Linsdell was under the misapprehension that after amendment of pleadings, there would not only be no further interlocutory steps, but also no significant preparation, and that the trial was listed for a half day on 26 August. On that basis he made assessments and allowed only one hour of conference by solicitor with counsel prior to that half-day hearing. Further, his estimate of the costs of this application overlooked not only his own affidavit but also that there might be one in reply. What he ws apparently not told was that both sides anticipated preparing comprehensive submissions and possibly summaries to assist to confine the issues and time for the hearing, as no allowance was made at all for defendant’s counsel to prepare those nor any input by solicitors.
38 Accordingly, I am not convinced that Mr Linsdell’s estimates are anywhere near sufficient to take into account the complexity of this case. Moreover, having now sat on what were estimated to be short hearings dealing with this application and indeed the return of the injunction, I am of the view that the hearing which has been fixed for 26 August is likely to take at least a full day.
39 The estimates given by Ms Van den Berg are now relied upon by the defendant, being limited to standard cost basis for a County Court proceeding being 80 per cent of Supreme Court Scale. Her estimate is of approximately $44,500.
40 Mr Watts challenges as excessive the 55 hours claimed as having been spent by the defendant’s solicitor in past costs of the proceeding. It is conceded by the defendant that there is no greater specificity by Ms Van den Berg which is regrettable, however this was because she had less than an hour to read and consider Mr Lindsell’s letter and respond. Given that the plaintiffs’ counsel told me on 25 July that he had spent all of the weekend preparing his case on the injunction return, and had not had adequate time to prepare and get instructions and possibly answering material for the security for costs application, I do not accept his criticism of a substantial overestimate in the time so far spent by the defendant’s solicitor. It may be an overestimation, but I am of the view that the estimate of the time needed for both counsel and solicitors from here onwards has been extremely modest and is most likely an underestimation.
41 I read Ms Van den Berg’s affidavit as indicating that she had read Mr Linsdell’s and was responding to its content, rather than having separate information. Neither mentions the expectation that there will be extensive written submissions prepared, a distillation of what facts are in issue and where those matters appear in affidavits, as well as at least a full day hearing. In those circumstances, I regard her estimate for future costs to be an under-estimation as she has allowed only three days for counsel. No allowance has been made by any assessment for transcript, which in a case such as this, even without there being witnesses, is likely to be needed.
42 I am not required to form an exact view as to likely reasonable costs to date or to completion of the hearing in late August. I also bear in mind that an order for security does not need to be of the full amount estimated, although in this case I think it should approach that.
43 In my view, the estimate by Ms Van den Berg of approximately $44,500 is the closest of all of the estimates to do what is realistic, even though it does not provide a line-by-line assessment.
44 I am satisfied that an appropriate sum to order be paid as security for costs at this stage, with the envisaged conclusion of the litigation being only a month away, but involving, as I have indicated, some intensive preparation and a full day of hearing, is $45,000.
Costs of application
45 The defendant also sought an order that its costs of this application be paid by the plaintiffs and be paid forthwith rather than await outcome of the proceeding as payment would otherwise do pursuant to Rule 63A.03(3). Given the nature of the application itself, that being for an order that the plaintiffs pay security for costs, and that I have decided an amount which includes an estimate of the costs of this application, and further that what is envisaged to be the final hearing on this case be held within one month, I am not prepared to order that the costs of this application be paid forthwith or other than in the normal course of events.
46 I do consider that the defendant should be entitled to recover from the plaintiffs its costs of and incidental to this application and I will order them in the usual terms on a standard basis.
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