Stuart v Mordialloc Sporting Club Inc (No 2)
[2019] VSC 847
•20 December 2019
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
PROPERTY LIST
S ECI 2018 01124
| RAYMOND JOHN STUART | Plaintiff |
| v | |
| MORDIALLOC SPORTING CLUB INC. (ARN A0027737R) & ORS (ACCORDING TO THE SCHEDULE) | Defendants |
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JUDICIAL REGISTRAR: | Matthews JR |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 22 November 2019, supplementary submissions filed 4 December 2019 |
DATE OF RULING: | 20 December 2019 |
CASE MAY BE CITED AS: | Stuart v Mordialloc Sporting Club Inc & Ors (No 2) |
MEDIUM NEUTRAL CITATION: | [2019] VSC 847 |
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PRACTICE AND PROCEDURE – Security for costs – Application for security for costs against a natural person – Inherent jurisdiction of the Court – Whether circumstances of the case justify order for security for costs being made – Whether the applicant for security has established that the plaintiff is impecunious – Whether any other factors justify security for costs being ordered – Knight v Beyond Properties Pty Ltd [2005] FCA 764 – Von Marburg v Aldred & Anor (No 3) [2017] VSC 146 – Livingspring Pty Ltd v Kliger Partners (2008) 20 VR 377 – Impecuniosity not established – Security for costs not granted
PRACTICE AND PROCEDURE – Notice to produce – Application by the plaintiff to set aside notice to produce served by the applicant for security – Crown Joinery Pty Ltd [2007] VSC 214 – Equuscorp Pty Ltd v Malcolm [2001] VSC 66 – Notice to produce set aside.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr W Stark | Mahons with Yuncken & Yuncken Lawyers |
| For the Sixth Defendant | Mr N Frenkel | HWL Ebsworth Lawyers |
JUDICIAL REGISTRAR:
Introduction
By summons filed on 3 September 2019, the sixth defendant, Kevin Said (‘Sixth Defendant’) seeks orders that Raymond John Stuart (‘Plaintiff’) provide security for his costs of the proceeding up to and including mediation in the amount of $88,904.78 (‘Security Application’).[1]
[1]By orders made on the Court’s own motion on 21 November 2019, the Security Application was referred to me for hearing and determination pursuant to r 84.04 of the Supreme Court (General Civil Procedure) Rules 2015 (‘Rules’).
In support of his Security Application, the Sixth Defendant relies upon the affidavits of:
(a) Evan Anthony Stents, sworn 30 August 2019 (‘Stents Affidavit’). Mr Stents is a partner in the firm HWL Ebsworth Lawyers (‘HWLE’), the solicitors for the Sixth Defendant;
(b) Anthony Peterson, affirmed 2 October 2019. Mr Peterson is a senior associate employed by HWLE; and
(c) Mr Peterson, affirmed 8 November 2019.
The Plaintiff opposes the Security Application, and relies on two affidavits sworn by Richard John Ashley sworn on 3 October 2019 and 25 October 2019. Mr Ashley is a solicitor employed by Mahons with Yuncken and Yuncken Lawyers (‘MYYL’), the solicitors for the plaintiff.
Both parties filed written outlines of submissions: the Sixth Defendant filed an outline on 8 November 2019; and the Plaintiff filed an outline on 15 November 2019.
At the outset of the hearing of the Security Application on 22 November 2019, Counsel for the Sixth Defendant informed the Court that he wished to call upon a notice to produce dated 4 November 2019 issued by the Sixth Defendant (‘Notice’), but that MYYL had written to HWLE the day before to say that the Plaintiff would be seeking to set aside the Notice. Counsel for the Plaintiff then made an application to set aside the Notice (‘NTP Application’) and the Sixth Defendant did not object to that being heard at the same time and without a summons having been issued.
After hearing the NTP Application, it was common ground between the parties that I should proceed to hear the Security Application without first ruling on the NTP Application. This course was adopted as there was considerable overlap in the subject matter of both applications, and by the time the submissions regarding the NTP Application had concluded it was expedient to continue hearing the remaining matters in respect of the Security Application. I indicated that I would reserve my decisions and the parties could, after receiving the transcript and before I considered my decisions, provide brief supplementary written outlines if they wished.[2] I also stated that if it was necessary and appropriate to do so, after deciding the NTP Application I would provide the parties with an opportunity to file further affidavits and make further submissions in respect of the Security Application.
[2]The parties did avail themselves of this opportunity, filing brief supplementary submissions on 4 December 2019.
For the reasons set out below, in respect of the NTP Application I have decided to set aside the Notice. As a consequence, it is not necessary to provide the parties with an opportunity to file further affidavits or make further submissions in respect of the Security Application. In my view, it would only have been necessary to do so if I had not set aside the Notice.
For the reasons set out below, I have decided that it is not appropriate to order that the plaintiff provide security for the Sixth Defendant’s costs.
Background
The proceeding was commenced by the Plaintiff by writ filed on 3 September 2018 against Mordialloc Sporting Club Inc (‘MSC’), which is now the first defendant in the proceeding. On 5 June 2019, the Plaintiff was given leave to add an additional six defendants to the proceeding, being the second to seventh defendants. An amended writ was filed on 17 June 2019 to effect that joinder and an amended statement of claim was filed at the same time (‘ASOC’).
MSC is an association incorporated pursuant to the Associations Incorporation Reform Act 2012 (Vic) (‘Act’).
The Plaintiff is a member and a former director of MSC. The second to seventh defendants are directors of MSC (or were directors at the time when the conduct complained of occurred), although some of the claims made by the Plaintiff in the proceeding concern whether the Sixth Defendant and the seventh defendant were validly appointed as directors of MSC.
It is not necessary for me to set out here all of the allegations made in the proceeding and the background facts (many of which are disputed in any event). Suffice to say that from the ASOC, the Plaintiff makes various allegations, including those concerning:
(a) The conduct of MSC’s affairs by the second to fifth defendants;
(b) The circumstances in which he and certain other former directors were ‘forced’ to resign, which is said to constitute oppressive conduct in contravention of the Act;
(c) The validity of the appointment of the Sixth Defendant and the seventh defendant as directors of MSC;
(d) Whether MSC had a validly constituted board of directors at various times, and whether certain acts of MSC at those times were validly undertaken;
(e) The circumstances in which the lease of the premises occupied by MSC and an option to purchase that property under the lease came to be exercised by MSC, followed by a purported sale of the property from MSC to two companies which apparently were to develop the property and lease part of it back to MSC upon completion of that development; and
(f) Conflicts of interest alleged in respect of the Sixth Defendant and/or the seventh defendant, who are alleged to have had a material interest in the two companies to whom the property was sold, which matters were not disclosed to members of MSC.
In the prayer for relief contained in the ASOC, the Plaintiff seeks injunctions restraining MSC from taking any steps to purchase, sell, transfer, or otherwise deal with its interest in the property, along with various declarations about the acts of MSC which are impugned by the Plaintiff. In addition, the Plaintiff seeks damages against each of the second to seventh defendants.
Apart from MSC, none of the other defendants have yet filed a defence.
Following correspondence between various parties regarding alleged deficiencies in the ASOC, on 29 July 2019 the Plaintiff sought leave to add an additional six defendants and file a proposed further amended statement of claim. Shortly after this, the Sixth Defendant and the other defendants filed summonses seeking orders that the ASOC be struck out and filed submissions opposing the Plaintiff’s application for leave to file the proposed further amended statement of claim.
Before those matters were dealt with by the Court, on 20 September 2019, the Plaintiff filed and served a summons seeking leave to join John Barr Investments Pty Ltd (‘JBI’) as the second plaintiff,[3] add a further six defendants (the same six sought to be added on 29 July 2019), and file and serve a second proposed further amended statement of claim. This application is opposed by the defendants.
[3]JBI is the former owner of the property, before the transactions referred to in paragraph 12(e) above.
I shall refer to the Plaintiff’s applications to join JBI as a second plaintiff, to add six further defendants, and to file a further amended statement of claim, along with the defendants’ strike-out applications, as the Pleading Applications.
The Pleading Applications were listed for hearing before Randall AsJ on 19 November 2019. One day prior, the Plaintiff filed an affidavit by which he sought leave to file and serve a new version of the proposed further amended statement of claim. As I understand it from the orders made by his Honour on 19 November 2019, the hearing of the Pleading Applications was adjourned to February 2020 and the Plaintiff was directed to provide his proposed third further amended statement of claim by 18 December 2019.
The Security Application was listed before me for directions on 4 October 2019. Prior to that hearing, both parties filed affidavits in support of the directions which they each sought. The Plaintiff sought directions adjourning the Security Application until after the Pleading Applications had been heard and determined,[4] which the Sixth Defendant opposed. I rejected the Plaintiff’s submission and made directions for the filing of further affidavits and outlines of submissions, and fixed the Security Application for hearing on 22 November 2019.
[4]At that time, the Pleading Applications were listed for 19 November 2019.
By the Notice, the Sixth Defendant sought production of the following documents from the Plaintiff:
(a) ‘Documents recording or otherwise evidencing the Plaintiff’s ability to pay any adverse costs orders made in this proceeding’ (‘Category 1’);
(b) ‘Documents identifying the payer(s) of the legal fees for the legal services provided to the Plaintiff in this proceeding’ (‘Category 2’);
(c) ‘Documents recording or otherwise evidencing any agreement, arrangement or understanding between the Plaintiff and any other person or entity in relation to the payment of the legal fees for the legal services provided to the Plaintiff in this proceeding, including but not limited to any cost agreement for the provision of legal services in this proceeding between the Plaintiff and/or any other person or entity and his solicitors’ (‘Category 3’); and
(d) ‘Documents recording or otherwise evidencing any agreement, arrangement or understanding between the Plaintiff and any other person or entity in relation to the Plaintiff’s potential liability for any adverse costs orders made in this proceeding’ (‘Category 4’).
Applicable principles
Principles applicable to the NTP Application
Rule 35.08 of the Rules permits a party to serve on another party a notice requiring that the other party produce documents mentioned in the notice ‘on any application in or at the trial of the proceeding’.[5] Unless the Court otherwise orders, the party on whom the notice is served must produce on the application or at the trial such of the documents mentioned in the notice as are in the party’s possession, custody or power and which that party does not object to produce on the ground of privilege.[6]
[5]Rules, r 35.08(1).
[6]Rules, r 35.08(2).
In Crown Joinery v Lyleho,[7] Maxwell P stated that ‘it was common ground that the obligations which a notice to produce imposes are similar to those imposed by a subpoena and that the considerations which apply to the setting aside of a subpoena are equally applicable to a notice to produce.’[8] The same common ground appeared to exist here.[9]
[7][2007] VSC 214 (‘Crown Joinery’).
[8]Crown Joinery, [31].
[9]Transcript, 14.9-16.
His Honour went on to say that:[10]
The applicable principle is that laid down by Jordan CJ in Commissioner for Railways v Small, as follows:
“In the absence of special circumstances, … a party is no more entitled to use a subpoena duces tecum than he is a summons for interrogatories, for the purpose of ‘fishing’, i.e., endeavouring, not to obtain evidence to support his case, but to discover whether he has a case at all.”
[10]Crown Joinery, [32] (citations omitted).
In Volunteer Fire Brigades Victoria v CFA(Discovery Ruling),[11] Justice Jack Forrest stated the following principles in relation to subpoenas:[12]
[11][2016] VSC 573 (‘Fire Brigades’).
[12]Fire Brigades, [55] (citations omitted).
In Messade v Baires Contracting Pty Ltd, I set out the principles in relation to the provision of documents in relation to the adequacy of a subpoena. With one exception (which is irrelevant here), those principles were adopted by the Court of Appeal in Woolworths Ltd v Svajcer:
(a)it is necessary for the party at whose request the witness summons was issued to identify expressly and precisely the legitimate forensic purpose for which access to the documents is sought;
(b)the identification of such a legitimate forensic purpose is to be considered by the court without inspecting the documents sought to be produced;
(c)the applicant for the witness summons must also satisfy the court that it is ‘on the cards’, or that there is a ‘reasonable possibility’, that the documents sought under the subpoena ‘will materially assist the defence’;
(d)a ‘fishing expedition’ is not a legitimate forensic purpose and will not be permitted;
(e)the relevance of a document to the proceeding alone will not substantiate an assertion of legitimate forensic purpose. There is no legitimate forensic purpose if the party is seeking to obtain documents to see whether they may be of relevance or of assistance in his or her defence;
(f)a mere assertion of bad faith by an applicant or that something might be found demonstrating bad faith is not enough – the criteria set out in (c) must be satisfied;
(g)in criminal proceedings a ‘more liberal’ view is taken by a court in respect of the application of the test. Special weight is to be given to the fact that the documents may assist the defence of the accused;
(h)where a party fails to demonstrate a legitimate forensic purpose, the court should refuse access to the documents and set aside the witness summons.[13]
[13][2013] VSCA 270, [16].
These are the general principles which apply. Where necessary, I will consider other authorities below.
Principles applicable to the Security Application
It was common ground between the parties that the Security Application was being made pursuant to the inherent jurisdiction of the Court, and not pursuant to r 62.02 of the Rules. In respect of the Court’s inherent jurisdiction, Derham AsJ in Von Marburg v Aldred & Anor (No 3)[14] summarised the position as follows:[15]
The Court retains an inherent jurisdiction to order security for costs as an adjunct to the Court’s power to regulate its own procedure. The inherent jurisdiction to order security for costs provides an important safeguard. It permits the Court to require security for costs where that is necessary in the interests of justice in circumstances that fall outside the categories found in r 62.02 of the Rules. It is also true that the inherent jurisdiction is not restricted to the examples in the decided cases, in the sense of denying the existence of the power for any other case. The fact that the power has been regularly exercised in a limited number of cases and refused in others proves the existence of, but does not restrict, the jurisdiction.
[14][2017] VSC 146 (‘Von Marburg’).
[15]Von Marburg, [39].
In the same case, Derham AsJ summarised the principles applicable in respect of applications for security against natural persons on the grounds of impecuniosity, as well as some general principles when exercising the discretion to order security for costs. As I noted in Liu v Resi Ventures Leakes Pty Ltd (No 2),[16] this is a convenient summary.[17] His Honour’s summary is set out here and I adopt it, noting that it is consistent with the submissions made by the parties:[18]
[16][2019] VSC 638 (‘Liu’).
[17]Liu, [44].
[18]Von Marburg, [40]-[42], [44]-[45] (citations omitted).
40.The basic rule is that a natural person who sues will not be ordered to give security for costs however poor they are. The rule does not mean that there are no circumstances in which a natural person without assets will be required to provide security for costs, or subjected to a stay of proceedings until security is provided.
41.Usually some other or additional factor to the plaintiff’s impecuniosity must be present in order that an individual plaintiff provides security for costs. In Knight v Beyond Properties Pty Ltd,[19] Lindgren J noted the following:
[19][2005] FCA 764, [33] (‘Knight’s case’).
In the cases in which natural persons have been ordered to provide security, some factor in addition to impecuniosity has been present; cf Barton v Minister for Foreign Affairs (1984) 2 FCR 463 (Morling J) at 594 (impecuniosity and residence outside Australia); Cunningham v Olliver (unreported, Burchett J, 21 November 1994) (but for delay, security would have been ordered on ground of impecuniosity and bringing of claim to a significant extent for benefit of others); Chang v Comcare Australia [1999] FCA 1677 (Moore J) at [32] (impecuniosity and lack of prospects of success); Loque v Hansen Technologies Ltd [2003] FCA 81 (Weinberg J) (impecuniosity and residence outside Australia); Morris v Hanley [2000] NSWSC 957 (Young J) at [21], [38] and [39] (but for delay, Young J would have ordered security on grounds of impecuniosity and lack of prospects of success and large costs involved to defendants. Young J's decision was reversed on appeal on the ground that defendants had not adequately explained their delay in moving for security, but the Court of Appeal did not consider other aspects of his Honour's reasons: see Morris v Hanley & Ors [2001] NSWCA 374 at [30]-[31]); Melville v Craig Nowlan & Associates Pty Ltd (2002) 54 NSWLR 82 (CA) at [132] (per Heydon JA) (impecuniosity and applicant's failure to show that order would stultify proceeding and sum ordered by primary Judge not oppressive).The defendants contended that the plaintiff is a man of straw and, what is more, is a man who generally avoids his creditors and his financial responsibilities.
42.If the Court has jurisdiction to order security, the burden rests on the defendant, from first to last, to persuade the Court that the order for security for costs should be made. There are, however, particular discretionary matters in respect of which the plaintiff must necessarily have the carriage. Thus, if the plaintiffs assert that an order for security would impose on them such a financial burden as to stultify or frustrate the litigation, they must establish the facts which make good that assertion.
….
44 It is commonly said in applications of this nature that:
(a)as a general rule, where a claim is prima facie regular on its face and discloses a cause of action, in the absence of evidence to the contrary, the court should proceed on the basis that the claim is bona fide with reasonable prospects of success;
(b)assessing a plaintiff’s prospects of success is not really a practicable test in any case of reasonable complexity. Although it will ordinarily not be practicable to reach any clear view about the merits of a plaintiff’s claim, that is not to say that the merits are always irrelevant (unless totally lacking) or that the bona fides of the claim may be disregarded; and
(c)the Court is not obliged to consider at length the merits of the claim, and to do so would ordinarily be a waste of resources.
45.The discretion to award security for costs requires the Court to take into account all of the relevant facts, matters and circumstances. In exercising the discretion, the Court is concerned to achieve a balance between ensuring that adequate and fair protection to the defendant, and avoiding injustice to an impecunious plaintiff by unnecessarily shutting it out or prejudicing it in the conduct of the proceedings.
As I noted in Liu:[20]
[20]Liu, [45].
Several cases have set out a range of factors usually considered by the Court when weighing the discretion to award security. These factors include:[21]
(a) the merits of the claim;
(b) whether ordering security would frustrate the claim;
(c) whether the defendant was the cause of the plaintiff’s impecuniosity;
(d) delay;
(e)whether there are any persons standing behind the plaintiff who are likely to benefit from the litigation and who are willing to provide security;
(f)whether any persons standing behind the plaintiff have offered any personal undertaking to be liable for the costs and if so, the form of any such undertaking; and
(g)whether the applicant for security is in substance a plaintiff, as an order ought not be made against parties who are defending themselves and thus forced to litigate.
[21]This description is taken from Croft J’s judgment in Trility Pty Ltd v Ancon Drilling Pty Ltd [2013] VSC, [14]-[16]. See also Colmax Glass Pty Ltd v Polytrade Pty Ltd [2013] VSC 311 (‘Colmax’) at [20], which is a useful summary of the authorities regarding the discretionary factors.
Where relevant, the same factors will be considered here.
Consideration
It is convenient to first consider the question of impecuniosity, as that is relevant to both the NTP Application and the Security Application. This is because the Notice was directed to documents which may, on the Sixth Defendant’s submission, bear upon the question of whether the Plaintiff is impecunious. It is also consistent with the way in which submissions were made at the hearing. I will then consider the balance of the issues regarding security for costs, in turn.
Impecuniosity
Evidence relied upon by the Sixth Defendant
Evidence as to the Plaintiff’s financial position
The Sixth Defendant relies on the following matters, as deposed to in the Stents Affidavit, as establishing that the Plaintiff is impecunious:[22]
[22]Stents Affidavit, [24].
(a) The Plaintiff was subject to an arrangement under Part X of the Bankruptcy Act 1966 (Cth) in 1972;
(b) He was previously declared bankrupt, which ran from 1991 to 1994; and
(c) He was the respondent to a creditor’s petition filed in the Federal Court in 2007.
The Stents Affidavit does not state the above dates when describing these events, rather, one is left to discern the dates from the searches exhibited to the Stents Affidavit.
Further searches are exhibited to the Stents Affidavit to support the following, being that the Plaintiff:[23]
[23]Stents Affidavit, [25].
(a) Does not currently own any shares in an Australian company;
(b) Is a director and secretary of Pinnacle International Advisory Pty Ltd;
(c) Has previously been a director of 23 companies which are now deregistered; and
(d) Was formerly a shareholder of Spectrum CM Landscaping Pty Ltd, which was subject to an application to have it wound up in December 2012 and was wound up by the Court in April 2013.
In addition, a property search shows that a ‘Raymond John Stuart’ is a joint proprietor of a property in Wangaratta, Victoria. Mr Stents deposes that it is not clear if this person is the Plaintiff.[24]
Correspondence between the parties regarding security for costs
[24]Stents Affidavit, [26].
Shortly after being served with the ASOC, HWLE wrote to MYYL regarding alleged deficiencies in the ASOC and reserved the Sixth Defendant’s position in respect of security for costs.[25]
[25]Stents Affidavit, [13], [15]. These letters were sent on 11 and 17 July 2019, the Plaintiff having been served with the ASOC on 9 July 2019.
On 6 August 2019, HWLE wrote to MYYL and requested that the Plaintiff provide credible evidence to satisfy the Sixth Defendant that the Plaintiff would be able to meet any adverse costs order made against him in the proceeding by 12 August, and reserved the Sixth Defendant’s right to make an application for security.[26] On 15 August 2019, MYYL wrote to HWLE. Mr Stents deposes that by this letter the Plaintiff denied that the Sixth Defendant had an entitlement to security for costs and failed to provide the information he had requested in his earlier letter.[27]
[26]Stents Affidavit, [16].
[27]Stents Affidavit, [21].
Plaintiff’s submissions – the NTP Application
The Plaintiff submits that the Notice ought to be set aside on the grounds that it is fishing, and that it is too wide and oppressive. The Plaintiff relies upon Crown Joinery, in particular paragraphs 26, 30, 31, 33, 34 and 43 to 45 of that decision.
Crown Joinery concerned an appeal from a Master of this Court who had dismissed an application by a creditor to wind up the debtor. In that case, the creditor had applied to wind up the debtor company on the grounds of insolvency. As none of the statutory presumptions of insolvency under the Corporations Act arose, the creditor was required to prove the actual insolvency of the debtor. The creditor served a notice to produce on the debtor, which in substance sought the financial books and records of the debtor. Treating the notice to produce as a request for discovery (which is ordered in winding-up proceedings only in special circumstances), the Master refused it on the basis that it was fishing, as it “does not support the plaintiff’s case but seeks to discover whether the plaintiff has a case at all”.[28] President Maxwell agreed with that conclusion, both in terms of a notice to produce and in terms of discovery.[29] His Honour went on to refer to the notice to produce as a “paradigm example of fishing”, as on the evidence as it stood, the creditor could not establish any case of insolvency.[30]
[28]Cited at paragraph [26] of Crown Joinery.
[29]Crown Joinery, [27].
[30]Crown Joinery, [33]-[34].
The Plaintiff says that the documents in Category 1 of the Notice are clearly fishing, as there are no limitations as to the documents that are sought: no time limitation; no descriptive limitation; and no limitation of the types of documents that are sought. It is said that seeking the documents in Category 1 is confirmation that the Sixth Defendant is seeking documents to establish whether in fact he has any basis to make the Security Application.
As will be developed more fully below when considering impecuniosity in the context of the Security Application, the Plaintiff says that the Sixth Defendant has not adduced any evidence that the Plaintiff is impecunious and that rather than relying on evidence, the Sixth Defendant is relying on speculation. He submits that this distinguishes the decision in Equuscorp Pty Ltd v Malcolm[31] and the other authorities relied on by the Sixth Defendant in relation to the NTP Application.
[31][2001] VSC 66 (‘Equuscorp’).
The Plaintiff submits that the documents sought in Categories 2-4 of the Notice effectively require him to disclose the costs agreement (if any) that he has entered into for this proceeding. He says that by definition, these documents are the subject of legal professional privilege. Furthermore, he says that there is nothing more than speculation behind these categories of the Notice and that it is an attempt to obtain evidence of something, being the identity of the payer, about which there is nothing more than speculation. The Plaintiff submits that the oral submissions of the Sixth Defendant, that “if it’s not Mr Stuart, if it’s a funder, if it’s someone else, and we can think of at least one other entity who could be paying his legal fees …”[32] confirms the speculative nature of Categories 2-4 and that they are fishing.
[32]Transcript, 12.20-23.
Sixth Defendant’s submissions – the NTP Application
The Sixth Defendant’s primary submissions in respect of the NTP Application were that the documents sought under the Notice were relevant to the Security Application and that the Notice was not fishing because there was evidence to suggest that the Plaintiff is impecunious.
The Sixth Defendant rejected the Plaintiff’s submission that there is no evidence before the Court to show that he is impecunious. In oral submissions, Counsel for the Defendant said that as with every security application, title searches, bankruptcy searches and ASIC searches had been done and that here these reveal that the Plaintiff is evidently a man of straw. Counsel referred to the material in the Stents Affidavit as summarised above, and submitted that this material establishes that the Notice is not fishing as it suggests that the Plaintiff is impecunious and there is no material in response to suggest otherwise. It was submitted that on the balance of probabilities, therefore, the Court ought conclude that the Plaintiff is impecunious.[33]
[33]Transcript, 14.26 – 16.5.
Category 1 of the Notice was said to be relevant because it goes to the Plaintiff’s impecuniosity. Categories 2-4 of the Notice were said to be relevant because if the Plaintiff is paying his own fees, that says something about his financial status, and if it is someone else such as a funder, then that is relevant because that person cannot hide behind the Plaintiff’s impecuniosity. If these documents were subject to legal professional privilege, as contended for by the Plaintiff, then such a claim can be made in the usual way, although the Sixth Defendant’s submission was that it was doubtful that the documents were privileged.
The Sixth Defendant submitted that the documents sought under the Notice were clearly relevant to the Security Application, and that he was permitted by r 35.08 of the Rules to serve a notice for production of the documents in the Notice on any application, that being the Security Application.
The Sixth Defendant submitted that evidence of the financial position of the Plaintiff is a relevant consideration in determining whether or not to make an order for security for costs, and referred to a number of authorities in support. Similarly, the Sixth Defendant relied on a number of authorities, albeit in the context of liquidations or class actions, in support of the proposition that the existence of a litigation funding agreement is also a relevant consideration in determining whether or not to make an order for security for costs.
In relation to the former, the Sixth Defendant placed heavy reliance on Equuscorp.
In that case, the defendant sought security for costs against the plaintiff, which was a company. The defendant also served notices to produce on the plaintiff, seeking a wide range of documents which went to the financial position of the plaintiff. The plaintiff made an application to set aside the notices to produce. In dealing with that application, Beach J noted that:[34]
10.The case for [the plaintiff] in support of its applications that the notices to produce be set aside or struck out is that the notices to produce are designed to discover whether [the defendant] can make any case at all in prosecuting his applications for security for costs rather than designed to obtain evidence in support of a prima facie entitlement to security and for that reason can properly be described as “fishing”.
11.The case for [the defendant] in support of the notices is that the notices do not seek to test for the existence of a case, rather they are designed to obtain evidence to support his applications and cannot, therefore, be described as “fishing”.
12.It is necessary then, to see what evidence [the defendant] has thus far produced which can be described as credible testimony which establishes that there is reason to believe that [the plaintiff] will be unable to pay his costs if he is successful in his defence …
[34]Equuscorp, [10]-[12].
His Honour then went on to consider the evidence adduced by the defendant in support of his security applications and concluded that it established that the defendant ‘has a case for seeking security for costs’.[35] In terms of the notices to produce, his Honour concluded that save for one category of documents the documents sought were relevant to the defendant’s security application as they went to the financial position of the plaintiff, and he did not consider them to be a fishing expedition but designed or calculated to obtain evidence to support the defendant’s case.[36] The plaintiff’s application to set aside the notices to produce was dismissed.
[35]Equuscorp, [14].
[36]Equuscorp, [19].
The Sixth Defendant submits that Equuscorp is on all fours with this case and is authority for the proposition that a notice to produce given in connection with a security for costs application which seeks information about the financial position of the plaintiff and its capacity to pay a costs order is relevant and is prima facie not objectionable.
The Sixth Defendant also relies on Bailey v Beagle Management Pty Ltd,[37] a decision of the Full Court of the Federal Court concerning an application for leave to appeal against a refusal to set aside notices to produce issued in connection with security for costs applications. In particular, the Sixth Defendant relied on paragraphs 24 to 30 of Bailey, which were cited with approval by Beach J in Equuscorp.[38]
[37][2001] FCA 60 (‘Bailey’).
[38]Equuscorp, [18].
Further, the Sixth Defendant says that he should be able to get the documents pursuant to the Notice as the Plaintiff has refused to engage. He contends that the Plaintiff’s refusal to respond to HWLE’s request for information about his ability to satisfy a costs order strengthens the Security Application. [39]
[39]Transcript, 11.7-18.
The Sixth Defendant also submits that the Court should not accept the Plaintiff’s submission that the Notice is oppressive, as the Plaintiff has led no evidence in that regard. For example, there is no evidence as to the likely volume of documents or the time it will take to locate, review and produce them.
Similarly, the Sixth Defendant says that the Notice is not too wide. In this context during oral submissions, Counsel for the Defendant submitted that the Plaintiff could satisfy Category 1 by providing a statement of assets.[40]
[40]Transcript, 10.26-29.
Analysis – the NTP Application
Following the approach taken by Beach J in Equuscorp, I turn first to considering whether the Sixth Defendant has produced credible testimony establishing reason to believe that the Plaintiff will be unable to pay his costs. For the reasons set out in paragraphs 77 to 82 below, I do not accept that the Sixth Defendant has produced credible testimony to establish reason to believe that the Plaintiff will be unable to pay his costs if he is successful in his defence of this proceeding.
Therefore, in my view the Sixth Defendant is seeking the documents in the Notice in order to whether he can make a case for security for costs, rather than to obtain evidence in support of a ‘prima facie entitlement to security’. It follows that the Notice is fishing.
Counsel for the Sixth Defendant placed much emphasis on what was described as the relevance of the documents sought to the Security Application. However, relevance alone does not mean that there is a legitimate forensic purpose and that it is not fishing.[41]
[41]See paragraphs (d) and (e) of the principles summarised by J Forrest J in Fire Brigades, as set out in paragraph 24 above.
Counsel for the Sixth Defendant took me to 1045 Burke Rd Pty Ltd v Bosi & Anor,[42] where Derham AsJ set aside notices to produce. In that case, his Honour referred to Equuscorp, stating:[43]
The decision in Equuscorp Pty Ltd v Malcolm turns on facts and circumstances materially different to the facts and circumstances of this case. It concerned notices to produce in a security for costs application where the Court first found that there was evidence produced by the defendant Malcolm which can be described as credible testimony which establishes that there is reason to believe that the plaintiff will be unable to pay his costs if he is successful in his defence of the proceedings. That opened the door to the exercise of the Court’s jurisdiction to make an award of security for costs, and made it a case where the notice was one seeking to obtain evidence to support a case the defendant already had, as distinct from a fishing expedition. A fishing expedition is one where the person ‘has no evidence that fish of a particular kind are in a pool desires to be at liberty to drag it for the purpose of finding whether there are any there or not’. That is what the defendants are seeking to do in this case.
[42][2018] VSC 157 (‘1045 Burke Rd’).
[43]1045 Burke Rd, [32] (citations omitted).
In my view, the same can be said of this case. The Sixth Defendant has not ‘opened the door’, and this is not a case where the Notice is seeking evidence to support a case he already had.
I will also note for completeness that the passages relied upon from Bailey do not mean that the approach laid out in Equuscorp is not one I should follow.
Counsel for the Sixth Defendant contended that the evidence in this case is much stronger evidence of impecuniosity than that which was before Beach J in Equuscorp. I do not accept this submission. The evidence in that case was that the plaintiff’s secured debts alone exceeded its paid up share capital by almost $200 million.[44] Counsel asked the rhetorical question of where is the evidence that the Plaintiff can and will pay the costs? For the reasons I explore below, that is not the pertinent question.
[44]Equuscorp, [14].
For these reasons, the Notice should be set aside.
Although it is not necessary to do so, I would have also set aside the Notice on the grounds that:
(a) Category 1 is too wide: it is effectively a category for discovery and does not seek particular documents. It effectively seeks all documents about the Plaintiff’s financial situation. It is no answer to this complaint to say, as the Sixth Defendant submitted, that it could be answered by the Plaintiff providing a statement of assets. There is no reason to suppose that such a document is in existence, and a notice to produce cannot be used to compel a party to create a document designed to provide the information sought; and
(b) Categories 2 to 4 are also fishing: there is no evidence to support or suggest that there is reason to suppose there is any other person funding the proceeding. I accept the Plaintiff’s submission that these categories are based on pure speculation. I note, for the sake of completeness, that the Plaintiff’s undeveloped submissions as to legal professional privilege in relation to these categories would not have been accepted by me as a basis for setting aside the Notice.
Sixth Defendant’s Submissions – the Security Application
The Sixth Defendant submitted that the evidence referred to in paragraphs 31, 33 and 34 above suggests that the Plaintiff does not have the ability to pay any adverse costs orders made against him in this proceeding.
The Sixth Defendant also says that there is no evidence that the Plaintiff has the ability to (or will) pay any adverse costs orders made against him in this proceeding.
The Sixth Defendant says that the Plaintiff has remained silent as to whether he owns the Wangaratta property and if he does, the amount of equity he has in the property. Further, it is said that despite the requests made in the solicitors’ correspondence referred to in paragraph 36 above and the directions made by the Court for the filing of affidavit material, the Plaintiff had elected not to provide any substantive information or evidence, let alone credible evidence, to demonstrate that he would be able to meet an adverse costs order.
In his supplementary submissions, the Sixth Defendant refers to the Plaintiff’s obligations under the Civil Procedure Act 2010 (‘CPA’) to cooperate in connection with the conduct of the proceeding (section 20) and to narrow the scope of the issues in dispute (section 23). He then says that the Plaintiff has chosen to remain silent in respect of the Wangaratta property and his ability to satisfy any adverse costs order, and the Sixth Defendant submits that he ought not be permitted to benefit from doing so.
The Sixth Defendant concludes that absent any credible evidence from the Plaintiff, the Court should conclude that the Plaintiff is impecunious and will not be able to satisfy an order that he pay the Sixth Defendant’s costs in this proceeding.
Plaintiff’s submissions – the Security Application
The Plaintiff says that the matters raised by the Sixth Defendant amount to nothing more than mere speculation as to his financial position and do not show that he is impecunious. The Plaintiff submits that the Sixth Defendant bears the onus of establishing that he is impecunious so as to enliven the Court’s jurisdiction to order security for costs,[45] and that the Sixth Defendant has incorrectly sought to cast a burden on the Plaintiff to disprove the Sixth Defendant’s entitlement to security.[46]
[45]Relying on Livingspring Pty Ltd v Kliger Partners (2008) 20 VR 377, [21] (‘Livingspring’).
[46]By reference to Transcript 26.7-8, 29.10-11.
The Part X arrangement in 1972 and the bankruptcy in 1991-1994 are said to have been so long ago that they cannot possibly shed any light on the Plaintiff’s current financial position.
The Plaintiff says that the Sixth Defendant’s speculation as to whether the Plaintiff is the owner of the Wangaratta property is just that – speculation – and that the only evidence before the Court is that this property is registered in the name of ‘Raymond John Stuart’. This is said to be inappropriate speculation by the Sixth Defendant.
Analysis – the Security Application
In Roth Morgan Kolomanski Pty Ltd v Candlebrush Investments Pty Ltd,[47] I considered what was required to establish impecuniosity and summarised the relevant principles, as follows:[48]
[47][2018] VSC 288 (‘Candlebrush’).
[48]Candlebrush, [24]-[30].
24.Candlebrush bears the onus of establishing that the Court’s jurisdiction is enlivened.[49] However, it is important to analyse that which Candlebrush is required to establish in relation to RMK’s financial position. Referring to the provisions of s 1335(1) of the Corporations Act 2001 (Cth), there must be ‘credible testimony’ for ‘reason to believe’ that RMK will be unable to pay Candlebrush’s costs if Candlebrush is successful. Under r 62.02(1)(b), the Court may order security if ‘there is reason to believe that the plaintiff has insufficient assets in Victoria to pay’ Candlebrush’s costs. Although these provisions are not identical, the applicable principles have been developed and applied on the assumption that they apply equally to both.[50]
[49]Livingspring, [21].
[50]Livingspring, [10].
25. In Livingspring, Maxwell P and Buchanan JA stated that the:
phrase ‘reason to believe’ is the touchstone of jurisdiction. It requires a rational basis for the belief – and no more …. The section requires the making of a judgment, a risk assessment: is there a risk that the corporation will be unable to pay? …. A risk assessment is, of necessity, imprecise. The section calls for a practical, common sense approach to the examination of the corporation’s financial affairs.[51]
[51]Livingspring, [15].
26.The policy of the provision is ‘to protect a defendant against the risk of the plaintiff corporation’s impecuniosity’, and the provision ‘equips the court with the means to require that the defendant be secured against that risk.’[52]
[52]Livingspring, [16].
27Hence, while Candlebrush bears the onus, it is a relatively low threshold to meet.[53]
28.In FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd,[54] the Court of Appeal of the Supreme Court of Western Australia considered an appeal from a master where the master had refused to grant security for costs. In that case, the applicants for security had led evidence that demonstrated that the plaintiff corporation had paid up share capital of $4001 and was not the registered proprietor of any land on the Western Australian land register. The applicants for security had also led evidence of historical financial statements (the most recent of which was some 4 years prior to the application having been made).[55] Those statements which were in evidence showed that up until at least 1995 the company did not have assets which would allow it to meet a costs order. Assessing the evidence, Pidgeon and Owen JJ stated that ‘the absence of land combined with the low share capital does give rise to an appearance that there is reason to believe that there are no assets in this area to meet the costs.’ They viewed it as ‘open to the company’ to negate such a belief, which the company did not do.[56]
29.In FFE Minerals, Pidgeon and Owen JJ stated:[57]
Here the applicant is not seeking to prove the state of the company’s finances. The applicant is required to do no more than place on the record credible testimony and the exercise of the court at this stage is in judging the testimony and its quality rather than seeing if a matter has been proved by inference. The company, at this stage, is not being asked to explain or contradict something for the purposes of avoiding an inference being drawn. If there is credible testimony, then the court has jurisdiction to make the order and a company which called no evidence to show it could meet a costs order would run the risk of having an order made against it.
30.FFE Minerals was referred to and applied in Education Equity Pty Ltd v Austock Funds Management Pty Ltd.[58] In that case, the plaintiff company had paid up share capital of $1 and held no real estate in Victoria, Queensland or New South Wales. Gardiner AsJ noted that ‘like the respondent in FFE Minerals, [the plaintiff company] has chosen not to confront [the defendant’s] evidence in regard to its asset position’. His Honour also noted that the evidence which the defendant had put forward was of a very similar type and quality to what had been regarded by the majority in FFE Minerals as ‘credible testimony’, and held that the defendant had met the required credible testimony test.[59]
[53]Livingspring, [16].
[54](2000) 33 ACSR 739 (‘FFE Minerals’).
[55]The financial statements which were in evidence were for the financial years 1990–1995 inclusive but not thereafter, as after that time such statements were no longer publicly available: FFE Minerals (2000) 33 ACSR 739.
[56]FFE Minerals, 745.
[57]FFE Minerals, 742.
[58][2010] VSC 636 [19], [21] (‘Education Equity’).
[59]Education Equity, [20]–[21].
It must be borne in mind that the situation in Candelbrush, and the authorities referred to in the preceding paragraph, concerned applications for security for costs brought under r 62.02 of the Rules and/or s 1335 of the Corporations Act 2001 (Cth) (‘Corporations Act’), as the plaintiffs in those instances were companies. Under s 1335 of the Corporations Act, there must be ‘credible testimony’ for ‘reason to believe’ that the plaintiff will be unable to pay the costs. Under r 62.02(2)(b) of the Rules, there must be ‘reason to believe’ that the plaintiff has ‘insufficient assets’ to pay the costs.
I was not taken to any authorities expressly dealing with what is required to establish impecuniosity in the context of the exercise of the Court’s inherent jurisdiction to order security for costs in the case of natural persons who are impecunious. From cases such as Von Marburg, impecuniosity in this context appears to mean ‘unable to pay an adverse costs order’. That is certainly the way both counsel appeared to approach the question during the course of submissions. Indeed, counsel for the Sixth Defendant said as much during oral submissions.[60]
[60]Transcript, T21.24-26.
There seems no reason why a similar approach to impecuniosity to that set out above would not be taken in the context of natural persons. In other words, what is required is that there is credible testimony or evidence for reason to believe that the Plaintiff will be unable to pay the Sixth Defendant’s costs.
The onus is on the Sixth Defendant to establish that credible testimony or evidence for reason to believe.[61]
[61]Von Marburg, [44].
Here, I do not accept that the Plaintiff’s previous bankruptcy and Part X arrangement are credible evidence for reason to believe that he is impecunious. Both events are so long ago that it cannot sensibly be said that they bear upon his current financial situation. Similar comments can be made about him being a respondent to a creditor’s petition: not only was it over 10 years ago, it does not appear to have resulted in a sequestration order being made against the Plaintiff.
Nor do I accept that the Plaintiff being a director of a number of companies which have now been de-registered give any indication, let alone credible evidence, of his financial situation (either at the time of their de-registration or now).
The fact that the Plaintiff was a shareholder of a company which was wound up by the Court, a company of which there is no evidence of him being a director, also does not bear upon his financial situation, either at the time of it being wound up or now. As the Plaintiff’s counsel submitted, all that can be drawn from this is that the Plaintiff lost his investment in the company in circumstances where the share value is recorded on the ASIC search as $2.
The Sixth Defendant made no submission as to the relevance, if any, of the Plaintiff being a director of Pinnacle International Advisory Pty Ltd to the Security Application.
As for the Plaintiff not owning any shares in an Australian company, I observe that the evidence relied on for this proposition is the ASIC searches exhibited to the Stents Affidavit.[62] Those searches reveal the proprietary companies of which the Plaintiff is or was a shareholder. They do not reveal whether the Plaintiff is a shareholder of any listed companies. Neither party addressed this distinction when making submissions, so I will not make anything of it for the purpose of this application. In any event, it does not amount to credible evidence or reason to believe that the Plaintiff is unable to meet a costs order.
[62]Pages 16-28 of Exhibit EAS-1 to the Stents Affidavit.
As for the Wangaratta property, there being no confirmation as to whether the Plaintiff is a joint owner of that property is not credible evidence or reason to believe that he is unable to meet a costs order.
I was not taken to any authorities which applied the approach taken in FFE Minerals to instances where the plaintiff was a natural person rather than a company. That is, once credible testimony that the plaintiff is unable to meet a costs order is provided, if the plaintiff wishes to dispute or refute that testimony, then it is up to the plaintiff to lead evidence to do so. In other words, the evidence led by the defendant in that case constituted such credible testimony and it was then open to the company to negate it.
That being so, and there seems no reason to me why the same approach should not be followed in respect of natural persons, it is up to the Sixth Defendant to first establish the credible testimony for reason to believe the Plaintiff will be unable to meet a costs order, which the Plaintiff can attempt to negate if he chooses. However, it cannot be the case that the Sixth Defendant can establish an inference of impecuniosity merely by raising matters which do not constitute the credible testimony required and then shifting the burden to the Plaintiff to rebut it. If there is to be a shift of the evidentiary burden, then it can only occur if that credible evidence is adduced. Here, I do not consider it to have been.
Mr Stents deposes that as at 30 August 2019, the Plaintiff has not provided the Sixth Defendant with ‘any evidence (let alone credible evidence) to demonstrate that he would be able to meet an adverse costs order made against him in this proceeding’.[63] As set out above, similar comments were made during submissions. But that is not the consideration which the Court undertakes: it is not for the Plaintiff to have to provide credible evidence that he will be able to meet a costs order – it is for the Sixth Defendant to provide credible evidence that he will not be able to do so.
[63]Stents Affidavit, [23].
The Sixth Defendant’s reference to ss 20 and 23 of the CPA when making his submission that the Plaintiff has chosen to remain silent as to his financial status and ought not be permitted to benefit from that[64] appears to be a suggestion that this ‘silence’ is not meeting the obligations in those sections of the CPA. If the Sixth Defendant is inviting the Court to make that inference or link, then that invitation is rejected. Cooperating in connection with the conduct of a proceeding or narrowing the scope of the issues in dispute does not require a party to prove the other party’s case for him.
[64]See paragraph 67 above.
Consequently, I do not consider that the Sixth Defendant has established that the Plaintiff is impecunious.
Other factors regarding the Security Application
As the Sixth Defendant has not established that the Plaintiff is impecunious, it is not strictly necessary for me to consider the other factors (commonly referred to as the discretionary factors) relevant to the exercise of the Court’s discretion regarding the Security Application.[65] This is because it was common ground that the inherent jurisdiction of the Court to order security against a natural person required impecuniosity plus some other factor. However, in deference to the submissions made by the parties, I will set out in brief terms my consideration of those factors which are relevant to this application.
[65]See paragraph 28 above for a list of those factors.
Merits of the Plaintiff’s claim
Sixth Defendant’s submissions
The Sixth Defendant submits that the Plaintiff’s claim against him is weak, that the Plaintiff lacks standing to seek most of the relief against the Sixth Defendant which he seeks, and that the Plaintiff’s case is bound to fail.
The Sixth Defendant says that the Plaintiff cannot bring a derivative action on behalf of MSC, that the Plaintiff can bring a claim for oppression against MSC only, and that the Plaintiff has not suffered any loss and damage personal to him.
Plaintiff’s submissions
The Plaintiff submits that he has a bona fide case with good prospects of success.
Further, the Plaintiff says that the Court is not required to assess the merits in detail unless the Sixth Defendant can demonstrate a high degree of the probability of failure,[66] which is not the case here.
Analysis
[66]Relying on Keary Developments Ltd v Tarmac Construction Ltd [1985] 3 All ER 534.
It is readily apparent from the Pleading Applications that substantial issues have been raised in respect of the Plaintiff’s pleading. From the matters described in paragraphs 15 to 18 above, it appears that the state of the Plaintiff’s pleading is far from settled and much water may need to pass under the bridge before the proceeding gets to that point. As noted above, MSC is the only defendant who has so far filed a defence.
Therefore, I do not consider that I am in a position to accept either party’s submissions as to the merits of the Plaintiff’s claim (in the case of the Plaintiff) or the lack thereof (in the case of the Sixth Defendant).
I do not consider myself to be in a position to make findings or comments as to the merits of the case, and I will say that given the extant Pleading Applications I do not consider it appropriate that I do so in any event.
I would therefore ordinarily regard this as a neutral factor in terms of the discretionary factors, however I would observe that this case is quite unusual in a way which may tend towards a grant of security, if I was otherwise minded to do so.
Whether ordering security would frustrate/stultify the Plaintiff’s claim
Sixth Defendant’s submissions
The Sixth Defendant submits that if the Plaintiff asserts stultification, then he bears the evidentiary burden of making out that assertion.[67]
[67]Relying on Von Marburg [42]; Liu [44], [67].
The Sixth Defendant says that the Plaintiff has not led any evidence as to stultification. No one has gone on oath, it is said, even to assert stultification. Further, the Sixth Defendant says that MYYL contended in correspondence that the Plaintiff denies he is impecunious and unable to pay an adverse costs order, but says that an order for security would stultify the claim. These are said to be inconsistent propositions.
This proposition was developed further in the Sixth Defendant’s supplementary submissions. While acknowledging that impecuniosity and stultification are not exactly the same, the Sixth Defendant submitted that in ordinary circumstances they are the same. It is said that for the Court to surgically separate out the issues of impecuniosity and stultification as if they were mutually exclusive, as the Plaintiff would have it do, would defy logic, as a contention that security would stultify the Plaintiff’s claim is directly relevant to whether he is impecunious. The Sixth Defendant says that the Plaintiff has made no attempt to explain or otherwise justify his inherently inconsistent positions, with evidence or otherwise, and that in the absence of a reasonable explanation, these conflicting positions are absurd.
In addition, the Sixth Defendant submits that if a claim is brought that anyone could bring (for example, under an ‘open standing’ right conferred by legislation) then security can be ordered, because if the claim has merit another person could bring it, which would mean that the claim would not be stultified. In this regard, the Sixth Defendant relies on Melville v Craig Nowlan & Associates Pty Ltd & Anor[68] and Taylor v McLachlan & Ors.[69] Here, it is said that the Plaintiff has not suffered any loss and damage personal to him and that there are approximately 486 members of MSC, any one of whom could bring the claim.
Plaintiff’s submissions
[68](2001) 54 NSWLR 82, [109] (‘Melville’).
[69](Unreported, SCV, 28 July 2017, [27]-[29]) (‘Taylor’).
The Plaintiff submits that the Sixth Defendant is attempting to stultify the proceeding. He says that if an order for security is made then it would stultify his ability to pursue an arguable case legitimately instituted.[70]
[70]Relying on Sydmar Pty Ltd v Statewide Developments Pty Ltd (1987) 73 ALR 289.
Further, the Plaintiff submitted that aspects of his claim are personal to him, such as his oppression claim. Presumably, this was said in order to distinguish this proceeding from the ‘open standing’ line of cases.
Analysis
The authorities are clear that the Plaintiff bears the onus of establishing that ordering security is likely to stultify the proceeding, and he has led no evidence in that regard. Therefore, I do not regard this as a factor tending against granting security.
Given this, I do not need to turn to the second argument relied upon by the Sixth Defendant in respect of stultification, that being that the claim is one which anyone could bring (in this context, presumably any other member of MSC), such that the Plaintiff being unable to provide security means that the claim would not be able to proceed.
However, I note that Melville concerned a specific legislative basis for the power to grant security rather than the inherent jurisdiction of the Court. While Taylor did arise in the inherent jurisdiction of the Court, impecuniosity had been conceded and stultification was squarely raised. Thus the cases relied upon by the Sixth Defendant only considered this issue where impecuniosity had been established and where the question of stultification had been raised. The ‘open standing’ point was not one that created a factor in favour of granting security outside that context. Further, I accept that at least part of the Plaintiff’s claim (for example, his oppression claim) is personal to him and not necessarily one that could be run by any other member (particularly as it seems to relate to the circumstances in which he ceased being a director of MSC).
I do not accept the Sixth Defendant’s submissions that the Plaintiff’s position of contending that an order for security would stultify his claim at the same time as denying his impecuniosity means that security should be ordered. I accept that in some circumstances it is inconsistent to deny impecuniosity but contend stultification, and that this inconsistency may well apply here. But that does not mean that the two should be conflated: apart from anything else, the Sixth Defendant bears the onus in establishing the Plaintiff’s impecuniosity, and the Plaintiff bears the onus in establishing stultification. To conflate the two based on the inconsistent positions adopted by the Plaintiff is to distort the question of onus. In this instance, I do not need to reconcile the Plaintiff’s inconsistent positions, as his position on stultification was put without leading or referring to any evidence. Even if the positions are conflicting in a way which is absurd, one contention does not prove the other, as contentions are not evidence. There is no evidence of stultification and that is the end of that inquiry, but this does not mean that impecuniosity is established through that.
Whether there are persons standing behind the Plaintiff who are likely to benefit from the litigation and who are willing to provide security
This factor was alluded to by the Sixth Defendant in the context of Categories 2 to 4 of the Notice, in the sense that documents identifying the payer of MYYL’s legal fees or arrangements for other persons to pay for the Plaintiff’s costs or any adverse costs liability were said to be relevant to the Security Application.
While the question of whether there are such persons may be relevant to the Security Application, that there may be such persons here is nothing more than mere speculation. In my view, it is therefore not a relevant factor to the exercise of the Court’s discretion in the circumstances of this case.
Delay
This was not raised as a factor by either party. I note that while the proceeding was commenced last year, it is at a relatively early stage and the Sixth Defendant only became a party when served with the ASOC in July 2019. Consequently, there is no relevant delay.
Quantum of security
While it is not necessary for me to decide the amount of security to be ordered, I will provide an indication of the amount I would have ordered had I been minded to order security and brief reasons for that.
The Sixth Defendant’s evidence and submissions
Mr Stents has provided a description of the work performed for the Sixth Defendant in this proceeding from commencement to 14 August 2019 and an estimate of the work to be performed in the period after that and up to and including mediation.[71]
[71]Stents Affidavit, [34]-[35]; Exhibit EAS-1, p.30.
The Sixth Defendant sought security for his costs for the proceeding up to and including mediation in the amount of $88,904.78.
A further breakdown of these costs is as follows:
(a) Actual costs to 14 August 2019 of $28,529.82, comprising:[72]
[72]Stents Affidavit, [33].
(i) Solicitors’ fees of $13,797.30;
(ii) Counsel’s fees of $14,499; and
(iii) Disbursements of $233.53.
(b) Estimated costs from 15 August 2019 to the end of mediation of $60,374.95, comprising:[73]
[73]Stents Affidavit, [35].
(i) Solicitors’ fees of $23,059.45;
(ii) Counsel’s fees of $33,962.50; and
(iii) Disbursements of $3,352.20.
Therefore, the amount claimed is $36,856.75 for solicitors’ fees, $48,461.15 for counsel’s fees and $3,585.73 for disbursements.
These amounts have been calculated by using the following hourly rates (including GST) for the persons who are/will be working on the matter:[74]
[74]Stents Affidavit, [29].
(a) Partner at HWLE - $389.35;
(b) Senior Associate at HWLE - $320;
(c) Solicitor at HWLE - $250;
(d) Junior Counsel - $522 per hour ($5,225 per day).
These figures are provided by Mr Stents, who is an experienced commercial litigation solicitor and has been involved in the taxation of legal costs.[75] I accept that he is qualified to provide an estimate of the Sixth Defendant’s costs.
[75]Stents Affidavit, [7]-[9].
Mr Stents deposes that if the Sixth Defendant is successful in the proceeding, it would be reasonable for him to recover 100% of Counsel’s fees and other disbursements and between 70% and 80% of his solicitors’ fees.[76] He says that if the costs based on 80% of the solicitors’ fees applies, then the amount would be $81,533.27. If it were based on 70% of the solicitors’ fees, then the amount would be $77,847.52.[77]
[76]Stents Affidavit, [36].
[77]Stents Affidavit, [37].
The Sixth Defendant submits that the amount sought as security is reasonable and conservative in the circumstances. He says that the Plaintiff is seeking to pursue claims in the Supreme Court against up to 13 proposed defendants, and that if he is ultimately unsuccessful, he may be ordered to pay many hundreds of thousands of dollars in legal costs, perhaps more than $1 million.
The Plaintiff’s submissions
The Plaintiff did not make any submissions in relation to the quantum of security.
Analysis
I have previously summarised the approach which the Court takes when considering the amount of security to be ordered, in Raventhorpe Pty Ltd & Ors v Westpac Banking Corporation.[78] I am also conscious of the summary of the relevant legal principles set out by the Court of Appeal in Trailer Trash Franchise Systems Pty Ltd v GM Fascia & Gutter Pty Ltd,[79] and if I was ordering security here then I would apply those principles.
[78][2017] VSC 362.
[79][2017] VSCA 293, [63]-[65].
I have reviewed the material in the Stents Affidavit as to what tasks are covered by these actual costs and estimated costs, and consider that these tasks are ones which are reasonably required in the period covered by the security.
There is no detailed breakdown given of the amount of time solicitors and counsel have spent on each task covered by the actual costs, but one has been given for the estimated costs. However, I do not consider these amounts, whether actual or estimated, to be unreasonable.
Given that the hourly rates for the solicitors are less than those contained in the Supreme Court scale, as are Counsel’s fees, I consider that security on the basis of 80% of the solicitors’ fees and 100% of Counsel’s fees and other disbursements, being $81,533.27, which I would round to $81,500, is a reasonable amount.
If I was going to order security for the Sixth Defendant’s costs up to and including mediation, then I would order it in the amount of $81,500 (including GST).
Conclusion
For the reasons set out above, the Notice will be set aside, and security for costs will not be ordered.
The parties are asked to confer after considering these reasons, and to provide my Chambers with proposed draft orders, if agreed. If orders cannot be agreed, then the parties should advise my Chambers and the proceeding will be listed before me so as to deal with the form of orders and costs.
SCHEDULE OF PARTIES
BETWEEN: RAYMOND JOHN STUART Plaintiff - v - MORDIALLOC SPORTING CLUB INC.
(ARN A0027737R)First Defendant LANCE DRAPER Second Defendant TREVOR WARREN Third Defendant ANDREW WISE Fourth Defendant JULIAN KNIPE Fifth Defendant KEVIN SAID Sixth Defendant NICK MAZZEO Seventh Defendant
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