Success 618 Pty Ltd v New Zealand Natural Pty Ltd - [2015] SASC 182

SUPREME COURT OF SOUTH AUSTRALIA
(Appeals to a Single Judge: Civil)
SUCCESS 618 PTY LTD v NEW ZEALAND NATURAL PTY LTD
[2015] SASC 182
Judgment of The Honourable Justice Peek
12 November 2015
APPEAL AND NEW TRIAL - APPEAL - GENERAL PRINCIPLES - INTERFERENCE WITH DISCRETION OF COURT BELOW
PROCEDURE - COSTS - SECURITY FOR COSTS
Appeal to a single Judge against orders of a Master of the Supreme Court.
On 10 June 2015, the Master ordered that Success 618 Pty Ltd (the plaintiff and appellant) provide security for costs in the amount of $65,000 and that the action be stayed pending the provision of the security.
The appellant appeals on grounds including that the Master failed to properly assess the merits of its case and the ability and willingness of its directors and shareholders to contribute toward costs orders; failed to consider or give adequate weight to the “fact” that its impecuniosity was caused by the respondent; failed to give due consideration to the respondent’s delay in bringing its security for costs application; and failed to give due consideration that the application for security for costs was oppressive in that it was used merely to deny an impecunious plaintiff a right to litigate.
Whether the Master erred in the exercise of his discretion to order security for costs pursuant to s 1335, Corporations Act 2001 (Cth).
Held:
1. It is not established that the Master erred in the exercise of his discretion.
2. Each ground of appeal is rejected and the appeal is dismissed.
Corporations Act 2001 (Cth) s 1335; Supreme Court Civil Rules 2006 r 194(1), referred to.
Success 618 Pty Ltd v New Zealand Natural Pty Ltd [2015] SASC 86; House v The King (1936) 55 CLR 499; Mac Audio & Acoustical Consultants Pty Ltd v Eddy [1999] SASC 443; Adelaide Bank Ltd v Lucke [2010] SASC 59; Gartner v Ernst & Young (No 3) [2003] FCA 1437; Goldedge Holdings Pty Ltd v Liquor and Gambling Commissioner & Anor (No 2) [2015] SASC 81; Dictating Machine v Coombe (1981) 26 SASR 316, considered.

SUCCESS 618 PTY LTD v NEW ZEALAND NATURAL PTY LTD
[2015] SASC 182
Appeal to a single Judge: Civil
PEEK J.

This is an appeal from the following orders of a Master of this Court:[1]
1.   The plaintiff is to provide security for costs in the amount of $65,000, by paying that sum into the Suitors Fund within 21 days, or otherwise providing security in a form agreed with the defendant.
2.   The action is stayed pending the provision of the security for costs referred to in Order 1.
Extension of time
[1]    Success 618 Pty Ltd v New Zealand Natural Pty Ltd [2015] SASC 86.
The orders were made on 10 June 2015 and the appeal was commenced on 14 August 2015. The appeal had to be commenced within 21 calendar days from the date of the order and is therefore out of time. The appellant applies for an extension of time pursuant to Rule 295(1)(a) of the Supreme Court Civil Rules 2006.
This is a delay of 44 days and the appellant has attempted to advance some explanation for the delay. The respondent does not assert prejudice and has, fairly, abstained from making submissions on the matter of extension of time. I am prepared to grant an extension of time in the circumstances.
The background facts
The plaintiff, Success 618 Pty Ltd (the appellant), operated a business in Noosa, Queensland for several years, in a franchise agreement with the defendant, New Zealand Natural Pty Ltd (the respondent). Mr and Mrs Reachill are the directors of the plaintiff company; Mr Reachill is its representative in the present appeal. I take the following background facts from the judgment of Judge Dart:[2]
[9]     The plaintiff entered into a franchise agreement with the defendant in 2004 to operate a store at Noosa in Queensland. At that time the plaintiff was legally represented and was provided with the relevant documents. The business traded successfully for several years.
[10]    The dispute between the parties appears to arise from the events surrounding the exercise of an option to renew the lease. The defendant was the lessee of the shop premises. The plaintiff occupied the shop pursuant to a licence on a back to back arrangement. The head lease was for a period of five years, with two further options, each for a further five years. The terms of the lease provided for a market rate review at the end of the first five year term. That term expired in 2007.
[11]    The defendant sought to enter into the procedure provided for in the lease to conduct a market rent review when the first term was about to expire in 2007. The landlord resisted that course. In the result, proceedings were issued jointly by the plaintiff and defendant against the landlord in the Supreme Court of Queensland. The plaintiff and defendant were legally represented and, ultimately, a compromise was reached with the landlord in respect to renewing the lease and also the ongoing rent.
[12]    The principal complaint of the plaintiff is that the level of rent agreed in the compromise made the business unviable.
[13]    In 2008 Mr Reachill had a serious accident. He suffered significant injuries. As a result of the injuries sustained by Mr Reachill, his medical advisors told him he could not continue to operate the business. He caused the plaintiff to put the business on the market. The sale price obtained was significantly less than the plaintiff paid for the business in 2004.
[14]    If the business had been able to be sold for a better price, I suspect this litigation would never have eventuated. Mr Reachill, who represents the plaintiff pursuant to permission given by the Court, is clearly disillusioned with the ultimate outcome of the operation and sale of the business. He blames the defendant for the losses that the plaintiff suffered.
[2] [2015] SASC 86.
Orders for security for costs against a corporate plaintiff
Rule 194(1) provides a wide range of circumstances in which security for costs may be ordered in this Court against a plaintiff. However, in this case, the order was sought and made pursuant to statute, namely s 1335 of the Corporations Act 2001 (Cth) which provides a wider discretion to order a plaintiff company to provide security for costs. That section provides:
1335 Costs
(1)Where a corporation is plaintiff in any action or other legal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his, her or its defence, require sufficient security to be given for those costs and stay all proceedings until the security is given.
(1A)Subsection (1) does not apply to a corporation that is an Aboriginal and Torres Strait Islander corporation.
Note: Similar provision is made in relation to Aboriginal and Torres Strait Islander corporations under section 581 20 of the Corporations (Aboriginal and Torres Strait Islander) Act 2006.
(2)The costs of any proceeding before a court under this Act are to be borne by such party to the proceeding as the court, in its discretion, directs.
An appeal against an exercise of judicial discretion
I remind myself that while the present appeal is in the nature of a rehearing, the subject of the appeal is the Master’s exercise of his discretion pursuant to s 1335 of the Corporations Act 2001 (Cth).[3] The precepts in House v The King[4] apply. Unless there is established error, I am not entitled to substitute my own discretion in lieu of that of the Master.[5] As the order has substantive consequences, I am to consider whether the learned Master considered all relevant facts, and no immaterial facts, whether the learned Master erred in law or principle, or whether the decision is so extreme that such an error should be inferred.[6]
[3]    See McLean v D.I.D. Piling Pty Ltd [2010] SASC 33 and the authorities referred to therein.
[4] (1936) 55 CLR 499.
[5]    Mac Audio & Acoustical Consultants Pty Ltd v Eddy [1999] SASC 443, [6].
[6]    Adelaide Bank Ltd v Lucke [2010] SASC 59, [17].
The grounds of appeal
The appellant appeals on the following grounds:
1.The Master improperly exercised his discretion in ordering that the appellant pay security for costs.
2.The Master failed to properly assess the merits of the plaintiff’s case.
3.The Master failed to take into account relevant information, namely the information contained in Affidavit 39 filed by the appellant on 6 July 2015.
4.The Master failed to properly assess the ability of the directors and shareholders of the appellant to contribute towards the satisfaction of any costs orders made against the appellant.
5.The Master failed to consider and give adequate weight to the fact that the appellant’s impecuniosity was caused by the respondent.
6.The Master failed to consider and give adequate weight to the fact that the respondent’s application for security was oppressive in the sense that it was being used merely to deny an impecunious plaintiff a right to litigate.
7.The Master failed to give due consideration to the fact that the directors and shareholders of the appellant were originally parties to the proceedings and were therefore willing to be personally liable for costs.
8.The Master failed to give due consideration to the Defendant’s delay in bringing its security for costs application.
Ground 1 of appeal
Ground 1 is wholly unparticularised and does no more than assert the conclusion for which the appellant contends. As such, it may serve to introduce the grounds of appeal that follow and indicate that their cumulative effect (if any) is relied upon in support of that conclusion, but it has no other effect. The outcome of the appeal depends upon grounds of appeal 2 to 8.
Ground 2 of appeal
Ground 2 asserts that the learned Master failed to properly assess the merits of the plaintiff’s case.
In Gartner v Ernst & Young (No 3),[7] Mansfield J considered the prospects of success in the proceedings as relevant to the exercise of the discretion, “subject to the practical circumstance that the Court will generally not be required to investigate in considerable detail the likelihood or otherwise of success in the action”.
[7] [2003] FCA 1437, [10].
In his reasons, the Master said:
[22]    In the Second Statement of Claim a schedule of loss and damage was annexed. A great number of matters were alleged to have been losses occasioned by the wrongdoing of the defendant. The loss and damage claimed totalled almost $6 million. A perusal of the various claims revealed that, even should the plaintiff succeed in these proceedings many, if not most, of the claims, fall outside of what a court could award.
[23]    The Third Statement of Claim pleads the defendant failed to negotiate a proper market rent. It alleges that the proceedings in the Supreme Court of Queensland were settled against the landlord without the plaintiff’s knowledge. The plaintiff was represented in those proceedings and, apparently, a party to the settlement. As a result of that settlement, the annual rental went from $189,000 per annum to $212,750.
[24]    The plaintiff then claims that the defendant failed to provide assistance under the franchise agreement to enable the plaintiff to pay the higher rent. The Third Statement of Claim does not refer to any obligation arising under the franchise agreement on the defendant to do so. The defendant denies there was an obligation to do so. The defendant admits an obligation to assist in marketing generally. The plaintiff also pleads that the defendant engaged in unreasonable and uncooperative conduct.
[25]    At best, when one looks at the Third Statement of Claim, it appears that the plaintiff has a modest claim which has modest prospects of success. Perhaps because the Third Statement of Claim has been prepared without legal assistance, the claim does not articulate, clearly, the allegations against the defendant. It is difficult at the moment to be confident that the plaintiff has a genuine claim.
There is nothing put by the appellant that demonstrates that, on the material before the Master, this assessment was in any way in error.
Ground 3 of appeal
Ground 3 complains that the Master failed to take into account information contained in Affidavit 39 of Mr Chris Reachill.
This affidavit[8] was filed on 6 July 2015, one month after the publication of the learned Master’s reasons. There was no evidence placed before me on the appeal to explain why the appellant did not seek to tender the material in the affidavit before the Master at the hearing on 25 May 2015. I refused to admit the affidavit on the appeal.
[8] FDN 54.
Grounds 4 and 7 of appeal
4.The Master failed to properly assess the ability of the directors and shareholders of the appellant to contribute towards the satisfaction of any costs orders made against the appellant.
7.The Master failed to give due consideration to the fact that the directors and shareholders of the appellant were originally parties to the proceedings and were therefore willing to be personally liable for costs.
The only directors and shareholders of the company are Mr Reachill and his wife. They were originally parties to the proceedings as well as the company but they were subsequently disjoined. Although the fact that they were originally parties to the proceedings implies that they were then willing to be liable for costs, the facts that they are no longer parties, and that they are not subject to any undertaking or deed as to costs, mean that the defendant to the proceedings has no recourse to either of the directors.
Mr Reachill made it very plain before the Master that neither he nor his wife have any assets at all with which to pay any order of costs made against the company. The Master observed:
[29] No evidence has been put before the Court as to the financial position of Mr and Mrs Reachill. The submissions from the bar table made by Mr Reachill were that their financial position is poor. That can be accepted. No undertaking has been offered by Mr and Mrs Reachill in respect of making themselves liable for the costs of the litigation should the plaintiff be unsuccessful. Even if they had done so, it would have provided little comfort to the defendant.
The same position was put repeatedly, and even more vehemently, on the appeal. Indeed Mr Reachill stated that no matter what lesser figure than $65,000 might be ordered as security for costs, neither he nor his wife could meet it.
Neither ground 4 nor ground 7 is made out.
Ground 5 of appeal
The appellant claims that its impecuniosity was caused by the respondent, and that this asserted “fact” was not considered or given adequate weight by the learned Master.
If it were to be plainly demonstrated to the Court on such an application that the plaintiff’s impecuniosity was caused by the defendant, that would be an important factor militating against an order for security for costs. However, here any such assertion is hotly contested by the defendant and the Master was in no way persuaded of its correctness. It is not established that the Master erred in this regard.
Ground 8 of appeal
The appellant claims the learned Master did not give due consideration to the respondent’s delay in bringing its security for costs application. There is no substance to this claim since there was no real delay by the respondent. The Master correctly stated:
[30] The application seeking security for costs was made early in the proceedings.[9] It has taken some time for it to be dealt with because there have been issues about the pleading to be dealt with. There was also an application to cross-vest these proceedings to the Supreme Court of Queensland. That application was listed for hearing before Justice Sulan. In the result, it was agreed that the trial will be conducted in this Court, but that one or more witnesses will give evidence in Queensland. No issue of delay arises in respect of the bringing of the application for security for costs.
[9] FDN 12, filed on 31 July 2014.
Ground 6 of appeal
It is to be noted that ground 6 of appeal does not focus on an asserted objective effect that an order would have on the company but rather it makes an assertion that the application “was merely being made to deny an impecunious plaintiff a right to litigate”.
In fact there was ample material before the Master to demonstrate that the defendant was genuinely concerned with the large amount of costs that have already been generated and its calculations as to the further costs that the company would have to pay should the litigation proceed. As the respondent contends in its Outline of Argument:
23.Finally, given the lack of assets of the Appellant, it is absurd to submit that the purpose of seeking security for costs is merely to deny the Appellant the chance to litigate. Any director of a defendant company acting responsibly and in the best interests of his or her company and involved in proceedings such as these would seek security for costs.
The plaintiff in no way established before the Master that the application “was merely being made to deny an impecunious plaintiff a right to litigate” and nor did it do so on appeal. The ground of appeal as presented therefore falls to the ground. However, since the appellant is unrepresented, I also have regard to stultification as it could have been pleaded in a broader ground of appeal, namely in the sense of the objective effect that an order for security for costs may have on the plaintiff.
But, even taking that broader approach, the appellant still fails to establish on appeal that the Master erred in the exercise of his discretion. The Master stated:
[26]    Another issue which needs to be considered is whether the making of an order for security for costs will stultify the litigation. Clearly the plaintiff has no money whatsoever. The proceedings will be stayed upon the making of an order for security. The stay will only be lifted once the security is provided.
[27]    It is a paradox that arises in applications of this nature that the same circumstance which gives rise to the Court’s jurisdiction to make an order for security for costs, the plaintiff company’s lack of funds, also gives rise to a reason not to make such an order because to do so will mean that the litigation will be stultified.
[28]    In Goldedge Holdings Pty Ltd v Liquor and Gambling Commissioner & Anor (No 2)[10] Lovell J distilled the authorities in respect of stultification to the following principles:[11]
1.     the ability of not only the company but also those who stand behind it is to be considered for this purpose;
2.     the onus of proof that neither the company nor those who stand behind it are able to provide the security and that an order would stultify the proceeding is upon the company; and
3.     as part of discharging the onus of proof, the company is normally expected to put before the court a full and frank statement of the assets and liabilities of the company and of those who stand behind it.
[29]    No evidence has been put before the Court as to the financial position of Mr and Mrs Reachill. The submissions from the bar table made by Mr Reachill were that their financial position is poor. That can be accepted. No undertaking has been offered by Mr and Mrs Reachill in respect of making themselves liable for the costs of the litigation should the plaintiff be unsuccessful. Even if they had done so, it would have provided little comfort to the defendant.
[30]    The application seeking security for costs was made early in the proceedings.[12] It has taken some time for it to be dealt with because there have been issues about the pleadings to be dealt with. There was also an application to cross-vest these proceedings to the Supreme Court of Queensland. That application was listed for hearing before Justice Sulan. In the result, it was agreed that the trial will be conducted in this Court, but that one or more witnesses will give evidence in Queensland. No issue of delay arises in respect of the bringing of the application for security for costs.
[31]    In summary, when one considers the financial position of the company, the inability of the directors and shareholders to contribute towards the satisfaction of any costs order should it be made against the plaintiff, and the uncertain nature of the claim, this is an appropriate matter in which to make an order for security for costs. In my opinion, to fail to do so exposes the defendant to a scenario in which it has no prospect of recovering any costs whatsoever in the event that they successfully defend the action.
[10] [2015] SASC 81.
[11] Goldedge Holdings Pty Ltd v Liquor and Gambling Commissioner & Anor(No 2) [2015] SASC 81 at [32].
[12] FDN 12, filed on 31 July 2014.

The Master clearly had regard to the matter of stultification and it is not established that he erred in exercising the discretion vested in him. The width of that discretion was emphasised in Goldedge Holdings Pty Ltd v Liquor and Gambling Commissioner & Anor (No 2),[13] where Lovell J said of the discretion under s 1335 of the Corporations Act 2001 (Cth):
[30] The first question is whether there is “credible testimony that there is a reason to believe” that the corporation will be unable to pay the costs if it loses the appeal. The affidavit evidence established that there is “reason to believe” that Goldedge will be unable to pay the costs of the respondent if successful. Goldedge did not seriously argue to the contrary.
[31] I find that there is “credible testimony” that there is reason to believe that Goldedge will be unable to pay the costs if it loses the appeal. Having made that finding I now need to exercise the discretion, which is a wide one and no single factor is necessarily decisive. The circumstances in which the discretion should be exercised in favour of making an order cannot be stated exhaustively. There is no burden one way or the other. The discretion is to be exercised in all the circumstances of the case.
[13] [2015] SASC 81.
Viewed overall, one may note that the situation here is not dissimilar to that summarised by Mitchell J in Dictating Machine v Coombe:[14]
The conclusion which Deputy Master Teesdale Smith reached was that the plaintiff would suffer the greater prejudice if an order for security for costs were made. I am unable to agree with that conclusion. Mr. Garrood referred to some remarks of Lord Denning M.R. in Sir Lindsay Parkinson & Co. Ltd. v. Triplan Ltd. In the course of his judgment, after pointing out that the court has a discretion whether to order or not to order security for costs, his Lordship referred, with approval, to matters which counsel in that case had suggested might be taken into account in deciding whether to order security or not. Those relevant to the present action were: 1. Whether the company's claim is bona fide and not a sham. 2. Whether the company has a reasonably good prospect of success. 3. Whether there is an admission by the defendant on the pleadings or elsewhere that money is due. 4. Whether the application for security was being used oppressively so as to try to stifle a genuine claim. 5. Whether the company's want of means has been brought about by any conduct of the defendant such as delay.
I assume that the plaintiff's claim is bona fide but, as I have already said, there is nothing in the evidence before me to indicate that it has a reasonably good prospect of success. There has been no admission by the defendant that he owes anything to the company. There is nothing to suggest that the application for security is being used oppressively. Rather it is clear that the defendant wishes to avoid incurring costs which he cannot recover from the plaintiff if he is successful in the action. Certainly the plaintiff alleges that its want of means has been brought about partly by the actions of the defendant but that is a question in issue in the case and there is no evidence that this is so. In the circumstances of this case I have no doubt that there should be an order for security for costs. The defendant has established that he will suffer hardship if there is no security given by the plaintiff for payment of costs. The plaintiff may be unable to proceed with the action if security is ordered but that is the situation which s 363 necessarily envisages. The hardship which the defendant will suffer if successful and if there is no security for his costs outweighs, in my opinion, the hardship which the plaintiff may suffer if ordered to give security.
[14] (1981) 26 SASR 316, 320
Finally, I should add that I have read the judgment of Black J in Min Kyu Kim & Ors v Byung Sun (Eric) Song & Ors[15] to which the appellant referred in argument. I find nothing therein that assists the appellant or that is inconsistent with what appears above.
[15] [2012] NSWSC 103.
Conclusion
I reject each of the grounds of appeal.
Orders
I make the following orders:
1An extension of time within which to appeal is granted until 14 August 2015.
2The appeal is dismissed.