Today's Homes and Lifestyle Pty Ltd (in liquidation) v McCoullough
[2020] ACTSC 72
•6 April 2020
SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Case Title: | Today’s Homes and Lifestyle Pty Ltd (in liquidation) v McCoullough |
Citation: | [2020] ACTSC 72 |
Hearing Date: | 3 April 2020 |
DecisionDate: | 6 April 2020 |
Before: | Elkaim J |
Decision: | See [22] |
Catchwords: | CIVIL LAW – APPLICATION IN PROCEEDING – Application for Statement of Claim to be struck out – application for plaintiffs’ claims to be dismissed – provision of security for costs in proceeding – liquidation matter – whether there were loans from company to the defendants |
Legislation Cited: | Court Procedures Rules 2006 (ACT) r 1902 |
Cases Cited: | Michell v Onroad Offroad Pty Ltd [2018] VSC 648 |
Parties: | Today’s Homes and Lifestyle Pty Ltd (First Plaintiff) Ezio Senatore and Neil Cussen in their capacity as liquidators of Today’s Homes and Lifestyle Pty Ltd (Second Plaintiff) Vicky McCoullough (First Defendant) Peter McCoullough (Second Defendant) Brendan McCoullough (Third Defendant) |
Representation: | Counsel S Mulherin (Plaintiffs) P Bindon (Defendants) |
| Solicitors McInnes Wilson Lawyers (Plaintiffs) Piper Alderman (Defendants) | |
File Number: | SC 428 of 2019 |
ELKAIM J:
These proceedings were commenced on 29 August 2019. The first plaintiff is a company which is now in liquidation (the company). The second plaintiff, constituting two persons, are the liquidators of the company.
The company has been described as family owned and run. The three defendants are members of the family. The allegation made in the Statement of Claim is that the company made loans to the defendants, individually and in differing amounts, totalling $2,500,803.46. The plaintiffs say this amount should be paid back to the company. They say that repayment of the asserted loans has been demanded but the defendants have not paid the money back.
The Defence, filed by the third defendant on 18 October 2019 and the first and second defendants on 25 October 2019, is as simple in its terms as the Statement of Claim. Essentially, the claims are either not admitted or denied.
By an Application in Proceeding filed on 18 February 2020 the defendants have sought an order that the Statement of Claim be struck out, but if that is not successful, that the plaintiffs be ordered to provide security for costs.
The defendants submitted that the Statement of Claim is in such simplistic terms that it does not disclose a cause of action. I agree that it is in simple terms but I do not agree that it does not disclose a cause of action. It says that the company made loans to the defendants and now the company wants the money back. This is a straightforward cause of action arising from a loan by one party to another party.
In my view the difficulty that arises is not in the fundamental cause of action but in the absence of evidence to prove that cause of action. The affidavits relied upon by the parties disclose a good deal of correspondence in which the defendants seek particulars of the claim against them as well as documentary evidence.
So far little has been forthcoming, because, according to the plaintiffs, they do not have much to provide. They say there may be more documents available on a “server” belonging to Deloitte Financial Advisory Pty Ltd, the original administrators of the company, and that these documents and perhaps more evidence will emerge during the discovery process.
The defendants say this approach is not sufficient. The documents provided so far, in particular the transaction lists attached to the letter from the plaintiffs’ solicitors dated 4 December 2019, are not enough to establish the presence of any loan. These documents show no more than the movement of money from the company to the defendants. They do not identify the transactions as loans and they do not exclude other legitimate purposes for which the moneys may have been transferred.
The defendants have pointed out that, on authorities such as Michell v Onroad Offroad Pty Ltd [2018] VSC 648, the existence of a loan cannot be inferred from no more than a list of transactions. The plaintiffs said that Michell was easily distinguishable on its facts from the present case, but nevertheless, seemed to accept that more was needed than the list of transactions. Repeating what I said above, the plaintiffs anticipate obtaining further evidence from the original administrators or through the discovery process.
In my view the state of the case as it is, is somewhat lacking in substance. While a simply, but effectively, pleaded Statement of Claim is often an advantage, a plaintiff must be in a position to prove its case against a defendant. On the evidence so far amassed I doubt this would be the case.
Notwithstanding the just stated conclusion, I am of the view that there is a cause of action to be found within the Statement of Claim and that it should not be struck out.
Turning now to the application for security for costs; the deficiencies in the plaintiffs’ claim that I have pointed out above essentially amount to the strongest points in favour of the application. I should start by noting that the plaintiffs do not challenge the threshold requirement that the company would not be capable of meeting a costs order against it.
The dispute between the parties arises from the discretionary factors listed in r 1902 of the Court Procedures Rules 2006 (ACT), in particular under subsections (1)(b), (c), (e), and (i). The factor in r 1902(1)(a) was not disputed.
Factors (b) and (c) can be dealt with together. Essentially the defendants say that the claim is speculative and based on an unsubstantiated inference that the numerous transactions were loans. The plaintiffs say that it is almost obvious that the transactions amounted to loans because, in effect, what else could they be?
I think there is some substance in the approach taken by the plaintiffs, but as seen from the discussion above, the plaintiffs need a good deal more evidence before they are going to succeed. The correspondence between the parties reveals that the defendants have been trying to get this evidence from the plaintiffs but, to date, have not been successful. Because of the weakness of the evidence available so far I think these factors are in favour of an order for security for costs.
In relation to factor (e), this point probably favours the plaintiffs although, once again, only on the basis that evidence would be available to show that the transactions were loans that have not been repaid. In addition, in favour of the defendants, the asserted loans are not necessarily the sole cause of the company’s financial position. It is not enough that they are only a contributing factor (Jazabas Pty Ltd & Ors v Haddad & Ors [2007] NSWCA 291 at [94]).
Factor (i) concerns the question of whether the proceedings involve a matter of public importance. There was no dispute between the parties that the enforcement of proper conduct on the part of directors is a matter of public importance. There is no allegation however that the directors in this case acted improperly. As I have emphasised, the case is no more than that the defendants borrowed money from the company and they have not repaid it. It is not even asserted in the Statement of Claim that they were directors of the company. This factor does not assist the plaintiffs.
I have come to the conclusion that the discretion should be exercised in favour of the defendants. The next question is whether the full amount sought should be ordered and the manner in which it should be provided. The defendants have requested $120,000 which they estimate is half of the legal costs that they are likely to incur.
The plaintiffs are apparently bringing the action for the benefit of creditors of the company, often trades persons who are out of pocket for various amounts and are not necessarily in a position to provide contributions which will add up to $120,000. Regrettably the current situation relating to the COVID-19 virus cannot be ignored. I have no doubt, although speaking generally, that the trades persons will be finding ongoing trading very difficult. Their access to ‘spare’ money will no doubt be very limited.
In the exercise of my discretion, I think security for costs should be provided in the sum of $75,000 within a period of 60 days. The plaintiffs should have the option of providing the security in the form of a deposit into court or a guarantee in favour of the defendants from an Australian bank or an Australian authorised deposit-taking institution.
In relation to the costs of this application, I think they should be paid by the plaintiffs. Although the plaintiffs successfully defended the strikeout application, the strength of the case against them on the security for costs application essentially arose from the weaknesses in their case, as highlighted in the former application.
The orders of the Court are:
(a)The plaintiffs are to provide security for the defendants’ costs within 60 days of this decision in the sum of $75,000.
(b)The security may be provided, at the option of the plaintiffs, either by a deposit into court or a guarantee in favour of the defendants from an Australian bank or an Australian authorised deposit-taking institution.
(c)Both parties have liberty to apply.
(d)The proceedings are stayed pending the provision of security as outlined above.
(e)The plaintiffs are to pay the costs of this application.
| I certify that the preceding twenty-two [22] numbered paragraphs are a true copy of the Reasons for Judgment of his Honour Justice Elkaim. Associate: Date: 6 April 2020 |
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