Vynben Pty Ltd v PA Audit Pty Ltd - [2019] WASC 219

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL

CITATION:   VYNBEN PTY LTD -v- PA AUDIT PTY LTD [2019] WASC 219
CORAM:   SMITH J
HEARD:   17 APRIL 2019
DELIVERED          :   26 JUNE 2019
FILE NO/S:   CIV 2158 of 2016
BETWEEN:   VYNBEN PTY LTD as trustee for THE MARK HOHNEN SUPERANNUATION FUND
First Plaintiff
NOTEZY PTY LTD as trustee for THE NOTEZY SUPERANNUATION FUND
Second Plaintiff
HAPPY VALLEY FARM (AUST) PTY LTD
Third Plaintiff
ANTHONY ST JOHN
Fourth Plaintiff
MICHLANGE PTY LTD as trustee for THE WARBURTON FAMILY TRUST
Fifth Plaintiff
SCOTT ANDRE CUOMO
Sixth Plaintiff
MCCLEERY INVESTMENTS PTY LTD as trustee for THE MCCLEERY FAMILY TRUST
Seventh Plaintiff
PAUL ANTHONY HENRY
Eighth Plaintiff
PREMIUM CAPITAL (AUST) PTY LTD
Ninth Plaintiff
MIDRIDGE INVESTMENTS PTY LTD
Tenth Plaintiff
MCINERNEY HOLDINGS PTY LTD
Eleventh Plaintiff
COLIN LEIGH CERESA
MANDY ELIZABETH CERESA
Twelfth Plaintiffs
CERESA SUPER PTY LTD as trustee for THE CERESA SUPERANNUATION FUND
Thirteenth Plaintiff
NGUYEN THI HIEN TRADING LTD
Fourteenth Plaintiff
JENNINE MARGARET NENER
Fifteenth Plaintiff
SALMON BRICK PTY LTD
Sixteenth Plaintiff
HOPERIDGE ENTERPRISES PTY LTD as trustee for THE JONES FAMILY TRUST
Seventeenth Plaintiff
N WA PTY LTD as trustee for THE NK UNIT TRUST
Eighteenth Plaintiff
SEABIRD INVESTMENTS (WA) PTY LTD as trustee for THE J & A SUPERANNUATION FUND
Nineteenth Plaintiff
MARK JAMES HAYTER
Twentieth Plaintiff
WELLMEN HOLDINGS PTY LTD as trustee for THE DANIELS SUPER FUND
Twenty First Plaintiff
BLAIR EDWARD SERGEANT as trustee for THE RIO GRANDE DO NOTRE SUPERFUND
Twenty Third Plaintiff
AND
PA AUDIT PTY LTD
First Defendant
MARK ANTHONY ENGLISH
Second Defendant
ANDREW PAUL DONNELLY
Seventh Defendant
KIMBERLEY JAMES HANSON
Eighth Defendant

Catchwords:

Practice and procedure - Security for costs - Multiple plaintiffs - Orders sought against corporate plaintiffs - One non‑resident plaintiff - Whether high degree of overlapping of factual grounds - Whether plaintiffs will be unable to pay costs

Legislation:

Australian Consumer Law, s 18
Corporations Act 2001 (Cth), s 1335
Rules of the Supreme Court 1971 (WA), O 25 r 2

Result:

Application for security for costs dismissed

Category: B

Representation:

Counsel:

First Plaintiff	:	Mr L A Warnick
Second Plaintiff	:	Mr L A Warnick
Third Plaintiff	:	No appearance
Fourth Plaintiff	:	Mr L A Warnick
Fifth Plaintiff	:	Mr L A Warnick
Sixth Plaintiff	:	No appearance
Seventh Plaintiff	:	Mr L A Warnick
Eighth Plaintiff	:	No appearance
Ninth Plaintiff	:	Mr L A Warnick
Tenth Plaintiff	:	Mr L A Warnick
Eleventh Plaintiff	:	No appearance
Twelfth Plaintiffs	:	No appearance
Thirteenth Plaintiff	:	Mr L A Warnick
Fourteenth Plaintiff	:	Mr L A Warnick
Fifteenth Plaintiff	:	No appearance
Sixteenth Plaintiff	:	Mr L A Warnick
Seventeenth Plaintiff	:	Mr L A Warnick
Eighteenth Plaintiff	:	Mr L A Warnick
Nineteenth Plaintiff	:	Mr L A Warnick
Twentieth Plaintiff	:	No appearance
Twenty First Plaintiff	:	Mr L A Warnick
Twenty Third Plaintiff	:	No appearance
First Defendant	:	No appearance
Second Defendant	:	No appearance
Seventh Defendant	:	Mr E John
Eighth Defendant	:	No appearance

Solicitors:

First Plaintiff	:	Clifford Chance
Second Plaintiff	:	Clifford Chance
Third Plaintiff	:	No appearance
Fourth Plaintiff	:	Clifford Chance
Fifth Plaintiff	:	Clifford Chance
Sixth Plaintiff	:	No appearance
Seventh Plaintiff	:	Clifford Chance
Eighth Plaintiff	:	No appearance
Ninth Plaintiff	:	Clifford Chance
Tenth Plaintiff	:	Clifford Chance
Eleventh Plaintiff	:	No appearance
Twelfth Plaintiffs	:	No appearance
Thirteenth Plaintiff	:	Clifford Chance
Fourteenth Plaintiff	:	Clifford Chance
Fifteenth Plaintiff	:	No appearance
Sixteenth Plaintiff	:	Clifford Chance
Seventeenth Plaintiff	:	Clifford Chance
Eighteenth Plaintiff	:	Clifford Chance
Nineteenth Plaintiff	:	Clifford Chance
Twentieth Plaintiff	:	No appearance
Twenty First Plaintiff	:	Clifford Chance
Twenty Third Plaintiff	:	No appearance
First Defendant	:	No appearance
Second Defendant	:	No appearance
Seventh Defendant	:	Symons & Co Legal
Eighth Defendant	:	No appearance

Case(s) referred to in decision(s):

Buckley v Bennell Design & Construction Pty Ltd (1974) 1 ACLR 301
CPT Custodian Pty Ltd v Commissioner of State Revenue of the State of Victoria [2005] HCA 53; (2005) 224 CLR 98
FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69; (2000) 22 WAR 241
Fiduciary Ltd v Morningstar Research Pty Ltd [2004] NSWSC 664; (2004) 208 ALR 564
Goulding v James [1997] 2 All ER 239
Lagarna Pty Ltd v Bridge Wholesale Acceptance Corp (Australia) Ltd [1995] 1 VR 150
Laundry Coin‑Wash Nominees Pty Ltd v Dunlop Olympic Ltd (1985) ATPR 40‑584
Mabrouk Minerals Pty Ltd v Mabrouk Holdings Ltd [2008] WASC 132
Mighty River International Ltd v Mineral Resources Ltd [2017] WASCA 72
Mila Properties Pty Ltd v Caldwell [2009] WASC 282
PS Chellaram & Co Ltd v China Ocean Shipping Co [1991] HCA 36; (1991) 102 ALR 321
Saunders v Vautier (1841) 4 Beav 115; (1841) Cr & Ph 240; (1841) 41 ER 482
Sugarloaf Hill Nominees Pty Ltd v Rewards Projects Ltd [2011] WASC 19
Swansdale Pty Ltd v Whitcrest Pty Ltd [2010] WASCA 129
Transocean Capital Pty Ltd v AFSIG Pty Ltd [2006] NSWSC 806; (2006) 202 FLR 270
Warren Mitchell Pty Ltd v Australian Maritime Officers' Union [1993] FCA 774; (1993) 11 ACLC 1238

SMITH J:

The application for security

The seventh defendant (Andrew Paul Donnelly) applies for security for costs of $21,742 against 14 of the 22 plaintiffs[1] (each) pursuant to:[2]
(a)O 25 r 1 of the Rules of the Supreme Court 1971 (WA), from the fourth plaintiff, Anthony St John, and the fourteenth plaintiff, Nguyen Thi Hien Trading Ltd, on grounds that Mr St John is usually resident overseas and Nguyen Thi Hien Trading Ltd is a corporation incorporated overseas; and
(b)s 1335 of the Corporations Act 2001 (Cth) from:
(i)the first, second, fifth, seventh, thirteenth, seventeenth, eighteenth, nineteenth and twenty‑first plaintiffs each of whom are corporate trustee plaintiffs (nine corporate trustee plaintiffs); and
(ii)the ninth, tenth and sixteenth plaintiffs.
[1] There is a no case pleaded by a twenty‑second plaintiff; twenty-second plaintiff removed as a party to the proceedings on 8 August 2017 by consent order.
[2] Letter to Supreme Court, filed 24 August 2018.
Five of the nine corporate trustee plaintiffs own real property in Western Australia.[3] The remaining eight plaintiffs against whom an order for security for costs is sought, do not own real property within Western Australia.[4]
[3] Affidavit of Nicholas William Kalmund, sworn 24 August 2018 [7] - [8].
[4] Affidavit of Nicholas William Kalmund, sworn 24 August 2018 [6].
No orders for security are sought against the remaining eight plaintiffs to the action, five of whom are individuals,[5] two are companies and the other is an individual who is a trustee of a superannuation fund. Of the eight plaintiffs against whom no order for security is sought, three own real property in Western Australia.[6]
[5] The twelfth plaintiffs comprise two individuals.
[6] Affidavit of Benjamin Dean Luscombe, sworn 10 April 2019 [4] – [5], annexures BDL1 – BDL7.
There are two substantive issues raised in this application.
The first is whether there is a high degree of overlapping of the factual basis of the claims made by each of the plaintiffs so that, if Mr Donnelly is successful, the probability of a separate order for costs against each of the 22 plaintiffs is unlikely to be made.
The second is, if a joint and several costs order is likely to be made, whether the financial capacity of any individual local plaintiff will be able to meet a costs order in the event of default by all of the corporate trustee, and non‑resident, plaintiffs.

Is there uniformity in the causes of action?

The plaintiffs' action arises out of the collapse of the Vantage Investment Fund, leaving no funds.
Mr Donnelly was a director of Vantage Private Equity (Aust) Pty Ltd.
The plaintiffs plead Vantage Private Equity (Aust) Pty Ltd was, from March 2012 until January 2016, the manager of the Vantage Investment Fund.[7]
[7] Second substituted statement of claim, filed 1 June 2018 [5].
The 22 plaintiffs commenced this action to sue the first and second defendants who were the auditors of the Vantage Investment Fund (the auditors) in negligence and misleading and deceptive conduct under s 18 of the Australian Consumer Law, claiming damages on their lost investments.
The critical documents prepared by the first and second defendants are:
(a)the 2013 audit report and the 2014 valuation reports. Both reports were prepared by the auditors in 2014;[8] and
(b)the 2013 financial report.[9]
[8] The 2013 audit report was signed by the auditors on 23 February 2014. On 5 March 2014, the auditors issued a short form valuation report. In June 2014, the auditors issued a Long Form Valuation Report and Long Form and Short Form; second substituted statement claim, filed 1 June 2018 [20] – [22].
[9] The 2013 financial report was signed on behalf of the trustee of the Vantage Investment Fund, Vantage Corporate Services Pty Ltd on 26 February 2014; second substituted statement of claim filed 1 June 2018 [16].
The first and second defendants plead various defences, including a defence of proportionate liability and name various concurrent wrongdoers, including Mr Donnelly. The first and second defendants plead that the 2013 audit report and the 2014 valuation reports are based on misleading information provided by the fund managers.[10]
[10] Further amended first and second defendants' defence, filed 30 May 2017 [25.5(b)].
The plaintiffs claim that they will all be making the same basic claims against Mr Donnelly, namely, that by representations and omissions, he:
(a)breached a duty of care owed to them; and
(b)engaged in conduct (by representation and by omission) which was misleading or deceptive;
causing them to suffer loss.
The plaintiffs say that the only point of divergence relates to reliance/causation. Some plaintiffs had already invested in the Vantage Investment Fund before the relevant conduct occurred (the first group), whilst others invested after it (the second group).[11]
[11] Second substituted statement of claim, 1 June 2018 [29], [65(b)], [73(a)], [73(b)].
The plaintiffs say that it is clear from the matters pleaded in the statement of claim that both groups of plaintiffs relied upon the information in the documents prepared by the auditors, which is why it is unlikely that there is to be any issue about the underlying cause of action.[12] However, it is conceded there is to be an issue about the degree of reliance and loss. It is said that there is most likely to be a difference between the two groups of plaintiffs in respect of the issue of loss. Those who invested solely in reliance on the documents prepared by the auditors will claim their whole loss[13] and those who had already invested prior to the documents being prepared claim a loss caused by a loss of opportunity to 'arrest the slide'.[14] Consequently, there is a difference in terms of the losses to be found but it is argued that there is no difference in terms of the underlying likelihood of liability.[15]
[12] ts 70, 17 April 2019.
[13] There are four plaintiffs in this group.
[14] There are 18 plaintiffs in this group.
[15] ts 70, 17 April 2019.
There are 18 plaintiffs in the first group, who claim they relied upon the information in the documents prepared by the auditors before they had invested in the fund. Mr Donnelly points out that it appears that one of this group, a director of the ninth plaintiff, Premium Capital (Aust) Pty Ltd, was not sent a copy of the two documents that were sent to the other plaintiffs in this group in April 2014 which was a presentation (being a summary of the 2014 short form valuation report and a letter to investors).[16]
[16] Second substituted statement of claim, filed 1 June 2018 [25], [27], [29].
In these circumstances, counsel for Mr Donnelly makes a submission that the ninth plaintiff's case of reliance may well be different to the other 18 plaintiffs who claim they lost the opportunity to decide what action, if any, to take in relation to their investment in the Vantage Investment Fund.[17]
[17] ts 60 - 61, 17 April 2019.
I do not regard this point to be material. Firstly, it appears that the ninth plaintiff was sent a copy of the 2013 audit report and the 2013 financial report, seven days prior to the other plaintiffs in the first group. Secondly, the letter is not pleaded as a material document.
Whilst the presentation was a summary of the short form valuation report, the director of the ninth plaintiff was sent a copy of what appears to be the source documents, namely the 2013 financial report and the 2013 audit report. In any event, whilst there may be some difference in the position of the ninth plaintiff as to reliance, it is not necessary to make a finding that the ninth plaintiff's claim is the same as the other plaintiffs in the first group who were sent a copy of the 2013 audit report and the presentation together with the 2013 financial report.
All that is necessary to find is that there is a substantial overlap in the claims of the plaintiffs.
Here, as found in Fiduciary Ltd v Morningstar Research Pty Ltd,[18] there is a substantial overlapping of claims of all 22 plaintiffs, and a largely common factual substratum, such that it is likely that any costs order in favour of Mr Donnelly would be joint and several, so that Mr Donnelly would not be left to recover from each of the plaintiffs separately.
[18] Fiduciary Ltd v Morningstar Research Pty Ltd [2004] NSWSC 664; (2004) 208 ALR 564.

Quantum of estimated costs of Mr Donnelly to defend the action

Mr Donnelly's former solicitors prepared a draft bill of estimated recoverable costs (including disbursements) which total $500,071 until judgment.[19]
[19] Affidavit of Nicholas William Kalmund, sworn 24 August 2018 [9].
This draft bill has been subsequently revised to an amount of $427,872 (including disbursements).[20]
[20] Affidavit of Evan Michael Ennis John, sworn 14 December 2018 [6], annexure EJ-1.

Financial capacity of individual plaintiffs

The court has both an inherent and statutory jurisdiction to make an order requiring a plaintiff to provide security for costs.
If a party (against whom an order for security is sought) who is not ordinarily resident in this country has no assets within the jurisdiction, this fact will be a factor weighing heavily in favour of an order for security.[21]
[21] Mighty River International Ltd v Mineral Resources Ltd [2017] WASCA 72 [65] (Murphy JA); applying Mabrouk Minerals Pty Ltd v Mabrouk Holdings Ltd [2008] WASC 132 [59]; see also, the comments of McHugh J in PS Chellaram & Co Ltd v China Ocean Shipping Co [1991] HCA 36; (1991) 102 ALR 321, 323 where his Honour observed that such a consideration is to be given 'great weight' in determining whether an order for security for costs should be made.
In respect of corporations, s 1335(1) of the Corporations Act provides:
(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.
In ascertaining whether there is credible testimony that there is reason to believe a corporation will be unable to pay the costs if it is unsuccessful in the action, the court is required to judge the quality of the evidence put before it to see whether the evidence objectively gives rise to a reason to believe that the corporation will be unable to pay the applicant's costs.[22]
[22] FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69; (2000) 22 WAR 241 [24] (Pidgeon & Owen JJ).
Section 1335 of the Corporations Act requires a balance to be struck between protecting the applicant from the possible consequences of being sued by an impecunious corporation with limited liability and avoiding injustice to the corporation by unnecessarily prejudicing it in the conduct of litigation.[23]
[23] Sugarloaf Hill Nominees Pty Ltd v Rewards Projects Ltd [2011] WASC 19 [31] (Corboy J); applying Buckley v Bennell Design & Construction Pty Ltd (1974) 1 ACLR 301.
There is no evidentiary burden of proof placed on a party seeking the order. The requirement is establishing a basis for belief.[24] In FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd,[25] Pidgeon and Owen JJ rejected the suggestion of Lee J in Warren Mitchell Pty Ltd v Australian Maritime Officers' Union[26] that an evidentiary burden was placed on the applicant for security. Pidgeon and Owen JJ said:[27]
It becomes necessary now to determine whether there was before the Master the necessary credible testimony to give him jurisdiction. In view of the history of the section we would, for our part, see no requirement to attempt to define further the expression. The words speak for themselves and in that sense the expression is similar to expressions such as 'beyond reasonable doubt'. For the reasons we have set out we are not in accord with one proposition referred to by Lee J in Warren Mitchell Pty Ltd v Australian Green Offices Union [sic]when his Honour said at 1241 'qualification of the word "testimony" by the word "credible" suggest that evidentiary burden is undertaken by the parties seeking the order'. We would not see any burden as nothing is sought to be proved. The legislature that first enacted the words, used them to replace words referring to proof and in our view, were dispensing with a requirement to prove a matter. What is required is an evaluation of the evidence led by the applicant to see whether that leads to a reason to believe that the corporation will be unable to pay the costs of the defendant.
[24] Swansdale Pty Ltd v Whitcrest Pty Ltd [2010] WASCA 129 [68] (Kenneth Martin J; Pullin JA agreeing).
[25] FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69; (2000) 22 WAR 241 [24] (Pidgeon & Owen JJ).
[26] Warren Mitchell Pty Ltd v Australian Maritime Officers' Union [1993] FCA 774; (1993) 11 ACLC 1238.
[27] FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69; (2000) 22 WAR 241 [24]; applied in Swansdale Pty Ltd v Whitcrest Pty Ltd [2010] WASCA 129 [68] ‑ [69] (Kenneth Martin J; Pullin JA agreeing).
In Sugarloaf Hill Nominees Pty Ltd v Rewards Projects Ltd, Corboy J outlined the principles applicable to the determination of the threshold question:[28]
As to the determination of the threshold question:
(a)The section calls for a practical, commonsense approach to the examination of the corporation's financial affairs. It is necessary to make an assessment of the risk that the corporation will be unable to pay ‑ an assessment that will be imprecise. A 'reason to believe' is a low threshold test: Livingspring [15] ‑ [16].
(b)However, the need for credible testimony is an obvious safeguard to ensure that the application is not founded purely upon speculation. To that extent, I agree with the observation of Lee J in Warren Mitchell that 'speculation as to insolvency or financial difficulties likely to confront the corporation will be insufficient to ground the exercise of the discretion' (5).
(c)Determining whether a corporation will be unable to pay involves two considerations. First, it is necessary to fix the time at which the plaintiff's inability, or apprehended inability, is to be assessed. That generally requires an opinion to be formed at the time of judgment and immediately following. Second, it is necessary to identify the range of assets to which recourse might be had for the purpose of enforcing an adverse costs order. Generally, the relevant assets will be those that might be immediately realised and those which could be realised in sufficient time to enable the plaintiff to comply with a costs order in the usual terms: Professional Vending Services Pty Ltd v Christou [2010] FCA 580.
(d)Where the only tangible assets of a plaintiff corporation are held in trust and solvency depends on its right as trustee to an indemnity against the trust property, it is necessary for the court to have in mind the difficulties which a successful defendant would face in attempting to execute an order for costs: Laundry Coin‑Wash Nominees Pty Ltd v Dunlop Olympic Ltd (1985) ATPR 40‑584 (46,729); BBC Nominees (WA) Pty Ltd v Yangebup Developments Pty Ltd [2008] WASC 81 [14] ‑ [15]. In Laundry Coin‑Wash, Smithers J observed that 'indeed, unless some step is taken to alleviate those difficulties it is reasonable and just to treat the applicant company as if it were without assets to meet such a liability' (46,729). Similarly, in Lagarna Pty Ltd v Bridge Wholesale Acceptance Corporation (Australia) Ltd [1995] 1 VR 150, Tadgell J held that the fact that the plaintiff trustee company owned unencumbered real estate, the value of which exceeded the likely costs of an appeal and over which it had a right of recourse as trustee by way of indemnity, did not justify a conclusion that security ought not to be given. The trustee might be required at any time to transfer its legal interest in the unencumbered property to the beneficiaries of the trust or to encumber it: and see BBCNominees where the observations of Tadgell J in Lagarna were cited with apparent approval by Beech J.
[28] Sugarloaf Hill Nominees Pty Ltd v Rewards Projects Ltd [2011] WASC 19 [35].

Importantly, the question is not whether the party against whom an order for security for costs is sought will be unable to meet an adverse costs order, but whether there is reason to believe that it will be unable to do so. The threshold is low.
If the threshold is met, the question becomes whether the court should exercise its discretion to make an order for security.
Of the nine corporate trustee plaintiffs, the fifth, seventh, seventeenth, nineteenth and twenty‑first plaintiffs, each own real property, being one property each. Each of the five properties, other than those owned by the seventh and nineteenth plaintiffs, are subject to registered mortgages. Each of the properties, other than those owned by the seventh and twenty‑first plaintiffs, are owned as tenants in common or joint tenants with other owners who are not parties to these proceedings.[29] Consequently, of the real property that is owned by the corporate trustees, the only property that is unencumbered and not partly owned by a third party, is a property owned by the seventh plaintiff.
[29] Affidavit of Nicholas William Kalmund, sworn 24 August 2018, annexures NWK‑13 to NWK‑17.
The remainder of the corporate plaintiffs have nominal paid up capital and do not own any real property in the jurisdiction.
When regard is had to these circumstances, Mr Donnelly claims there is credible testimony that there is reason to believe that each of the corporate plaintiffs will be unable to pay Mr Donnelly's costs if their claims against him are unsuccessful.
Mr Donnelly's concerns about the ability of the corporate plaintiffs to meet any adverse costs orders are said to be compounded where, in respect of the corporate trustee plaintiffs, any tangible assets are held in trust and their solvency depends on their right as trustee to indemnify against the trust property, such that Mr Donnelly would face difficulties in attempting to execute an order for costs.
It was also pointed out on behalf of Mr Donnelly that a trustee company who desires to resist an order for security for costs should establish that recourse to property held by or for it will be available to the party against whom it has brought its action and will be adequate, at the appropriate time, to meet the possible liability for costs.[30]
[30] Laundry Coin‑Wash Nominees Pty Ltd v Dunlop Olympic Ltd (1985) ATPR 40‑584 (46,729) (Smithers J); Transocean Capital Pty Ltd v AFSIG Pty Ltd [2006] NSWSC 806; (2006) 202 FLR 270 [35] (Barrett J); Mila Properties Pty Ltd v Caldwell [2009] WASC 282 [6] (Sanderson M).
In Lagarna Pty Ltd v Bridge Wholesale Acceptance Corp (Australia) Ltd, Tadgell J held that a trustee may be required at any time to transfer its legal interest in the unencumbered property to the beneficiaries of the trust or to encumber it.[31]
[31] Lagarna Pty Ltd v Bridge Wholesale Acceptance Corp (Australia) Ltd [1995] 1 VR 150, 154.
In this regard, Mr Donnelly relies upon the principle in Saunders v Vautier[32] that beneficiaries, who are of legal age and have capacity are together absolutely entitled to exercise their proprietary rights to overbear and defeat the intention of a testator or settlor and to bring the trust to an end and claim the trust property.[33]
[32] Saunders v Vautier (1841) 4 Beav 115; (1841) Cr & Ph 240; (1841) 41 ER 482.
[33] The principle as formulated in CPT Custodian Pty Ltd v Commissioner of State Revenue of the State of Victoria [2005] HCA 53; (2005) 224 CLR 98 [43] (Gleeson CJ, McHugh, Gummow, Callinan & Heydon JJ); applying Goulding v James [1997] 2 All ER 239, 247 (Mummery J).
In response, a director of the seventh plaintiff, David John McCleery of McCleery Investments Pty Ltd, who is the trustee of the McCleery Family Trust filed an affidavit, sworn on 16 April 2019. In his affidavit Mr McCleery deposes that he understands that Mr Donnelly is seeking security for costs against some, but not all, of the plaintiffs and for that purpose has estimated his (Mr Donnelly's) likely costs in this action at $466,071.
Mr McCleery annexes to his affidavit an extract of the trust deed for the McCleery Family Trust. The trust deed sets out the powers and discretion of the trustee. In particular, pursuant to cl 11.1 of the McCleery Family Trust, the exercise of any power or discretion conferred on the trustee shall be:[34]
[34] Affidavit of David John McCleery, sworn 16 April 2019 [5], annexure DJM-1.
(a)exercisable by the Trustee in its absolute and unfettered discretion and no Trustee shall be held liable for any loss or damage occurring as a result of its exercising or refusing or failing to exercise any such discretion or power;
(b)no Trustee shall be liable for any breach of Trust except to the extent (if any) that such breach results from its own wilful default or neglect;
(c)the Settlor and the Trustee shall be indemnified and held harmless against any claim, losses, death duties, gift duties, taxes and impositions arising in connection with the Trust Fund or any part of it;
(d) where there is more than One (1) Trustee, neither shall be bound to take proceedings against the other for any breach or alleged breach of trust;
(e) the Trustee shall not be personally liable for the consequences of any error or forgetfulness whether of law or of fact on the part of the Trustee or its legal or other advisers or generally;
(f)the Trustee shall not in any circumstances be entitled to any indemnity, reimbursement or recompense from the Beneficiaries or any of them but if acting in good faith shall be entitled to be indemnified out of the Trust Fund in respect of all liabilities incurred relating to the execution of any powers, duties, authorities or discretions vested in the Trustee under the provisions of this Deed and in respect of all actions, proceedings, costs, claims and demands relating to any matter or thing done or omitted to be done concerning the Trust Fund;
(g)all Persons claiming any beneficial interest in, over or upon the Property subject to this Trust shall be deemed to take with notice of and subject to the protection conferred upon the Trustee by this clause 11:
(h)notwithstanding anything to the contrary contained in this Deed, any exercise by the Trustee of any power, discretion or authority conferred on the Trustee by this Deed may be made:
(i)by oral declaration of the Trustee or resolution of the Trustee recorded in the records or minutes of the Trust maintained by the Trustee; or
(ii)in writing signed by the Trustee; or
(iii)in the case of a sole corporate Trustee, by a resolution of such corporation or company or by resolution of its board of directors or governing body; and
Mr McCleery deposes that the McCleery Family Trust has assets significantly in excess of $466,000.[35] Further, that these assets include the property at 36 Commercial Road, Shenton Park, referred to by Mr Donnelly in the supporting affidavit of Mr Kalmund. In particular, the value of this property in the financial statements of the trust, as at 30 June 2018, was $1,009,992.[36] This property is unencumbered. In his affidavit, Mr McCleery also gives the following undertaking:[37]
I am one of the beneficiaries of the McCleery Family Trust. In that capacity I undertake that I will not make or join in any demand for transfer of the beneficial interest in the property of the Trust, that would result in the value of assets available to meet a costs order in favour of the seventh defendant being reduced below $466,071.
[35] Affidavit of David John McCleery, sworn 16 April 2019 [6].
[36] Affidavit of David John McCleery, sworn 16 April 2019 [6].
[37] Affidavit of David John McCleery, sworn 16 April 2019 [7].
The plaintiffs, against whom an order for security is sought, argue that the effect of cl 11.1 of the McCleery trust deed and the undertaking given by Mr McCleery's evidence, is sufficient to establish that the seventh defendant alone has sufficient means to meet Mr Donnelly's costs of the proceedings.
Clause 11.1 of the McCleery trust deed makes it clear that any order for costs would enable the trustee to indemnify against the trust property any costs order in favour of Mr Donnelly. Further, that the undertaking given by Mr McCleery (as a beneficiary) would prohibit the trustee being required at any time to transfer its legal interests in the unencumbered property to the beneficiaries of the trust.
As counsel for the plaintiffs point out, the undertaking given by Mr McCleery is sufficient evidence to establish that the seventh plaintiff alone has sufficient assets to meet Mr Donnelly's costs. However, the undertaking given by Mr McCleery does not provide Mr Donnelly with security for his costs. The undertaking does not prevent the directors of the seventh defendant, including Mr McCleery, (as directors) from disposing of or diminishing the value of the property in the trust.
Yet, the real property of the seventh defendant is not the only real property Mr Donnelly would have access to if a joint and several costs order is made, in the event that he is successful in his defence of the plaintiffs' claims.
Of the eight plaintiffs against whom no order for security is sought by Mr Donnelly, five are individuals who are resident in Western Australia; two are Australian companies who sue in their own right; and one is an individual who sues as a trustee of a superannuation fund. Those eight plaintiffs own seven properties as follows:[38]
(a)the eleventh plaintiff, McInerney Holdings Pty Ltd, owns three adjoining lots (zoned commercial) in Morley, each subject to two mortgages and on which the business of McInerney Ford trades;
(b)the twelfth plaintiffs, Colin Leigh Ceresa and Mandy Elizabeth Ceresa, who sue in their own right are the owners of two properties. One of those properties is on Warwick Road, Duncraig and the other is on Princeton Drive, Wannanup. Both of those properties are subject to a mortgage; and
(c)the twentieth plaintiff, Mark James Hayter, who sues in his own right is the owner of two properties as a joint tenant. One is a unit in Strickland Street, South Perth and the other is a property in Seabreeze Court, Peppermint Grove Beach. Both of these properties are subject to a mortgage.
[38] Affidavit of Benjamin Dean Luscombe, sworn 10 April 2019 [4] ‑ [5], annexures BDL-1 to BDL-7.
Other than the property owned by the seventh plaintiff and the undertaking of its director, Mr McCleery, the unencumbered value of all of the properties owned by the plaintiffs is not known and no undertakings are given in respect of them.
I am not satisfied that on the evidence before the court there is a reason to believe that at the time of judgment, as a matter of probability, the plaintiffs (jointly or severally) will be unable to pay Mr Donnelly's costs when regard is had to:
(a)the undertaking made by Mr McCleery on behalf of the seventh plaintiff;
(b)the fact that the present value of the seventh plaintiff's unencumbered property substantially exceeds Mr Donnelly's estimated recoverable costs; and
(c)the fact that the eight plaintiffs against whom security for costs is not sought own real property (albeit encumbered to an extent that is unknown).
For these reasons, I am not satisfied that the threshold for making an order for security for costs pursuant to s 1335 of the Corporations Act has been met.
For the same reasons, I do not consider that an order for security for costs should be made against the non‑resident plaintiffs.
Mr Donnelly's application for security for costs will be dismissed.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
EH
Research Associate/Orderly to the Honourable Justice Smith
26 JUNE 2019