Westgem Investments Pty Ltd in Its Own Right Trustee for Hossean Pourzand and Jenny Maria Pourzand Atf the Helen Trust v Commonwealth Bank of Australia Ltd [No 7] - [2024] WASC 224

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   WESTGEM INVESTMENTS PTY LTD IN ITS OWN RIGHT TRUSTEE FOR HOSSEAN POURZAND AND JENNY MARIA POURZAND ATF THE HELEN TRUST -v- COMMONWEALTH BANK OF AUSTRALIA LTD [No 7] [2024] WASC 224
CORAM:   TOTTLE J
HEARD:   17 JUNE 2024
DELIVERED          :   21 JUNE 2024
FILE NO/S:   CIV 2722 of 2012
BETWEEN:   WESTGEM INVESTMENTS PTY LTD IN ITS OWN RIGHT TRUSTEE FOR HOSSEAN POURZAND AND JENNY MARIA POURZAND ATF THE HELEN TRUST
First Plaintiff

HOSSEAN POURZAND IN ITS OWN RIGHT TRUSTEE FOR THE HELEN TRUST & THE SHERIN TRUST & THE POURZAND TRUST
First Named Second Plaintiff

JENNY MARIA POURZAND IN ITS OWN RIGHT TRUSTEE FOR THE HELEN TRUST & THE SHERIN TRUST & THE POURZAND TRUST
Second Named Second Plaintiff

PAKWEST PTY LTD (RECEIVERS AND MANAGERS APPOINTED) IN ITS OWN RIGHT TRUSTEE FOR NEWPORT SECURITIES PTY LTD & TRUSTEE FOR VARIOUS OTHER COMPANIES
Third Plaintiff

NEWPORT SECURITIES PTY LTD (RECEIVERS AND MANAGERS APPOINTED) ATF THE PAKWEST TRUST THE NEWPORT FAMILY TRUST & THE LUKE SARACENI FAMILY TRUST
Fourth Plaintiff

OAKCURE PTY LTD OWN CAPACITY AND TRUSTEE FOR THE PARRY TRUST
Fifth Plaintiff

SEAPORT PTY LTD (RECEIVERS AND MANAGERS APPOINTED) IN ITS OWN RIGHT TRUSTEE FOR THE SEAPORT TRUST
Sixth Plaintiff

LUKE SARACENI
Seventh Plaintiff

MAYPORT NOMINEES PTY LTD (RECEIVERS AND MANAGERS APPOINTED) IN ITS OWN RIGHT TRUSTEE FOR THE MAYPORT UNIT TRUST
Eighth Plaintiff

QUEEN STREET PROPERTIES PTY LTD IN ITS OWN RIGHT TRUSTEE FOR THE QUEEN STREET PROPERTIES
Ninth Plaintiff

GRAND EDITION PTY LTD (RECEIVERS AND MANAGERS APPOINTED) IN ITS OWN RIGHT TRUSTEE FOR THE FARAH INVESTMENT TRUST NO 4
Tenth Plaintiff

LMS HOLDINGS PTY LTD ATF THE SARACENI FAMILY TRUST
Eleventh Plaintiff

TOKYO CITY PTY LTD ATF THE TOKYO CITY TRUST
Twelfth Plaintiff

MAREE SARACENI PTY LTD ATF THE TOKYO CITY TRUST AND THE LUKE SARACENI FAMILY TRUST
Thirteenth Plaintiff

MAREE ANN SARACENI
Fourteenth Plaintiff

SINGLE HOLDINGS WA PTY LTD ATF THE TUART INVESTMENTS UNIT TRUST
Fifteenth Plaintiff

SARACEN PROJECT MANAGEMENT PTY LTD ATF THE SARACEN PROJECT MANAGEMENT TRUST
Sixteenth Plaintiff

CARDUP INDUSTRIAL LAND HOLDINGS PTY LTD IN ITS OWN RIGHT TRUSTEE FOR THE CARDUP INDUSTRIAL LAND TRUST AND THE CARDUP INDUSTRIAL LAND TRUST NO 2
Seventeenth Plaintiff

GOLDCUP NOMINEES PTY LTD ATF THE PAKWEST TRUST
Eighteenth Plaintiff

GOLDEN WEST PROPERTIES PTY LTD ATF THE POURZAND FAMILY TRUST THE OZRA TRUST THE GOLD HOUSE TRUST AND JENNY'S TRUST
Nineteenth Plaintiff

AND

COMMONWEALTH BANK OF AUSTRALIA LTD
First Defendant

WESTPAC ADMINISTRATION 2 LTD
Second Defendant

WESTPAC ADMINISTRATION 3 LTD
Third Defendant

Catchwords:

Application for security for costs - Discretion to order security for costs - Whether plaintiff's claims properly characterised as defensive in nature - Whether the plaintiff is effectively in the position of a defendant

Legislation:

Corporations Act 2001 (Cth) s 1335
Rules of the Supreme Court 1971 (WA) O 25

Result:

Application for security for costs dismissed

Category: B

Representation:

Counsel:

First Plaintiff	:	Mr D J Pratt
First Named Second Plaintiff	:	Mr D J Pratt
Second Named Second Plaintiff	:	Mr D J Pratt
Third Plaintiff	:	Mr D J Pratt
Fourth Plaintiff	:	Mr D J Pratt
Fifth Plaintiff	:	Mr D J Pratt
Sixth Plaintiff	:	Mr D J Pratt
Seventh Plaintiff	:	Mr D J Pratt
Eighth Plaintiff	:	Mr D J Pratt
Ninth Plaintiff	:	Mr D J Pratt
Tenth Plaintiff	:	Mr D J Pratt
Eleventh Plaintiff	:	Mr D J Pratt
Twelfth Plaintiff	:	Mr D J Pratt
Thirteenth Plaintiff	:	Mr D J Pratt
Fourteenth Plaintiff	:	Mr D J Pratt
Fifteenth Plaintiff	:	Mr D J Pratt
Sixteenth Plaintiff	:	Mr D J Pratt
Seventeenth Plaintiff	:	Mr D J Pratt
Eighteenth Plaintiff	:	Mr D J Pratt
Nineteenth Plaintiff	:	Mr D J Pratt
First Defendant	:	Ms J Taylor SC
Second Defendant	:	Ms J Taylor SC
Third Defendant	:	Ms J Taylor SC

Solicitors:

First Plaintiff	:	Jackson McDonald
First Named Second Plaintiff	:	Jackson McDonald
Second Named Second Plaintiff	:	Jackson McDonald
Third Plaintiff	:	Jackson McDonald
Fourth Plaintiff	:	Jackson McDonald
Fifth Plaintiff	:	Jackson McDonald
Sixth Plaintiff	:	Jackson McDonald
Seventh Plaintiff	:	Jackson McDonald
Eighth Plaintiff	:	Jackson McDonald
Ninth Plaintiff	:	Jackson McDonald
Tenth Plaintiff	:	Jackson McDonald
Eleventh Plaintiff	:	Jackson McDonald
Twelfth Plaintiff	:	Jackson McDonald
Thirteenth Plaintiff	:	Jackson McDonald
Fourteenth Plaintiff	:	Jackson McDonald
Fifteenth Plaintiff	:	Jackson McDonald
Sixteenth Plaintiff	:	Jackson McDonald
Seventeenth Plaintiff	:	Jackson McDonald
Eighteenth Plaintiff	:	Jackson McDonald
Nineteenth Plaintiff	:	Jackson McDonald
First Defendant	:	King & Wood Mallesons
Second Defendant	:	King & Wood Mallesons
Third Defendant	:	King & Wood Mallesons

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

Atarashii Stone Pty Ltd v Granite Transformations Pty Ltd (No 3) [2017] ACTSC 198
Banki Trading BV v Ausland Export Pty Ltd [2022] FCA 373
Interwest Ltd v Tricontinental Corporation Ltd (1991) 5 ACSR 621
Mabrouk Holdings Pty Ltd v Mabrouk Minerals Pty Ltd [2008] WASC 132
Riviera Development Co Pty Ltd (In Liq) v Tantalite Pty Ltd (1981) 27 SASR 161
Westgem Investments Pty Ltd In Its Own Right As Trustee For Hossean Pourzand And Jenny Maria Pourzand Atf The Helen Trust v Commonwealth Bank of Australia Ltd [No 5] [2019] WASC 310
Westgem Investments Pty Ltd v Commonwealth Bank of Australia Ltd [No 6] [2020] WASC 302

TOTTLE J:

These reasons concern the defendants' application for an order for security for costs (up to the stage of discovery) in the sum of $350,000. The background to these proceedings is set out in the 'liability judgment': Westgem Investments Pty Ltd v Commonwealth Bank of Australia.[1] I will adopt the definitions and other terminology used in the liability judgment. This includes using 'Westgem' collectively to refer the first plaintiff and all parties within the Saraceni and Pourzand camps.
[1] Westgem Investments Pty Ltd v Commonwealth Bank of Australia Ltd [No 6] [2020] WASC 302.
The issues that remain to be determined in this litigation are Westgem's claims in respect of the proper construction and rectification of certain security documents ‑ the Second Additional Securities (the Second Additional Securities claims) and the claim to the effect that the default interest charged by the Financiers is a penalty. Westgem seeks various relief based on these claims.
The Second Additional Securities claims are described in reasons published on 29 August 2019, Westgem Investments Pty Ltd v Commonwealth Bank of Australia (the re‑opening reasons),[2] explaining why Westgem should have leave to re-open its case and amend the then current version of the statement of claim. The Second Additional Securities claims are pleaded in [393L] to [393AE] of the plaintiffs' Seventh Further Amended Second Substituted Statement of Claim (the statement of claim). The default interest claim is pleaded in [406] to [448] of the statement of claim.
[2] Westgem Investments Pty Ltd In Its Own Right As Trustee For Hossean Pourzand And Jenny Maria Pourzand Atf The Helen Trust v Commonwealth Bank of Australia Ltd [No 5] [2019] WASC 310.
The application is supported by an affidavit affirmed on 1 March 2024 by Mr James Wang, the lawyer with conduct of the litigation on behalf of the Financiers.
Save for one respect to which I will turn shortly there is no dispute about the applicable principles. Westgem accepts that the principles are those summarised in [5] to [15] of the financiers' outline of submissions. The principles are well‑known and there is no need to rehearse them in these reasons.
Westgem accepts there is a reasonable basis to conclude that some of the parties advancing the Second Additional Securities claims may not be able to meet any adverse costs order against them such that the threshold requirements under s 1335 of the Corporations Act 2001 (Cth) or O 25 of the Rules of the Supreme Court 1971 (WA) are met. Westgem argues, however, that the court should not order security because its remaining claims are defensive in nature. Additionally, Westgem contends that the amount of security is excessive.
The aspect of the applicable principles that was controversial concerned the circumstances a party must establish to demonstrate that it is, in effect, a defendant.
In Mabrouk Holdings Pty Ltd v Mabrouk Minerals Pty Ltd,[3] Newnes J (as his Honour then was) observed:[4]
Security will generally not be ordered to be provided by a party who has been put into the position in which he or she has had to sue in order to defend himself or herself against the other party's prior attack; such as where a person has been forced to bring proceedings to protect their property from statutory acquisition or forfeiture: Maatschappij Voor Fondsenbezit v Shell Transport and Trading Co [1923] 2 KB 166, 177; Willey v Synan (1935) 54 CLR 175, 184 - 185; Re Travelodge Australia Ltd (1978) 21 ACTR 17 or where the defendant has obtained possession of disputed property by a pre-emptive 'self-help' remedy: Spence Financial Group Pty Ltd v GE Commercial Corporation (Australia) Pty Ltd [2007] WASC 15. See also Heller Factors Pty Ltd v John Arnold's Surf Shop Pty Ltd (1979) 22 SASR 20; Sydmar Pty Ltd v Statewise Developments Pty Ltd (1987) 73 ALR 289, 300; Interwest Ltd v Tricontinental Corporation Ltd (1991) 9 ACLC 1218.
…
It must be borne in mind, however, that there are no hard and fast rules and that whether or not an order for security for costs should be made is a matter of discretion, to be exercised as the interests of justice require in the circumstances of the particular case.
[3] Mabrouk Holdings Pty Ltd v Mabrouk Minerals Pty Ltd [2008] WASC 132.
[4] Mabrouk Holdings Pty Ltd v Mabrouk Minerals Pty Ltd [62].
In Riviera Development Co Pty Ltd (In Liq) v Tantalite Pty Ltd,[5] Jacobs J upheld a decision of the Deputy Master to refuse to order security. The plaintiff contended that securities in the form of a bill of sale and mortgage debenture had been obtained as a result of fraudulent misrepresentation, for no consideration, and as a result of a breach of fiduciary duty. The plaintiff resisted the application for security on the ground that the plaintiff was in truth and substance in the position of a defendant. Jacobs J considered that there was 'much force' in the plaintiff's submission and that the plaintiff was defending itself against 'self-help' action taken by the defendant.
[5] Riviera Development Co Pty Ltd (In Liq) v Tantalite Pty Ltd (1981) 27 SASR 161.
In Interwest Ltd v Tricontinental Corporation Ltd,[6] Ormiston J dealt with an application for security for costs in circumstances in which the plaintiffs' claims related to the alleged failure of the defendant, Tricontinental, to give correct or appropriate advice to the plaintiffs and to provide finance for the carrying out of a plan involving the acquisition of hotels, resorts and apartments throughout Australia and New Zealand. Tricontinental counterclaimed against the plaintiffs seeking to enforce a syndicated debt facility and numerous other loans or facility agreements related to the implementation of the plan the total amount being sought being in the range of $250-$300m. Ormiston J said:[7]
Perhaps it may be said that the authorities support the proposition that security will only ordinarily be ordered against a party who is in substance the plaintiff, and that an order ought not to be made against parties who are defending themselves and thus forced to litigate: cf Accidental & Marine Insurance Co v Mercati (1866) 3 Eq 200. That would appear to be an overstatement, but the fact that a plaintiff, or counterclaimant, has instituted essentially defensive proceedings, must be a significant factor in the exercise of the court's discretion. A number of the other cases are discussed in Delany pp 17-25. Only three authorities were referred to me in argument: New Fenix Compagnie Anonyme d'Assurances de Madrid v General Accident Fire & Life Assurance Corporation Ltd [1911] 2 KB 619; T Sloyan & Sons (Builders) Ltd v Brothers of Christian Instruction [1974] 3 All ER 715 and Sydmar Pty Ltd v Statewise Developments Pty Ltd (1987) 11 ACLR 616. In the New Fenix case the plaintiffs, who were resident outside the jurisdiction, brought a separate cross-action against the applicants for security. The conclusion reached by the Court of Appeal is perhaps best expressed by Vaughan Williams LJ at 625-6: 'One must look at each case to see whether in substance the claim set up by a defendant is set up by him by way of defence to the claim against him ... I do not think that there is any hard and fast rule on the subject. We have to consider whether, in substance, upon the facts of the particular case, the defendants in the original action are to such an extent plaintiffs in the cross-action, that they ought according to the general practice in the matter to be ordered to give security for costs, because they have taken up the position of plaintiffs, irrespective of defence to the original action.'
…
Principally it would appear necessary to characterise the proceedings in respect of which security is sought. If they are 'defensive' proceedings, either directly resisting proceedings already brought or seeking to 'halt self-help procedures', it would seem that to require security would be oppressive, or at least would provide serious grounds for refusing to make an order. At the least, it is a factor to be considered in the exercise of the discretion. In particular, it is a basis for reducing the amount of security ordered to a sum related to the costs of those claims which cannot be characterised as defensive: cf Sloyan's case, supra.
…
So the issue remains whether the plaintiffs' or defendants' claims are properly characterised as defensive. If a party is genuinely seeking to resist another party's claim, whatever form it takes, then to order security would be manifestly unfair. Looking at the matter overall I am persuaded, on an application that the principles referred to and applied in the Heller Factors and Sydmar cases, that is is the plaintiffs' proceedings which are more appropriately characterised as defensive. The defendants have asserted rights to recover money sums from each of them, they proceeded to appoint receivers and managers and otherwise to enforce securities in early 1990 (so far as several plaintiff corporations are concerned) and they have sought or are seeking to wind up other of the plaintiff companies. Before the lead proceeding was issued, the defendant Tricontinental sought to recover by action moneys from the individuals in the guarantee proceedings. Many of the issues raised in the lead proceeding seek to challenge those 'offensive' steps by the defendants and seek to set them aside or to obtain injunctive relief or to stay the winding up proceedings.
[6] Interwest Ltd v Tricontinental Corporation Ltd (1991) 5 ACSR 621.
[7] Interwest Ltd v Tricontinental Corporation Ltd (626 ‑ 628).
In Interwest, Ormiston J made a broad determination of those elements of the plaintiff's claims that could be characterised as defensive and those that went beyond defensive claims and made a limited order for security reflecting that determination.
The Financiers have drawn my attention to two decisions that appear to support the proposition that it was only in those cases in which a plaintiff had commenced proceedings in response to a threatened statutory acquisition or forfeiture that the question of whether the plaintiff was in substance a defendant was relevant to the exercise of the discretion to order security.
In Atarashii Stone Pty Ltd v Granite Transformations Pty Ltd (No 3),[8] the plaintiff had taken proceedings to challenge the defendant's decision to terminate the franchise agreement under which the plaintiff conducted its business. Mossop J referred to the decisions in Willey v Synan and Re Travelodge Australia Ltd and noted:[9]
In each of these cases a step had been taken by the defendant which triggered or enlivened a statutory power which compelled, in a legal or commercial sense, the plaintiff to take the proceedings which it did.
[8] Atarashii Stone Pty Ltd v Granite Transformations Pty Ltd (No 3) [2017] ACTSC 198.
[9] Atarashii Stone Pty Ltd v Granite Transformations Pty Ltd (No 3) [16].
His Honour continued:[10]
So far as the researches of counsel have disclosed, these decisions have not been applied in cases where there is simply an allegation of a breach of contract. It is not appropriate on this application to apply the cases more generally so as to ask in the language of Scrutton LJ in Maatschappij voor Fondsenbezit v Shell Transport and Trading Co [1923] 2 KB 166 at 178, '[w]ho is the attacker and who the defender'. If that was the case, then in any breach of contract case, notwithstanding the form of the action, an inquiry would need to be made having regard to the underlying commercial dealings of which party was appropriately characterised as attacker or defender.
In this case, although it can be seen that in order to preserve its business the plaintiff was compelled to challenge the termination by the defendant of the franchise, that is not sufficient to put it in the category of case equivalent to that in Willey.
[10] Atarashii Stone Pty Ltd v Granite Transformations Pty Ltd (No 3) [18] - [19].
Mossop J's decision was cited with approval by Goodman J in Banki Trading BV v Ausland Export Pty Ltd.[11]
[11] Banki Trading BV v Ausland Export Pty Ltd [2022] FCA 373 [43].
With respect it is not clear to me Mossop J was of the view that it was not appropriate to ask 'in the language of Scrutton LJ in Maatschappij voor Fondsenbezit v Shell Transport and Trading Co '[w]ho is the attacker and who the defender' given what was said by Scrutton LJ in Maatschappij was cited with approval by Dixon J in Willey v Synan. Having regard to the overarching principle that the discretion to be exercised on an application for security for costs is a broad one, which is to be exercised judicially without regard to hard and fast rules, the approach to the exercise of the discretion by Mossop J appears, again with respect, to be overly restrictive.
Neither Newnes J in Mabrouk nor Ormiston J in Interwest suggested that the principle that security will generally not be ordered against a plaintiff who is in substance a defendant only operates in the limited circumstances described by Mossop J in Atarashii Stone. I was unable to find support for that approach in the texts generally regarded as authoritative; Security for Costs - Jim Delany and Security for Costs - Stephen Colbran. In my respectful view the law is correctly stated by Newnes J in Mabrouk and Ormiston J in Interwest and if a plaintiff's claims are properly characterised as defensive in nature then it is unfair to order the plaintiff provide security.

Analysis and disposition

There is no dispute that the Financiers have overcome the threshold issue and that the discretion to make an order for security has been enlivened. There is also no dispute that the majority of the discretionary factors (that is, the absence of delay, the application is not being made oppressively, no one standing behind Westgem has come forward to provide security and there is no evidence that providing security will stultify the claims) all favour the making of an order for security.
In my judgment the decisive question is whether the Second Additional Securities claims and the default interest claims are properly characterised as defensive in nature.

The gravamen of the Second Additional Securities claims is that those who provided security did so as trustees and not in their personal capacities and that certain assets were not the subject of securities. These claims may be contrasted with various claims made by Westgem that were the subject of the liability judgment, for example, the First Cost Overrun claims, the Second Cost Overrun claims and the Salta Stoppage and Salta Termination claims that were clearly 'offensive' contractual claims. The Second Additional Securities claims were made in circumstances in which the Financiers had taken steps to enforce the securities held by them. Even though the claims are made in the statement of claim and precede the defence and counterclaim they seek to limit the liability of the providers of the Second Additional Securities. In my view they are clearly defensive in nature.
Substantially the same point may be made in respect of the default interest claim. It seeks to limit the quantum of the Financiers' claim. It is inherently defensive in nature.
It was contended on the Financiers' behalf that even if I reached the view that the Second Additional Securities claims and the default interest claim were defensive in nature given that the other discretionary factors overwhelmingly favoured the award of security, it would be appropriated to order security. I am not persuaded by this contention. The rationale for not making an order for security against a plaintiff who is in substance a defendant is that (to use Ormiston J's words) it would be manifestly unfair to order security against a party genuinely seeking to resist an opponent's claims. In my view, in this case at least, that unfairness is not outweighed by the existence of other discretionary factors that favour making an order for security.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
CD
Associate to the Honourable Justice Tottle
21 JUNE 2024