Workcare Management Pty Ltd v Gajic Holdings Pty Ltd

[2010] NSWSC 850

CITATION:	Workcare Management Pty Ltd v Gajic Holdings Pty Ltd [2010] NSWSC 850
HEARING DATE(S):	3 June 2010
JURISDICTION:	Equity Division Duty Judge List
JUDGMENT OF:	Brereton J
EX TEMPORE JUDGMENT DATE:	3 June 2010
DECISION:	That the motion be dismissed with costs.
CATCHWORDS:	PROCEDURE – Costs – Security for costs – corporate impecuniosity – application made late, days before expedited hearing – whether security for costs order should be made
LEGISLATION CITED:	(NSW) Uniform Civil Procedure Rules 2005, r 42.21(1)(b), r 42.21(1)(d)
CATEGORY:	Procedural and other rulings
PARTIES:	Workcare Management Pty Ltd (plaintiff/respondent) Gajic Holdings Pty Ltd (defendant/applicant)
FILE NUMBER(S):	SC 10/95135
COUNSEL:	W Washington (plaintiff/respondent) D Reid (defendant/applicant)
SOLICITORS:	Thomas Bray Pty Ltd (plaintiff/respondent) Mitry Lawyers (defendant/applicant)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
DUTY JUDGE LIST

BRERETON J

Thursday, 3 June 2010

2010/95135 Workcare Management Pty Ltd v Gajic Holdings Pty Ltd

JUDGMENT (ex tempore)

1 HIS HONOUR: The plaintiff Workcare Management Pty Ltd commenced these proceedings by summons on 19 April 2010, seeking injunctive relief restraining the defendant Gajic Holdings Pty Limited from terminating a lease dated 6 November 2009 between Gajic as lessor and Workcare as lessee, or otherwise taking possession of the leased premises; and also restraining Gajic from making any further call on the Bank of Queensland on a bank guarantee in respect of the plaintiff’s liability under the lease, in circumstances where Gajic had already called on that guarantee for one month’s rent which Workcare had not paid.

2 The substantive dispute pertains to the respective obligations of the parties in connection with what are described in the lease as “Lessor’s Works” and “Lessee’s Works”, and in particular whether, by failing to carry out certain of the Lessor’s Works, Gajic is in breach of the lease and has caused Workcare to suffer loss and damage. On 20 April 2010, Gajic gave interim undertakings, from which it later sought to be relieved; following an interlocutory hearing on 5 May 2010, White J substituted interlocutory injunctive relief. His Honour also expedited the final hearing, and made directions for the preparation of the matter for hearing. The final hearing is set down to commence on Monday next 7 June 2002, with a three-day estimate.

3 By notice of motion filed on 28 May 2010 and returnable today, Gajic seeks an order pursuant to (NSW) Uniform Civil Procedure Rules 2005, r 42.21(1)(d), that Workcare give security for Gajic’s costs of the proceedings in the sum of $44,800. As the motion reveals, the basis upon which security for costs is sought is that referred to in r 42.21(1)(b) (in shorthand, corporate impecuniosity.)

4 The evidence of Workcare’s financial position before the Court is slim. Ultimately, Gajic adduced no affidavit evidence going to that question as the only material in its affidavit evidence touching on it was plainly inadmissible as double hearsay. Gajic tendered a notice to produce, dated 31 May 2010 and returnable today, requiring production of:

1. Copies of all financial records including but not limited to all bank statements relating to all bank accounts held by or on behalf of the plaintiff between 1 July 2010 and 30 May 2010.

2. Copies of all tax returns submitted by or on behalf of the plaintiff for the financial year ended 30 June 2008 and 30 June 2009.

3. Assets and liabilities statement of the plaintiff as at 1 June 2010.

5 Workcare produced no documents in answer to the notice, but did not move to set it aside.

6 In some circumstances, an inference might well be available that production of the documents sought would not have assisted Workcare’s case on the present application. However, given the timing of service of the notice, the extent of the documentation which would have been called for (under paragraph (1) in particular), and the circumstance that some evidence of Workcare's position has been voluntarily produced by Workcare annexed to an affidavit, I am not inclined in this case to draw the inference. Indeed, The suggestion that on 3 June 2010 Workcare could have produced an assets and liabilities statement as at 1 June 2010 borders on the preposterous.

7 Workcare has read the affidavit of Kevin Emanual Zamitt of 2 June 2010 which annexes a draft balance sheet, as at April 2010, indicating net assets of $2,243,025. Close examination of it raises a number of concerns. As to the overall asset and liability position, it is substantially underpinned by a single line in the assets designated "Business purchased" $3,150,000. That business presumably is the business which Workcare is now carrying on, and includes the various assets otherwise specified in the balance sheet. It is difficult to see how a business, which in the period from February 2009 to 1 July 2009 lost the sum of $300,000, and in the period from July 2009 to April 2010 made a profit of $147,000 (before adding back certain expenses which Workcare suggests are “one-off”) could sustain a goodwill of $3.1 million and I venture to think that the value of the business would be much less than that. Perhaps more significantly, the April 2010 balance sheet reveals total current assets in the amount of $1.3 million and total current liabilities of $1.28 million, leaving a surplus of only $2000 in current assets against current liabilities, which is a highly relevant test when it comes to solvency. It is clear on any view that the costs of three days in Court will exceed that difference of $2000.

8 On the other hand, there is evidence that Workcare is now profitable, with a profit and loss statement suggesting a profit of $147,000 for the ten months to the end of April 2010, with some proposed adjustments for extraordinary one-off expenses increasing it to $537,000, which on an annualised basis would be $644,000.

9 I have to say that material leaves me in some doubt as to whether Workcare would be able to pay Gajic's costs of the proceedings if Gajic succeeds and a costs order were made in its favour. There is at least some prospect that Workcare would not be able to do so. On the other hand, there is hardly a clear case that it would not be able to do so. The position in which I am left in that respect is that I think there is a possibility that Workcare may be unable to pay the costs of Gajic if ordered to do so, but I am not persuaded on balance that it will be so unable. The authorities make clear that the Court does not have to be satisfied that the plaintiff will be unable to pay the defendant’s costs, before making an order for security. The test is that there is reason to believe that it will be unable to pay such costs.

10 There is in this case some reason for holding such a belief, but, as in all these applications, the degree of risk that that will be so ultimately becomes one of several relevant discretionary considerations. In this case I proceed on the basis, although with some reservation, that the ground has been sufficiently established – essentially on the face of Workcare's own balance sheet – that there is reason to believe that it will not be able to pay the costs of the defendant if ordered to do so; but, as a discretionary consideration, I take into account that it is far from clear that it will be unable to pay such costs. It does seem that Workcare is a substantial organisation with a considerable cash flow and at present profitable, and on that basis, while there is some risk that Gajic if successful might not be paid its costs, it does not at this stage appear to be a large risk.

11 There are, of course, other relevant discretionary considerations. On such an application it is relevant to have regard to the relative strengths of the cases of the parties. Normally the Court does not examine in any detail the relevant strengths of the cases: it usually being sufficient on the one side that the plaintiff be suing bona fide and have an arguable case, and on the other, that the defence be genuine and not hopeless. But in circumstances where, as I have said, the risk that Gajic if successful will not have its costs paid is towards the lower end of the scale, I take into account that on the interlocutory hearing, with the benefit of evidence which has not been put before me, White J, having found the balance of convenience fairly evenly balanced, gave attention to the relative strengths of the cases and was able to form the view that there was prima facie strength in various aspects of Workcare’s case sufficient that, in circumstances where there was not much in the balance of convenience, interlocutory relief should be granted.

12 To my mind however by far the weightiest discretionary consideration is the timing of the application. As I have said, the proceedings are set down for final hearing next week. I am cognisant that the proceedings have come on for hearing in a short time frame, having only been commenced on 19 April. But directions were made in the expedition list a month ago, on 5 May, when an expedited hearing was fixed. In those circumstances, if an application for security was to be made it was incumbent on the defendant to do so very promptly after 5 April. Yet there is nothing to suggest any indication or foreshadowing of such an application before the notice of motion of 28 May.

13 If an order for security were now made, even though Workcare does not suggest it would permanently stultify the proceedings, it would be practically impossible and quite unreasonable to expect that Workcare would be able to provide a sum in the order of that suggested, namely $44,000, before next Monday 7 June.

14 The result would inevitably be that the proceedings next week would have to be adjourned. That would occur in circumstances where the Court’s time has been allocated, where the parties have prepared for a hearing on those days, and where the case has been thought to have sufficient urgency to justify an expedited hearing at that time.

15 In those circumstances the ordinary requirement that an application for security of the cost be made promptly, before the plaintiff has incurred substantial costs in preparing the matter for hearing, is accentuated. An application made only a week before the final hearing, albeit an expedited hearing, and returnable just two working days before that hearing, is just too late to afford justice in the case.

16 I order that the motion be dismissed with costs.

17 The exhibit may be returned.

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