DISTRICT COURT OF QUEENSLAND CITATION: PARTIES: Press Metal Aluminium (Australia) P/L v Total Concept Group P/L & Anor (No 2) [2014] QDC 186 PRESS METAL AUSTRALIA PTY LTD (A.C.N 085 370 010) (plaintiff) v TOTAL CONCEPT GROUP PTY LTD (A.C.N 114 572 486) (first defendant) and DANIEL MCGEE (second defendant) FILE NO: D186/2014 DIVISION: PROCEEDING: ORIGINATING COURT: Civil Application in the proceeding District Court of Queensland DELIVERED ON: 5 September 2014 DELIVERED AT: Brisbane HEARING DATE: 29 August 2014 JUDGE: ORDERS: Dorney QC, DCJ It is ordered that: 1. The second defendant provide security for the plaintiff s costs of defending the second defendant s counterclaim in the amount of $20,000.00 by payment of that amount into Court, or by the provision of a bank guarantee in a form satisfactory to the Registrar, on or before 4pm on 26 September 2014. 2. Failing the provision of such security by the second defendant in accordance with the previous order, the counterclaim of the second defendant is stayed until further order. 3. The costs of the application for security for costs are costs in the counterclaim. 4. All other costs of the hearing on 29 August 2014 are reserved to the trial, or earlier order.
CATCHWORDS: LEGISLATION CITED: 2 Security for costs - where one co-defendant (later put into voluntary administration) assigns benefit of causes of action in counterclaim to the other co-defendant - criteria for determining what the justice of the case requires Uniform Civil Procedure Rules 1999, r 670, r 671, r 671(a), r 671(b), r 671(h), r 672, Schedule 4 Corporations Act 2001, Part 5.3A CASES CITED: Andrews & Ors v Caltex Oil (Australia) Pty Ltd (1982) 60 FLR 261 COUNSEL: SOLICITORS: Base 1 Projects Pty Ltd v Islamic College of Brisbane Ltd [2012] QCA 114 E&N Collins Enterprises Pty Ltd & Anor v Kingaroy Mall Pty Ltd & Ors [2006] QSC 187 Harpur v Ariadne Australia Ltd (No 2) [1984] 2 Qd R 523 Hession & Ors v Century 21 South Pacific Ltd (in Liq) (1992) 28 NSWLR 120 Jeffery & Katauskas Pty Ltd v SST Consulting Pty Ltd & Ors (2009) 239 CLR 75 JNJ Resources Pty Ltd v Crouch & Lyndon (a firm) (No 2) [2014] QSC 137 KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 Partington v Pacific Link Housing Ltd [2013] NSWCA 259 Process Engineering Pty Ltd v Derby Meat Processing Co Ltd [1977] WAR 145 Project 28 Pty Ltd v Barr [2005] NSWCA 240 Robson v Robson & Anor [2008] QCA 36 Specialised Explosives Blasting & Training Pty Ltd v Huddy s Plant Hire Pty Ltd [2009] QCA 254 Upton & Anor v TVW Enterprises Ltd & Anor (1984) 4 FCR 121 West s Process Engineering Pty Ltd v Westralian Sands Ltd & Anor (1998) 144 FLR 340 Yandil Holdings Pty Ltd v Insurance Co of North America (1985) 3 ACLC 542 Mr N Cooke for the plaintiff Mr M Bland for the second defendant Tucker & Cowan Solicitors for the plaintiff QBM Lawyers for the second defendant
3 Introduction [1] On 29 August 2014 I gave leave to the plaintiff to file an application dated 28 August 2014. Relevantly, the plaintiff was also the relatively newly minted defendant-by-counterclaim to the second defendant s new counterclaim. [2] In that application there were a number of matters raised but the point of present importance is contained in paragraphs 1 and 2 of that application. It deals with the issue of security for costs of the counterclaim. The other matters have been dealt with. I intend to reserve the costs of them, as with the second defendant s successful application to amend (again filed by leave). [3] Although those paragraphs, in the orders sought, referred to The First Defendant, ITS ASSIGNORS OR SUCCESSORS, as is acknowledged by the respondent to the application (the second defendant), the application was really against the second defendant, as assignee and counterclaimant. [4] Administrators were appointed to the first defendant, under the name Total Concept Glass Pty Ltd, on 21 August 2014 pursuant to Part 5.3A of the Corporations Act 2001. It may be necessary for the first defendant s name to be regularised on the record. Furthermore, by a Deed of Assignment dated 1 August 2014, the first defendant, as assignor, and the second defendant, as assignee, had agreed unconditionally, irrevocably and absolutely to the assignment of all rights, title, interest and benefits in and to all causes of action held by the first defendant against the plaintiff arising from the H2O Project, including all causes of action pleaded in (its) Counterclaim. By Cl 2.3 of that Deed, the parties agreed that 30% of the net value realised by the second defendant under the first defendant s counterclaim ( following successful recovery from the Plaintiff after payment of all Costs ) was the consideration payable for the assignment which the parties accept to be fair and reasonable. [5] It is not in dispute that the first defendant gave express written notice of the assignment under the Deed to the plaintiff (presumably, as pleaded in the Further Amended Defence and Counterclaim of the second defendant, by letter served on the plaintiff on 5 August 2014). Background [6] The second defendant, as respondent, in an affidavit filed 22 August 2014, has set out, albeit in a very general way, his assets and liabilities: see paragraphs 6, 7, 8 and 9 of that affidavit. In summary terms, it contends that: he owns 334,643 shares in Total Lifestyle Windows Pty Ltd beneficially ; the glass door and window installation business carried on by Total Lifestyle Windows is owned by it beneficially ; he currently has about $20,000 in cash; his only source of income is the business carried on by Total Lifestyle Windows from which he receives about $10,000 per month, stating that most of this amount is required for living expense and other liabilities; he has no borrowing capacity ;
4 the house at Burleigh Waters (being on Lot 348 on RP 154095) is mortgaged for the maximum loan to value ratio and his wife has claimed the house in... divorce proceedings ; Jedikan Group Pty Ltd holds Lot 9 on BUPR 107281 and Lot 108 on SP 191989 for the Jedikan Unit Trust (in which he does not hold any units or other interest); he is unable to estimate the value of his shares in Total Lifestyle Windows, stating that they would not be accepted as security by any normal commercial lenders ; his shares in Jedikan Group, McGee Group Holdings Pty Ltd and DJMMS Holdings Pty Ltd have no value ; he has credit card debts in excess of $100,000 and contingent liabilities under guarantees of about $4,200,000 ; the total amount of legal costs paid or incurred by both the first defendant and him in this proceeding to date is about $518,000.00 ; and his instructing solicitor has informed him, and he believes, that the estimates of the costs of trial are $230,000. [7] It should be noted that the respondent s affidavit was filed in response to an affidavit by a solicitor employed by the applicant s solicitors, Olivia Jane Roberts. Her affidavit was filed 15 August 2014 and at paragraphs 17, 18 and 19 stated information to which the respondent has purported to reply. Basis of application [8] By r 670 of the Uniform Civil Procedure Rules 1999 ( UCPR ), on the application by a defendant (such as the plaintiff here who is a defendant to the second defendant s counterclaim), the court may order the plaintiff to give the security the court considers appropriate for the defendant s costs of and incidental to the proceeding, with the rule applying subject to the provisions of the UCPR, particularly r 671 and r 672. Schedule 4, the Dictionary, defines a plaintiff to include a counterclaimant. Grounds [9] Although the applicant relied upon r 671(a), r 671(b) and r 671(h) of the UCPR, the only one that I conclude is of substance is the last. [10] Nevertheless, I will briefly consider the other two. By a process of reasoning that I do not accept, it is contended by the applicant that, because of the assignment in the Deed, the respondent should be considered as a corporation for the purposes of r 671(a). There are no cases relied upon to establish this proposition. The only ones addressed simply involve: either an impecunious corporation under voluntary administration [West s Process Engineering Pty Ltd v Westralian Sands Ltd & Anor 1 ] where the view was expressed that an administrator was comparable to a liquidator, receiver and manager, or receiver; or a company in liquidation where 1 (1998) 144 FLR 340.
5 such liquidation was held to provide sufficient evidence to satisfy the threshold test: see Process Engineering Pty Ltd v Derby Meat Processing Co Ltd. 2 [11] As to r 671(b) of the UCPR, in oral submissions counsel for the applicant submitted that the respondent was suing for the benefit of another person, on the basis of the consideration expressed in the Deed. Counsel did not press the issue in the absence of any authority that this provision applied to assignees. In any event, the terms of r 671(b) refer to the respondent suing for the benefit of another person, rather than (emphasis added) for the respondent s own benefit (where there is reason to believe that the respondent will not be able to pay the applicant s costs if ordered to pay them). As held in Project 28 Pty Ltd v Barr, 3 if a party is to benefit from the litigation, this sub-rule will not apply : at [106]. Here it is difficult to see that the financial benefit is not, at least (significantly) partially, the respondent s, even though that would then give rise to the responding liability to the first defendant under Deed. There was no authority pressed upon me which shows that it is not a financial aspect solely that is dealt with in this instance. In Upton & Anor v TVW Enterprises Ltd & Anor 4 Toohey J expressed the view that the word for, not being accidental, was a word which in many contexts carried the notion of purpose and, therefore, the notion underlying this particular provision was that the rule was concerned with proceedings brought in order to benefit someone other than the applicant : at 122. Nevertheless, he referred to the potential for the provision to apply where there had been, for instance, an assignment (formal or informal) of the fruits of this litigation (emphasis added) or where any arrangement has been made... to give (specific) creditors some preference in the disposition of any award of damages obtained : at 122-123. As for the benefit having a meaning beyond financial, Lockhart J in Andrews & Ors v Caltex Oil (Australia) Pty Ltd, 5 after remarking that the meaning of benefit is to be gleamed from the character of the particular case before the court deriving its complexion from the specific statute involved in the circumstances of the case with the effect that its meaning was ambulatory, stated that it must not be forgotten that there are two aspects of benefit, being, first, that the proceeding is not brought for the benefit of the applicant and, secondly, that it is brought for the benefit of some other person, remarking the proof of the former does not necessary establish the latter: at 266. [12] Turning, then to r 671(h). This states that the court may order a respondent to give security for costs only if the court is satisfied that the justice of the case requires the making of the order. To the extent that the applicant relied on the fact that the respondent is a litigation funder, it is factually incorrect (at least in the sense that he is, in fact, a party to the litigation). The majority of the High Court in Jeffery & Katauskas Pty Ltd v SST Consulting Pty Ltd & Ors, 6 in reviewing the position of such funders, concluded that the proposition that those who fund another s litigation must put the party funded in a position to meet any adverse costs order is too broad a proposition to be accepted : at 98 [43]. The majority went on to hold that a more fundamental difficulty is that it has no doctrinal root : also at 98 [43]. 2 [1977] WAR 145. 3 [2005] NSWCA 240. 4 (1984) 4 FCR 121. 5 (1982) 60 FLR 261. 6 (2009) 239 CLR 75.
6 [13] The majority view in Robson v Robson & Anor 7 on this provision is to the effect that r 671(h) is not a two-stage process under which matters listed in r 672 become relevant only where the court is satisfied in terms of one or more of the paragraphs of r 671 : at [31], per Muir JA, with whom McMeekin J agreed, though contrary to Keane JA at [19]-[21]. On that approach the matters as listed in r 672 also encompass many, if not most, of the circumstances normally relevant to a determination of the r 671(h) provision: at [32]. Even so, the other paragraphs of r 671 inform the construction of this particular provision: at [34]. As expressed by Muir JA, the impecuniosity of a natural person respondent will not, without more, fulfil the requirements of r 671(h): also at [34]. The question here, therefore, is whether that more, if established, is sufficient. Some potentially relevant factors [14] Since Robson dictates an initial consideration of r 672, in the context of how r 671(h) fits into r 671 as a whole, it seems to be of some initial utility to consider some of the relevant judicial considerations which have informed an application of r 672. [15] In Base 1 Projects Pty Ltd v Islamic College of Brisbane Ltd, 8 the Court of Appeal (in the decision of Margaret Wilson AJA, with whom McMurdo P and Appelgarth J agreed) set out a convenient summary of relevant considerations (as contained in Beazley J s judgment in KP Cable Investments Pty Ltd v Meltglow Pty Ltd: 9 at 197-198). They included, relevantly: the long standing principle that such applications should be brought promptly; that regard is to be had to the strength and bona fides of the applicant s case as relevant considerations, observing that, as a general rule, where a claim is prima facie regular on its face and discloses a cause of action, in the absence of evidence to the contrary, the court should proceed on the basis that a claim is bona fide with a reasonable prospect of success; whether the applicant s impecuniosity was caused by the respondent s conduct which is the subject of the claim; whether the application for security is oppressive, in the sense that it is being used to deny an impecunious applicant a right to litigate [noting that in Yandil Holdings Pty Ltd v Insurance Co of North America 10 Clarke J (at 545) set out the relevant principles in terms that: the fact that the ordering of security will frustrate the plaintiff s rights to litigate its claim because of its financial condition does not automatically lead to the refusal of an order (but) (n)onetheless it will usually operate as a powerful factor in favour of exercising the Court s discretion in the plaintiff s favour ]; that a factor related to the last factor is whether there were any persons standing behind the company who were likely to benefit from the litigation and who are willing to provide the necessary security; that the combined effect of the last two principles was summarised by Meagher JA in Hession & Ors v Century 21 South Pacific Ltd (in Liq) 11 (at 123) in terms of that: a company in liquidation against whom an order for security for costs is 7 [2008] QCA 36. 8 [2012] QCA 114. 9 (1995) 56 FCR 189. 10 (1985) 3 ACLC 542. 11 (1992) 28 NSWLR 120.
7 sought cannot successfully resist such an order merely by proving that it cannot fund the litigation from its own resources if an order for security is made; it must prove that it cannot do so even if it relies on the other resources available to it (the company s shareholder or creditors) Finally, whilst it is both true and important that poverty must be no bar to litigation, what that means is that the courts must be astute to see that no person pursuing a claim which is not frivolous is precluded from doing so by the erection of obstacles which poverty is unable to surmount; it does not mean that proof of insolvency automatically confers an immunity from statutory provisions which deal with insolvent plaintiffs ; that an issue related to that last guideline is whether persons standing behind the company have offered any personal undertaking to be liable for the costs and, if so, the form of any such undertaking; security will ordinarily be ordered against a party who is in substance the plaintiff; and an order ought not be made against parties who are defending themselves and thus forced to litigate: at [18]. [16] Base I Projects reiterated that the discretion to order security is unfettered and should be exercised having regard to all of the circumstances, without any predisposition in favour of an award: at [18]. [17] It can be immediately seen that many of those matters are now contained in r 672 (since 1999). Consideration [18] It is not in issue that the first defendant would not have had sufficient net assets to resist the making of an order for security for costs against it - but it has assigned its relevant rights here to the second defendant. Necessarily, it is, then, important to canvas what the solvency is of the second defendant for the reasons which will be later addressed. [19] It has not been suggested in the written submissions of the applicant/plaintiff that the affidavit filed by the second defendant on 22 August 2014 dealing with his solvency is either untrue or that there is any evidence to which this Court s attention can be drawn which would in any way gainsay the basic facts asserted. [20] There are quite a few matters which are canvassed both in the above mentioned convenient summary and in r 672 (expressly) that are of no direct relevance here. They include: whether the respondent s impecuniosity is attributable to the applicant s conduct; whether the respondent is effectively in the position of a defendant (in circumstances where the counterclaim is greatly in excess of the claim against him); whether the proceeding involves a matter of public importance; whether there has been an admission or payment into court; and whether an order for costs made against the respondent would be enforceable within the jurisdiction.
8 [21] Matters which are only of marginal relevance include delay by the applicant in bringing the application, such as to cause prejudice to the respondent. Although it was raised, in the circumstances of this case where it was but two months ago that the first defendant s financial standing was first questioned and where it has taken some considerable time on the respondent s part to effect the voluntary administration of the first defendant, the delay is of little moment and has not effected any identified material prejudice. [22] Additionally, given that the recent affidavit of the respondent has exhibited reports by Mr Donnan, a structural engineer, and Mr Gilligan, a quantity surveyor, it is open to this court to conclude, despite the applicant s criticisms of the nature of the counterclaim, that the claim which is the subject of the counterclaim is genuine, has merit, and about which there are prospects of success. [23] Before, then, turning to matters of impecuniosity, of potential oppression and of potential stifling of the proceeding, a relevant factor is the proceeding s costs. Both sides of the record have led evidence that they have paid, or incurred, legal costs. On the part of the plaintiff there is an assertion of a sum in excess of $350,000.00 and on the defendants part, of about $500,000.00. It is, therefore a factor which is to be brought into account in conjunction with the other remaining relevant factors. [24] Although the decision in Robson appears to force a consideration of the r 672 factors as a very significant consideration, it appears to me that it is at this stage of the analysis (before a consideration of impecuniosity, oppression and stifling) that at least a preliminary conclusion should be reached about what might constitute, if it does, the justice of the case. [25] Where, as here, the second defendant has responded to the application as he would if he were simply the person behind the corporation but also where he has received under the assignment pursuant to the Deed benefits which would otherwise have been the subject of those considerations that apply to a corporation under r 671(a) of the UCPR, and where there is reason to believe that the first defendant would not have been able to pay the security for costs if ordered to pay them but also where the first defendant still has a financial interest in the contingent receipt of 30% of what is termed the net value realised, I conclude that it is proper to determine that, at least on a preliminary basis, the justice of the case triggers a need to examine the making of an order subject to a consideration of the remaining discretionary factors under r 672 that would apply if the order were to be made against the corporation rather than against a natural person. [26] This appears to me to reflect the analysis undertaken by Heydon J (although in dissent on the outcome) in Jeffery when considering cases involving security for costs. Analysing, in particular, the supposed immunity of impecunious litigants, Heydon J noted that mere impecuniosity is not an absolute barrier to awarding security for costs against a natural person, although it is a factor against doing so: at 117-118 [91]. He then surveyed relevant procedural rules in New South Wales which, like those in the UCPR, permitted an order for security for costs against a natural person in defined circumstances, and then proceeded to address additional instances, including where a plaintiff brings a case for the benefit of others, but not solely for that benefit : also at [91]. His overall conclusion was that the supposed
9 general principle that poverty is no bar to a litigant is a severely qualified one: at 118 [91]. [27] Hence, given that tentative conclusion, it is then necessary to consider the three remaining identified factors. [28] As already canvassed, there is some evidence, taken from the respondent s own affidavit, that he has little by way of realisable assets and that he has only limited borrowing capacity. But it does not show impecuniosity in the sense of having no available funds or funding. In striking a balance, the oppressive effect of an order for security for costs may be reduced by decreasing the amount of security required: see, though discussed in an appellate context, Partington v Pacific Link Housing Ltd 12 at [36] and [91]. As for potentially stifling the proceedings, as already canvassed, the fact that an order for security for costs might stifle proceedings is not a ground for refusing an order for security, although it does militate, powerfully, against the making of an order. Here, given the moderation of the amount to be ordered, in the circumstances where the respondent s counsel acknowledged that the respondent can t provide (security) and fund the preparation for trial (emphasis added), I conclude that the probable outcome is that a relatively small amount of security will not stifle the proceedings. [29] In Base 1 Projects, the Court of Appeal, after stating that it was well settled that an order for security for costs will not be made against an impecunious plaintiff who is a natural person except in limited circumstances, noted that, however, for some years it was unclear on the authorities whether the mere fact that a natural person standing behind a company was willing to be responsible for meeting an adverse costs order made against a corporate plaintiff, irrespective of the means or lack of means of that actual person, was enough to defeat an application that the corporate plaintiff provide security for costs: at [43]. The Court went on to refer to a review by Muir JA (with whom Holmes JA and Philippides J agreed) in Specialised Explosives Blasting & Training Pty Ltd v Huddy s Plant Hire Pty Ltd 13 (at [39]) in which he concluded, with reference to cited authority, that there is no propounded principle that where the shareholders or other persons interested in the outcome of the litigation offer to be personally liable for the plaintiff company s costs, an order for security should not be made and other circumstances need not be considered: at [44]. The Court then went on, again with reference to cited authority, to note an observation that if the plaintiff is impecunious and an order for security for costs may stifle his claim, that may very well be a powerful reason for not ordering security: at [45]. [30] It is of some importance here that any impecuniosity on the respondent s part has not been shown to have been caused by the respondent, for example, organising his affairs to ensure that his assets are beyond the reach of his creditors: see the cases canvassed by Philippides J in E&N Collins Enterprises Pty Ltd & Anor v Kingaroy Mall Pty Ltd & Ors 14 at [11]; and by Keane JA in Robson at [25]. 12 [2013] NSWCA 259. 13 [2009] QCA 254. 14 [2006] QSC 187.
10 [31] The last point to be considered is that which arises directly from Harpur v Ariadne Australia Ltd (No 2). 15 As remarked, recently, by Jackson J in JNJ Resources Pty Ltd v Crouch & Lyndon (a firm) (No 2), 16 it should be recognised that in two plaintiff cases against a defendant with but one set of costs, as a matter of discretion, an order for security for costs may not be made against one of the plaintiffs if the defendant has another individual plaintiff against whom any costs order will also be made, adding, to avoid confusion, that it should be clearly stated that this is a discretionary matter, not a reason why an order for security for costs must not be made: at [16]. Here, of course, the respondent to this application is an individual rather than a corporate plaintiff - though standing in quite unusual shoes - and, therefore, has made himself available for whatever he is worth : see Connolly J in Harpur at 532. [32] What, then, should be the outcome? This case does present a novel set of circumstances. It is borderline. There is an individual litigant who will be made to bear the costs if unsuccessful on his claim (by way of counterclaim). But this counterclaim is now to be determined in circumstances where security for costs may well have been formerly ordered for such causes of action (if not assigned). And, quite importantly, the circumstances are that the corporate plaintiff (now in administration) will receive some benefit from a successful outcome of the prosecution of that counterclaim. [33] Bearing all the particular factors in mind which do push the pendulum one way and then impel its return (at least to some extent) the decision that I make in this case is that there be a limited order for security for costs, alleviating it to the extent possible to avoid such an order being oppressive. Amount of security [34] The sum sought by the applicant/plaintiff is $144,375.00 (including GST) on a party and party basis. This, as acknowledged in the relevant affidavit, is really a reference to the standard basis. That figure is asserted to be 70% of the estimated costs in accordance with Supreme Court Scale. It was not put in contest by the respondent. [35] For his part, the respondent/second defendant has asserted that his solicitors have advised that his costs of trial are $230,000.00. No basis other than solicitor and own client is implied. He wishes to proceed to incur such costs for the 15 day trial already set down in October this year. [36] Given that the lesser financial advantage which would flow from the respondent to the first defendant (in administration) if the respondent were to be successful in his counterclaim, I intend to moderate that particular figure sought by the applicant to $20,000.00, as reflecting the discretionary factors taken in their own right, although obviously affected by the justice of the case requirement. As I have determined above, that figure should not stifle the counterclaim on the limited, but uncontested, information before me. 15 [1984] 2 Qd R 523. 16 [2014] QSC 137.
11 Order [37] With respect to the issue of security for costs sought by the plaintiff, as defendant to the second defendant s counterclaim, against the second defendant, as plaintiff by counterclaim, I will order that the second defendant provide security for the plaintiff s costs of the counterclaim up to the first day of trial in the amount of $20,000.00 by payment of that sum into Court, or the provision of a bank guarantee in a form satisfactory to the Registrar, on or before 21 days from the making of this order. I will further order that, failing provision of such security in accordance with the preceding order, the counterclaim is stayed until further order. As for costs of the security application, the costs of that application will be ordered to be costs in the cause that is the counterclaim. All other costs of the hearing on 29 August 2014 will be reserved to the trial, or earlier order.