Mulwala Hotel Group Pty Ltd v Nyora1 Pty Ltd [2023] NSWSC 1514

Supreme Court New South Wales

Medium Neutral Citation: Mulwala Hotel Group Pty Ltd v Nyora1 Pty Ltd [2023] NSWSC 1514 Hearing dates: 05 December 2023 Date of orders: 06 December 2023 Decision date: 06 December 2023 Jurisdiction: Equity Before: Elkaim AJ Decision: See paragraph 45 Catchwords: COSTS — security for costs — whether claim defensive — merit and strength of plaintiff's claim — undertaking proffered unreliable Legislation Cited: Conveyancing Act 1919 (NSW), s 66G Corporations Act 2001 (Cth), s 1335 Uniform Civil Procedure Rules 2005 (NSW), r 42.21 Cases Cited: Caringbah Business & Sports Club Ltd v Caringbah Investments Pty Ltd [2014] NSWSC 548 Fire containment Pty Ltd v Peter Robins & Ors [2011] NSWSC 444 KP Cable investments Pty Ltd v Meltglow Pty Ltd & Ors (1995) 56 FCR 189 Pioneer Park Pty Ltd (In liq) & Ors v Australia and New Zealand Banking Group Limited [2007] NSWCA 344 Category: Procedural rulings Parties: Mulwala Hotel Group Pty Ltd (Plaintiff) Nyora1 Pty Ltd (Defendant) Representation: Counsel: Mr H Stowe (Plaintiff) Mr C Clarke (Plaintiff) Mr M Sheldon (Defendant)

Solicitors: Litton Legal (Plaintiff) Lazarus Legal Group (Defendant) File Number(s): 2023/250285

JUDGMENT 1. On 30 October 2023, the defendant filed a notice of motion seeking an order that the plaintiff provide security for costs. 2. The defendant's application is supported by an affidavit of Mr Mark Lazarus, affirmed on 30 October 2023. Mr Lazarus is the defendant's solicitor. Based on his litigation experience he has assessed likely costs at $105,567. This is the sum requested by the defendant as security. 3. The plaintiff relies on four affidavits: Ms Rebecca Litton sworn on 23 November 2023 and three affidavits of Mr Senthilkumar Palanisamy sworn on 23 November, 28 November and 1 December 2023 respectively. 4. Ms Litton is the plaintiff's solicitor. Mr Palanisamy is a director of the plaintiff company. 5. The proceedings commenced with the filing of a statement of claim dated 6 September 2023. According to this document the defendant owns a property in Mulwala upon which is situated the Royal Mail Hotel Mulwala. Mulwala is a country town situated in the Riverina district of NSW. The plaintiff, then under different ownership, leased the hotel from the defendant on 19 October 2021. Subject to some renewal options, the term of the lease is due to expire on 31 August 2026. 6. In June 2023, the plaintiff company was sold to Mr Palanisamy and a Ms Govindarajan. The terms of the sale included an amount to be paid by the sellers to the plaintiff's bank account on account of any outstanding rent and outgoings. No such amount was paid. This left the plaintiff in debt to the defendant. 7. In July 2023, the defendant claimed a sum of money ($43,435.23) from the plaintiff, made up of outstanding expenses, such as arrears of rent, outstanding rates, unpaid insurance premiums and legal fees. 8. The $43,435.23 was not paid so that the defendant served a Notice of Breach on one of the previous shareholders of the plaintiff company. This shareholder, a Mr Blackney, did not pass on the notice to the new owners of the plaintiff. The new owners did not become aware of the notice until 2 August 2023. 9. After becoming aware of the notice, the plaintiff paid the amounts alleged in the notice so that by 14 August 2023 there were no outstanding debts owed to the defendant. 10. However, also on 2 August 2023, the defendant had re-entered the property and purported to terminate the lease. According to the plaintiff, the defendant did not allow a reasonable time for the demands in the notice of breach to be met. Accordingly, the defendant was not entitled to re-enter the premises or to terminate the lease. 11. The improper termination of the lease, says the plaintiff, amounted to a breach of the lease giving rise to damages. The plaintiff also claims for relief against forfeiture arising from the termination of the lease. 12. A defence to the statement of claim was filed on 29 September 2023. The defence says that the defendant was lawfully entitled to re-enter the premises and to terminate the lease. At the same time as filing a defence, the defendant also filed a cross-claim, effectively seeking declarations that the lease was validly terminated on 2 August 2023, or alternatively on 22 September 2023, and seeking judgment for possession of the premises. 13. A defence to the cross-claim was filed on 20 October 2023. 14. Security for costs is sought pursuant to r 42.21 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) or alternatively s 1335 of the Corporations Act 2001 (Cth). The plaintiff does not dispute the defendant's qualification for an order, but made four points in response: 1. one of the directors of the plaintiff, Mr Palanisamy, has given an undertaking to pay any adverse costs order made against the plaintiff. Mr Palanisamy has net assets of $1,200,000 which well encompasses the $105,567 sought by the plaintiff; 2. the plaintiff's case has merit. It "has a strong claim for relief against forfeiture"; 3. the plaintiff has made a number of offers by way of compromise, such that success by the defendant might not entitle the defendant to a costs order; and 4. the plaintiff's claim is mostly defensive. 1. In respect of the claim being defensive I was referred to Caringbah Business & Sports Club Ltd v Caringbah Investments Pty Ltd [2014] NSWSC 548 where Stevenson J referred to this element as being a factor against the ordering of security at [28]-[29]: "Mr Cheshire drew my attention to authorities which suggest that where, as a matter of commercial reality, the defendant and not the plaintiff is the 'aggressor', security will not normally be ordered; see, for example, Classic Ceramic Importers Pty Ltd v Ceramica Antiga SA (1994) 13 ACSR 263. In Prynew Pty Ltd v Nemeth [2010] NSWCA 94, Beazley JA said at [20]: 'Whether a plaintiff is participating in proceedings defensively is a factor to be taken into account in the exercise of the court's discretion in determining whether or not to order security: see KP Cable Investments v Meltglow; Heller Factors Pty Ltd v John Arnold's Surf Shop Pty Ltd (1979) ACLC 32, 446 per Mitchell J at 32-449; Sydmar Pty Ltd v Statewise Developments Pty Ltd (1987) 5 ACLC 480 at 484. As I stated in KP Cable Investments v Meltglow: Security will ordinarily be ordered against a party who is in substance a plaintiff, and an order ought not to be made against parties who are defending themselves and thus forced to litigate: see Interwest Ltd v Tricontinental Corporation Ltd (1991) 5 ACSR 621 at 626; Heller Factors Pty Ltd v John Arnold's Surf Shop; Sydmar Pty Ltd v Statewise Developments Pty Ltd; Weily's Quarries v Devine Shipping Pty Ltd [1994] TASSC 76; (1994) 14 ACSR 186. ... Proceedings have been characterised as defensive where ... 'they are ... either directly resisting proceedings already brought or seeking to 'halt self-help procedures': per Ormiston J in Interwest at 627.'" 1. A statement of the relevant principles was provided by Beazley J (as her Excellency then was) in KP Cable investments Pty Ltd v Meltglow Pty Ltd & Ors (1995) 56 FCR 189. Here is a summary of relevant considerations: 1. an application for security for costs should be brought without undue delay; 2. regard may be given to the apparent strength of the plaintiff's case; 3. whether the application is oppressive so as to nullify a right to sue; and 4. whether there are persons standing behind the plaintiff who could provide security and who are likely to benefit from the litigation. 1. It was not suggested that the application was brought with undue delay. 2. One of the purposes behind Mr Palanisamy's affidavits is to show that the plaintiff does not have much in the way of funds. However, no submission was made that the proceedings would be stultified by an order for security for costs. 3. At the same time however, Mr Palanisamy seems anxious to show that he personally has sufficient assets to meet any adverse costs order. He apparently has a net worth of $1.2 million. This fact is double-edged. It reinforces the plaintiff's claim that there is no need for security, but at the same time suggests a source of funds which might be utilised to provide security. 4. It is apparent that if the plaintiff is unsuccessful, it will be unable to pay the defendant's costs. This is a threshold point under both r 42.21 of the UCPR and s 1335 of the Corporations Act. The plaintiff conceded the threshold had been met. 5. A prima facie sound case should not be halted by an inability to provide security. As stated by Hallen AsJ (as his Honour then was) in Fire Containment Pty Ltd v Peter Robins & Ors [2011] NSWSC 444, at [25]: "The discretion should be exercised in all of the circumstances of the particular case so as to attempt to achieve a balance between ensuring that protection is provided to the defendant and, on the other hand, avoiding injustice to the plaintiff by unnecessarily shutting it out or otherwise stultifying it in the conduct of litigation: Buckley v Bennell Design & Construction Pty Limited (1974) 1 ACLR 301; Bank of Western Australia v Daleport at [22]." 1. Clearly, I have a discretion which I should exercise to achieve a just result within the bounds of risk management (Fire Containment at [23]). 2. To re-cap to a degree, the plaintiff submitted: 1. it's claim was defensive; 2. an undertaking from Mr Palanisamy had been proffered; and 3. it's claim had merit. 1. The defendant countered: 1. the plaintiff's claim was not defensive; 2. the plaintiff's claim had a substantial component of an action for damages; 3. the undertaking was unreliable; 4. the plaintiff had funds available, through a bank re-draw facility to pay the security; and 5. the plaintiff's claim, both for damages and relief from forfeiture, was not as strong as asserted. 1. To the extent that the plaintiff's claim seeks relief from forfeiture, I think it is defensive. The claim for damages is obviously not defensive. 2. The proffered undertaking is in these terms: "Senthilkumar Veethampatti Palanisamy irrevocably and unconditionally undertakes to the court to assume personal liability for any judgment debt in respect of an adverse costs order against the Plaintiff in respect of the Plaintiff's claim, if the Plaintiff has failed to pay that judgment debt within 28 days of judgment." 1. The defendant accepted the form of the undertaking as appropriate but said the undertaking should not be accepted for a number of reasons. 2. First, the affidavits of Mr Palanisamy suggested an unsatisfactory disclosure of his financial position. For example, in his affidavit sworn on 23 November 2023 he said that he was co-owner of the property in which he lived and co-owner of an investment property. In his affidavit sworn on 28 November 2023, Mr Palanisamy disclosed that he had discovered he was also the joint owner of four other investment properties. 3. A further example is that in the former affidavit Mr Palanisamy stated that $268,000 was owing on the mortgage of the family home. However, in the latter affidavit he said this was incorrect and in fact he had a re-draw facility in which $268,619.34 was available. The defendant submitted that not only was this fact an indication of Mr Palanisamy's unreliability but also identified an amount of money from which security for costs could be found. 4. Second, the defendant pointed out that there was no evidence from any co-owner of any of the properties partially owned by Mr Palanisamy, to the effect that consent would be forthcoming for the sale of a property to honour the undertaking. A submission, made by the plaintiff, that resort could be had to s 66G of the Conveyancing Act 1919 (NSW), to compel sale, was rejected as involving substantial time and cost. 5. Third, the defendant referred to the terms of the mortgage of at least one of the properties, submitting that release of the security by the bank might involve the mortgagee claiming amounts owed by any of the mortgagors. This could affect the amount of equity available to Mr Palanisamy to meet a costs order. 6. The plaintiff said the mortgage was a standard form document which would be unlikely to produce the result contemplated by the defendant. I think the defendant is probably theoretically correct, but, unlike the first two points, I do not see this point as being of much significance in exercising my discretion. 7. The defendant submitted that the plaintiff's claims did not have the strength or merit that was asserted. This was perhaps demonstrated by the fact that during the course of the hearing of the motion the plaintiff was prepared to abandon its claim for damages as a condition of there being no order for security for costs. The plaintiff's response was that gaining re-entry to the premises, with a potentially long period of occupation available, was the most significant part of the claim. 8. In this regard the defendant submitted that the option to renew was not necessarily open to the plaintiff. This point, like the competing assertions on the strength of the respective claims, is not one that I should decide. Suffice to say that both arguments are open, and again like the merits generally, both sides have cases capable of success. 9. In relation to the estimate of costs, the plaintiff said that the estimate given by Mr Lazarus should be regarded as the top of the range and pointed out some constituent parts which might be seen as excessive. At the same time, it was conceded that the figures provided by Ms Litton ($41,310) represented the lower end of the range. 10. It was submitted that it was "usual," if security for costs was ordered, for the amount to be below that claimed by the applicant. I was referred to Pioneer Park Pty Ltd (In liq) & Ors v Australia and New Zealand Banking Group Limited [2007] NSWCA 344 at [66]: "Further, it is usual to fix an amount by way of security which is below the applicant's estimation, so as not to impose an undue burden on the corporate appellant or plaintiff and so that the applicant will bear the risk of over-estimation." 1. In the exercise of my discretion, I think security for costs should be ordered. The threshold for security has been passed and, most significantly, there is no assertion that an order for security would stultify the plaintiff's claim. 2. If security is to be ordered, the question that then arises is whether the undertaking of itself, is sufficient. It was submitted that the bare making of the undertaking was itself a powerful factor. However, at the same time, it must be recognised that where the evidence discloses a degree of unreliability in the person giving the undertaking, that fact is a relevant fact. In this case, as pointed out above, there are some significant issues arising from the changing picture of assets through the affidavit evidence of Mr Palanisamy. 3. An important constituent in the changes is the revelation of an amount available through the re-draw facility which could provide a source for the provision of security. 4. In discussion with counsel, I contemplated the following two alternatives: 1. there be a combination of the undertaking and the payment of an amount (necessarily more modest than would otherwise be contemplated); or 2. the undertaking be accepted, but there be a condition that the statement of claim be amended to delete the damages claim. 1. I have decided that neither alternative is appropriate. I think the security should be in one form only and I do not think that it would be fair to the plaintiff to dictate the abandonment of what might be a sound and significant claim. 2. In summary: 1. there is no issue that the plaintiff could not meet an adverse costs order; 2. it is not submitted that an order for security for costs would stultify the plaintiff's claim; 3. the reliability of the undertaking proffered by Mr Palanisamy is questionable; 4. enforcement of the undertaking, through the sale of one or more of the investment properties, could be a lengthy and expensive exercise; 5. there is a source of funds from which a cash payment could be made (the re-draw facility); and 6. the defensive nature of part of the plaintiff's claim should be taken into account in setting the amount of the security. 1. Based on the above factors I think security should be ordered in the sum of $50,000, payable into court within 28 days. 2. As to the costs of the motion, any payment was strenuously opposed. Although the defendant has not succeeded in achieving the amount requested, it has succeeded in obtaining an order for security for costs. I think the plaintiff should pay the costs of the motion. 3. I make the following orders: 1. The plaintiff provide security for costs in the sum of $50,000 by payment of this sum into court or by bank guarantee within 28 days. 2. Failing compliance with Order (1), the proceedings be stayed until further order. 3. The plaintiff is to pay the defendant's costs of the notice of motion filed on 30 October 2023. 4. The parties have leave to file, by 4pm on 8 December 2023, any written submissions requesting a variation of Order 3. 5. Any application made pursuant to Order 4 is to be decided on the papers. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 06 December 2023