Chivada Pty Limited v Listamar Pty Limited [1999] NSWSC 398

New South Wales Supreme Court CITATION : Chivada Pty Limited v Listamar Pty Limited [1999] NSWSC 398 CURRENT JURISDICTION : Equity Division FILE NUMBER(S) : 1804/97 HEARING DATE(S) : 30 April 1999 JUDGMENT DATE : 30 April 1999

Chivada Pty Limited (P) Listamar Pty Limited (D) PARTIES : Helen Dyball (D2) W P Services & Installation (D3) Robert Dyball (D4) JUDGMENT OF : Master McLaughlin

COUNSEL : Ms. R. Rana (P) Ms. D. O'Dowd (D) SOLICITORS : Gadens Ridgeway (P) Moore & Associates (D) CATCHWORDS : ACTS CITED : Corporations Law DECISION :

SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

MASTER McLAUGHLIN

Friday, 30 April 1999

1804/97 CHIVADA PTY LIMITED -v- LISTAMAR PTY LIMITED & ORS JUDGMENT

1 MASTER: There is presently before the Court a Notice of Motion filed by the defendants, Listamar Pty Ltd., Helen Dyball and WP Services & Installation Pty Ltd., on 27 May 1997. By that Notice of Motion the defendants seek a review of the orders made by Registrar Berecry on 20 May 1997 and an order that the plaintiff give such security as the Court thinks fit for the costs of the defendantS of and incidental to the proceedings. The defendants also seek consequential orders. 2 The orders made by the Registrar on 20 May 1997 were made in an application by the present defendants for security for costs. The Registrar on that day dismissed the application of the defendants, that the plaintiff provide security for the costs of the defendants, and the Registrar also ordered the defendants to pay the costs of the plaintiff of the application before him. 3 It will be noted that the present application for review of the Registrar's decision was filed on 27 May 1997. At least part of the very lengthy delay between the filing of that Notice of Motion and its hearing this day is due to problems which the parties encountered in obtaining a transcript of the ex tempore oral judgment delivered by the Registrar on 20 May 1997. That delay, however, is not of any particular significance to the present application which has proceeded substantively as a hearing of an application for security for the costs of the defendants. 4 The applicant defendants bring the present application pursuant to the provisions of Part 53 rule 2 of the Supreme Court Rules and pursuant to the provisions of section 1335 of the Corporations Law. Subrule (1) of Part 53, rule 2 provides relevantly: Where in any proceedings, it appears to the Court on the application of a defendant --- (e) that there is reason to believe that a plaintiff being a body corporate will be unable to pay the costs of the defendant if ordered to do so, the Court may order that plaintiff to give such security as the Court thinks fit for the costs of the defendant of and incidental to the proceedings and that the proceedings be stayed until the security is given. 5 Subsection (1) of section 1335 of the Corporations Law is to similar effect. That subsection provides: 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 the proceedings until the security is given. 6 The substantive proceedings relate to a dispute between the plaintiff on the one hand and the defendants on the other concerning the sale of a business by the defendants to the plaintiff and the subsequent resale of the same business by the plaintiff back to the defendants. 7 For the purposes of the present application it is not necessary to set forth the details of the substantive proceedings or of their procedural history. Suffice it to say, however, that there is no suggestion by the defendants in the present application that the substantive claim of the plaintiff should be regarded as one which is hopeless or one which is totally without merit. The applicant defendants bring the present application on the basis that, so it is submitted, the plaintiff is a $2 company, and that its assets are such, so it is submitted, that if it loses the substantive proceedings and a costs order is made against it, then the successful defendant will have no means of recovering those costs and they will be left to bear their own costs completely. 8 The plaintiff, in resisting the application for security for costs, points to evidence relating to the shareholders and directors of the plaintiff company and submits that those persons are fully able to meet any costs order which might be made against the plaintiff. I am prepared to accept that their financial resources are such that they could meet such a costs order if they choose to do so. There is no legal obligation upon the shareholders or the directors to meet any costs order which might be made against the plaintiff company. There is no certainty that, if the plaintiff were unsuccessful in the substantive proceedings and a costs order were made against it, its shareholders and directors would choose to pay those costs. 9 The evidence which has been placed before the Court concerning the financial position of the plaintiff itself includes profit and loss statements for the year ended 30 June 1997 and for the period July to December 1998. Those profit and loss statements disclose that in the year ended 30 June 1997 the plaintiff made a net profit of almost $16,000 whilst in the preceding year it made a loss exceeding $73,000. For the period of six months in the latter half of 1998 the plaintiff had what is described as a net income of $2100. Those figures are all very well, but they do not really assist the defendants if the defendants ultimately are successful in obtaining a costs order against the plaintiff. Of much more significance is the balance sheet of the plaintiff company as at 30 June 1997. That balance sheet discloses a total deficit for the year ended 30 June 1997 of $57,203. One of the elements comprising that balance sheet and a factor in the total deficit is the item disclosed as shareholders loans which total for that year $184,668, being an increase of almost $20,000 over the same item for the preceding year, which was in an amount of $166,000. 10 It will be appreciated that the shareholders (being the gentlemen who on behalf of the plaintiff, so it was submitted, had the personal financial ability to meet any costs orders) are, of course, fully entitled whenever they so desire to call in those loans. The consequence would be that the financial situation of the plaintiff would be one of insolvency and there would be even less likelihood that any costs order made against the plaintiff would be recovered by the defendants. 11 In an application of this sort the Court must, in exercising its unfettered discretion, look, not only to the situation in which the defendants would find themselves if they were successful in obtaining a costs order against the plaintiff, but also to the effect upon the plaintiff of any order for security which the Court might at this stage of proceedings make against the plaintiff. There is, however, in the instant case no suggestion on behalf of the plaintiff that, if an order for security were to be made, it would have the effect of stultifying the substantive proceedings or of preventing the plaintiff from bringing those proceedings to a final hearing. Indeed, the submissions made on behalf of the plaintiff concerning the financial resources of those standing behind the plaintiff would suggest entirely to the contrary --- that if an order for security for costs were to be made there would be sufficient financial resources available from the shareholders of the plaintiff and there would be no problem in such security being provided. 12 In all the circumstances, I am satisfied that this is an appropriate case in which the Court should order security. There is evidence placed before the Court by the solicitor for the defendants concerning the costs expected to be incurred by the defendants in bringing the matter on for hearing. The amount of those costs is shown in the evidence as totalling $26,000. 13 No evidence from the plaintiff has been placed before the Court to suggest that the defendants' evidence as to that figure is inaccurate or unreliable or that some other, and lesser, figure should be adopted. 14 Accordingly, I propose to order that the plaintiff provide security in the sum of $26,000 and that the proceedings be stayed until that security is provided. 15 I make the following orders: 1. I order that the orders made by the Registrar on 20 May 1997 be discharged. 2. I order that the plaintiff provide security for the costs of the defendants in the sum of $26,000, such security be in a form acceptable to the Registrar and that the proceedings be stayed until such security is given. 3. I order that the plaintiff pay the costs of the defendants of the Notice of Motion filed by the defendants on 27 May 1997 and of the Notice of Motion filed by the defendants on 1 May 1997. 4. I grant leave to the defendants to proceed forthwith to assessment of the foregoing costs.