New South Wales Supreme Court CITATION : Funds First Pty Ltd & 2 ors v Owners Corporation Strata Plan 66609 & 10 ors (No. 2) [2008] NSWSC 428 HEARING DATE(S) : 17 March 2008 JURISDICTION : Equity Division Expedition List JUDGMENT OF : Brereton J EX TEMPORE JUDGMENT DATE : 17 March 2008 DECISION : Motion for security dismissed with costs. CATCHWORDS : COSTS – Security for costs – corporate impecuniosity – where plaintiff is a corporate trustee – absence of evidence that plaintiff will have recourse to trust assets – where there is another plaintiff against whom security would not be ordered – where no real practical probability that costs order might be made against corporate plaintiff alone - where joinder of corporate plaintiff does not significantly expand case. LEGISLATION CITED : (NSW) Uniform Civil Procedure Rules, r 42.21 (CTH) Corporations Act 2001, s 1335 CATEGORY : Procedural and other rulings Beach Petroleum NL v Johnson [1992] FCA 110; (1992) 7 ACSR 203 Equity Access Ltd v Westpac Banking Corporation (1989) ATPR 40-972 KDL Building Pty Ltd v Mount [2006] NSWSC 474 CASES CITED : Lagarna Pty Ltd v Bridge Wholesale Acceptance Corporation (Australia) Ltd [1995] 1 VR 150 Laundry Coin-Wash Nominees Pty Ltd v Dunlop Olympic Ltd (1985) ATPR 40-584 Prestige Sunglasses Pty Ltd v Bernhaut Nominees Pty Ltd (1985) 9 FCR 13 Street v Luna Park Sydney Pty Ltd [2006] NSWSC 1317 World Class Alpacas Pty Ltd (ACN 056 236 947) v Ostrich Farms (Cook Islands) Ltd; De Vere & Chanesman [1997] FCA 1193 Fundsfirst Pty Ltd (first plaintiff) Cannes Management Pty Ltd (second plaintiff) Kerry Baranov (third plaintiff) Owners Corporation Strata Plan 66609 (first defendant) Greg Cook (second defendant) Phoung TH Nguyen (third defendant) PARTIES : Andrew Smith (fourth defendant) Ms B Stevens (fifth defendant) Joseph Jean Espriritu (sixth defendant) Leanne Marie Scanes (seventh defendant) Clive Mancey (eighth defendant) Dianne Mancey (ninth defendant) Ronald Wood (tenth defendant) R Yip (eleventh defendant) FILE NUMBER(S) : SC 4213/07 COUNSEL : Mr D A Priestley w Mr A Giurtalis (plaintiffs) Mr M W Sneddon (defendants) SOLICITORS : Browne & Co (plaintiffs) Macpherson Greenleaf (defendants) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION EXPEDITION LIST BRERETON J 17 March 2008 4213/07 Funds First Pty Ltd & 2 Ors v Owners Corporation Strata Plan & 10 Ors JUDGMENT 1 HIS HONOUR: In the substantive proceedings the plaintiffs Funds First Pty Limited, Cannes Management Pty Limited, and Kerry Baranov - who are proprietors of lots in strata plan 66609 - claim declarations that certain resolutions purportedly passed by a strata manager appointed to perform the functions of the Owners Corporation are void and of no effect. The defendants other than the Owners Corporation are the proprietors of other lots in the strata plan. The essential dispute in the case is whether the levies struck by the impugned resolutions, which raise funds for litigation costs incurred as a result of proceedings brought at the instance of the defendants, should be borne by the defendants' lots alone, or pro rata amongst all the unit holders (including the plaintiffs) according to their respective entitlements. 2 By Notice of Motion filed on 3 January 2008, the plaintiffs claimed, primarily, summary dismissal of the proceedings, or striking out of the statement of claim and, alternatively, security for costs. The primary claims have not been pursued, and only the claim for security now falls for consideration. 3 The application for security is made under (NSW) Uniform Civil Procedure Rules, r 42.21(1)(d), and/or (CTH) Corporations Act 2001, s 1335(1). In the context of this case, nothing turns on such fine distinctions as there may be between the two provisions. On an application for security for costs under either provision, three issues typically arise: the first is whether the ground referred to in the provision is established; the second is whether, if the ground is established, as a matter of discretion an order should be made; and the third is the quantum of any order to be made and the terms on which it might be made. 4 The first issue then, is whether the ground – which can conveniently be described as that of "corporate impecuniosity" – is established. As Von Doussa J has explained [in Beach Petroleum NL v Johnson [1992] FCA 110, [10]; (1992) 7 ACSR 203, 205], the power of the Court under s 1335 arises if credible evidence establishes that there is reason to believe there is a real chance that in events that can fairly be described as reasonably probable, the plaintiff corporation will be unable to pay the costs of the defendant on service of the allocatur, if judgment goes against it. That will be so even if, in other events which can also be fairly described as reasonably possible, the plaintiff corporation would be able to pay the costs – the degree of likelihood of the plaintiff corporation being unable to pay the costs being one of the circumstances that is taken into account in the exercise of the Court's discretion as to whether or not to make an order. 5 In this case, the defendants have not sought to prove, to any significant extent, the financial circumstances of the plaintiff. They have relied on the fact, as the evidence establishes, that the plaintiff is a trustee. Where a plaintiff is a trustee and its only asset is its right of indemnity as trustee against the trust assets, an applicant for security will be taken to have satisfied the onus of establishing that there is reason to believe that the plaintiff will be unable to pay a costs order if so ordered, unless the plaintiff can establish that it will have recourse to property or assets held by it on trust [Lagarna Pty Ltd v Bridge Wholesale Acceptance Corporation (Australia) Ltd [1995] 1 VR 150, 154; see also Laundry Coin-Wash Nominees Pty Ltd v Dunlop Olympic Ltd (1985) ATPR 40-584; Prestige Sunglasses Pty Ltd v Bernhaut Nominees Pty Ltd (1985) 9 FCR 13; World Class Alpacas Pty Ltd (ACN 056 236 947) v Ostrich Farms (Cook Islands) Ltd; De Vere & Chanesman [1997] FCA 1193]. As explained by Smithers J in Laundry Coin-Wash (at 46,729), this is because, where the only tangible assets of the plaintiff are held on trust for another entity, so that the plaintiff's solvency depends on its right of indemnity, the Court must bear in mind the difficulty which a successful defendant may encounter in attempting to execute in respect of an order for costs [see also Lagarna (at 154, Tadgell J); and Street v Luna Park Sydney Pty Ltd [2006] NSWSC 1317, [9]]. 6 In this case the evidence is, first, that Mr Mark Baranov – who was a director of Funds First, and the brother of the third plaintiff Kerry Baranov, and claims to be authorised by the second plaintiff as well as the third plaintiff to swear his affidavit of 22 August 2007 – deposes first that a company called Baracon Pty Limited, of which he was a director, was the trustee of a discretionary trust which developed the site, the subject of the relevant strata plan; secondly, that Funds First was subsequently appointed as trustee of that trust in place of Baracon; and thirdly, that the transfer of the subject real property from Baracon to Funds First records that the transfer was pursuant to a deed of retirement and appointment of new trustee. 7 In the absence of any contrary evidence, I am prepared to conclude that the defendants have established that Funds First is a corporate trustee; and I am also prepared to infer, in the absence of any further evidence, that its only asset is its right of indemnity as a trustee against the trust assets. In distinction from the circumstances in Street v Luna Park, there has been no undertaking or acknowledgment provided that the trustee would be permitted recourse to the assets of the trust to satisfy any adverse costs order. Accordingly, the defendants have established the first matter which they must establish, namely, corporate impecuniosity. 8 I turn then to the relevant discretionary factors, which were conveniently summarised by Hill J in Equity Access Ltd v Westpac Banking Corporation (1989) ATPR 40-972 at 50,635 [also see KDL Building Pty Ltd v Mount [2006] NSWSC 474, [12]-[19]]. I do not propose to review these exhaustively; ultimately, on balance, they are relatively equivocal, save for one which is decisive. 9 In short, while I would not find that the plaintiffs' case is a sham or brought other than bona fide – and I hasten to record that it was not suggested that it was – I would also not find that it was, prima facie, a manifestly strong one. In those circumstances, the prospects of success do not weigh significantly one way or the other on the application for security. As to the magnitude of risk that the plaintiff cannot satisfy an adverse costs order, the evidence really does not permit a conclusion, save to the extent that it would have been easy for Funds First to show, if it wished to do so, that that risk was a slight one, and it did not endeavour to do so. There is nothing before me which would support a conclusion that use of the power to order security would be oppressive or would stultify the plaintiffs' claim, nor is there anything that would support a conclusion that any impecuniosity of the plaintiff has been caused by the defendants. There are no apparent public interest aspects telling one way or the other, nor any evident special discretionary factors – save the presence of other plaintiffs, to which I shall separately come. Nor is it suggested that the application for security has been brought too late. 10 However, for the plaintiffs, it is argued that this is a case in which security should not be ordered against one corporate plaintiff, Funds First – even if security would be ordered if it were the only plaintiff – because there are other plaintiffs against whom an order for security would not be made and, indeed, is not sought. As to this, I considered the position in Street v Luna Park (at [27]-[28]): [27] It is undoubtedly relevant to the exercise of the discretion to order security that there is one or more individual co-plaintiffs against whom an order for security could not or would not be made [ Pearson v Naydler [1977] 1 WLR 899; Interwest Ltd v Tricontinental Corporation Ltd & Anor (1991) 5 ACSR 621, 635 (Ormiston J); Fiduciary Ltd & Ors v Morningstar Research Pty Ltd & Ors (2004) 208 ALR 564]. This appears to have originated with cases in which there was a plaintiff outside the jurisdiction (against whom security might be ordered) but also a plaintiff, albeit an impecunious one, within the jurisdiction. The view was taken that the defendant's position should not be improved by the mere circumstance that there was an additional plaintiff. In other words, as the defendant would not have been able to get an order for security against the impecunious plaintiff in the jurisdiction, it should be no better off by reason of the circumstance that a plaintiff outside the jurisdiction was also joined [ Sykes v Sykes (1869) LR 4 CP 645; D'Hormusgee & Co v Grey (1882) 10 QBD 13]. The rationale of these cases was examined in this court by Studdert J in Maples v Hughes [2002] NSWSC 617, in the course of which his Honour referred to Harpur v Ariadne Australia Ltd (No 2) [1984] 2 Qd R 523; (1984) 8 ACLR 835, a decision of the Queensland Full Court in which a natural person was joined with three companies as plaintiffs. The leading judgment was given by Connolly J who (at 841) having posed the question "What is the rule when there is more than one plaintiff", proceeded: The "two plaintiff" cases start with the situation in which one is out of the jurisdiction. Prima facie he ought to be ordered to provide security but his co-plaintiff is within the jurisdiction. In such a case it was considered that there was no ground for ordering security. See Sykes v Sykes (1869) 4 LR CP 645 at 648 per Byles J and Montague Smith J. This principle was held to apply even where the plaintiff within the jurisdiction was insolvent. I take the underlying reason to be that the defendant was really in no worse position than if he had been sued by a single plaintiff resident within the jurisdiction and insolvent. As Brett J remarked at 650, the cases show that, unless there is ground for making an order for security against all the plaintiffs, it cannot be made against any. 28 However, this is not an absolute rule, as appears from the judgment of Plowman J in John Bishop (Caterers) Ltd v The National Union Bank Ltd [1973] 1 All ER 707; see also Fiduciary Ltd v Morning Star Research . Where there is a complete identity between the corporate plaintiff and the individual plaintiff, so that all plaintiffs are suing in relation to one and the same defendant, and all plaintiffs must succeed or fail together, security will not ordinarily be ordered against only one of them [ Bishop , 709-710]. But where the various plaintiffs' claims have different elements and aspects, so that they will not all necessarily succeed or fail together, although the existence of individual plaintiffs is a factor that diminishes the defendant's claim to be entitled to security against the corporate plaintiff, it does not extinguish it [ Interwest Ltd v Tricontinental ]. And where the degree of overlap between the claim of the individual and corporate plaintiffs is comparatively small, such that separate orders for costs might be made in respect of each of the plaintiffs, it is usually appropriate that an order for security be made [ Bishop , 716; Fiduciary v Morning Star , 33-36]. 11 Coming to the application of those considerations to the present case, I accept Mr M W Sneddon's submission that, insofar as the pleading impugns the validity of the strata manager's decision (at paragraphs 30-32), that forms an apparently slight part of the case and is prima facie a difficult allegation to establish, and that I should focus on the main part of the pleading, which raises an estoppel case. Essentially, the plaintiffs allege that when the action in the Consumer Trader and Tenancy Tribunal was instituted – which resulted in the adverse costs orders, and the liabilities the subject of the impugned resolutions – representations were made by the defendants to the effect that they alone would be responsible for the costs and would not seek to visit them on the plaintiffs, and that the defendants are now estopped from propounding the impugned resolutions which have an effect contrary to what was represented. Mr Sneddon rightly points out that, on an estoppel case, each plaintiff does not sue as a joint plaintiff on the same cause of action, because while each may rely on similar facts, each separately has to prove reliance and detriment. 12 However, as I indicated in Street v Luna Park, even where there is not a complete identity between the corporate plaintiff and the individual plaintiff, such that it can be said that all plaintiffs are suing in relation to one and the same defendant and must succeed or fail together, the presence of a natural party plaintiff against whom security would not be ordered remains a relevant consideration. In the present case, while I accept that each plaintiff separately has to prove reliance and detriment, nonetheless, it seems to me, that if one plaintiff succeeds all must succeed: if the defendants were estopped as against any one of the plaintiffs from propounding the impugned resolutions, then the resolutions are void, even if the other plaintiffs do not make out their own separate cases. 13 Accordingly, it seems to me that, in distinction from Street v Luna Park, there is no realistic possibility of different outcomes as between each of the plaintiffs. There is certainly not, as there was in Street v Luna Park, the circumstance that the defence of the first plaintiff's case increases the complexity of the case and its nature. This is a case in which it can be said that the defendants are no worse off as a result of the joinder of the first plaintiff, and that the costs are not significantly increased by the inclusion of the first plaintiff amongst the plaintiffs. The inclusion of the first plaintiff does not substantially enlarge the case that would have to be run were the second and third plaintiffs the only plaintiffs. 14 It was submitted by Mr Sneddon that, even if the defendants ultimately failed because of the case brought by the third plaintiff, although the first plaintiff failed to make out itself a case on reliance or detriment, that an order for costs would be made against the first plaintiff. Prima facie, I think that a very unlikely outcome, in circumstances where the parties will be commonly represented, and where the inclusion of the additional plaintiffs does not, in substance, expand the case. Ultimately, as Mr D A Priestley submitted, the defendants are not exposed to a situation where, as a matter of real practical probability or likelihood, an order for costs might be made against Funds First alone so that the defendants would be potentially left out of pocket for costs. 15 Having reached that conclusion, it is unnecessary to determine conclusively the quantum of any order. Mr McPherson's assessment of costs to date and the further costs of the hearing, even if only junior counsel were briefed, at about $80,000, was not challenged. The motion sought an order for $60,000, and that I think would have been an appropriate amount of an order for security, had I been satisfied that an order should be made. 16 However, for the reasons advanced, I decline to make an order for security. I order that the Notice of Motion be dismissed with costs. I confirm the provisional fixture of the matter on 25 March 2008 for one day before the Chief Judge. I order that the exhibits be returned. ********** 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.