New South Wales Supreme Court CITATION : Bank of Western Australia v Daleport [2010] NSWSC 1207 HEARING DATE(S) : 14 September 2010 JUDGMENT DATE : 28 October 2010 JURISDICTION : Common Law Division JUDGMENT OF : Hislop J (1) The first defendant (Daleport Pty Limited) provide security for the plaintiff's costs in relation to the amended cross claim in the sum of $60,000 in a form approved and satisfactory to a registrar of the court or otherwise to the satisfaction of the plaintiff within 21 days. (2) The amended cross claim filed by the first defendant on 10 August 2009 be stayed until the provision of the security ordered in para (1) hereof. DECISION : (3) The plaintiff's costs of the notice of motion dated 31 August 2010 to be the plaintiff's costs in the cause. (4) Reserve liberty to apply for dismissal of the amended cross claim in the event security is not provided as ordered in para (1) hereof. (5) The proceedings be listed for directions before the registrar on 23 November 2010. CATCHWORDS : PRACTICE AND PROCEDURE - security for costs - corporation - cross claim. Uniform Civil Procedure Rules 2005 LEGISLATION CITED : Trade Practices Act 1974 Corporations Act 2001 Livingspring Pty Limited v Kliger Partners [2008] VSCA 93, (2008) 66 ACSR 455 Willey v Synan [1935] HCA 76, (1935) 54 CLR 175 Bevwizz Group Pty Limited v Transport Solutions Pty Limited [2008] NSWSC 1399 Momentum Mortgages Limited & Equity Trustees v Elmowy [2010] NSWSC 950 Buckley v Bennell Design & Construction Pty Limited (1974) 1 ACLR 301 CASES CITED : Commonwealth v Cable Water Skiing (Aust) Limited (1994) 14 ACSR 760 Morris v Hanley [2001] NSWCA 374 Capital Finance Australia Limited v Citadel Property Group (Rockdale No 1) Pty Limited [2009] NSWCA 196 Deangrove Pty Limited v Commonwealth Bank of Australia [2001] FCA 173, (2001) 108 FCR 77 Brundza v Robbie & Co (No 2) (1952) 88 CLR 171 Sir Lindsay Parkinson & Co v Triplan Limited (1973) 1 QB 609 Bank of Western Australia Limited (Plaintiff) PARTIES : Daleport Pty Limited (in liquidation) (1st Defendant) Alexander Raymond Walton (2nd Defendant) FILE NUMBER(S) : SC 2008/287869 COUNSEL : P. Dowdy (Plaintiff) B. Ledger (Sol) (Defendants) SOLICITORS : Gadens Laywers (Plaintiff) Ledger & Co Lawyers (Defendants) IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION HISLOP J Thursday 28 October 2010 2008/287869 BANK OF WESTERN AUSTRALIA LIMITED v DALEPORT PTY LIMITED (IN RECEIVERSHIP) JUDGMENT Introduction 1 The plaintiff, by notice of motion filed on 31 August 2010, sought orders that: 1. The first defendant provide security in such manner as the court thinks fit, for the plaintiff's costs in the sum of $165,290 (or such sum as the court thinks appropriate) within seven days of the date of this order. 2. Pursuant to r 42.21 of the Uniform Civil Procedure Rules and/or s 1335 of the Corporations Act 2001 (Cth) the amended cross claim by the first defendant filed on 10 August 2009 be stayed until the security is given. 3. If order 1 is not complied with, the first defendant's amended cross claim be dismissed. 4. Further or in the alternative to orders 1 to 3 above, an order restraining the second defendant from causing the first defendant to prosecute any cross claim herein or otherwise dissipate the assets of the first defendant. 5. Further or in the alternative to orders 1 to 4 above, an order restraining the second defendant from prosecuting any cross claim in the name of the first defendant or otherwise to dissipate the assets of the first defendant without first: (a) indemnifying the first defendant in respect of any liability for costs in this proceeding; and (b) providing security for that indemnity in such amount as may be ordered by the court. 6 Costs. 2 The orders sought by the plaintiff were opposed by the defendants. Background 3 The plaintiff, in its statement of claim filed on 22 October 2008, sought judgment against the first defendant for moneys allegedly owing to it under commercial advance facilities, a bank guarantee facility and a home loan advance. The amount claimed was $14,515,652.89. The statement of claim also sought the same amount from the second defendant based on his alleged unlimited guarantee of the loans to the first defendant. The second defendant is the sole director and shareholder of the first defendant. 4 The first defendant relied upon an amended defence and an amended cross claim. It asserted, primarily, that the plaintiff orally represented that it would finance all three stages of a development at Leura and would automatically roll over the loan facilities until the development was complete. The plaintiff did not do so. The first defendant seeks to set aside the loan facilities and to recover damages under ss 82 and 87 of the Trade Practices Act 1974. The second defendant has also filed an amended defence and cross claim against the plaintiff. The legislation 5 Section 1335(1) of the Corporations Act 2001 provides: "(1) 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 proceedings until the security is given." 6 UCPR 42.21 provides: "(1) If, in any proceedings, it appears to the court on the application of a defendant… (d) that there is reason to believe that a plaintiff, being a corporation, will be unable to pay the costs of the defendant if ordered to do so… the court may order the plaintiff to give such security as the court thinks fit, in such manner as the court directs, for the defendant's costs of the proceedings and that the proceedings be stayed until the security is given. (2) Security for costs is to be given in such manner, at such time and on such terms (if any) as the court may by order direct. (3) If the plaintiff fails to comply with an order under this rule, the court may order that the proceeding on the plaintiff's claim for relief in the proceedings be dismissed. (4) This rule does not affect the provisions of any Act under which the court may require security for costs to be given." 7 In Livingspring Pty Limited v Kliger Partners [2008] VSCA 93, (2008) 66 ACSR 455 at 458 it was stated "the applicable principles have been developed — and applied — on the assumption that they apply equally to the rule of court and to the statutory provision." This was not controversial and I will refer only to the terms of UCPR hereafter. The evidence 8 In September 2008 the plaintiff caused three receivers to be appointed to the first defendant. The plaintiff relies upon the affidavit evidence of Mr Strawbridge, one of the receivers, sworn on 13 September 2010 and the affidavits of Mr Bates, a partner in the firm of solicitors retained by the plaintiff, sworn on 31 August 2010 and 8 and 9 September 2010. 9 The defendants rely upon the affidavit evidence of their solicitor, Mr Ledger, sworn on 3 and 14 September 2010. No deponent was cross examined upon his affidavit. The issues 10 A number of issues arise for determination. Two of these (A and B) relate essentially to threshold matters, the remainder relate to the exercise of the court's discretion. The issues are identified and discussed hereunder. A. Was the first defendant "a plaintiff" for the purposes of UCPR 42.21? 11 "Plaintiff" is not used in a restrictive way. In Willey v Synan [1935] HCA 76, (1935) 54 CLR 175 the plaintiff was compelled to litigate by the Collector of Customs in order to avoid losing his right to certain coins. Dixon J, in determining whether Willey was a plaintiff in the true sense, used the expression "attacker" or "actor". The High Court determined he was, in substance, really a defendant, not a plaintiff even though the title of the proceedings listed him as a plaintiff. The court refused to make an order for security for costs. 12 In Bevwizz Group Pty Limited v Transport Solutions Pty Limited [2008] NSWSC 1399 at [18] Brereton J said, following an analysis of the authorities: "The position therefore seems to me to be that, as a matter of jurisdiction, the reference in the section and the rule to 'plaintiff' extends to encompass a cross-claimant. However, as a matter of discretion the court will not make an order against a cross-claimant where the cross-claim arises out of the same matters as the claim and is purely by way of defence. If it extends beyond being purely by way of defence, then the court will have regard to the overall nature of the proceeding and the cross-claim to see whether it can be said that in truth the cross-claimant has become, in substance, a plaintiff." 13 The first defendant in its amended cross claim repeated and relied upon the allegations made in the amended defence save in respect of the relief sought. The claim for damages made in the amended cross claim was quantified in particulars of damage furnished on 26 July 2010. The total sum claimed was $87,148,506.72. 14 The plaintiff submitted that with respect to the claim for $87 million there was one obvious offensive attacker and that was the first defendant. As regards that claim, the first defendant was in the position of a "plaintiff" and susceptible to have an order for security for costs made against it. 15 The defendants submitted that the first defendant was in substance and form a defendant not a plaintiff. This was evidenced by the fact that the bank had commenced the proceedings and thereby compelled the first defendant to defend itself and "the cause of action in the cross claim is the defence, ie allegations of 'unconscionable conduct by the bank and misleading and deceptive conduct by the bank' are pleaded in the defence as a shield and then repeated and relied on in the cross claim as a sword." Accordingly, the first defendant was in effect not a plaintiff but a defendant. On that basis, no order for security for costs could be made. 16 In my opinion, the cross claim arises out of the same matters as the claim. However, it extends beyond being purely defensive and seeks to claim substantial damages far exceeding any alleged liability to the plaintiff. That claim will involve the plaintiff incurring costs which it would not have incurred had the cross claim been confined to matters relating to the defence of the plaintiff's claim. The first defendant has become, in substance, a plaintiff to the extent of the damages claimed by it and is, to that extent, susceptible to an order for security for costs. Any such order, however, would not include security for any part of the costs incurred in the defence of the proceedings. B. Is there reason to believe the first defendant would be unable to pay the costs of the plaintiff if ordered to do so? 17 Rule 42.21 UCPR requires the applicant to establish no more than that there is "reason to believe the respondent would be unable" to meet any costs order made against it rather than that it would not be able to meet such an order – Momentum Mortgages Limited & Equity Trustees v Elmowy [2010] NSWSC 950. 18 The evidence adduced in the affidavit of Mr Strawbridge is that after reviewing the records he concluded the first defendant has no appreciable share capital, was not trading, was making no profit, all of the security properties, save one, had been sold, there were no other substantial assets, the remaining property was advertised for sale but the likely sale price would be significantly less than the debt of approximately $11 million owed to the plaintiff. 19 The defendants referred to evidence as to the bank's valuation of the security properties as at 12 December 2007. They demonstrated that using these figures the first defendant would not be insolvent. However, the figures were historical. All but one of the properties had since been sold, all for less than those figures. When regard is had to the amounts actually realised, and that likely to be realised for the remaining property, it is clear that the debt to the plaintiff would not be met. 20 No evidence was adduced that the second defendant would make funds available to satisfy any order for costs which was made against the first defendant. The second defendant gave no evidence and the only evidence as to his financial circumstances was provided by the plaintiff to the effect that real property searches against his name were negative. 21 In my opinion, the evidence establishes that there is reason to believe the first defendant would be unable to pay the costs of the plaintiff if ordered to do so. C. The discretion 22 The discretion to order security is to 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 a 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. The defendants' solicitor stated that he did not wish to get into a stultification argument as that was not part of the submissions. Various discretionary matters relied upon by the defendants are discussed hereunder. The second defendant's liability 23 It was submitted for the defendants that no order should be made as the second defendant's defence was based upon the defence of the first defendant and that, accordingly, the second defendant was liable jointly and severably with the first defendant for any costs of the proceedings ordered against the first defendant. 24 In my opinion, this submission is of little weight as there was no satisfactory evidence from which to conclude the second defendant would meet any costs ordered against him. Delay 25 An application for security for costs should be made promptly and before the plaintiff has embarked on litigation to any real extent – Buckley v Bennell at 309. 26 However, delay is not an automatic bar to the making of the order for security for costs – Commonwealth v Cable Water Skiing (Aust) Limited (1994) 14 ACSR 760. The court is entitled to have regard to the length of the delay, the reasons for it, the nature of the acts done during the intervening period and whether security is sought both for future costs and those which have already been incurred. Significant unexplained delay by a defendant aware of the probable impecuniosity of the plaintiff can ordinarily be expected to result in the refusal of an application for security for costs – Morris v Hanley [2001] NSWCA 374. 27 The statement of claim was filed on 22 October 2008. The first defendant's defence was filed on 17 March 2009 and the cross claim on 30 April 2009, the amended defence and amended cross claim of the first defendant were filed on 10 August 2009, the plaintiff's defence to the amended cross claim by the first defendant was filed on 16 October 2009 together with a reply by the plaintiff to the defence to the statement of claim. A notice of motion was filed on 12 June 2009, being a motion for security for costs. It was not pursued. The subject notice of motion was filed on 31 August 2010. 28 The defendants submitted: "The bank is not really concerned about being secured. They are more concerned about trying to shut out this first defendant in respect to its cross-claim. If they were really serious about bringing this security for costs application on they would have done this a year ago. When they were given notice of the amended pleading they knew that we were pleading damages under section 82 and also 87 of the Trade Practices Act…[The defendants solicitor] set out in correspondence to the plaintiff bank that the first defendant would plead its damages once there was either accounting by the receiver or alternatively disclosure or discovery was provided so that the first defendant was in a position with the necessary documents it needed to be able to plead its damages. What effectively occurred from that point…is a considerable delay in respect of the plaintiff providing that disclosure to the point that documents were still being provided up until about 8 to 10 days ago. There was no delay by [the first defendant] in respect to pleading those damages. The only delay that's occurred…is by the applicant and there is no satisfactory explanation for this delay." 29 The plaintiff submitted there had been no relevant delay. "The decision had been taken by the plaintiff not to press an application for security until full and proper particulars of the claim, loss and damage, amplifying the general claims made in the amended defence and amended cross claim was received. There was a refusal to provide such particulars until after the order of the court to do so on 12 July 2010. Now that the particulars have been provided and the first defendant's case on damages is known, the plaintiff is about to incur substantial costs associated with defending the offensive part of the amended cross claim, including costs of expert evidence." 30 This approach, it was submitted, accorded with the decision of the New South Wales Court of Appeal in Capital Finance Australia Limited v Citadel Property Group (Rockdale No 1) Pty Limited [2009] NSWCA 196 where Handley AJA said: "[3]…the applicant is not yet incurring costs in relation to that part of the proceedings for which they claim to be entitled to an order for security. [4] While it is well established that a defendant should apply for security for costs at an early stage and any claim for security will be prejudiced if the application is delayed, the court is not bound to make an order for security at an early stage in the proceedings. It may be a proper exercise of discretion to defer making such an order until the defendant commences to incur substantial costs or is about to incur substantial costs." 31 The defendants submitted that they had incurred in excess of $80,000 in legal costs to date, $70,000 of which had been incurred from the date of service of the amended cross claim. If security for costs was ordered and the first defendant could not meet that order, it would suffer irreparable prejudice in respect of wasted legal costs incurred since the date of service of the amended cross claim. 32 In my opinion, the circumstances of the delay in this case are not such as to preclude an order for security though the circumstances do impact on the assessment of the amount of security to be ordered and justify the exclusion of the claim for security for costs already incurred. Separate hearing of cross claim 33 The first defendant submitted there should be a stay of the cross claim insofar as the damages aspect was concerned and that if this occurred there would be no need for security until the cross claim was brought on for hearing which may or may not occur depending upon the determination of the substantive issues. 34 As I understand it, there are credit issues involved in this case. This would, in the ordinary course, make it undesirable that the issues be determined separately. There was, in any event, no formal application before me for a separate trial of liability and damages. Conclusion 35 In my opinion, there should be an order for security. Alternative basis for security order 36 The plaintiff submitted that the receivers of the first defendant had the right to pursue any litigation as defendants or cross claimants (s 420 Corporations Act). However, there was a residual right in a director to bring litigation subject to providing security – Deangrove Pty Limited v Commonwealth Bank of Australia [2001] FCA 173, (2001) 108 FCR 77. The receiver gave evidence in his affidavit that he had not consented to or authorised the cross claim brought by the second defendant in the name of the first defendant. Thus, it was submitted, the plaintiff was entitled to "at the very least an indemnity from [the second defendant] secured by some sort of a fund or payment into court or whatever." As I have held the plaintiff is otherwise entitled to security, it is unnecessary to consider this alternative. Amount of security to be awarded 37 The plaintiff, in its notice of motion filed on 31 August 2010, sought security in the sum of $165,290, being its calculation of the costs in relation to the cross claim both past ($19,167) and future ($146,123). The calculation included a percentage of costs which would have been incurred irrespective of the first defendant's claim for damages. 38 The plaintiff, on 2 June 2009, had sought security in the sum of $71,500. On 3 August 2010 it sought security in the sum of $60,000. Neither request was met. The defendants submitted it was for the plaintiff to establish its entitlement to the amount sought. It submitted the plaintiff had not done so as it had provided no explanation for the difference between its assessment on 3 August 2010 and its assessment in the notice of motion in the same month which more than doubled the earlier assessment. 39 The court does not set out to provide a complete indemnity to the defendant in respect of its costs – Brundza v Robbie & Co (No 2) (1952) 88 CLR 171 at 175. The court's power is to require such security as the court thinks fit and the court must also have regard to the effect of the order upon the plaintiff's ability to continue the litigation. The court is not bound to accept the defendant's estimate of the costs likely to be incurred – Sir Lindsay Parkinson & Co v Triplan Limited (1973) 1 QB 609 at 619. 40 The accurate assessment of future costs is a matter of considerable difficulty. Doing the best I can, having regard to all of the circumstances, I have concluded the appropriate assessment for security for costs is $60,000. 41 The plaintiff submitted that the costs of the application should follow the event. The defendants submitted the costs of the application should be reserved or be costs in the cause or there should be no order as to costs. 42 In my opinion, the appropriate order is that the costs of the application be the plaintiff's costs in the cause. Orders 43 (1) The first defendant (Daleport Pty Limited) provide security for the plaintiff's costs in relation to the amended cross claim in the sum of $60,000 in a form approved and satisfactory to a registrar of the court or otherwise to the satisfaction of the plaintiff within 21 days. (2) The amended cross claim filed by the first defendant on 10 August 2009 be stayed until the provision of the security ordered in para [43(1)] hereof. (3) The plaintiff's costs of the notice of motion dated 31 August 2010 to be the plaintiff's costs in the cause. (4) Reserve liberty to apply for dismissal of the amended cross claim in the event security is not provided as ordered in para [43(1)] hereof. (5) The proceedings be listed for directions before the registrar on 23 November 2010. ********** 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.