Raphael Shin Enterprises v Waterpoint [2011] NSWSC 825

Supreme Court New South Wales

Medium Neutral Citation: Raphael Shin Enterprises v Waterpoint [2011] NSWSC 825 Hearing dates: 18/07/2011 Decision date: 18 July 2011 Jurisdiction: Equity Division - Commercial List Before: McDougall J Decision: Plaintiff to provide security for its undertaking as to damages and for the defendant's costs. Catchwords: COSTS - security for costs - whether an order for security for costs appropriate in the circumstances - order made for security for costs. Legislation Cited: Corporations Act 2001 (Cth) Uniform Civil Procedure Rules 2005 (NSW) Cases Cited: KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 Octavo Investments Proprietary Limited v Knight (1979) 144 CLR 360 Category: Procedural and other rulings Parties: Raphael Shin Enterprises Pty Ltd ACN 103 452 473 (Plaintiff) Waterpoint Shepherds Bay Pty Ltd ACN 064 428 226 (Defendant) Representation: Counsel: C D Wood / D Parish (Plaintiff) N J Kidd (Defendant) Solicitors: Fidelity Legal (Plaintiff) Maddocks (Defendant) File Number(s): 2011/41570

Judgment (ex tempore) 1HIS HONOUR: The underlying dispute between the plaintiff and the defendant relates to a restaurant and storage lot at Shepherds Bay. It is unnecessary to go into the details of that dispute, save to note that: (1) it led to the plaintiffs lodging a caveat to protect what it claimed was its interest in that land; (2) the defendant gave a lapsing notice in respect of that caveat; (3) the plaintiff sought to extend the caveat but failed; (4) nonetheless, the plaintiff was given leave to file a fresh caveat; and (5) the plaintiff did so. 2I am concerned today with the defendant's amended notice of motion that the plaintiff provide security for its undertaking as to damages, and with the defendant's application for security for costs. In relation to security for the undertaking as to damages, the plaintiff consents to orders in terms of prayers 1 and 2 of the amended notice of motion filed in court today. I will in due course make those orders. 3In relation to security for costs, it appears to be common ground that the plaintiff has no assets in its own right. The plaintiff's case is that it is a trustee, and that the underlying trusts have both substantial assets and a substantial surplus of assets over liabilities. However, the evidence relied on to prove the latter point was in part inadmissible, and was rejected. There is no evidence that the underlying trusts do have any such surplus; on the contrary, such evidence as there is (and I acknowledge that it is incomplete) suggests that the trusts have a significant deficit of liabilities compared to assets. 4The plaintiff submitted that it was entitled to be indemnified from the assets of the trust. The defendant contests that proposition for two reasons. First, it says, there is no evidence that the plaintiff contracted (in respect of the underlying transactions) in its capacity as trustee, and thus there is no evidence that these proceedings are brought by the plaintiff in its capacity as trustee. 5Secondly, the defendant submits, there is an express provision in the trust deed dealing with indemnity, which provides that, absent deceit, neglect, default or breach of trust, the plaintiff is entitled to be indemnified out of the trust fund for expenses et cetera incurred by it "in respect of the provisions of this deed". The defendant submits that this proceeding is not an action or suit in respect of the provisions of the trust deed. Further, the defendant submits, because there is an express right of indemnity, the general law right of indemnity (as exemplified in the High Court's decision in Octavo Investments Proprietary Limited v Knight (1979) 144 CLR 360 at 367) has been excluded. 6I am not sure that either limb of this submission is correct. First, it seems to me that an action "in respect of the provisions of this deed" may well encompass an action brought by the trustee in respect of what it asserts are assets of the trust, which of course are assets held by it on the terms, and for the purposes, of the trust deed. Secondly, if that were wrong, I do not think that it follows necessarily that the indemnity provision to which I have referred should be taken as excluding any other general law right of indemnity that a trustee has. However, it is unnecessary to express a concluded view on these points. 7The plaintiff submits that the court should infer that it was contracting as trustee, because it has no assets in its own right and thus the "assets" comprising the benefit of the underlying transactions must, by necessary inference, be trust assets. I have to say that I am not sympathetic to the proposition that the court should draw inferences of fact, on exiguous material, in favour of a party who has the means of proof but who has failed, without explanation, to adduce proof in a more satisfactory and robust form. 8The key point seems to me to be, however, that even if all those matters are assumed in favour of the plaintiff, nonetheless, on the evidence, it would have no hope of meeting any costs order that might be made against it. In this context, I note that the estimate of cost to be incurred, prepared on what seems to me to be a reasonably conservative basis, suggests that those costs will be of the order of $172,000. 9To counter that, the plaintiff pointed to undertakings given by "related parties", including Mr Raphael Shin, to guarantee the plaintiff's liability for costs and to pay costs agreed or assessed against the plaintiff. It is trite to observe that those guarantees are only as good as the financial standing of the entities and persons who give them. Further, the plaintiff and Mr Shin (who may be inferred to be the person standing behind it) have given undertakings to the court, the effect of which is designed to ensure that the right of indemnity is enforced, in respect of any adverse costs order, and that the assets of the trust will not be depleted so as to defeat satisfaction of any adverse costs order. 10It is clear, from what I have said, that the jurisdictional foundation justifying the making of an order for security for costs is satisfied in this case, because it is clear that there is reason to believe that, if the defendant is successful in its defence of the proceedings and is awarded his costs, the plaintiff will be likely unable to pay those costs. Thus, both s 1335 of the Corporations Act 2001 (Cth) and UCPR rule 42.21 are enlivened; and so too is the inherent power of the court. 11Thus, the debate ended up focussing on the well-known discretionary factors summarised by Beazley J in KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 at 196-198. I accept that her Honour was not intending to limit the range of discretionary factors that might be relevant in the present case; and, equally, that it does not follow because each of those discretionary factors is answered one way or the other, an order for security should or should not be made. 12In the present case, I am satisfied that the application was notified promptly, and brought reasonably promptly once attempts to establish the plaintiff's position met with no success. Further, having regard to the way that the estimated costs are quantified, there is no reason to think that security is being sought in any substantial amount for past costs - to the extent that that may be a relevant consideration. 13There was no suggestion that the application for security was oppressive, or that the plaintiff's impecuniosity is the relevant result of the defendant's actions in respect of which the plaintiff sues. 14The plaintiff did rely on the undertakings to which I have referred to suggest that those standing behind it (more accurately, behind the trusts of which it is a trustee) are willing to provide security. That is to some extent correct, but I observe that not all of the range of potential beneficiaries have offered to stand behind any costs order. The undertaking to preserve the assets of the trust would prevent the plaintiff from exploiting the discretionary nature of the trust to dissipate its assets before judgment. 15Weighing up the discretionary factors, and without going in detail through all the ones listed by Beazley J in K P Cable , I am satisfied that this is an appropriate case for ordering security as to costs. 16There was some debate as to the quantum for which costs should be ordered. The estimated amount of the costs likely to be incurred by the defendant in defending these proceedings was $172,260. That appears to be on a solicitor and client basis; or at least not on the ordinary basis. However, as the affidavit evidence makes clear, there are a number of items that are excluded from the estimate, some of which at least (for example, interlocutory disputes and evidence in reply) may be thought likely to arise. It seems to me that if one balances those matters against the general proposition that a defendant is not entitled to full security for all its costs, and if one rounds the amount for which security is sought off slightly to $170,000, then adequate justice is done as between the parties. 17By consent I make orders in accordance with prayers 1 and 2 of the defendants amended notice of motion filed in court today. 18I order that the plaintiff provide security for the defendant's costs, by way of payment into court, security in a form acceptable to the Registrar or some other manner agreed between the parties in the sum of $170,000; such security to be provided within 28 days of today's date. 19I order that these proceedings be stayed unless and until such security is so provided. 20I list the proceedings for directions contingently on Friday 26 August 2011 and direct that this listing be vacated if the stay is not dissolved. 21I release Mr Shin and the other parties named in exhibit PX2 from the undertakings given to them by the court. 22I order that the exhibits, other than exhibit PX2, be handed out. 23I will hear the parties on costs. (Counsel addressed.) 24The defendant seeks its costs of the notice of motion. The plaintiff accepts that it must pay the costs of the motion in so far as it relates to the application for security for costs. It submits that it should not have to pay the costs of the other aspects of the notice of motion because, when the notice of motion was amended, it consented to the orders sought. 25In my view, there is substance to the plaintiff's submissions, and there should be some reduction in the amount of costs payable to reflect the fact of consent. The defendant submitted that the amendments were cosmetic and not substantial, but I am not sure this is correct; and in any event they were made late. 26It would be a nightmare for a costs assessor to try and disentangle the various aspects of the costs, particularly in circumstances where the evidence in large part was relevant to both aspects of the relief sought. In those circumstances, and accepting that this is a broad brush approach, I order the plaintiff to pay one half of the defendants costs of the notice of motion.