District Court New South Wales Medium Neutral Citation: Prime Capital Securities Pty Ltd v Betty Christou [2018] NSWDC 395 Hearing dates: 7 December 2018 Date of orders: 14 December 2018 Decision date: 14 December 2018 Jurisdiction: Civil Before: Scotting DCJ Decision: (1) The plaintiff is to provide security for the defendant's costs by paying into Court the sum of $35,000 or by otherwise providing security for that amount in a manner satisfactory to the defendant. (2) Until that security is provided, there will be a stay of the proceedings. (3) The security is to be provided on or before 5.00pm on 31 January 2019. (4) The matter is to be listed before the Court on 1 February 2019 for consequential orders, or, in the event that the security has not been provided, an order for the dismissal of the proceedings under rule 42.21(3). (5) I grant liberty to apply on 7 days' notice for any additional orders relevant to security for costs. (6) The plaintiff is to pay the defendant's costs of the Notice of Motion filed on 28 September 2018. Catchwords: COSTS — Security for costs — Relevant factors Legislation Cited: Australian Securities and Investments Commission Act 2001 (Cth) Civil Procedure Act 2005 Contracts Review Act 1980 Corporations Act 2001 (Cth) Uniform Civil Procedure Rules 2005 Cases Cited: Acohs Pty Ltd v Ucorp Pty Ltd (2006) 236 ALR 143 Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 744 Merribee Pastoral Industries v Australia and New Zealand Banking Group Ltd (1998) 193 CLR 502 Oshlack v Richmond River Council (1998) 193 CLR 72 Category: Costs Parties: Prime Capital Securities Pty Ltd (Plaintiff) Betty Christou (Defendant) Representation: Counsel: Mr Chrysostomou/Dr Donnelly (Defendant) Solicitors: Dentons Australia (Plaintiff) Reuben George Lawyers (Defendant) File Number(s): 2017/204755 Publication restriction: None Judgment 1. The defendant moves on a Notice of Motion filed on 28 September 2018 seeking an order for security for costs. 2. The plaintiff sues the defendant for damages alleging a breach of contract. Facts 1. The facts as they are presently known are not largely in dispute. 2. The defendant was seeking funds to purchase a property at Banksmeadow. She approached a finance broker by the name of Jeremy Fleischer (the broker). In a meeting at a café on 24 November 2016, the broker explained to the defendant that she would have to pay for a property valuation for the purposes of obtaining a loan approval. The broker produced a one page document and asked the defendant to sign it. The document identified an applicant for the loan as 'Betty Christou Pty Ltd'. The defendant queried this but was told by the broker not to worry about it. The document required the inclusion of credit card details for the payment of the valuation fee in the sum of $4,365.00. The defendant was not provided with a copy of the document she signed on her own behalf and on behalf of 'Betty Christou Pty Ltd'. The defendant was not told by the broker that the document that she signed was part of a larger document constituting a loan approval by the plaintiff to provide a loan of $1,500,000.00 for the purchase of the property. 3. The plaintiff alleges in these proceedings that the execution of the document by the defendant was the execution and acceptance of an offer to provide finance subject to the terms of the loan approval document. The plaintiff seeks payment of the 'fees, costs and outlays' outlined in the loan approval document in the amount of $117,737.62. 4. On 1 December 2016 the plaintiff sent an email to the defendant advising that it had received a favourable valuation and requesting the details of solicitors acting for the defendant. 5. On 5 December 2016 the plaintiff delivered loan documentation to the defendant's solicitors, providing for the payment of fees, an interest rate of 11.95% and a loan of $2,000,000.00. Later that day the defendant advised the plaintiff that she would not be proceeding with the loan. 6. On 7 December 2016 a company by the name of Capital Securities XVI Pty Ltd lodged a caveat on the Banksmeadow property. 7. On 9 December 2016 the plaintiff sent the defendant a complete copy of the loan approval document by email. 8. On 14 December 2016 the plaintiff issued a letter of demand to the defendant for the sum of $117,737.62. 9. The plaintiff filed the Statement of Claim on 6 July 2017. 10. On 30 October 2017 the defendant filed a Defence. 11. On 7 March 2018 the defendant filed an Amended Defence, and the First Cross-Claim against the plaintiff (the first cross defendant) and the broker (the second cross defendant). The First Cross Claim is defensive in nature, seeking relief from the terms of the loan approval pursuant to the Contracts Review Act 1980 and the Australian Securities and Investments Commission Act 2001 (Cth). 12. The defendant then had difficulty serving the broker, requiring an application for substituted service. Orders were made for substituted service on 15 May 2018 by his Honour Judge Hatzistergos and service was effected on the broker on 5 June 2018. 13. On 3 September 2018 the defendant's solicitor undertook a search with the New South Wales Land Registry Services (NSWLRS) to ascertain if the plaintiff owned real property in New South Wales. The search results indicated that it did not. 14. On 13 September 2018 the defendant's solicitor wrote to the plaintiff's solicitor seeking evidence that the plaintiff could meet an adverse costs order. The plaintiff's solicitor has not responded to this letter. 15. On 28 September 2018 the defendant's solicitor undertook a number of searches of the Australian Securities and Investments Commission's (ASIC) company database. The search of the plaintiff revealed that it had changed its name on 29 November 2017 to Capital Securities XV Pty Ltd. The sole director of the plaintiff is Paul Scanlon. The paid-up capital is $2.00. One share is owned by Prime Capital Nominees Pty Ltd and the other by Prime Capital Pty Ltd. 16. Prime Capital Nominees Pty Ltd has paid-up capital of $1,000 and the shareholders are Prime IBC Ltd and Wentworth Capital Group Pty Ltd. The sole director of Prime Capital Nominees Pty Ltd is Paul Scanlon. 17. Prime Capital Pty Ltd has paid-up capital of $10 and the shareholder is Prime IBC Ltd. The sole director of Prime Capital Pty Ltd is Paul James Scanlon. 18. On 28 September 2018 the defendant filed the Notice of Motion seeking security for costs. 19. On 5 December 2018 the defendant's solicitor undertook a search with the New South Wales Land Registry Services (NSWLRS) to ascertain if Paul James Scanlon owned real property in New South Wales. The search results indicated that he did not. 20. To date the plaintiff has put on evidence about the existence of the loan approval document. The defendant has put on an affidavit about her involvement in the transaction. The plaintiff has not yet put on evidence in reply and is due to do so by 21 December 2018. I was informed that the plaintiff intends to reply to the evidence about the involvement of the broker. The relevant law 1. Rule 42.21 of the Uniform Civil Procedure Rules 2005 provides a power to award security for costs where, relevantly, there is reason to believe that a plaintiff corporation will be unable to pay the costs if ordered to do so. In determining whether it is appropriate to make an order for security for costs the court may have regard to relevant matters including those specified in rule 42.21(1A) as follows: 1. the prospects of success or merits of the proceedings, 2. the genuineness of the proceedings, 3. the impecuniosity of the plaintiff, 4. whether the plaintiff's impecuniosity is attributable to the defendant's conduct, 5. whether the plaintiff is effectively in the position of a defendant, 6. whether an order for security for costs would stifle the proceedings, 7. whether the proceedings involves a matter of public importance, 8. whether there has been an admission or payment in court, 9. whether delay by the plaintiff in commencing the proceedings has prejudiced the defendant, 10. the costs of the proceedings, 11. whether the security sought is proportionate to the importance and complexity of the subject matter in dispute, 12. the timing of the application for security for costs, 13. whether an order for costs made against the plaintiff would be enforceable within Australia, 14. the ease and convenience or otherwise of enforcing a New South Wales court judgment or order in the country of a non-resident plaintiff. 1. Section 1335 Corporations Act 2001 (Cth) provides that a similar power, if it is established on credible testimony that there is reason to believe that a plaintiff corporation will be unable to pay the costs of a successful defendant. 2. The power to order security is discretionary and not automatic: Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 744 at [20], [56]-[57] and [60]-[62]. The discretion is to be exercised judicially on the facts of the case: Oshlack v Richmond River Council (1998) 193 CLR 72 and Merribee Pastoral Industries v Australia and New Zealand Banking Group Ltd (1998) 193 CLR 502. 3. The weight to be given to any circumstance depends upon its own intrinsic persuasiveness and its impact on other circumstances which have to be weighed: Acohs Pty Ltd v Ucorp Pty Ltd (2006) 236 ALR 143 at [12]. Consideration 1. On the available evidence the plaintiff's prospects of success are poor. The plaintiff contends that the broker was the defendant's agent and therefore the plaintiff is not responsible for his actions. In my view, this contention is not beyond question, however if the defendant's evidence is accepted she clearly still has a good claim for relief from the terms of the agreement that were unknown to her and only acceded to by her as a result of sharp practice by the broker. 2. The plaintiff's claim includes a claim for broker's fees in the sum of $49,500.00. I do not think that this part of the plaintiff's claim is genuine as there is no term in the loan approval document that could support it. The amounts payable by the defendant on withdrawal from the agreement include the 'fees, costs and outlays outlined herein'. There is no term of the purported agreement that defines 'fees, costs and outlays herein' to include the broker's fees. 3. I am satisfied that there is good reason to believe that the plaintiff will be unable to meet an adverse costs order for the following reasons. First, the issued share capital of the plaintiff is $2.00. The shareholders of the plaintiff are also companies with minimal share capital. Second, the defendant has requested that the plaintiff establish that it has the financial capacity to meet an adverse costs order. The plaintiff has refused to do so. In my view, the defendant's request was a perfectly legitimate one and accords with the dictates of justice expressed in sections 56-60 Civil Procedure Act 2005. Third, the evidence establishes that the plaintiff does not own real property in New South Wales. 4. There is no evidence that the plaintiff's impecuniosity is as a result of the conduct of the defendant and there is no evidence that an order for security will stultify the proceedings. 5. I have considered the estimate of costs prepared by the defendant's solicitor. There was no argument from the plaintiff that the estimate of costs or the costs charged to date were unreasonable. The plaintiff contended that I should make some allowance for the fact that some future costs will relate to the defendant's cross-claim against the broker. On the other hand I note that the cross-claim is an entirely defensive one. The defendant's solicitor deposes that the defendant has paid or is liable to pay the sum of $67,418.51 to date. The defendant's solicitor estimates that the likely future costs of defending the claim are $50,215.00. 6. The application for security for costs was brought after the proceedings had been on foot for about 14 months. Some part of that time was spent trying to serve the broker. The defendant in my view has acted expeditiously and generally been compliant with the directions in the proceedings. This is only one factor to be considered and it can be taken into account by reducing the amount of the security to be ordered. I intend to make an order for a proportion of the future costs to be incurred. 7. Taking into account all of these matters I am satisfied that this is an appropriate matter in which to make an order for security for costs. Orders 1. The orders I make are as follows: 1. The plaintiff is to provide security for the defendant's costs by paying into Court the sum of $35,000 or by otherwise providing security for that amount in a manner satisfactory to the defendant. 2. Until that security is provided, there will be a stay of the proceedings. 3. The security is to be provided on or before 5.00pm on 31 January 2019. 4. The matter is to be listed before the Court on 1 February 2019 for consequential orders, or, in the event that the security has not been provided, an order for the dismissal of the proceedings under rule 42.21(3). 5. I grant liberty to apply on 7 days' notice for any additional orders relevant to security for costs. 6. The plaintiff is to pay the defendant's costs of the Notice of Motion filed on 28 September 2018. ********** 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: 14 December 2018