Bartter Enterprises Pty Limited v PFJV Pty Limited [2024] QSC 87

SUPREME COURT OF QUEENSLAND CITATION: Bartter Enterprises Pty Limited v PFJV Pty Limited [2024] QSC 87 PARTIES: BARTTER ENTERPRISES PTY LIMITED (applicant/defendant) v PFJV PTY LIMITED (respondent/plaintiff) FILE NO/S: BS No 3716 of 2019 DIVISION: Trial Division PROCEEDING: Application ORIGINATING COURT: Supreme Court at Brisbane DELIVERED EX TEMPORE ON: 9 February 2024 DELIVERED AT: Brisbane HEARING DATE: 9 February 2024 JUDGE: Kelly J ORDER: 1. The application for further security for costs is dismissed. CATCHWORDS: PROCEDURE – CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS – SECURITY FOR COSTS – FACTORS RELEVANT TO EXERCISE OF DISCRETION – PLAINTIFF’S OR APPLICANT’S IMPECUNIOSITY – GENERALLY – where the defendant has applied for further security for costs – where but for the plaintiff’s trustee status, it has present capacity to meet an adverse costs order – where the defendant submits that the status of the plaintiff as a trustee means that the value of the assets is effectively irrelevant to the question of security for costs – whether an undertaking by the plaintiff that recourse to property held by, or for, it as trustee will be available to the defendant and be adequate at the appropriate time to meet the possible liability for costs will be sufficient to dispel the need for further security for costs PROCEDURE – CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS – SECURITY FOR COSTS – FACTORS RELEVANT TO EXERCISE OF DISCRETION – DELAY – where the defendant has applied for further security for costs – where the defendant claims that the security for costs provided to date has become insufficient – where the defendant argues that delays in the proceedings are due to “the slow and inefficient way in which the litigation has progressed” – where the defendant was delayed in making the application for further -- 1 of 11 -- 2 security – whether the delay in bringing the application for additional security should disentitle the applicant from obtaining security Corporations Act 2001 (Cth), s 1335 Uniform Civil Procedure Rules 2001 (Qld), r 5, r 670, r 672 Chief Disruption Officer Pty Ltd v Michel [2022] FCA 148, considered Crypta Fuels Pty Ltd v Svelte Corporation Pty Ltd (1995) 19 ACSR 68, considered Laundry Coin-Wash Nominees Pty Ltd v Dunlop Olympic Ltd [1985] 7 ATPR 40-584, cited Mathew (SA) Nominees Pty Ltd v Belconnen Automotive Pty Ltd (2019) 133 SASR 408; [2019] SASC 39, approved Monto Coal 2 Pty Ltd v Sanrus Pty Ltd [2019] 3 Qd R 143; [2018] QCA 309, cited COUNSEL: A Smorchevsky for the applicant/defendant G A Thompson KC with F L Wood for the respondent/plaintiff SOLICITORS: Prandium Legal for the applicant/defendant Colin Biggers & Paisley for the respondent/plaintiff [1] The defendant applied, pursuant to r 670 of the Uniform Civil Procedure Rules 2001 (Qld) (UCPR), s 1335(1) of the Corporations Act 2001 (Cth), or the inherent jurisdiction of this Court, for an order that the plaintiff provide further security in the amount of approximately $740,000, or such further amount as the Court thinks fit. This is the third application for security in the proceeding. The background to the application, in terms of a broad description of the nature of the proceeding, is sufficiently outlined in [3] to [7] to the plaintiff’s written submissions. [2] On 23 September 2019, the defendant filed an application seeking security for costs. On 11 November 2019, consent orders were made requiring the plaintiff to pay the sum of $400,000 into Court by way of security. On 10 September 2020, the Court made further orders by consent which required the plaintiff to provide an additional amount of security in the amount of $150,000, comprised of an unconditional bank guarantee of $100,000 and a bank or solicitor’s cheque in the amount of $50,000 by 18 September 2020. The 10 September 2020 orders included an order that: “The defendant have leave to apply for orders that the amount of Security be increased on the basis that the Security otherwise becomes insufficient.” [3] I will return to that part of the 10 September 2020 orders later. On 17 October 2023, slightly more than three years after the second tranche of security had been ordered -- 2 of 11 -- 3 by this Court, the defendant’s solicitors raised the need for timetabling orders providing inter alia for “a security for costs application”. [4] It is uncontroversial that this was the first time that the issue of further security was raised as between the parties. The next day, by an order dated 18 October 2023, the Court made the following orders in respect of contemplated interlocutory applications: “(7) Any interlocutory applications regarding disclosure … confidentiality or security for costs, be filed and served, together with any affidavit material in support, by 19 January 2024 with those applications listed for a hearing … on Thursday 1 February 2024 with a time estimate of half a day.” [5] On 14 December 2023, the Court then made orders listing the proceeding for trial: “…in the first-half of 2024 not before 11 March 2024.” [6] The proceeding is, in fact, now listed for trial between 25 and 28 March 2024. The defendant did not comply with paragraph 7 of the orders dated 18 October 2023, in this sense, that an application for further security was filed on 19 January 2024, but not the supporting affidavits. As a result, the security application could not be heard on 1 February 2024, but was listed in the applications list before me today. In an affidavit sworn on 25 January 2024, Mr McKeough, the solicitor for the defendant with carriage of the proceeding, swore an affidavit in which he deposed to his belief that: “…the security for costs provided to date has become insufficient”. [7] Mr McKeough then relevantly deposed at paragraphs 56 and 57 of that affidavit, as follows: “At the time I made my updated estimate in my July 2020 Affidavit … I thought that estimate was accurate. At that stage, I did not think that this litigation would take 5 years to get to trial and would involve numerous further amendments to the pleadings. I now consider that the updated estimate in my July 2020 Affidavit is no longer an accurate estimate of the costs that the defendant has incurred and of the future costs that the defendant will incur. That is both because additional matters have occurred or will occur which were not included in the prior estimate (such as four amendments to the statement of claim and three consequential amendments to the defence), and because the amounts estimated for future costs in the prior estimate have in fact been exceeded by the costs which have been -- 3 of 11 -- 4 incurred (which I consider has occurred because there has been much more correspondence and dispute concerning disclosure, confidentiality and related issues). The very significant blowout in costs is largely attributable to the slow and inefficient way in which the litigation has progressed by the plaintiff, and that it has taken almost five calendar years to be brought on to trial. A timetable of that nature is completely outside the scope in my 20 years of experience of running matters of this nature, which I consider to be a reasonably straightforward commercial dispute with only a small number of issues in dispute.” [8] Mr McKeough later deposed at paragraph 73 as follows: “I therefore estimate that the likely total costs to be incurred by the defendant to the end of a four-day hearing are: (a) $836,195.70, being costs and disbursements incurred and paid to date (exclusive of GST); (b) $160,795 (exclusive of GST), being the unbilled WIP presently recorded on the matter; (c) $68,000 (exclusive of GST) being the amount based on my inquiries with counsel that I expect to be invoiced for work from them up to close of business yesterday that has not yet been invoiced; (d) $50,000, being the middle of the range of the $40,000 – $60,000 (exclusive of GST), being the likely further costs and disbursements to be incurred up to the first day of trial that are not directly relevant to trial preparation (mostly relating to review of the plaintiff’s as yet unserved evidence and interlocutory disputes); and (e) $282,000 (exclusive of GST) in respect of trial preparation assuming a four-day hearing; and (f) $141,000 (exclusive of GST) for the costs of the legal practitioners appearing at a four-day hearing, totalling $1,537,990.70 (exclusive of GST).” [9] The Court will order a plaintiff to give security for costs if there is reason to believe that the plaintiff will not be able to pay the defendant’s costs. Reason to believe is a reference to objective circumstances being sufficient to incline the mind towards accepting rather than rejecting that that fact will exist.1 The onus is on the applicant defendant to establish that state of affairs. Once that threshold question has been met, the Court then has an unfettered discretion to order security, having regard to the circumstances of the case. Rule 672 of the UCPR provides that in deciding to make 1 Monto Coal 2 Pty Ltd v Sanrus Pty Ltd [2019] 3 Qd R 143, [43]. -- 4 of 11 -- 5 an order for security for costs, a Court may have regard to a large number of discretionary matters listed within that rule. [10] In the present case, the evidence is to the following effect: (a) On 28 July 2023, an independent valuation firm opined that a farming property owned by the plaintiff has a market value of: (i) $13 million with the benefit of a grower’s agreement; (ii) $9.65 million without the benefit of that agreement; and (iii) $3.2 million if it were put to an alternative use; (b) As at 31 January 2024, the plaintiff owes approximately $5.2 million under a loan facility with the Commonwealth Bank; and (c) There are no other material security interests registered over the land or improvements that comprise the farm. [11] The farm is said by the evidence to generate significant income for the plaintiff. In oral submissions made by way of reply, counsel for the defendant accepted that there was no issue with the valuations and that the loan facility secured over the asset was less than the valuation. [12] When the previous applications for security were dealt with, the plaintiff’s financial situation was materially different. As at 19 September 2019, the plaintiff had no recourse to any assets other than the farm and a bank facility which at that time substantially exceeded the value of the farm. The bank had a secured interest over the farm. The plaintiff did not adduce any evidence in July 2020 to support a submission that its financial position had changed since the earlier application. [13] I find that, were it not for the trustee status of the plaintiff, the evidence adduced by the plaintiff on this application for further security would plainly have been sufficient to dispel any doubts about the plaintiff’s present capacity to meet an adverse costs order. The evidence is suggestive of an asset valued far in excess of liabilities. It is uncontroversial, however, that the plaintiff holds the farm and business which operates from the farm as the trustee of two unit trusts. The defendant submits that the status of the plaintiff as a trustee means that the value of the farm and the business -- 5 of 11 -- 6 is effectively irrelevant to the question of security because the trustee’s only asset is its right of indemnity out of the trust assets. [14] I accept the plaintiff’s submission that a trustee company can resist an order for security by establishing that recourse to property held by, or for, it as trustee will be available to the party against whom it has brought its action and be adequate at the appropriate time to meet the possible liability for costs. That is typically achieved by the Court requiring undertakings to be given by the trustee (or its directors) to the effect that the plaintiff undertakes that it will be able to, and will, exercise its right of indemnity against the trust assets in order to meet a costs order in favour of the defendant, the plaintiff undertaking not to distribute the trust’s assets and the plaintiff, in the meantime, undertaking not to do anything to diminish the value of the trust’s assets. [15] I was referred in argument to Mathew (SA) Nominees Pty Ltd v Belconnen Automotive Pty Ltd.2 In that case, Doyle J dealt with an appeal from a Magistrate’s exercise of discretion in relation to a grant of security. At [62] to [66], his Honour relevantly said: “There is no doubt that the fact that a plaintiff is pursuing proceedings in its capacity as trustee is a significant consideration, both in terms of determining whether the threshold requirement of s 1335 has been made out, and in the exercise of the discretion to order security more generally. As Smithers J said in Laundry Coin-Wash Nominees Pty Ltd v Dunlop Olympic Ltd (citation omitted): ‘Where the only tangible assets of an applicant company are held in trust for another entity and its solvency depends on its right as trustee to indemnity against that entity it is necessary for the Court to have in mind the difficulties which a successful respondent would face in attempting to execute in respect of an order for costs. Indeed, unless some step is taken to alleviate those difficulties it is reasonable and just to treat the applicant company as if it were without assets to meet such a liability.’ This passage has been cited with approval on many occasions, with a number of authorities emphasising that it is not generally a sufficient answer to an application for security for costs for a trustee plaintiff to merely point to its right of indemnity out of trust assets. Consistent with the above passage, the reason ordinarily given for this approach to trustee plaintiffs is that a successful defendant should not be subjected to the potential complexity, and hence expense and uncertainty, associated with having to resort to derivative rights in 2 Mathew (SA) Nominees Pty Ltd v Belconnen Automotive Pty Ltd (2019) 133 SASR 408. -- 6 of 11 -- 7 order to recover any costs to which it might be entitled. This has been held to be so even in situations where there is evidence of significant trust assets against which the right of indemnity might be exercised; the reason being that there is a risk those assets may become unavailable, for example, by reason of them being distributed to beneficiaries prior to the conclusion of the proceedings. While it is thus significant, in the context of an application for security, that a plaintiff is suing as trustee, it does not follow automatically that it will be appropriate that there be an order for security. The onus remains on the defendant to establish both that the threshold requirement has been made out (in the case of an application under s 1335), and that the interests of justice will be best served by making an order for security. However, given the significance of a plaintiff’s status as a trustee, it may, for practical purposes, become incumbent upon a trustee plaintiff seeking to resist an order for security to adduce some evidence as to the likely availability and value of its right of indemnity, or to otherwise take steps to alleviate the potential difficulties for the defendant associated with reliance upon the plaintiff’s right of indemnity to recover its costs. Smithers J said as much in the last sentence from the passage from his reasons in Laundry Coin-Wash Nominees Pty Ltd v Dunlop Olympic Ltd extracted above. His Honour later added: ‘I have concluded that an applicant being a trustee company which desires to resist an order for security for costs should establish that recourse to property held by or for it will be available to the party against whom it has brought its action and be adequate, at the appropriate time, to meet the possible liability for costs.’” [16] As Doyle J observed, the fact that the plaintiff is a trustee does alter the analysis to some extent in that it makes it relevant to consider the extent to which the evidence alleviates concerns about the defendant being forced to rely upon the plaintiff’s right of indemnity in order to recover any costs ordered in its favour. His Honour, in a later part of the judgment, relevantly stated:3 “As the authorities cited above make plain, the court will not generally assume the availability and value of a right of indemnity, even in cases where there are substantial trust assets. However, in this case, in addition to the evidence establishing that the properties have a substantial value, and that one of them is unencumbered, the plaintiff (through an affidavit of its sole director and shareholder, Mr Loprete) said that it has no intention of selling, dealing with or further encumbering the properties, and that it will not do so without first notifying the Court. The effect of this will be to ensure that the 3 Mathew (SA) Nominees Pty Ltd v Belconnen Automotive Pty Ltd (2019) 133 SASR 408, [73]. -- 7 of 11 -- 8 properties will not (without notice) be dealt with in any way that might prejudice the defendant’s recovery of any costs ordered in its favour. The plaintiff will be prevented, for example, from distributing the properties (or proceeds from any sale of them) to a beneficiary or beneficiaries of the trust.” [17] In order to alleviate the defendant’s concerns given the significant value of the assets now available to the plaintiff to satisfy any costs order, the plaintiff, by its directors, in its written submissions, said that it was prepared to undertake: (a) not to sell, deal with or further encumber the farm without first notifying the Court; (b) not to distribute the trust’s assets to beneficiaries without first notifying the Court; and (c) to take steps to exercise its right of indemnity from the trust’s assets for the defendant’s benefit to the extent that it might be necessary to meet any costs order in the defendant’s favour. [18] The provision of that undertaking, in a sense, is relevant to the threshold question but is also a relevant discretionary consideration. In my consideration, the undertaking, as offered, with some amendments which I will identify, is sufficient to substantively alleviate any real concerns about the plaintiff’s trustee status. [19] The defendant referred me to Chief Disruption Officer Pty Ltd v Michel [2022] FCA 148, particularly at [72] to [76]. In that case, undertakings proffered were not regarded as acceptable, particularly because the position of beneficiaries was not made clear in the sense that it remained unclear whether beneficiaries had authorised the undertaking. That case, as was very fairly noted by counsel for the defendant, also demonstrates, according to its reasoning, that the form of the undertaking is a matter of discretion and dependent on the facts and circumstances of any particular case. Here, the amendments to the undertaking which I will require will provide that the directors will be able to, and will, exercise their right of indemnity. That type of undertaking, coupled with an undertaking not to dissipate the trust assets, is, in my consideration on the facts of this case, sufficient. [20] Even if I am wrong and the defendant has discharged its onus on the threshold question, as an exercise of discretion, delay and the reasonableness of the costs of the -- 8 of 11 -- 9 proceeding were, in my consideration, otherwise pertinent discretionary considerations which, in the particular circumstances of this case, militated strongly against a grant of further security. [21] The issue of delay will weigh more significantly in some cases than others. It is not always a critical consideration. In Crypta Fuels Pty Ltd v Svelte Corporation Pty Ltd,4 Lehane J noted that cases in which orders for security were made despite delay usually involve one or both the following factors: (a) the hearing or resumed hearing was not immediately imminent; and (b) there had been forewarning, usually correspondence, concerning the financial standing of those who might benefit from the success of an applicant or plaintiff and often detailed correspondence foreshadowing an application for security for costs. [22] The cases are replete with statements to the effect that an application for security must be made promptly and delay is relevant. But as I have indicated, delay is not in every case necessarily particularly significant. Where there is no suggestion that security will stifle litigation, delay can be, depending upon the facts of the case, a matter of less significance. In the present case, there is no suggestion that ordering security will stifle the litigation; however, the facts of the case in the present matter include that the trial is now to be regarded as imminent and there are some peculiar aspects about the history of this particular litigation as revealed by the affidavit relied upon by the defendant’s solicitor. [23] I consider that delay is a relevant and important consideration in the present case. It has particular significance in this case for this Court’s ability to form any confident view about the reasonable costs claimed by the defendant in the proceeding. The parties are conducting this proceeding according to r 5 and its implied undertakings. The 10 September 2020 orders included an order to the effect that: “The defendant have leave to apply for orders that the amount of Security be increased on the basis that the Security otherwise becomes insufficient.” 4 Crypta Fuels Pty Ltd v Svelte Corporation Pty Ltd (1995) 19 ACSR 68, 71. -- 9 of 11 -- 10 [24] In my respectful view, the clear intendment of that order, having regard to the practices of this Court governed by r 5, was that, upon it becoming apparent to the defendant that the security had become insufficient, any application for further security was to be made in a timely way. The affidavit material of the defendant does not reveal when the defendant’s solicitor first formed the view or first became aware that further security would be required or that the existing security was insufficient or likely to be insufficient. The defendant’s solicitor deposed to his belief that this proceeding was: “…a reasonably straightforward commercial dispute with only a small number of issues in dispute”. [25] However, he also deposed as follows: “The very significant blowout in costs is largely attributable to the slow and inefficient way in which the litigation has progressed by the plaintiff, and that it has taken almost five calendar years to be brought on to trial.” [26] I wish to note that this type of conclusionary statement contained in an affidavit is very difficult for a Court, on this type of interlocutory application, to test with any kind of rigour. Common experience with commercial litigation suggests that cost blowouts and delays are more commonly contributed to by the conduct of both parties. I am not prepared to accept the conclusionary statement that the dilatory and costly litigation now before the Court is largely attributable to the conduct of the plaintiff. [27] Further, the defendant was itself under an implied obligation to the Court and to the plaintiff to proceed in an expeditious and cost-efficient way. That undertaking by the defendant should not be lost sight of. The defendant, in my respectful view, should have brought any application for further security as expeditiously as possible once it formed the view that the existing security was inadequate. As I have already indicated, the defendant’s affidavit did not provide any candid explanation as to when that position was first reached. It seems to me to be quite plain from the material that the position must have been reached some significant time before notice was first given of this application, that notice being given by correspondence on 17 October 2023. -- 10 of 11 -- 11 [28] Had an earlier, and more timely application been made for further security, a more accurate and reliable estimate of reasonable costs both incurred and to be incurred might have been achievable. Such an estimate is now far less likely to be able to be made by this Court given the description of the litigation which now exists as a slow and inefficient piece of litigation that has been proceeding over a period of three years and which has involved a significant costs blowout. For those reasons, as a matter of discretion, I would also have not been prepared to order further security. [29] Ultimately, then, on the application of the plaintiff given by its directors, being undertakings that the plaintiff will (a) not sell, deal with, or further encumber the farm without giving 21 days prior notice to the defendant and the Court, (b) not distribute the trust’s assets to beneficiaries without first giving 21 days prior notice to the defendant and the Court, and (c) be able to and will take steps to exercise its right of indemnity from the trust assets for the defendant’s benefit to the extent that those steps are necessary to meet any costs order in the defendant’s favour, I dismiss the application for further security. -- 11 of 11 --