Famestock Pty Ltd v The Body Corporate for No. 9 Port Douglas Road [2011] QSC 365

SUPREME COURT OF QUEENSLAND CITATION: Famestock Pty Ltd v The Body Corporate for No. 9 Port Douglas Road Community Title Scheme 24368 [2011] QSC 365 PARTIES: FAMESTOCK PTY LTD (ACN 010 499 989) (Plaintiff) v THE BODY CORPORATE FOR NO. 9 PORT DOUGLAS ROAD COMMUNITY TITLE SCHEME 24368 (Defendant) FILE NO/S: 48 of 2008 DIVISION: Trial PROCEEDING: Application ORIGINATING COURT: Supreme Court, Cairns DELIVERED ON: 23 September 2011 DELIVERED AT: Cairns HEARING DATE: 16 September 2011 JUDGE: Henry J ORDER: 1. The plaintiff provide security for the defendant’s costs of the proceedings in the amount of $45,000 to be either: (a) paid into court or (b) secured by provision of a bank guarantee evidenced in a form satisfactory to the Registrar, within 21 days of this order. 2. The proceeding is stayed until such security is provided. 3. The plaintiff pay the defendant’s costs of and incidental to this application to be assessed on the standard basis. 4. Each party has liberty to apply on two clear days written notice to the other. CATCHWORDS: PROCEDURE – COSTS – SECURITY FOR COSTS – Respondent a company – where company impecunious – where costs estimated at $60,000 – where there is reason to believe that the plaintiff may be unable to pay the defendant’s costs if unsuccessful – whether discretion should be exercised in favour of granting security for costs Uniform Civil Procedure Rules (Qld) 1999 r 670, 671, 672 COUNSEL: C J Ryall for the defendant/applicant -- 1 of 7 -- 2 Director of plaintiff, Mr McEvoy, appearing on behalf of plaintiff/respondent SOLICITORS: Williams Graham Carman for the defendant/applicant [1] The applicant/defendant makes application for the respondent/plaintiff, a company, to give security for costs in the amount of $60,000, pursuant to r 670 of the Uniform Civil Procedure Rules (“UCPR”). [2] The application is made in proceedings instituted by the Claim of the respondent/plaintiff filed on 7 February 2008, seeking damages for breach of contract. The claim [3] The defendant, a body corporate for a community title scheme, entered into a written caretaking and letting agreement (“the agreement”) with the plaintiff to perform caretaking and letting duties and obligations. It was a condition of the agreement that the plaintiff1 would obtain all licences required to enable it to conduct the business of letting the units. [4] At the commencement of the agreement the plaintiff obtained a letting agents licence from the Auctioneers and Agents Committee pursuant to the provisions of the Auctioneers and Agents Act2 in order for it to carry out its duties as letting agent. However, the plaintiff pleads that in or about May 2001, it discovered the licence had expired and it had failed to renew its licence. [5] The plaintiff sought a letter from the defendant confirming that the agreement was still in existence in order to provide such a letter to the licensing authority as evidence of the relevant body corporate’s approval of the conduct of the letting business. [6] It is implicit in the pleadings that such a letter was not forthcoming. The plaintiff pleads this was a breach of an implied term of the contract that each party would do all such things as were necessary to enable the other to have the benefit of the contract. The defendant denies any such term would extend beyond requiring the defendant to do those things reasonably necessary to give effect to the agreement. It pleads it was not required by any implied term of the contract to provide anything beyond an executed copy or original of the agreement to the plaintiff to satisfy the Auctioneers and Agents Committee. It also pleads it was not, in any event, obliged to provide the letter requested because by that time the plaintiff was in breach of the agreement for other reasons and the defendant had not decided whether or not to terminate for breach and could not do so until default notices were issued and the plaintiff had had an opportunity to remedy its breaches. [7] The defendant issued notices of termination on 7 February 2002, purporting to terminate the management agreement relying on a variety of grounds, the validity of which are all disputed by the plaintiff. In addition to damages for breach of contract 1 The terms of the agreement quoted in the Further Amended Statement of Claim refer to the “manager” but the pleadings treat that as a reference to the plaintiff 2 Since replaced by the Property Agents and Motor Dealers Act -- 2 of 7 -- 3 in the sum of $544,230, the plaintiff seeks a declaration that the notices to terminate were invalid. The application [8] In an application filed 2 August 2010, the defendant sought, inter alia, an order for security for costs in the amount of $60,000. [9] On 26 August 2010, with the consent of the parties the Registrar adjourned the application to be brought back on for hearing on the giving of notice. In dealing with security for costs, the consent order required the plaintiff to either give the security for costs sought or to provide the defendant with details of the personal assets and liabilities of the plaintiff’s director Mr McEvoy. [10] The security for costs application was brought back on for hearing and argued before me on 16 September 2011. Prerequisite for security for costs [11] The pre-requisites enlivening the discretion to order security for costs are set out in UCPR 671 which relevantly provides: “671. Pre-requisite for security for costs The court may order a plaintiff to give security for costs only if the court is satisfied – (a) The plaintiff is a corporation and there is reason to believe the plaintiff will not be able to pay the defendant’s costs if ordered to pay them; or … (h) The justice of the case requires the making of the order.” [12] While the applicant preserved reliance upon r 671(h) its submissions as to the enlivening of the discretion went mainly to satisfying r 671(a). [13] The affidavit of the defendant’s solicitor initially filed in support of the application exhibited a letter dated 9 July 2010 from the plaintiff’s then solicitors. It disclosed that the plaintiff had not traded for a number of years and that its only “assets” were said to be choses in action constituted by its claim in the Supreme Court in the present matter and a claim in the District Court against Sheridan Schwietzer and others. [14] A further affidavit by the defendant’s solicitor was filed in support of the re- enlivened application for security for costs. It exhibited correspondence by the plaintiff’s solicitors on 23 August 2010 confirming that the plaintiff has no assets other than its choses in action in the form of its District Court Claim against Ms Schwietzer and its claim in the present proceeding. [15] The purported value of the claim in this proceeding is irrelevant to the question whether the plaintiff will be able to pay the defendant’s costs if ordered to pay them because the question is obviously concerned with an outcome where the claim will have failed. [16] As to the District Court claim, no evidence was advanced of its prospects or whether or when it may proceed. The applicant filed an affidavit by Sheridan Schwietzer, who is one of three defendants to the claim in the Cairns District Court -- 3 of 7 -- 4 by the plaintiff for monies allegedly owing pursuant to loan agreements and guarantees. Her affidavit revealed that on 12 February 2010 the District Court ordered by consent that the plaintiff was to provide the sum of $35,000 by way of payment into Court as security for costs in relation to those proceedings. No such payment has been made and Ms Schwietzer has received no response to her query as to when it will be paid. [17] In the course of submissions, after the withdrawal of an objection about the absence of proper proof, I allowed Mr McEvoy, who appeared without legal representation for the company, to tender exhibit 1, a series of documents about the approval of funding for the acquisition of a development project by a developer, Stephen Thomas, with whom Mr McEvoy informed the court he had previously enjoyed mixed financial success. Mr McEvoy explained to the court that these documents related to a development by Thomas, in which he submitted the plaintiff company had an interest. Mr McEvoy’s submission relied upon Mr McEvoy’s affidavit sworn 15 September, particularly paragraph 11(i) which, in a list of “joint assets”, apparently the joint assets of he and his wife, not the company, lists “Investment in development $50,000 secured by mortgage”. He also referred to exhibit H to his affidavit, an undated deed between he and his wife as trustees of their superannuation fund and the plaintiff “as trustee of” an entity, left blank in the deed. The deed purports to record that the plaintiff, as trustee of the un-named entity, provided $50,000 towards a $200,000 loan by Mr and Mrs McEvoy, as trustees of their superannuation fund to Thomas under a loan agreement between them and Thomas as trustee of two trusts. [18] Such evidence as there is that the $50,000 loan is, as Mr McEvoy submitted, an asset of the plaintiff suggests it is a speculative “asset” and there is no satisfactory evidence that it will be available to the plaintiff for use to meet the defendant’s costs if ordered to pay them. [19] The evidence that the plaintiff has no other assets, other than the speculative potential value of a District Court claim that is already the subject of a security for costs order, provides reason to believe the plaintiff will not be able to pay the defendant’s costs if ordered to pay them. [20] The respondent seeks to counter that belief by pointing to the capacity and preparedness of Mr McEvoy to pay costs on behalf of the company. [21] The means of those standing behind the proceeding is a relevant discretionary consideration under r 672, which relevantly provides: “672. Discretionary factors for security for costs In deciding whether to make an order, the court may have regard to any of the following matters – (a) the means of those standing behind the proceeding; (b) the prospect of success or merits of the proceeding; (c) the genuineness of the proceeding; (d) for r 671(a) – the impecuniosity of a corporation; (e) whether the plaintiff’s impecuniosity is attributable to the defendant’s conduct; … (g) whether an order for security for costs would be oppressive; -- 4 of 7 -- 5 (h) whether an order for security for costs would stifle the proceeding; … (m) the costs of the proceeding.” [22] In Robson v Robson and Anor3 there was a divergence of views as to whether r 671 and r 672 require a two stage process under which the factors in r 672 only become relevant where the court is satisfied of one of the paragraphs of r 671. The majority view was a court could have regard to factors in r 672 in considering whether it is satisfied of one of the threshold matters in r 671. The court was there concerned with r 671(h) but the majority view has logical application to r 671(a). That is because evidence as to the means of a director and the director’s preparedness to pay a costs order against a plaintiff company might, depending on its substance, result in a court not being satisfied there is reason to believe the plaintiff will not be able to pay the defendant’s costs if ordered. [23] The letter of the plaintiff’s solicitor of 9 July 2010 enclosed a director’s guarantee by Mr McEvoy. The offer of a guarantee will not predispose a court against ordering security for costs4. Evidence of the guarantor’s worth is obviously also relevant. [24] The above letter asserted that “the directors’ equity” in two residential units, unit 9 and unit 16 in an apartment complex at Port Douglas Road, exceeded $400,000. [25] Mr McEvoy’s affidavit of 15 September 2011, lists assets under the heading “Joint Assets”, apparently a reference to joint ownership by he and his wife. [26] The list of assets evidenced by Mr McEvoy is more extensive than the list of assets in the statement of assets and liabilities provided on his behalf by his former solicitors on 23 August 2010, giving rise to a total estimated value which is also in excess of that provided by his former solicitor. [27] The account statement provided as evidence of Mr McEvoy’s cash reserves indicates it is an account in the names of both he and his wife. According to the correspondence of Mr McEvoy’s previous solicitors, he had shares in companies, which if still held, would likely be valued at about $35,000. However, his statements of assets and liabilities value his shares at only $9,980. His statement of assets and liabilities values his car at $24,000 whereas a “red book” search suggests its likely value is between $14,000 and $16,000. [28] The only real estate included in the statement of Mr McEvoy’s assets and liabilities is Unit 16. Unit 9 was sold on 20 August 2010. Mr McEvoy’s statement of assets and liabilities valued unit 16 at $500,000. [29] Mr McEvoy’s affidavit sworn and filed on 15 September 2011, justifies the $500,000 estimated value of Unit 16 by reference to a valuer’s report ascribing a market value of $500,000 to the property. Moreover, he asserts the unit is now valued between $500,000 and $600,000 by reason of he and his wife having spent a further $100,000 on renovations to it. 3 See Robson v Robson & Anor [2008] QCA 36 4 Specialised Explosives Blasting & Training P/L v Huddy’s Plant Hire P/L [2009] QCA 254 -- 5 of 7 -- 6 [30] Ownership of this unit was transferred from the plaintiff to Mr and Mrs McEvoy as joint tenants in April 2010 for a consideration of $250,000, apparently half its actual value. [31] Given the improbability, in the presently suppressed real estate market, of the unit’s value doubling since last year an obvious inference arising from the evidence is that Mr and Mrs McEvoy, the plaintiff’s two shareholders, purchased the property from the plaintiff at a significant under-value. That transaction occurred approximately two months after the plaintiff had consented to the order that it provide security for costs in the amount of $35,000 in the District Court proceedings. [32] Mr McEvoy’s affidavit asserts that his wife and he have both signed personal guarantees but no copy of the personal guarantee said to be signed by his wife has been exhibited in this matter and there is no other evidence of the content of that guarantee. [33] In summary there are inconsistencies in the evidence relating to Mr McEvoy’s means, his wife is a joint owner of his assets, there is no satisfactory evidence of a guarantee said to have been made by her and they acquired unit 16 from the plaintiff at a significant undervalue. The state of the evidence relied upon by the plaintiff does not compel such confidence in the likelihood of Mr McEvoy meeting the plaintiff’s costs obligations as to result in me not being satisfied of the prerequisite in r 671(a). That is not to suggest the respondent carries the ultimate persuasive onus under r 671(a) but that provision does not require the applicant to go so far as to satisfy the court that costs will not be paid. The satisfaction called for by r 671(a) is satisfaction that there is reason to believe costs will not be paid. Notwithstanding the evidence of Mr McEvoy’s means and of his preparedness to pay the company’s costs I am satisfied there is reason to believe the plaintiff will not be able to pay the defendant’s costs if ordered to pay them. Discretionary considerations [34] The considerations in r 672 most relevant here are the means of those standing behind the proceeding, the impecuniosity of the company, whether the plaintiff’s impecuniosity is attributable to the defendant’s conduct and the question of whether an order for security for costs would be oppressive or stifle the proceeding. [35] While there are obviously difficulties confronting proof of the plaintiff’s claim I am not prepared to arrive at such a view of its prospects as to give any particular weight to the prospects or merits of the proceeding in the present exercise. While there was some delay in the institution of the proceeding I do not regard the genuineness of the proceeding as as a material consideration here either. [36] The company’s impecuniosity and the means of Mr McEvoy have been reviewed above. [37] This is not a case in which it appears an order for security for costs will stultify the action by reason of a lack of resources not only of the company but also of those standing behind it. To the contrary, while the company may lack resources, Mr McEvoy contends he does not. -- 6 of 7 -- 7 [38] The applicant submits this is a case in which the company has dissipated assets and contends that is a relevant consideration5. The evidence of the apparent sale by the plaintiff of real estate at a gross undervalue has been outlined above. I do not impute any particular motive to that transaction but there is no evidence to suggest that insofar as it tended to cause the impecuniosity of the plaintiff the transaction was attributable to the defendant’s conduct. [39] In all of the circumstances I am satisfied in the exercise of my discretion that I should make an order for security for costs. Appropriate orders [40] The amount sought, $60,000, is supported by the professional opinion of the applicant’s solicitor as to the likely costs of the proceeding on a standard basis assuming a two day trial. The estimate involves no particularity and does not descend into a breakdown of those likely costs. It is well settled that an order for security for costs need not purport to secure payment of the entirety of the anticipated costs. In the circumstances of this case I consider the appropriate quantum is $45,000. [41] On the question of the costs to be ordered in respect of this application, neither party contended other than that costs should follow the event. Order [42] I make orders that – 1. The plaintiff provide security for the defendant’s costs of the proceedings in the amount of $45,000 to be either: (a) paid into court or (b) secured by provision of a bank guarantee evidenced in a form satisfactory to the Registrar, within 21 days of this order. 2. The proceeding is stayed until such security is provided. 3. The plaintiff pay the defendant’s costs of and incidental to this application to be assessed on the standard basis. 4. Each party has liberty to apply on two clear days written notice to the other. 5 per Green v CGU Insurance Ltd (2008) 67 ACSR 105 at 119 -- 7 of 7 --