Castillejo & Ors v Botella & Anor [2008] QSC 333

SUPREME COURT OF QUEENSLAND CITATION: Castillejo & Ors v Botella & Anor [2008] QSC 333 PARTIES: JOSE MARIA CASTILLEJO (first plaintiff) ORIGO INVESTMENTS PTY LTD (ACN 107 326 483) (second plaintiff) ORIGO BIOTECH PTY LTD (ACN 107 328 085) (third plaintiff) JOMACA 98 SOCIEDAD LIMITADA (fourth plaintiff) v DR JIMMY BOTELLA (first defendant) UNIQUEST PTY LTD (ACN 010 529 898) (second defendant) FILE NO/S: BS 7355/08 DIVISION: Trial Division PROCEEDING: Application for security for costs ORIGINATING COURT: Supreme Court at Brisbane DELIVERED ON: 19 December 2008 DELIVERED AT: Brisbane HEARING DATE: 4 December 2008 JUDGE: Martin J ORDER: 1. The plaintiffs provide security for the defendants’ costs of the proceedings up to and including the first day of trial: (a) In the amount $250,000; and (b) In a form to be determined by the Registrar; and (c) Within 21 days of this order. 2. In the event that the plaintiffs fail to provide such security within 21 days, the proceeding is stayed until such security is provided. 3. The plaintiffs pay the defendants’ 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 others. CATCHWORDS: PROCEDURE – COSTS – SECURITY FOR COSTS – RESIDENCE OUT OF JURISDICTION - ENFORCEABILITY OF JUDGMENT UNDER SERVICE -- 1 of 11 -- 2 AND EXECUTION OF PROCESS ACT – where plaintiff is impecunious – whether the plaintiff’s impecuniosities was directly attributable to the conduct of the defendants – amount of security which should be ordered. Corporations Act 2001, s 1335 Uniform Civil Procedure Rules 1999, r 670, r 671, r 672 Connop v Varena Pty Ltd [1984] 1 NSWLR 71 Eastgate Properties Pty Ltd v J Hutchinson Pty Ltd [2005] 2 Qd R 1 Emanuel Management Pty Ltd (In liq) v Fosters Brewing Group Ltd & Ors [2003] QCA 552 Energy Drilling Inc v Petroz NL (1989) ATPR §40-954 Karam v Mansukhani [2006] QCA 349 Kennedy v Nine Network Australia Pty Ltd [2008] QSC 134 Logue v Hansen Technologies Ltd (2003) 125 FCR 590 Procon (GB) Ltd v Provincial Building Co Ltd [1984] 2 All ER 368 P S Chellaram & Co Ltd v China Ocean Shipping Co (1991) 102 ALR 321 COUNSEL: PG Bickford for the plaintiffs D Clothier for the defendants SOLICITORS: McCullough Robertson Lawyers for the plaintiffs HWL Ebsworth Lawyers for the defendants [2] Each defendant seeks an order for security for costs against the plaintiffs. The plaintiffs [3] The first plaintiff (Mr Castillejo) is a citizen of Spain. He has no assets within Australia apart from his shares in the second and third defendants which appear to be of negligible value. He does, though, have substantial assets in Spain. Through an affidavit sworn by his solicitor he asserts that his net worth is approximately €70,000,000. That sum is made up of: shares in Jomaca 98 (€72,000,000), a 50% share in a house in Mallorca (€1,500,000), shares in another Spanish company (€8,000,000) and various other assets (€2,000,000) less debts of €13,500,000. No evidence was given as to whether the debts of €13,500,000 were secured by any of the assets nor was any given about the priority Mr Castellejo’s creditors might have should a judgment be entered against him and enforcement sought in Spain. [4] The second plaintiff (Origo Investments) is an Australian company. The parties agree that it is of negligible value. [5] The third plaintiff (Origo Biotech) is also an Australian company and is also of negligible value. [6] The fourth plaintiff (Jomaca 98) is a Spanish company. It is not registered in and it has no presence in Australia. It holds some assets in Australia in the form of paintings. It claims through its solicitor to have net assets of €90,000,000. -- 2 of 11 -- 3 [7] Origo Investments holds the majority of shares in Origo Biotech. Mr Castillejo and Jomaca 98 own the majority of shares in Origo Investments. The action [8] The plaintiff’s action arises out of two research projects being carried out by the second defendant (Uniquest). They were the Papaya project and the Plentiful Gene project. Mr Castillejo became interested in investing in those projects and, as a result of that interest, Origo Biotech was formed. [9] The plaintiff’s allegations in the action fall into two broad categories. The first concerns assertions that the first defendant (Dr Botella) made material oral misrepresentations about the Papaya project which induced the plaintiffs to invest in both projects. That appears to be an issue which will necessarily be decided by reference to the credibility of the various witnesses who will be called on that point. [10] The second category of complaint by the plaintiffs is of a different nature. It is alleged that the projects were not conducted diligently or competently. The assertions made are very broad and will, most likely, result in a detailed scrutiny of the conduct of the projects. [11] The claims made by the plaintiffs are for the losses they have suffered through investing in the projects. [12] The pleadings have closed, disclosure has yet to take place and the matter is on the supervised case list. The rules [13] An order for security for costs may be made under either or both of r 670 of the Uniform Civil Procedure Rules 1999 and s 1335 of the Corporations Act 2001. [14] Rule 671 sets out the prerequisites for an order 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 (b) the plaintiff is suing for the benefit of another person, rather than for the plaintiff’s own benefit, and there is reason to believe the plaintiff will not be able to pay the defendant’s costs if ordered to pay them; or (c) the address of the plaintiff is not stated or is misstated in the originating process, unless there is reason to believe this was done without intention to deceive; or (d) the plaintiff has changed address since the start of the proceeding and there is reason to believe this was done to avoid the consequences of the proceeding; or (e) the plaintiff is ordinarily resident outside Australia; or (f) the plaintiff is, or is about to depart Australia to become, ordinarily resident outside Australia and there is reason to believe the plaintiff has insufficient property of a fixed and -- 3 of 11 -- 4 permanent nature available for enforcement to pay the defendant’s costs if ordered to pay them; or (g) an Act authorises the making of the order; or (h) the justice of the case requires the making of the order.” [15] Mr Castillejo and Jomaca 98 both satisfy r 671(e) because each of them is “ordinarily resident outside Australia”. Origo Investments and Origo Biotech both satisfy r 671(a) because both of them are corporations and, it is agreed, that there is reason to believe that neither of them would be able to pay the defendants’ costs if ordered to do so. [16] Rule 672 sets out the discretionary factors for security for costs. That rule 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 prospects of success or merits of the proceeding; (c) the genuineness of the proceeding; (d) for rule 671(a)—the impecuniosity of a corporation; (e) whether the plaintiff’s impecuniosity is attributable to the defendant’s conduct; (f) whether the plaintiff is effectively in the position of a defendant; (g) whether an order for security for costs would be oppressive; (h) whether an order for security for costs would stifle the proceeding; (i) whether the proceeding involves a matter of public importance; (j) whether there has been an admission or payment into court; (k) whether delay by the plaintiff in starting the proceeding has prejudiced the defendant; (l) whether an order for costs made against the plaintiff would be enforceable within the jurisdiction; (m) the costs of the proceeding.” Mr Castillejo [17] It is not unusual for a person who is resident outside Australia to be required to provide security for costs. It does not necessarily follow that an order will be made in those circumstances but that is the ordinary rule. 1 [18] The principles were put this way by Gummow J in Energy Drilling Inc v Petroz NL2 : “The purpose of ordering security for costs against an applicant ordinarily resident outside the jurisdiction is to ensure that a successful respondent will have a fund available within the jurisdiction of this Court against which it can enforce the judgment for costs, so that the respondent does not bear the risk as to the certainty of enforcement in the foreign country and as to the time and 1 Logue v Hansen Technologies Ltd (2003) 125 FCR 590 at [38]-[39]; P S Chellaram & Co Ltd v China Ocean Shipping Co (1991) 102 ALR 321 at 323. 2 (1989) ATPR §40-954. -- 4 of 11 -- 5 complexity of the action there which might be necessary to effect enforcement: Kent Heating Ltd. v. Cook-on Gas Products Pty. Ltd. & Anor (1984) 59 A.L.R. 277 at p. 279. On the other hand, the mere circumstance that an applicant is resident outside the jurisdiction does not necessarily invite an exercise of discretion in favour of ordering security, the question being how justice will best be served in the particular case: Barton v. Minister for Foreign Affairs (1984) 2 F.C.R. 463; CBS Records Australia Ltd. & Ors v. Telmak Teleproducts (Aust.) Pty. Ltd. (1987) ATPR ¶40-783 at pp. 48,554- 48,555; (1987) 72 A.L.R. 270 at pp. 284-285.” [19] While Mr Castillejo concedes that it is open for the court to make an order for security it was submitted on his behalf that any such order should be restricted to the amount necessary to the costs which would be incurred in enforcing a judgment of this court against the first and fourth plaintiffs in Spain. I was referred to the decision of Rath J in Connop v Varena Pty Ltd. 3 In that case the plaintiff was “ordinarily resident” in New Zealand. Legislation in New Zealand allows for the enforcement by registration in New Zealand of judgments of the Supreme Court of New South Wales and other courts. An order for costs against the plaintiffs in that case would, according to Rath J, “present no difficulties of any significance upon registration proceedings in New Zealand, and though there is provision for setting aside registered judgments none of the cases (as they are called in the Act) for so doing would be applicable”. [20] His Honour went on to say: “thus there may be some delay, inconvenience and expense arising from registration and execution of a judgment in New Zealand; but apart from this I see no difference in regard to the costs of the first and second defendants between the circumstances of this case and those of a similar case where a plaintiff is not ordinarily resident outside the State. With only minor reservations, a judgment for costs will be as effective against the plaintiffs here as it would be in the case of a plaintiff who did not ordinarily reside outside the State …” [21] Security was ordered by Rath J in an amount sufficient to cover the costs of enforcement proceedings in New Zealand. [22] That decision was distinguished by Sheppard J in Kent Heating Lt v Cook-On Gas Products Pty Ltd.4 That case also involved a New Zealand company, but his Honour distinguished Connop by identifying a number of issues such as the need for Reserve Bank approval to transmit money out of the country, the date at which the exchange rate should be fixed, and the exposure of the applicant to additional risk as being relevant to the discretion: “The provisions of s 56 of the Judicature Act, so it seems to me, do enable a party such as the applicant here to oppose registration of a judgment in a greater variety of cases than is the case in relation to a judgment registered under the Reciprocal Enforcement of Judgments Act. Nevertheless, as Mr Heydon has submitted, it would seem 3 [1984] 1 NSWLR 71. 4 (1984) 59 ALR 277 -- 5 of 11 -- 6 difficult to think that the opposition if made could be successful or could involve much delay or very great expense. Certainly the amount which has already been provided for security would seem to be enough to cover whatever costs would be involved. On the other hand, If I decline to order further security, the respondents, if they are successful in the proceedings and obtain an order for costs against the applicant, will be at some risk, even though the risk be not great, as to the certainty of enforcement and as to the time and complexity of the action that might be necessary to effect it. Nevertheless, if there were no other factors, I think I may, notwithstanding the fact that the Reciprocal Enforcement of Judgments Act does not apply, have come down on the side of approaching the matter much in the same way as Rath J. I confess to having great sympathy for the approach which he adopted in the Connop case, but there is the distinction that in the Connop case the plaintiffs did have some assets in the jurisdiction. That may be said to be offset in the present case by the fact that already the applicant has provided $10,000 by way of security for costs, but other factors that I think should be taken into account are these. There is, firstly, the need for a party wishing to pay money out of New Zealand to someone in another country to obtain Reserve Bank approval. Upon the evidence that I have at the moment it would seem that there is unlikely to be any difficulty about that matter. But this matter will not be resolved for some months or perhaps for even a year. One cannot foresee what the position may be at the end of that time. With the best will in the world there may be a problem. Again the probabilities may be that there will not be a problem, but the question is why should the respondents in the present case be put at risk. Then, as Mr Catterns on behalf of the respondents has mentioned, there may be a problem as to determining the date upon which the exchange rate for the payment of the money will be fixed. Will it be the date of the order for costs, the date of the certificate of taxation or the date of enforcement? Again, these matters may not present over much difficulty when they are looked at carefully, but why, I repeat, should the respondents in a case which, apparently, does not involve any financial hardship on the part of the applicant, be put at risk.” 5 (emphasis added) [23] An affidavit read on behalf of the defendants 6 exhibited the opinion of a Spanish lawyer (Luis de San Simón) as to the enforceability of a judgment of this Court in Spain. Mr San Simón’s opinion was: (a) There is no treaty or agreement between Australia and Spain which provides for reciprocal enforcement of judgments; (b) In that case, provisions of the Spanish Civil Procedural Act apply; 5 At 279. 6 Affidavit of C T Harris. -- 6 of 11 -- 7 (c) It provides that foreign judgments will receive the same consideration in Spain that Spanish judgments receive in the state of origin; (d) In the alternative, there are several conditions with which a foreign judgment would have to comply in order to be recognised and enforced in Spain; and (e) A judgment of this Court on costs would, in principle, be recognised and enforceable in Spain if reciprocity was proved or if the judgment complied with the conditions set out in the Civil Procedural Act. [24] Mr San Simón goes on to say that the procedure for enforcement involves: (a) Lodging the document with official translations before the Courts of First Instance of the domicile of the party against whom enforcement is sought; (b) Serving a copy of those documents on the party against whom enforcement is sought; (c) Bringing the application to the notice of the prosecutor’s office in order to hear its opinion with respect to the enforceability or non- enforceability of the judgment; and (d) After the parties’ allegations and the opinion of the prosecutor are lodged before the Court of First Instance a decision is issued about the recognition of enforceability of the foreign judgment. [25] It is interesting to note that Mr San Simón says that while, theoretically speaking, all this should take place in a short period of time, the Spanish Courts of First Instance “are presently overloaded and a considerable period of time could run” from the time the application was lodged until the decision was issued. He further noted that as Jomaca 98 is a company registered in Madrid it would be necessary to proceed in the Courts of First Instance of Madrid which, he observes, are “almost collapsed”. He goes on to say: “It is difficult to give an estimate of time as it would depend on the agenda of the particular court to which the application is allocated by the Court Dean of Madrid but I would say that it would not be surprising if exequatur proceedings in Madrid could take more than one year before the exequatur decision were rendered in the first instance.” [26] He also advised that it was possible for the decision on recognition and enforceability to be appealed to the Court of Appeal and, in extraordinary circumstances, subject to a further appeal before the Spanish Supreme Court. Mr San Simón lists the defences which are available to a respondent to this type of application and notes that the list of defences is not regarded as being closed. [27] Finally, he advises that the likely cost to the applicants depends upon the amount of the judgment and, on the basis that costs would be in the region of A$400,000 the likely costs involved in any enforcement process would be: First Instance proceedings around €15,000 Appeal proceedings around €6,000 to €9,000 Extraordinary appeal before the Supreme Court around €6,000 to €9,000 [28] No argument was directed towards the enforceability of Spanish judgments in Queensland. Spain is not included in the list of nations in the Foreign Judgments -- 7 of 11 -- 8 Regulations 1992, thus, enforcement in this State of a Spanish judgment will depend upon compliance with Chapter 20A of the Uniform Civil Procedure Rules. [29] The circumstances of the first plaintiff fall within the principle as enunciated by McHugh J in P S Chellaram & Co Ltd v China Ocean Shipping7 where his Honour said: “…the fact that a party, bringing proceedings, is resident out of the jurisdiction and has no assets within the jurisdiction has been seen as a circumstance of great weight in determining whether an order for security for costs should be made. Indeed, for many years the practice has been to order such a party to provide security for costs unless that party can point to other circumstances which overcome the weight of the circumstance that that person is resident out of and has no assets within the jurisdiction.” [30] While the processes of enforcement in New Zealand courts would not be alien to Queensland lawyers, the same can not be said of Spain. Enforcement, in the absence of a treaty, is not automatic and, of course, the pitfalls and problems which might beset a judgement creditor can not be assessed from this remove. The risks inherent in the process which might need to be followed are those identified, at least, by Sheppard J and there may be others which are unknown. Mr Castellejo has not been able to “point to other circumstances which overcome the weight of the circumstance that [he] is resident out of and has no assets within the jurisdiction.” In the circumstances of this case, I prefer the approach taken by Sheppard J in Kent Heating. [31] There is no suggestion that the provision of security for costs by Mr Castillejo will involve any financial hardship on his part and I see no reason why the applicant/defendants should be put at risk so far as pursuing a judgment of this court in a foreign country is concerned. I will deal with the question of the amount of security later in these reasons. Origo Investments and Origo Biotech [32] The second and third plaintiffs concentrated their submissions on the assertion that the impecuniosity of each of them was directly attributable to the conduct of the defendants which is the subject of the action. In an application of this nature Origo Investments and Origo Biotech have the onus of proving that the cause of the plaintiffs’ impecuniosity is attributable to the defendants’ conduct and, were it not for the defendants’ conduct, the plaintiffs would have been financially secure. 8 [33] In support of the submission that the company’s impecuniosity is due to the defendants’ conduct, a valuation of the company was put in evidence. The report on valuation was not prepared for the purposes of this application. In para 1.1 of the report it is noted that the assessment of the value of the issued capital of Origo Biotech was “required for the consideration of the directors in undertaking private negotiations with prospective investors in the equity of the company”. [34] The report is premised on a number of assumptions and is subject to a number of disclaimers. The authors note that the biotechnology projects the subject of the 7 (1991) 102 ALR 321 at 323. 8 Memutu Pty Ltd v Lissenden (1983) 8 ACLR 364. -- 8 of 11 -- 9 report are “highly speculative in nature”. The commendable caution of the authors is also highlighted in para 3.4 where they say: “We consider that, having regard to the speculative nature of this valuation, we are unable to given an undertaking as to the reasonableness of any or all of the assumptions adopted in this report.” [35] In para 3.5 the authors say: “We also consider that the inherent nature of the projects being undertaken by Origo requires that an assessment of scientific risk be made in respect of each project. This is the risk that the projects being developed by Origo may not work, from a technical or scientific standpoint, or achieve the expected or desired outcome. We are unable to assess the level of scientific risk associated with any or all of Origo’s projects.” [36] The report goes on further: “3.7. We also advise that in relying upon the Origo business plan and projected revenues within, we have not undertaken a comprehensive assessment of the commercial risk associated with any of the projects being undertaken by Origo. … 3.10 In our opinion, investors in Origo who subscribe for share in the company are potentially exposed to various risk to the value of those share, now and in the future. … Accordingly, we consider that any investment in Origo should be considered highly speculative in nature. 3.11 In our opinion, bearing in mind the inherently speculative nature of the activities of Origo, this report should be considered an ‘Indicative Valuation’ only. We understand that the management of Origo have undertaken their best endeavours in the provision of information to us and their assessment of commercial possibilities and target markets. However, in our opinion, the calculations of value in tis report should be considered no more reliable than the information provided to us by Origo, including the representations and forecasts set out in Origo’s business plan. …” [37] The nature of the valuation, the assumptions upon which it is made, the disclaimers which are contained within it, and the original purposes of the valuation do not allow me to infer that the current state of impecuniosity of Origo Investments and Origo Biotech is attributable to the conduct of the applicants. That inference cannot be drawn even if I accept, for the purposes of argument that the plaintiffs will be in a position to make out the claims pleaded against the defendants. Jomaca 98 [38] The fourth plaintiff is a Spanish registered company in which Mr Castillejo has a major interest. It is said to have considerable assets with a net worth of €90,000,000. The only property which it owns in Australia consists of some paintings which were originally purchased for approximately $200,000 and which have recently been -- 9 of 11 -- 10 valued in the range of $175,000 to $211,000. It is argued for Jomaca 98 that those paintings are sufficient to satisfy an order for costs. Otherwise, Jomaca 98 is in the same position as Mr Castillejo. [39] I do not think that the mere existence of these paintings in Australia assists the respondent’s argument. Such assets are easily moved and, even though Jomaca 98 offered an undertaking not to remove them from Australia, they are subject to the vagaries of a market which (certainly at the moment) is extremely volatile, and there is no evidence that they are unencumbered. They do not represent the security to which the applicants are entitled. Should security be provided? [40] The discretion open to the court to order security is, so far as the first and fourth plaintiffs are concerned, significantly influenced by the fact that they are both resident outside Australia. The third and fourth plaintiffs are impecunious and the evidence does not compel a conclusion that that state of affairs is due to the conduct of the defendants. The applicant/defendants have satisfied me that an order for security for costs should be granted with respect to each plaintiff. It is now a question of the quantum of that security. Quantum of security [41] The defendants’ solicitor has estimated that the defendants’ standard costs up to and including the first day of trial will be approximately $425,000. At first sight, this appears to be an extremely large amount of money, but the applicant/defendants argue that this is a very complicated case which will require extensive and intensive preparation. Both sides have engaged costs consultants to provide evidence on the appropriate level of the amount of security. [42] It has frequently been observed that it is only possible for a court to take a “broad brush” approach on applications such as this after having taken into account all the circumstances of the case. 9 In this State, orders are usually made on a standard basis and they have traditionally been conservative in relation to the quantum of orders for security for costs.10 [43] The estimate provided by the defendants is said, by the plaintiffs, to be in excess of an appropriate amount by at least $127,000. [44] In arriving at an appropriate figure I must take into account the principles referred to above and the evidence provided by the costs consultants. I should also take into account the possibility that the matter might settle prior to trial.11 Taking into account the matters raised by the costs consultants about the extent of costs which will be appropriately incurred up to and including the first day of trial, I think that an amount of $250,000 is a reasonable sum which will be sufficient to comply with the general principles relating to security of costs and, at the same time, represent a conservative amount consistent with those principles. 9 Eastgate Properties Pty Ltd v J Hutchinson Pty Ltd [2005] 2 Qd R 1. 10 Emanuel Management Pty Ltd (In liq) v Fosters Brewing Group Ltd & Ors [2003] QCA 552; see also Karam v Mansukhani [2006] QCA 349 and Kennedy v Nine Network Australia Pty Ltd [2008] QSC 134. 11 Procon (GB) Ltd v Provincial Building Co Ltd [1984] 2 All ER 368 at 376. -- 10 of 11 -- 11 [45] I therefore make the following orders: 1. The plaintiffs provide security for the defendants’ costs of the proceedings up to and including the first day of trial: (a) In the amount $250,000; and (b) In a form to be determined by the Registrar; and (c) Within 21 days of this order. 2. In the event that the plaintiffs fail to provide such security within 21 days, the proceeding is stayed until such security is provided. 3. The plaintiffs pay the defendants’ costs of an 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 others. -- 11 of 11 --