Coyle v Cassimatis [1994] QSC 4 [1994] 2 Qd R 262

$ r ' '--' I DOCf eporting Bureau TRANSCRIPT OF PROCEEDINGS (Copyright in this transcript is vested in the Crown. Copies thereof must not be made or sold without the written authority of the Director, State Reporting Bureau.) SUPREME COURT OF QUEENSLAND CIVIL JURISDICTION RYAN J No 1150 of 1991 ALEXANDER GEORGE COYLE and SIDNEY MERLE COYLE and GERRY CASSIMATIS BRISBANE .. DATE 1 4 I 01 I 9 4 JUDGMENT Plaintiff Defendant 1 4th Floor, The Law Courts, GeorJ(e Street, Brisbane. 0. 4000 TPlPnhM P 7 -- 1 of 10 -- 140.1-9~ lrb (Ryan J) HIS HONOUR: I dismiss the application, but in the circumstances I consider it proper to order that the costs of the application be reserved. I publish my reasons. 2 10 20 30 40 50 60 -- 2 of 10 -- IN THE SUPREME COURT OF QUEENSLAND No. 1150 of 1991 Brisbane Before Mr Justice Ryan [Re: Coyle v Cassimatis] BETWEEN: AND: ALEXANDER GEORGE COYLE and SIDNEY MERLE COYLE GERRY CASSIMATIS REASONS FOR JUDGMENT - RYAN J. Judgment delivered 14/01/1994 Counsel: Mr P McMurdo Q.C. for Applicant Mr A Collins for Respondents Solicitors: Clayton Utz for Applicant Plaintiff Defendant Wellner, Poole & Gray for Respondents Hearing Date: 10 December 1993 -- 3 of 10 -- IN THE SUPREME COURT OF QUEENSLAND Brisbane Before Mr Justice Ryan [Re: Coyle v Cassimatis] BETWEEN: AND: ALEXANDER GEORGE COYLE and SIDNEY MERLE COYLE GERRY CASSIMATIS REASONS FOR JUDGMENT - RYAN J. Judgment delivered 14/01/1993 No. 1150 of 1991 Plaintiff Defendant The defendant seeks an order that the plaintiffs give security for the defendant's costs of this action in the sum of $100,760 to the satisfaction of the Registrar, and that in the meantime all further proceedings in the action be stayed. Mr & Mrs Coyle, the plaintiffs, became bankrupt on 15 April 1991 on their own petitions. They assert a claim against their former solicitor for negligence which they say exceeds $1,000,000. They say that they paid $220,000 for shares in a company to acquire a business run by that company which was rendered valueless because of a business set up by an outgoing -- 4 of 10 -- 2 director in direct competition with them. The solicitor is alleged to have been negligent in relation to the failure to insert into the contract an enforceable non-competition clause. It is claimed that in addition to the loss of the purchase price, they lost interest on borrowings and a property portfolio of $400,000 offered as security on the borrowings. The annual net profit of the business at the time of purchase was $250,000. On 5 July 1991 the plaintiffs issued a writ claiming against the defendant damages for breach of contract and/or negligence in relation to the work and advice of the defendants for the plaintiffs in respect of their purchase of a business in or about June 1986. A statement of claim was delivered on 1 October 1991. The defence alleged inter alia that on 15 April 1991 the plaintiffs were declared bankrupt and their property, including this cause of action, vested in Mr Denby the Trustee in Bankruptcy; and that in consequence the plaintiffs were not competent to maintain the cause of action. Application was made to a Master to strike out the plaintiff's action in April 1992. The application was adjourned, as the plaintiffs asserted that they intended to make an application bankruptcy. under the Bankruptcy Act for annulment of the On 16 April 1993 that application was dismissed. A composition order was subsequently proposed and adopted, and the bankruptcy was annulled with effect from 14 May 1993. On 26 May 1993, the plaintiffs' action was struck out as an abuse of process. On 1 November 1993 this order was set aside. The reason for doing this is summarised as follows in the judgment of the learned President of the Court of Appeal:- -- 5 of 10 -- 3 "In summary, the making of the composition annulled the bankruptcy, and with it the incompetence of the bankrupt to bring or maintain the action. The effect of the composition was that the cause of action, and the right to bring it in their own names, remained with the appellants. The pending action, although capable of being attacked as an abuse of process during the pendency of the bankruptcy, was not so attacked. Upon the making of the composition and the annulment of the bankruptcy, the bankrupt's competence to bring and maintain the action was fully restored. In these circumstances the pending action should not be regarded as a nullity, and the appellants are now competent to maintain it. It should not have been struck out." The composition provided for the appointment of Mr Denby as "the trustee" under this Composition. Clauses 2 and 3 and 8 are in these terms: "2. All our property currently vested in STEPHEN LEONARD DENBY as Trustee in Bankruptcy shall vest in him as Trustee under this Composition. 3. We propose that we continue for the benefit ofour creditors generally our action for damages claimed in excess of one million dollars ($1,000,000.00 fornegligence against our former solicitor currentlybefore the Supreme Court of Queensland Brisbane Registry pursuant to Writ of Summons 1150 of 1991 and estimated to be completed before 30 June, 1996 (hereinafter called "the action') in that the entire proceeds of that claim (including any costs or interest awarded) be vested with such other property referred to in clause 2 hereof in STEPHEN LEONARD DENBY pursuant to this Composition and be distributed by him in priority as follows: (a) In payment of our legal costs and outlays associated with the action as taxed or agreed to by my Trustee including any costs necessarilyrefundable to the Legal Aid Office Queensland associated with the action to date. (b) In payment of our Trustee's costs in relation to the administration of our bankruptcy to date and the administration of his Trusteeship pursuant to this Composition; (c) Subject to the provisions of the Bankruptcy Act,1966 (as amended) as to priorities (which provisions are to apply to the administration of this composition mutatis mutandis), in payment of the debts of our proven creditors in full, unless there be insufficient monies to make payment in -- 6 of 10 -- 4 full and in that event, in payment of our proven creditors debts on a pro rata by way of final dividend among proven creditors in satisfaction of their respective claims; and (d) Payment of the balance of any funds remaining after payment in full of our proven creditors' debts to us or at our direction. 8. In the event that the Bankrupt fails to observe any of the covenants herein contained then the Creditors may by special resolution passed at a meeting called for this purpose terminate this Composition and in the event that the annulment of the Bankruptcy affected by this composition fails to validate the action or for any other reasons the bankrupt fail to prosecute the action, then the debtors will again petition for their own bankruptcy within four days from the date of that termination." In relation to this, the learned President observed that "although the composition is poorly drafted, the better construction is that the appellants' cause of action against the respondent is to continue to remain in the appellants and the action is to continue to be pursued by them in their name, with the proceeds, when received, to be vested in Mr. Denby as trustee for the creditors in accordance with the composition." The main submission made on behalf of the applicant defendant was that as the creditors were owed $650,000, and there was no real prospect that the plaintiffs would recover more than that amount, the plaintiffs were in effect suing as nominal plaintiffs and an order could be made that security be given. It was submitted that the plaintiff could not recover both the purchase price of the shares and the amount they borrowed to pay the purchase price. It was further submitted that even if there was any prospect of recovering more than $600,000, this would not benefit the plaintiff, since the defendant's resources were less than that amount. It was said that his insurance cover was limited to $250,000, and that the sum of his insurance cover and -- 7 of 10 -- 5 assets was approximately $315,000. Accordingly the only possible beneficiaries of the claim would be the creditors. The reply made to this was that the plaintiffs had an interest in pursuing for themselves the excess after payment of the creditors and costs of $300,000 or more arising out of their claim, and that the insurance cover was more likely to be $750,000, as there were at least three separate acts or omissions identifiable in the defendant's conduct in relation to the subject transaction. said: In Cowell v Taylor (1885) 31 Ch.D 34 at p. 38, Bowen LJ "The general rule is that poverty is no bar to a litigant; that, from time immemorial, has been the rule at common law, and also, I believe, in equity. There is an exception in the case of appeals ... There is also an exception introduced in order to prevent abuse, that if an insolvent sues as nominal plaintiff for the benefit of somebody else, he must give security. In that case the nominal plaintiff is a mere shadow." Reference was made in that case to a statement by Lord Blackburn in Malcolm v Hodgkinson (1873) 8 QB 209 that where an insolvent person is suing as trustee for another, it has long been the rule to require security for costs. Those remarks were interpreted as referring to the case of a person who is a bare trustee for someone else. Om the other hand, in Ramsey v Hartley [1977] 2 All ER 673, Megaw LJ said at p.682:- "The defendant asks for security for costs. In the High Court, bankruptcy by itself is not a ground for an order for security for costs, any more than the poverty of the plaintiff is a ground. So the defendant had to seek some other grounds. The defendant's ground is that the plaintiff is a 'nominal defendant' under RSC Ord 23, r 1(i)(b). It is said that he is 'nominal' because his interest is no more than 65 per cent of the proceeds if the action succeeds. For the remaining 35 per cent the plaintiff -- 8 of 10 -- 6 is, as it is put, a 'front' for other persons, his creditors. That does not make him a nominal plaintiff. Even if it did, I should not, on the evidence here, exercise my discretion in favour of ordering security for costs." A plaintiff will be a nominal plaintiff, in my opinion, only if he is incapable of deriving any benefit for himself from his action. In that case, he will be a "mere shadow", a "bare trustee for someone else". In these circumstances, security would normally be ordered to be given. If he is capable of . deriving a benefit for himself from the action, he will not be a nominal plaintiff. In the instant case, there is dispute as to whether the plaintiffs have any real prospect of benefiting personally from their action. It would in my view be wrong to attempt to resolve the issue of quantum of damages on the material before me. So far as concerns the ability of the defendant to meet a claim in excess of $650,000 is concerned, I regard this as irrelevant to the question whether the plaintiff is suing as a nominal plaintiff. It may well be the position that the insurance cover is limited to $250,000. See Thorman v New Hampshire Insurance Co [ 1988] 1 LLR 7 at p. 11 . I consider however the fact that the plaiptiffs if successful may not be able at least immediately to recover any amount for their own benefit does not mean that they will be only nominal plaintiffs. I consider that an order for security for costs should not be made against an impecunious plaintiff unless it is unequivocally established that he is suing as a nominal plaintiff only. -- 9 of 10 -- 7 In the instant case, the plaintiffs have brought an action in their own names for the recovery of damages they claim are payable to them. They cannot be said to be nominal plaintiffs in the sense of being persons really put forward by some other person to bring an action on behalf of that person. See Cook v Whellock (1890) 24 QBD 658 at p.661. I am not satisfied on the material before me that they are nominal plaintiffs in the sense that they are suing as bare trustees for the creditors. At least that is not the effect of the composition. But even if they are nominal plaintiffs, I consider that I should exercise my discretion so as not to make an order. The allegation by the plaintiffs is that they have lost their assets as a consequence of the defendant's negligence. That is, in my opinion, a matter to be taken into account in deciding whether to impose an order which would probably make it impossible for the plaintiffs who are both invalid pensioners to pursue their action. I have regard also to the terms of cl.8 of the Composition, by which it may be terminated if a stay of proceedings is ordered until security for costs is given. I dismiss the application, but in the circumstances I consider it proper to order that the costs of the application be reserved. -- 10 of 10 --