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  • Unreported Judgment

E&N Collins Enterprises Pty Ltd v Kingaroy Mall Pty Ltd


[2006] QSC 187





ACN 079 650 436


Trial Division




Supreme Court


2 August 2006




26 July 2006


Philippides J


The application is dismissed


PROCEDURE – SECURITY FOR COSTS – where defendants seek order for security for costs – where corporate plaintiff impecunious –  where natural persons standing behind the corporate plaintiff are co-plaintiffs – discretion to award security for costs –  whether natural person plaintiffs divested themselves of assets – whether assets diverted to their superannuation fund – significance of existence of superannuation fund in exercise of discretion to award security

Corporations Act 2001 (Cth), s 1335

Uniform Civil Procedure Rules 1999 (Qld), r 671, r 672

Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1

Cherry and Ors v Read and Ors (Unreported, Black CJ, Sackville and Finn JJ, QG 68 of 1996, 7 November 1996, 21 November 1996)

Epping Plaza Fresh Fruit & Vegetables Pty Ltd v Bevendale Pty Ltd [1999] 2 VR 191

Iron Gates Pty Ltd (in liq) v Richmond River Shire Council [2002] QSC 458

Massey Trading Pty Ltd v Intoto Pty Ltd [2001] FCA 1242

Project Leaders Pty  Ltd v Mt Isa Irish Association Friendly Society [2003] QSC 064

Shannon v Australian & New Zealand Banking Group Limited (No 2) [1994] 2 Qd R 563


Mr M T Brady for the first and second plaintiffs

Mr T Sullivan for the first and second defendants


Paul Everingham & Co for the first and second plaintiffs

Gadens Lawyers for the first and second defendants


The application

[1] The applicants, who are the first and second defendants by counterclaim, seek orders for security for costs against the respondent plaintiffs by counterclaim. The counterclaim proceedings are brought by E&N Collins Enterprises Pty Ltd, as first plaintiff by counterclaim and by Mr and Mrs Collins, who are the only directors and shareholders of the corporate plaintiff, as second plaintiffs.  In those proceedings, the plaintiffs seek, inter alia, damages for representations allegedly made negligently and in breach of the Trade Practices Act 1974 (Cth) and for wrongful refusal of consent.  The representations concern the purchase of a café business by the first plaintiff by counterclaim.

[2] Although the plaintiffs are counterclaiming defendants, it is conceded that they are in the position of plaintiffs for the purposes of the question of the security for costs application (see Project Leaders Pty  Ltd v Mt Isa Irish Association Friendly Society [2003] QSC 064 at [11]). For convenience, I shall refer to the plaintiffs by counterclaim as the plaintiffs and to the defendants by counterclaim who bring the application as the defendants. 

[3] The application is brought pursuant to s 1335 of the Corporation Act 2001 and r 671(1)(a) of the Uniform Civil Procedure Rules (“UCPR”) as against the first plaintiff and under r 671(h) of the UCPR as against the second plaintiffs.

[4] There is no dispute that as regards the corporate first plaintiff there is reason to believe that it would be unable to pay the defendants’ costs if ordered to do so. 

[5] I note that it is conceded that the claims brought by the plaintiffs are not trivial or vexatious, but genuine ones which raise a prima facie case. In any event, no concluded view can be formed at this stage as to prospects and that consideration does not therefore assist in advancing the matter. Furthermore, the question of whether the plaintiffs’ impecuniosity can be attributed to the conduct of the defendants does not feature in this case.  While it was submitted on behalf of the plaintiffs that the evidence supports such a conclusion, it is not possible to determine that matter until a conclusion as to the merits of the case is reached.  It is therefore of neutral value in determining the application.

[6] Counsel for the plaintiffs placed reliance on affidavit evidence that any order for security would have the effect of stifling the proceedings; Mr Collins receives a disability support allowance and has about $45,000 in a savings account and Mrs Collins receives a partner allowance and a carers allowance and otherwise has no income or assets in her name.

[7] Counsel also referred to the delay in bringing the application.  The counterclaim brought by the plaintiffs was filed on 6 May 2005 and the proceedings were transferred to the Supreme Court thereafter.  The plaintiffs have incurred significant expense in conducting this litigation to date; pleadings and particulars have been provided and disclosure is said to be complete with expert evidence having been obtained. 

[8] In response the defendants say that the application was prompted by documentation which was provided by the plaintiffs in respect of the purchase of a property in the name of the second plaintiffs as trustees for the E&N Collins Family Superannuation Fund (“the Fund”) and a solicitor’s diary note which raised concerns as to the diversion of the second plaintiffs’ assets.  It is thus appropriate to turn to that matter which was the principal issue raised on this application.

[9] Before doing so, I note that counsel for the plaintiffs submitted that the assets of the second plaintiffs, being the individuals that stand to gain from this litigation, are exposed in the proceedings by their being co-plaintiffs.  Counsel for the plaintiffs also pointed to the fact that the claims by the plaintiffs are substantially identical and contended that this is not a case where any of the plaintiffs are suing for the benefit of a third person.  It was contended that in those circumstances the defendants are in no worse position than if the counterclaim had been brought against them only by the second plaintiffs personally and accordingly security for costs ought not to be ordered against each plaintiff.  It is of course a weighty factor against the exercise of the discretion to award security that there are natural persons standing behind an impecunious company whose assets are available to meet a costs order, whether by undertaking or by being co-plaintiffs, although that consideration is not to be elevated to a predisposition towards a refusal of security (see Epping Plaza Fresh Fruit & Vegetable Pty Ltd v Bevendale Pty Ltd [1999] 2 VR 191 at 198; Iron Gates Pty Ltd (in liq) v Richmond River Shire Council [2002] QSC 458). 

[10] On behalf of the first and second defendants it was submitted that where, as is the case here, there is both an impecunious corporate litigant together with natural litigants, a security for costs order will be appropriate where the natural litigants have no assets in their name capable of being executed upon if an adverse costs order were made against them, but have or an inference may be drawn that they have other means (beyond the reach of creditors) from which they could provide security for costs without the result that the litigation would be stifled.  In making these submissions reference was made to Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1 at 4 where it was said:


“In our opinion a court is not justified in declining to order security on the ground that to do so will frustrate the litigation unless a company in the position of the appellant here establishes that those who stand behind it and who will benefit from the litigation if it is successful (whether they be shareholders or creditors, or as in this case, beneficiaries under a trust) are also without means.  It is not for the party seeking security to raise the matter; it is an essential part of the case of a company seeking to resist an order for security on the ground that the granting of security will frustrate the litigation to raise the issue of the impecuniosity of those whom the litigation will benefit and to prove the necessary facts.

[11] Reliance was also placed by counsel for the defendants on the decision in Cherry and Ors v Read and Ors (Unreported, Black CJ, Sackville and Finn JJ, QG 68 of 1996, 7 November 1996, 21 November 1996) where the decision of Kiefel J ([1996] 815 FCA 1) ordering security for costs against a natural plaintiff, Mr Cherry, was upheld.  Of importance to the decision to order security for costs in that case was the finding by Kiefel J that, although Mr Cherry as a party to the litigation was “available”, in the sense that a costs order could be enforced against his assets, he was worth nothing.  This was because he had deliberately organised his affairs so as to ensure that his assets would not be exposed to the vicissitudes of litigation.  The Full Federal Court held that, in considering whether a security for costs order ought to be made, there is no relevant distinction to be drawn between a natural person plaintiff who after commencing litigation, divests himself or herself of assets in order to frustrate an adverse costs order, (Shannon v Australian & New Zealand Banking Group Limited (No 2) [1994] 2 Qd R 563) and one who does so in advance of  proceedings or whose affairs are otherwise deliberately organised in order to obtain practical immunity from a costs order in any future litigation.

[12] The decision of Massey Trading Pty Ltd v Intoto Pty Ltd [2001] FCA 1242 was also cited by counsel in support of the application.  In that case an order for further security for costs was made by Conti J against a corporate litigant (Massey Trading) bringing proceedings together with natural persons (Mr and Mrs Dowse who were the directors of the corporate litigant).  In ordering further security, the Court had regard to evidence that the financial circumstances of the natural persons to the litigation had materially altered, in that they had come to have access to reasonably substantial superannuation funds, which had been applied in the payment of costs of the corporate litigant as well as their own costs. It was held that as regards the natural persons to the litigation, they were not placed personally in any situation of impecuniosity in light of their apparent access to superannuation funds of not insignificant size and that further security ought to be ordered to be provided by the corporate entity given the evidence of the amount of superannuation funds to which it had indirect access through Mr and Mrs Dowse.   In making the order for security for costs, Conti J observed:


“… Such superannuation funds are not susceptible to recourse by creditors, as is normally the case, and thus by any successful respondents to the present causes of action being pursued by the Applicants, but Mr and Mrs Dowse have access thereto at least for funding the litigation both on behalf of themselves and Massey as Applicants, in circumstances not explained in any detail by affidavit.


The Intoto Respondents therefore find themselves potentially in the dilemma of not being able to potentially benefit financially from any order for costs which might hereafter be made in their favour, if their defence to the actions of Massey and Mr and Mrs Dowse brought against them are found to be supportable. Mr and Mrs Dowse are thus placed by the circumstances to which I have referred in a situation analogous to that of insolvent natural persons, against whom security for costs cannot normally be ordered according to established principle.


I am unable to accept that the prima facie unfairness to the Intoto Respondents of this situation cannot be relieved by the making of an order for security against Massey, whose cause of action is plainly at least the principal one which such Respondents are obliged to meet…”

[13] It is convenient to turn now to the evidence in the present case concerning the dealings between the plaintiffs and the Fund.

[14] The Fund presently holds a unit in Toowoomba (purchased in December 2004 for $175,000) and cash and shares totalling about $30,000. 

[15] The material before the court shows that Mr and Mrs Collins established the Fund in 2002, well prior to the events the subject of litigation here.  Mr Collins’ superannuation from his previous employment, held in a Commonwealth Bank Super Select Fund, was rolled over into the Fund progressively between April 2002 and September 2003.  (As at May 2001, the amount of superannuation held in the Super Select Fund had been about $375,000). 

[16] It appears that Mr Collins subsequently received a distribution from the Fund and loaned that money to the first plaintiff to purchase the café business the subject of litigation. 

[17] In September 2003 a unit in Kingaroy was purchased by the Fund. It appears that Mrs Collins elderly parents moved into that unit in March 2004. 

[18] At that stage the second plaintiffs also owned a family home at Nanango.  In August 2004 the second plaintiffs proceeded to sell their family home, with settlement occurring on 16 December 2004.  The proceeds of sale were used, inter alia, to pay debts associated with the café business, leaving the second plaintiffs with a balance of approximately $175,000.   The evidence indicates that that sum was provided to the Fund to purchase the unit in Toowoomba. 

[19] The defendants contended that, by paying the $175,000 to the Fund for it to purchase the Toowoomba unit, the second plaintiffs have sought to divest themselves of assets.   It was said that inferences to that effect could be drawn from the fact that two contracts were entered into for the Toowoomba unit, the first being in the names of the second plaintiffs as purchasers and the second being in their names as trustees of the Fund.  Reliance was also placed on a diary note by the plaintiffs’ solicitors concerning the purchase the Toowoomba unit, in which reference was made to the contract of sale then being in the names of the second plaintiffs and observations were made as to the availability of that asset if held by the second plaintiffs personally to satisfy a judgment obtained by the defendants. 

[20] The solicitor’s diary note however is to be seen in the light of the affidavit of Mrs Collins.  Mrs Collins swore an affidavit explaining that it was always intended that the Fund purchase the Toowoomba unit to replace the Kingaroy unit which was to be sold.  It appears that Mrs Collins’ parents needed to move to Toowoomba so that her father could be treated by the Toowoomba hospital and it was intended that they reside at the Toowoomba unit. 

[21] The affidavit evidence of Mr Collins explains that while the first contract did not specify that the second plaintiffs contracted as trustees for the Fund that occurred as the result of a mistake by the real estate agent.

[22] It also appears that because it was uncertain when the Kingaroy unit would be sold and on advice from their accountant, the second plaintiffs decided to provide money obtained from the sale of the family home to the Fund by way of a bridging loan so that it could purchase the Toowoomba unit.  The affidavit evidence is thus that the money was provided not by way of contributions to the Fund, but by way of a loan to the Fund in the nature of “bridging finance”.  This is confirmed by the affidavit evidence of the accountant and a Minute of the Fund dated 9 October 2004.  Consistently with the payment of the $175,000 to the Fund being by way of a bridging loan, upon the Fund selling the Kingaroy unit in April 2006, it paid $103,000 to Mr Collins from the net proceeds of that sale (of $115,000) in partial repayment of the bridging loan.

[23] The defendants sought to make something of the fact that the 2005 Tax Return of the Fund does not refer to the bridging loan.  But by the same token neither does it refer to the $175,000 as being by way of contributions.  There is simply no reference to it.  The propriety of the Fund entering into a loan arrangement is not in issue in the present application.

[24] The evidence thus is to the effect that the $175,000 was provided by way of a bridging loan and that a significant part of the money loaned ($103,000) has now been repaid by the Fund to Mr Collins with the balance remaining owing.

[25] Given the evidence before the court, I am unable to find that the plaintiffs have managed their affairs so as to divest themselves of assets or to put their assets beyond reach of the defendants in the event that a costs order be made against them in these proceedings.  That the sum of  $175,000 was provided to the Fund by way of a loan and not as contributions, is to the benefit of the defendants since to the extent that money remains owing by the Fund under the loan, that is money which is available to creditors of the second plaintiffs. 

[26] Unlike the situation in Cherry v Read, the present case is not one where it can be said that the second plaintiffs had always so arranged their affairs as to ensure that their assets were outside the reach of creditors.  On the basis of the material before the court it cannot be said that the second plaintiffs have denuded either the corporate plaintiff or themselves of assets so as to defeat a potential costs order. 

[27] Nor is it the case that the Fund is being used as a means of funding the litigation as was the case in Massey Trading. Although the amount of $103,000 was paid to Mr Collins by the Fund, it was by way of repayment of the bridging loan.  Furthermore, while Mrs Collins is presently of an age that permits her to draw on the Fund, I understand that her entitlement is very small.  Mr Collins is not yet 55, but may be able to receive a distribution in respect of unpreserved funds.  I note however that this is not a case where there is a substantial fund involved.  To the contrary, the assets of the Fund are modest.

[28] Given that the assets of the second plaintiffs are available as a result of their being parties to the counterclaim proceedings, the commonality of the interests of the plaintiffs in those proceedings, that there is nothing to satisfy me that the second plaintiffs have arranged their affairs or those of the first plaintiff so as to place assets outside the reach of a potential costs order, the lack of evidence to indicate that the Fund is being accessed merely as a means of providing funding for the litigation and the modest assets held by the Fund, I do not consider that it is appropriate that an order for the provision of security for costs be made against any of the plaintiffs. 

[29] The application is dismissed.  I shall hear submissions as to costs.


Editorial Notes

  • Published Case Name:

    E&N Collins Enterprises Pty Ltd & Anor v Kingaroy Mall Pty Ltd & Ors

  • Shortened Case Name:

    E&N Collins Enterprises Pty Ltd v Kingaroy Mall Pty Ltd

  • MNC:

    [2006] QSC 187

  • Court:


  • Judge(s):

    Philippides J

  • Date:

    02 Aug 2006

Litigation History

No Litigation History

Appeal Status

No Status