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J & K Leighton Pty Ltd v RFGA Management Pty Ltd

 

[2007] QSC 189

 

SUPREME COURT OF QUEENSLAND

CIVIL JURISDICTION

MACKENZIE J 

No BS 7219 of 2006

J & K LEIGHTON PTY LTD(ACN 083 733 671)Plaintiff

and

RFGA MANAGEMENT PTY LTD(ABN 47 071 765 609)First Defendant

and

JFSI SYSTEMS PTY LTD (formerly named JUICE FUSION SYSTEMS PTY LTD)(ABN 12 106 440 224)Second Defendant

and JBL QLD PTY LTD(ABN 18 105 738 056)Third Defendant

and

KICK JUICE BARS PTY LTD(ABN 36 103 915 626)Fourth Defendant

and

NIGEL NORMAN NIXONFifth Defendant

BRISBANE

..DATE 14/06/2007

JUDGMENT

HIS HONOUR:  It was accepted that the application to strike out the fourth defendant must succeed and that otherwise the amended statement of claim filed by leave addressed other issues raised by the amended application of the applicant/defendants.

With regard to security for costs, Justice Von Doussa's decision in Beach Petroleum was accepted by the applicants as a summary of the proper approach under Section 1335 of the Corporations Law.  The power with regard to security for costs is conditioned on the Court being satisfied on credible evidence that there is reason to believe on credible evidence that the applicant corporation will be unable to pay costs of a respondent successful in its defence.

Subject to that condition being fulfilled, the discretion is unfettered.  There is authority that there is an onus on the defendants to satisfy the Court on the balance of probabilities of the requirement of Section 1335.  Questions of degree may be involved as to the extent of the likelihood of non-payment in any particular case.

The applicant/respondents say that the threshold test has been satisfied and it is said to follow that, that being so, an order should be made.  There were no discretionary factors in favour of the respondent.  There was an allegation of dilatory conduct on the part of the respondent which had increased costs and also an allegation that non-pursuit of the proceedings diligently had caused unnecessary delay and expense.

There is also a complaint about the lateness and scantness of the evidence produced by the respondent concerning the financial position of itself.

The material that was before me includes, most relevantly, profit and loss accounts in respect of the last two completed financial years, years ending 2005 and 2006, the balance sheet for the year ending in 2006, tax returns for 2005/2006 financial years and a Profit and Loss Statement for the first half of the financial year ending 30th of June 2007.  There are other financial documents but more of an historical nature with the exception of a Valuation made in 2003 based on an adjusted net profit of about $124,000, the valuation being $500,000 using the estimated future maintainable earnings basis for the Valuation.

Mrs Leighton, a Director of the company and a Certified Practising Accountant responsible for the company's books, deposed that the net operating profit for 2005 was about $126,000 and for 2006, $134,000.  In the first half of the 2007 year, she said, an estimated operating profit of about $64,000 was estimated.

It was not requested that she be available for cross-examination on her affidavit.  Instead of adopting that approach, the applicant's approach was to mount an argument to the effect that financial documents and tax returns did not suggest that the respondent would be able to bear the costs of litigating an estimated four-day trial in the event that the applicants successfully defended the action.

The applicant's approach involved focusing on various aspects of the accounts in an attempt to make good that proposition.  Particularly reference was made to the Profit and Loss Statement for the 2006 year showing a net profit of $49,000 which was contrasted with a lesser net profit in the tax return for that year. 

The balance sheet showed net assets of $155,000 most of which consisted of depreciated costs of fitout of premises of one of the shops operated by the plaintiff.  The business was subsequently sold with net proceeds of $32,000.  Whether the overall position of the company was enhanced by, for example, reducing indebtedness as a result of that transaction is not established on the evidence.

There is also a sum of $113,000 or thereabouts, representing goodwill of another business conducted elsewhere by the respondent.  It was pointed out that realisation of that sum would involve first disposing of the remaining asset and achieving that level of payment in respect of goodwill.

Reference was also made to an unexplained entry in the balance sheet of the 2006 year described as transfers from two other entities, on the face of it, to the directors.  It was unexplained in evidence what the payments were and why they were recorded in the balance sheet in that form.  As I have said, no explanation was sought in the form of cross-examination of Mrs Leighton.

I should also mention that a submission was made that the 2003 valuation was of little weight as an indicator of present value.  The counter-argument was that it was based on adjusted net profits of a similar order to the net operating profits deposed to in Mrs Leighton's affidavit and was therefore an adequate indicator of the current value of the business. 

There is evidence, however, that one of the operations conducted by the respondent has recently been sold.  Its effect on the value of the respondent is unknown.  The inference to be drawn from the valuation itself is not necessarily cogent enough, in my view, to assist me. 

The ultimate problem about being satisfied that there is reason to believe that the respondent will be unable to pay the costs of the applicants if the applicants are successful is that, while there are figures which the plaintiffs say are contradictory as to the respondent's profitability and demonstrate, at the lower end, a higher relevant likelihood than at the higher end than the net operating profit deposed to in Mrs Leighton's affidavit supports.

The applicants have not sought to establish that there is no reconciliation between the apparently different sums. 

In the end, on the evidence as it stands, I am not persuaded that the application for security for costs has been made out.  It is therefore dismissed with costs on the standard basis.

With respect to the other aspects of the application, in relation to the removal of the fourth defendant, I will make an order firstly:

That the fourth defendant be removed as a party to the proceedings; and secondly

That the plaintiff pay the fourth defendant's costs of and incidental to the proceeding and the application to remove it as a party on the indemnity basis.

The reason for indemnity costs is that the issue was raised well before the application was filed.  The application became necessary because no indication was given that it was conceded, as it was here, that the fourth defendant was not a proper party.  Failure to make that concession in a timely way when put on adequate notice is the decisive factor with regard to costs.

With regard to the application insofar as it relates to further and better particulars, with which it was unnecessary to proceed because of the amendments to the Statement of Claim filed by leave at the hearing, it is ordered that the plaintiff pay the first, second, third and fifth defendant's costs of and incidental to the application to be assessed on the standard basis. 

Those are the reasons.

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Editorial Notes

  • Published Case Name:

    J & K Leighton Pty Ltd v RFGA Management Pty Ltd & Ors

  • Shortened Case Name:

    J & K Leighton Pty Ltd v RFGA Management Pty Ltd

  • MNC:

    [2007] QSC 189

  • Court:

    QSC

  • Judge(s):

    Mackenzie J

  • Date:

    14 Jun 2007

Litigation History

No Litigation History

Appeal Status

No Status