SUPREME COURT OF QUEENSLAND
PARTIES: | |
FILE NO/S: | |
Court of Appeal | |
PROCEEDING: | General Civil Appeal |
ORIGINATING COURT: | |
DELIVERED ON: | 1 September 2009 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 30 July 2009 |
JUDGES: | Holmes and Muir JJA and Philippides J Separate reasons for judgment of each member of the Court, each concurring as to the orders made |
ORDERS: |
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CATCHWORDS: | PROCEDURE – COSTS – SECURITY FOR COSTS – POVERTY – LACK OF MEANS – where appellant applied for security for costs pursuant to s 1335 Corporations Act 2001 (Cth) and/or r 670 Uniform Civil Procedure Rules 1999 (Qld) on the ground that the respondent was insolvent – where primary judge dismissed the application as the shareholder alter ego of the respondent had irrevocably guaranteed the respondent’s obligations in respect of the appellant's costs – where shareholder equally as impecunious as respondent – where primary judge held ordering security for costs would stultify respondent’s action – whether insufficient evidence to reach this conclusion Corporations Act 2001 (Cth), s 1335 Uniform Civil Procedure Rules 1999 (Qld), r 670 Aqwell Pty Ltd v BJC Drilling Services Pty Ltd [2008] QSC 266, considered Epping Plaza Fresh Fruit & Vegetables Pty Ltd v Bevendale Pty Ltd [1999] 2 VR 191; [1999] VSCA 43, cited Gentry Bros Pty Ltd v Wilson Brown & Associates Pty Ltd (1992) 10 ACLC 1394, considered Harpur v Ariadne Australia Limited [1984] 2 Qd R 523; [1984] FC 28, considered In re the Will of F B Gilbert (Dec’d) (1946) 46 SR (NSW) 318, cited Intercraft Cabinets Pty Ltd v Sampas Pty Ltd (1997) 18 WAR 306; (1997) 25 ACSR 623, cited Jazabas Pty Ltd and Others v Haddad and Others (2007) 65 ACSR 276; [2007] NSWCA 291, cited KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189, considered Mantaray Pty Ltd v Brookfield Breeding Co Pty Ltd (1990) 8 ACLC 304, considered Memutu Pty Ltd v Lissenden (1983) 8 ACLR 364, considered Sir Lindsay Parkinson & Co Ltd v Triplan Ltd [1973] QB 609, cited |
COUNSEL: | M Stewart SC for the appellant J Sweeney for the respondent |
SOLICITORS: | Russell and Company Solicitors for the appellant MacGillivrays for the respondent |
[1] HOLMES JA: I agree with the reasons of Muir JA and with the order his Honour proposes.
[2] MUIR JA:
Introduction
The appellant appeals against an order of a Supreme Court judge made on 24 March 2009 in which it was ordered, in effect, that if the alter ego of the respondent, Cedric Rodrigues, irrevocably guaranteed the respondent’s obligations in respect of the appellant's costs, the application for security for costs would be dismissed.
[3] The appellant had applied for security for costs pursuant to s 1335 of the Corporations Act 2001 (Cth) and/or r 670 of the Uniform Civil Procedure Rules 1999 (Qld) on the grounds that the respondent was insolvent.
[4] On 9 September 2008 the respondent commenced the proceedings by filing a claim in which it sought $1,500,000 damages for breach of contract. The Statement of Claim alleged that:
[5] In an amended defence and counterclaim filed on 28 November 2008, the appellant claimed $1,274,648 damages for breach of contract or, alternatively, compensation pursuant to s 82 of the Trade Practices Act 1974 (Cth).
The appellant's submissions
[6] The submissions made on behalf of the appellant on the appeal may be summarised as follows. The primary judge erred in:
(a)Concluding that an order for security would stifle the claim when the respondent's failure to explain its financial position had the result that the evidence provided no or insufficient basis for the conclusion;
(b)Failing to take into account that the respondent bore the onus of establishing that an order for security would stifle its claim;
(c)Failing to take into account that the respondent had failed to explain its financial position;
(d)Approaching the exercise of the discretion on the basis that an admittedly worthless guarantee by the respondent's sole shareholder satisfied the mischief that s 1335 of the Corporations Act 2001 (Cth) and r 670 of the Uniform Civil Procedure Rules were intended to remedy.
[7] Where a company seeks to resist an order for security on the basis that to order security would stultify the action, it is required to demonstrate not just that it lacks the resources to meet the order itself, but also that those who stand behind it and who will benefit from the litigation, lack such resources. The respondent was obliged to make a frank and full disclosure of its financial position and that of Mr Rodrigues.[1]
[8] Although the evidence established that the respondent and Mr Rodrigues were impecunious, there was no explanation of: what had happened to a profit of $337,228.27 made by the respondent between 18 October 2007 and 29 September 2008; how the respondent had funded and would continue to fund the action, or of the disposition of certain monies the repayment of which was secured by charges over the respondent's assets in favour of Suncorp Metway Advances Corporation Pty Ltd.
[9] The respondent, although responding to some issues raised by an affidavit filed on behalf of the appellant, failed to provide evidence to dispel the suspicion that the respondent had access to funds not discernible by search which, in the past, had been used to fund the working capital requirements of its business. This was despite an explicit challenge by the appellant in correspondence to make such disclosure. Also, the failure to explain how the profit referred to above had been dealt with raised the prospect that Mr Rodrigues had dissipated the assets of the respondent to put them beyond the reach of the appellant. The failure to explain how the respondent has funded and will fund the litigation raised the prospect that a creditor was behind the litigation. There was no evidence that such a person could not provide security.
[10] The evidence does not admit identification of the person or entity who stands to benefit if the action succeeds. If the company is insolvent, the creditors will benefit. The solicitors for the respondent may benefit if they have agreed to conduct the action on a speculative basis, or it may be that a secured creditor is funding the litigation for its benefit. These various possibilities prevent any conclusion that the respondent has established that the action would be stifled if security was ordered to be provided.
[11] The state of the evidence and the contents of the reasons justify the conclusion that the primary judge either failed to appreciate the extent to which the respondent was obliged to establish that an order would stifle the action, or that his Honour mistook the evidence.
[12] The primary judge, applying Aqwell Pty Ltd v BJC Drilling Services Pty Ltd[2] erroneously, approached the exercise of his discretion with a "predisposition towards refusing an order for security".
The respondent's submissions
[13] The appellant's outline of submissions at first instance accepted that "the only person behind the [respondent] is also impecunious". The reference was to the impecuniosity of Mr Rodrigues which had been sworn to in an affidavit of his solicitor, Mr Edgecombe. That affidavit set out the financial position of the respondent, Mr Rodrigues, and of Mr Rodrigues's wife at some length. With one exception, argument based on "non-disclosure" of the financial position of the respondent, Mr Rodrigues, or anyone who may stand to benefit from the respondent's success in the litigation, was not advanced.
[14] The exception was that the appellant's outline of submissions contended that a second affidavit of Mr Edgecombe did not address the assets of two companies associated with Mr Rodrigues. Another affidavit was then filed. It swore that those companies did not trade and had no assets.
[15] Mr Edgecombe swore to facts, from which the inference could readily be drawn that Mr Rodrigues was the only person who stood to benefit from the proceedings and that the appellant had not in correspondence "explicitly challenged the respondent to provide evidence to dispel the suspicion that the respondent had access to funds not discernible by search". Arguments sought to be advanced on appeal concerning dissipation of monies and lack of explanation for the funding of the litigation, were not advanced at first instance. Had they been advanced, they could have been addressed in argument and, if necessary, by further affidavits. The appellant is bound by the way it conducted its case at first instance.[3]
[16] The appellant conceded at first instance that Mr Rodrigues' offer of a personal guarantee was "one factor to be considered in the exercise of the Court's discretion". The primary judge regarded the offer of the guarantee as one factor to be taken into consideration. He did not regard it as a matter which should predispose the Court against ordering security for costs. The primary judge correctly made appropriate reference to the matters set out in r 672 and took them into account. No error of legal principle or its application has been disclosed.
The primary judge's reasons
[17] The primary judge found that if the appellant's application for security for costs was successful, the respondent would not be able to proceed with the action. He considered whether the respondent's impecuniosity had been caused by the appellant's wrongful conduct and rejected that possibility. His Honour found himself unable, on the material before him, to make "any useful assessment" of the merits of the respondent's claim. By implication, he adopted the approach of Rogers J in Memutu Pty Ltd v Lissenden,[4] which was said to be that "in the absence of evidence to the contrary, the Court will assume the claim to be bona fide with a reasonable prospect of success for the purposes of an application of this type".
[18] In his conclusion, the primary judge stated that the "factors which weigh against the making of" the order were:
"(a)The fact that such an order would stifle the [respondent's] action, and
"(b)the shareholder behind the [respondent] … offered a personal undertaking to pay the costs."
[19] The primary judge then stated that, "Against these [factors] is the fact that the shareholder is as impecunious as the [respondent]." He then referred to the counterclaim and the appellant's undertaking not to pursue it if the matter was stayed. It was then said, "Having weighed the various factors relevant to the exercise of discretion … I find the balance is in the [respondent's] favour …".
Consideration of the primary judge's application of principle
[20] It is correct to assert, as counsel for the appellant does, that the primary judge applied the principles articulated by Daubney J in Aqwell Pty Ltd v BJC Drilling Services Pty Ltd.[5] It is not correct, however, to say that one such principle was that where the impecunious shareholder or shareholders of an impecunious company offered to stand behind the plaintiff company, the Court should approach the exercise of its discretion whether to order security for costs with a predisposition against making such an order.
[21] In Aqwell Daubney J stated the principles to be applied in these terms:[6]
"[16]It is well settled that the Court has an unfettered discretion on the question of ordering security for costs, and that this discretion is to be exercised only after taking account of all the circumstances of the case. The matters advanced by each side in the present case to which I have just referred all need to be weighed in the mix. It is also clear that, having regard to the provisions of s 1335 of the Corporations Act 2001 (Cth), the impecuniosity of a company is a factor which, in the particular factual context, may play an important and possibly decisive role – Harpur v Ariadne Australia Limited [1984] 2 Qd R 523, per Connolly J at 530." (emphasis added)
[22] Daubney J discussed Mantaray Pty Ltd v Brookfield Breeding Co Pty Ltd[7] and Gentry Bros Pty Ltd v Wilson Brown & Associates Pty Ltd[8] in which applications for security for costs had been refused where the person or entity which stood to benefit from the plaintiff's success in the proceedings had guaranteed the plaintiff's obligations in respect of costs. His Honour noted that the "approach to treating an offer of a guarantee by those standing behind a corporate plaintiff as having the effect of fulfilling the statutory purpose has not escaped criticism". After discussing such criticisms he concluded:[9]
"[27]In my view, and with the greatest of respect to those who might have opined otherwise, there is nothing in the Queensland cases at least to suggest that a conclusion that the proffering of a personal guarantee for a defendant’s costs by the person standing behind a corporate plaintiff who stands to benefit from the litigation meets the mischief at which s 1335 is aimed constitutes a fettering of the judge’s discretion whether or not to order security for costs. Indeed such a notion would cut across the observations of Connolly J in Harpur v Ariadne in the paragraph immediately preceding that quoted by Byrne J in Mantaray. Connolly J said, at 532:
'One’s approach will vary accordingly as one sees s 533(1) as, on the one hand, an isolated provision containing within itself the criteria for the exercise of the discretion, and on the other as a statement of the rule applicable to companies, to be applied as one factor in the exercise of the inherent jurisdiction. For reasons I have already given I consider the latter to be the correct approach.' "
[23] Daubney J then concluded that, on the facts before him, the proffering of a personal guarantee by the alter ego of the company coupled with the stifling of the litigation if security was ordered, was "sufficient … to tip the scale against the ordering of further security". He said, however, that these matters were "not of themselves determinative considerations". Whether one agrees with the above analysis of the Queensland cases or not, it is plain enough that his Honour was not expressing a view that where the person standing behind the Company guarantees the Company's obligations in respect of costs, an application for security for costs must fail or that there will be a "predisposition against ordering security for costs". It is therefore clear that the primary judge's adoption of the approach in Aqwell did not result, of itself, in the error asserted on behalf of the appellant.
[24] The primary judge did not find the proffering of the Rodrigues undertaking and the fact that an order for security would stifle the respondent's action matters which, of themselves, required the dismissal of the application. They were held to be merely "factors which weigh against the making of an order for security for costs".
Consideration of the principles articulated in Harpur v Ariadne
[25] Connolly J's conclusion in Harpur v Ariadne Australia Limited[10] that "the object of the legislation is seen to be satisfied" if the person behind the company "bring[s] his own assets into play", (the "Harpur principle") has been followed in a number of cases, including Yandil Holdings Pty Ltd v Insurance Co of North America;[11] Gentry Bros Pty Ltd v Wilson Brown & Associates Pty Ltd;[12] and Mantaray Pty Ltd v Brookfield Breeding Co Pty Ltd.[13] In Mantaray, Byrne J, after quoting the passage from Connolly J's reasons containing the Harpur principle, concluded that, as the only person who stood to benefit from the litigation had guaranteed the defendant's costs, his impecuniosity and that of the plaintiff company "should not be a bar to the litigation's proceeding." His Honour had previously identified this as "another important consideration [which] supports refusal of security".
[26] In Gentry, Cooper J said:[14]
"In the instant case once the shareholders of the applicant have agreed to accept personal liability for any judgment for costs against the applicant, the statutory purpose of s 1335 as explained in the authorities to which reference has been made is satisfied. The making of an order which secures the personal liability of the shareholders is in itself the provision of security: see for example Memutu Pty Ltd v Lissenden (1983) 8 ACLR 364 at 366; Yandil Holdings Pty Ltd v Insurance Co of North America (1985) 3 ACLC 542 at 546; Appleglen Pty Ltd v Mainzeal Corp Pty Ltd (1988) 79 ALR 634 at 635-6.
Once the shareholders have been exposed to personal liability for the applicant’s costs, the weight to be given to the statutory purpose is gone. Those who stand behind the applicant once they accept personal liability for the applicant’s costs are in no worse position than they would be as litigants in person in the court: Harpur at 533; Yandil Holdings Pty Ltd at 546.
The offer by the shareholders of the applicant to accept personal liability for the applicant’s costs is a factor weighing heavily against the making of an order against the applicant for provision of a cash or other security for costs notwithstanding that the worth of the shareholders may ultimately prove insufficient to satisfy any judgment in whole or in part."
[27] Winneke P and Phillips JA in Epping Plaza Fresh Fruit & Vegetables Pty Ltd v Bevendale Pty Ltd[15] observed in relation to Cooper J's statements of principle in Gentry that if they were intended to suggest that the broad discretion, to which the authorities refer, "is now to be fettered by a principle to the effect that, in cases where those who stand behind the impecunious company are prepared to expose themselves to a personal liability for the defendant's costs, the court's discretion should rarely be exercised in favour of making an order for security", they could not agree. Their Honours said that such a principle would not only:
"… cut across the authorities which make it abundantly clear that the discretion is to be unfettered and exercised in accordance with what the circumstances of the particular case require, but it ascribes a purpose for its existence which we do not accept; namely that the statutory purpose of s 1335 is to align the position of impecunious corporate plaintiffs with impecunious individual plaintiffs. The fact that those who stand behind the company are prepared to give an undertaking to the court to pay a successful defendant's costs might be a factor which, on balance, will influence the court's discretion in a particular case — or, more strictly perhaps, influence the manner of its exercise. But to elevate it to a position of critical importance or decisive significance in general seems to us to be requiring the judge to enter upon his or her discretion with a particular predisposition, something which the authorities make clear that the judge should not do.
Furthermore, in our view the court should not readily accept an undertaking to pay costs from impecunious individuals who, at least at the time when such an undertaking is given, have no chance of making it good. Such an undertaking could not be an effective alternative security because it could only be enforced (at least for the time being) by proceedings for contempt …"
[28] Their Honours had said earlier:
"It is thus apparent that the justification for the statutory rule is that the defendant, not being a voluntary litigant, deserves to be protected from the consequences of limited liability. Those who seek to conduct their businesses through limited liability companies expect to receive the benefits which such liability attracts. It seems to us a necessary corollary that they should be prepared to accept the strictures imposed by the section if the company embarks upon litigation: Buckley v Bennell Design and Constructions Pty. Ltd. (1974) 1 A.C.L.R. 301 at 304 (N.S.W. Court of Appeal)."
[29] In relation to Harpur, their Honours observed that the decision "was no more than an application of the 'unfettered discretion' in the circumstances of the case".[16]
[30] In considering Mantaray and Gentry, Malcolm CJ, with whose reasons Pidgeon J agreed, said in Intercraft Cabinets Pty Ltd v Sampas Pty Ltd:[17]
"In K P Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 at 204 Beazley J said:
'Once the statements in Mantaray and Gentry are considered in context, it is clear that no more was being said than that the offer of security by way of a guarantee from the directors or shareholders or other persons interested in the outcome was a factor which could be decisive, in a given case, to be considered in determining whether any other form or order for security of costs should be made. In my opinion, this is the correct approach to take when such an offer has been made.'
In other words, what was said by Cooper J in Gentry and Byrne J in Mantaray is not to be taken literally as a proposition of law. The true position is that there is a discretion, but the fact that shareholders or other persons behind the company are exposed to personal liability for whatever they may be worth, is a relevant but not necessarily a decisive consideration: cf Erolen v Baulkham Hills Shire Council (1993) 10 ACSR 441 at 456 per Powell J, who would confine what was said by Cooper J to the particular factual matrix in Gentry itself."
[31] Later, the Chief Justice observed:[18]
"… To the extent that the judgments in Harpur and other cases suggest that once a personal undertaking is available, that is necessarily 'sufficient' security as a general principle, I cannot agree. The availability of such an undertaking is not the only consideration. The issue has to be looked at in the light of all relevant considerations including the merits of the action and whether the ordering of security will stifle an action which has some apparent merit."
[32] In Jazabas Pty Ltd and Others v Haddad and Others,[19] McClellan CJ at CL, with whose reasons Mason P agreed, quoted, with apparent approval, the following passage from the reasons of Beazley J in KP Cable Investments Pty Ltd v Meltglow Pty Ltd:[20]
"Principles governing application for security for costs
The law is now settled that the discretion to order security for costs is unfettered and should be exercised having regard to all the circumstances of the case without any predisposition in favour of the award of security: see the review of the authorities by French J in Bryan E Fencott & Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 at 509. See also Interwest Ltd v Tricontinental Corporation Ltd (1991) 5 ACSR 621 at 623-624 and Zeeman J's decision in Weily's Quarries v Devine Shipping Pty Ltd (1994) 14 ACSR 186 at 188. In Gentry Bros Pty Ltd v Wilson Brown & Associates Pty Ltd (1992) 8 ACSR 405 at 415, Cooper J stated that:
'[i]t is not possible or appropriate to list all of the matters relevant to the exercise of the discretion. The factors will vary from case to case. The weight to be given to any circumstance depends upon its own intrinsic persuasiveness and its impact on other circumstances which have to be weighed: P S Chellaram & Co Ltd v China Ocean Shipping Co (1991) 65 ALJR 642 at 643.'
Notwithstanding the broad unfettered discretion with which the Court approaches an application for security for costs, there are a number of well established guidelines which the court typically takes into account in determining any such application. They are:
…
5.Whether there are any persons standing behind the company who are likely to benefit from the litigation and who are willing to provide the necessary security:
…
6.An issue related to the last guideline is whether persons standing behind the company have offered any personal undertaking to be liable for the costs and if so, the form of any such undertaking …"
[33] McClellan CJ at CL referred to the criticisms of Gentry Bros in Epping Plaza and Intercraft, but on the view he took of the facts, found it unnecessary to decide whether the criticisms were merited. Mason P, although "strongly inclined to agree with the remarks of Winneke P and Phillips JA in Epping at [19] – [23]" said that there was no need to consider the issue further as it was not critical to the disposition of the appeal and had not been fully argued.
[34] The other member of the Court, Basten JA, endorsed the Harpur principle and the approach taken in Gentry Bros. His Honour took issue with the statement in the joint reasons in Epping concerning the rationale underlying provisions such as s 1335 of the Corporations Act 2001 (Cth).
[35] His Honour stated his views as follows:
"The statutory purpose, as explained by Street CJ in Buckley, and by Connolly J in Harpur, is to ensure that those who carry on a business through a company having limited liability are not thereby protected against the effects of an adverse costs order. If that approach (adopted by Full Courts in this state, in Queensland and perhaps in the Federal Court) were not accepted the question which needs to be addressed is why the defendant should be better off because the business was run through a company than if it had been sued by the individuals directly. Looked at from the other perspective, it is not clear why those standing behind the company should be worse off because they adopted a corporate structure for their business operations than if they had not."
[36] Earlier in his reasons, his Honour concluded that "To treat reliance upon a principle that the statutory purpose is fulfilled as a fetter may be correct; the question is whether it is an unjustifiable fetter." In that context, his Honour questioned the utility of an approach which merely required the discretion to be exercised "in the light of all relevant [and unspecified] considerations" and noted that "The establishment of a general principle does not preclude other results in particular circumstances."
[37] Because of the reasons of the primary judge, discussed earlier, the outcome of this appeal is not affected by how the differences in approach under discussion should be resolved. Because of this and because the matter was addressed only cursorily in submissions, I will confine myself to the following observations.
[38] Connolly J's dicta in Harpur should be understood in light of the fact that the plaintiff company's controller and major shareholder was also a party to the proceeding and in the context of reasons which made plain his Honour's view that the subject discretion was unfettered. After agreeing emphatically with Lord Denning MR's observations in Sir Lindsay Parkinson & Co Ltd v Triplan Ltd[21] that the discretion to order security for costs was one in which there is "no burden one way or the other. It is a discretion to be exercised in all the circumstances of the case", Connolly J said:
"For practical purposes, once the legislature has made it legitimate to regard the lack of means of the plaintiff and its likely inability to meet an order for costs, this must always be a consideration of great weight and it will frequently be the determining factor.
…
This view was accepted by the Court of Appeal of New Zealand in National Bank of New Zealand Ltd. v Donald Export Trading Ltd. [1980] 1 NZLR 97 where it was held that the word 'may' in the equivalent of s 533(1) gives the judge a discretion whether or not to order security, the discretion to be exercised in all the circumstances of the case. It is I think important that the Court of Appeal was of the view that there is no burden of proof one way or the other but that the court should not overlook the obvious policy of the legislation to allow security to be given where the company appears to be in no position to meet the costs from its own resources.
…
A similar approach was adopted by the Full Court of South Australia in John Arnold's Surf Shop Pty. Ltd. (in liquidation) v Heller Factors Pty Ltd (1979) 22 SASR 20. At p 34 Mitchell J expressed the view that to approach the antecedent of s 533(1) with a predisposition to make an order for security would be to fetter the discretion. And cf at p 38 per Legoe J.
In my view the debate is largely a semantic one. It seems to me, with all respect, that in point of legal principle, it is not right to say that as a matter of law any one factor is to predispose the court to a decision one way or another. This is not to say however that in the factual context that factor may not well play an important and possibly decisive role."
[39] I respectfully agree with the observations of Beazley J in KP Cable Investments[22] that the decisions in Mantaray and Gentry do not purport to propound a principle that where the shareholders or other persons interested in the outcome of the litigation offer to be personally liable for the plaintiff company's costs, an order for security should not be made and other circumstances need not be considered.
The matters considered by the primary judge
[40] Apart from the issue just discussed and the matters not argued at first instance, the appellant's argument does not suggest that in exercising his discretion the primary judge failed to take into account a relevant consideration or that he took into account irrelevant considerations. He considered: whether the application was a timely one; the cause of the respondent's impecuniosity; the strength of the Claim and Counterclaim; the consideration that the making of the order would stifle the respondent's action; and the effect of the sole shareholder's undertaking. No issue was taken with the primary judge's assessment that he was entitled for the reasons given in Memutu Pty Ltd v Lissenden, in the absence of evidence to the contrary, to assume the claim to be bona fide with a reasonable prospect of success. In view of the absence of argument on that point, it is inappropriate to embark on a consideration of its validity and it may well be of only academic interest in present circumstances.
[41] The Statement of Claim appears to be carefully drawn with well particularised allegations. The conclusion that the allegations have substance was supported by an affidavit of Mr Edgecombe to which was exhibited extensive correspondence in respect of the dispute which resulted in the commencement of these proceedings. Certainly, the appellant was sufficiently concerned by the impecunious respondent's claim to make its counterclaim with a view to minimising its financial exposure should the respondent's claim succeed.
The adequacy of the evidence as to whether an order for security for costs would prevent continuation of the litigation
[42] The main thrust of senior counsel for the appellant's oral argument on appeal was a challenge to the finding that "should the application [for security for costs] be successful and security ordered, then the [respondent] would not be able to proceed with the action". It was submitted that the evidence was inadequate to enable the primary judge to conclude that resources may not be available for the conduct of the proceedings, even though the respondent and Mr Rodrigues may be impecunious. Reference was made to: the absence of balance sheets for the respondent and Mr Rodrigues, the lack of an explanation of how the litigation had been funded and the absence of an explanation for the whereabouts of the profit of $337,228.27 made by the respondent in the period of approximately a year ending on 29 September 2008.
[43] Mr Edgecombe swore on information and belief:
(a)That the respondent was a two dollar company and that its only asset of substance was its cause of action against the appellant;
(b)As to various assets and liabilities of Mr Rodrigues, its sole shareholder, including his lack of equity in real property in his name and his various debts;
(c)That the respondent's solicitors were owed $81,344 in legal fees; and
(d)That Mrs Rodrigues had very little equity in the real property registered in her name and had a credit card debt of $5,000.
[44] Mr Edgecombe's affidavit was filed in response to an affidavit sworn by a solicitor employed by the appellant's solicitors which deposed to details of searches conducted by the deponent in respect of: the respondent, Mr and Mrs Rodrigues, real property in their respective names, and corporations in which they held shares. The affidavit revealed that Mr Rodrigues was a director of JJ.BECM Enterprises Pty Ltd and Rodrigues Enterprises Pty Ltd. In another affidavit, Mr Edgecombe swore, on information and belief, that these companies did not trade and had no assets.
[45] A corporate plaintiff wishing to avoid an order that it give security for costs on the ground that the making of the order will prevent the continuation of the litigation, at least as a general proposition, must establish that those "who stand behind it and who will benefit from the litigation if it is successful are also without means".[23] In Hession v Century 21 South Pacific Ltd (in liq),[24] Meagher JA, with whose reasons the other members of the Court agreed, cited Bell Wholesale Co Pty Ltd v Gates Export Corporation as authority for the proposition that:
"… a company in liquidation against whom an order for security for costs is sought cannot successfully resist such an order merely by proving that it cannot fund the litigation from its own resources if an order for security is made; it must prove that it cannot do so even if it relies on the other resources available to it (the company's shareholders or creditors)".
[46] At first instance it was not submitted that there was a person or company other than Mr Rodrigues who stood to benefit from the litigation. Nor did the evidence suggest the existence of any such person, or of a person who would be prepared to fund the litigation. An inference which could reasonably be drawn from Mr Edgecombe's affidavits was that the respondent's solicitors had funded the litigation, or much of it thus far, and that Mrs Rodrigues's resources were such as to make it impossible for her to render any substantial assistance. Mr Edgecombe was not cross-examined.
[47] The respondent could have improved its evidentiary position by having Mr Edgecombe swear on information and belief that Mr Rodrigues was not aware of any creditor or other person who had offered or who was likely to offer to fund the litigation. Nevertheless, in the circumstances just discussed, it was open to the primary judge to conclude that if he ordered security, the respondent would not be able to continue the proceedings.
The appellant's departure from its case at first instance and the applications to adduce "fresh evidence"
[48] It is tolerably plain that the appellant attempted to mount quite a different case to that advanced at first instance. The appellant's counsel at first instance argued, in effect, that security should be ordered because the respondent was insolvent and Mr Rodrigues impecunious. There were no allegations about the syphoning off or non-disclosure of assets or income; the possible existence of litigation funders; or the possibility that secured creditors may reap benefits or the like. Even if the affidavits relied on by the appellant at first instance had provided a factual foundation for such arguments, which is doubtful, the arguments were not advanced. If they had been, the respondent may have been able to meet them or put itself in a better position to do so by the adducing of further evidence, even if this may have necessitated an adjournment of the hearing. Consequently, it is too late to raise these matters now.
[49] On the hearing of the appeal the appellant sought leave to adduce further evidence in the form of an affidavit sworn on 27 July 2009 by its solicitor, Mr Russell. The affidavit, and one in reply to it by Mr Edgecombe, were received and the question of leave was reserved. In his affidavit, Mr Russell swore that:
(a)The respondent's solicitors, in early October 2008, had taken a mortgage for their fees over a property registered solely in Mrs Rodrigues's name, which was the principal place of residence of Mr and Mrs Rodrigues;
(b)The mortgage had been "withheld from registration" until the afternoon prior to the hearing before the primary judge;
(c)On that day a request to lapse a caveat was lodged by an equitable mortgagee, QBE Insurance (Australia) Limited in respect of the same property;
(d)On 1 October 2008, Mr Rodrigues became the sole director of Staff 4 Kids Pty Ltd ("Staff");
(e)The respondent's solicitors took a further security over the assets of the respondent on 7 May 2009.
[50] In the appellant's supplementary outline of submissions it was submitted that it should be inferred that both the respondent and its solicitors withheld Mrs Rodrigues's mortgage from registration until the afternoon before the hearing, for the purpose of preventing both the appellant and the Court from knowing the critical fact that she was supporting the litigation. The inference, it was said, was supported by the circumstance that just before commencement of the hearing, Mr Edgecombe filed a second affidavit in which he dealt with the unsatisfactory state of the evidence in relation to other companies in which Mr Rodrigues held all the shares, JJ.BECM Pty Ltd and Rodrigues Enterprises Pty Ltd. Although swearing on information and belief that those companies "do not trade and have no assets", he said nothing about JJ.BECM's dealings with QBE or Mr Rodrigues's interest in Staff.
[51] It was submitted also in the supplementary written submissions, that Mr Edgecombe's evidence that "there are mortgages secured against the title to [Mrs Rodrigues's property] for which the sum secured is about $1,760,000", in the light of his dealings in the Titles Office in the afternoon prior to swearing that affidavit, could only have had the effect of obscuring and did obscure the true state of the title to Mrs Rodrigues's property.
[52] It was submitted orally that the new material strongly assisted the appellant's primary submission that the respondent has not established that an order for security for costs would stifle the litigation, as the respondent and those standing behind it have business and property interests which were not disclosed.
[53] Mr Edgecombe's affidavit addressed the points raised by Mr Russell in detail, rejecting the express and implied allegations of misleading, deceptive and improper conduct. No such allegations were pursued orally and it was not sought to cross-examine Mr Edgecombe. The appellant's argument in relation to the "fresh evidence" appeared to be based to a substantial degree on the premise that the respondent to a security for costs application wishing to rely on the circumstance that an order for security for costs would frustrate the continuance of the action had a duty to make full disclosure of all relevant financial matters. That duty, it was submitted, extended to shareholders and creditors and others "who might reasonably be expected to furnish security".[25]
[54] The proposition must be rejected. A litigant under an adversarial system of litigation has no duty to its opponent but does have obligations imposed on it by the rules of court. There is no obligation under the Uniform Civil Procedure Rules 1999 (Qld) for a litigant to adduce sufficient evidence to discharge any onus of proof which it bears. If it fails in that regard, its claim should fail. For the reasons given earlier, I am of the view that there was sufficient evidence to sustain the finding under challenge. In any event, once the appellant's arguments on lack of disclosure, misleading conduct and impropriety are dismissed, there is no basis for admitting the further material. It amounts to no more than evidence of some peripheral financial matters not available to the appellant at the time of the hearing at first instance, which, depending on other evidence which may be given on behalf of the respondent, may or may not have proved beneficial to the appellant's case.
[55] An unsuccessful applicant for security for costs, were it so minded, would often be able to dredge up further material which, if available on the hearing, may have assisted its case. However, in general, any attempts on appeal to bolster the evidence relied on at first instance should be discouraged so as to contain costs, reduce the risk of applications for security for costs becoming exercises in oppression and to promote finality in litigation. For these reasons I would refuse leave for either party to file and read their further affidavits.
[56] The following views of Jordan CJ in In re the Will of F B Gilbert (Dec’d)[26] remain as valid today as when they were first stated:
"… it is only in the most exceptional circumstances that a Court of Appeal could regard itself as justified in interfering with the exercise of a discretion by a judge of first instance - only where he has misapplied the law, or his order is likely to lead to a miscarriage of justice: Evans v Bartlam. In this connection, however, I am of opinion that, as was pointed out by this Court in In re Ryan, there is a material difference between an exercise of discretion on a point of practice or procedure and an exercise of discretion which determines substantive rights. In the former class of case, if a tight rein were not kept upon interference with the orders of Judges of first instance, the result would be disastrous to the proper administration of justice. The disposal of cases could be delayed interminably, and costs heaped up indefinitely, if a litigant with a long purse or a litigious disposition could, at will, in effect transfer all exercises of discretion in interlocutory applications from a Judge in Chambers to a Court of Appeal. But an appeal from an exercise of a so-called discretion which is determinative of legal rights stands in a somewhat different position. In this class of case, too, a Court of Appeal submits itself to self-imposed restraints, but restraints which, though strict, are somewhat less stringent than those adopted in matters of practice or procedure." (footnotes deleted)
[57] The words emphasised in the above passage were referred to with approval in the joint judgment in Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc.[27] Applications for security for costs concern matters of "practice or procedure".[28]
[58] For the above reasons the appellant has not established any error of fact or law, the existence of any injustice or that the exercise of the primary judge's discretion miscarried in any way. I would dismiss the appeal with costs.
[59] PHILIPPIDES J: I have had the advantage of reading the reasons for judgment of Muir JA. I agree with the reasons of his Honour and with the proposed orders.
[1] Reches Pty Ltd v Tadiran Ltd (1998) 85 FCR 514 at 523 per Lehane J.
[2] [2008] QSC 266.
[3] Friend v Brooker (2009) 239 CLR 129 at 171-174; [2009] HCA 21 at [114] – [118].
[4] (1983) 8 ACLR 364.
[5] [2008] QSC 266.
[6] Aqwell Pty Ltd v BJC Drilling Services Pty Ltd [2008] QSC 266.
[7] (1990) 8 ACLC 304.
[8] (1992) 10 ACLC 1394.
[9] Aqwell Pty Ltd v BJC Drilling Services Pty Ltd [2008] QSC 266.
[10] [1984] 2 Qd R 523.
[11] (1985) 3 ACLC 542.
[12] (1992) 8 ACSR 405.
[13] (1990) 8 ACLC 304.
[14] (1992) 8 ACSR 405 at 415.
[15] [1999] 2 VR 191 at 198.
[16] [1999] 2 VR 191 at 197.
[17] (1997) 18 WAR 306.
[18] (1997) 18 WAR 306 at 316.
[19] (2007) 65 ACSR 276.
[20] (1995) 56 FCR 189 at 196 – 198.
[21] [1973] QB 609 at 626.
[22] (1995) 56 FCR 189 at 204.
[23] Bell Wholesale Co Pty Ltd v Gates Export Corporation (1984) 2 FCR 1 at 4.
[24] (1992) 28 NSWLR 120 at 123; Bell Wholesale Co Pty Ltd v Gates Export Corporation (1984) 2 FCR 1.
[25] See eg Impex Pty Ltd v Crowner Products Ltd (1994) 13 ACSR 440 at 446.
[26] (1946) 46 SR (NSW) 318 at 322 – 323.
[27] (1981) 148 CLR 170 at 177.
[28] Programmed Solutions Pty Ltd v Dectar Pty Ltd [2007] QCA 385.
