Indulge Pty Ltd v Rowe[2021] QCAT 262

QUEENSLAND CIVIL AND ADMINISTRATIVE TRIBUNAL

REASONS FOR DECISION

1. [1]
   In 2017 Indulge Pty Ltd leased premises from the Rowes to conduct a coffee shop/restaurant.  Disputes arose in relation to the septic system servicing the premises.  Indulge says that the increase in operating costs imposed by the septic system ‘destroyed’ Indulge’s business.  Issues also arose between the parties in relation to negotiating rent relief as a result of the COVID-19 pandemic, with restaurants being required to cease trading in March 2020 and when trading was permitted restrictions being imposed.  On 4 August 2020 the parties participated in a mediation conducted by the Queensland Small Business Commissioner. As no agreement was reached Indulge commenced these proceedings.^[1]  Indulge vacated the premises at the end of the first term as it contended that conducting its business at the premises was unsustainable.
2. [2]
   The Rowes seek security for costs in the amount of $31,810 or such other amount as the Tribunal determines (‘the Application’).^[2]  The Rowes’ solicitor gave evidence of his estimate of the costs as had been provided to Indulge’s solicitors prior to making the Application.^[3]
3. [3]
   The Rowes’ submissions claim to seek an order for security for their costs in relation to the claim brought against them by Indulge and in relation to the counter-application.^[4]
4. [4]
   The Tribunal has power to require a party to provide security for another party’s costs against whom a claim is made or a decision sought, if under the QCAT Act or an enabling Act the Tribunal may award a party’s costs for a proceeding.^[5]   To the extent that the Rowes are seeking an order for security of their costs of the counter-application I am not satisfied that they are a party against whom a claim is made or a decision sought and therefore I am not satisfied that security in respect of the counter-application should be ordered. 
5. [5]
   Unless an enabling Act otherwise provides, the starting position is that each party is to bear their own costs.^[6]  However, the QCAT Act does provide for the awarding of costs where it is in the interests of justice to do so.^[7]  In exercising its discretion the Tribunal may have regard to various entitling and disentitling factors.^[8]  It is too early in the proceedings to form a view about whether a costs order is likely to be made.
6. [6]
   The proceedings were commenced under the COVID-19 Emergency Response Act 2020 (Qld) (‘the COVID Act’) and the Retail Shop Lease and Other Commercial Leases (COVID-19 Emergency Response) Regulation 2020 (Qld) (‘the Regulations’).^[9]
7. [7]
   Section 44 of the Regulations set out the orders the Tribunal may make on such an application. It does not expressly provide a power to award costs as compared with an application by a lessee for an order to enforce the statutory prohibition against a lessor taking a prescribed action under the Regulations, which does confer a power on the Tribunal to award costs.^[10]
8. [8]
   If a costs order is to be made in these proceedings it would rely upon the provisions in the QCAT Act.  I accept that a costs order may be made enlivening a consideration of whether the discretion contained in s 109 of the QCAT Act should be exercised.
9. [9]
   In deciding whether to make an order the Tribunal may have regard to any of the following:

   1. (a)
      the financial circumstances of the parties;
   2. (b)
      the prospects of success or merits of the proceeding or part of the proceedings;
   3. (c)
      the genuineness of the proceeding or part of the proceedings;
   4. (d)
      anything else the tribunal considers relevant.
10. [10]
    The Tribunal has a broad discretion to require security which must be exercised judicially.^[11]
11. [11]
    As observed by Member Stilgoe (as she then was):^[12]

The matters to be considered when the tribunal is asked to make an order for security for costs are different from those considered by a court pursuant to the Uniform Civil Procedure Rules. The tribunal should be slow to make an order that will impede a party’s access to accessible, fair, just, economical, informal and quick dispute resolution.

Financial circumstances

12. [12]
    I am not satisfied that this is a factor in favour of an order for security.
13. [13]
    The Rowes submit and give evidence that Indulge has a paid-up share capital of only $8 and no real property to secure its ability to pay any costs awarded against it. 
14. [14]
    Although Indulge did not provide copies of financial statements, Mrs Hinds, director of Indulge, has given evidence that Indulge is trading and earning sufficient income to pay its debts as and when due and anticipates that it will increase its hours of operation as from September 2021 with consequential increased income and profit.  Her evidence is that, in the event that a costs award was made, she considers that Indulge will be in a position to pay it, I infer from the increased trading income.  Although the increased trading income is yet to occur a decision in this matter following a final hearing and then a determination as to costs is likely to be quite some time after September 2021.  All statements of evidence have not yet been filed and no dates for the final hearing have been allocated.    
15. [15]
    If Indulge is of limited funds then it is at least arguable that its financial position has been contributed to by the Rowes in view of the allegations made in Indulge’s claim in relation to an alleged failure to disclose information in relation to the septic system and the costs imposed by its operation.  I accept that the Rowes deny these allegations.
16. [16]
    The Rowes submit that Indulge is not trading until September 2021 and has no income.^[13]  Such a submission is contrary to the evidence of Mrs Hinds.^[14]
17. [17]
    The Rowes point to there being no offer of security from a shareholder or individual standing to benefit from a favourable outcome of these proceedings.  There is no evidence about the incapacity of such persons to offer security.  I note that Indulge is acting in its capacity as the trustee of the Hinds Family Trust.  There is no evidence before me as to the asset position of the trust nor the nature of the trust other than that it is a discretionary trading trust^[15] nor evidence of the beneficiaries.
18. [18]
    The Rowes also point to Mrs Hinds’ evidence that the fit out of new premises is being financed.  A large portion of the loss claimed relates to the cost of fitting out new premises.  It is not particularly remarkable that a business would seek to finance such expenditure.
19. [19]
    There is no evidence before me in relation the Rowes’ financial position.  At the time of the lease the subject of the dispute they owned the premises.  It appears from the parties’ submissions they still own the premises.  There is no evidence of its value or whether it is unencumbered.  It is unclear from the Response and/counter-application whether the premises have been re-let.  There is no evidence before me about the impact on the Rowes of an unsatisfied costs award.
20. [20]
    The Rowes point to s 1335(1) of the Corporations Act 2001 (Cth)

Where a corporation is plaintiff in any action or other legal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will  be unable to pay the costs of the defendant if successful in his, her or its defence, require sufficient security to be given for those costs and stay all proceedings until the security is given.

21. [21]
    Indulge says that the Tribunal is not a court for the purposes of the Corporations Act 2001 (Cth).^[16]  Even if I accepted that the Tribunal is such a court, I am not satisfied on the current evidence that Indulge will not be able to pay costs if an award of costs is made. Mrs Hinds has given testimony to the contrary.

Prospects

22. [22]
    I am not satisfied that this is a factor in favour of an order for security.
23. [23]
    The Application was filed at a time when Indulge’s claim was not well particularised and claimed ‘reasonable compensation of $700,000 for not taking all reasonable steps to prevent or stop significant disruption within the respondent’s control.’^[17]  Since then statements of evidence and a points of claim have been filed, which particularise the claim in the amount of $394,930. 
24. [24]
    The Rowes applied to defer the delivery of their statements of evidence until after this application for security for costs has been determined.^[18]  Contrary to the Rowes’ submissions they have not provided their material.^[19]  The only document before me setting out the Rowes’ contentions is the Response and/counter-application.^[20]  The Tribunal records show that the filing fee in respect of the counter-application has been receipted such that the counter-application is now before the Tribunal.^[21] In these circumstances, it is more difficult to form a view as to prospects.
25. [25]
    I am not satisfied that Indulge’s claims are frivolous. 

Genuineness

26. [26]
    I am not satisfied that this is a factor in favour of an order for security.
27. [27]
    As has previously been observed genuineness is not the same as prospects of success.^[22]
28. [28]
    There is nothing to suggest that the claim has been brought for a purpose other than to resolve the disputes between the parties.  I am not satisfied that Indulge’s claims are vexatious.

Other matters

29. [29]
    There has been some but not significant delay in bringing the application.  Initial directions were made by the Tribunal on 9 October 2020, the Response and/counter-application was filed 30 November 2020 and a compulsory conference was held on 1 February 2021 which foreshadowed that any interim application in the proceedings would be dealt with on the papers.^[23]  The Application was filed 29 March 2021.  The final hearing is not imminent.  This is not a factor against an order for security.
30. [30]
    The Rowes are pursuing a counter-application against not only Indulge but also against the directors, Larry and Amanda Hinds.  As the filing fee was not paid until 17 May 2021 no directions for a response to the counter-application had been made prior to this Application being determined.  It is possible that issues relevant to Indulge’s claim will be raised in response to the counter-application.  This is not a factor in favour of an order for security.

Summary

31. [31]
    Weighing all of the above matters I am not satisfied that security should be ordered.