Telesmart Digital Pty Ltd v Cellular One Communications Limited
[2002] QDC 34
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- Unreported Judgment
- Telesmart Digital Pty Ltd v Cellular One Communications Limited[2002] QDC 34
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Telesmart Digital Pty Ltd v Cellular One Communications Limited[2002] QDC 34
Telesmart Digital Pty Ltd v Cellular One Communications Limited[2002] QDC 34
DISTRICT COURT OF QUEENSLAND
CITATION: | Telesmart Digital Pty Ltd v. Cellular One Communications Limited [2002] QDC 034 | |
PARTIES: | TELESMART DIGITAL PTY LTD (A.C.N. 074 142 074)(Plaintiff) And CELLULAR ONE COMMUNICATIONS LIMITED (A.C.N. 064 242 075)(Defendant) | |
FILE NO/S: | D377/01 | |
DIVISION: | Chambers | |
PROCEEDING: | Application for security of costs | |
ORIGINATING COURT: | Maroochydore District Court | |
DELIVERED ON: | 26th February 2002 | |
DELIVERED AT: | Maroochydore | |
HEARING DATE: | 25th January 2002 | |
JUDGES: | Judge J.M. Robertson | |
ORDER: |
in a form to be settled by the Registrar.
| |
CATCHWORDS: | SECURITY FOR COSTS – r 670 UCPR – s 1335 Corporations Law | |
COUNSEL: | D.R. Wenck (for the Applicant/Defendant) K.T. Magee (for the Respondent/Plaintiff) | |
SOLICITORS: | Freehills (for the Applicant/Defendant) Boyce Garrick (for the Respondent/Plaintiff) | |
- [1]This is an application by the defendant for an order for security for costs pursuant to r. 670 UCPR and s.1335 of the Corporations Law. Before a Court’s jurisdiction to order security for costs is enlivened at least one of the pre-requisites of r. 671 UCPR must be satisfied. Rule 671(a) UCPR provides:
“The Court may order a plaintiff to give security for costs only if the court is satisfied –
- (a)the plaintiff is a corporation and there is reason to believe the plaintiff will not be able to pay the defendant’s costs if ordered to pay them; …”
- [2]Section 1335 of the Corporations Law states:
“Where a corporation is a 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 security is given.”
- [3]The claim is for damages and monies allegedly owing as a result of breach of a contract between the parties whereby the plaintiff was to act as a dealer on behalf of the defendant to obtain subscribers to the defendant’s mobile network. The plaintiff’s claim was originally for $15,142.59 and was commenced in the Maroochydore Magistrates Court on the 18th January 2000. The file was transferred to this Court by order of a Deputy Registrar in May 2001, and on the 31st July 2001 the plaintiff filed an amended claim in which the claim for monies owing and damages was substantially increased.
- [4]On the material, there seems to be at least a tacit concession on the part of the plaintiff that the jurisdiction of the Court is enlivened (see para 3 of Ms Magee’s submission). The plaintiff is a corporation with a paid up capital of $2.00. Mr McBride (the solicitor for the applicant) deposes to a number of matters of fact in his affidavit which are not challenged. The plaintiff is no longer trading or conducting any form of enterprise for profit. It has no real estate assets; and there is a fixed and floating charge registered over whatever assets the plaintiff may have in favour of the Bank of Queensland, although the unchallenged evidence is that there are no monies owing to the Bank. I am satisfied that there is reason to believe the plaintiff will not be able to pay the defendant’s costs if ordered to pay them.
Discretionary factors
- [5]These are set out in r. 672 UCPR. Apart from argument about the quantum of any order for security, the focus of the plaintiff’s submissions was on r. 672(a), (g) and (h).
- [6]The plaintiff has offered as security personal guarantees of its two directors and sole shareholders Cheryl Patricia Parker and Allan Parker who are the owners of a residential property located at 406 Havelock Street, Black Hill, Victoria. The defendant regards the offer as unsatisfactory in all the circumstances. The offer of a guarantee from directors is a factor to be taken into account in determining what is proper security to be provided, however, the authorities establish that if the position of the defendant is not sufficiently protected then the object of s. 1335 of the Corporations Law will not be met: Intercraft Cabinets Pty. Ltd. v. Sampas Pty. Ltd. (1997) 25 ACSR 623 at 632; Epping Plaza Fresh Fruit & Vegetables Pty. Ltd. v. Bevendale Pty. Ltd. [1999] VSCA 43. In this later case, Callaway JA noted relevantly at 202 (in relation to s. 1335):
“Is it a complete answer that the shareholders are willing to stand behind the company? … the willingness of the shareholders to put their exiguous assets at risk is not an answer. The reason is limited liability. If the order for security means that the company cannot prosecute its claim, becomes or remains insolvent and is wound up, all that the shareholders lose, as shareholders, is their investment. Those who incorporate a limited company must take the disadvantages along with its advantages even if they have given guarantees.”
- [7]See also the remarks of Connolly J (with whom the Chief Justice and Demack J agreed) in Harpur v. Ariadne Australia Ltd [1984] 2 Qd.R. 523 at 532.
- [8]The affidavit of Mr Callinan, solicitor for the plaintiff, establishes that the property at Black Hill has a value of $270,000 as at the 31st October 2001 and there is owing to the Commonwealth Bank (as at the 31st December 2001) the sum of $154,019.56. The valuation appears to have been obtained by Ms Parker “to assist in negotiations for a marriage settlement”. It is acknowledged (see para 8 of Mr Callinan’s affidavit) that notwithstanding the apparent equity in the Black Hill property, Ms Parker (and presumably Mr Parker) are unable to obtain a bank guarantee “because the current loan is in arrears”.
- [9]Directors undertaking to pay any costs order carry the onus in establishing that such a personal undertaking or guarantee avoids the necessity for the Court to require the defendant to provide security for costs: Siyan Pty. Ltd. v. Nillumbik Shire Council [2000] VSC 285.
- [10]In all the circumstances, I am not satisfied that the personal guarantees of the directors and shareholders, particularly in light of the matters in Mr Callinan’s affidavit, to which earlier reference is made, would provide sufficient security to the defendant.
- [11]Ms Magee argued that an order for security for costs (such as by way of bank guarantee) would be oppressive and/or stifle the proceedings. Again, the plaintiff carries the burden to establish that the claim would be frustrated by an order that it provide security for costs. The evidence on this point is sparse indeed. All there is, is a hearsay statement made by the female director to Mr Callinan that she is unable to obtain a bank guarantee (despite the apparent equity in the property) because the loan is in arrears. The material does not establish whether or not the directors have any other assets.
- [12]Finally, and perhaps most vigorously, Ms Magee argued that the defendant’s delay in making the application should sway me not to exercise my discretion in favour of the defendant. This is not one of the matters specifically referred to in r. 672 UCPR, but it was regarded as a relevant factor by Mullins J in Combined Property Industries (Qld) Pty. Ltd. v. Pullenvale Estates Pty. Ltd. [2001] QSC 73 (22.3.2001); however there seems to me no basis here for refusing an order on that ground. The point made by Mr Wenck is telling: the defendant was probably not too concerned when the claim was limited to $15,000, but became much more concerned when the claim was increased substantially and the matter removed to this Court.
- [13]There were no submissions addressed to r. 672(b).
- [14]In the circumstances, I intend to make the order sought by the Defendant.
Quantum
- [15]In this regard, the Court is faced with a dilemma. Both solicitors are experienced. Neither was cross-examined. Their estimates vary considerably. Doing the best I can, I will order security for costs in the sum of $18,000 which will be for the first day of the trial only.
- [16]The orders of the Court will be as follows:
- Within 14 days of the date of this order, the plaintiff give security for any costs awarded to be paid by the plaintiff to the defendant, such security:
- (a)To be in the sum of $18,000 and to be
- (i)paid into Court; or
- (ii)secured by a bank guarantee
in a form to be settled by the Registrar.
- That in the event the plaintiff fails to provide such security then the proceeding is stayed until the order for security for costs has been complied with.
- Liberty to apply.
- The plaintiff to pay the defendant’s costs of an incidental to this application to be assessed on the standard basis.