26 May 2020

International Cases





The discretion to order security for costs is unfettered, and depends on an examination of all of relevant circumstances

The Defendants have applied for an order that, the Plaintiff give security for the costs of this action and for consequential orders, including that the action be permanently stayed if the Plaintiff fails to comply within 21 days of the date of the order. The Defendants apply pursuant to Order 25 of the Rules of the Supreme Court 1971 (WA). They rely on the facts that, the Plaintiff has no capacity to pay an order for costs, should the Defendants succeed, that he resides outside Australia, and he has no assets in Australia.

The Plaintiff is a director and 40% shareholder in the fourth Defendant. The first Defendant is a shareholder and the second and third Defendants are directors and shareholders of the fourth Defendant. The second and third Defendants are solely responsible for running the day to day business activities of the fourth Defendant. The Plaintiff commenced proceedings on 15th December, 2016, claiming damages from all but the second Defendant for misleading or deceptive conduct, and seeking an order that the fourth defendant be wound up, pursuant to Section 233, alternatively Section 461 of the Corporations Act, 2001.

Order 25 Rule 1 provides that, the Court may order that security for costs be provided by a plaintiff, but that no order shall be made merely on account of the poverty of the Plaintiff, or the likely inability of a Plaintiff to pay any costs which may be awarded against the Plaintiff. Rule 2 sets out a non-exhaustive list of grounds for ordering security, including that the Plaintiff is ordinarily resident out of the jurisdiction. Rule 3 provides that, the granting of security shall be in the discretion of the Court, and in determining whether an order should be made the Court shall take into consideration - (a) the prima facie merits of the claim; (b) what property within the jurisdiction may be available to satisfy any order for costs against the Plaintiff; (c) whether the normal processes of the Court would be available within the jurisdiction for enforcement of any order for costs made against the Plaintiff.

It is well established that, subject to Order 25, the discretion to order security for costs is unfettered, and depends on an examination of all of the relevant circumstances. The circumstances in which the discretion should be exercised cannot be stated exhaustively. They will vary from case to case and the weight to be given to any circumstance in a particular case will depend not only upon its own intrinsic persuasiveness, but upon the impact of the other circumstances which have to be weighed.

The Plaintiff is a resident of the Peoples Republic of China. Apart from shares in the fourth defendant, he has no assets in Australia. This is a factor that is generally given considerable weight. It is not possible to value the shareholding of the Plaintiff. There is no evidence before the Court to enable the Court to determine whether the shares are an asset that could be realised, or whether there are restrictions on their sale. The Court should consider what assets held by the Plaintiff can be immediately realised or realised in time to enable the Plaintiff to comply with a costs order in the usual terms. The Plaintiff's own position, in response to the application, is that there are regulatory restrictions in remitting funds from China.

Although the Plaintiff's claim has been pleaded and discovery has been given, it is difficult to make an assessment of the merits of the claim, or at least the claim in misleading and deceptive conduct. The defendants submit that it is a neutral factor. That may be so for the damages claim, and the claim in oppression. But the plaintiff also applies for winding up on just and equitable grounds. It is not clear, on the filed defence, just what answer the defendants put forward to that claim in circumstances where the relationship between the plaintiff and the defendants has clearly broken down.

The other particularly relevant factor in the present case is delay. The application for security was only raised in conferral on 3rd October, 2017, and the application filed on 26th October, 2017. The only explanation for the greater part of the delay is that the defendants changed solicitors on 17th August, 2017, and they had not been advised to consider an application by their previous solicitors. The delay between 17th August and 3rd October is explained by the need to apply resources to complying with existing court orders.

Although the explanation for the delay is not compelling, the prejudice caused by the delay is not, significant. The writ was filed with an endorsed statement of claim. The parties have exchanged discovery and there has been mediation. The Plaintiff has incurred costs, and expended time, in the preparation of his case, but not to such an extent that it should result in the Defendants' application being dismissed. The justice of the case can be met by making any security order prospective only.

The Court should also consider whether an order for security would stultify the proceedings. The Defendants base their application on the plaintiff having no assets available in Australia to meet a costs order, so that he has no capacity to pay. The Plaintiff asserts that he is impecunious. The Plaintiff's impecuniosity is a relevant factor in the exercise of the court's discretion. In the present case, however, it is not a factor to which Court can give any particular weight because of the lack of evidence. The plaintiff has given no sufficient statement of his assets and liabilities to enable any conclusion that an order for security will frustrate his claim.

Barrett J said in Pham Thai Duc v PTS Australian Distributor Pty Ltd [2005] NSWSC 98 that, there is a clear public interest in companies with multiple shareholders and multiple directors functioning by means of consultation among those persons in the ways company law requires. It is contrary to that public interest for one person to take over the role of the body of persons and to function in the way in which the body is meant to function. If that was the only claim, there would be strong grounds for it to go forward without delay. Ultimately, looking at the claim as a whole, security should be ordered.

The purchase price of the business conducted by the fourth defendant was $450,000. Even with further capital contributed by the Defendants since purchase, the value of the subject matter is not in proportion to the likely cost of the litigation. Security should be by payment into Court, with an order that, the proceedings be stayed until security is given. The Defendants' proposed order for a permanent stay if security is not given within 21 days is, premature. Plaintiff is given 60 days, to allow the Plaintiff to comply with restrictions on remitting funds out of China.

Tags : Costs Security Grant

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