Sridow Pty Ltd v David Nowlan [1991] ACTSC 78 (4 October 1991)

SUPREME COURT OF THE ACT

SRIDOW PTY LTD v. DAVID NOWLAN
S.C. No. 92 of 1991
Practice and Procedure

COURT

IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Master A. Hogan(1)

CATCHWORDS

Practice and Procedure - Security for Costs - Plaintiff corporation - Liabilities exceeding assets - Trading loss - Reason to believe unable to pay defendant's costs - Discretion - Bona Fide Claim - No evidence of likelihood of success - Personal Guarantee of Director - No Issue of Principle.

HEARING

CANBERRA
4:10:1991

ORDER

Within 28 days the plaintiff give security in the sum of $12,000, in a form satisfactory to the defendant, or in default of that satisfaction to the satisfaction of the Registrar. If that security is not given within 28 days I order that the action be stayed.

I order the plaintiff to pay the defendant's costs of and incidental to this application.

DECISION

This is an application for an order that the plaintiff, a corporation, give security in the sum of $15,000 for the costs of the defendant in respect of proceedings up to the completion of the interlocutory process.

2. The action is a claim by the plaintiff company for unquantified damages against the defendant, whom it had employed as an insurance broker, based upon an alleged failure by the defendant to ensure that the plaintiff was insured against liability for workers' compensation. The defence simply puts in issue the plaintiff's allegations.

3. The defendant has given discovery but a certificate of readiness has not yet been filed. I accept that a reasonable estimate of the defendant's costs up to the completion of interlocutory proceedings is $12,666.

4. The plaintiff is an exempt proprietary company limited by shares, incorporated in the Australian Capital Territory on 10 June 1987.

5. On 30 August 1991 the solicitors for the defendant sought security, on the grounds that the issued share capital of the plaintiff was $2, no assets were disclosed on the documents filed with the Australian Securities Commission and the assets of the company were shown by search to be subject to a charge in favour of Mobil Oil Australia Limited.

6. The solicitor for the plaintiff refused to give security, but offered a personal guarantee by its director, Mr Pentland. That offer was declined, and this application was filed.

7. I do not read the letter from the plaintiff's solicitors of 6 September 1991 as containing an admission that the company in fact had no assets.

8. An affidavit by Mr Pentland alleged that the company had assets to the value of $25,000, consisting of motor mechanical equipment and plant and motor vehicles.

9. The company carries on the business of a service station, on premises leased from Mobil Oil Australia Ltd. The charge in favour of that company secures a debt of $9,601 for petrol supplied. There is no reason to doubt Mr Pentland's claim that the plaintiff expects to discharge that debt entirely within a few months.

10. There is at present no material goodwill attached to the plaintiff's business, but Mr Pentland claimed that a new arrangement shortly to be entered into with the Oil Company would result in the company's having a substantially valuable asset in goodwill. That arrangement is shown to be subject to satisfactory financing arrangements being made, but the terms of the letter from the oil company demonstrate its confidence in the ability of the plaintiff to raise the finance and to meet the standards required of its franchisees.

11. The balance sheet of the plaintiff at 31 March 1991 showed an excess of liabilities over assets of $54,836, current liabilities being $84,448 and non current liabilities being $117,379.

12. Mr Pentland is in the process of selling his home in order to discharge a debt that the plaintiff incurred in connection with the purchase of the business.

13. The trading accounts disclose that from 1 July 1990 to 31 March 1991, on sales of $1,151,939, the company made a gross profit of $149,552, but incurred operating expenses which resulted in a net loss for the period of $2,732.

14. Neither the plaintiff company nor Mr Pentland have cash savings with which to back any security for costs.

15. The question to be decided is not whether the company is solvent or insolvent, but whether 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 the defendant is successful in his defence. It is clear to me on the evidence that there is reason to entertain that belief. The fact that it is possible that in the future the company may well enter into an arrangement with the oil company which will greatly increase the value of intangibles on its balance sheet does not alter that belief.

16. The issue then becomes whether the Court should exercise its discretion to make the order sought. That decision is to be made, in my view, in the light of all the circumstances, without any particular predisposition in favour of either party.

17. The existence of reason to entertain the relevant belief is one important factor to be taken into account.

18. There is no evidence that the plaintiff's claim is not made bona fide. Mr Pentland has received counsel's advice about the chances of success, but did not disclose what that advice was. He swore merely that on receiving it he instructed his solicitors to pursue the claim.

19. The structure of the plaintiff's claim is a relatively simple one. The defence does no more than put in issue the material facts. It can not be said on the evidence that the defendant is likely to succeed. On the other hand I am not able to say positively that the plaintiff has reasonable prospects of success. This is not, therefore, a case where a plaintiff shows that it has a strong and meritorious case which would be put in jeopardy by the making of the order for security.

20. The Writ was issued on 13 February 1991, appearance was entered on 20 February 1991, the defence was filed on 28 June 1991 and a change of solicitor was notified on 30 August 1991. The Notice of Motion was filed on 10 September 1991.

21. The defendant has not delayed bringing this application in any relevant sense, nor has the plaintiff been prejudiced in any way by any lapse of time.

22. The balance sheet in evidence does not disclose the existence of the potential claim by the injured worker referred to in the Statement of Claim as a contingent liability, nor is there any evidence to show the extent of the plaintiff's liability to that worker.

23. If the plaintiff is to any extent impecunious, that situation has not been brought about by any conduct of the defendant.

24. Mr Pentland offered to provide a personal guarantee for the defendant's costs. Neither the defendant nor the Court is in any position to assess the creditworthiness of Mr Pentland, or to measure the degree of security that such a guarantee would provide.

25. On balance I think that the order sought should be made. It is not necessary that security should be in the form of a cash deposit.

26. The amount sought, $12,000 in round figures, is not large. If Mr Pentland is able to satisfy a financial institution of his creditworthiness for that amount it should be possible for him to arrange for a bond to be lodged by that institution.

27. I order that within 28 days the plaintiff give security in the sum of $12,000, in a form satisfactory to the defendant, or in default of that satisfaction to the satisfaction of the Registrar.

28. If that security is not given within 28 days, I order that the action be stayed.

29. The defendant has been justified by the result in bringing the application. I see no reason why the usual order for costs should not follow. I order the plaintiff to pay the defendant's costs of and incidental to this application.