Supreme Court New South Wales

• Medium Neutral Citation: A W Ellis Engineering Pty Ltd v Malago Pty Ltd [2011] NSWSC 1623
• Hearing dates: 25 November 2011
• Decision date: 25 November 2011
• Jurisdiction: Equity Division - Commercial List
• Before: Rein J

Decision

Defendants' application for security for costs dismissed

• Catchwords: PRACTICE AND PROCEDURE - defendants' application for security of costs - where there are individuals who are joined as plaintiffs - undertaking given by the individual plaintiffs that should the plaintiffs be unsuccessful in the proceedings, they will not take any point that they are not liable with the corporate plaintiffs for any costs orders made against the plaintiffs - where the corporate plaintiffs are trustees with a right of indemnity out of trust assets to meet a costs order - no order for security should be made
• Cases Cited: Chief Commissioner of Stamp Duties v Buckle (1998) 192 CLR 226; Harpur v Ariadne Australia Ltd [1984] 2 Qd R 523; Momentum Mortgages Ltd v Elmowy [2010] NSWSC 950; Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360
• Category: Interlocutory applications
• Parties: A W Ellis Engineering Pty Ltd (first plaintiff); Anthony Winthrop Ellis (second plaintiff); Samsar Marina Pty Ltd (third plaintiff); Sam Alexander Mitchell (fourth plaintiff); Malago Pty Ltd (first defendant); Brian Knight James (second defendant); Elizabeth Anne James (third defendant); Turon Australia Pty Ltd (fourth defendant); Justin William Allen James (fifth defendant)
• Representation: J S Gleeson (plaintiffs); D Eardley (defendants); AR Conolly & Company (plaintiffs); Moscardo Lawyers (defendants)
• File Number(s): SC 2011/312876

EX TEMPORE Judgment

1 These are proceedings brought by the plaintiffs to enforce an agreement reached at a mediation ( "the Heads of Agreement" ). There is no dispute that the Heads of Agreement was signed at the mediation. I shall have that document marked as Exhibit A.

2 The Agreement appears to be an agreement entered into by the second plaintiff, Mr Anthony Ellis, on behalf of himself and others, and by Mr Brian James, the second defendant, on his behalf and others. The others, it was agreed, can be identified by reference to a mediation agreement, and all of the parties who are plaintiffs in the proceedings were parties to that mediation agreement.

3 This is an application by the defendants for security of costs. An issue has been raised about whether or not the individual plaintiffs should have been joined as plaintiffs. The defendants say the individual plaintiffs should not be joined as plaintiffs because they did not own shares in the property the subject of the Heads of Agreement. No motion has ever been filed by the defendants seeking to have those persons removed as plaintiffs. I think, on the face of it, those persons are appropriately joined as being parties to the Heads of Agreement to whom promises were given by the defendants as part of the settlement for mediation.

4 There has been a deal of dispute about whether or not the fact that there are individual plaintiffs should affect the question on the application for security. In my mind it is very important that there are individual plaintiffs against whom, if the plaintiffs are unsuccessful, an order for costs can be enforced even assuming the corporate plaintiffs have no assets: see Harpur v Ariadne Australia Ltd [1984] 2 Qd R 523 and Momentum Mortgages Ltd v Elmowy [2010] NSWSC 950 at [24].

5 The evidence in the case indicates that the corporate plaintiffs are trustees. As trustees, they would have a right of indemnity. One of the points made on behalf of the plaintiffs is that the right of indemnity would include a right of indemnity out of assets of the trust (see Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 at 367 and Chief Commissioner of Stamp Duties v Buckle (1998) 192 CLR 226 at 245), including the very assets which are the subject of the Heads of Agreement. If the plaintiffs are unsuccessful in their claims against the defendants, then the corporate plaintiffs will still have the assets which are the subject of the Heads of Agreement.

6 There was then a dispute about whether the assets the subject of the Heads of Agreement have any worth. I do not need to determine what value those units in the marina have precisely; it is clear, in my view, that they have value because, firstly, the defendants were prepared to pay over $2 million under the Heads of Agreement for 44% of the value of the marina, and there is evidence of a valuation by Colliers International which puts the marina, as at January this year, as having a value of $2 million. That is sufficient to indicate that although the plaintiffs, through their solicitors, have admitted that the corporate plaintiffs' only assets are those the subject of these proceedings, they nevertheless have value.

7 I should indicate that the defendants, in seeking security, have sought an amount of $168,000 from a much higher figure of more than $300,000. Even $168,000 for a case of this proportion seems to me extraordinary given that what is involved is a dispute about whether an agreement was or was not a binding agreement.

8 I note that Ms J Gleeson of counsel, on behalf of the plaintiffs, has indicated that the individual plaintiffs will not take any point should the plaintiffs be unsuccessful in the proceedings, that they are not liable in some way together with the corporate plaintiffs for any costs orders made against the plaintiffs. In those circumstances it seems to me that this is not a case in which security should be ordered.

9 I have had regard to the written submissions of the plaintiffs and the defendants, and I have heard further argument this morning. Time is short, and as there is another matter in the Commercial List which I have to deal with in a moment, these reasons are somewhat truncated. The conclusion I have come to is that no order for security should be made in circumstances where there are corporate plaintiffs and there is a real prospect that there will be assets available to indemnify the trustee for any liability to meet a costs order.

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Decision last updated: 29 December 2011