Security for Costs from Nominal Plaintiffs

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L.R. 9 Ch.App. 758; Brooke v. .... The application for security for ·costs was dismissed. ..... trustee company conducting a business of property development when.
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Civil Justice Quarterly

Security for Costs from Nominal Plaintiffs Stephen Colbran, B. Com. (Hons.).,. LL.B. (Hons)* Lecturer, Queensland University ofTeclmolo,fly Law School

It is a trite observation that legal costs are of importance to all'parties to litigation, though in practice the risk of an unfavourable costs order is not equally shared. While a plaintiff has a choice whether or not to liti.,. gate, a defendant is in a less advantageous position, for in order to avoid · default judgment, the defendant is compelled to litigate or settle, whether the plaintiff has available assets sufficient to pay the costs of a successful defence or otherwise. Courts have ·sought to redress this imbalance,' and any consequential abuse of process, by ordering security for costs, 1 both at first instanc some' other person. A11dreUis and Another v. Caltex Oil (Australia) Pty Ltd. (1982) 40 A.LR 305, 309, (1981) 60 F.L.R. -261, 265; Co-operative Farmers' a11d Graziers' Direct Meat SupplyLtd. v, Sma'rt [1977] V. R. 386;]et Corporation of Australia Pty Limited (ill its capacity as Trustee ·oftlle ]ei Corporatio11 Australia Trust) _and Others v. Petres Pty Ltd. a11d Others (t983) 50 A.L.R. 722, (1985) tO F.C.R. 289, (1983)74 F.LR. l. 21 A financial interest or benefit derived by the plaintiff in the subject matter of the proceedings: Semler v. Murphy (1968] I Ch. 183, 188, [1967] 2 W.L.R. 1171; I 175; Cf: A11drews a11d Another v. Caltex Oil (Australia) Pty Ltd, (1981) 60 F.LR. 261, (1982) 40 A.L.R. 305; Cooperative Farmers' and Graziers' Direct Meat Supply Ltd. v. Smart (1977) V.R. 386, 391. 22 Ramsey v. Hartley (1977] 1 W.L.R. 686, (1977)2 All E~R. 673;,Merry v. Australia11 Mutual Provident Society (No. 1) (1872) 3 Q.S.C.R. 33; e..l!. Bank-McSherry v. The Railway Commissioners (1897) 18 L:R. (N.S.W.) L. 33, (1897) 13 W.N. (N.S;W.) 127; Parker v . The Great Westem Railway Company (1850) 9 C. B. 766, (1850) t9 L.J. C .P. 335. 17

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(d) liquidators; (e) receivers; and (f) representatives of persons under a disability. The object of the rule is to balance the competing interests of litigants with prevention of abuse·of process arising from the real plaintiff avoiding potential costs through substitution of an insolvent nominal plaintiff in their stead.

Rules of Court

The tight to seek security for costs from aninsolvent nominal plaintiff is provided for in the rules of court.rilles of court concerning nominal plaintiff~ frequently make reference.t~the term ''benefit." 24 . -:, .~--~>;;~.: ··:_. Benefit In Semler v. Murphy2 5 ~4C:' · Rlilin·J,w:¢laimed damages for the defendant's breach of contract to pt.ttchase a hairdressing business. At the commencement of the ac.tim:t~he plaintiff gave an oral equitable charge over the fruits of the'acti().ijJ9'~is'hrother. The Court of Appeal held, that as the plaintiffhad~t!JJ'iet!Iliehe started the action charged the whole fruits of the actiontohi{brotlier, who alone could benefit from it, the plaintiff was a "n,optina,l'plaintiff' suing "for the benefit of some other person" withinthe: m~aiiingofR.S,C. Ord. 23, r. 1 and an order for security for cost~· s}jpuld be made. The term '·'benefit" was construed by the Court of Appeal in the narrow sense of financial benefit. The narrow construction ofthc:: term "benefit" was considered by the Federal Court o(Australia in Andrews atzdAnotlter v. Caltex Oil (Australia) P.ty Ltd.26 The applicants operated petrol service stations under franchisefrOVJ. the respondent, whom it was alleged infringed section 20(1) of the Petroleum Retail Marketitz:~ Fratzcltise Act 1980 (Cth.) [No. 139, 1980] by discriminating between franchisees in respect of fuel pricing, discounts, allowances and rebates or credits. Lochart J. held that the meaning of the i:erm "benefit" was ambulatory and was to be gleaned from the.character of each particular case. On the facts considerations of public benefit arose and it wasconsidered unnecessary to limit the term "benefit" to financial benefit. However even on the narrow constru~,_ tion, the plaintiff would gain a financial benefit by achieving price stab21 R.S.C. Ord. 23, r. 1(1)(1>); R.F.C. (1979) Ord. 28, r. 3(1)(1>); R.S.C. (N.S. W.) (1970) Pt. 53, r. 2(1)(b); R.S.C. (Vic.) (1987) 62.02(1)(1>); RS.C. (S.A.) (1987) 100.01(a); R;S.C. (N.T.) (1987) 62.02(1)(b). 1 ~ R.S.C. Ord. 23, r. 1(1)(b); R.S.C. (Vic.) (1987) r. 62.02(1)(1!); RF.C. (1979) Ord. 28, r. 3(1)(b); R.S.C. (N.T.) (1987) 62.02(1)(b); R.S.C . (N.S. W.) (1970) 1>t. 53, r. 2(1)(b); q{ : R.S.C. (S.A.) (1987) 100.01(a) which is not limited by the expression "benefit." 15 [1968[1 Ch. 183, [ 1967[2 W.L.R. l177.1!967[2AII E.R. ~85. 16 (1981) 60 F.L.R. 261, 266; (1982) 40 A.L.H. 305, 309.

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ility in the absence of discriminatory discounts or rebates. Lochart observed that:

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"It must not be forgotten that there are two aspects of 'benefit' namely, first that the proceeding is not brought for the benefit of the applicant, and second, that it is brought for the benefit of some other person. Proof of the former does not necessarily establish the latter."

The respondent failed to establish both aspects. In respect of the second aspect, this was notwithstanding the support, both financial and otherwise provided by the Service Station Association of N. S. W. Ltd., of which corporation the applicants were members. In Upton and Another v. T. V. W. Enterprises LtdY the applicants .filed an affidavit, in support of an application for speedy trial, deposipg that their creditors had agreed to postp.o ne execution until the outcome. of the proceedings. The respondents asserted the applicant was a nominal plaintiff within the meaning of R.F.C. (1979) Ord. 28, r. 3(1)(b) ·and should provide security for costs, Toohey J. after consigering Andrews v. Caltex Oil agreed with the comment of LochartJ. · quoted above, . ,: . ,; ' ;; ' ,. pointing out that: "equally, proof that a proceeding was pt,opgh~i{or the benefit of another does not necessarily establish tha~jt.was not brought for the benefit of the applicant." , ,,J • · · Toohey J. construed the word "fot;;·i# 'tlff p~;ase ''for the benefit of another" as carrying a notion ofpurp~se, inHi'e·sense that R.F.C. (1979) Ord. 28, r. 3(1)(b) was concerrted' wi:th '{rroceedings brought in order to benefit someone other than the' applicahLHis Hf.1988; December 20, 1990, unreported) Master .White refused to accept the submission ..that:a right of indemnity was not to be regarded as an asset of the plaintiff corporate trading trust; on . the . b;~sis that should the comp_any be wound-up the liquidator could pursue a claitn for indemnity against trust assets, whether .o r not these had been passed to another trustee. 54 (1985) 61 A.L.R. 729, (1985) 9 F.C.R 419, (1985) 7 A. T.P.R. 46, 986. 55 Chester & Fein Property Developments Pty Ltd. v. ,Candam lnvestments ·Pty Ltd. (1985) 61 A.L.R. 729, (1985) 9 F.C.R. 419, (1985) 7 A.T.P.R. 46, 986.

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The capacity.or willingness of the beneficiaries of the trust to pay an order for costs is relevant to the question of the likelihood of the trustee being able by the exercise of its lien over the trust assets either existing or prospective to s.atisfy an order for the costs ofthe proceedings. 56 It will often be the case that those behind a p.laintiff should shoulder some of the risks of the litigation if they are to benefit by it. 57 An applicant for security for costs does not, however, have to show that the beneficiaries of a trust are· incapable of providing with funds a company against whom security is sought. 58 In Mantaray Pty L.td. v. Brookfield Breeding Co. Pty Ltd. 59 an impecunious director and peneficiary ofan insolvent corporate trading trust was held to have satisfied the requirements of section 533 of the Companies (Qld.) Code, l98l.by personally guaranteeing to meet any order for costs on trial which migb,~"b~ made against the plaintiff corporate trading trust. The appljc;~,ti()Xl.for. security for c9sts was dismissed. The assets .of those behind th(:!. corporate trading trust were brought into play. 60 An applicant for -security may have assumed the risk of th~ trustee company:s solvency when contracting with it, if, for example. the applicant has chosen to eQ.te.Jiiimo'a :(:O.ntnct with the.company against whom security is S()ught with()ut requiring security or any guarantee of the company'~ .q~ijg~~\bijs,::#n,d..er: the contracts. In such a: case security may be refu~¢4:ii1Jli.Jig'!tjQJ'];arising out of that contract. 61 In Laun4t:Y,•.fiiqi.n-,W4s.h Nominees Pty_ Ltd. v. Dunlop Olympic Limitel'2 the ap,pJjl~~~(,iffs.we,i:e two. "exe~t1tors, one of whom J;esided out of the jurisdi,ctjot:J:, an#·tfie ·other 'pa,IJ.k~ rupt. If the plaintiffresidenr abroad h:i~ , P~epthesole " pJai~tiff, s~c~dty v.vbjit·is correctly interpreted by Hall V.-C. in Carta Para Mining Ci.rmjui.h.y/7 ·as not referring to a case ofa trustee in bankruptcy but to a person who is a bare trustee of someone else, and is hence not inconsistent with the previous authorities. 78 In Pooley's Trustee in Bankruptcy v. Whetham 79 it was held that if the trustee in bankruptcy was the sole plaintiff security for costs would not be ordered. The effect of the trustee's personal insolvency was not decided. The previous decisions were reviewed by the Court of Appeal in Cowell v. Taylo,S 0 where the Court of Appeal had to determine whether security was required -in the q.~e of an insolvent plaintiff who sued as trustee in bank~;uptcyofan insolvent estate. Bowen L.J. observed: "It cannot be said that a trustee in bankruptcy is a mere nominal plaintiff, he is the person whose statutor.y right duty it is to get

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Cowell v . Taylor (1885) 31 Ch.D. 34. Buchan v. Hill (1888) W.N. 233; Cook v. Wire/lock (1890) 24 Q.B .D. 658. 71 Semler v. Muryhy (1%8]1 Ch. 183, (1967)2 W.L.R. 1177, (1967) 2 All E.R. 185. 72 Pooley's Trustee in Bankn1ptcy v. Whetham (1884) 28 Ch.D. 38. 73 (1869) L.R. 4 Q .B. 590. 74 (1869) 38 L.J. C.P. 281, (1869) L.R. 4 C.P. 645; (1869) 20 L.T. 663, (1869) 17 W .R. 799. 75 (1873) 8 L.R. Q.B. 209, ('1873) 21 W:R. 360. 76 (1873) 8 L.R. Q .B. 209. 77 (1881) 19 Ch.D. 457, (1881) 51 L.J. 191. 78 · Cowell v. Taylor (1885) 31 Ch.D. 34, 40. 79 (1884) 28 Ch.D , 38, 80 (1885) 31Ch.D. 34. 70

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in the assets. Nor does he come within the mis~hief against which the exception is int(!nded to guard. He is not a mere shadow, he is a person who had a duty to perform, that ofgetting in the estate. It is not necessarily his duty to carry on litigation, but it is his duty to do so where litigation is requisite. I think, then, that there is good sense in not requiring him to give security. Then there has been an . established practice both at law and in equity to allow a trustee in bankruptcy to sue without giving security for .costs. " 81 The exception does not extend to an insolvent plaintiff who assigns his ,estate to pij,r.al plaintiffs. In Sykes v. Sykes84 an argument that an)nsl · · · )~ecutor was suing only as a nominal plaintiff was rejected by, L9rd.~ . illC.J.: .

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"as respects executors, though there belc:;g,~~,t;~~,,, h does not follow that they will receive a farthing! and :WP~.~f.A~~is' doubtful whether the estate will pay, there is no one int(!r,t;~t¢.d-to give security, and the case is different from that of A :Sl!~ll.g ;j,s trustee for B; so also in the case of bankruptcy~ there is nq.pJ1e to give, security . . . An executor in truth does not sue as trustee but sues in the character of real plaintiff. " 85 · . The Statute 3 & 4 WilL4, Chapter 42 [1833] secdon 31 specifically recognised executors as ordinary plaintiffs. :E;xecutors, as real plaintiffs, will be required to provide security for