A recent decision handed down by the Supreme Court of the Australian Capital Territory (ACTSC) has shed light on the substance and evidence necessary for a Statement of Claim to be adequately pleaded.

In the matter of Today’s Homes and Lifestyle Pty Ltd (in liquidation) v McCoullough [2020] ACTSC 72, the ACTSC found that the weakness of the Plaintiffs’ evidence amounted to an order for security for costs. The case concerned the payment of various sums of money paid by the Plaintiffs, the company in liquidation, to the Defendants, family members of the company. The Plaintiffs claimed that these payments were loans and demanded the repayment of the monies from the Defendants.

The Defendants made an application for the Plaintiffs’ Statement of Claim to be struck out on the basis that there was no cause of action. If the application was unsuccessful, the Plaintiffs were to provide security for costs.

The Plaintiffs’ cause of action was dependent on establishing that the payments were loans, however, they provided little by way of actual evidence to prove this. They relied primarily on various transaction lists and further evidence that they anticipated may have emerged during the discovery process, to make out their claim.

Transaction lists were found to be insufficient in identifying the payments as loans as they showed no more than a list of transactions and the movement of money from the company to the defendants (Michell v Onroad Offroad Pty Ltd [2018] VSC 648).

On the evidence provided, the trial judge found that there was a cause of action, but the Plaintiffs’ claim was weak and ‘somewhat lacking in substance’. He stated that they would need a good deal more evidence before they were going to succeed.

Furthermore, the trial judge referenced the case of Jazabas Pty Ltd & Ors v Haddad & Ors [2007] NSWCA 291 at [94], emphasising that it was not enough that these transactions were only a ‘contributing factor’ to the company’s financial position. In the present case, the asserted loans were not necessarily the sole cause of the company’s financial position.

Although the claim was not struck out on the absence of a cause of action, the weak evidence favoured an order for security for costs. The Plaintiffs were accordingly ordered to provide security for the Defendants’ costs in the sum of $75,000.

This case highlights the significance of pleading adequately evidenced claims and the potential for adverse security costs orders.