1110 Hay Pty Ltd as trustee for the Hay Street Trust v Metso Minerals (Australia) Ltd
[2018] WASC 126
•26 APRIL 2018
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: 1110 HAY PTY LTD as trustee for THE HAY STREET TRUST -v- METSO MINERALS (AUSTRALIA) LTD [2018] WASC 126
CORAM: DERRICK J
HEARD: 20 APRIL 2018
DELIVERED : 26 APRIL 2018
FILE NO/S: CIV 3327 of 2011
BETWEEN: 1110 HAY PTY LTD as trustee for THE HAY STREET TRUST
Plaintiff
AND
METSO MINERALS (AUSTRALIA) LTD
First Defendant
METSO MINERALS OY
Second Defendant
METSO MINERALS (AUSTRALIA) LTD
Plaintiff by counterclaim
AND
1110 HAY PTY LTD as trustee for THE HAY STREET TRUST
Defendant by counterclaim
Catchwords:
Practice and procedure - Security for costs - Application under s 1335(1) of the Corporations Act 2001 (Cth) and O 25 r 1 of the Rules of the Supreme Court 1971 (WA) and the inherent jurisdiction of the court - Factors relevant to exercise of discretion - Material change in circumstances - Turns on own facts
Legislation:
Corporations Act 2001 (Cth), s 1335(1)
Legal Profession Act 2008 (WA)
Rules of the Supreme Court 1971 (WA), O 25 r 1, 2, 3
Supreme Court Act 1935 (WA)
Result:
Application allowed
Category: B
Representation:
Original Action
Counsel:
| Plaintiff | : | Mr C S Williams |
| First Defendant | : | Mr B W Ashdown |
| Second Defendant | : | No appearance |
Solicitors:
| Plaintiff | : | Solomon Brothers |
| First Defendant | : | Squire Patton Boggs |
| Second Defendant | : | No appearance |
Counterclaim
Counsel:
| Plaintiff by counterclaim | : | Mr B W Ashdown |
| Defendant by counterclaim | : | Mr C S Williams |
Solicitors:
| Plaintiff by counterclaim | : | Squire Patton Boggs |
| Defendant by counterclaim | : | Solomon Brothers |
Case(s) referred to in decision(s):
Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc [1981] HCA 39; (1981) 148 CLR 170
Australian Equity Investors, an Arizona Ltd Partnership v Colliers International (NSW) Pty Ltd (No 5) [2011] FCA 1041
Bazzo v Federal Commissioner of Taxation [2017] FCA 412
Bazzo v Federal Commissioner of Taxation [2017] FCA 71
Bazzo v Federal Commissioner of Taxation [2017] FCAFC 139
BBC Nominees (WA) Pty Ltd v Yangebup Developments Pty Ltd [2008] WASC 81
Boase (as trustee for the Boase Family Trust) v Brook [No 2] [2016] WASC 1
Construction Industries Australia Ltd (in liq) v Wfi Insurance Ltd [2016] WASC 404
Crosswest Corporation Pty Ltd v Allstrike Enterprises Pty Ltd [2014] WASC 27
David Clarke Air Conditioning Pty Ltd v Quann [No 2] [2016] WASC 176
Deputy Commissioner of Taxation v Bazzo [2017] WASC 329
Edenham Pty Ltd v Meares [No 2] [2016] WASC 302
Intercraft Cabinets Pty Ltd v Sampas Pty Ltd (1997) 18 WAR 306
LPH Developments Pty Ltd v Jameson Moore Pty Ltd [No 2] [2017] WASC 128
Mabrouk Minerals Pty Ltd v Mabrouk Holdings Ltd [2008] WASC 132
Stateland Developments Pty Ltd v Cavassini Developments Pty Ltd [2010] NSWSC 1299
Sunlea Enterprises Pty Ltd as Trustee for Drummond Cove Unit Trust v Pollock [2014] WASC 91
Swansdale Pty Ltd v Whitcrest Pty Ltd [2010] WASCA 129 (S)
Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [2013] WASC 57
DERRICK J:
The first defendant applies for an order that the plaintiff give further security for its costs up to and including trial, by payment into court, of the sum of $332,288.31 (the application). The application is made pursuant to s 1335(1) of the Corporations Act 2001 (Cth), O 25 r 1 of the Rules of the Supreme Court 1971 (WA) (RSC) and the court's inherent jurisdiction.
The application is supported by an affidavit sworn by Mr Graeme Slattery on 3 April 2018. Mr Slattery is a partner in the first defendant's firm of solicitors.
The plaintiff opposes the application but has elected not to adduce any evidence on the application.
The action
The plaintiff commenced the action by writ of summons dated 6 December 2011. The action is listed for a five‑day trial commencing on 14 May 2018. The trial dates were allocated in May 2017.
The action concerns a complex commercial dispute. In essence, the plaintiff makes claims against the first defendant for damages and other relief arising out of alleged breaches by the first defendant of both a lease entered into between it and the first defendant and an agreement entered into between it and the first defendant as part of a settlement of a prior dispute between them. The amount of damages claimed by the plaintiff is in excess of $533,000.
The first defendant asserts that the plaintiff, due to the fact that it has sold the premises the subject of the lease, does not have standing to bring or continue the action and hence is not entitled to the relief claimed or any relief. Further, and in the alternative to its assertion that the plaintiff does not have standing, the first defendant disputes the plaintiff's claims and denies that the plaintiff is entitled to any damages or the relief claimed, or any relief at all. The first defendant also makes a counterclaim against the plaintiff by which it claims an amount in excess of $183,000.
The previous security for costs order
On 30 November 2012 the first defendant made an application for security for costs (the first application). The application was made pursuant to s 1335(1) of the Corporations Act. The order sought was for security in the amount of $145,838.
In response to the first application the plaintiff offered an undertaking by Ms Tina Michelle Bazzo. Ms Bazzo is the sole director of the plaintiff.
On 12 February 2013 the first application was heard by Beech J. His Honour allowed the application to the extent of requiring that the plaintiff pay as security the sum of $35,000 into court and Ms Bazzo provide a personal undertaking. His Honour delivered ex tempore reasons for his decision the transcript of which I have read.
On 20 February 2013 Beech J made orders to give effect to his decision on the first application which were in the following terms (the previous security orders):
1.Ms Bazzo provide an undertaking to the Court within 14 days in accordance with the attachment to a minute which had been filed by the parties;
2.The plaintiff pay within 14 days into court $35,000 as security for the first defendant's costs of the proceeding, the amount to be deposited with the Public Trustee for investment until further order of the court; and
3.The first defendant have liberty to apply in relation to the amount of the security.
The terms of the undertaking to be provided by Ms Bazzo in accordance with Beech J's orders were as follows:
I, Tina Michelle Bazzo, do undertake to the Supreme Court of Western Australia that if 1110 Hay Pty Ltd … fails to pay any costs awarded to Metso Minerals (Australia) Ltd … in the civil proceeding CIV 3327 of 2011 within 21 days of the costs being awarded that I personally will pay any unpaid costs to the first defendant within 7 days. In making this undertaking I understand that if I fail or refuse to take personal responsibility for the payment of any unpaid costs awarded to the first defendant that I may be found to be in contempt of Court and may if found guilty face sentencing that can include imprisonment.
On 8 March 2013 Ms Bazzo filed with the court a signed undertaking in accordance with Beech J's orders (the undertaking).
On 8 March 2013 the plaintiff paid into court the sum of $35,000 as security for the first defendant's costs in accordance with Beech J's orders.
The basis for the application
The first defendant's asserted reasons for making the application can be summarised as follows:
1.The previous security orders, if the undertaking is to be read as being 'of full value', provide the first defendant with security for all of its costs;
2.The first defendant's estimated costs of defending the action have increased significantly since Beech J made the previous security orders;
3.Due to circumstances that have arisen since Beech J made the previous security orders there are good grounds for finding that Ms Bazzo will not be able to pay any unpaid costs of the first defendant in accordance with the terms of the undertaking if an adverse costs order is made against the plaintiff;
4.The amount paid by the plaintiff pursuant to the previous security orders will be inadequate to pay the first defendant's costs if an adverse costs order is made against the plaintiff; and
5.Consequently the previous security orders are no longer adequate to provide any security that the costs of the first defendant will be met if an adverse costs order is made against the plaintiff.
Security for costs - relevant principles
Section 1335(1) of the Corporations Act provides:
Where a corporation is plaintiff in any action or other legal proceeding, the court having jurisdiction in the matter may, if 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 successful in his, her or its defence, require sufficient security to be given for those costs and stay all proceedings until the security is given.
Order 25 r 1, O 25 r 2 and O 25 r 3 of the RSC provide as follows:
1.Factors that are not grounds for ordering security for costs
The Court may order security for costs to be given by a plaintiff, but no order shall be made merely on account of the poverty of the plaintiff or the likely inability of the plaintiff to pay any costs which may be awarded against him.
2.Grounds for ordering security for costs
Without limiting the generality of rule 1 the Court may order security for costs to be furnished where the plaintiff -
(a)is ordinarily resident out of the jurisdiction, notwithstanding that he may be temporarily within the jurisdiction;
(b)is about to depart from the jurisdiction;
(c)enjoys within the jurisdiction some privilege which renders him immune, wholly or partially, from the normal processes of execution;
(d)is an undischarged bankrupt or a person who has suspended, or given notice of suspension of, his debts;
(e)is a company in liquidation or under official management, or a company in respect of which a receiver of its property has been appointed;
(f)is a relator suing for the enforcement or declaration of some public right or to have some public trust carried out or some charitable scheme settled;
(g)is in default in respect of any costs ordered to be paid by him in any proceedings previously brought by him against the same defendant or another defendant for substantially the same cause of action or in relation to substantially the same subject matter;
(h)is a person who has in the past vexatiously brought litigation against the same defendant or against any other defendant;
(i)is suing the sheriff in respect of anything done or omitted to be done by the sheriff or his officers in the execution of any judgment of the Court.
3.Court has discretion
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.
Section 1335(1) establishes a threshold jurisdictional requirement to the exercise of the court's discretion to order security, namely that '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 successful'. If the threshold jurisdictional requirement is satisfied the court's discretion to order security for costs is enlivened: Edenham Pty Ltd v Meares [No 2] [2016] WASC 302 [13], [15].
It is well established that the court's discretion to order security for costs, whether under s 1335(1) or O 25 r 1, is broad and depends upon all the circumstances of the case: Mabrouk Minerals Pty Ltd v Mabrouk Holdings Ltd [2008] WASC 132 [57]; Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [2013] WASC 57 [5]; Crosswest Corporation Pty Ltd v Allstrike Enterprises Pty Ltd [2014] WASC 27 [12].
Where a ground listed in O 25 r 2 is present, this does not automatically mean that an order for security should be made. However, if one (or more) of the listed grounds is present, this will be relevant to the overall assessment.
None of the specific grounds set out in O 25 r 2 are engaged in this case.
Under O 25 r 1, unlike under s 1335(1), the likely inability of the plaintiff to pay any costs which may be awarded against it is not, in itself and standing alone, sufficient to justify the making of an order for security. However, this does not make such an inability irrelevant to the exercise of the discretion under O 25 r 1. To the contrary, any such likely inability is among the factors relevant to the exercise of the discretion under O 25 r 1: Crosswest [13].
In Westonia Edelman J set out a non‑exclusive list of factors relevant to the exercise of the security for costs discretion. Westonia was a case concerned with s 1335(1) but the factors which his Honour specified are, in addition to those referred to in O 25 r 3, also relevant to the exercise of the discretion under O 25 r 1: Crosswest [14]. The factors identified by Edelman J are as follows:
1.The strength and bona fides of the plaintiff's case (which is in essence the same as the ground specified in O 25 r 3(a));
2.The likelihood of the plaintiff being unable to pay the defendant's costs;
3.Whether the plaintiff's impecuniosity was caused by the defendant's conduct which is the subject of the claim;
4.Whether the application for security is oppressive;
5.Whether the award of security would deny an impecunious plaintiff a right to litigate;
6.Whether there are persons standing behind the plaintiff who are likely to benefit from the litigation;
7.Whether the persons standing behind the plaintiff have offered any security or personal undertaking to be liable for the costs, and if so, the form of such an undertaking;
8.Whether the defendant is in substance a plaintiff or the proceedings are defensive in the sense of directly resisting proceedings already brought or seeking to halt the defendant's self‑help procedures;
9.Whether the application for security has been brought promptly;
10.Whether the defendant has any rights which it can exercise against assets of the plaintiff to satisfy an order for costs in its favour; and
11.Any factors relating to the public interest.
There is no bar to the bringing of more than one security for costs application: LPH Developments Pty Ltd v Jameson Moore Pty Ltd [No 2] [2017] WASC 128 [10].
Section 1335(1) threshold requirement
The first defendant, for the purposes of the first application, prepared a draft bill of costs which was put before the court. The draft bill of costs estimated the first defendant's total costs through to the completion of the action at $196,185.
It was not in dispute at the hearing of the first application that the first defendant had met the threshold jurisdictional requirement established by s 1335(1). Beech J accepted that the threshold jurisdictional requirement had been established.
Since the making of the previous security orders the plaintiff has not adduced any evidence of its financial means or any other evidence of its ability to meet any adverse costs order.
In his affidavit Mr Slattery, who is an experienced practitioner in commercial litigation, expresses the view that since the first application the action has increased in complexity. He states that since the first application there have been a number of interlocutory disputes between the parties and that there have been significant delays in the action progressing. He states that there has been an increase in legal costs. He identifies various things that have occurred in the progressing of the action since the first application which he asserts has resulted in the increase in costs. Against this background Mr Slattery annexes to his affidavit a draft bill of the first defendant's costs for the period 6 December 2011 to 18 May 2018, 18 May 2018 being the last day of the currently listed trial (the draft bill). The estimate of costs in the draft bill is $367,288.31. Of this amount approximately $154,000 relates to costs yet to be incurred and approximately $56,000 relates to disbursements.
In his affidavit Mr Slattery expresses the opinion that the draft bill is in accordance with all subsidiary legislation made under the Legal Profession Act 2008 (WA) and the Supreme Court Act 1935 (WA) in relation to recoverable costs in the Supreme Court and court fees. He also expresses the opinion that based upon what he currently knows the draft bill includes an estimate of the costs likely to be incurred on behalf of the first defendant in the action for the period 6 December 2011 to 18 May 2018 on a party‑party basis because:
1.the draft bill is prepared on a party‑party basis and does not exceed the maximum amounts allowable under the scale; and
2.it is likely that the first defendant will incur costs which exceed the amounts allowed in the scale.
The plaintiff submits, in effect, that the total costs arrived at in the draft bill are excessive. It is pointed out (correctly) that the amount claimed in the draft bill for preparation of the case for trial, being $58,080, is claimed twice. It is also pointed out that the amounts claimed in the draft bill for a significant number of items are based on the first defendant being able to recover the maximum amount allowable under the scale. It is contended that a number of these claimed amounts are 'generous' and are unlikely to be allowed. By way of example, it is argued that claims for the maximum amount allowable under the scale in respect of each of the two occasions on which the first defendant has amended its defence and counterclaim are not warranted given that the amendments have not been extensive.
The first defendant, save for accepting that the draft bill erroneously includes the amount claimed for the preparation of the case for trial twice, does not accept that the total amount claimed in the draft bill is excessive or overly generous. To the contrary, the first defendant contends that the claimed costs are justified given the complexity of the action.
In determining the application it is not the task of the court to attempt to precisely calculate the costs that are likely to be awarded to the first defendant in the event that it is ultimately successful in the action. Rather, the task for the court is to arrive at a reasonable estimate of the likely taxable costs of the first defendant. The task essentially is one of discretionary judgment, reasonable estimation and projection: Construction Industries Australia Ltd (in liq) v Wfi Insurance Ltd [2016] WASC 404.
The figure of $367,288.31 arrived at in the draft bill must be reduced by $58,080 to correct the duplicated claim in respect of preparation for trial costs. It follows that the first defendant's estimate of its costs likely to be incurred on a party‑party basis is in fact $309,208.31, or $253,208.31 excluding disbursements. In addition, I accept that in respect of at least some of the items claimed for in the draft bill the first defendant may not be awarded the maximum amount payable under the scale. In these circumstances it seems to me that if the first defendant is ultimately successful in the action the costs that it is likely to be awarded (including disbursements) will be somewhere between $250,000 and $300,000. It is not, in the circumstances of the present case, necessary for me to attempt to proffer a more precise estimation.
The first defendant submits that I should be satisfied that the threshold jurisdictional requirement has been met. In this context the first defendant points not only to the fact that the plaintiff has not adduced any evidence as to its financial position, but also that it no longer owns the property that is the subject of the action.
The plaintiff does not attempt to contend that I should not be satisfied that the threshold jurisdictional requirement has been met.
In light of Beech J's acceptance on the first application (when the amount of security being sought was $145,838) that the first defendant had met the threshold jurisdictional requirement established by s 1335(1), the fact that since Beech J made the previous security orders the plaintiff has not adduced any further evidence as to its financial means or ability to meet any adverse costs order, and my broad estimation of the costs that are likely to be awarded to the first defendant in the event that it is successful in the action, I am satisfied for the purposes of the application that the threshold jurisdictional requirement established by s 1335(1) is met.
Factors relevant to the exercise of the discretion
Having arrived at the conclusion that the threshold jurisdictional requirement established by s 1335(1) is met, I turn to decide whether I should, in the exercise of my discretion, make the requested order for further security. In dealing with this question I propose to address each of the factors identified by Edelman J in Westonia which have been referred to by the parties in their submissions or which are otherwise of relevance to the determination of the application. I will also deal in this context with the plaintiff's contention that the application should be refused because the first defendant has failed to show that there has been a material change in circumstances since the previous security orders were made.
The strength and bona fides of the claim
There are obvious and practical limits on the extent to which an assessment can be made of the substantive merits of a plaintiff's claim. It is not generally appropriate for the court to attempt to investigate in considerable detail the likelihood of success in the action: Swansdale Pty Ltd v Whitcrest Pty Ltd [2010] WASCA 129 (S) [72] ‑ [74]; Crosswest [15].
Where a claim is prima facie regular on its face and discloses a cause of action then, in the absence of evidence to the contrary, the court should generally proceed on the basis that the claim is bona fide and has a reasonable prospect of success: Boase (as trustee for the Boase Family Trust) v Brook [No 2] [2016] WASC 1 [18]; David Clarke Air Conditioning Pty Ltd v Quann [No 2] [2016] WASC 176.
Neither party has made any significant submission in relation to the substantive merits of their respective claims. This is understandable.
In my view, it is not possible to make any sensible evaluation of the merits of the plaintiff's claim or the first defendant's counterclaim on the basis of the material that is before me. In my view all that can properly be said at this point in time is that, in the absence of evidence to the contrary, the claims of both parties are bona fide and may have merit.
The likely inability of the plaintiff to pay the defendant's costs
The likely inability to meet a costs order is a matter which not only opens the jurisdiction to make an order for security for costs under s 1335(1), but also provides a substantial factor in the decision whether to exercise the discretion: Westonia [37]. The likely inability to meet a costs order is a matter which favours making an order for security for costs.
As is apparent from my conclusion that the threshold jurisdictional requirement under s 1335(1) has been met in this case, I am satisfied that the plaintiff will be unlikely to be able to pay all or even a substantial proportion of the first defendant's costs in the event that an adverse costs order is made against the plaintiff.
Whether the application for security is oppressive
This factor is commonly raised in circumstances in which it is alleged that the application is brought for the purpose of shutting out the plaintiff from its claims: Westonia [30].
In this case it is not suggested by the plaintiff that the first defendant has brought the application for the purpose of stifling the litigation, or that the first defendant has conducted its defence in a manner that has unnecessarily prolonged the proceedings or added to the costs of the proceedings: Westonia [31].
Whether there are persons standing behind the plaintiff who are likely to benefit from the litigation
The plaintiff is a trustee company. It is the trustee of The Hay Street Trust (the Trust).
The sole shareholder in the plaintiff is GHT (WA) Pty Ltd. The sole shareholder in GHT (WA) Pty Ltd is Ms Bazzo.
The shares in the plaintiff were formerly held by GH1 Pty Ltd. The sole shareholder in GH1 Pty Ltd is Ms Bazzo. GH1 Pty Ltd went into administration on 5 April 2017 and is now in liquidation.
It follows from the above that Ms Bazzo and any beneficiaries of the Trust are the persons standing behind the plaintiff and that it is the beneficiaries who will benefit from the litigation if the plaintiff is successful.
Whether the award of security would deny an impecunious plaintiff a right to litigate
Although the likely inability of a plaintiff to meet a costs order is a matter which favours making an order for security for costs, this must be weighed against the consideration that the mere impecuniosity of a plaintiff should itself not be a bar to it pursuing proceedings: Intercraft Cabinets Pty Ltd v Sampas Pty Ltd (1997) 18 WAR 306, 315; Westonia [38]. Accordingly, a factor weighing against an order for security for costs is the extent to which the likely effect of an order for security would be to stultify a plaintiff's claim: Westonia [38]. This directs attention to whether any other person might be able to satisfy an order for security for costs against the company: Westonia [38].
The application is not resisted on the ground that to make a further order for security will result in the plaintiff's action being stultified. This is not surprising given that the plaintiff has elected not to adduce any evidence as to the financial position of those behind the plaintiff.
Despite the application not being resisted on the ground that to make a further order for security will result in the plaintiff's action being stultified, the plaintiff's counsel did argue that if I find that the threshold jurisdictional requirement is met, and if I do conclude that Ms Bazzo will not be able to honour the undertaking (a matter which I deal with below) it will be open for me to infer that the effect of making an order for further security will be to stultify the litigation. In response to this argument the first defendant's counsel contended that a finding that the plaintiff and Ms Bazzo will not be able to meet the first defendant's costs does not permit a finding that the litigation will be stultified in circumstances where the plaintiff has not put forward any evidence as to the financial position of those that stand to benefit from the litigation, namely the beneficiaries of the Trust. The first defendant's counsel also pointed out in this context that there is no evidence before the court suggesting that the plaintiff's solicitors are acting on a pro bono basis because those standing behind the plaintiff are unable to pay the plaintiff's solicitors bills.
I accept the submission made on behalf of the first defendant. I do not think that it is open for me to infer, in the absence of evidence from those standing behind the plaintiff who stand to benefit from the litigation, namely the beneficiaries of the Trust, that to make an order requiring the plaintiff to give further security will result in the stultification of the litigation.
Whether the person standing behind the plaintiff has offered any security or personal undertaking to be liable for the costs
The giving of a personal undertaking to pay any costs by the person standing behind the plaintiff when the plaintiff is a company does not preclude an order for security for costs being made against the company. The availability of an undertaking of personal liability by a person who stands behind the plaintiff company is simply one factor, albeit an important factor, to be taken into account in the exercise of the discretion to order security for costs: Intercraft Cabinets Pty Ltd v Sampas (314 ‑ 316); Westonia [41]; Crosswest [16]. The means of the person giving the undertaking and hence the potential value of the undertaking is an important factor in deciding if the availability of an undertaking is sufficient to justify refusing making an order for security: BBC Nominees (WA) Pty Ltd v Yangebup Developments Pty Ltd [2008] WASC 81 [35]; Westonia [41].
During 2017 a number of judgments were entered against Ms Bazzo: Bazzo v Federal Commissioner of Taxation [2017] FCA 71; Bazzo v Federal Commissioner of Taxation [2017] FCA 412; Bazzo v Federal Commissioner of Taxation [2017] FCAFC 139; Deputy Commissioner of Taxation v Bazzo [2017] WASC 329. It is apparent from these judgments that Ms Bazzo has a personal tax debt of at least $16,068,522.39. It is also apparent from the three judgments entered against Ms Bazzo in the Federal Court that Ms Bazzo has entered into an agreement with the Commonwealth of Australia represented by the Commissioner of Taxation pursuant to which the Commissioner has agreed to forbear from undertaking recovery action in respect of a large proportion of Ms Bazzo's tax debt (approximately $13,800,000) upon the terms and conditions set out in the agreement in exchange for Ms Bazzo giving security for the debt.
In light of Ms Bazzo's personal tax debt the first defendant submits that I should find that Ms Bazzo will not be able to meet any obligation pursuant to the undertaking. The first defendant submits that the undertaking therefore does not provide any security that the costs of the first defendant will be met in the event of an adverse costs order being made against the plaintiff.
The plaintiff concedes only that the evidence of Ms Bazzo's tax debt is sufficient to justify me forming doubts that Ms Bazzo will have the capacity to meet her obligations pursuant to the undertaking.
In this context the plaintiff's counsel pointed to the fact that the affidavit of Mr Slattery reveals that Ms Bazzo is the registered proprietor of a number of properties. He submitted that although the evidence does not permit me to draw any conclusions as to the value of the properties, or the extent to which the properties are encumbered, or the value of the debts and liabilities that might be secured by the encumbrances 'when a person holds the volume of real property that Ms Bazzo holds, the fact that there is a debt to the Commissioner of Taxation in an amount exceeding $10 million might not present the sort of financial fatality that the existence of such indebtedness might present to other people'. In response to this submission the first defendant's counsel contended, in effect, that in the absence of any evidence from Ms Bazzo it is simply not open for me to conclude that Ms Bazzo's property interests render her tax debt any less financially significant than would ordinarily be expected when the debt is of the size owed by Ms Bazzo. He submitted that the only evidence that I do have before me from which I can draw any conclusion about Ms Bazzo's financial position is the evidence of her tax debt as revealed by the above referred to cases.
I accept, in general terms, the first defendant's contention. I am satisfied, given the size of Ms Bazzo's personal tax debt and the absence of any evidence from the plaintiff as to Ms Bazzo's current financial position, that the prospect of Ms Bazzo being able to meet her obligations pursuant to the undertaking are extremely remote if not non-existent. To put it another way, I am satisfied on the basis of the evidence before me that the undertaking is of little or no value and hence provides little or no security to the first defendant.
The lack of value of the undertaking is a factor that favours the making of the order for further security sought by the first defendant.
Whether the application has been brought promptly
On 7 December 2017 Mr Slattery caused a letter to be sent to the plaintiff's solicitors which was relevantly in the following terms:
We refer to the orders made in relation to security for costs in this proceeding and the personal undertaking signed by Ms Tina Bazzo on 6 March 2013.
It has come to our client's attention that Ms Bazzo has, this year, had a number of rulings made against her in disputes with the Commissioner of Taxation, including as follows:
(a)Bazzo v Commissioner of Taxation [2017] FCA 71;
(b)Bazzo v Commissioner of Taxation [2017] FCA 412;
(c)Bazzo v Commissioner of Taxation [2017] FCAFC 139; and
(d)Deputy Commissioner of Taxation v Bazzo [2017] WASC 329.
Based upon information that is publicly available Ms Bazzo currently appears to have tax debts of at least $16,068,522.39, including general interest charge (GIC). Further amounts will continue to accrue if the debt is unpaid. In addition, costs orders were made against Ms Bazzo in the above listed proceedings.
…
The substantial amounts owed by Ms Bazzo to the Commissioner of Taxation mean that the personal undertaking of Ms Bazzo to pay our client's costs provided in response to the security for costs application is of no value. We are instructed to request that you provide us with a proposal for an undertaking by an alternative party or a proposal for the payment of security for costs into court. Any proposal for a payment into court should reflect the significant increase in the complexity of the proceedings since the hearing in respect to security. In the event that no satisfactory proposal is provided we are instructed to apply to the court seeking that your client's claim be stayed pending the provision of further security for costs.
We seek a response to this request by 14 December 2017 in order to allow our client to the court prior to the Christmas recess, if required (sic).
The plaintiff's solicitors did not respond to the above referred to letter. Accordingly, on 1 February 2018 Mr Slattery sent an email to Mr Adam Roberts of the plaintiff's solicitors in which he noted that the first defendant's solicitors had not had a response to their letter dated 7 December 2017 despite a subsequent phone message.
On 2 February 2018 the plaintiff's solicitors sent a letter to the first defendant's solicitors in which they advised that they had not yet received instructions from their client with respect to the issues raised in the letter dated 7 December 2017 and that they would respond substantively once they had received instructions.
The first defendant filed the application on 29 March 2018, that is, approximately six weeks prior to the listed commencement date of the trial.
The plaintiff has not attempted to raise the issue of delay in opposition to the application, although it does contend that if I decide that it is appropriate to make an order for further security the quantum of the security should be arrived at by reference to future costs only: Australian Equity Investors, an Arizona Ltd Partnership v Colliers International (NSW) Pty Ltd (No 5) [2011] FCA 1041 [58].
In relation to the issue of delay the first defendant submits that the timing of the application should not be treated as a factor which weighs against making the further security order sought. The first defendant submits that to deny the application on the basis of its timing would be to effectively suggest that it should have been monitoring the financial status of Ms Bazzo and should have become aware, prior to the end of 2017, of the circumstances that have prompted the bringing of the application. It is pointed out in this regard that so far as the above referred to decisions concerning Ms Bazzo's tax debt are concerned, the decision of the Full Court of the Federal Court was not delivered until 31 August 2017, and the decision of this court (by which Ms Bazzo was ordered to pay $980,331.95 plus general interest to the Deputy Commissioner of Taxation) was not delivered until 17 November 2017.
I accept that the first defendant cannot reasonably have been expected to have become aware of the circumstances that have led to the making of the application prior to the latter part of 2017. Moreover, although I think it is fair to say that the first defendant's solicitors could have proceeded to follow up with the plaintiff's solicitors the foreshadowed application a little more expeditiously than they did (even allowing for the Christmas period), I am satisfied that the period that elapsed between the foreshadowing of the application and the actual making of the application on 29 March 2018 is substantially attributable to the failure by the plaintiff, through its solicitors, to provide any substantive response to the first defendant's request for further security to be provided. In addition, the plaintiff has not adduced any evidence to suggest that it would, in its conduct of the litigation, have acted in any different way had it been informed some time prior to December 2017 of the first defendant's intention to make an application for further security. In all these circumstances I do not consider that the time that has elapsed since the making of the first application or the fact that the application has been made only a relatively short time prior to the listed trial dates, militates against the making of an order for further security for both past and future costs.
Change in circumstances
I come now to the change in circumstances issue.
The plaintiff submits that in order to succeed on the application the first defendant must show that there has been a material change in circumstances since the previous security orders were made: Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc [1981] HCA 39; (1981) 148 CLR 170, 178; Stateland Developments Pty Ltd v Cavassini Developments Pty Ltd [2010] NSWSC 1299 [2]. The plaintiff submits that the first defendant has failed to demonstrate the required material change in circumstances. This submission requires some elaboration.
At the time of the first application the first defendant adduced evidence of a claim that had been made against parties including Ms Bazzo in other court proceedings, and relied upon the existence of this claim together with the absence of evidence of Ms Bazzo's capacity to meet an award of costs in favour of the first defendant, to support a contention that the giving of an undertaking by Ms Bazzo did not warrant a refusal by the court to order that security for costs be provided by the plaintiff. In dealing with this contention Beech J noted that there were complexities and uncertainties in the relationship between the claim that had been made against Ms Bazzo in the other court proceedings and the impact which the claim might have on Ms Bazzo's ability to satisfy any liability that might arise in respect of the costs of the first defendant. His Honour found that there was 'some risk' that certain property of Ms Bazzo which was referred to in the statement of claim in the other claim brought against her, if this other claim was successful, might not be available for the purpose of satisfying any liability of Ms Bazzo for the first defendant's costs that might arise under a personal undertaking. It was against the background of this finding that his Honour, in the exercise of his discretion, required the plaintiff to pay the sum of $35,000 into court in addition to requiring Ms Bazzo to provide the undertaking. In other words, the terms of the previous security orders reflected the acceptance that there was some risk that Ms Bazzo may lack the means to honour the undertaking. Therefore, the plaintiff argues, the fact that Ms Bazzo now has a personal tax debt in excess of $16,000,000 and may not be able to honour the undertaking does not amount to a material change in circumstances justifying the making of an order for the provision of further security. As the plaintiff's counsel put it, 'all that has changed is the specific claims made of Ms Bazzo are now different'.
The first defendant submits that in an application of the present type it does not have to show a material change in circumstances in order to be successful on the application. The first defendant submits that all that it needs to show is that the current security is inadequate.
The first defendant further submits that even if, contrary to its primary position, it does have to show a change of circumstances it has done so in that the 'crystallisation and quantum' of Ms Bazzo's tax debt makes the present circumstances very different from those which existed at the time of the first application. It is submitted, in effect, that whereas all that could be said at the time of the first application was that there was some risk that Ms Bazzo would not be able to meet her obligations pursuant to the undertaking, the existence of Ms Bazzo's personal tax debt now makes it far more certain that the undertaking is of little or no value.
The dispute between the parties as to whether the first defendant is required to show a material change in circumstances is not one that I need to resolve. I say this because I do not accept the submission made by the plaintiff that the first defendant has failed to show a material change in circumstances. As I have already indicated Beech J, in making the previous security orders, recognised that there was 'some risk' that some property of Ms Bazzo the subject of the other claim against her, if the other claim was successful, would not be available for the purpose of satisfying any liability of Ms Bazzo pursuant to the undertaking. However, his Honour put the matter no higher than that. The position now, however, is far clearer. It is now clear, in my view, given Ms Bazzo's tax debt, that the prospect of Ms Bazzo being able to meet her obligations pursuant to the undertaking are, as I have already stated, remote if not non‑existent. In addition, the litigation has, in my view, become more complex since the making of the previous security orders which has had the consequence of significantly increasing the costs that will ultimately be incurred by the first defendant in defending the action. For these reasons I am satisfied that there has been a material change in circumstances since the making of the previous security orders.
Conclusion
The purpose of an order for security against a corporate plaintiff is to protect the defendant against the risk of being deprived of the benefit of compensation by way of a costs order should the defendant be successful: Sunlea Enterprises Pty Ltd as Trustee for Drummond Cove Unit Trust v Pollock [2014] WASC 91 [44].
In my opinion, on balance, a consideration of all the relevant factors favours the making of an order for further security. The significant factors which in my view outweigh considerations to the contrary and justify the making of such an order for further security are the increased complexity of the litigation since the making of the previous security orders and the consequential increased costs that will necessarily be incurred by the first defendant in defending the action, the unlikelihood of the plaintiff being able to pay all or even a substantial proportion of the first defendant's costs, the remote if not non-existent prospect of Ms Bazzo being able to honour the undertaking, and the absence of any evidence which justifies a conclusion that to order further security will result in the stultification of the litigation.
The first defendant submits that the only appropriate form of security in the circumstances of the present case is to require the payment of any additional amount into court or to the Public Trustee for investment. I accept this submission.
As to the amount of the additional security to be ordered, it is trite that security is not necessarily given for the full sum claimed. An order for security for costs is not intended to be a complete indemnity for the actual costs likely to be incurred by a defendant. Rather, the security ordered should be an amount which the court in all circumstances thinks just: BBC Nominees [39]; Construction Industries [45].
In the circumstances of this case I consider that an appropriate additional amount to be ordered by way of security is $80,000. The proceedings will be stayed pending payment.
I will hear from the parties as to the precise terms of the orders to be made to give effect to my decision and to deal with the issue of the currently listed trial dates.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
CP
ASSOCIATE TO THE HONOURABLE JUSTICE DERRICK
26 APRIL 2018
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