A M Land Pty Ltd v Nature Stone (WA) Pty Ltd
[2017] WASC 116
•26 APRIL 2017
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: A M LAND PTY LTD -v- NATURE STONE (WA) PTY LTD [2017] WASC 116
CORAM: ACTING MASTER STRK
HEARD: 13 APRIL 2017
DELIVERED : 26 APRIL 2017
FILE NO/S: CIV 2629 of 2016
BETWEEN: A M LAND PTY LTD
Plaintiff
AND
NATURE STONE (WA) PTY LTD
First DefendantKI HYUNG LEE
Second DefendantERICA EUNJONG KIM
Third Defendant
Catchwords:
Practice and procedure - Applications for security for costs - Turns on own fact
Legislation:
Corporations Act 2001 (Cth), s 1335
Legal Profession (Supreme Court) (Contentious Business) Determination 2016 (WA)
Result:
Order that security be paid into court
Category: B
Representation:
Counsel:
Plaintiff: Mr R Guerrini
First Defendant : Mr M G Pendlebury
Second Defendant : Mr M G Pendlebury
Third Defendant : Mr E M E John
Solicitors:
Plaintiff: Lawley Legal
First Defendant : Fletcher Law
Second Defendant : Fletcher Law
Third Defendant : Symons & Co
Case(s) referred to in judgment(s):
Brundza v Robbie & Co (No 2) [1952] HCA 49; (1952) 88 CLR 171
Construction Industries Australia Ltd (in liq) v WFI Insurance Ltd [2016] WASC 404
FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69; (2000) 22 WAR 241
Field Camp Services Pty Ltd v Site Accommodation Pty Ltd [2011] WASCA 118
Four Vanguard Servicos E Navagacao Lda v ENI Australia Ltd [2014] WASC 473
Global Finance Group Pty Ltd (in liq) v Marsden Partners (a firm) [2004] WASC 52
Heller Factors Pty Ltd v John Arnold's Surf Shop Pty Ltd (in liq) (1979) 4 ACLR 492
Jaddcal Pty Ltd v Minson [No 2] [2011] WASC 138
Sugarloaf Hill Nominees Pty Ltd as Trustee for the Richard and Anna Trust v Rewards Projects Ltd [2011] WASC 19
TSDack Pty Ltd v Australian Water Holdings Pty Ltd [2015] FCA 931; (2015) 108 ACSR 379
Unified Pty Ltd v The Cancer Council Western Australia Inc [No 3] [2011] WASC 161
Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [2013] WASC 57
ACTING MASTER STRK: These reasons concern two separate applications for security for costs made pursuant to s 1335(1) of the Corporations Act 2001 (Cth) (together the applications). The first is an application made by the first and second defendants. The second is an application made by the third defendant.
The first and second defendants seek security for costs in the amount of $164,183.10 by way of payment into court. The third defendant seeks security for costs in the amount of $106,247.60 by way of payment into court.
In support of their application, the first and second defendants relied on the affidavit of Kate O'Brien (solicitor for the first and second defendants) filed on 7 December 2016; the further affidavit of Kate O'Brien filed on 23 December 2016; the affidavit of Ki Hyung Lee (the second defendant and director of the first defendant) filed on 23 December 2016; the further affidavit of Kate O'Brien filed on 19 January 2017; and the further affidavit of Ki Hyung Lee filed on 4 April 2017.
In support of her application, the third defendant relied on the affidavit of Kishmore Premji Kerai (former employee of the plaintiff) filed on 6 January 2017; and the affidavit of Evan Michael Ennis John (solicitor for the third defendant) filed 7 April 2017.
The plaintiff relied on the affidavit of Kankanam Pathiranage Amila Nuwan (a former employee of the plaintiff) filed 14 March 2017; the affidavit of Sam Peter Paonni (solicitor for the plaintiff) file 15 March 2017; the affidavit of Alex Ma (sole director and shareholder of the plaintiff) filed 20 March 2017; and the affidavit of Jiping Zou (translator and interpreter) filed 24 March 2017 attaching an English translation of the affidavit of Alex Ma filed on 20 March 2017.
For the reasons set out below, I am satisfied that orders for security for costs should be made.
Status of the proceedings
The proceedings were commenced by the plaintiff by a writ dated 19 September 2016, and an amended writ was filed on 22 September 2016.
An appearance was filed on behalf of the first and second defendants on 6 October 2016, and on behalf of the third defendant on 22 September 2016.
The first status conference took place on 25 October 2016. During the course of that hearing, counsel for the first and second defendants indicates that a security for costs application would likely be made after receipt of the statement of claim (the receipt of which would allow an assessment to be made of the costs likely to be incurred by the first and second defendants in defending the proceedings).
A statement of claim was filed on 11 November 2016 and particulars were filed on 29 November 2016.
The second status conference took place on 6 December 2016. During the course of that hearing, counsel for the plaintiff pressed for defences to be filed whereas the defendants' respective counsel resisted the same, foreshadowing security for costs applications. An order was made that any application for security for costs was to be filed on or before 23 December 2016. No date was fixed for the filing of defences.
The first and second defendants' application for security for costs was filed on 23 December 2016, and the third defendant's application was filed on 6 January 2017.
Nature of the proceedings
The plaintiff is a company which predominantly operates a dry‑plaster installation and ceiling fixing business.[1]
[1] Affidavit of Alex Ma filed 20 March 2017, translated by Jiping Zou [10].
These proceedings are one of three actions commenced by the plaintiff against the second and third defendants (who are husband and wife and who worked at the offices of the plaintiff from 2012 to 2015). Two of the three actions were also commenced against the first defendant (a company the plaintiff claims was controlled and operated by the second defendant).[2]
[2] The other proceedings being District Court CIV 3411 of 2016 and CIV 3528 of 2016: affidavit of Sam Peter Paonni filed 15 March 2017, SPP6 ‑ SPP9.
The plaintiff's claims in these proceedings as against the first and second defendants are conveniently summarised in the first and second defendants' submissions dated 4 April 2017.
The plaintiff contends that payments made to:
(a)third party suppliers of goods and services; and
(b)the first defendant,
were payments that one or more of the defendants caused to be made, and in circumstances where those payments were not in respect of legitimate liabilities of the plaintiff (Improper Payments Allegation).
The plaintiff also contends that between about 1 September 2013 and 20 April 2015, the second defendant, for the benefit of himself and/or the first defendant:
(a)directed the plaintiff's employees; and
(b)used the plaintiff's premises,
to carry out certain work without permission of the plaintiff for the benefit of the first defendant and the second defendant (Staff Premises Claim).
It is pleaded that the direction of employees and use of premises in the circumstances amounted to having wrongfully deprived the plaintiff of the use of its employee and possession of the premises.
The plaintiff's claims in these proceedings as against the third defendant are conveniently summarised in the third defendant's submissions dated 6 April 2017. The plaintiff pleads:
(a)that the third defendant's duties during her employment with the plaintiff included 'reconciling invoices for goods and services supplied to the plaintiff, to ensure the invoices had been incurred by the plaintiff for work that it was contractually obliged to perform';[3]
(b)that the third defendant owed the plaintiff 'a duty to make inquiry and to consult with the In‑House Accountant before paying a tax invoice';[4]
(c)that the third defendant was in breach of duties owed to the plaintiff and relies upon the contention that the third defendant knew or ought to have known that invoices she paid were not payable by the plaintiff;[5] and
(d)a claim for unjust enrichment against the third defendant.[6]
[3] Statement of claim dated 11 November 2016 [5].
[4] Statement of claim dated 11 November 2016 [8].
[5] Statement of claim dated 11 November 2016 [11.2], [12.2], [13.2], [14.2].
[6] Statement of claim dated 11 November 2016 [15].
The plaintiff's financial circumstances
The financial position of the plaintiff is described in the affidavit of Alex Ma filed on 20 March 2017.
The plaintiff is a trading entity, with a number of small current jobs (with a possible profit of $60,000 to $70,000). It continues to bid for jobs, although both the volume of work and staff have declined.[7]
[7] Affidavit of Alex Ma filed 20 March 2017, translated by Jiping Zou [55] ‑ [57].
The plaintiff's assets include property in the form of equipment and vehicles with a total sale value of about $70,000.[8] The plaintiff also claims to be owed about:
(a)$500,000 by Diploma Construction Pty Ltd, a company in liquidation.[9] (An online ASIC name search reveals that Diploma Construction Pty Ltd is in fact a deregistered entity, whereas Diploma Construction (WA) Pty Ltd is a registered entity in external administration[10]); and
(b)$270,000 by Cooper and Oxley, which debt is disputed.[11]
[8] Affidavit of Alex Ma filed 20 March 2017, translated by Jiping Zou [58(a)‑(c)].
[9] Affidavit of Alex Ma filed 20 March 2017, translated by Jiping Zou [58(d)(i)].
[10] Affidavit of Evan Michael Ennis John filed 7 April 2017 [3(a) and (b)], 'EJ‑1' and 'EJ‑2'.
[11] Affidavit of Alex Ma filed 20 March 2017, translated by Jiping Zou [58(d)(ii)].
Mr Ma also notes that in these proceedings and in two proceedings commenced in the District Court of Western Australia, he is suing the defendants for a total of about $1,600,000. Mr Ma notes that if the plaintiff 'had half the money it is claiming against Nature Stone, Johnny and Erica, then this would clear AM Land's debts …'.[12]
[12] Affidavit of Alex Ma filed 20 March 2017, translated by Jiping Zou [86].
The plaintiff's liabilities are particularised by Mr Ma in his affidavit filed on 20 March 2017 at [59], which total about $746,000. Mr Ma deposes to having entered into payment arrangements for the debts,[13] but gives no particulars as to the terms agreed. Further, Cooper and Oxley obtained a cost order against the plaintiff in CIV 1157 of 2016 and CIV 1459 of 2016. No estimate of the cost liability is provided. Mr Ma states that if 'those costs cannot be agreed, then the costs will have to be assessed'.[14] Mr Ma also sets out his personal financial position at [63] ‑ [65] of his affidavit.
[13] Affidavit of Alex Ma filed 20 March 2017, translated by Jiping Zou [60].
[14] Affidavit of Alex Ma filed 20 March 2017, translated by Jiping Zou [62].
Finally, Mr Ma acknowledged that winding up proceedings have been commenced against the plaintiff, but 'have been put on hold while A M Land pays the creditors'.[15] Again, Mr Ma gives no particulars as to the terms of the forbearance arrangement.
[15] Affidavit of Alex Ma filed 20 March 2017, translated by Jiping Zou [86].
Security for costs
The court has an inherent and statutory jurisdiction to make an order requiring a plaintiff to provide security for costs. In bringing their respective applications, the defendants rely on s 1335(1) of the Corporations Act 2001 (Cth), which 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.
The precondition for the exercise of the court's jurisdiction under s 1335(1), sometimes described as the 'threshold jurisdictional question', is whether it appears by credible testimony that there is reason to believe that the plaintiff corporation will be unable to pay the defendants' costs. If that condition is satisfied, the court has jurisdiction to make an order for security for costs, and the question is whether it should exercise its discretion to make such an order.[16] The jurisdictional condition must be satisfied before the discretionary power to order security for costs is enlivened.
[16] FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69; (2000) 22 WAR 241; Construction Industries Australia Ltd (in liq) v WFI Insurance Ltd [2016] WASC 404 [27].
Once the court has jurisdiction under s 1335(1) there is an unlimited discretion that is to be exercised considering all of the circumstances of the case.[17] Essentially, the section requires a balance to be struck between protecting the defendants from the possible consequences of being sued by an impecunious corporation with limited liability and avoiding injustice to the corporation by unnecessarily prejudicing it in the conduct of litigation.[18]
[17] Unified Pty Ltd v The Cancer Council Western Australia Inc [No 3] [2011] WASC 161 [10].
[18] Sugarloaf Hill Nominees Pty Ltd as Trustee for the Richard and Anna Trust v Rewards Projects Ltd [2011] WASC 19 [31]; Unified Pty Ltd v The Cancer Council Western Australia Inc [No 3] [10].
Various factors may be relevant to that exercise of discretion. They may include (but will not be limited to) the strength and bona fides of the plaintiff's case; the likelihood of the plaintiff being able to pay the defendants' costs; whether the plaintiff's impecuniosity was caused by the defendants' conduct which is the subject of the claim; whether the application for security is oppressive; whether the award for security would deny the impecunious plaintiff a right to litigate; whether there are persons standing behind the plaintiff who are likely to benefit from the litigation; whether the persons standing behind the plaintiff have offered any security or personal undertaking; whether the plaintiff is in substance a plaintiff or whether the proceedings are defensive in the sense of directly resisting proceedings already brought or seeking to halt the defendants' self‑help procedures; whether the application for security has been brought promptly; whether the defendants have any rights which they can exercise against the assets of the plaintiff to satisfy an order for costs in its favour; and any factors relating to public interest.[19]
[19] Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [2013] WASC 57 [6]; Construction Industries Australia Ltd (in liq) v WFI Insurance Ltd [28].
Threshold jurisdiction question
As to the jurisdiction question, the plaintiff notes that it is trading and that it has some assets. The plaintiff does however acknowledge that 'the threshold for s 1335, is low'.[20]
[20] Submissions of the plaintiff in opposition to the defendants' applications for security for costs filed 12 April 2017 [7].
Having regard to the evidence filed and the submissions made by counsel during the course of the hearing of the applications, and adopting a practical, common sense approach to the examination of the plaintiff's affairs, I find that there is credible testimony that there is a reason to believe that the plaintiff will be unable to pay the defendants' costs if successful in their defence. The plaintiff is a company that is clearly under considerable financial stress. As such, the defendants have satisfied the threshold test for jurisdiction under s 1335(1).
Discretion
I find that this is a case where it is appropriate to require the payment of security for costs. In reaching this conclusion, I have given careful consideration to the following.
First, I am satisfied that the plaintiff's claim is bona fide. There is no suggestion that the plaintiff's claim has not been brought in good faith.
Secondly, I have taken into account the strength of the plaintiff's case. In this regard, I note that it is not necessary nor is it appropriate that I attempt any detailed consideration of the plaintiff's case at this stage. Given the very limited evidence before the court as to merits of the case, it is not possible to do so in any event.
As to the strength of the plaintiff's case, by the first and second defendants say as follows.
[W]hile AM Land may have some prima facie claim against Nature Stone and Lee:
a.It is not a claim that is well articulated;
b.It is contested by clear evidence from Lee where he explains the nature of the relationship between the parties as well as the basis upon which payments were made and premises and employees of AM Land were used.[21]
[21] First and second defendants' outline of submissions filed 5 April 2017 [11].
For the purpose of their security for costs application, the first and second defendants 'accept … that AM Land has a prima facie case. Similarly, Nature Stone and Lee have a prima facie defence'.[22]
[22] First and second defendants' outline of submissions filed 5 April 2017 [17].
The position adopted by the third defendant differs in that she contends that the plaintiff's case against her lacks merit or, alternatively, it is not possible to assess the merits of the plaintiff's case.
Having carefully considered the statement of claim and the particulars filed by the plaintiff, and all of the evidence filed by and on behalf of the parties, I find that there is a prima facie case against the defendants - albeit, it is not well articulated and has difficulties.
Thirdly, I note that the inability of the plaintiff to pay the defendants' costs not only enlivens the jurisdiction to require security but it is also a substantial factor in the decision whether to exercise it.[23] Having regard to the evidence bearing on the plaintiff's financial position, I find that it is unlikely that the plaintiff will be able to pay the defendants' costs if the plaintiff were unsuccessful in the proceedings.
[23] Sugarloaf Hill Nominees Pty Ltd v Rewards Projects Ltd [36]; TSDack Pty Ltd v Australian Water Holdings Pty Ltd [2015] FCA 931; (2015) 108 ACSR 379 [35].
Fourthly, I have considered whether the plaintiff's impecuniosity was caused by the defendants' conduct which is the subject of the claim. In this regard, I note Mr Ma's assertion that if the plaintiff 'had half the money it is claiming against Nature Stone, Johnny and Erica, then this would clear AM Land's debts …'.[24] However, as explained above, the plaintiff's claim is not well articulated and has difficulties. Having regard to all of the evidence filed, I find that it is not possible to conclude that the plaintiff's impecuniosity was caused by the defendants' conduct which is the subject of the claim.
[24] Affidavit of Alex Ma filed 20 March 2017, translated by Jiping Zou [86].
Fifthly, the applications are not oppressive. Indications of an application for security that is oppressive include (but are not limited to) where a defendant has made the application as a means to stifle a genuine claim,[25] or where a defendant has conducted its defence in a manner that prolongs the proceedings.[26] Having regard to all of the circumstances, I find no indications of oppression. Further, on the evidence filed by the defendants, it would appear that each has a serious defence to the claims made against them.
[25] Jaddcal Pty Ltd v Minson [No 2][2011] WASC 138 [15].
[26] Jaddcal Pty Ltd v Minson [No 2] [15]; Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [31].
Sixthly, there is a person standing behind the plaintiff who is likely to benefit from this litigation, namely the shareholder of the plaintiff - Mr Ma. Mr Ma has not offered any security, nor any personal undertaking to be liable for the costs. When considering whether this is a case where it is appropriate to require the payment of security for costs, I also had regard to the evidence of Mr Ma's personal financial position and what appears to be his limited ability to proffer security.[27]
[27] Affidavit of Alex Ma filed 20 March 2017, translated by Jiping Zou [63] ‑ [65].
Seventhly, I find that there was conferral prior to and no significant delay in making the applications.
I have had regard to whether an award of security might deny the plaintiff the right to litigate. Absent the payment into court by Mr Ma on behalf of the plaintiff, these proceedings may be frustrated. Further, the evidence bearing on Mr Ma's personal financial position suggests that he has limited ability to proffer security.
I have also had regard to whether the plaintiff has been forced to defend its interests because of the conduct of the defendants. In Heller Factors Pty Ltd v John Arnold's Surf Shop Pty Ltd (in liq),[28] Mitchell J, with whom King CJ and Legoe J agreed, held that the court, in deciding whether or not to exercise its discretion to make an order for security for costs, is entitled to consider whether the corporation is a true plaintiff on the one hand or, on the other hand, is forced into the position of plaintiff because the defendants are empowered to take what may be described as 'self help' procedures.
[28] Heller Factors Pty Ltd v John Arnold's Surf Shop Pty Ltd (in liq) (1979) 4 ACLR 492.
Key aspects of the intended defence of the first and second defendants are explained in the affidavits filed by the second defendant. In particular, I note that the second defendant asserts that he and Mr Ma had a profit sharing (or joint venture) arrangement,[29] and to the extent that the plaintiff paid any funds either to or on behalf of the first defendant, such payments were in respect of expenses incurred by the first defendant under this arrangement.[30]
[29] First and second defendants' outline of submissions filed 5 April 2017 [7(a)]; the further affidavit of Ki Hyung Lee filed on 4 April 2017 [9].
[30] First and second defendants' outline of submissions filed 5 April 2017 [7(b)].
In all of the circumstances such payment of funds might properly be described as a 'self help' procedure. However, there is insufficient evidence before me to give such a factor significant weight.
Having taken into account all of the circumstances, in particular the factors particularised above, I find that this is a case where it is appropriate to require the payment of security for costs.
Quantum
I now turn to the quantum of security which should be provided.
Ms Kate O'Brien, solicitor for the first and second defendants, prepared a draft bill of costs pursuant to the Legal Profession (Supreme Court) (Contentious Business) Determination 2016 (WA), which she considered to be a reasonable estimate of the costs that would be recoverable on taxation if the plaintiff, after trial, were ordered to pay the costs of the first and second defendants. The professional fees and disbursements total $164,183.00.
Mr Evan John, solicitor for the third defendant, also prepared a draft bill of costs pursuant to the Legal Profession (Supreme Court) (Contentious Business) Determination, which he considered to be a reasonable estimate of the costs that would be recoverable on taxation if the plaintiff, after trial, were ordered to pay the costs of the third defendant. The professional fees and disbursements total $106,247.60.
During the course of the hearing, Mr John confirmed that the third defendant's draft bill of costs had been prepared with regard to the first and second defendants' draft bill of costs and where possible, unnecessary duplication of costs was avoided. For example, the third defendant's draft bill does not include a disbursement for an expert report, whereas the first and second defendants' draft bill includes a disbursement for the same in the amount of $30,000.
The task for the court in determining the quantum of the security for the costs is to determine what amount would provide the defendants with an adequate security for their costs, if they were successful at trial.[31] The aim is not to provide the defendants with a complete indemnity for their costs,[32] rather the task for the court is to calculate the sum which it thinks just to order to be secured, having regard to a reasonable estimate of the likely taxable costs of the defendants in question.[33] The determination of the appropriate amount to be provided by way of security involves the exercise of the discretion by reference to matters of impression rather than mathematics.[34]
[31] Global Finance Group Pty Ltd (in liq) v Marsden Partners (a firm) [2004] WASC 52 [71]; Construction Industries Australia Ltd (in liq) v WFI Insurance Ltd [45].
[32] Brundza v Robbie & Co (No 2) [1952] HCA 49; (1952) 88 CLR 171,175; Construction Industries Australia Ltd (in liq) v WFI Insurance Ltd [45].
[33] Global Finance Group Pty Ltd (in liq) v Marsden Partners (a firm) [53] ‑ [58]; Construction Industries Australia Ltd (in liq) v WFI Insurance Ltd [45].
[34] Four Vanguard Servicos E Navagacao Lda v ENI Australia Ltd [2014] WASC 473 [4]; Field Camp Services Pty Ltd v Site Accommodation Pty Ltd [2011] WASCA 118 [27].
In my view it is appropriate to proceed to order security for the costs of the action up to the point of mediation. In a case such as this, prior to mediation, it would be appropriate for pleadings to be filed, particulars provided and for discovery and inspection to occur. As explained above, there are difficulties with the plaintiff's pleading. The defendants also take issue with the adequacy of the particulars provided to date. In determining the appropriate amount to be provided by way of security, I have had regard to the potential for further interlocutory applications, including an application for further and better particulars.
Having reviewed the draft bills of costs prepared by the defendants' representatives; having made my own estimates of the likely costs of these proceedings up to an including mediation (excluding the exchange of expert evidence); and having estimated the costs likely to be recovered after taxation, I find that it is appropriate for the plaintiff to provide security for the defendants' costs of these proceedings by paying a total of $50,000 into court. If these proceedings are not able to be resolved by mediation, then the defendants will be at liberty to apply for additional security.
Determination
For the reasons set out above, I am satisfied that orders for security for costs should be made and the court will make the following orders:
1.The plaintiff do pay into court $25,000 as security for the first and second defendants' costs of these proceedings up to and including mediation not later than 12 May 2017.
2.In the event that the plaintiff does not pay $25,000 into court as security for the first and second defendants' costs by 12 May 2017, these proceedings as between the plaintiff and the first and second defendants will be stayed until further order.
3.The plaintiff do pay into court $25,000 as security for the third defendant's costs of these proceedings up to and including mediation not later than 12 May 2017.
4.In the event that the plaintiff does not pay $25,000 into court as security for the third defendant's costs by 12 May 2017, these proceedings as between the plaintiff and the third defendant will be stayed until further order.
5.Any party has liberty to apply in respect of these orders.
6.Without limiting order 5, the defendants have liberty to apply to increase the amount of security for their costs of the action.
7.The costs of the first and second defendants' application for security for costs will be reserved.
8.The costs of the third defendant's application for security for costs will be reserved.
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