Abramoff Holdings Pty Ltd v Da Silva - [2019] WASC 445

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   ABRAMOFF HOLDINGS PTY LTD -v- DA SILVA [2019] WASC 445
CORAM:   MASTER SANDERSON
HEARD:   24 OCTOBER 2019
DELIVERED          :   5 DECEMBER 2019
FILE NO/S:   CIV 1439 of 2019
BETWEEN:   ABRAMOFF HOLDINGS PTY LTD
Plaintiff

AND

PAUL JOHN DA SILVA
First Defendant

MICHAEL PATRICK O'BRIEN
Second Defendant

GROWER CONNECT PTY LTD
Third Defendant

NEIL MALCOLM HANDASYDE
Fourth Defendant

RHYSDALE PTY LTD
Fifth Defendant

PAUL JOHN DA SILVA
First Named First Plaintif by counterclaim

MICHAEL PATRICK O'BRIEN
Second Named First Plaintiff by counterclaim

ABRAMOFF HOLDINGS PTY LTD
Defendant by counterclaim

Catchwords:

Security for costs where defendants say plaintiff unable to meet any costs order - Turn on own facts

Legislation:

Corporations Act 2001 (Cth)

Result:

Security ordered

Category: B

Representation:

Counsel:

Plaintiff	:	Mr S K Shepherd
First Defendant	:	Mr P W Weeks
Second Defendant	:	Mr P W Weeks
Third Defendant	:	Mr P W Weeks
Fourth Defendant	:	Mr P W Weeks
Fifth Defendant	:	Mr P W Weeks

Solicitors:

Plaintiff	:	Forbes Kirby
First Defendant	:	GW Legal
Second Defendant	:	GW Legal
Third Defendant	:	GW Legal
Fourth Defendant	:	GW Legal
Fifth Defendant	:	GW Legal

Case(s) referred to in decision(s):

Nil

MASTER SANDERSON:

This was the defendants' application for security for costs. The application was brought under s 1335 of the Corporations Act 2001 (Cth). That section is in the following terms:
(1)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 application was supported by an affidavit of Sindy Anne Goodhew sworn 23 August 2019. The plaintiff relied on an affidavit of Quang Tri Truong affirmed 10 October 2019 and an affidavit of Mitchell Terry Tolcon sworn 21 October 2019.
The issue raised by this application was whether or not the defendants had established the plaintiff would be unable to meet a costs order if the action was unsuccessful. It was the plaintiff's position this threshold issue had not been satisfied. It was common ground between the parties if the threshold question was answered in the defendants favour then the court had a discretion as to whether or not to make an order for security.
Turning first to Ms Goodhew's affidavit, she says she undertook an Australian Securities and Investments Commission (ASIC) search which disclosed the plaintiff had an issued capital of $480. She then undertook a search of the Landgate register which showed the plaintiff was not the registered proprietor of any land in Western Australia. A search of the Personal Property Securities Register (PPSR) showed 11 security interests currently registered against the plaintiff and its assets including one registration in respect of all the plaintiff's present and after acquired property in favour of the Commonwealth Bank of Australia. A further search of the ASIC online register showed financial reports for the plaintiff lodged with ASIC for the financial years ending 30 June 2017 and 30 June 2018. It is these reports which are central to determination of the defendants' application for security.[1]
[1] Affidavit of Sindy Anne Goodhew sworn 28 August 2019 pars 3 – 14.
Before going to those reports it is necessary to say something about the business activities of the plaintiff. It is, in the words of counsel for the defendant, a mercantile agent. It buys fruit and vegetables and other agricultural product from growers and sells that product to retailers. It does so, in the main, from a lease held at the Canning Vale Markets. It does not appear as though the plaintiff is to any significant extent a grower in its own right. It rather operates as an intermediary between the grower and the retailer.
It is appropriate to focus on the 2018 accounts. The trading account shows that for the year ending 30 June 2018 the plaintiff had a total trading income of just over $38.5 million. That was down significantly from an amount of just under $46 million for the same period in 2017. The cost of sales for the 2018 year was just over $30 million down from just under $37 million in the 2017 year. The plaintiff's gross profit from trading for the 2018 year was $8,316,887. That was down around $650,000 from the 2017 year.
Moving to the profit and loss statement the total income less expenses shows a loss of just over $2 million.[2] That loss was a substantial increase on the loss incurred in 2017 of just under $500,000. On the face of it then the plaintiff is losing money and the losses increased in 2018 relative to 2017. It is worth noting that the expenses included an amount of $388,641 for depreciation of plant and an amount of $231,475 said to be 'decline in value – horticultural plants'. Depreciation, while a cost which must be brought to account, is not actually an outgoing. For instance administration expenses of $149,550 is an amount which actually has to be paid. The plaintiff did not actually have to part with any cash in relation to depreciation. Presumably the same is true of the decline in value of horticultural plants. There was no evidence about precisely what that entry means but it is reasonable to assume there was no actual cash paid out in relation to that expense. On that basis then the actual expenses incurred by the plaintiff for the 2018 year – in the sense of money actually paid out – can be reduced by around $600,000. That would mean the loss incurred was closer to $1.6 million – a substantial loss nonetheless on trading activity.
[2] Affidavit of Sindy Anne Goodhew sworn 28 August 2019 Annexure "SG5" page 57.
Moving to the balance sheet, the total current assets are shown as being just under $1.7 million.[3] That is down from just over $2.4 million in the corresponding period in 2017. The value of the plant and equipment is put at $1,764,905. That figure includes a deduction for depreciation of around $2 million. So the actual value of the plant and equipment may be close to $3.5 million. Of course, the values put on the plant and equipment are probably cost of acquisition and the value of that plant and equipment may actually be reflected by bringing to account the depreciation. Either way it would seem the figure in the accounts would either be accurate or perhaps somewhat understated. It is worth noting the value of the plant and equipment is well down on the figure of just under $2.5 million for the 2017 year.
[3] Affidavit of Sindy Anne Goodhew sworn 28 August 2019 Annexure "SG5" page 60.
The total assets – that is, the current and non‑current assets are put at $3,449,745. That is down substantially from just over $5.6 million in the same period in 2017. The goodwill of the business which in 2017 was put at $485,153 is shown as being $0 in 2018.
The total liabilities are shown as being just under $7 million – almost exactly the same as the 2017 figure. The main liability is what is described as the 'Silva-Belt Loan' in an amount of $2,136,114. That loan is unsecured. There are three secured loans which total just over $2 million. In all, the accounts show the plaintiff has net liabilities of $3,460,179. In other words it has negative equity.
For the sake of completeness I should note the Directors Declaration which accompanied the accounts.[4] This declaration is signed by Mr Da Silva who was a director throughout the 2018 financial year. He says that the accounts give 'a true and fair view of the company's financial position as at 30 June 2018'. He also says in his opinion 'there are reasonable grounds to believe the company will be able to pay its debts as and when they become due and payable'. The accounts do not disclose any amount outstanding to the Australian Taxation Office for unpaid tax of any form. The accounts also indicate payroll tax obligations have been met.
[4] Affidavit of Sindy Anne Goodhew sworn 28 August 2019 Annexure "SG5" page 55.
The picture that emerges from these accounts even taking the most benign view is of a company trading at a loss, that trading loss being greater in the 2018 year than the 2017 year. Moreover, there is a negative equity position. On these figures there is every reason to believe the company would not be in a position to meet any adverse costs order which might be made against it.
In his affidavit Mr Truong paints a somewhat more rosy picture of the plaintiff's position. He sets out the total sales from the business activity statements between January of 2018 and August of 2019.[5] What those figures show is a significant decline in sales throughout the period at least until May of 2019. Thereafter the sales increased, although the sales for August 2019 while only slightly down on the same month in 2018 were only 60% of the sales in January of 2018. It is a little difficult to know what to make of these figures. However, while they do show some positive signs they certainly do not show the company is profitable.
[5] Affidavit of Quang Tri Truong affirmed 10 October 2019 Annexure "QTT-9" page 78.
In paragraph 19 of his affidavit Mr Truong sets out some discussions he had with Mr Da Silva who appears to at one stage have been the owner of the plaintiff. Mr Da Silva told Mr Truong the plaintiff was in financial difficulty. Mr Da Silva asked Mr Truong to take an interest in the plaintiff. After making some investigations Mr Truong did just that – he purchased 50% of the shares. What is strange is that the $1 million dollars that he paid for those shares appears to have been paid into the plaintiff.[6] Why the plaintiff should have been the recipient of those funds and not Mr Da Silva, who was, presumably, the owner of the shares is unclear. Mr Truong says he is committed to making further investments in the plaintiff.
[6] Affidavit of Quang Tri Truong affirmed 10 October 2019 Annexure "QTT-9" par 35.
On balance, I am satisfied the defendants have established the plaintiff would not be able to meet any costs order made against it. Essentially, the financial position of the plaintiff is precarious. It does not have the cash resources to meet any costs order and it may not be in a position to sell assets to meet its obligations. The fact there is a charge over all of the assets reinforces that position. That being so the question is whether there are any discretionary considerations which would tip the balance against such an order.
It was the plaintiff's position these proceedings were defensive in nature. That was based upon the fact that the first and second defendants have taken proceedings in the Industrial Magistrates Court claiming certain employee entitlements against the plaintiff. The plaintiff says it was in response to those claims these proceedings were issued. In fact, the claims of the first and second defendants in the Industrial Magistrates Court – being essentially claims to employees' entitlements – are completely separate and distinct from this present action. Where a party is the plaintiff in an action, but really the plaintiff in name only because it is effectively defending an action by the defendant, the court can decline to make an order for security for costs. That is not the case here. The mere fact proceedings were issued in the Industrial Magistrates Court did not mean the plaintiff had to launch these proceedings. It would be a misnomer to designate these proceedings as 'defensive'.
There being no other discretionary considerations standing in the way of an order for security it remains to be determined what security ought be ordered. The defendant seeks an amount of $247,225. It also seeks to have that amount provided within 14 days.
During the course of the hearing there was no objection raised by counsel for the plaintiff as to the amount of the security. Nor was there any submission made security ought be provided in tranches. Nonetheless it does seem to me that to require the full amount of security to be provided at this stage in proceedings would be oppressive. Accordingly, I am prepared to order the plaintiff provide security for costs in an amount of $75,000 with liberty to the defendants to apply to top up that security as the case progresses. On publication of these reasons the parties ought confer to settle upon the form of any security to be provided. Subject to hearing from the parties, security ought be provided within 28 days. The action will be stayed pending the provision of security.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
DG
Associate to Master Sanderson
5 DECEMBER 2019