ABS Pty Ltd v AJA (WA) Pty Ltd - [2021] WADC 19

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CHAMBERS

LOCATION:   PERTH
CITATION:   ABS PTY LTD -v- AJA (WA) PTY LTD [2021] WADC 19
CORAM:   DEPUTY REGISTRAR HEWITT
HEARD:   3 MARCH 2021
DELIVERED          :   25 MARCH 2021
FILE NO/S:   CIV 929 of 2020
BETWEEN:   ABS PTY LTD
Plaintiff

AND

AJA (WA) PTY LTD
Defendant

AJA (WA) PTY LTD
Plaintiff by counterclaim

ABS PTY LTD
Defendant by counterclaim

Catchwords:

Practice and procedure - Application for security for costs - Turns on its own facts

Legislation:

Corporations Act 2001 (Cth)

Result:

Application dismissed

Representation:

Counsel:

Plaintiff	:	Mr W Vogt
Defendant	:	Mr N Siegwart
Plaintiff by counterclaim	:	Mr N Siegwart
Defendant by counterclaim	:	Mr W Vogt

Solicitors:

Plaintiff	:	Vogt Graham Lawyers
Defendant	:	Birman & Ride
Plaintiff by counterclaim	:	Birman & Ride
Defendant by counterclaim	:	Vogt Graham Lawyers

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

Nil

DEPUTY REGISTRAR HEWITT:

The application before me for determination in this matter is the chamber summons filed by the defendant seeking security for costs. That application is based upon the provisions of s 1335 of the Corporations Act2001 (Cth) which provides that if it be shown by credible evidence that a plaintiff company may be unable to pay a defendant's costs in successfully defending an action the court may order that company to provide security against those costs.
The touchstone for the application and that which triggers the power to order security is the demonstration by credible testimony that the plaintiff company may be unable to pay the costs of the defendant in the event that it is successful in the proceeding. In that regard, the applicant defendant has placed a great deal of information before me as to the financial health of the plaintiff company. That information has been voluntarily provided to it by the plaintiff so there can be no suggestion that the defendant is trying to obstruct or somehow hamper the defendant's capacity to pursue this application.
The first consideration which I propose to undertake is as to the financial health of the plaintiff company and its resources to pay an adverse costs order. A large number of financial reports produced to the defendant by the plaintiff have been placed in evidence. By and large those reports indicate firstly, that the plaintiff company has a very substantial turnover, and secondly, that in relatively recent times, it has hovered between small profits and small losses in regard to its operations. The contract between the plaintiff and the defendant for instance involves some hundreds of thousands of dollars, and there has been no suggestion or evidence which would indicate that the plaintiff had difficulty financing a contract of that magnitude. It is also notable, and relied upon by the defendant, that the plaintiff does not appear to have readily available assets against which it could execute and that financially its liabilities are approximately the equal of its assets. To that point, those observations are derived from the financial reports and taxation details which have been supplied by the plaintiff to the defendant and they certainly show that the company, although surviving, is neither generating significant profits nor generating any excess of assets over liabilities.
There has, however, been a further document placed before me, that being Exhibit RA6 to the affidavit of Robert Abbey filed 1 February 2021 which provides a balance sheet dated 15 January 2021. That balance sheet indicates that the plaintiff has a bank account containing $89,753.80. Additionally, some trade debtors of $320,000 (including the amount claimed against the present defendant) is revealed against which needs to be set off $210,000 of trade creditors. It is argued by the defendant that I should ignore these figures because they are prepared on a cash basis and in the past profit and loss statements prepared on an accrual basis have been somewhat different to those prepared on a cash basis.
It is certainly true that there can be considerable variances between accounts depending on whether they are prepared on a cash or accrual basis. Certainly yearly profits can be vastly different depending on which system is used. One thing which does not vary is the amount of money which is in the bank and the amount of money which is owed by trade debtors. Those are not matters which are influenced through the accounting system which is adopted. The amount of money in the bank is precisely that, it does not matter which system is adopted, the bank balance remains the same. The same is true of trade debtors, either the money is owed or it is not. Other matters such as expenses and so forth and purchase of materials can be very much influenced by the system chosen. But in the present circumstances a critical matter is what assets are available to satisfy an adverse costs order, and to determine that one does not look at a profit figure but one looks at an asset figure.
In my view, the observations which I have so far made concerning the financial state of the company draw me to the conclusion that although the company has not in recent years been profitable, it has nonetheless managed to operate in a large scale way and the latest figures suggest that it has a significant asset position.
A further matter is, I think, of relevance in the present circumstance. It is pleaded by the plaintiff that it has delivered a large quantity of pre-fabricated materials to the defendant. There is no suggestion that the defendant has paid for those materials. The value of those materials is indeterminate and must presumably be less than the amount of the plaintiff's invoice for which it sues. I draw the conclusion that materials of significant quantity have been delivered by the fact that the plaintiff has alleged that to be the case and in its defence the defendant simply does not admit that proposition. On my understanding of the rules of pleading, that puts the plaintiff to proof of the allegation but denies the defendant the right to lead any evidence to contradict it. I therefore feel comfortable in drawing a conclusion that there is in the possession of the defendant a substantial amount of pre‑fabricated steel which had been prepared by the plaintiff and delivered to the defendant for which payment has not been made. That again is in my view relevant to the issue of the need to protect the defendant in regard to security for costs.
I next turn to look at the issues which are raised in the case and in particular the defence which is on the record. That defence takes issue with many of the propositions which are advanced by the plaintiff and I have no quarrel with that. What is of interest is the fact that the defence also relies on a counterclaim which is pleaded as a set off. In truth it is my view that the set off is an equitable set off, but that is of no moment, clearly the propositions advanced in the counterclaim would satisfy that requirement.
The counterclaim is for damages to be assessed. The allegations are firstly, for incomplete work being $22,000; but those figures are obviously estimates because they are expressed in figures of multiples of $1,000. Whether the estimates are accurate or not is entirely debatable. The next item claimed is for delay and some repair work to the steelwork provided by the plaintiff. Again, that is an estimate in multiples of $1,000, in this case being $30,000.
The next item is for failing to fasten bolts to the relevant Australian Standards and the manufacturer's specification. Exactly what that failure is, is difficult to discern from the pleading.
The next item is failing to treat the welds and holes with an appropriate barrier and epoxy. That follows with a claim that some damage was caused by drilling into walls and floors. The extent of the problem and the cost of repairing it is completely unspecified.
Finally, there is a claim for failing to apply propping equipment to progress the work for which a claim is made of $7,000. Again, it is notable that the claim is in multiples of $1,000.
My observations in regard to the counterclaim are firstly, that it is in large measure totally unquantified, save for those parts which are plainly estimates and lack detail which would enable a quantification to be undertaken. In argument, counsel for the defendant put the value of the counterclaim at $150,000 but said that the defendant, in the event that security was granted, would give an undertaking not to pursue that counterclaim. Whether the estimate of $150,000 is realistic or not is impossible to assess. Of one thing I am convinced, and that is that the figure advanced as the value of the counterclaim is highly unreliable and based on the subjective estimates of those who would have an interest in fleshing them out.
I now turn to the estimate of costs which runs to some $112,000. The pleadings between the parties make it clear that the plaintiff's case is not complex and that of the defendant is rather more so. The estimate by the defendant of its costs of the action includes the cost of the running of the counterclaim. Whilst it is impossible to be accurate, it does appear to me that the cost of running the counterclaim will be significantly higher than to defend the claim.
In that regard counsel has indicated that the defendant is prepared to give an undertaking not to pursue the counterclaim in the event that security is granted, but that concession is only worth as much as the counterclaim is worth, and that is very difficult to evaluate on the materials which are put before me. But nonetheless, it is a relevant consideration and would in appropriate circumstances tip the balance in favour of the defendant since it would be an injustice to fetter the plaintiff and yet leave the defendant free to pursue its counterclaim.
To recap the position, my findings are:
1.That the evidence produced is not sufficient to demonstrate that the plaintiff will be unable to satisfy an adverse costs order.
2.It is probable that the defendant is in possession of pre‑fabricated steel of considerable but as yet unquantifiable value which should be taken into account in this deliberation.
3.The counterclaim is wanting in particulars and detail and appears to largely consist of the estimates of people of unknown capacity to make those estimates and is unlikely to be worth anything like the figure which was put to me in the course of argument.
Accordingly, it is my view that this application should fail, firstly because the necessary precondition has not been satisfied and secondly, even if it had been satisfied, there are other factors which would militate against the granting of an order for security.

I certify that the preceding paragraph(s) comprise the reasons for decision of the District Court of Western Australia.
MEB
Associate
25 MARCH 2021