Admiralty Resources Nl v Australis Mining Ltd
[2015] VSC 33
•6 FEBRUARY 2015
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S CI 2012 06774
| ADMIRALTY RESOURCES NL | Plaintiff |
| v | |
| AUSTRALIS MINING LTD BVI COMPANY NUMBER 1430155 & OTHERS | Defendants |
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JUDGE: | ELLIOTT J |
WHERE HELD: | MELBOURNE |
DATE OF HEARING: | 6 FEBRUARY 2015 |
DATE OF RULING: | 6 FEBRUARY 2015 |
CASE MAY BE CITED AS: | ADMIRALTY RESOURCES NL v AUSTRALIS MINING LTD |
MEDIUM NEUTRAL CITATION: | [2015] VSC 33 |
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PRACTICE AND PROCEDURE – Security for costs – Application by plaintiff for security to defend allegations of defendants – Counterclaim by 1st defendant – Allegations of 1st defendant largely also pleaded as set-off – Whether security should be ordered with respect to allegations going beyond set-off defence ‑ Counterclaim by 2nd defendant – No allegations independent of defence pleaded ‑ Corporations Act 2001 (Cth), s 1335(1), Supreme Court (General Civil Procedure) Rules 2005 (Vic), r 62.02(1).
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr AP Trichardt | Hall & Wilcox |
| For the 1st Defendant | Mr GT Bigmore QC with Mr P Fary | Kliger Partners |
| For the 2nd Defendant | Mr J Kohn | Redvers Read |
HIS HONOUR:
A. Introduction
The plaintiff, Admiralty Resources NL (“Admiralty”), seeks security for costs against each of the 1st defendant, Australis Mining Ltd (“Australis”) and the 2nd defendant, Corsair Capital Ltd (“Corsair”) in response to counterclaims filed by each of Australis and Corsair. This proceeding is set down for trial, which is due to commence on 10 March 2015. The application for security was only made recently.
B. Background
This proceeding was commenced on 5 December 2012. More significantly for the purposes of the present application, Australis filed a defence and counterclaim on 22 May 2013 and Corsair filed a defence and counterclaim on 24 May 2013.
Before considering the issues raised in the defences and counterclaims, the claims made by Admiralty should be canvassed. In very broad terms, Admiralty makes the following allegations in the statement of claim:
(1)Australis is, and was at all material times, incorporated in the Territory of the British Virgin Islands: paragraph 2.
(2)Corsair is, and was at all material times, incorporated in Hong Kong: paragraph 3.
(3)Inversiones Admiralty Resources Chile Limitada and Fortune Global Holdings Corporation (together referred to as "the Vendors"), are wholly-owned subsidiaries of Admiralty: paragraph 5.
(4)On or about 1 September 2010, Admiralty entered into a share sale agreement with Australis and Corsair (referred to as "the Share Sale Agreement") pursuant to which Australis was to acquire 10,000 fully-paid shares ("the Shares") in Sociedad Contractual Minera Vallenar Iron Company ("Vallenar") for $US4 million: paragraphs 6 and 7.
(5)The terms of the Share Sale Agreement included the following (paragraph 7):
(a)Admiralty agreed to ensure that the Vendors sold the Shares on the terms and conditions of the Share Sale Agreement: clause 2.1;
(b)Australis agreed to assume the indebtedness of Vallenar to Admiralty in the sum of $US4 million on completion and to repay the Vallenar debt in specified terms set out in clause 3.2 of the Share Sale Agreement.
(6)As security for the payment of all money owing by Australis under the Share Sale Agreement, Corsair executed a guarantee and indemnity in favour of Admiralty ("the Corsair Guarantee") (paragraph 8), and further agreed to grant a mortgage over Australis' entire issued share capital to secure Corsair’s obligations in respect of the guaranteed money ("the Corsair Mortgage"): paragraph 11.
(7)Around 16 November 2010, the Shares were transferred to Australis. On or about 17 November 2010, the deposit of approximately $US1 million was released to the Vendors pursuant to the terms of the Share Sale Agreement. On 17 May 2011, $US1 million was paid by Australis to Admiralty in accordance with the terms of the Share Sale Agreement: paragraph 14. However, following that payment, Australis failed to make the next payment in accordance with the terms of the Share Sale Agreement: paragraph 15.
(8)Around 19 March 2012, Admiralty and Australis entered into a revised payment plan in respect of outstanding moneys due under the Share Sale Agreement ("the Payment Plan"). Time was of the essence: paragraphs 16 and 17.
(9)Australis made the initial payments required under the Payment Plan (paragraph 18), but ultimately defaulted on the remaining payments: paragraph 22. A debt in the sum of $US1.7 million is claimed by Admiralty against Australis: paragraph 23. This amount is also claimed against Corsair under the Corsair Guarantee: paragraphs 25 and 28.
(10)Further, it is alleged that in breach of the Corsair Mortgage, Corsair transferred 1,000 ordinary shares in the capital of Australis to the 3rd defendant, Base Resources Limited ("Base Resources"): paragraph 19. Accordingly, to remedy this breach, Base Resources agreed to enter into an alternative guarantee and indemnity with Admiralty: paragraph 20.
By its defence and counterclaim dated 22 May 2013, Australis referred to various warranties given by Admiralty pursuant to the Share Sale Agreement. Without descending into any detail, these warranties included representations concerning the state of Vallenar’s accounts and Vallenar's tax liabilities: paragraph 7B.
A due diligence was conducted by Australis in 2010. Certain representations were alleged to have been made to Australis during the course of the due diligence: paragraphs 45 and 46. Again, without referring to the detail, Australis alleged that Admiralty failed to disclose material matters during the due diligence: paragraphs 63 and 64. As a result, so it was claimed, the warranties which were the subject of the Share Sale Agreement were breached because, amongst other things, the accounts of Vallenar were not true and fair and Vallenar had outstanding tax liabilities which had not been disclosed: paragraphs 65 and 66.
The defence and counterclaim:
(1)Alleged Australis had suffered loss by reason of the breaches of warranties: paragraph 67.
(2) Claimed a right to indemnity for the loss suffered: paragraph 68.
(3)Further or alternatively, sought relief by which the price for the Shares ought to be reduced by the amount of the loss: paragraph 69.
Based on substantially the same material facts alleged in the breach of warranty claims, allegations were also made based on misleading and deceptive conduct (paragraphs 70 to 76) and unconscionable conduct: paragraphs 77 to 78.
It is fair to say that the loss to be claimed was still in a formative stage at the time Australis’ defence and counterclaim was filed. The particulars of loss referable to the claim for misleading and deceptive conduct read as follows:
Sale agreement payments USD 2,299,987.13
+ Amounts claimed by Admiralty USD 1,700,000.00
― Value of Vallenar TBP
TBP means to be provided following obtaining of expert valuation evidence.
The value of Vallenar will take into account the obligations under the royalty agreement.
Alternatively, Australis’ loss is the amount of tax attributable to the first tax event and the second tax event.
First tax event tax of CLP 2,707,185,270.20
See particulars under paragraph 49.
Second tax event tax of CLP 1,279,332,490
See particulars under paragraph 50.
Further and better particulars will be provided prior to trial.
In essence, the particularised loss quantified was for the payments already made under the Share Sale Agreement, together with the further $US1.7 million claimed in this proceeding as being outstanding under the Share Sale Agreement.
The last matter pleaded in the defence was an alleged right to set-off the loss alleged to have been suffered by Australis against the claim made by Admiralty: paragraph 79.
The counterclaim consisted of 1 paragraph which read as follows (paragraph 80):
It refers to and repeats paragraphs 1 to 79 of the defence as if they were set out in full.
The relief sought included a declaration that Australis is entitled to a set-off and, further or alternatively, a declaration as to the reduction in the purchase price for the Shares. The total claim for damages was unspecified, but expressly included $US2,229,987.13, which was the amount of the payments pursuant to the Share Sale Agreement.
Insofar as the defence of Corsair raised positive defences in its defence and counterclaim filed 24 May 2013, it was almost identical to the defence of Australis. Equally, the counterclaim simply referred to and repeated the allegations in the defence. As to Corsair's prayer for relief, no damages were claimed. All that was sought was declaratory relief which, by 1 means or another, would establish, if granted, that Corsair was not liable pursuant to the Share Sale Agreement.
On 4 June 2013, Australis filed an amended defence and counterclaim. The material facts remained the same in this pleading as in the original defence and counterclaim. The only difference was that reliance was placed upon various provisions of the Trade Practices Act 1974 (Cth) and the Competition and Consumer Act 2010 (Cth).
By a further amended defence and counterclaim filed 12 May 2014, certain amendments were made by Australis, but the general summary given above as to the content of the pleadings remains applicable. Further allegations were made concerning the warranties and tax position; also a negligent misrepresentation claim was introduced, but the damages claim was not altered.
On 5 December 2014, Australis filed a second further amended defence and counterclaim. Although Australis withdrew a substantial number of allegations previously made, it also introduced fresh allegations. That said, much of the claim was directed towards issues raised by way of set-off. However, the particulars to paragraph 76 were amended to read as follows:
Sale agreement payments USD 2,299,987.13
+ Amounts claimed by Admiralty USD 1,700,000.00
— Value of Vallenar
TBPnil+ Vallenar loan USD 12,930,615.35
[at 3.13]
TOTAL USD 16,930,602
TBP means to be provided following obtaining of expert valuation evidence.
The value of Vallenar will take into account the obligations under the royalty agreement.
Alternatively, Australis’ loss is the amount of tax attributable to the first tax event and the second tax event.
First tax event of CLP 2,707,185,270.20Additional withholding tax of CLP 5,645,526.200 (approx. USD 9.4M)
See particulars under paragraph 49.
Second tax event tax of CLP 1,279,332,490
See particulars under paragraph 50.
Further and better particulars will be provided prior to trial.
Even though a very large new claim was introduced, it remained the position that all of the substantive allegations made in the defence, and adopted in the counterclaim, formed part of Australis' defence to the allegations made by Admiralty. Those allegations were simply repeated in a single paragraph in the counterclaim.
I have been provided today with a proposed third further amended defence and counterclaim, which has been the subject of discussions between counsel for the respective parties. For present purposes, it is sufficient to state that, in broad terms, most of the proposed defence and counterclaim is directed towards the payments under the Share Sale Agreement, but, additionally, the substantial claim for nearly $US13 million is still claimed.
In contrast to the position of Australis, it is unnecessary to give an extensive history after 24 May 2013 in relation to the allegations made by Corsair. Throughout, Corsair has made no claim for damages. All the issues raised in its counterclaim have been, in effect, directed towards claiming a defence to the claims made by Admiralty, including a set-off.
C. Relevant principles
There is no issue that Australis and Corsair have no assets in Australia and that they are incorporated overseas. There is no suggestion that either of them has assets available to meet any costs order in favour of Admiralty in the event Admiralty successfully defended the counterclaim. Therefore, the threshold issue as to whether the court’s discretion is enlivened was not in issue before me.
Based on the Court of Appeal decisions of Ariss v Express Interiors Pty Ltd[1] and Livingspring Pty Ltd v Kliger Partners,[2] the approach to be taken on an application under s 1335(1) of the Corporations Act 2001 (Cth) or r 62.02(1)(b) of the Supreme Court (General Civil Procedure) Rules 2005 (Vic) may be stated as follows:[3]
[The court has] an “altogether unfettered [discretion], but on the footing that the very fact [that the jurisdiction has been enlivened] in the first place may itself be a factor, even a most significant factor, in the exercise of the discretion”. Put another way, the “satisfaction of the threshold condition … ‘calls for’ the fulfilment of the purpose for which the power was conferred”, subject to a proper exercise of the discretion depending upon all the circumstances. Further, although the exercise of the power may be “called for”, that circumstance does not alter the fact that the burden rests on the defendants[4] to persuade the court that security should be ordered.
(Citations omitted.)
[1][1996] 2 VR 507, 514.8 (Phillips JA, with whom Ormiston and Charles JJA agreed).
[2](2008) 20 VR 377, 382-383 [18], [19], [21] (Maxwell P and Buchanan JA).
[3]Bodycorp Repairers Pty Ltd v Maisano [2013] VSC 220, [9].
[4]Or in this case the defendant to the counterclaim.
Ordinarily, a plaintiff is not entitled to security for costs against a defendant. The question is whether the parties are, in substance, plaintiff and defendant; or whether, in substance, a plaintiff may be seen as a defendant to a claim by a party named as a defendant. As was stated by Ormiston J in Interwest Ltd v Tricontinental Corporation Ltd:[5]
In my experience counterclaimants are rarely required to provide security and the existence of a counterclaim frequently dissuades defendants from pursuing an application for security, but there is no doubt that the jurisdiction exists to grant security and is “unfettered” in the sense described. Perhaps it may be said that the authorities support the proposition that security will only ordinarily be ordered against a party who is in substance the plaintiff, and that an order ought not to be made against parties who are defending themselves and thus forced to litigate. That would appear to be an overstatement, but the fact that a plaintiff, or counterclaimant, has instituted essentially defensive proceedings, must be a significant factor in the exercise of the court's discretion.
(Citation omitted.)
[5](1991) 5 ACSR 621, 626.1. See also Re Travelodge Australia Ltd (1978) 21 ACTR 17, 18.9-19.1 (Blackburn CJ), citing Maatschappij Voor Fondsenbezit v Shell [1923] 2 KB 166, 177.8 (Scrutton LJ).
It follows that, where a defendant files a counterclaim which cannot be considered to be simply defensive, but rather makes a claim for significant damages that will occupy time at trial that otherwise would not have been spent, there may be a proper basis for a plaintiff to obtain security for costs against a defendant.[6]
[6]See, for example, Saint-Gobain RF Pty Ltd v Maax Spa Corporation Pty Ltd [2004] VSC 335, [42]-[43] (Habersberger J); Visco v Minter [1969] P 82, 85D-G (Ormrod J).
There is a suggestion in this case that the application is too late. Delay of itself may be a reason why an application for security for costs may be refused.[7]
D. The decision
[7]See, for example, Rolfe v Investec Bank (Australia) Ltd [2013] VSCA 293, [51]-[55] (Santamaria JA, with whom Osborn JA agreed). See also Harmonious Blend Building Corporation Pty Ltd v Keene [2014] VSC 649, [54]-[58] (Dixon J).
Had the application for security for costs been made shortly before the proposed amendment on 5 December 2014, the application would have been bound to fail for at least 2 reasons:
(1)The delay in the application would have been inordinate. It was quite possible that that factor alone may have provided a basis to refuse the application. The fact that there had been extensive without prejudice discussions between the parties is not, with respect, to the point.[8]
(2)Although there was a counterclaim on foot, both Australis and Corsair raised matters by way of counterclaim which mirrored their defences and did not, in substance, go beyond seeking to defeat the claim of Admiralty. In short, both were acting, both in form and in substance, as defendants.
[8]See, for example, Simaan General Contracting Co v Pilkington Glass Ltd [1987] 1 WLR 516, 520G (Judge John Newey QC).
In addition to this, there was no suggestion on the materials that the fact that these defendants have no assets in Australia is a recent event or has only just come to the attention of Admiralty.
The position I have recounted in paragraphs 25 and 26 above remains the position in relation to Corsair. As already noted, Corsair’s counterclaim mirrors its defence. In substance, it is acting solely as a defendant. Accordingly, the application for security for costs against Corsair must fail.
In my view, the only real issue on this application is whether the amendment to the counterclaim made by Australis on 5 December 2014, introducing a claim for nearly $US13 million, ought to change the conclusion the court would have otherwise reached late last year. There is no doubt that the new claim goes well beyond defending the matter and, in regard to that claim at least, Australis is the true plaintiff. Additional evidence will need to be led to establish this particular head of loss. Causation issues will arise that are peculiar to this new claim.
Understandably, counsel was unable to be precise about exactly how much time might additionally be spent on the issue. However, given the proposed outline of evidence that has been filed; the obvious causation issues that will arise on the pleadings which were alluded to in submissions to the court; and the extent to which it can be expected that the further claim will be vigorously opposed given the very large amount claimed; I estimate that up to 1 day of the trial time may be spent on this extra issue.
Relevantly, in relation to the claim introduced on 5 December 2014, there has been no material delay. Although delay may have been a basis for denying an order for security for costs before the introduction of this claim, there has been no delay of any significance in seeking security for costs in relation to this aspect of the case.
In the circumstances, I propose to order security in relation to this new aspect of the case alone. The defence and counterclaim of Australis will be the subject of an order for security in that regard. An amount will be required to be paid within a specified time (about which I will hear submissions shortly), otherwise the proceeding will be stayed at the end of that period. To be clear, security for costs will only be ordered in relation to the claim made in the particulars to paragraph 76 of the defence and counterclaim of Australis, described as the "Vallenar loan".[9]
[9]See par 16 above.
As to the amount of the order that will be made for security for costs to be paid, it will be in the sum of $30,000,[10] which equates to 1 day of the hearing and half a day of preparation.
[10]This figure was agreed between the parties as an appropriate amount for costs of 1½ days.
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