AE Siberia Pty Ltd v Sloan [No 2]
[2015] WADC 12
•11 FEBRUARY 2015
AE SIBERIA PTY LTD -v- SLOAN [No 2] [2015] WADC 12
| DISTRICT COURT OF WESTERN AUSTRALIA | Citation No: | [2015] WADC 12 | |
| Case No: | CIV:175/2014 | 19 JANUARY 2015 | |
| Coram: | EATON DCJ | 11/02/15 | |
| PERTH | |||
| 10 | Judgment Part: | 1 of 1 | |
| Result: | Appeal dismissed | ||
| PDF Version |
| Parties: | AE SIBERIA PTY LTD MARK SLOAN VICTORIA RATUSHNYAK |
Catchwords: | Practice and procedure Appeal from a registrar Security for costs Defendant's application Meaning of the word 'lost' |
Legislation: | Corporations Act 2001 (Cth) |
Case References: | Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [2013] WASC 57 |
JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Plaintiff
AND
MARK SLOAN
First Defendant
VICTORIA RATUSHNYAK
Second Defendant
Catchwords:
Practice and procedure - Appeal from a registrar - Security for costs - Defendant's application - Meaning of the word 'lost'
Legislation:
Corporations Act 2001 (Cth)
Result:
Appeal dismissed
Representation:
Counsel:
Plaintiff : Mr D W Thompson
First Defendant : Mr H Robinson
Second Defendant : Mr H Robinson
Solicitors:
Plaintiff : Thompson Downey Cooper
First Defendant : Haydn Robinson
Second Defendant : Haydn Robinson
Case(s) referred to in judgment(s):
Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337
Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [2013] WASC 57
1 EATON DCJ: On 22 January 2014 AE Siberia Pty Ltd filed a writ of summons accompanied by a statement of claim in this court. There are two defendants, Mark Sloan and Victoria Ratushnyak.
2 The plaintiff pleaded a loan agreement dated 9 March 2012 by which it agreed to advance to a borrower the sum of $675,000. The defendants are sued as guarantors of the amount advanced.
3 On 4 February 2014 both defendants entered appearances. On 27 February 2014 both filed a defence, set-off and counterclaim. In it they appear to admit that they were guarantors of the advance as alleged.
4 On 2 March 2014 the plaintiff filed a reply and defence to counterclaim.
5 On 10 April 2014 the defendants filed an application for security for costs seeking that an amount of $85,437 be paid into court. On 25 September 2014 Registrar Kingsley, having heard the application, dismissed it. On 30 September 2014 the defendants appealed that decision. According to the District Court Rules 2005, an appeal from the decision of a registrar is by way of a new hearing of the matter.
6 Registrar Kingsley published reasons for dismissing the defendants' application on 25 September 2014. He noted, in doing so, that both counsel before him at the hearing of the application agreed broadly on the applicable principles. Counsel for the defendants relied upon the criteria referred to by Edelman J in Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [2013] WASC 57 [5] - [6]. Both counsel before me, on the hearing of the appeal, adopted that passage as an appropriate statement of the law relating to the exercise of judicial discretion with respect to an application for security for costs.
7 The Corporations Act 2001 (Cth) s 1335(1),provides that:
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.
8 Edelman J said (at [5] – [6]):
The question, therefore, is whether this court should exercise its discretion to award security for costs. The discretion has been described as 'unfettered', but it must be exercised 'judicially', by reference to established principles. The factors which have developed to guide the discretion broadly strike a balance between the interests of the plaintiff corporation in conducting litigation to protect or enforce its rights and the interests of a defendant in not being exposed to the prejudice of being unable to recover costs if it is successful.
Depending on the circumstances, various factors may have different strength and effect on the exercise of the discretion to award security for costs. The most commonly cited, non-exclusive, factors include the following:
(i) the strength and bona fides of the plaintiff's case;
(ii) the likelihood of the plaintiff being unable to pay the defendant's costs;
(iii) whether the plaintiff's impecuniosity was caused by the defendant's conduct which is the subject of the claim;
(iv) whether the application for security is oppressive;
(v) whether the award of security would deny an impecunious applicant a right to litigate;
(vi) whether there are persons standing behind the plaintiff who were likely to benefit from the litigation;
(vii) 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;
(viii) whether the applicant was in substance a plaintiff or the proceedings were defensive in the sense of directly resisting proceedings already brought or seeking to halt the defendant's self-help procedures;
(ix) whether the application for security had been brought promptly;
(x) whether the applicant has any rights which it can exercise against assets of the plaintiff to satisfy an order for costs in its favour; and
(xi) any factors relating to the public interest.
9 The applicant bears the persuasive onus to satisfy the court that the discretion should be exercised.
10 By the agreement dated 9 March 2012 AE Siberia Pty Ltd agreed to advance to Albatross Energy (Russia) Ltd $675,000 interest free but in the event of late payment with interest at 12% on any outstanding amount. The lender agreed that of the amount advanced, $50,000 was not repayable. The remainder was repayable on the repayment date which was defined in the agreement to mean the earlier of:
1. the date the borrower receives return of the funds associated with the bidding on the Siberian Licences;
2. 25 May 2012; and
3. five business days after the date on which the borrower receives a notice from the lender under cl 5.1.
11 Paragraph 16 of the statement of claim alleges that the defendants are guarantors. That is admitted by the defendants. They also admit that the sum of $680,488.79 was advanced pursuant to the agreement and that no part of it had been repaid as at 25 May 2012. In fact, it became clear at the hearing of the appeal that the whole of the amount advanced to the borrower remains unpaid.
12 The appellants rely upon the affidavit of Mark Livingstone Sloan sworn 10 April 2014, their written and oral submissions and list of documents and the respondents rely upon the affidavit of Mark Rowbottam sworn 12 June 2014 and written and oral submissions and authorities.
13 The background to the litigation is that the government of Russia was making an oil exploration licence available for acquisition by auction. It related to the Tomsk region of Western Siberia, the licence being known as PL60. The appellants became aware of the opportunity to acquire the licence. They were, in early 2013, seeking funds to make a bid for it. Mr Rowbottam became involved in gathering together a group of prospective investors.
14 The respondent was incorporated on 7 February 2012 as an Australian proprietary company limited by shares. Mr Rowbottam was, at that time, the sole director and secretary. There were a number of shareholders, both individual and corporate. It appears to be common ground that each of the shareholders were investors gathered together by Mr Rowbottam and that the newly incorporated company would be the corporate vehicle by which those investors would advance funds which might be used for the acquisition of PL60. To that end, the respondent entered into the agreement dated 9 March 2012 with Albatross Energy (Russia) Ltd being, according to the agreement, a company incorporated in Cyprus with an address in Nicosia.
15 Mr Sloan, in his affidavit, describes himself as an exploration geologist and geophysicist and Ms Ratushnyak as an exploration geophysicist. He said that both had knowledge of the geology of the land the subject of PL60, the application process and both had contacts in Russia. He said: 'we needed capital to acquire and develop PL60'.
16 It is not surprising that a group of investors, principally based in Australia, and utilising an Australian proprietary company as the corporate vehicle for that investment might, when lending to a company registered in Cyprus, require that repayment of the funds advanced be guaranteed by Australian resident individuals. That is what occurred.
17 Counsel for the appellants informed me at the hearing of the appeal that the money advanced by the respondent pursuant to the agreement was 'all spent on acquisition of the licence, which is the PL60 Siberian licence, and other incidental expenses in relation to that acquisition'. He informed that the licence had been acquired and, as at the date of the hearing, was still current.
18 Counsel for the appellant made reference to cl 8.2 of the agreement which, he argues, renders the guarantee unenforceable against the appellants. That clause provides:
The lender will not be entitled to enforce this clause 8 in circumstances where the loan funds are withheld or lost during the period that the funds have been advanced within the jurisdiction and control of the Russian local or federal licensing authorities.
19 Clause 8 deals with the guarantee. Clause 8.1 provides that the guarantors agree to guarantee to the lender the performance and observance by the borrower of all of its obligations under the agreement. Clause 8.3 provides that it is a continuing guarantee binding the guarantors notwithstanding the bankruptcy or liquidation of the borrower or any indulgence, waiver or extension given by the lender to the borrower. Clause 8.5 provides, in effect, that the borrower, except in the circumstances described in cl 8.2, may proceed against the guarantors for recovery in the event of breach by the borrower without first having to pursue the borrower.
20 Counsel for the appellants explained to me that the appellants' contention is that the funds advanced by the respondent have been lost and that, by reason of that fact, the guarantee is unenforceable against the appellants. He explained that the funds had 'been put into the Russian system, they got back a licence. We can't now get those moneys back because it's in the Soviet Union somewhere'. In his earlier written submissions, counsel for the appellants said: 'Either way the money has been lost in the sense that it cannot be recovered from the Russian side'.
21 It does appear that the loan funds were not withheld. It appears, to the contrary, to be common ground that the loan funds were advanced and used for their intended purpose. The appellant's remaining contention is that the funds were 'lost'. That term is not defined in any way by the agreement. Clause 12.2 of the agreement provides:
This deed shall constitute the sole understanding of the parties with respect to the subject matter and replaces all other agreements with respect thereto.
22 Both counsel seemed to be submitting to me that the central issue, so far as the respondent's claim against the appellants is concerned, is the meaning of the word 'lost'. Counsel for the respondents said, in the course of the hearing of the appeal:
The word lost is important because it's the main line of defence to the claim under the guarantee. The defendants say that the guarantee is unenforceable because the moneys were lost. We get now to the issue about construction of contracts.
23 In that regard the law is as set out by Mason J in Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337, 352:
The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning. Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties, although, as we have seen, if the facts are notorious knowledge of them will be presumed.
24 The ordinary meaning of the word 'lost' is as the past participle of 'lose'. According to the Australian Oxford Dictionary the word 'lose' means, firstly, to be deprived of or cease to have, especially by negligence or misadventure. A common meaning relates to the state of being unable to find, fail to keep in sight or follow or mentally grasp. One might lose money as the result of an unsuccessful wager or gamble. One might lose money by misplacing it. Money might be regarded as lost if it is stolen and not recovered.
25 It is a word in very common use and is, generally speaking, well understood in its various usages. If I propose to buy an ice-cream for one dollar and complete that transaction it could not, in any reasonable sense, be suggested that I have lost the dollar handed to the seller of the ice-cream. I parted with it deliberately, freely entering into the transaction with the intent that I acquire and enjoy the ice-cream.
26 In the matter before me it appears to be common ground that the funds advanced by the respondent were advanced to facilitate the acquisition of PL60 and that those funds were disbursed to that end, PL60 being successfully acquired. Clause 2.3 of the agreement stipulates:
(a) The borrower must apply the loan towards expenses associated with bidding on oil licences located in Western Siberia and costs associated with those activities.
(b) For the avoidance of doubt, the loan must not be used to fund any wages, salaries or consulting fees associated with the activities set out in cl 2.3(a) without the prior written approval of the lender.
27 My understanding is that there has been compliance with that clause. That being the case, I am at a loss to understand the proposition to the effect that the funds advanced are or have been lost.
28 In his affidavit sworn 10 April 2014 Mark Livingstone Sloan (at par 40) deposes to having been advised by his solicitor that there was more than one interpretation or construction of cl 8.2 of the agreement and that its meaning would be a matter for the trial judge having heard all the evidence at trial. In his affidavit sworn 12 June 2014, Mark Rowbottam, the sole director of the respondent, contends that cl 8.2 of the loan agreement was intended to apply in cases where the funds advanced to the borrower were lost to the Russian Authorities or were not repaid after the bid for the licence had failed. The bid did not fail. The funds were utilised for the purpose for which they were lent.
29 In my view, there is no ambiguity, latent or otherwise. Having regard to the ordinary usages of the word 'lost', there can be no argument that the funds, having been utilised for the purpose for which they were lent, could be said to have been lost. I regard the submission that the funds were lost, as explained by counsel for the appellants, as unconvincing.
30 If there is an ambiguity the question of interpretation is not to be resolved by reference to the actual intentions, aspirations or expectations of the parties before or at the time of the contract except insofar as they are expressed in the contract (see Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [24]). What the parties did express in the agreement is that it constituted 'the sole understanding of the parties with respect to the subject matter and replaces all other agreements with respect thereto' (cl 12.2).
31 Counsel for the respondent informed me:
There's no dispute that my client, as a sole purpose vehicle created for this transaction doesn't have any money in it to pay costs.
- The reason, he explained, is that all funds made available to the respondent were lent to the borrower, a company, he submits, under the control of the appellants. I accept that to be so.
32 Factors which impact upon the exercise of my discretion to award security for costs include the strength and bona fides of the plaintiff's case. On the face of matters the respondent's case would appear to be straightforward. Funds were advanced to a borrower on the basis of a written agreement which included a guarantee by the appellants. The borrower appears to be in breach of the agreement in that none of the funds advanced have been repaid as agreed. The lender has called upon the guarantors to honour the guarantee. They respond by contending that the funds advanced have been 'lost'. There appears to be a bona fide claim but I have my doubts as to whether there is a bona fide defence to it.
33 It is certainly the case that the likelihood of the respondent being unable to pay the appellants' costs in the event that they successfully defend the claim on the guarantee is very slim. I make no comment on the appellants' prospects of success on their set-off or counterclaim.
34 This is a case where the respondent's impecuniosity is very substantially caused by the defendant's conduct which is the subject of the claim. Counsel for the appellants, when asked whether the issues for trial were essentially matters generated by the set-off and counterclaim, replied:
No. Firstly, the defendants would not be litigating with the plaintiff other than the fact that they be sued by the plaintiff. In other words, they don't have a claim they wish to make. If my friend dropped his claim we would not be proceeding with a counterclaim or a claim against the plaintiff … . Neither of those two pleadings would be made if we were not being sued.
35 The foregoing comments suggest to me that the application for security for costs is oppressive. If the respondent were to abandon its claim the funds lent to the borrower would truly be lost to the respondent in that, the borrower being a corporate entity registered in Cyprus, there would be little prospect of recovery from it. If the claim were abandoned the appellants would be relieved of their liabilities under the guarantee.
36 There are persons and entities who might be creditors of the respondent in that they advanced funds to the respondent so that the loan might be made. In that sense they might well have an interest in the outcome of the litigation but such considerations do not impact upon my assessment of the bona fides of the respective parties before me. There are no public interest considerations.
37 In the exercise of my discretion, I dismiss the appeal.
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