All Roofs Pty Ltd v Southgate Corporation Pty Ltd
[2014] WASC 155
•8 MAY 2014
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: ALL ROOFS PTY LTD -v- SOUTHGATE CORPORATION PTY LTD [2014] WASC 155
CORAM: ACTING MASTER GETHING
HEARD: 30 APRIL 2014
DELIVERED : 30 APRIL 2014
PUBLISHED : 8 MAY 2014
FILE NO/S: ARB 11 of 2012
BETWEEN: ALL ROOFS PTY LTD
Applicant
AND
SOUTHGATE CORPORATION PTY LTD
Respondent
Catchwords:
Arbitration - Security for costs
Legislation:
Commercial Arbitration Act 1985 (WA), s 47
Corporations Act 2001 (Cth), s 1335
Rules of the Supreme Court 1971 (WA), O 25
Result:
Application dismissed
Category: B
Representation:
Counsel:
Applicant: In person (Mr J Warren)
Respondent: Mr R D Shaw
Solicitors:
Applicant: In person
Respondent: Lavan Legal
Case(s) referred to in judgment(s):
BBC Nominees (WA) Pty Ltd v Yangebup Developments Pty Ltd [2008] WASC 81
Darwin Offshore Logistics Base Pty Ltd v Cox [2010] WASC 356
FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69; (2000) 22 WAR 241
Fiduciary Ltd v Morningstar Research Pty Ltd (2004) 208 ALR 564
Gentry Brothers Pty Ltd v Wilson Brown & Associates Pty Ltd (1992) 8 ACSR 405
Intercraft Cabinets Pty Ltd v Sampas Pty Ltd (1997) 18 WAR 306
Livingspring Pty Ltd v Kliger Partners (2008) 20 VR 377; (2008) 66 ACSR 455
Mabrouk Minerals Pty Ltd v Mabrouk Holdings Pty Ltd [2008] WASC 132
Meni's Tailoring & Alterations Pty Ltd v Jeanswest Corp Pty Ltd [2003] FCA 1108
Sugarloaf Hill Nominees Pty Ltd v Rewards Projects Ltd [2011] WASC 19
Vicon Services Pty Ltd v BHP Billiton Worsley Alumina Pty Ltd [2012] WASC 109
Western Areas Exploration Pty Ltd v Streeter [2008] WASCA 218
Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [2013] WASC 57
ACTING MASTER GETHING: All Roofs Pty Ltd and Southgate Corporation Pty Ltd were parties to a contract pursuant to which All Roofs was to carry out replacement of an asbestos and tin roof at a property owned by Southgate. The contract was in the form of the Master Builders Association Medium Works Contract (Contract). All Roofs carried out the work and a certificate of practical completion was issued on or about 22 December 2010. Shortly afterwards Southgate paid the contract sum of $340,000. In December 2011, All Roofs made a claim for an additional $301,035.21 for an alleged variation to the Contract pursuant to which it was required to perform the works on weekends only. Southgate disputes this claim.
In March 2012 All Roofs issued a notice of dispute under the Contract. The parties agree to appoint Mr Laurie James as the arbitrator. In its points of claim filed 18 June 2012, All Roofs increased its claim to $327,212.18. The claim primarily comprises increased labour and site management costs for work done on Saturdays and Sundays, as well as a small amount of additional crane hire costs. Southgate has filed points of defence. At the request of All Roofs the arbitration has been temporarily stayed.
Since May 2013 All Roofs has been the subject of three unsuccessful attempts by third parties to have it placed in external administration.
In this context, Southgate sought an order from the Supreme Court that All Roofs provide security for its costs of the arbitration in the amount of $24,158.75. I heard the application on 30 April 2014 and dismissed it with no order as to costs. I advised the parties that I would provide written reasons for this decision.
What issues arise for determination?
Commercial Arbitration Act 1985 (WA) s 47 gives the Supreme Court the same power to make interlocutory orders in arbitration proceedings as it has in court proceedings. The 1985 Act, and not the Commercial Arbitration Act 2012 (WA), applies as the arbitration was commenced prior to the commencement date of the new Act (see s 43 of the 2012 Act). I am satisfied that the scope of the 1985 Act s 47 includes the power to make an order for security for costs.
Southgate seeks orders for security for costs pursuant to Corporations Act 2001 (Cth) (CA) s 1335 and Rules of the Supreme Court 1971 (WA) (RSC) O 25. For ease of analysis, I deal with the position under CA s 1335, and then consider whether I would arrive at a different outcome pursuant to RSC O 25.
CA s 1335 relevantly provides:
(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 power in CA s 1335 contains a threshold test or jurisdictional requirement, and a discretion: Western Areas Exploration Pty Ltd v Streeter [2008] WASCA 218 [2] (Pullin JA); BBC Nominees (WA) Pty Ltd v Yangebup Developments Pty Ltd [2008] WASC 81 [11] (Beech J). The threshold requirement is that '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': CA s 1335. Once enlivened, the discretion is unlimited or unfettered, though it must be exercised by reference to established principles: Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [2013] WASC 57 [5] (Edelman J); Sugarloaf Hill Nominees Pty Ltd v Rewards Projects Ltd [2011] WASC 19 [36] (Corboy J); Darwin Offshore Logistics Base Pty Ltd v Cox [2010] WASC 356 [3] (Allanson J); FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69; (2000) 22 WAR 241 [21] (Pidgeon & Owen JJ).
There are five issues which need to be considered in order to determine the present application:
(a)What is the financial position of All Roofs?
(b)What are Southgate's likely future costs?
(c)Has Southgate satisfied the threshold requirement in CA s 1335?
(d)Would the application of RSC O 25 produce a different outcome?
(e)What are the appropriate final orders?
What is the financial position of All Roofs?
A company extract for All Roofs is annexed to the affidavit of Benn Wallace sworn 12 February 2014. Mr Wallace is a solicitor employed by Southgate's lawyers. It discloses that All Roofs has paid up share capital of $100.00. It does not disclose the existence of any charge over the assets of All Roofs.
Southgate relied on the fact that three applications have been made to wind up All Roofs to enliven the jurisdiction in CA s 1335.
The first application was brought by Revroof Pty Ltd in the South Australian Registry of the Federal Court. In this application orders were made on 23 February 2013 that All Roofs be wound up in insolvency. By orders made on 26 February 2013, the winding up was terminated.
The second application was filed on 14 May 2013 in the Supreme Court of Western Australia. In a letter dated 20 August 2013 from Southgate's solicitors to the arbitrator, and copied to the director of All Roofs, the author states that this winding up application was dismissed by the court on 4 July 2013 at the request of All Roofs as the outstanding debt the subject of the application had been paid.
The third application was brought by Revroof Pty Ltd, again in the South Australian Registry of the Federal Court. This application was made on 14 January 2014 and was dismissed by orders made on 16 April 2014.
Southgate has not provided the court with some of the usual information one would expect to see in an application for security for costs. Specifically:
(a)there is no evidence as to whether All Roofs owns any real property;
(b)there is no evidence as to whether All Roof has any outstanding debts that are otherwise due and payable; and
(c)there is no evidence of any other debt recovery actions being in progress against All Roofs.
What are Southgate's likely future costs?
Southgate has prepared a draft bill of costs. It is annexed to Mr Wallace's affidavit.
The bill of costs estimates Southgate's likely future costs to be $24,158.75. In my view this is a reasonable estimate for the arbitration and I accept it as the appropriate amount to use for the purposes of the present application.
Has Southgate satisfied the threshold requirement in CA s 1335?
The threshold requirement in CA s 1335 is that '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'. This requires 'an evaluation of the evidence led by the applicant to see whether that leads to a reason to believe that the corporation will be unable to pay the costs of the defendant': FFE Minerals [24]. 'In ascertaining whether there is credible testimony, the court does no more than judge the quality of the evidence to see if it objectively gives rise to a reason to believe': Western Areas [5]; FFE Minerals [22]. The court is to adopt a 'practical, commonsense approach to the examination of the corporation's financial affairs': Sugarloaf Hill Nominees [35].
The onus is on the applicant to produce the necessary credible testimony that there is reason to believe the corporation will be unable to pay the costs in issue: Western Areas [15]. The threshold test is, however, a 'fairly modest' test: Western Areas [4]; Meni's Tailoring & Alterations Pty Ltd v Jeanswest Corp Pty Ltd [2003] FCA 1108 [4] (Merkel J).
In FFE Minerals Pigeon and Owen JJ declined to define further the expression of the threshold requirement, being content that the words speak for themselves [24]. In Western Areas, Pullin JA took a different approach, stating that:
The threshold requirement is met if credible testimony establishes that there is reason to believe there is a real chance that in events which can fairly be described as reasonably possible the appellate corporation will be unable to pay the respondents' costs of the appeal if the appeal is unsuccessful.
This will be so even if in other events which can also be fairly described as reasonably possible the appellant would be able to pay the costs [3] ‑ [4].
The threshold test was also discussed by Maxwell P and Buchanan JA of the Victorian Court of Appeal in Livingspring Pty Ltd v Kliger Partners (2008) 20 VR 377; (2008) 66 ACSR 455 (Maxell P & Buchanan JA). Their Honours stated:
The phrase 'reason to believe' is the touchstone of jurisdiction. It requires a rational basis for the belief - and no more. The wording adopted may be contrasted with other familiar formulations such as 'If the court is satisfied that ...' or 'If in the view of the court it is likely that ... '. The section requires the making of a judgment, a risk assessment: is there a risk that the corporation will be unable to pay? (It adds nothing, in our view, to say that it must be a 'real risk'.) A risk assessment is, of necessity, imprecise. The section calls for a practical, commonsense approach to the examination of the corporation's financial affairs.
It may be said, with justification, that this is a low threshold. But the test simply reflects the policy of the provision, which is to protect a defendant against the risk of the plaintiff corporation's impecuniosity. The provision equips the court with the means to require that the defendant be secured against that risk [15] ‑ [16].
This formulation was adopted by Le Miere J in Vicon Services Pty Ltd v BHP Billiton Worsley Alumina Pty Ltd [2012] WASC 109 [17] and by Corboy J in Sugarloaf Hill Nominees [34] ‑ [35].
In my view, Southgate as applicant has not discharged the onus on it to establish that, by credible testimony, there is reason to believe that All Roofs will not be able to pay Southgate's costs if it is successful in defending the arbitration proceedings. There is simply insufficient information as to the financial position of All Roofs. The amount of Southgate's likely costs is a modest $24,158.75. It would not take much in the way of assets or ongoing business for All Roofs to have the capacity to pay this amount in the near future.
The discretion in CA s 1335 is thus not enlivened.
Would the application of RSC O 25 produce a different outcome?
Scope of the power
RSC O 25 relevantly provides:
1.Factors that are not grounds for ordering security for costs
The Court may order security for costs to be given by a plaintiff, but no order shall be made merely on account of the poverty of the plaintiff or the likely inability of the plaintiff to pay any costs which may be awarded against him.
…
3.Court has discretion
The granting of security shall be in the discretion of the Court, and in determining whether an order should be made the Court shall take into consideration -
(a)the prima facie merits of the claim;
(b)what property within the jurisdiction may be available to satisfy any order for costs against the plaintiff;
(c)whether the normal processes of the Court would be available within the jurisdiction for enforcement of any order for costs made against the plaintiff.
RSC O 25 r 2 identifies nine circumstances in which the court 'may' order security for costs. The only factor with potential relevance is (e), namely where the plaintiff is 'a company in liquidation or under official management, or a company in respect of which a receiver of its property has been appointed'.
The discretion in RSC O 25 to order security for costs is unfettered and depends upon an examination of all of the relevant circumstances: Mabrouk Minerals Pty Ltd v Mabrouk Holdings Pty Ltd [2008] WASC 132 [57] (Newnes J). In that case, Newnes J went on to state that:
The circumstances in which the discretion should be exercised cannot be stated exhaustively. They will vary from case to case and the weight to be given to any circumstance in a particular case will depend not only upon its own intrinsic persuasiveness but upon the impact of the other circumstances which have to be weighed ... [57].
Counsel for Southgate referred to three factors justifying an order for security for costs under RSC O 25:
•The financial position of All Roofs.
•The merits of All Roofs' claim in the arbitration.
•The delay, inconvenience and expense which Southgate has been put to in the arbitration.
The financial position of All Roofs
As to the financial position of All Roofs, for the reasons which I have set out above in relation to CA s 1335, there is simply insufficient information as to the financial position of All Roofs to justify a conclusion that there is a risk that Southgate will not be paid the costs of the arbitration if successfully defended.
By RSC O 25 r 3(b), I am required to consider 'what property within the jurisdiction may be available to satisfy any order for costs against' All Roof. There is no information available to me as to the property of All Roofs.
By RSC O 25 r 3(c), I am required to consider 'whether the normal processes of the Court would be available within the jurisdiction for enforcement of any order for costs made against the plaintiff'. As All Roofs is an Australian registered company, the normal processes of the court would be available to enforce any award made against it in the arbitration (as to which, see Commercial Arbitration Act 1985 s 33 and s 34).
The merits of All Roof's claim in the arbitration
By RSC O 25 r 3(a), I am required to consider the merits of the claim made by All Roofs.
The case law in relation to the relevance of the merits in an application pursuant to CA s 1335 is relevant to the context of RSC O 25. In the former context, in Gentry Brothers Pty Ltd v Wilson Brown & Associates Pty Ltd (1992) 8 ACSR 405, Cooper J identified the limited relevance of the merits of a claim in the exercise of the discretion to order security for costs:
Ordinarily in my view the likelihood or otherwise of success in the proceedings ought not to be investigated on an application for security for costs ... . There may be circumstances where the merits are clear or where the claim cannot succeed in point of law or is not brought bona fide. Should that occur, regard will be had to those circumstances. However, those cases in my view are the exception to the ordinary rule (416).
Likewise, in Sugarloaf Hill Nominees, Corboy J stated that the 'court will generally not be required to investigate in considerable detail the likelihood or otherwise of success in the action' [36]. Where a claim is regular on its face and discloses a cause of action, then, in the absence of evidence to the contrary, the court ordinarily will proceed on the basis that the claim is brought in good faith and is arguable: Intercraft Cabinets Pty Ltd v Sampas Pty Ltd (1997) 18 WAR 306, 316 ‑ 318 (Malcolm CJ); Westonia [28]. This will mean that in many cases the merits of the claim will be a neutral factor: Fiduciary Ltd v Morningstar Research Pty Ltd (2004) 208 ALR 564 [37] ‑ [39] (Austin J).
In relation to the merits, counsel for Southgate drew my attention to special condition 2 of the Contract which provides:
The parties hereby acknowledge that this is a guaranteed maximum price contract with no variations and that the contractor takes responsibility for determining the required works.
Counsel also referred to cl 17(c) of the Contract, pursuant to which All Roofs was obliged to ensure that the date, the cost and all the terms of any variation were in writing and signed by both parties. In its points of claim in the arbitration, All Roofs refers to an email to a party who it says had apparent authority to direct All Roofs in performing the works under the Contract and to authorise variations. However, it does not identify a written, signed, variation for the purposes of cl 17(c).
In my view, in the absence of a written variation, the merits of All Roofs claim in the arbitration are sufficiently weak so as not to be a neutral factor. Put slightly differently, the merits are not sufficiently strong to comprise a factor against the grant of security for costs.
Delay, inconvenience and expense
Counsel for Southgate submitted that the effect of the three winding up applications has been to delay the progress of the arbitration. It is evident from the material in Mr Wallace's affidavit that the winding up applications have had this effect. I was advised from the bar table that the arbitration hearing listed for three days from 17 March 2014 did not proceed because of the third winding up application, and that the arbitration is currently in abeyance pending the outcome of this application. From the chronology of events provided, it is readily apparent that there will have been some costs thrown away by reason of the delays and adjournments. That is, however, an issue that can be dealt with in the arbitration.
I accept that the effect of the three winding up applications has been to cause Southgate delay, inconvenience and expense.
Discretion - application
In applying the discretion, where the party against whom an order for security for costs is an Australian registered company which is not under external administration, its financial position will be perhaps the most significant factor in the exercise of the discretion. For the reasons I have set out above, there is insufficient information as to the financial position of All Roofs to justify a conclusion that there is a risk that Southgate will not be paid its costs if it successfully defends the arbitration. The fact that there are issues with the merits of All Roofs' claim in the arbitration and that it has put Southgate to delay, inconvenience and expense do not of themselves give rise to a risk that Southgate will not be paid its costs if it successfully defends the arbitration.
The onus is on Southgate to move the Court to exercise its discretion: Westonia [7]; Sugarloaf Hill Nominees [33] ‑ [34]. It has failed to discharge that onus.
What are the appropriate final orders?
For these reasons, at the hearing on 30 April 2014, I dismissed the application.
As All Roofs was not represented by counsel, I made no orders as to costs.
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