Allnation Corporation Pty Ltd v RSM Crane Sales and Hire Pty Ltd - [2010] WASC 392

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: ALLNATION CORPORATION PTY LTD -v- RSM CRANE SALES & HIRE PTY LTD [2010] WASC 392

CORAM: MASTER SANDERSON

HEARD: 15 DECEMBER 2010

DELIVERED : 22 DECEMBER 2010

FILE NO/S: CIV 2865 of 2009

BETWEEN: ALLNATION CORPORATION PTY LTD
Plaintiff
AND
RSM CRANE SALES & HIRE PTY LTD
Defendant

Catchwords:

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

Legislation:

Corporations Act 2001 (Cth), s 1335

Result:

Application dismissed

Category: B

Representation:

Counsel:

Plaintiff: Mr G D Cobby
Defendant: Mr W G Spyker

Solicitors:

Plaintiff: Great Southern Legal Pty Ltd
Defendant: Cornerstone Legal

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

FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69; (2000) 22 WAR 241
Livingspring Pty Ltd v Kliger Partners (2008) 20 VR 377; (2008) 66 ACSR 455

MASTER SANDERSON: This is the defendant's application for security for costs. The application is brought under s 1335 of the Corporations Act 2001 (Cth). That section is in the following terms:
Costs
(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.
(1A)Subsection (1) does not apply to a corporation that is an Aboriginal and Torres Strait Islander corporation.
Note:Similar provision is made in relation to Aboriginal and Torres Strait Islander corporations under section 581‑20 of the Corporations (Aboriginal and Torres Strait Islander) Act 2006 .
(2)The costs of any proceeding before a court under this Act are to be borne by such party to the proceeding as the court, in its discretion, directs.
Section 1335 carries both the threshold test and a discretionary test. The first question is whether the threshold condition for the exercise of power is satisfied, that is, whether there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful. The jurisdictional question must be satisfied before the discretionary power to order costs is enlivened: see FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69; (2000) 22 WAR 241.
The threshold test was discussed by Maxwell P and Buchanan JA in Livingspring Pty Ltd v Kliger Partners (2008) 20 VR 377; (2008) 66 ACSR 455, where they said:
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.
The application was supported by two affidavits of Warnar Geert Spyker, the first sworn 22 September 2010 and the second sworn 29 November 2010. Mr Spyker is the defendant's solicitor. His evidence is to the effect the plaintiff has a paid‑up share capital of one dollar. One James Conrad Turner is the sole director, secretary and shareholder of the plaintiff. There are four fixed charges registered against the assets of the plaintiff. Two of these are held by Esanda Finance Corporation Ltd. One is in favour of Bank of Western Australia Ltd and the other in favour of CBFC Ltd. The full value of these charges, based on documents annexed to Mr Spyker's affidavit, amounts to over $730,000.
Mr Spyker says he undertook a search of the Western Australian property register and could find no property registered in the name of the plaintiff. Mr Spyker also annexes correspondence passing between the plaintiff's solicitors and the defendant's solicitors. The defendant's solicitors asked if the plaintiff would provide security for costs. The plaintiff declined to do so. It did not provide any evidence it could meet any adverse costs order.
In opposition to the application, the plaintiff relied on two affidavits of Mr Turner, one sworn on 27 October 2010, the other sworn on 22 November 2010. In his first affidavit, Mr Turner deals with the charges. Three of the charges have been discharged. One in favour of Esanda remains and the plaintiff owes an amount of $154,920.81 pursuant to that charge. Mr Turner also annexes the company's tax return for the year ending June 2009.
The tax return shows total income before tax of $132,920. While it is not entirely clear, the accounts appear to show the plaintiff has assets in excess of its liabilities of around $200,000: see annexure JCT 5 at page 16. No evidence is provided as to cash on hand, or what liquid assets the plaintiff would have to meet any adverse costs order.
During the course of submissions, I asked counsel for the plaintiff whether it was contended the plaintiff could meet any adverse costs order. He indicated the plaintiff could not do so without selling assets or without Mr Turner selling assets. Counsel did not, however, submit an order ought not be made because the plaintiff could meet any costs order.
On balance, I am satisfied the threshold test has been satisfied and the plaintiff could not meet any costs order if called upon to do so. The only way such an order could be met is if what appears to be the only asset of significance held by the plaintiff - that being a crane - were to be sold. There is no evidence as to what the market might be for such a piece of machinery, what its present value would be and how long it might take to sell. In all the circumstances, I am satisfied the jurisdiction to make an order is enlivened.
It was the plaintiff's case that the order ought not be made for two interrelated reasons. First, the strength of the plaintiff's case was such as to not warrant an order being made. Second, it was said the plaintiff's impecuniosity was directly due to the actions of the defendant. Both these submissions relied upon the same facts.
In dealing with these submissions, it is convenient to begin with the facts of the case taken from the statement of claim. The plaintiff is in the business of crane hire. The defendant is in the business of selling cranes. In or about 2006, the plaintiff approached the defendant with a view to purchasing what is described in the pleading as a 1992 Liebherr 50T LTM‑1050 All Terrain Crane, Serial Number 0013527. The plaintiff alleges during the course of negotiations the defendant represented the crane was an authentic model. The plaintiff alleges other representations, but for present purposes the representation as to model number and type need only be mentioned. The plaintiff alleges this representation was false, it was relied upon by the plaintiff when it purchased the crane and, as a consequence, the plaintiff has suffered loss and damage. The action is also brought for breach of contract, but it is enough if I refer to the trade practices claim.
Appearing as annexure JCT 1 to Mr Turner's second affidavit is a copy of an invoice for the purchase of the crane. It shows the crane to be of a type and model number referred to in the statement of claim. There then follows correspondence passing between Mr Turner on behalf of the plaintiff and Liebherr‑Singapore Pte Ltd. This correspondence appears to establish the crane purchased by the plaintiff was not in fact of a model number and type as represented.
It is often said in interlocutory applications such as the present no detailed investigation of the plaintiff's claim should be undertaken. But on the strength of the documents presently available, it is clear the plaintiff's case is more than arguable - at least so far as the trade practices claim is concerned. As pointed out by counsel for the plaintiff, it was open to the defendant to produce evidence to counter that put by the plaintiff. They chose not to do so. The plaintiff's claim must be assessed on that basis.
Two paragraphs in Mr Turner's second affidavit are relevant. They are:
4.The crane was unsuitable for service almost from the time it was delivered. The plaintiff was able to use the crane for a total of approximately 40 hours from the time of delivery. The crane suffered numerous mechanical and computer faults from the time of delivery.
…
10.As a consequence of the plaintiff being unable to use the crane, the plaintiff was forced to sell a scaffolding business to reduce its debt. Further, the plaintiff has been forced to enter into an arrangement with Esanda regarding the loan the plaintiff acquired from Esanda to purchase the crane, because the plaintiff has been unable to use the crane to generate income since it was purchased.
In my view, the evidence supports the plaintiff's submission. It has a strong case and its impecuniosity is directly related to the actions of the defendant. These two matters, in my view, weigh in favour of refusing an order for security. Against that, and in favour of an order for security, is the fact the plaintiff will not, on my assessment, be able to meet any costs order. Further, the ordering of costs will not stultify the proceedings. Counsel for the plaintiff made it clear during submissions if an order were to be made security would be provided - in all likelihood by Mr Turner.
These are the factors which must be weighed in the balance. Taking all matters into account, I am not satisfied an order for security ought be made. In my view, the relative strength of the plaintiff's case and the fact the impecuniosity is, on the evidence as it stands, occasioned by the actions of the defendant warrant an order being refused. Accordingly, I would dismiss the application. The costs of the application should be costs in the cause.