Ambassador Homes Pty Ltd v Doepel
[2008] WADC 66
•9 MAY 2008
JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CHAMBERS
LOCATION: PERTH
CITATION: AMBASSADOR HOMES PTY LTD -v- DOEPEL [2008] WADC 66
CORAM: REGISTRAR KINGSLEY
HEARD: 14 MARCH 2008 & 4 APRIL 2008
DELIVERED : 9 MAY 2008
FILE NO/S: CIV 2446 of 2007
BETWEEN: AMBASSADOR HOMES PTY LTD (ACN 074 565 648)
Plaintiff
AND
KIMBAL WAYNE DOEPEL
Defendant
Catchwords:
Practice - Application for security for costs - Turns on own facts
Legislation:
Nil
Result:
Application allowed
Representation:
Counsel:
Plaintiff: Mr L Barker
Defendant: Ms A Wood
Solicitors:
Plaintiff: GV Lawyers
Defendant: Kott Gunning
Case(s) referred to in judgment(s):
Bell Wholesale Co Pty Ltd v Gates Export Corporation (1984) 2 FCR 1
FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69
Gentry Bros Pty Ltd v Wilson Brown & Associates Pty Ltd (1992) 8 ACSR 405
Sydmar Pty Ltd v Statewise Development Pty Ltd (1987) 73 ALR 289
REGISTRAR KINGSLEY: This is the defendant's application for security for costs. In considering an application for security for costs there is a threshold question as to whether the court has jurisdiction. If the court finds that it has jurisdiction then the evidence is examined to determine whether the court should exercise its discretion (FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69 at 24).
The jurisdiction of the court is enlivened where it appears, by credible testimony, there is reason to believe a corporation would be unable to pay the costs of the defendant, if the defendant is successful in its defence.
FFE Minerals Ltd (supra) is authority for the proposition that proof that a company would be unable pay the costs is not required. All that the applicant need do is place on record credible testimony that the corporation would be unable to pay the costs. The exercise of the court is in the judging of that testimony and its qualities.
In this action the plaintiff's claim is against the defendant for damages arising from the defendant's alleged breach of a building contract dated 22 June 2005. The plaintiff, as builder, agreed to construct renovations and additions to an existing residence owned by the defendant. The plaintiff pleads additional works were carried out on the instruction of the defendant. The plaintiff says there are unpaid invoices and costs arising from the additional works which total $111,014.97.
The original contract price was $328,789.07 which was paid by the defendant to the plaintiff in August 2005, that being shortly after the building contract was entered into. In his affidavit sworn 18 December 2007 the defendant considers that he has a counterclaim for approximately the amount of the plaintiff's claim.
John Melia in an affidavit sworn 22 January 2008 opposed the defendant's application for security of costs. At par 6 of that affidavit Melia deposes that the plaintiff owns a substantial modern dwelling at 5 Alaska Crescent, Southern River, which the plaintiff uses as a display home. In an affidavit sworn by Michelle Wood on 8 February 2008, there is attached to her affidavit an internet search showing, as at 8 February 2008, the Southern River property had been sold. Melia denies that the plaintiff is in financial difficulty and at par 18 again deposes that the plaintiff owns land in Western Australia and has a paid up share capital of $305,000. No profit and loss statement or interim profit and loss statement was provided. When the matter first came on for hearing on 12 February 2008 I ordered that the plaintiff, by its director, do file an affidavit detailing its financial position. By an affidavit sworn by Albert Pang on 11 March 2008 the plaintiff annexed a true copy of the plaintiff's financial statements prepared by the plaintiff's accountants from the period 1 July 2007 to 29 February 2008.
The financial statements were examined by Grant Priest a chartered accountant and his report is annexed to his affidavit sworn 2 April 2008. In his report Mr Priest states that upon initial review of financial statements, irregularities were noted in the financial statements which he attempted to address with the plaintiff's accountant. The plaintiff's accountant declined to address those irregularities. Mr Priest then prepared his report based on the data that was available to him.
Mr Priest states that the financial statements do not detail any work in progress. As the plaintiff is a builder it would be expected that the builder would have ongoing building work. The absence of any work in progress indicates to Mr Priest that the plaintiff likely has no ongoing work. This is coupled with the fact that the plaintiff has no builder's insurance expense.
Mr Priest notes that the loan from directors to the company is incorrectly detailed as a non‑current loan. The financial statements show current assets of $960,771 with currently liabilities being $428,212. If the directors loan of $391,668 are properly included into a current liabilities then according to Mr Priest current liabilities increase to $819,900. Thus Mr Priest states that the net liquidity of the company as at 28 February 2008 is $140,871.
Mr Priest considers that the plaintiff is having difficulty collecting their debtors as the trade debtor entry, as a percentage of turnover, has increased dramatically from 30 June 2007 to 28 February 2008. In percentage terms Mr Priest considers the increase is from 13.8 per cent in 2007 to 23.7 per cent in 2008 (year to date annualised). Mr Priest considers that the debtors of $654,443 are not fully collectable, and in any event, the financial statements do not disclose any bad debts or provisions for doubtful debts. This is despite the dispute with the defendant in the sum of $111,104.
Mr Priest in his report considers that there are a number of expenses that are missing as at 29 February 2008. These expenses are:
Superannuation $ 31,116.00
Wages$ 47,996.00
Contact Insurance $ 26,676.00
Rent$ 2,263.00
Office costs$ 5,613.00
Total $113,644.00
Of concern to Mr Priest is non‑compliance with the Superannuation Guarantee Levy at 30 June 2007 which still remains outstanding at 29 February 2008. This being a statutory liability it should have been cleared by 28 July 2007 under the Superannuation Guarantee Legislation. In Mr Priest's report he states that this demonstrates the inability of the company to meet its statutory obligations as at the 29 February 2008.
Mr Priest notes that, other than cash and debtors, the company has no significant assets save for insignificant second-hand equipment. Mr Priest concludes that the net asset of the plaintiff should therefore correctly be summarised as:
•Net assets as per financial statement to 29 February 2008, $175,717.00
•Less missing expenses ($113,664)
•Non liquid second-hand plant ($24,596)
•Amount in dispute ($111,014)
•Amount of claim of defendant ($98,014)
•Net deficiency ($171,571)
Whilst the report from Mr Priest came before the court on 4 April 2008 there was no request by the plaintiff's counsel for an adjournment to file any affidavit in response.
It is clear from the majority decision in FFE Minerals Ltd that what is required is an evaluation of the evidence to see whether the evidence leads to the conclusion there is reason to believe the plaintiff corporation would be unable to pay the costs of the defendant.
In an application for security for costs the court is required to form an opinion as to what the financial position of the plaintiff corporation will be immediately after the time of judgment. The company's financial position at the end of the anticipated trial will depend not only on the outcome of the trial and of the associated costs, but on the success otherwise of its business and investments in the mean time. Thus the court is faced with a range of possibilities extending from insolvency at one extreme to more than sufficient immediate cash at the other. Between those extremes a variety of possible, but not necessary probable, contingencies could render the plaintiff corporation unable to pay the costs upon service of an allocatur.
Having regard to the report of Mr Priest and its factual analysis in my opinion there is credible evidence that the plaintiff corporation will be unable to pay the costs of the defendant if it is successful.
It still remains the question whether I ought exercise my discretion. The discretion to order security of costs is unfettered and depends upon an examination of all the circumstances of the case. In Gentry Bros Pty Ltd v Wilson Brown & Associates Pty Ltd (1992) 8 ACSR 405 Cooper J said at 415:
"It is not possible or appropriate to list all of the matters relevant to the exercise of the discretion. The factors will vary from case to case. The weight to be given to any circumstance depends upon its own intrinsic persuasiveness and its impact on other circumstances which have to be weighed."
It is however accepted that some of the relevant factors are:
1.Whether the plaintiff's claim is bone fide and has reasonable prospect of success.
2.Whether the defendant has contributed to the plaintiff likely inability to pay costs.
3.Whether an order for security for costs may have the effect of stultifying the action.
4.Whether it appears that the applicant is seeking to stifle a legitimate claim.
5.Whether there are others behind the corporate plaintiff who might reasonably be expected to contribute to the satisfaction of an order for security.
On the face of it the plaintiff's claim appears to be bona fide. There are certain invoices that the defendant accepts as owing but equally there are a number of invoices to which the defendant says are owing to it.
Having regard to the fact that the defendant paid the entire contract sum upfront I find that the defendant has not contributed to the plaintiff's likely inability to pay costs. There has been no delay in bringing the application for security.
The authorities suggest that if the plaintiff's corporation seeks to resist an order for security on the ground of stultification then it is for the corporation to establish the necessary factual basis for that argument. It is an essential part of the case of a corporation seeking to resist an order for security on the ground that the granting of the security will frustrate the litigation to raise the issue of stultification, and the impecuniosity of those whom the litigation will benefit, and to prove the necessary facts (Bell Wholesale Co Pty Ltd v Gates Export Corporation (1984) 2 FCR 1). There has been no evidence put before as to whether the order for security may have the effect of stultifying the action.
There is no evidence that the applicant is seeking to stifle a legitimate claim.
Having regard to the Gates (supra) case no evidence has been put before me by the corporate plaintiff as to those who might reasonably be expected to contribute to the satisfaction of an order for the securities.
The plaintiff's counsel submitted that security should be refused as the defendant had made a substantial counterclaim and cited SydmarPty Ltd v Statewise Development Pty Ltd (1987) 73 ALR 289 in support. In the Sydmar (supra) case, Smart J found that the defendant's cross‑claim was large and would involve determination of substantial issues of fact and law not directly arising in defence of the plaintiff's allegations. In this action, in my opinion, the defendant is not substantially a plaintiff. The defendant's claim relates back to the work undertaken by the plaintiff where the defendant contends he has been overcharged, or where the defendant has himself paid the account.
Accordingly I am satisfied that the defendant has made a case for security for costs. The defendant has provided a schedule as to the estimated costs (Annexure AMW1) to the affidavit of Ann Michelle Wood sworn 10 January 2008. That schedule details costs of $43,146 which includes a three day trial.
My opinion it is appropriate to order that security be given to a pre-trial conference. Bearing in mind that this is a building action and that expert evidence will be necessary, I am prepared to order that the plaintiff provides security in the sum of $20,000.
I will hear counsel on how the security is to be provided.
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