Aquitania Investments Pty Ltd ATF the Elizabeth McKay Trust t/as Aqua Pump and Irrigation v Glenn Patrick Lucassen t/as Kool Temp Refrigeration and Air Conditioning Services
[2022] WADC 15
JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CHAMBERS
LOCATION: PERTH
CITATION: AQUITANIA INVESTMENTS PTY LTD ATF THE ELIZABETH MCKAY TRUST t/as AQUA PUMP & IRRIGATION -v- GLENN PATRICK LUCASSEN t/as KOOL TEMP REFRIGERATION AND AIR CONDITIONING SERVICES [2022] WADC 15
CORAM: REGISTRAR KUBACZ
HEARD: 11 FEBRUARY 2022
DELIVERED : 22 FEBRUARY 2022
FILE NO/S: CIV 881 of 2021
BETWEEN: AQUITANIA INVESTMENTS PTY LTD ATF THE ELIZABETH MCKAY TRUST t/as AQUA PUMP & IRRIGATION
Plaintiff
AND
GLENN PATRICK LUCASSEN t/as KOOL TEMP REFRIGERATION AND AIR CONDITIONING SERVICES
Defendant
GLENN PATRICK LUCASSEN t/as KOOL TEMP REFRIGERATION AND AIR CONDITIONING SERVICES
Plaintiff by counterclaim
AQUITANIA INVESTMENTS PTY LTD ATF THE ELIZABETH MCKAY TRUST t/as AQUA PUMP & IRRIGATION
Defendant by counterclaim
Catchwords:
Practice and procedure - Application for security for costs - Where director of plaintiff has offered personal undertaking - Quantum and form of security - Turns on its own facts
Legislation:
Corporations Act 2001 (Cth), s 1335
Result:
Application granted in part
Representation:
Counsel:
| Plaintiff | : | Mr C M Hershowitz |
| Defendant | : | Mr P G McGowan |
| Plaintiff by counterclaim | : | Mr P G McGowan |
| Defendant by counterclaim | : | Mr C M Hershowitz |
Solicitors:
| Plaintiff | : | Kitto & Kitto Barristers And Solicitors |
| Defendant | : | Barry Nilsson Lawyers (WA) |
| Plaintiff by counterclaim | : | Barry Nilsson Lawyers (WA) |
| Defendant by counterclaim | : | Kitto & Kitto Barristers And Solicitors |
Case(s) referred to in decision(s):
DIF III Global Co-Investments Fund LP v BBLP LLC [2016] VSC 401
Knights Capital Group Ltd v Bajada & Associates Pty Ltd [No 2] [2017] WASC 245
Sugarloaf Hill Nominees Pty Ltd as Trustee for The Richard And Anna Trust v Rewards Projects Pty Ltd [2011] WASC 19
Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [2013] WASC 57
REGISTRAR KUBACZ:
This is the defendant's application for security for costs against plaintiff pursuant to s 1335 of the Corporations Act 2001 (Cth) (the Act), or alternatively pursuant to O 25 of the Rules of the Supreme Court 1972 (WA) (the Rules).
The application is supported by an affidavit of Michael James Massarotto sworn 14 December 2021 (Massarotto Affidavit). In opposition, the plaintiff relies on the affidavit of Robert Bruce McKay sworn 31 January 2022 (McKay Affidavit).
The plaintiff is a company which operated a water pump and irrigation business including a retail shop and repair workshop. Robert Bruce McKay is the sole director of the company. The sole shareholder is Elizabeth McKay. The defendant operated a refrigeration and air‑conditioning business. The plaintiff commenced proceedings against the defendant in this court on 16 March 2021. The facts of the dispute between the parties are not relevant to this application and therefore I will not outline the facts here.
What is important to note is that it appears that during this litigation, Mr McKay, on behalf of the plaintiff, personally guaranteed and did provided security for the defendant's costs by payment of $15,000 to a controlled moneys account held by the plaintiff's solicitors, to cover the costs of the litigation up until the pre‑trial conference stage of the proceedings (Massarotto Affidavit, pars 8 and 9).
The matter has been listed for a three‑day trial commencing 19, 20 and 21 April 2022. A pre‑trial conference took place on 6 October 2021 and this application was made by the defendant on 15 December 2021.
Corporations Act 2001 (Cth)
Section 1335(1) of the Act provides:
1335 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.
There is both a threshold (jurisdictional) requirement and a discretionary element to these applications.
The threshold question is whether it appears by 'credible testimony' that there is a reason to believe that the corporation will be unable to pay the costs of the defendant. Once the threshold has been reached, the discretion is unfettered, and the court is not obliged to make any such order for security.
The plaintiff submits at par 1 of its submissions that the plaintiff does not dispute that the threshold jurisdictional question has been met for the purposes of s 1335 of the Act. I therefore do not need to determine the threshold issue as this is conceded.
What I therefore need to determine is whether I should exercise my discretion to compel the plaintiff to provide security and if so, what in form that security should be.
What are the defendant's costs?
The matter is listed for a three‑day trial commencing 19 April 2022. At par 30 of the Massarotto Affidavit, the defendant estimates that the party/party costs of the trial, should the defendant be successful in its defence, to be in the amount of $90,000. The defendant annexed a draft bill of costs at 'MJM‑6'.
It appears that the draft bill of cost somewhat overestimates the party/party costs for the trial of this matter. Generally, all the item numbers claimed under are incorrect. This however can be overcome. There appears to be a significant amount of double up, claims made for appearances which are not listed or required and seems to be based on a four‑day trial rather than a three‑day trial (in the case of the instructing solicitor costs, which a daily fee when this scale item is for the hours sitting in court only) and includes case management conference of which there are none listed.
I therefore find that the costs have been overestimated and I am of the opinion that the party/party costs would be in the vicinity of $65,000 for a three‑day trial.
The discretion question
Once the threshold is enlivened, it is for the applicant to persuade the court that the discretion should be exercised in its favour.
The decision requires a balance to be struck between protecting the defendant from the possible consequences of being sued by an impecunious corporation with limited liability and avoiding injustice to the corporation by unnecessarily prejudicing it in the conduct of litigation: Sugarloaf Hill Nominees Pty Ltd as Trustee for The Richard And Anna Trust v Rewards Projects Pty Ltd [2011] WASC 19 [31].
The principles applying to the exercise of the court's discretion are well established and summarised by Edelman J in Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [2013] WASC 57. The relevant considerations to this application, as agreed by both parties, are:
……
(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; and
…….
(ix)Whether the application for security has been brought promptly;
…….
Order 25 of the Rules also give the court a discretion to order security for costs. Order 25 r 3 state that in exercising its discretion the court make take into consideration the prima facie merits of the claim, what property within the jurisdiction may be available to satisfy any order for costs against the plaintiff and whether the normal processes of the court would be available within the jurisdiction for enforcement of any order for costs made against the plaintiff.
Delay
There is no argument that a security for costs application should be brought at the earliest possible opportunity in the proceedings.
The plaintiff submits, at par 14 of its written submissions, and indeed in its oral argument, that the application has been bought at a late stage and this delay should weigh against the exercise of my discretion.
The application was filed with the court on 15 December 2021, two months after the pre‑trial conference and after the matter was listed for trial, which is now due to commence in April 2022.
Whilst on its face, it appears that the application has been bought at a late stage, some context must be given to this. As previously mentioned, prior to the pre‑trial conference, the parties agreed to Mr McKay, on behalf of the plaintiff, personally guaranteeing and providing security for the defendant's costs by payment of $15,000 to a controlled moneys account held by the plaintiff's solicitors, to cover the costs of the litigation up until the pre‑trial conference stage of the proceedings (Massarotto Affidavit, pars 8 and 9).
Following the unsuccessful pre‑trial conference, the parties commence conferral over the issue of security which was ongoing until the time that the application was made. This is evidence in the annexures to the Massorotto Affidavit from 'MJM‑9' - 'MJM‑17'.
The issue of security for costs has always been a live issue in this matter and I do not see the delay in making this application should hold any weight in the exercise of my discretion.
Person standing to benefit and personal undertaking
There is no doubt that the plaintiff itself has very limited assets. As set out in Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd, factors that I can have regard to in the exercise of my discretion, and which are glaringly relevant are whether there are persons standing behind the plaintiff who are likely to benefit from the litigation and who have offered any security or personal undertaking to be liable for the costs, and if so, the form of such an undertaking. This person is of course Robert Bruce McKay, the sole director of the plaintiff.
At pars 2 and 3 of the plaintiff's submissions, the plaintiff's solicitors advise that Mr McKay is prepared to give an undertaking to the court that he will:
(a)meet any taxed costs ordered against the plaintiff from the date of the undertaking; and
(b)not sell, encumber or otherwise deal with the property at 520 Flowery Patch Road Watercarrin (Property) until the conclusion of these proceedings.
The plaintiff has provided evidence that he is the sole registered proprietor of the Property (Annexure 'RBM1' of the McKay Affidavit), that the Property is subject to a mortgage held by National Australia Bank (NAB) and is not being used as security for any other loans (McKay Affidavit, par 4), that as at 31 December 2021 the Property was mortgaged in the amount of $714,846.26 with payments of $5,000 being made each month (Annexure 'RBM3' of the McKay Affidavit), that the Property has been valued between $1.5 million to $1.7 million as at 29 January 2022 (Annexure 'RBM2' of the McKay Affidavit) and that Mr McKay has no other substantial liabilities (McKay Affidavit, par 6).
There has been no evidence by the defendant which contradicts the plaintiff's evidence outlined above.
The defendant provided no written submission in relation to this issue. However, in oral submissions, counsel stated that there is no way I can possibly find that Mr McKay is a person who stands to benefit from the litigation and that in fact the defendant 'knows nothing about Mr McKay'.
As mentioned above, Mr McKay is the sole director of the plaintiff. It is true he is not a shareholder. In the statement of claim, it is pleaded that Mr McKay runs the plaintiff's business and on behalf of the plaintiff, entered discussions with the defendant which are the subject of this litigation. In its defence, the defendant agrees that verbal discussions took place with Mr McKay on behalf of the plaintiff. There does not appear to be any doubt that the defendant 'knew' who Mr McKay was and his relationship to the plaintiff.
Further, the defendant had previously agreed for Mr McKay to personally provide security for the defendants costs up to the pre‑trial conference. If the defendant 'knew nothing about Mr McKay', I doubt that it would have agreed for him to provide a personal undertaking for costs at that time.
I therefore cannot accept that the defendant 'knows nothing about Mr McKay' as submitted by defence counsel and given his standing with the plaintiff, I am satisfied that he stands to benefit from the litigation if the plaintiff is successful.
In oral submissions, defence counsel argued that the proposed undertaking by the plaintiff cannot be accepted as I have not been provided with the loan agreement between Mr McKay and the NAB, that the appraisal provided by the plaintiff is not a valuation and should not be accepted as evidence of the value of the Property, that the appraisal does not advise of the connection between Mr McKay and the Property and that there has been no statement of assets and liabilities of Mr McKay to show his actual financial position.
I reject the defendant's propositions. Firstly, it is clear from 'RBM1' of the McKay Affidavit that Mr McKay is the registered proprietor of the Property and that the only encumbrance is a mortgage to the NAB and that the balance of the loan, as at 31 December 2021, is $709,846,26 ('RBM3' of the McKay Affidavit).
It is also clear from 'RBM2' of the McKay Affidavit that the appraisal is indeed in respect to the Property and on page two notes that the Property is owned by Mr McKay. I am satisfied and I accept in the absence of any other evidence to the contrary that the value of the Property is between $1,700,000 to $1,950,000, with a sale price in the current market of between $1,500,000 and $1,700,000.
There is no requirement that the person proffering the guarantee must provide full financial records. I must however be satisfied that there is sufficient funds, which can be readily realised, to satisfy any costs order against the plaintiff.
I am therefore satisfied, on the evidence before me, that Mr McKay has the means to satisfy any costs order against the plaintiff and that the normal processes of the court would be available within the jurisdiction for enforcement of any order for costs made against the plaintiff.
Conclusion
On the basis that the plaintiff concedes that the threshold test has been met and there is no contention that some form of security for costs is appropriate in these circumstances, I am of the opinion that the plaintiff ought provide security for costs in this matter.
The question is the form of that security and whether an undertaking from Mr McKay is enough to satisfy the security. As Pritchard J outlined in Knights Capital Group Ltd v Bajada & Associates Pty Ltd [No 2] [2017] WASC 245 [48] - [58] 'The Court has a discretion as to how the security for costs should be provided'. In referring to Hargrave J in DIF III Global Co‑Investments Fund LP v BBLP LLC [2016] VSC 401 [40], Pritchard J observed that:
… in exercising its broad discretion as to the form of security … the Court will usually apply the following principles:
(1)The plaintiff is entitled to propose security in the form least disadvantageous to it;
(2)The plaintiff bears a 'practical onus' of establishing that the proposed security is adequate and does not impose and 'unacceptable disadvantage' on the defendant;
(3)In order to be adequate, the proposed security must satisfy the protective object of a security for costs order, namely, to provide a fund or asset against which a successful defendant can readily enforce an order for costs against the plaintiff; and
(4)Based on these and any other relevant considerations, the Court will determine how justice is best served in the particular circumstances of the case.
Taking these comments into consideration, and for the reasons outlined above, I am of the opinion that the undertaking by Mr McKay as proposed by the plaintiff constitutes an adequate form of security in these circumstances.
Further for the reasons outlined above, I am of the opinion that the defendant's costs of trial are overestimated and that a more realistic assessment of the defendant's costs for trial is in the vicinity of $65,000. Therefore, an amount of $35,000 for security is appropriate.
The order that I make is:
1.Within 7 days, Mr Robert Bruce McKay, files a written undertaking to the court that he will:
(a)pay any taxed costs ordered against the plaintiff from the date of the undertaking, up to the amount of $35,000; and
(b)not sell, encumber or otherwise deal with the Property at 520 Flowery Patch Road, Watercarrin until the conclusion of District Court of Western Australia proceedings CIV 881 of 2021.
I will hear the parties as to costs.
I certify that the preceding paragraph(s) comprise the reasons for decision of the District Court of Western Australia.
MB
Associate to Registrar
15 FEBRUARY 2022
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