Armada Balnaves Pte Ltd v Woodside Energy Julimar Pty Ltd
[2016] WASC 353
•2 NOVEMBER 2016
ARMADA BALNAVES PTE LTD -v- WOODSIDE ENERGY JULIMAR PTY LTD [2016] WASC 353
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2016] WASC 353 | |
| Case No: | CIV:1408/2016 | 19 SEPTEMBER 2016 | |
| Coram: | KENNETH MARTIN J | 2/11/16 | |
| 26 | Judgment Part: | 1 of 1 | |
| Result: | Security ordered | ||
| B | |||
| PDF Version |
| Parties: | ARMADA BALNAVES PTE LTD WOODSIDE ENERGY JULIMAR PTY LTD |
Catchwords: | Security of costs Foreign corporation One asset ship-owning corporation incorporated in Singapore No assets in Australia No attachable assets in Singapore Vessel presently moored offshore in Indonesian waters Hypothetical judgment and enforcement issues offshore Interim security ordered to discovery completion Turns on own facts |
Legislation: | Nil |
Case References: | Century Insurance Ltd (in provisional liquidation) v New Zealand Guardian Trust Ltd (Unreported, BC 9705139, 23 - 27 June 1997) Energy Drilling Inc v Petroz NL (1989) ATPR 40-954 Farmitalia Carlo Erba SrL v Delta West Pty Ltd (1994) 28 IPR 336 Ginza Pte Ltd v Vista Corporation Pty Ltd (Unreported, WASC, Library No 980438, 6 August 1998) Logue v Hansen Technologies Ltd [2003] FCA 81; (2003) 125 FCR 590 Mabrouk Minerals Pty Ltd v Mabrouk Holdings Ltd [2008] WASC 132 PS Chellaram & Co Ltd v China Ocean Shipping Co (1991) 102 ALR 321 Swansdale Pty Ltd v Whitcrest Pty Ltd [2010] WASCA 129 Tan Kah Hock v AWAP SGT 26 Investment Ltd [2008] FCA 540 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Plaintiff
AND
WOODSIDE ENERGY JULIMAR PTY LTD
Defendant
Catchwords:
Security of costs - Foreign corporation - One asset ship-owning corporation incorporated in Singapore - No assets in Australia - No attachable assets in Singapore - Vessel presently moored offshore in Indonesian waters - Hypothetical judgment and enforcement issues offshore - Interim security ordered to discovery completion - Turns on own facts
Legislation:
Nil
Result:
Security ordered
Category: B
Representation:
Counsel:
Plaintiff : Mr N M H Kirby & Mr N J Cooper
Defendant : Mr K J Mony De Kerloy & Ms O K Walton
Solicitors:
Plaintiff : Clayton Utz
Defendant : Herbert Smith Freehills
Case(s) referred to in judgment(s):
Century Insurance Ltd (in provisional liquidation) v New Zealand Guardian Trust Ltd (Unreported, BC 9705139, 23 - 27 June 1997)
Energy Drilling Inc v Petroz NL (1989) ATPR 40-954
Farmitalia Carlo Erba SrL v Delta West Pty Ltd (1994) 28 IPR 336
Ginza Pte Ltd v Vista Corporation Pty Ltd (Unreported, WASC, Library No 980438, 6 August 1998)
Logue v Hansen Technologies Ltd [2003] FCA 81; (2003) 125 FCR 590
Mabrouk Minerals Pty Ltd v Mabrouk Holdings Ltd [2008] WASC 132
PS Chellaram & Co Ltd v China Ocean Shipping Co (1991) 102 ALR 321
Swansdale Pty Ltd v Whitcrest Pty Ltd [2010] WASCA 129
Tan Kah Hock v AWAP SGT 26 Investment Ltd [2008] FCA 540
1 KENNETH MARTIN J: By the defendant's amended chamber summons of 14 September 2016, it applies pursuant to O 25 of the Rules of the Supreme Court 1971 (WA), alternatively by s 1335 of the Corporations Act 2001 (Cth), for an order for security for costs against the plaintiff. Security in the amount of $577,256.93 (or such sum as the court otherwise thinks fit) is sought by the defendant.
2 The level of security is sought presently by the defendant effectively on an interim basis, up until the parties complete discovery. The application is brought in the context of what is high financial stakes commercial litigation commenced out of this court, in which the plaintiff (a Singaporean corporation) brings suit against the defendant by writ of 14 March 2016, seeking massive damages for alleged breach of contract.
The underlying litigious dispute begun by the plaintiff
3 By the plaintiff's statement of claim filed 20 April 2016, it may be seen that the plaintiff claims a level of liquidated funds said to have fallen due under a (now) terminated services agreement (the Services Agreement), being US$7.7 million (including GST) (par 1 of its prayer for relief). But well beyond that liquidated sum, it also seeks breach of contract damages - potentially of a magnitude exceeding US$275,813,698.63 (par 46(b) of the statement of claim).
4 In very short summary, the plaintiff by its statement of claim contends that the defendant's conduct of 4 March 2016, in purporting to give the plaintiff 30 days' notice to terminate the Services Agreement (which Agreement had been novated to the defendant by Apache Energy Ltd at the effective date of 16 April 2015) was unjustified.
5 The plaintiff contends there was then no 'Termination Event' presenting, open to be invoked by the defendant against it, under the Services Agreement at 4 March 2016. The plaintiff says there was no failure on its part at that time to satisfactorily complete a series of technical tests - in accord with Annexure B - Scope of Work under the Services Agreement.
6 The plaintiff advances to contend that the defendant's conduct, by (wrongly, it says) purporting to terminate the Services Agreement on 4 March 2016, evinced the defendant's intention to no longer be bound by its terms. This was, it pleads, a repudiation of the Services Agreement, which breach conduct the plaintiff then, as the other innocent contractual party confronted with such breach conduct, elected to accept, on 11 March 2016 - thereby putting at an end, on both sides, all obligations of future performance under the Services Agreement and, as well, thereupon conferring rights to recover 'loss of bargain' breach damages on the plaintiff - as it now seeks.
7 Hence, the plaintiff claims general damages arising out of the repudiatory breach conduct of the defendant (which it accepted) - and which would appear, by the particulars to par 46, to include a loss of a termination payment of US$275,813,698.63, but even beyond that level of alleged loss, further additional damages claimed for overall loss of bargain - see particulars at subpar 46(c).
The security for costs application
8 The defendant requested that the plaintiff provide it with security for costs by letter of 22 April 2016. This was expressly declined. The defendant then proceeded in accord with my case management directions issued in the action to file its defence, on 2 June 2016.
Defence issues
9 The defence plea as filed contains a number of factual admissions. But essentially, it must fundamentally join issue over the plaintiff's contention there was any repudiatory breach by it of the Services Agreement, by its conduct in early March 2016 - by it giving notice to contractually terminate the Services Agreement with the plaintiff for cause, at that time.
10 By par 42 of its defence, the defendant accepts it issued a notice of termination on 4 March 2016 to the plaintiff. But it also pleads that this notice was properly issued and fully supportable at the time, with the notice being issued in accord with article 10.3(xiii) of the Services Agreement. Consequently, the defendant pleads that the notice of termination it issued was valid and effective - as proper (30 days') written notice, thereby bringing the Service Agreement's future performance obligations to an end, on 3 April 2016 (par 42(b) of the defence).
11 The defence also rejects all the assertions advanced by the plaintiff to the effect that either the conduct of Apache prior to the Service Agreement being novated to the defendant, or by the defendant's subsequent conduct - have amounted to anything constituting the unequivocal election by the defendant to affirm the Services Agreement.
12 The defendant disputes there was ever any relevant conduct manifested by it (or by Apache) that was at all inconsistent with it later on exercising its right to contractually terminate the ongoing performance of the Services Agreement for cause, via article 10.3(xiii).
13 The defendant also contends by par 23(d) of the defence, that the plaintiff did not satisfactorily complete certain 'Acceptance Tests', as was required under article 10.3(xiii) on or after 21 May 2015, or at all.
14 Furthermore, the defendant takes strong issue with any contention that its 4 March 2016 termination notice as given to the plaintiff was repudiatory in character: see defence pars 43 and 44.
Complexity of the looming trial
15 The rival legal contentions made by the parties as they manifest currently via their pleadings, look reasonably straightforward - at least in terms of their articulation (ie, a justifiable contractual termination for alleged serious failure to perform, countered by assertions of election and affirmation leading to an alleged repudiatory breach and to consequent claims both to accrued contractual entitlements pre-termination and a significant level of loss of bargain damages). Nevertheless, it emerges from the pleadings that there does present some considerable scope for both technical and factual disputation, at any trial. This is discernible out of the exercise of contrasting the plaintiff's par 38 and par 39 pleas in its statement of claim, against responsive contentions found pleaded under pars 38 to 42 of the defence.
16 Under par 38 of the statement of claim the plaintiff contends that the defendant required it to achieve an emergency shut down (ESD) (performance standard target pressure) in less than 15 minutes, which the plaintiff says it achieved, despite 'asserting it was not required'. At par 39, the plaintiff contends that on 16 October 2015, the defendant required the plaintiff to re-perform an Operational Endurance Trial (said to be a trial referred to in cl 10.6(b) of the Scope of Works), being one of the constituent trials as a part of what is referred to as the Acceptance Test.
17 Responding to those pleas the defendant admits par 38 of the statement of claim in relation to its directions in relation to the emergency shutdown (ESD). But the defendant advances at par 39 to contend that it had required the plaintiff to perform an Operational Endurance Trial, 'because the plaintiff had failed to complete the Operational Endurance Trial and consequently the Acceptance Tests before [16 October 2015]'.
18 The defendant further pleads (at par 41) that the plaintiff 'did not on 16 September 2015 or any other time satisfactorily complete the Operational Endurance Trial or the Acceptance Tests'. That plea was made in response to par 41 of the statement of claim - by which the plaintiff asserts that '[i]n any event, on 16 September 2015, by the completion of the Operational Endurance Trial, the plaintiff successfully completed the Acceptance Test and would, upon completion of the punch list items, achieve Practical Completion'.
19 Consequently, there presents from the current pleadings what I would assess as considerable scope for factual disputation arising between these parties of a highly technical character at a trial. There are issues presenting as to assessing the past capacity of the plaintiff to provide the defendant offshore support services through a floating production storage and offloading (FPSO) facility, as well as services at the Balnaves Field. Consequently, there exists a considerable potential for the parties to seek to lead rival factual expert evidence, as well as for expert clashes over the asserted issues as to a successful completion (or otherwise) of a so-called Operational Endurance Trial, and an allegedly successful completion of the Acceptance Test (under article 10.3(xiii)) and finally, the achievement of Practical Completion (upon completion of the punch list items).
20 Those factual and technical issues (not to mention damages analyses) present now to me as being in significant dispute. They look to be of some evidentiary complexity and, further, of some technical and scientific magnitude.
21 Such considerations carry with them significant cost and resourcing repercussions in terms of trial preparation, particularly as asserted by the defendant, in terms of significant levels of professional work required in the engaging, assembling, accessing, culling, reviewing and completing of its obligations under the discovery process for trial.
Materials on this application
22 As I indicated, the present application by the defendant seeking security for costs from the plaintiff under its amended chamber summons, is largely opposed (with a minor qualification). In that respect it is necessary to note that the plaintiff is a corporation, incorporated in the Republic of Singapore.
23 Materially to the present application seeking security, it is accepted that the plaintiff owns no assets present within the geographical confines of the Australian States or Territories. In fact, it is shown that the plaintiff essentially is a one ship or, a one main asset owning foreign corporation. The asset is an FPSO vessel, the Armada Claire, which on the basis of information put to me is said to have a market value in the vicinity of US$100 million and further, to be presently unencumbered by any mortgage or encumbrance.
24 The Armada Claire is a vessel registered in the Republic of the Marshall Islands (re-registered on 2 March 2012). It is a ship of 62,956 gross tonnes, having been built in South Korea in 1993. A certificate of ownership and encumbrance issued on 1 September 2016 indicates the vessel is owned by the plaintiff and that there are no registered mortgages, liens or other encumbrances (attachment KMM13 to Kathleen McNally's affidavit sworn 14 September 2016).
25 Further information provided by the plaintiff, in resisting this application, informs me the Armada Claire is currently located offshore, and within Indonesian waters. On 30 April 2016, the solicitors for the plaintiff informed the solicitors for the defendant that the Armada Claire was anchored 5 miles from Galang (an island south east of Batam in Indonesia) and further, that the vessel was 'not intended for it to be docked'.
Defendant's evidence
26 For the purpose of advancing this application for interim security for costs, the defendant reads and relies on three affidavits all affirmed by a legal practitioner solicitor engaged by the defendant's solicitor, Mr Christopher Guy Hicks. The three affidavits respectively were affirmed and filed on 21 July, 18 August and 9 September 2016.
27 I refer first to attachment CGH3 (page 222) to Mr Hicks' first affidavit. This is a letter from Herbert Smith Freehills of 22 April 2016 to the plaintiff's solicitors. As regards the issue of security for costs, the letter said:
Your client is domiciled in Singapore. As far as we are aware, it holds no significant fixed assets in Australia. Given the nature of this dispute, it is likely that our client's legal costs will be significant. Accordingly it is appropriate that your client give security for costs. Our client intends to apply for orders to this effect. Will your client consent to orders that it give security for costs?
28 The plaintiff's response through its solicitors to that request for security of 27 April 2016 is seen at attachment CGH4 (page 224) to Mr Hicks' affidavit. The plaintiff's lawyers responded in terms:
3. The order for security is discretionary. In this case, there are at least two reasons why it is not appropriate for the discretion to be exercised so as to require our client to provide security. First, a judgment for costs in the Supreme Court of Western Australia is enforceable in Singapore: see Foreign Judgments Act 1991 (Cth) and schedule 2 of the Foreign Judgments Regulations 1992 (Cth). Thus, a party obtaining judgment in Western Australia against a Singaporean company has a convenient method for recovering the judgment. The need to order security is therefore much reduced, and in this regard we refer you to the decision of Master Sanderson in Ginza Pte Ltd and Ors v Vista Corporation Pty Ltd (ACN 009 446 217) and Anor [1998] WASC 246 [sic].
- [Note: The citation should be Ginza Pte Ltd v Vista Corporation Pty Ltd (Unreported, WASC, Library No 980438, 6 August 1998).]
4. Second, our client has substantial assets - The Armada Claire FPSO …
Plaintiff's opposing materials
30 From the plaintiff's opposing perspective against any substantial security being ordered at this time, it filed two affidavits sworn by a Clayton Utz solicitor involved in the day-to-day conduct of the matter, Kathleen McNally. Her affidavits respectively of 4 August and 14 September 2016 were read and relied upon in resisting the defendant's application.
Objections
31 The plaintiff through counsel objected to certain asserted opinion evidence as found in Mr Hicks' first affidavit under his par 48. Mr Hicks had there deposed:
On the basis of my experience as set out in paragraph 1 above, I believe it would be practically and legally complex if not impossible, for the defendant to attempt to enforce an order for costs against The Armada Claire FPSO, given it is:
a) possibly encumbered;
b) at sea;
c) in Indonesia waters; and
d) not proposed to be docked.
32 As now seen, issue a) above, as regards possible encumbrance, has since been overtaken and has now fallen away - based upon the Republic of the Marshall Islands certificate of 1 September 2016 now produced showing the present absence of any registered mortgage. However, a continuing objection against Mr Hicks' residual evidence was pressed - purely upon his asserted lack of expertise to be expressing such opinions. Mr Hicks had deposed at par 1 that he was admitted as a legal practitioner in this State on 1 November 2012 and that he holds 'experience in commercial litigation'.
33 I indicated during the course of verbal arguments that I would not uphold this objection to Mr Hicks' expression of such an opinion, as regards difficulties in attempted judgment recovery or enforcement against a ship in underlying circumstances - as being 'practically and legally complex'.
34 As seen, the present application is advanced by the defendant, essentially on an alternative basis - under either RSC O 25 r 2(a), but as well under s 1335 of the Corporations Act.
35 The Corporations Act by s 1335(1) provides:
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. (My emphasis in bold)
36 The phrase 'reason to believe' used within s 1335(1) points to elements of prospectivity and projection being necessarily inherent in the process of evaluating a party's potential unsecured costs exposure, in the event a number of hypothesised future events ultimately come to pass in the litigation. The prospective assumptions required include the running of a (here, longish) trial to a judgment outcome, then success for the defendant at the trial defeating the plaintiff's action, then, orders for legal costs favouring the defendant as the successful party, end cost orders facilitating a taxable legal costs recovery beyond scale limits, and then, a taxation process (absent agreement) on the defendant's bill of costs - generating essentially the defendant's right to receive a fixed amount of assessed party to party legal costs. That costs award would then ultimately carry the status of a judgment sum favouring the defendant. But then it must be assumed that the costs amount having finally been assessed, quantified and demanded to be paid by the successful defendant, is ultimately not voluntarily paid by the plaintiff - requiring the enforcement of the judgment and to that end an offshore execution process to be necessary against a corporation holding no assets of value to attach in Australia.
37 The terms of s 1335(1) provide that a court holding jurisdiction should receive 'credible testimony', that in effect provides it with a basis for 'reason to believe' the plaintiff 'will be unable to pay'.
38 Here, on my analysis, the residual matters as assembled by Mr Hicks in his affidavit do fall within the scope of providing the court with credible testimony, upon the s 1335(1) issue, notwithstanding what is asserted to be Mr Hicks' (it is put) limited experience of commercial litigation, since his admission to practice in November 2012.
39 That qualifications criticism by the plaintiff, of course, needs to be tested against the content of the subject matter upon which Mr Hicks addressed himself. That was by reference to the factual matters he had assembled under subpars 48(b) through (d), in the assumed framework of his client, the defendant, hypothetically needing to execute against the plaintiff's significant offshore asset at some point well into the future, to enforce and recover upon a costs judgment as against what is a movable maritime asset, being the Armada Claire FPSO, now in Indonesian waters, but which is a vessel that is mobile and capable of navigating across the oceans of the world.
40 Potential enforceability pitfalls, in a process of possibly needing to execute upon a judgment for costs against such a mobile and international offshore asset, on my assessment, are trite and almost self-evident. This is an issue that I would expect that a competent law graduate, let alone a commercial litigation practitioner of a few years' exposure, should be well capable of providing some credible testimony upon - for the purpose of a s 1335(1) exercise. Consequently, I overruled that qualification objection to Mr Hicks' expertise as regards this issue at the hearing.
Rival written submissions
41 For the purpose of the application, I hold the parties' written submissions, which were exchanged under my prior directions, in the lead up to the hearing of the present application.
42 To that end, I hold the defendant's written submissions, asking for security for costs to be ordered on the basis of orders securing its position, up to the point of a completion of discovery.
43 The primary basis for the defendant's application is seen to be grounded on RSC O 25 r 2, which provides in terms:
2. Without limiting the generality of rule 1 the court may order security for costs to be furnished where the plaintiff -
(a) is ordinarily resident out of the jurisdiction, notwithstanding that he may be temporarily within the jurisdiction;
45 Whilst the jurisdiction of this court, under that rule to consider a security for costs application is engaged, I have not overlooked the general parameters towards a security for costs application, as dictated by O 25 r 1. That rule says, in effect, that an order for security is not to be made merely on account of the poverty of a plaintiff, or the likely inability of a plaintiff to pay legal costs which may ultimately be awarded. However, no such negative fiscal impairment considerations are said to arise here concerning this corporate plaintiff.
46 The nature of the exercise required of the court under O 25 once its jurisdiction is engaged, is ultimately discretionary. However, the requirements of O 25 r 3 are mandatory - providing that 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) where the normal processes of the court would be available within the jurisdiction for enforcement of any order for costs made against the plaintiff.
47 As regards those RSC O 25 r 3 required considerations, I approach the task upon a basis that both the plaintiff and the defendant can be assessed at this present time, by reference to their respective pleadings, as having articulated ostensibly respectable positions - giving rise to what I would assess as a significant underlying commercial dispute (in terms of the volume of money at stake and the underlying technical and factual complexity of the issues raised presently). It would not be out of place to describe this action as a mega-case. For a case of such dimensions, the more normative considerations require an expansion of their typical horizons. I am, in effect, dealing with very well-resourced corporate 'giants'.
48 As regards possible property within the local jurisdiction owned by the plaintiff to satisfy an end order for costs, if ever made, against the plaintiff, there is none. That question must be answered in the negative. No property of the plaintiff within Australia, or in Australian waters, has been identified. Nor is there any such property presently identified in the Republic of Singapore. The Armada Claire is, as mentioned, currently offshore, moored in Indonesian waters.
49 My attention has been drawn by the plaintiff to an undoubted future capacity to register a judgment of this court, then have it reciprocally enforced in the courts of Singapore - but that hypothecation raises considerations going well beyond the parameters of RSC O 25 r 3(b).
50 As regards r 3(c), that rule is directed at processes of the court 'within' the jurisdiction for the enforcement of a costs order against a plaintiff. Again the enquiry must be answered in the negative vis a vis this plaintiff.
Plaintiff's submissions opposing security
51 From the plaintiff's opposing perspective, I hold its written submissions of 15 September 2016 as respondent to the application for security.
52 The plaintiff would seek to put at issue the jurisdictional engagement here of s 1335(1) of the Corporations Act, on a basis there is no evidence the plaintiff 'will be unable to pay' the defendant's costs, if the defendant is successful.
53 The defendant's submissions, however, cannot and do not cavil over the jurisdictional engagement of this court under O 25 r 2(a) of the rules of court to order security.
54 The plaintiff's opposing position, albeit it altered considerably during the course of verbal argument, when assessed from its written submissions appeared to be tied to two significant negative factors advanced. First, was the asserted capacity to register and enforce in Singapore an Australian judgment obtained as a result of a costs order following upon a taxation after a trial outcome in this action favouring the defendant.
55 The other key negative factor the plaintiff raised to resist giving security for costs now, was that the defendant holds a parent company guarantee from its Malaysian parent corporation, Bumi Armada Berhad (Bumi). It says the plaintiff is a wholly owned subsidiary in what is a very substantial Malaysian based Bumi group, listed on the Malaysian stock exchange.
56 It is said that the Bumi group of companies, of which the plaintiff is a part, has a total equity of over US$1.7 billion and so, that the defendant now holds a secure parent company guarantee from Bumi, effectively extending to cover any adverse costs judgment, if ever ultimately issuing in this litigation against the plaintiff.
57 To that end, I was taken to terms of the parent guarantee during the course of arguments. However, it very soon appeared that by simply viewing the express terms of that instrument, that its scope of operations looked to me to be more limited than was being asserted. It looked, prima facie, to be directed only at providing assurances by Bumi, in respect of unperformed obligations arising out of the performance or non-performance of the plaintiff's obligations under the now terminated Services Agreement.
58 In other words, the responsiveness of this parent guarantee to the defendant in hypothesised circumstances of an adverse costs order, if ultimately ever made against the plaintiff, looked to me to be, prima facie, negative. That actually had been the submission advanced on the part of the defendant. Counsel for the plaintiff, Mr Kirby, did not really seek to persuade me otherwise, as regards the parent Bumi's guarantee's scope of application. Rather, he appeared to suggest that any notion the plaintiff or its parent, Bumi, would not voluntarily meet an adverse costs award (should such a wholly hypothetical scenario ever ultimately emerge, however many years down the track) was totally unthinkable, from a sensible commercial and reputational perspective. However, I do not accept that submission, confidently advanced as it was.
59 Mr Kirby then drew my attention to further developments, as regards the scope of the parent guarantee. In the first place he submitted that there had been augmentations to the breadth of the guarantee, in its wider reach to cover costs. This happened through, it was put, the plaintiff's solicitor's letter of 4 August 2016. A paragraph within that letter read:
Your client holds a parent company guarantee from Bumi Armada Berhad dated 1 July 2015 … For the avoidance of doubt, we confirm that Bumi Armada Berhad agrees that any legal costs awarded by the court falls within the ambit of this guarantee.
60 The content of that above statement within the Clayton Utz communication of 4 August 2016, presents to me as somewhat curious, as regards an exercise in the interpretation of the parent guarantee document. Issues of authority and clarity are seen to manifest. There are also possible arguments over the existence of the legal consideration to support such an expanded parental promise (if that is what is being made) on behalf of Bumi, if the sentence in the letter from Clayton Utz be so construed.
61 Unsurprisingly, this augmentation proposal had also been rejected by the defendant's legal advisers. Attachment CGH14 to Mr Hicks' affidavit of 5 August 2016 was a communication that read:
Suing on the guarantee would, itself, be a costly exercise. It would also be most uncertain. Notwithstanding Bumi's assurances, we think that it is more probable than not that the terms of the guarantee would not, in fact, cover our client's legal costs in this proceeding. Given the ambiguity in clause 6 of the guarantee, you have no doubt already identified that there is real uncertainty about the forum for the commencement of any proceedings concerning the guarantee.
As you would also be aware, there is no reciprocal enforcement arrangement between Australia and Malaysia. Accordingly, unless Bumi has sufficient fixed and permanent assets in Australia to cover any costs order, our client would be faced with the costs and uncertainty of separately suing Bumi and enforcing a judgment in a foreign court.
We do not understand why your client is resisting our client's application for relatively modest security for costs in relation to claims of about $400 million. As Ms McNally deposes in her affidavit, your client is the wholly-owned subsidiary of Bumi, which has assets of more than US$4 billion. That your client would have our client rely on a parent company guarantee to secure our client's costs, rather than pay money into court, is demonstrative of why our client made its application in the first place …
62 I agree with all those observations. The augmentation, on my assessment, is highly problematic in terms of the levels of comfort it carries on this issue.
63 The Clayton Utz communication also contained an offer by the plaintiff to pay US$25,000 into court. This amount was to secure the costs of the defendant is potentially registering a costs judgment in Singapore, for the purpose of ultimate enforcement, as regards a costs award in this litigation. That proposal was also rejected as an inadequate offer of security.
64 During the course of verbal submissions, Mr Kirby sought to elevate matters somewhat, beyond what had been offered to that point by the plaintiff, in the 4 August 2016 Clayton Utz letter to Herbert Smith Freehills.
65 During the course of his submissions Mr Kirby announced, having made reference to that 4 August correspondence, he was then instructed to proffer the undertaking (as I understood it on behalf of Bumi) that if the plaintiff did not comply in meeting an order for costs, ever ultimately made against it in the litigation, that Bumi would meet those obligations.
66 That verbally expressed Bumi undertaking emerging via counsel in that ad hoc fashion presented to me to be an undertaking being offered to the court. It rested at that point.
67 But in due course, counsel for the defendant, during his reply submissions, responded that the verbal Bumi undertaking was still unacceptable to his client. Counsel then drew my attention to observations by McHugh J, sitting as a single justice of the High Court in PS Chellaram & Co Ltd v China Ocean Shipping Co (1991) 102 ALR 321, 324, in the context of an order for security, sought by a respondent for the costs of a looming appeal, by reference to O 70 r 7 of the High Court Rules 2004 (Cth).
68 Notwithstanding that different appellate context, counsel for the defendant submitted as being instructive the observations by his Honour, rendered in the face of an undertaking offered by one of the appellant's shareholders, to personally meet the costs of that appeal up to a fixed amount, in the event the appeal should be unsuccessful. McHugh J had then observed:
Assuming that the court has power to accept Mr Chellaram's undertaking that he will meet any order for costs against the appellant up to the sum of $8250, it is evident that the difficulties of enforcing any undertaking given by him would be formidable. Mr Street contended that an order of this court requiring Mr Chellaram to give an undertaking to pay the costs of the respondents up to the sum of $8250 would be enforceable as a judgment under the Ordinance. But this contention misconceives the nature of an order or undertaking to a court to do an act or pay a sum of money. Breach of such an order or undertaking is a civil contempt of court enforceable by committal or sequestration of the contemnor's property. But it is a contempt of and, statute apart, enforceable only by the court which made the order or to whom the undertaking was given. Wide as the provisions of the Hong Kong Ordinance may be, they do not extend to the enforcement of orders or undertakings which are enforceable only by the institution of civil proceedings for contempt of court in a foreign jurisdiction. No point would be served in discussing the provisions of that Ordinance. It is enough to say that its principal object is to provide for the enforcement in Hong Kong of judgment debts obtained in the superior courts of any foreign country to which the Governor in Council has applied the provisions of the Ordinance. Any undertaking given by or on behalf of Mr Chellaram to this court would not be enforceable in Hong Kong (324).
69 McHugh J ultimately ordered the appellant to provide security for the costs of that appeal, in a form acceptable to the Registrar of that court.
70 Mr De Kerloy submitted that similar considerations arose here in respect of a rejection by his client and, he submitted, by the court of the late undertaking by the plaintiff's Malaysian parent corporation. That was the position, he said, sizeable as Bumi's group balance sheet asset position as a Malaysian-based corporation might otherwise present.
71 I must accept that submission, essentially for the reasons articulated by McHugh J in rejecting what was proposed on that application.
Security for costs: considerations
72 Before proceeding to a resolution of the present application, I should repeat that this was not an application for security where the plaintiff ever advanced a submission to the effect that it lacked the financial wherewithal to provide the quantum of security requested. Nor did the plaintiff submit that being ordered to provide such security as was requested would stultify the litigation it seeks to advance in Western Australia.
73 Nor has it been suggested by the plaintiff that there are any other live denial of access to justice considerations bearing against a rendering of an order for the level of security as the defendant requests at the present time. In fact, the overwhelming tenor of the opposing position as articulated on behalf of the plaintiff, was very much to the contrary. Its opposing position had manifested on a firmly stated basis that it was more than financially sound, both on a stand alone basis, but also through the strong fiscal support that it enjoyed as a subsidiary corporation, as a part of the Bumi group of Malaysian corporations. All this, the plaintiff had submitted, in effect, necessarily dictated the conclusion that it was essentially unthinkable that any future costs award, if ever made against it, would not be fully met, if such a contingency arose.
74 Furthermore, the plaintiff did not advance any submission of the nature sometimes encountered in resisting applications of this kind, to the effect that it had been the defendant's conduct, as the very subject matter of the underlying litigious dispute, which caused it the financial harm and thereby resulting in an inability or difficulty in providing security for costs. Again, no such submission was ever advanced here.
75 The plaintiff, in essence, points to its ownership of a very significant unencumbered maritime asset, the vessel Armada Claire FPSO, with a market value in the region of US$100 million (unencumbered) and thereby to the overall financial strength of its position.
76 Hence, it argues there is an absence of any need for, or a basis for, the court to make a security for costs order against it favouring the defendant.
Quantum of security for costs: issues
77 The plaintiff through counsel also sought to raise some quantum assessment criticisms, directed at the level of this interim tranche of security, currently requested by the defendant. He was critical of two reports found attached within Mr Hicks' affidavits from a local legal costs consultant, who had been engaged by the defendant to provide provisional costs assessments, chiefly associated with the process of filing a defence pleading and for the processes of completing discovery in this action.
78 There had been obtained an initial report from Ms Maria-Luisa Coulson, appended as attachment CGH13 to Mr Hicks' first affidavit of 21 July 2016. Subsequently, there was a revised report, prepared in the wake of Ms Coulson being advised that the quantity of potential documents requiring review from a discovery perspective, had been ascertained to be of considerably greater dimension than that provided under her initial instructions, at the time of her first report. Consequently, Mr Hicks' third affidavit attached an updated and revised report from Ms Coulson of 9 September 2016, which brought into alignment the increased magnitude of the projected discovery assessment task.
79 This all culminated in a fresh draft bill of costs appended to Ms Coulson's revised report. It shows an ultimate projection as to the trial costs and disbursements for the defendant up to the point of completing discovery, in the amount of $577,256.93. Mr Kirby rendered a series of verbal criticisms about projections contained within the revised report and underlying the appended draft bill.
80 I assess those quantum criticisms as essentially being of a petty and cavilling nature - particularly in a context of what is presently a unique civil dispute and its sizable accompanying documentary discovery magnitude. Given the massive financial amounts of damages presently at issue, the late criticisms presented as being of a nit-picking character, rather than raising substantive concerns.
81 Exercising an independent perspective within a case managed action in the CMC List, based on my own experiences of large scale commercial litigation, I am of a view that the range of projections within Ms Coulson's revised report are not at all unreasonable. They align with the scope of a challenging discovery exercise in magnitude of documentation to be reviewed and to be (sensibly and necessarily) conducted on an electronic basis - where potentially over 150,000 documents emanating from divergent sources, though the defendant now presents as being necessary for review in a professionally undertaken discovery exercise.
82 Moreover, the very nature of security of costs provision is not precisely arithmetical in character. The task essentially is one of discretionary judgment, reasonable estimation and projection. The costs materials assembled on the part of the defendant, in my view, do properly strive to be as reliable and methodical in their assembly as is possible. But, at the end of the day, the process inherently remains predictive and ultimately it is one involving a technique of judicious estimation.
83 I can now proceed to my final determinations in relation to the present application. I will approach the task primarily by reference to the primary platform relied on by the defendant for the application, namely under RSC O 25 r 2(a).
Determinations as to security
84 The following considerations, as already discussed, present to me as being most significant and determinative in the defendant's favour upon the present resisted application for security - by reference to an assessment of the level of legal costs expended in the litigation, up to the stage of a completion of discovery.
85 First, the jurisdiction of this court, as now seen, is clearly engaged under O 25 r 2(a). The plaintiff is a Singapore corporation. Jurisdictional engagement opens up the discretion for the court to render an order for security if, in the overall exercise of that discretion, such an order is assessed as appropriate.
86 Second, the jurisdiction of the court being engaged, I proceed on the basis there is no evidentiary presumption one way or the other, for or against a making of an order for security for costs. It is, of course, for an interlocutory applicant (here the defendant) to make out their case for such orders. But beyond that, the exercise remains discretionary. Each scenario requires a bespoken evaluation.
87 Third, that the plaintiff's corporate residence is out of the local jurisdiction is not of itself sufficient to ground the making of an order for security for costs, albeit it enlivens the court's jurisdiction to do that. However, an absence of any attachable or saleable assets within the local jurisdiction is of some weight as consideration towards the exercise of the discretion. This plaintiff holds no assets that have been identified as lying within this court's jurisdiction.
88 In Mabrouk Minerals Pty Ltd v Mabrouk Holdings Ltd [2008] WASC 132 Newnes J (as he then was) considered O 25 r 2(a). He approached that task, first, by reference to observations by Gummow J in Energy Drilling Inc v Petroz NL [1989] ATPR 40-418 [Note: The true citation is (1989) ATPR 40-954] then, by reference to some further observations taken from McHugh J's reasons in PS Chellarm & Co Ltd v China Ocean Shipping Co (other aspects of that decision concerning undertakings which I have already referred to earlier in these reasons).
89 I will set out [58] and [59] of Newnes J's reasons. His Honour said:
The fact that a plaintiff is ordinarily resident out of the jurisdiction is a ground upon which an application for security for costs may be granted: O 25 r 2(a). The basis of the rule in O 25 r 2(a) is the risk that either an order for costs is likely to be unenforceable or that it will be enforceable only by a significant expenditure of time and money: Berkeley Administration Inc v McClelland [1990] 1 All ER 958, 963. But while residence out of the jurisdiction enlivens the court's jurisdiction, it is not of itself a sufficient ground for making an order. Whether or not an order will be made will depend upon the circumstances of the case. In Energy Drilling Inc v Petroz NL [1989] ATPR 50,418, [Note: The correct citation is (1989) ATPR 40-954] Gummow J put the position as follows:
'The purpose of ordering security for costs against an applicant ordinarily resident outside the jurisdiction is to ensure that a successful respondent will have a fund available within the jurisdiction of this Court against which it can enforce the judgment for costs, so that the respondent does not bear the risk as to the certainty of enforcement in the foreign country and as to the time and complexity of the action there which might be necessary to effect enforcement: Kent Heating Ltd v Cook-on-Gas Products Pty Ltd (1984) 59 ALR 277 at 279. On the other hand, the mere circumstance that an applicant is resident outside the jurisdiction does not necessarily invite an exercise of discretion in favour of ordering security, the question being how justice will best be served in the particular case [50,422]'.
Where a party resident out of the jurisdiction has no assets within the jurisdiction, that will usually be a factor weighing heavily in favour of an order for security. In PS Chellaram & Co Ltd v China Ocean Shipping Co, McHugh J said:
… the fact that a party, bringing proceedings, is resident out of the jurisdiction and has no assets within the jurisdiction has been seen as a circumstance of great weight in determining whether an order for security for costs should be made. Indeed, for many years the practice has been to order such a party to provide security for costs unless that party can point to other circumstances which overcome the weight of the circumstance that that person is resident out of and has no assets within the jurisdiction. (323).
90 As already seen, this plaintiff holds no attachable assets within the Australian jurisdiction. Indeed, the significant asset of value it does own is the highly mobile FPSO vessel, the Armada Claire, currently located not in Singapore, but offshore, moored in Indonesian waters.
91 Those factors are significant and, on my view, ultimately determinative here in favour of upholding the application by the defendant for security for costs to be provided by this plaintiff, as requested. Such considerations are not counterbalanced, as was suggested, by the plaintiff's overall standing as a wholly owned subsidiary within the group of Bumi corporations, as a part of a Malaysian based group of companies.
92 Nor for reasons already explained, do the contractual terms of what I assess to be a likely non-responsive parent guarantee from Bumi to the defendant, assist the resistance: nor do attempted augmentations to the scope of that parental guarantee document, as proffered by the letter of 4 August 2016 from Clayton Utz. Nor does an unaccepted oral undertaking put to the court by counsel for the plaintiff on behalf of Bumi, as parent corporation of the plaintiff, redress what I assess as some significant potential concerning thwarted enforcement considerations towards an eventual costs judgment favouring the defendant. The likely inconvenience, time and expense hypothetically associated with this defendant in years to come ever needing to embark upon a hostile and opposed process of an overseas enforcement exercise to recoup from the plaintiff the costs awarded to it, are real concerns. They are not just hypothetical, concerns. No prudent commercial party would ignore such risks possibly jeopardising its long term cost recovery after a trial where it is successful (as is assumed).
93 The present action, on my assessment, raises a unique scenario of large scale commercial litigation, where each side is seen to be very well resourced from a legal representation and resourcing perspective. The 2016 commenced action is still in its relatively early stages. It presents as being of the genre of mega-litigation, needing to be assessed by reference of the high financial stakes at issue and to some underlying technical complexities of fact and expert evidence as they now present. That situation requires a bespoken evaluation of the dimensions of the action as regards legal costs. It does not set a future precedent for the ordering of security for costs in the more typical day-to-day commercial litigation scenarios - where the legal resourcing capabilities of each side are usually of a lesser magnitude.
94 A heavy emphasis of the plaintiff's asserted counterbalancing arguments in resisting security for costs, was directed towards a suggested availability of reciprocal recognition execution remedies for a local costs judgment award, either against the plaintiff personally in Singapore, or through a registered judgment in Singapore, or via the High Court admiralty jurisdiction of the Singapore courts, by the pursuit of in rem determination and realisation against the Armada Claire itself (plaintiff's counsel referring me during argument to the Singaporean High Court (Admiralty Jurisdiction) Act 1961,chapter 123 and in particular, s 3(1)(h) and s 4(2), (3) and (4)).
95 But rather than providing me with a level of comfort in terms of the utility of such a reciprocal enforcement of judgment regimes in Singapore, as was emphasised, the hypothetical consideration conducted towards a feasible longer term recovery of costs, under an overseas liquidation or a receivership scenario against this plaintiff, merely reinforced for me likely inconvenience, expense and delays associated with a local judgment creditor ever needing to go down that path to recover its costs against a recalcitrant party. This all arises in circumstances where I assess this plaintiff as being more than fiscally capable of procuring the security as requested - via its corporate parentage and patronage, and further, not to be remotely prejudiced at all, by providing within a few days the security requested in the order of AU$500,000.
96 This, I assess, could be pragmatically implemented, either by a payment into court or, as would seem even more feasible and cost effective, by a banker's guarantee given via an Australian or by an international banking institution that is acceptable to the defendant. The court's experience in similar bank guarantee scenarios is that such arrangements are well capable of being put in place speedily and with a minimum of fuss, when required.
Plaintiff's residual opposing submission: overseas registration and enforcement costs only
97 Finally, I need to deal with a submission by the plaintiff to the effect that a decision of this court, Ginza Pte Ltd v Vista Corporation Pty Ltd (Unreported, WASC, Library No 980438, 6 August 1998) ought persuade me that, if required, security ought only be ordered to the extent of US$25,000 - being an amount derived by reference to the assessed legal costs and disbursements for the ultimate registration of a costs judgment favouring the defendant in the Republic of Singapore, if necessary, at a future time. It does not.
98 I have examined that decision of the Master, delivered on 6 August 1998. It is immediately apparent that the underlying facts concerning what there was defective goods litigation, in comparison to the present dispute, was of a tiny magnitude (the defective goods claim of just under $140,000 for goods delivered).
99 The reasons in Ginza Pte Ltd are in two parts. The bulk of the reasons concern the plaintiff's application seeking security for costs, on the defendant's counterclaim. That was an application made pursuant to s 1335(1) of the Corporations Act. Most of the reasons assess that application, ultimately upholding it. But minor, concluding parts of the reasons concern the defendant's application seeking security for costs against the plaintiff's claim - advanced on the basis of RSO O 25 r 2(a). In that subsidiary context the learned Master had considered the position of the plaintiff, as a Singaporean corporation, rendering observations concerning the registration of a judgment in Singapore against a Singaporean company and concluding, '[t]he need to order security is much reduced'. He also observed that '[x]enophobia is not a ground upon which discretion can be exercised' (8). In the end, the Master was persuaded to order only the amount of $5,000 as security for the cost of taking the step of registering a judgment in Singapore.
100 The Ginza Pte Ltd decision is noted as one which 'turns on its own facts'. Axiomatically that must have been the case, since each security for costs application, as I have observed, always requires a bespoken analysis of its underlying facts and issues.
101 The underlying facts considered by the learned Master in that 1998 application present to me as being very different to this 2016 mega-dispute.
102 In 1997, in Century Insurance Ltd (in provisional liquidation) v New Zealand Guardian Trust Ltd (Unreported, BC 9705139, 23 - 27 June 1997), French J (as he then was), had ordered security, in the context of then O 28 r 3 of the Federal Court Rules 1997 (Cth), on an application brought against that plaintiff - a corporation resident outside of Australia. French J applied some earlier observations of Gummow J made in Energy Drilling Inc v Petroz NL, concerning the utility of insuring that there is a fund available within the jurisdiction, so that a respondent does not bear all the risk of uncertainty as to an enforcement in the foreign country and of the time and complexity of the action which might be necessary to enforce the judgment.
103 Century Insurance Ltd concerned cross-claimants, who appeared to be substantial companies who carried on significant business in Australia and holding substantial assets in New Zealand, but also with significant assets held by one corporation in Australia. French J nevertheless observed:
the enforcement of a judgment against either or both of the cross-claimants would involve some significant additional inconvenience to the cross-respondent that might not be faced were they resident in Australia with more readily realisable assets available in this country. That is a factor which may be taken into account in determining whether to order security for costs (4).
104 French J also referred to the finite risk of significant inconvenience and delay to the cross-respondent in recovering on a costs order, if the cross-claims were not satisfied voluntarily. He ultimately ordered security for costs in the amount of $50,000 to be given by a bank guarantee, or as otherwise agreed.
105 More recently, in the Federal Court, by reference to FCR O 28 r 3 Gilmour J in Tan Kah Hock v AWAP SGT 26 Investment Ltd [2008] FCA 540 applied observations of Heerey J made in Farmitalia Carlo Erba SrL v Delta West Pty Ltd (1994) 28 IPR 336, 342 whilst ordering security against a corporation. Gilmour J observed at [25]:
Heerey J having first considered Barton (Barton v Minister for Foreign Affairs (1984) 2 FCR 463) stated that merely showing, without more, that the relevant party was ordinarily resident in one of the countries listed in the Foreign Judgments Regulations was insufficient to meet the prima facie case established for the application of order 28 rule 3(1)(a). To conclude otherwise, his Honour observed, would amount to treating the Foreign Judgments Act or the Foreign Judgments Regulations as an amendment sub silentio of order 28 rule 3(1)(a) of the Rules. In that case there was no evidence that the applicant had assets available in Italy or in some other country or countries or, if it did, that Australian judgment would be enforceable in such other country or countries.
106 Those observations align with the evidentiary position here, should in due course an adverse costs judgment issued against this plaintiff be registered overseas in Singapore, or elsewhere. There is no evidence the plaintiff holds any significant assets in Singapore amenable to execution upon an Australian costs judgment that, in due course, might come to be registered in Singapore. In Logue v Hansen Technologies Ltd [2003] FCA 81; (2003) 125 FCR 590, Weinberg J referred to Farmitalia with apparent approval. I would respectfully agree with and adopt by analogy here, the observations by Heerey J in Farmitalia, as regards there being no sub silentio repeal of RSC O 25 r 2(a).
107 For present purposes, the evidence adduced demonstrates the major significant asset of the plaintiff, a Singaporean company, is just its FPSO vessel, the Armada Claire. But that vessel is not, on the evidence, within Singaporean waters. It lies offshore and within Indonesian waters. Consequently, the position is akin to that observed upon by Gilmour J, as regards non-availability of assets in Singapore amenable to an execution process upon a registered Australian judgment.
108 In all the circumstances then, there should follow an order for security for costs as sought by the defendant, made by reference to RSC O 25 r 2(a).
Section 1335(1)
109 It is strictly unnecessary for me to consider the alternative basis of the application, advanced pursuant to s 1335 of the Corporations Act. However, essentially for reasons as seen articulated in Swansdale Pty Ltd v Whitcrest Pty Ltd [2010] WASCA 129, towards the force of the phrase 'reason to believe' (there being sufficient 'credible testimony', as I assess it, from Mr Hicks' affidavit adduced on the part of the defendant) indicates what is the required exercise in projection.
110 The projection exercise necessarily must extend some distance to the future, on the already discussed multi-layered hypothesis of trial success for this defendant and then a significant eventual costs award issuing in its favour.
111 Upon that projected hypothetical scenario then, I ask whether there presents some 'reason to believe' this plaintiff 'will be unable to pay the costs of the defendant'. On my assessment, that question must be answered in the affirmative. The plaintiff is essentially a one asset ship-owning corporation which is basically a wholly owned subsidiary under the control of a large Malaysian parent. The evidence before the court presently is that the Armada Claire has previously been used as security for a loan or loans and was mortgaged to secure loans secured by that mortgage. The evidence is also that those secured loans have now been fully repaid, with the prior ship's mortgage discharged. But that may not always be so for the future. A ship is a highly mobile asset. A ship is also readily capable of being charged. An oceangoing ship can also incur liabilities such as via unforeseen exposures arising out of maritime lien scenarios. Moreover, one ship corporations or their assets are readily capable of being disposed of.
112 There is then, I conclude, sufficient reason 'to believe' that a one asset ship-owning corporation may in the future be unable to meet an adverse trial costs award, depending upon what happens over time, with its significant offshore asset. I do not assess the cost recovery concerns and consequent 'beliefs' in that quarter, as they are expressed by the defendant, as being bare paranoia. Rather, I assess them as entirely prudent future cost recovery considerations - in the nature of a prudent commercial risk management exercise, using permissible levels of foresight, with appropriate aversion to long term recovery risk.
Quantum of security
113 My assessment of the ad hoc verbal criticisms directed at the materials assembled by the defendant to support the security application was that they were rather petty and cavilling in nature, given the overall magnitude and bounds of the present litigation. They were not criticisms which had found any level of articulation in the written materials earlier submitted on the part of the plaintiff. I assessed them as only being carping criticisms, essentially made ad hoc, as they emerged verbally. In any event, I reject the criticism that the assumptions in Ms Coulson's expert costs assessment reports are unclear, or that their basis as projections was inadequately explained.
Orders
114 In all the circumstances, the plaintiff should provide the defendant with a first tranche of security for costs in the amount of AU$500,000, within the next 21 days. The parties can discuss, as between themselves, how this security amount is to be provided. As I have observed, an acceptable bank's guarantee would present to be the most efficacious mode of providing this initial tranche of security, as between the parties.
115 The defendant being successful in the end upon the application to obtain security from the plaintiff should also receive its costs associated with the contested interlocutory exercise. That should be, on my prima facie assessment, its taxed costs of the application quantified at a taxation conducted, absent agreement, without any otherwise applicable scale limits being applied in respect of the preparation for and the hearing over a day of this interlocutory application, where the dimensions of the contest and the issues raised support such special costs orders.
116 Upon receipt of these reasons, the parties should confer upon a minute of agreed orders implementing their terms. Absent agreement, the defendant as successful party should submit a minute of orders with a proposal as to whether any further hearing is required, or whether any residually contested issues as to orders and cost outcomes can be dealt with on the papers.
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