Australian Reliance Group Pty Ltd v Coverforce Insurance Brokers Victoria Pty Ltd [No 5]
[2017] WASC 171
•23 JUNE 2017
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: AUSTRALIAN RELIANCE GROUP PTY LTD -v- COVERFORCE INSURANCE BROKERS VICTORIA PTY LTD [No 5] [2017] WASC 171
CORAM: BANKS-SMITH J
HEARD: 7 JUNE 2017
DELIVERED : 23 JUNE 2017
FILE NO/S: COR 35 of 2016
BETWEEN: AUSTRALIAN RELIANCE GROUP PTY LTD
Plaintiff
AND
COVERFORCE INSURANCE BROKERS VICTORIA PTY LTD
First DefendantBYRON DREAMING PTY LTD (as Trustee for the Malady Family Trust)
Second DefendantSUN DEVIL INVESTMENTS PTY LTD (as Trustee for the JG Neate Family Trust)
Third DefendantROBERT CARLTON HOWARTH (as Trustee for the Howarth No.1 Trust)
Fourth DefendantCOVERFORCE VICTORIA HOLDINGS PTY LTD
Fifth Defendant
Catchwords:
Practice and procedure - Security for costs - Whether threshold satisfied - Exercise of discretion - Turns on own facts
Legislation:
Corporations Act 2001 (Cth), s 1335
Result:
Application successful
Security ordered
Category: B
Representation:
Counsel:
Plaintiff: Mr M L Bennett
First Defendant : Mr S A Vandongen SC
Second Defendant : Mr S A Vandongen SC
Third Defendant : Mr S A Vandongen SC
Fourth Defendant : Mr S A Vandongen SC
Fifth Defendant : Mr S A Vandongen SC
Solicitors:
Plaintiff: Bennett + Co
First Defendant : Gilbert + Tobin
Second Defendant : Gilbert + Tobin
Third Defendant : Gilbert + Tobin
Fourth Defendant : Gilbert + Tobin
Fifth Defendant : Gilbert + Tobin
Case(s) referred to in judgment(s):
Ailakis v Olivero [2013] WASCA 91
Australian Reliance Group Pty Ltd v Coverforce Insurance Brokers Victoria Pty Ltd [2016] WASC 244
Australian Reliance Group Pty Ltd v Coverforce Insurance Brokers Victoria Pty Ltd [No 4] [2017] WASC 147
BPM Pty Ltd v HPM Pty Ltd (1996) 14 ACLC 857, 860; Sent v Jet Corporation of Australia Pty Ltd (1984) 2 FCR 201
Brundza v Robbie & Co (No 2) [1952] HCA 49 ; (1952) 88 CLR 171
Christou v Stanton Partners Australia Pty Ltd [2011] WASCA 176
FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69; (2000) 22 WAR 241
LPH Developments Pty Ltd v Jameson Moore Pty Ltd [No 2] [2017] WASC 128
Pravenkav Group Pty Ltd v Diploma Construction (WA) Pty Ltd (No 2) [2014] WASCA 106
Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [2013] WASC 57
Youlden Enterprises Pty Ltd v Health Solutions (WA) Pty Ltd [2006] WASC 161; (2006) 33 WAR 1
BANKS-SMITH J:
Introduction
This is the defendants' application for security for costs pursuant to s 1335(1) of the Corporations Act2001 (Cth) and O 25 of the Rules of the Supreme Court1971 (WA) (RSC).
Background
The factual background to these proceedings is set out in Australian Reliance Group Pty Ltd v Coverforce Insurance Brokers Victoria Pty Ltd.[1]
[1] Australian Reliance Group Pty Ltd v Coverforce Insurance Brokers Victoria Pty Ltd [2016] WASC 244.
The background to this application is set out in Australian Reliance Group Pty Ltd v Coverforce Insurance Brokers Victoria Pty Ltd [No 4][2] (subpoena reasons). In that decision, I ordered that three subpoenas issued in support of this application be set aside. In short, the subpoenas sought production of an array of financial information from ARG and certain third parties but in terms that were unnecessarily broad and oppressive.
[2] Australian Reliance Group Pty Ltd v Coverforce Insurance Brokers Victoria Pty Ltd [No 4] [2017] WASC 147.
The decision of Martino J in Vantage Holdings Group Pty Ltd v Donnelly[3] (Vantage proceedings) is also relevant. ARG is the third plaintiff in those proceedings.
[3] Vantage Holdings Group Pty Ltd v Donnelly [2016] WASC 311.
Those decisions provide relevant context and inform these reasons. I do not propose to repeat the findings in detail.
Evidence on the application for security
The defendants rely on two affidavits of their solicitor, Ms Dunn.[4] The first Dunn affidavit indicates the following:
(a)ARG is part of a group of companies referred to as the Vantage Group. Vantage Holdings Group Pty Ltd is the sole shareholder of ARG. As at September 2015, ARG owned shares in six related companies, although two of those are now insolvent and ARG has since disposed of its shares in two others;
(b)ARG does not own any real property in Western Australia;
(c)PPSR searches indicate that ARG has not granted any security interest over personal property owned by it; and
(d)there is no evidence of trading.
[4] Affidavit of Rebecca Dunn filed 1 March 2017 and affidavit of Rebecca Dunn filed 28 April 2017.
The first Dunn affidavit also attaches communications between the parties' solicitors seeking copies of financial information, similar to that later sought by subpoena. The defendants declined to provide such information. It is fair to say that the parties were some distance apart on the issue of onus and whether ARG was obliged to volunteer information as to how it would meet any adverse costs orders.
ARG expressed concern at the inclusion in the first Dunn affidavit of what it characterized as conferral correspondence. It properly referred to Supreme Court Consolidated Practice Direction 4.3.2 (9), which is to the effect that affidavits filed in connection with proceedings should not contain any references to conferral material without leave of the court. Conferral plays an essential role in case management in this court's Commercial and Managed Cases list. I accept that the defendants should have been more circumspect in attaching some of the communications to their affidavits, at least without leave and that there should have been proper conferral by telephone.[5] However, my decision in this case is not determined by those matters.
[5] Youlden Enterprises Pty Ltd v Health Solutions (WA) Pty Ltd [2006] WASC 161; (2006) 33 WAR 1 [3] - [5].
The second Dunn affidavit attaches various discovered documents and the transcript of the hearing before Martino J in the Vantage proceedings. Those documents and the transcript relate to the overarching position of the Vantage Group, rather than ARG.
ARG relies upon two affidavits of their solicitor, Mr Tharby,[6] and one sworn by its sole director, Mr Jonathan Asquith.[7]
[6] Affidavit of Alexander Tharby filed 6 April 2017 and affidavit of Alexander Tharby filed 23 May 2017.
[7] Affidavit of Jonathon Asquith filed 6 April 2017.
The first Tharby affidavit attaches various documents said to be relevant to any assessment of the merits of the case it brings against the defendants.
The second Tharby affidavit attaches (relevantly) various documents relevant to its submission as to delay, and said to show that there was information available to the defendants well before the date of filing the application for security that put it on notice of, in essence, the Vantage proceedings.
Mr Asquith's affidavit is of particular relevance. He refers to a potential source of funds available to ARG by way of a sale of shares owned by a subsidiary, Austin Financial Services Pty Ltd (Austin), in a company known as Super Advice Corporate Services Pty Ltd (Super Advice). Mr Asquith says that in March 2016, he rejected an offer by Mr Allan Rickerby on behalf of the majority shareholder of Super Advice to purchase Austin's shares in Super Advice for $800,000, but based on his discussions with Mr Rickerby he believes Austin's shares in Super Advice could be sold to the majority shareholder for a similar price in the future. He says:[8]
If an adverse costs order was made against ARG, the Super Advice shares could be sold by Austin with the funds being remitted to ARG and applied to the award of costs.
[8] Asquith affidavit [9].
Mr Asquith does not provide any other financial information about ARG or refer to any other potential source available to ARG to meet any adverse costs order.
Principles
The court has an inherent and a statutory jurisdiction to make an order requiring a plaintiff to provide security for costs. The defendants rely primarily on s 1335(1) of the Corporations Act, which 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.
The precondition for the exercise of the court’s jurisdiction under s 1335(1), sometimes described as the threshold jurisdictional question, is whether it appears by credible testimony that there is reason to believe that the plaintiff corporation will be unable to pay the defendant’s costs.
The qualification of the word 'testimony' by the word 'credible' does not require that an evidentiary burden is undertaken by the parties seeking the order. As held in FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd,[9] there is no such burden as nothing is sought to be proved. The court said:[10]
The legislature that first enacted the words, used them to replace words referring to proof and in our view, were dispensing with a requirement to prove a matter. What is required is an evaluation of the evidence led by the applicant to see whether that leads to a reason to believe that the corporation will be unable to pay the costs of the defendant.
[9] FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69; (2000) 22 WAR 241.
[10] FFE Minerals [24] (Pidgeon and Owen JJ).
If that condition is satisfied, the court has jurisdiction to make an order for security for costs, and the question is whether it should exercise its discretion to make such an order.
Where the threshold jurisdiction to award security is made out, this in itself provides a substantial factor in the exercise of discretion in favour of the applicant.[11]
[11] Pravenkav Group Pty Ltd v Diploma Construction (WA) Pty Ltd (No 2) [2014] WASCA 106 [19]; BPM Pty Ltd v HPM Pty Ltd (1996) 14 ACLC 857, 860; Sent v Jet Corporation of Australia Pty Ltd (1984) 2 FCR 201, 215 ‑ 217.
Various factors may be relevant to that exercise of discretion. For example, in Westonia Earthmoving Pty Ltd v Cliffs Asia,[12] Edelman J set out a list of non‑exclusive factors relevant to the exercise of the discretion to order security.
[12] Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [2013] WASC 57.
The defendants also rely on O 25 RSC. However, the factors relevant to the exercise of discretion under s 1335(1) of the Corporations Act will also be relevant to the exercise of discretion under O 25 RSC and the parties did not suggest any different matters particular to the O 25 jurisdiction arose in this case.
The court does not generally set out to give a complete indemnity for costs to the applicant.[13]
[13] Brundza v Robbie & Co (No 2) [1952] HCA 49 ; (1952) 88 CLR 171, 175
The parties' arguments
At the hearing, senior counsel for the defendants properly refined the basis upon which the defendants sought security for costs. The live contentions were:
(a)there is no record of any real property or other assets available to ARG;
(b)having regard to the decision of Martino J in the Vantage proceedings, Vantage and ARG have significant financial difficulties;
(c)ARG has put forward only one source for the potential payment of adverse costs orders and that source is not reliable; and
(d)ARG has failed or refused to provide other financial information that has been requested and a court should in the circumstances more readily draw inferences as to ARG's financial position.
ARG contended that:
(a)there was insufficient evidence from which the jurisdictional threshold could be surmounted;
(b)therefore, it bore no evidentiary onus and was not obliged to provide evidence as to its financial position;
(c)in any event, it had pointed to an available asset;
(d)the defendants knew that ARG had received significant funds by way of the sale of its assets;
(e)it had made an open offer to provide security in the sum of $100,000 and that money would be paid from its own bank account; and
(j)the application was brought late and delay weighs against an order being made.
In the event an order was to be made, the parties were at odds as to quantum. The defendants sought a complete indemnity of its estimated costs and disbursements of $334,754. That estimate was based on a 10 day trial and included costs from discovery until trial.
ARG estimates a 5 day trial and assessed costs and disbursements to trial of $103,124.
The threshold question
Public records do not reveal assets
It is not uncommon that public records will not reveal ownership of assets. As Pullin JA said in Ailakis v Olivero:[14]
Often, it will not be clear whether an appellant is impoverished or unable to pay costs ordered against him. Proof that an appellant owns no land and has no assets which can be identified by reference to public registers does not prove that an appellant is impoverished. Such an appellant may have access to other assets which are invisible to the respondent. Proof that the respondent cannot, after enquiry, find evidence that the appellants owned land or assets provides only some evidence that the appellant may be unable or may fail to pay costs ordered against him
[14] Ailakis v Olivero [2013] WASCA 91 [14].
In Pravenkav, Murphy JA was concerned with circumstances where land title searches revealed no property and a PPSR search only indicated a lack of the grant of any security interest. In addition, there was non‑compliance with a demand for payment of costs. Murphy JA referred to Ailakis and considered there was credible evidence that there was reason to believe the appellant would be unable to pay adverse costs orders. Whilst both Ailakis and Pravenkav considered applications in the context of appeals, in Pravenkav Murphy JA expressly applied Pullin JA's statement in the context of s 1335 of the Corporations Act.[15]
[15] Pravenkav [34].
In short, it is not accurate to assert that evidence of searches of public records that fail to ascertain assets is of no evidentiary value. As Pullin JA held, it provides evidence although 'only some evidence'.
In FFE Minerals, there was evidence of a limited share capital and no land on the register. There was no evidence of an apparent lack of other assets. The company filed no answering affidavit. Counsel for the company suggested land may be held beneficially, and so an absence of land was not probative. The Court of Appeal said:[16]
We consider that the absence of land combined with the low share capital does give rise to an appearance that there is reason to believe that there are no assets in this area to meet the costs. It is open to the company to negate such belief by identifying sufficient land to meet the costs and the company alone would have that knowledge. We consider the evidence led combined with the absence of evidence in objection gives rise to the necessary belief that the company is not in a position to pay the costs referred to.
[16] FFE Minerals [25] (Pidgeon & Owen JJ).
ARG relies in particular on Christou v Stanton Partners Australia Pty Ltd,[17] and the following statement by Newnes JA:[18]
I also do not accept that the filing by the appellants of an application for security for costs gave rise to some obligation on the second respondent to provide a full account of its financial position. That is to put the cart before the horse. In order to enliven the court's discretion there must be material before it which is sufficiently persuasive to permit a rational belief to be formed that, if ordered to do so, the second respondent would be unable to pay the appellants' costs if the second respondent were to be unsuccessful in the action; mere speculation as to the second respondent's insolvency or financial difficulties is not sufficient: see Warren Mitchell Pty Ltd v Australian Maritime Officers' Union; Idoport Pty Ltd v National Australia Bank Ltd. In circumstances where the appellants had not troubled themselves to put any material before the court relating to the second respondent's financial position, it was not incumbent upon the second respondent to fill that gap.
[17] Christou v Stanton Partners Australia Pty Ltd [2011] WASCA 176.
[18] Christou [34] (citations omitted).
There is an important distinction between the facts of Christou and those considered in, for example, FFE Minerals and in this case. In Christou, the party seeking security had not adduced any evidence about the financial position of the respondent company. It does not follow from that statement that where an applicant has adduced evidence, the respondent may safely decline to adduce any evidence at all.
The Vantage Proceedings
As noted in the subpoena reasons,[19] the plaintiffs in the Vantage proceedings allege that the defendants in those proceedings caused funds to be removed from trust accounts maintained by the second and third plaintiffs (materially, Vantage is the first plaintiff and ARG is the fourth plaintiff in the Vantage proceedings). The defendants point to a statement by Martino J that:[20]
It appears that the plaintiff companies had significant financial problems from at least August 2014.
[19] Australian Reliance Group Pty Ltd v Coverforce Insurance Brokers Victoria Pty Ltd [No 4] [20].
[20] Vantage Holdings Group Pty Ltd v Donnelly [77].
However, a careful reading of the case suggests that his Honour's comment was directed at the financial position of the second and third plaintiffs. The financial position of Vantage and ARG is not materially discussed. As to ARG there is little comment, other than to note potential risk as to repayment to it of a $10,000 loan.[21]
[21] Vantage Holdings Group Pty Ltd v Donnelly [18], [19], [36], [65], [66], [69] ‑ [75], [78].
Whilst I take into account that the alleged conduct of the defendants in the Vantage proceedings may have affected the financial position of the Vantage Group as a whole, the reasons in that decision do not assist to any real level in assessing the current financial position of ARG for the purpose of this application.
The Asquith affidavit
By the Asquith affidavit, ARG has elected to give evidence in the security application. Counsel for ARG sought to narrow the relevance of the affidavit, asserting that it indicated that Ms Dunn's testimony was not credible as she did not depose to the existence of an asset of one of the identified subsidiary companies, Austin.
For a start, even had Ms Dunn given such evidence, it would not inform the court as to whether or on what basis Austin would make assets or funds available to ARG. Further, the lack of such evidence does not detract from the other evidence provided by way of the two Dunn affidavits. But more to the point, on its face the Asquith affidavit was provided for the express purpose of disclosing to the court that there is an asset potentially available to meet a costs order. Mr Asquith says as much, as is apparent from the extract set out above.
Mr Asquith's evidence as to a source of funds is not persuasive. As noted in the subpoena reasons, the evidence does not rise above the following:
(a)no contract to sell the Super Advice shares was made in March 2016;
(b)potentially no contract will be made in the future; but
(c)there is a possibility there may be a contract in the future.
The absence of any clear statement as to ARG's ability to access funds from a proposed sale of Austin's shares in Super Advice means I can give that factor little weight in assessing the financial position of ARG.
To the contrary, it is telling that Mr Asquith has identified an alleged source but does not provide any other evidence as to ARG's financial position or any other assets to which it has access in order to meet an adverse costs order.
ARG made various submissions as to money said to be available from ARG's bank account to meet its offer to provide $100,000 and as to the fact that proceeds had been received from the sale of its business,[22] but there was no evidence as to those matters (including the allocation of the proceeds) despite Mr Asquith clearly being in a position to provide it. ARG chose to refrain from addressing such matters by way of admissible evidence.
Threshold is met
[22] ts 163; ARG's Outline [28], [32].
In my view an evaluation of the evidence provided by Ms Dunn gives rise to an appearance that there is reason to believe there are no assets available to meet an adverse costs order. In particular, I take into account the evidence that searches reveal no available assets and, as did the Court of Appeal in FFE Mining, note the absence of evidence in objection. The only evidence produced referred to a source of funds, access to which is highly speculative. I therefore consider I have jurisdiction to order security.
Discretion
The application for security was filed in February 2017. The proceedings by then had been on foot for twelve months, and the history of interlocutory proceedings since then is summarised in the subpoena reasons.
All interlocutory contests have no doubt involved considerable expense for both parties, taking into account the number of hearings and the quantity of affidavits and submissions that have been filed in that period. The defendants say that as at November 2016 they have incurred fees of $500,000.[23]
[23] First Dunn affidavit, 160.
The defendants say the catalyst for applying for security was the discovery of the reasons in the Vantage proceedings. ARG contends that the delay in bringing the security application weighs against ordering security; that Gilbert + Tobin act for parties in the Vantage proceedings; that there was media publicity about those proceedings. The defendants say an information wall is in place within Gilbert + Tobin such that the solicitors in this matter were not aware of the Vantage proceedings.
Delay may be an important consideration in the determination of an application for security because it is capable of causing prejudice to the plaintiff.[24]
[24] Christou [20] - [23]; LPH Developments Pty Ltd v Jameson Moore Pty Ltd [No 2] [2017] WASC 128 [34] - [37].
I do not consider there is prejudice to ARG such that security should be denied. I take into account the following matters:
(a)ARG does not say it would have acted differently had the application been brought earlier;
(b)the period since proceedings were instituted has been occupied with numerous contested interlocutory applications in which both parties have participated. It is not as if the defendants have been inactive;
(c)the defendants have explained the catalyst for investigating the financial position of ARG; and
(d)the matter is not yet listed for trial and so there is no real inconvenience to the court.
Other factors relevant to the exercise of discretion were dealt with in the written submissions, particularly the merits of the claim and that certain costs orders against the parties had been made and either paid or remained to be paid. In the end they were neutral factors.
The defendants accepted that I need not form a concluded view as to the merits of the case.[25] In any event, I am satisfied that the plaintiff has a bona fide and prima facie case.
[25] ts 149.
Further, ARG does not contend that an order to provide security would stifle the pursuit of its claim.
In the circumstances, and taking into account that the threshold jurisdiction has been made out, I consider it appropriate to order that there be security for costs.
Quantum
The difference in the estimate of likely costs prepared by ARG and the defendants can be explained primarily by the different estimates for length of trial. The parties are at odds as to the likely number of witnesses who will be called to give evidence at trial. It is also likely there will be some expert evidence, at least on ARG's side, but that position is not yet clear. These matters inform the likely length of trial.
There were also different views as to whether some of the items claimed by the defendants were properly claimed. It is not necessary to determine at a precise level of detail the likely costs in order to form a view as to an appropriate amount by way of security.
In this case, I consider an appropriate amount of security for costs is $100,000, such sum to be paid into court. My assessment is based on a 5 day trial and taking into account the complexities of the case. There is no evidence that ARG's case would be frustrated by an order for security in that amount.
I will give the parties liberty to apply to vary the amount of security once witness statements and any expert reports are exchanged, and the estimate of the number of trial dates becomes more concrete.
The parties should confer and provide a minute of proposed orders.
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