Barjeba Pty Ltd v Bogg
[2019] WASC 368
•14 OCTOBER 2019
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: BARJEBA PTY LTD -v- BOGG [2019] WASC 368
CORAM: REGISTRAR WHITBY
HEARD: 1 OCTOBER 2019
DELIVERED : 14 OCTOBER 2019
PUBLISHED : 14 OCTOBER 2019
FILE NO/S: COR 261 of 2017
BETWEEN: BARJEBA PTY LTD
Plaintiff
AND
KIM BOGG
First Defendant
JOHN PATRICK MCMAHON
Third Defendant
Catchwords:
Costs - Security for costs - Corporations Act 2001 (Cth) s 1335 - Factors to consider in awarding security for costs order
Legislation:
Corporations Act 2001 (Cth) s 1335
Result:
Application granted
Category: B
Representation:
Counsel:
| Plaintiff | : | Mr M Robson |
| First Defendant | : | Mr P T Arns |
| Third Defendant | : | No appearance |
Solicitors:
| Plaintiff | : | Robson Legal |
| First Defendant | : | Arns & Associates |
| Third Defendant | : | Not applicable |
Case(s) referred to in decision(s):
BBC Nominees (WA) Pty Ltd v Yangebup Developments Pty Ltd [2008] WASC 81
Buckley v Bennell Design & Construction Pty Ltd (1974) 1 ACLR 301
Dalma Formwork Pty Limited v Concrete Constructions Group Ltd [1998] NSWSC 472
FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69; (2000) 22 WAR 241
Livingston Pty Ltd v Kliger Partners [2008] VSCA 93; (2008) 20 VR 377
Melunu Pty Ltd v Claron Constructions Pty Ltd [2004] NSWSC 1064
Sugarloaf Hill Nominees Pty Ltd v Reward Projects Ltd [2011] WASC 19
Tirops Safety Technology Pty Ltd & Ors v Lazer Safe Pty Ltd & Ors [2005] WASC 164
Tradestock Pty Ltd v TNT (Management) Pty Ltd (1977) 14 ALR 52
Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [2013] WASC 57
REGISTRAR WHITBY:
This is the first defendant's application dated 9 August 2019 for further security for costs from the plaintiff in the sum of $61,152. The application is made pursuant to s 1335 of the Corporations Act 2001 (Cth) (the Act).
In support of the application, the first defendant relies upon:
(a)the affidavits of Kim Bogg sworn 10 January 2018, 14 March 2018 and 8 August 2019; and
(b)the affidavit of Paul Patrick McMahon sworn 3 April 2018.
On 30 August 2019, the plaintiff filed an objection to the first defendant's application. In support of its objection, the plaintiff relies upon:
(a)the affidavit of Joseph Hai Tuyet Ho sworn 28 August 2019;
(b)the affidavits of Paul Patrick McMahon sworn 3 April 2018 and 28 August 2019;
(c)the affidavit of Michael Anthony Robson sworn 17 November 2017; and
(d)the affidavit of Kim Bogg sworn 6 February 2019.
Each of the affidavits is read into evidence, save for following portions of the affidavit of Kim Bogg sworn on 8 August 2019 (which were struck out by consent):
(a)the last sentence of paragraph 9;
(b)the second, third and fourth sentences of subparagraph 10(e);
(c)reference to Attachment KB4 in subparagraph 10(f);
(d)the second, third and fourth sentences of subparagraph 10(i) and reference to Attachment KB7 therein;
(e)the entirety of subparagraph 10(j); and
(f)the entireties of subparagraphs 10(m)(ii)‑(iii).
Background
The proceedings were commenced by originating process filed 17 November 2018. On 11 January 2018 Master Sanderson made orders that the matter proceed on pleadings.
The plaintiff filed its statement of claim on 1 February 2018 and the first defendant filed a defence on 6 March 2018.
On 22 May 2018, Acting Master Strk made orders, inter alia, that:
(a)[t]he plaintiff pay $20,000 into court as security for the first defendant's costs of the proceedings up to and including mediation…; and
(b)the first defendant have liberty to apply to increase the amount of security for her costs of the action.
The plaintiff paid the sum of $20,000 into court on 29 May 2018.
The parties attended mediation in this court on 29 March 2019. The matter did not resolve and the mediation was adjourned sine die.
On 7 June 2019 the plaintiff filed an amended statement of claim. The amended statement of claim discontinued the claim against the second defendant.
On 2 August 2019, Principal Registrar Strk ordered that the action against the second defendant be discontinued and that the plaintiff pay the second defendant's costs of the action.
Security for costs - legal principles
Section 1335(1) of the Act 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, or her or its defence, require sufficient security to be given for those costs and stay all proceedings until security is given.
In order for the court's jurisdiction to order security for costs to be enlivened, it must appear, by credible testimony, that there is reason to believe that the plaintiff will not be able to pay a costs order if it is unsuccessful. This is referred to as the "threshold requirement".[1]
[1] Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [2013] WASC 57 [4]; FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69; (2000) 22 WAR 241, 247 [20]; Livingston Pty Ltd v Kliger Partners [2008] VSCA 93; (2008) 20 VR 377, 382 [15].
If the threshold requirement is met, the court has a discretion as to whether to award security for costs. The discretion is unfettered, but must be exercised judicially, having regard to established principles.[2]
[2] Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [5].
In exercising its discretion, the court must strike a balance between ensuring the defendant is adequately protected in the event it receives a favourable costs order, and causing injustice to a company by preventing it from continuing its action where it does not have the means to do so.[3]
[3] Buckley v Bennell Design & Construction Pty Ltd (1974) 1 ACLR 301 [304]; Tradestock Pty Ltd v TNT (Management) Pty Ltd (1977) 14 ALR 52 [56]; Tirops Safety Technology Pty Ltd & Ors v Lazer Safe Pty Ltd & Ors [2005] WASC 164 [43].
In Westonia Earthmoving Pty Ltd,[4] Edelmen J listed the "most commonly cited, non‑exclusive factors" (emphasis added) which guide the court's discretion as follows;
[4] Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd.
(i)the strength and bona fides of the plaintiff's case;
(ii)the likelihood of the plaintiff being unable to pay the defendant's costs;
(iii)whether the plaintiff's impecuniosity was caused by the defendant's conduct which is the subject of the claim;
(iv)whether the application for security is oppressive;
(v)whether the award of security would deny an impecunious applicant a right to litigate;
(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;
(viii)whether the applicant was in substance a plaintiff or the proceedings were defensive in the sense of directly resisting proceedings already brought or seeking to halt the defendant's self-help procedures;
(ix)whether the application for security had been brought promptly;
(x)whether the applicant has any rights which it can exercise against assets of the plaintiff to satisfy an order for costs in its favour; and
(xi)any factors relating to the public interest.[5]
[5] Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [6].
Is the "threshold requirement" satisfied?
Acting Master Strk, in making an order on 22 May 2018 for the plaintiff to pay security for the first defendant's costs, found "that there is credible testimony that there was reason to believe that the plaintiff will be unable to pay the first defendant's costs if it is successful in its defence".[6]
[6] (ex tempore judgment, Barjeba Pty ltd v Bogg & Ors, Supreme Court of Western Australia, 22 May 2018) 9.
As at 22 May 2018, Robson Legal held an amount of $50,000 in trust for the Plaintiff.[7] As at 28 August 2019, Robson Legal held an amount of $61,715.25 in trust for the Plaintiff.[8] Aside from this fact, there is no evidence to suggest a change in the financial circumstances of the plaintiff.
[7] Affidavit of Paul Patrick McMahon sworn 3 April 2018 par 51.
[8] Affidavit of Paul Patrick McMahon sworn 28 August 2019 par 7.
Acting Master Strk, in deciding the initial application by the first defendant for security for costs, said, in relation to those moneys held on trust (being a loan from Paul Patrick McMahon to the Plaintiff):
In circumstances where there is no evidence of the terms of the loan by which $50,000 is held in Mr Robson's trust account nor any evidence of the mobility of these funds, I find that the loan moneys in trust are not sufficient to disturb this finding. As such, the first defendant satisfies the threshold test for jurisdiction under section 1335(1).[9]
[9] (ex tempore judgment, Barjeba Pty ltd v Bogg & Ors, Supreme Court of Western Australia, 22 May 2018) 9.
In my view, there is no change in circumstances between the first defendant's initial application for security for costs and this application. I am satisfied that the threshold requirement is met and that the court has jurisdiction under s 1335(1) of the Act to award security for costs.
The question then is whether I should exercise that discretion to make such an order.
Should the discretion to award security for costs be exercised?
The first defendant bears the onus of satisfying the Court that the discretion to order security for costs should be exercised.[10]
[10] Sugarloaf Hill Nominees Pty Ltd v Reward Projects Ltd [2011] WASC 19 [34(f)].
The factors relied upon by each of the first defendant and the plaintiff either in support of, or in opposition to, the application are considered below.
The strength and bona fides of the plaintiff's claim
The plaintiff's amended statement of claim introduces a new cause of action against the first defendant. That plaintiff alleges that the first defendant, in her capacity as a director of Timefocus Pty Ltd (formerly the Second Defendant) (Timefocus), co‑owned by Timefocus, sold a property located at Nautilus Crescent in Scarborough (Scarborough Property) at an undervalue thereby causing monetary loss to Timefocus. The plaintiff alleges that this conduct constitutes a breach by the first defendant of s 182(1) of the Act.[11]
[11] Plaintiff’s amended statement of claim dated 7 June 2019 paras 11-16, 84 and 85.
The first defendant denies that the Scarborough Property was sold at an undervalue and relies upon a property appraisal obtained from Davey Real Estate dated 7 February 2014 as evidence in support of its defence to this claim.[12]
[12] Affidavit of Kim Bogg sworn 8 August 2019 at Annexure KV5.
Further, Counsel for the first defendant submits that the plaintiff's claim is misconceived because directors owe duties to the company and shareholders as a whole, rather than to individual shareholders. Therefore, the appropriate plaintiff here is Timefocus.
The plaintiff also alleges that it has a strong claim against the first defendant, the sole director of Timefocus, and the third defendant, a former director of Timefocus, for relief from statutory oppression pursuant to s 232 of the Act.[13] The damage that results from this cause of action is the loss of dividends, in the total amount of $700,250, that the plaintiff ought to have received as a shareholder of Timefocus.[14]
[13] Plaintiff’s amended statement of claim filed 1 June 2019 para 106.
[14] Plaintiff’s amended statement of claim filed 1 June 2019 para 106.1.
By way of defence to the claim for loss of dividends, the first defendant submits that, by virtue of the fact that the third defendant was a common director of the plaintiff and of Timefocus from 2001 to 2017,[15] the plaintiff is estopped from denying it had knowledge of the fact that dividends were not paid to the plaintiff by Timefocus and the plaintiff acquiesced to that position.
[15] Affidavit of Kim Bogg sworn 14 March 2018 para 2.
It is neither possible nor appropriate, given the stage of these proceedings, that I express a view on the merits of the plaintiff's claims against the first defendant. However, where the defendant has not sought summary judgment against the plaintiff, or to strike out the amended statement of claim, I am of the view that the plaintiff's claims are brought bona fide and on their face may have merit.
The likely ability of the plaintiff to pay any costs order and whether the litigation would be stultified
I have already determined, in deciding the threshold question of jurisdiction, that the plaintiff is likely to be unable to meet any costs order. This is also a significant factor which the court must take into account in exercising its discretion to award security for costs.[16]
[16] Tirops Safety Technology Pty Ltd & Ors v Lazer Safe Pty Ltd & Ors [2005] WASC 164 [44].
In Tirops,[17] Master Newnes made the following comments in relation to an order for security for costs having the effect of stultifying the plaintiff's action:
The fact that ordering security might frustrate the plaintiffs' claim is an important consideration but it does not inevitably mean that an order for security should be refused. … Whether an order for security would have the effect of stultifying the action raises the question of whether those who stand behind the corporate plaintiffs have the means to provide appropriate security. [45]
In Bell Wholesale Co Pty Ltd v Gates Export Corporation (No 2) (1984) 2 FCR 1, the Full Court of the Federal Court said: 'In our opinion a court is not justified in declining to order security on the ground that to do so will frustrate the litigation unless a company in the position of the appellant here establishes that those who stand behind it and who will benefit from the litigation if it is successful (whether they be shareholders or creditors or, as in this case, beneficiaries under a trust) are also without means. It is not for the party seeking security to raise the matter; it is an essential part of the case of a company seeking to resist an order for security on the ground that the granting of security will frustrate the litigation to raise the issue of the impecuniosity of those whom the litigation will benefit and to prove the necessary facts.' [46]
It is therefore incumbent upon a plaintiff who wishes to resist an application for security to put before the Court a full and frank statement of the assets and liabilities of the shareholders and creditors of the plaintiff. … Unless a plaintiff establishes that those who stand behind it and who will benefit from the litigation if it is successful are also without means, no conclusion can properly be reached that the effect of an order for security will be to frustrate the plaintiff's claim. [47]
Whether the plaintiffs' impecuniosity was caused by the defendants' wrongful conduct is a relevant consideration on an application for security for costs. … But it is not to be considered in isolation and it must be considered together with the issue of whether the effect of an order for security will be to stultify the action. If that is not the case, or has not been shown to be the case, the fact that the defendant has caused the plaintiffs' own impecuniosity will hardly be good reason to decline security. … The plaintiffs bear an evidentiary onus to show that the defendants' wrongful actions have brought about their lack of mean. [48] (citations omitted)
[17] Tirops Safety Technology Pty Ltd & Ors v Lazer Safe Pty Ltd & Ors [2005] WASC 164.
Mr Paul McMahon, as a shareholder and sole director of the plaintiff, stands to benefit from this litigation if the plaintiff is successful.[18] The plaintiff has not adduced any evidence that Mr McMahon, or any other shareholder of the plaintiff, is without means such that any of them are unable to fund the ongoing litigation. In the absence of such evidence I am unable to conclude that the effect of an order for security for costs would be to stultify the action.
Personal undertaking
[18] Affidavit of Paul Patrick McMahon sworn 2 April 2018 para 52.
Mr McMahon, the director of the plaintiff, has provided a personal undertaking to satisfy any adverse costs order.[19]
[19] Plaintiff’s Sole Director's Undertaking to First Defendant for their (sic) costs filed 30 August 2019.
An important factor in assessing whether a personal undertaking can stand in the place of a security for costs order, is the value of that undertaking and the means of the person who has provided it.[20]
[20] BBC Nominees (WA) Pty Ltd v Yangebup Developments Pty Ltd [2008] WASC 81 [35]; Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [41].
The personal undertaking of Mr McMahon is filed, presumably, to provide the first defendant with comfort that any costs order in favour of the first defendant could be paid. However, as I have previously observed, there is no evidence adduced in relation Mr McMahon's means to satisfy that personal undertaking.
Counsel for the first defendant submits, that in the absence of any evidence of Mr McMahon's means, I am to assume that he does not have the capacity to satisfy an adverse costs order.
I consider the personal undertaking of Mr McMahon has very little weight in circumstances where I have been provided with no evidence that he can satisfy that undertaking.
The cause of the plaintiff's impecuniosity
The plaintiff submits the reason for its impecuniosity is a result of the conduct of the directors of Timefocus, one being the first defendant. The submission is that, if the plaintiff had of received the payment of dividends that it ought have, being over $700,000, it would be able to meet an any adverse costs order.[21]
[21] ts 58.
In Melunu P ty Ltd v Claron Constructions Pty Ltd,[22] Brownie AJ said the submission that a defendant is the cause of a plaintiff's impecuniosity:
[S]eems to be made frequently in response to an application for security for costs. I respectfully agree with the decision of Rolfe J in Dalma Formwork Pty Limited v Concrete Constructions Group Ltd[23], where his Honour said that a respondent to a motion for security for costs relying upon this as a ground for resistance, must establish a real causal connection between the conduct and impecuniosity which, in the exercise of the Court's discretion, would make it unjust to require security, and it must be established that the applicant for security for costs has been guilty of some form of misconduct or unacceptable business dealings qua the respondent, such as in this case, inappropriately making claims for and receiving monies for variations, which payments caused the respondent's impecuniosity. Mere general assertions, not supported by evidence, will not suffice. To hold to the contrary would be to defeat the purpose of the rule and to the section.
[22]Melunu Pty Ltd v Claron Constructions Pty Ltd [2004] NSWSC 1064 [31].
[23]Dalma Formwork Pty Limited v Concrete Constructions Group Ltd [1998] NSWSC 472.
These observations are pertinent in this case. A mere assertion that the plaintiff is only impecunious due to the failure to receive dividends is not sufficient to satisfy me, in the exercise of my discretion, that it would be unjust to require the plaintiff to provide security for costs.
Oppression of the application
The plaintiff submits the application by the first defendant for security for costs is oppressive given the conduct of the first defendant as a director of Timefocus.[24] I understand the essence of this submission to be that the first defendant has brought this application for the sole purpose of preventing the plaintiff from pursuing its claims.
[24] ts 58.
Although the first defendant has not yet filed a defence to the plaintiff's amended statement of claim, the defences foreshadowed by counsel for the first defendant include:
(a)the Scarborough Property was sold at market value;[25]
(b)the plaintiff does not have standing to commence a cause of action for loss suffered by Timefocus;[26] and
(c)by virtue of the fact that the third defendant was a common director of the plaintiff and of Timefocus from 2001 to 2017, the plaintiff is estopped from denying that it had knowledge that dividends were not paid to the plaintiff by Timefocus and that the plaintiff acquiesced to that position.[27]
[25] Affidavit of Kim Bogg sworn 8 August 2019 at Annexure KB7.
[26] Submission of first defendant dated 12 August 2019 para 14.
[27] ts 44.
In my view, there is no basis upon which I should conclude that the first defendant does not have a meritorious defence. There is also no suggestion the first defendant has conducted the litigation in a manner that has brought about unnecessary delay or cost.
I do not accept the plaintiff's submission that the first defendant's application is oppressive.
Conclusion - security for costs
Having considered all of the factors relevant to the exercise of the court's discretion to award security for costs, I find that the first defendant is entitled to an order for further security for costs. It is therefore, necessary to consider the amount of security.
Quantum of security for costs
The first defendant seeks further security for costs up to, but excluding trial, in the amount of $61,152.[28] This amount is comprised by the following items:
(a)Amended Defence: $3,000
(b)Discovery: $3,500
(c)Chamber Appearances: $10,344
(d)Trial Preparation: $41,800
(e)Listing conference: $2,508
[28] Affidavit of Kim Bogg sworn 14 March 2018 at Annexure KB9.
The amount sought for the Chamber Appearances is based on four short directions hearing and two special appointments.
The amount sought for trial preparation is based on proofing four witnesses (50 hours); drafting outline of submissions (30 hours); and briefing counsel (20 hours).
Counsel for the first defendant submits that the issues of law and fact are complex and that the time and resources to get the matter up for trial will be substantial.[29]
[29] First defendant's submissions dated 12 August 2019 para 19.
Counsel for the plaintiff submits that the amount sought by way of security for costs is not appropriate for the following reasons:
(a)discovery has largely been completed;
(b)no explanation is given for the necessity for two special appointments;
(c)no explanation is provided for why counsel is sought to be briefed;
(d)in the absence of an amended defence, it is not possible to determine the quantum of security; and
(e)given the court has changed its practice so that witness statements are not filed before trial,[30] very little work is now required up to the entry for trial.
[30] Supreme Court Practice Direction 4.5.
I make the following observations in relation to the quantum of security for costs:
(a)the first defendant is required to file an amended defence by reason of the amended statement of claim. Given a new cause of action is claimed by the plaintiff, an allowance of $3,000 is reasonable for an amended defence;
(b)due to the amendment to pleadings, discovery is not complete. An allowance of $3,500 is reasonable for further discovery;
(c)I accept that, in the absence of any further explanation, there should be no allowance for two special appointments. In the event that interlocutory applications are brought by either party, the judicial officer determining those applications will be in a position to make the appropriate orders as to costs. I make an allowance of $2,000 for case management conferences (this includes what the first defendant refers to as a 'listings conference');
(d)I do not agree with the submission of counsel for the plaintiff that the effect of Supreme Court Practice Direction 4.5 requires very little work up the entry for trial. PD 4.5 requires that, inter alia:
8. A witness outline must clearly identify all the topics in respect of which evidence will be given and the substance of that evidence, including the substance of each important conversation.
(e)The work undertaken by solicitors in obtaining the necessary evidence to prepare a witness outline is not necessarily any less work than is required to prepare a witness statement;
(f)it is reasonable for the first defendant to brief counsel;
(g)I consider that an amount of $41,800 for costs associated with trial preparation is not an unreasonable estimate.
The total amount of security that the plaintiff is required to provide is $50,300.
I also consider that it is appropriate, once the pleadings have closed and discovery has been completed, that the first defendant have liberty to apply for further security in respect of expert evidence costs.
I will now hear the parties as to the time within which the plaintiff is to provide the security for costs, and the costs of this application.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
EP
Associate to Registrar Whitby11 OCTOBER 2019
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