Deepsilver Pty Ltd v Aquatherm Australia Pty Ltd
[2007] WASCA 171
•17 AUGUST 2007
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
TITLE OF COURT : THE COURT OF APPEAL (WA)
CITATION: DEEPSILVER PTY LTD -v- AQUATHERM AUSTRALIA PTY LTD [2007] WASCA 171
CORAM: BUSS JA
HEARD: 30 JULY 2007
DELIVERED : 17 AUGUST 2007
FILE NO/S: CACV 40 of 2007
BETWEEN: DEEPSILVER PTY LTD
Appellant
AND
AQUATHERM AUSTRALIA PTY LTD
Respondent
ON APPEAL FROM:
Jurisdiction : DISTRICT COURT OF WESTERN AUSTRALIA
Coram :COMMISSIONER SCHOOMBEE
Citation :DEEPSILVER PTY LTD -v- AQUATHERM AUSTRALIA PTY LTD [2007] WADC 13
File No :CIV 2415 of 2003
Catchwords:
Security for costs - Respondent's application for security for costs of the appeal - Corporate appellant - Section 1335(1) of the Corporations Act 2001 (Cth) - Turns on own facts
Legislation:
Corporations Act 2001 (Cth), s 1335(1)
Rules of the Supreme Court 1971 (WA), O 63 r 10(5) (repealed)
Supreme Court (Court of Appeal) Rules 2005 (WA), r 3(1), r 44(1)
Result:
Application for security granted
Category: B
Representation:
Counsel:
Appellant: Mr D J Marsh
Respondent: Mr P Redding
Solicitors:
Appellant: Hotchkin Hanly
Respondent: Redding & Associates
Case(s) referred to in judgment(s):
Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485
Brundza v Robbie & Co (No 2) (1952) 88 CLR 171
Deepsilver Pty Ltd v Aquatherm Australia Pty Ltd [2007] WADC 13
FPM Constructions Pty Ltd v Council of the City of Blue Mountains [2005] NSWCA 147
Harrington Services Pty Ltd (in liq) v Harrington [2003] NSWCA 89
Joseph v Joseph [2007] WASCA 27
Mann v Dabelstein [2006] WASCA 176
Strata Consolidated (Australia) Pty Ltd v Bradshaw [2000] NSWCA 114
Strata Consolidated (Australia) Pty Ltd v Bradshaw [2000] NSWCA 225
Uptown Sydney Development Corporation Pty Ltd v Bank of New Zealand (No 1) (1993) 11 ACSR 300
Winnote Pty Ltd (in liq) v Page (2005) 64 NSWLR 244
BUSS JA: The appellant has appealed to this Court against a judgment of Commissioner Schoombee in the District Court: Deepsilver Pty Ltd v Aquatherm Australia Pty Ltd [2007] WADC 13. After a trial, the learned Commissioner dismissed the appellant's claim against the respondent and allowed the respondent's counterclaim.
By an application in the appeal, the respondent has applied for an order that the appellant provide security for the respondent's costs of the appeal. The respondent relies upon the power to order security which is conferred by s 1335(1) of the Corporations Act2001 (Cth) and also upon the power contained in r 44(1) of the Supreme Court (Court of Appeal) Rules 2005 read with par (f) of the definition of "interim order" in r 3(1) of those Rules.
Section 1335(1) of the Corporations Act
Section 1335(1) of the Corporations 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, her or its defence, require sufficient security to be given for those costs and stay all proceedings until the security is given."
In Uptown Sydney Development Corporation Pty Ltd v Bank of New Zealand (No 1) (1993) 11 ACSR 300, Kirby P doubted that s 1335(1) of the Corporations Law (which is identical to s 1335(1) of the Corporations Act) was applicable to appeals. His Honour said, at 302:
"The difficulty for the application of the section is presented by the use in it of the words 'plaintiff' and 'defendant' and the words 'action or other legal proceedings' and 'defence'. Those are words which, on their face, appear appropriate only to proceedings at first instance and not on appeal. A 'plaintiff' is a person who brings a plaint or action. On appeal, parties are normally described in this country as 'appellant' and 'respondent'. That would have been known to the legislature when it enacted s 1335(1) of the Corporations Law."
Kirby P did not express a concluded view on the point.
Subsequent decisions in New South Wales have held, however, that s 1335(1) of the Corporations Act, and its predecessor under the Corporations Law, apply to corporate appellants. See Strata Consolidated (Australia) Pty Ltd v Bradshaw [2000] NSWCA 114 and, on appeal, Strata Consolidated (Australia) Pty Ltd v Bradshaw [2000] NSWCA 225; Harrington Services Pty Ltd (in liq) v Harrington [2003] NSWCA 89; FPM Constructions Pty Ltd v Council of the City of Blue Mountains [2005] NSWCA 147; Winnote Pty Ltd (in liq) v Page (2005) 64 NSWLR 244.
In Winnote, Mason P said, at 248 [17] ‑ [18], in relation to the doubts expressed by Kirby P in Uptown Sydney Development:
"With respect to [Kirby P], this view does did [sic] not accord with the liberal, purposive approach consistently taken over many years to a provision that can be traced back as far as s 69 of the Companies Act 1862 (UK). With only one exception of which I am aware, courts in the United Kingdom and Australia have seen no difficulty in ordering security for costs against appellant companies for well over a century, usually invoking the provision explicitly (see Re Diamond Fuel Co (1879) 13 Ch D 400; Re Photographic Artists' Co‑Operative Supply Association (1883) 23 Ch D 370; Re Consolidated South Rand Mines Deep Ltd [1909] 1 Ch 491, Gemelle Investments Pty Ltd v Commissioner of Taxation (1982) 7 ACLR 3; 1 ACLC 470 and J & M O'Brien Enterprises Pty Ltd v Shell Co of Australia Ltd (1983) 70 FLR 261 (Bowen CJ)). The exception to the last line of cases is Sinclair v Glasgow & London Contract Corporation Ltd (1904) 6F (Ct of Sess) 818, a case in which the reasoning is not reported.
This Court has given the word 'plaintiff' in the provision an expansive meaning that extends to a defendant who has filed a crossclaim (Buckley v Bennell Design & Constructions Pty Ltd (1974) 1 ACLR 301)."
In my opinion, the reasoning of Mason P in Winnote is, with respect, persuasive, and the New South Wales authorities I have cited at [5] above should be followed in this State, especially as the issue concerns the proper construction and application of uniform national legislation. See Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485 at 492.
Rule 44(1) of the Court of Appeal Rules
By r 44(1) of the Court of Appeal Rules, read with par (f) of the definition of "interim order" in r 3(1) of those Rules, a respondent to an appeal may apply for an interim order that an appellant provide security for the respondent's costs of the appeal. A single Judge has jurisdiction to determine the application. The former O 63 r 10(5) of the Rules of the Supreme Court1971 (WA) empowered the Full Court, in special circumstances, to order that such security be given for the costs of an appeal as may be just. Under the Court of Appeal Rules the discretion to order security is unfettered. See Mann v Dabelstein [2006] WASCA 176 at [16]; Joseph v Joseph [2007] WASCA 27 at [6].
The respondent's evidence and submissions
The respondent relied upon two affidavits; one dated 13 June 2007 affirmed by Bryce Anthony Richard Christian (the manager of the respondent) and another dated 10 July 2007 affirmed by Paul Redding (the respondent's solicitor).
Mr Christian's affidavit reveals, relevantly:
(a)The learned Commissioner entered judgment for the respondent on its counterclaim for $36,517.01, plus interest of $6.01 per day from 13 October 2006 until the date of payment.
(b)On 7 March 2007, the appellant paid the sum of $37,322.35 to the respondent in satisfaction of the judgment (including interest).
(c)No order as to costs has yet been made in the District Court proceedings.
(d)The respondent's costs of the District Court proceedings are estimated to be in excess of $120,000.
(e)The appellant acts as trustee of the Higgins Family Trust trading as "Higgins Agencies".
(f)The appellant is not the registered proprietor of any land in Western Australia.
(g)The income tax return and financial statement of the Higgins Family Trust for the financial year ended 30 June 2005 (being the last income tax return and financial statements of the Trust which have been provided to the respondent) disclose, relevantly:
(i)liabilities exceeded assets by $20,717;
(ii)total assets had reduced by about $88,000 from the previous year or by about 21 per cent;
(iii)the income tax return stated a loss of $7,838 whereas the profit and loss statement stated a profit "from ordinary activities" of $55,905; and
(iv)the financial statements had not been audited.
(h)On 20 March 2007, the respondent's solicitors wrote to the appellant's solicitors requesting copies of the appellant's most recent financial statements. On 24 May 2007, the respondent's solicitor spoke with the appellant's solicitor and reiterated the respondent's request. The appellant has not responded to the respondent's request and the appellant's most recent financial statements have not been provided to the respondent.
(i)Mr Christian has been informed by Mr Reyn Bennell of Galvins Plumbing Plus and believes that Peter Alan Higgins (a director of the appellant) recently said to Mr Bennell words to the effect that:
(i)"I've got nothing"; and
(ii)"My solicitors are doing it for nothing".
Mr Redding's affidavit annexes, relevantly, a draft bill of costs in relation to the appeal. In the draft bill, Mr Redding estimates the costs that will be incurred by the respondent in the appeal. The total of the draft bill is $41,708.50.
The respondent submitted that there was credible testimony that there is reason to believe that the appellant will be unable to pay an order for costs if the appeal is dismissed and the usual order is made. It seeks security of at least $30,000.
The appellant's evidence and submissions
The appellant relied upon an affidavit dated 4 July 2007 sworn by Mr Higgins.
Mr Higgins deposes, relevantly:
(a)Mr Higgins is informed by his solicitors and believes that there are reasonable grounds for successfully opposing an order that the appellant pay the respondent's costs of the District Court proceedings. He is also informed by his solicitors and believes that the respondent's success in the District Court proceedings was based upon findings that could not be justified without a significant number of amendments to its defence, made immediately prior to and during the course of the trial, and that in those circumstances the usual order as to costs may not be made.
(b)Mr Higgins disputes the assertions in a letter from the respondent's solicitors to the appellant's solicitors, a copy of which is annexed to Mr Christian's affidavit, to the effect that:
(i)Higgins Agencies has a substantially reduced involvement in "the industry"; and
(ii)the business of Higgins Agencies has reduced considerably "over the course of the past few years".
Mr Higgins merely disputes the assertions and does not provide any material facts in relation to their subject matter.
(c)Mr Higgins denies that he made statements to Mr Bennell, as alleged in Mr Christian's affidavit. He says that the appellant's solicitors are not instructed to act for the appellant in the appeal "for nothing", and they are not "doing it for nothing".
The appellant submitted that there was no credible testimony that there is reason to believe that the appellant will be unable to pay the costs of the respondent if the appeal is dismissed. In particular, it was argued that:
(a)The fact that the appellant is a corporate trustee is not of itself credible testimony that the appellant will be unable to meet an order as to costs.
(b)The respondent has not established the current financial position of the appellant in that the information provided in the affidavits relied upon by the respondent is "outdated".
(c)There is evidence which indicates that the appellant's current financial position is sound, namely, the fact that the appellant promptly paid to the respondent the judgment sum plus interest.
(d)No reliance may be placed on the statements allegedly made by Mr Higgins to Mr Bennell, in that Mr Higgins denies having made those statements.
The appellant also submitted that in the event I am satisfied that there is credible testimony that there is reason to believe that the appellant will be unable to pay the costs of the respondent if the appeal is dismissed, I should not, in the exercise of my discretion, order the appellant to provide security, in that:
(a)Any risk that the appellant would be unable to meet an order as to costs should be regarded as "low".
(b)The respondent failed to apply promptly for security.
(c)The appellant has reasonable prospects of success in the appeal.
Further, the appellant submitted, in any event, that if I decided to order security, the amount should only be $10,000 in consequence of the respondent's delay in making the application, and after taking into account the principle that, in ordering security, a court does not endeavour to give a complete and certain indemnity to the respondent: Brundza v Robbie & Co(No 2) (1952) 88 CLR 171 at 175.
The merits of the application
In my opinion, it appears by credible testimony (namely, the affidavit of Mr Christian) that there is reason to believe that the appellant will be unable to pay the costs of the respondent if the appeal is dismissed.
As I have mentioned, the appellant's income tax return and financial statements in relation to the year ended 30 June 2005, which are annexed to Mr Christian's affidavit, reveal, relevantly, that as at 30 June 2005 the liabilities of the Higgins Family Trust exceeded assets by $20,717, and the total assets of the Trust had diminished by about $88,000 compared with the previous year. Further, according to the income tax return, in the financial year ended 30 June 2005, a loss of $7,838 was incurred. Neither counsel for the appellant nor counsel for the respondent was able to explain the discrepancy between the loss stated in the income tax return and the profit "from ordinary activities" recorded in the financial statements. It appears from Mr Christian's affidavit that at all material times the appellant has acted as trustee of the Higgins Family Trust and there is no evidence that it has any assets or carries on any business on its own account. The facts and circumstances to which I have referred decisively outweigh the fact that the appellant has paid the judgment sum (and interest) awarded to the respondent on its counterclaim in the District Court proceedings.
Although there is no evidence as to whether the financial condition of the appellant or the Higgins Family Trust has waxed or waned since 30 June 2005, the absence of any such evidence is not adverse to the respondent, in that:
(a)the respondent's solicitors requested the appellant's solicitors to provide more recent financial information; and
(b)the appellant's solicitors failed to provide that information and, further, failed to adduce any evidence before me concerning the appellant's current financial condition.
I infer that there has been no material improvement since 30 June 2005 in the net asset position or trading performance of the appellant as trustee of the Higgins Family Trust.
My conclusion that it appears by credible testimony that there is reason to believe that the appellant will be unable to pay the costs of the respondent if the appeal is dismissed has been arrived at without taking into account the statement allegedly made by Mr Higgins to Mr Bennell.
The appellant's income tax return and financial statements which are in evidence indicate that the risk of the appellant being unable to pay the respondent's costs if the appeal is dismissed should be characterised as "significant" rather than "low", as the appellant submitted.
I am satisfied, however, that the appellant has a reasonably arguable case in the appeal.
It is true that the respondent delayed in filing its application for security. The appellant's appeal notice was filed on 16 March 2007 and the respondent's application was not filed until 15 June 2007. But the evidence before me establishes that as early as 20 March 2007 the respondent's solicitors wrote to the appellant's solicitors seeking up‑to‑date financial information concerning the appellant and the Higgins Family Trust, and giving notice of an application for security. In that letter, the respondent's solicitors stated:
"It is, of course, the case that an application for security for costs should only be made once the above information has been disclosed. In addition, the respondent is required to make any such application promptly in accordance with the Court of Appeal Rules. As such, the sooner the appellant provides the above information, the sooner the issue of security for costs can be resolved between the parties or by way of application.
However, please note that if there is delay by the appellant providing the above information, that will necessary [sic] mean a delay in making application to the Court for security for costs. In that event, the failure or refusal of the appellant to provide any or adequate response will be relied upon."
As I have mentioned, the appellant's solicitors did not respond to that correspondence. In the circumstances, the respondent's delay should not prejudice its application either as to the making of an order or as to the amount of security to be provided.
In my opinion, an order for security should be made. I turn now to consider the amount that should be ordered.
The appellant relies on 12 grounds of appeal. The grounds allege that the learned Commissioner made various errors of law and fact. Detailed written submissions in relation to the merits of the appellant's grounds have been filed and served in the appellant's case and the respondent's answer. The hearing of the appeal will probably occupy one day. Security in the sum of $18,500 should be ordered.
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