Everthen Nominees Pty Ltd v Ly Pty Ltd - [2023] WASC 378

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL

CITATION:   EVERTHEN NOMINEES PTY LTD -v- LY PTY LTD [2023] WASC 378
CORAM:   HOWARD J
HEARD:   27 SEPTEMBER 2023
DELIVERED          :   2 OCTOBER 2023
FILE NO/S:   COR 76 of 2023
BETWEEN:   EVERTHEN NOMINEES PTY LTD
Plaintiff
AND
LY PTY LTD
Defendant

Catchwords:

Practice and procedure - Defendant opposes winding up application - Application for plaintiff to give security for costs in the event the defendant is successful - Whether defendant has an arguable case - whether there is reason to believe the plaintiff would be unable to pay costs of defendant - Application allowed

Legislation:

Corporations Act 2001 (Cth)

Result:

Application allowed

Category: B

Representation:

Counsel:

Plaintiff	:	Mr C S Williams
Defendant	:	Mr P G Donovan & Ms C D Radenti

Solicitors:

Plaintiff	:	Solomon Brothers
Defendant	:	MDS Legal

Cases referred to in decision:

Re Kitay (in his capacity as liquidator of Computer Accounting and Tax Pty Ltd (in liq)) [2022] WASC 350
Sugarloaf Hill Nominees v Rewards Projects Ltd [2011] WASC 19

HOWARD J:

The plaintiff has applied to wind up the defendant in insolvency relying on a failure by the defendant to comply with a statutory demand.
The defendant opposes the winding up application on the grounds that:
1.it is solvent; and
2.the winding up application is an abuse of process in that it was being used for an improper purpose of compelling a solvent company to pay a disputed debt.
The matter is listed to be heard by me on 15 November 2023.
On 15 August 2023 the defendant made an application for the plaintiff to give security for costs in the amount of $126,952 up to and including the 'trial of the action' (Security Application).
After the conclusion of the hearing of the Security Application on 27 September 2023, I made the following Orders:
1.Pursuant to section 1335 of the Corporations Act 2001 (Cth), the plaintiff, within 14 days of the date of this order, give security for the defendant's costs up to and including the trial of this action in the sum of $74,000, such security to be in the form of payment into Court.
2.If the plaintiff fails to comply with the order to give security within the time limited in the order, the action shall be stayed.
3.The parties have liberty to apply to the Court within 48 hours notice.
The Security Application was supported by numerous affidavits, including one of its solicitor which annexed a draft bill of costs.
The plaintiff did not put on any evidence specific to the Security Application.
These are my reasons for making those Orders.

Court's power

I have been unable to find a case in which a defendant to a winding up application has sought and been awarded security for its costs. The defendant cited Assaf's Winding Up in Insolvency (3rd ed) Assaf [10.52] to support the proposition that a respondent to a winding up application may seek security under s 1335 of the Corporations Act 2001 (Cth). That text does not cite a case arising under s 1335, but rather cites cases concerned with s 462(2) of the Corporations Act 2001 (Cth).
All statutory references from here are to the Corporations Act 2001 (Cth) unless otherwise indicated.
In any event, the parties proceeded on the common basis that this Court did have power to so order. I consider that it is a sound basis to proceed upon given the plain words of s 1335(1). That is, I do not detect any words of limitation in s 1335(1) which would have the consequence that the provision did not apply to the Security Application before me.
As I made plain in the hearing, I approached the defendant's application on the basis that it was made solely under s 1335(1) and that the defendant's opposition to the winding up application should be assessed on the basis of its assertion that it is solvent - I put to one side the second defence of 'abuse of process'.

The defendant has an arguable defence

The plaintiff conceded that on the material before the Court there was a good arguable basis for the defendant to contend at the final hearing that it was solvent. That concession was properly made and helpful to the Court's determination.
It does seem to me, independently of the concession of the plaintiff, that the defendant has a good arguable case that it is solvent when regard is had to its (as yet) unaudited financial statements for the 2023 financial year and the valuation reports recently prepared for its six properties in Victoria and Western Australia (which were before the Court).
Given that I am to hear the winding up application, I do not intend to make a further assessment of the strength of the solvency defence at this point.
The plaintiff's position was that the defendant's application should fail because, to use the language of s 1335(1), it did not appear by credible testimony that there was reason to believe that the plaintiff would be unable to pay the costs of the defendant if the defendant was successful in opposing the winding up.

The plaintiff's financial position

The material before the Court as to the plaintiff's financial position was:
1.the plaintiff had paid up capital of $10;
2.Nicholas Agapitos is the sole director and a shareholder of the plaintiff and Meliesse Agapitos is a shareholder of the plaintiff;
3.neither the plaintiff nor Mr Agapitos own any real property in Western Australia; and
4.Ms Agapitos was the registered proprietor of two properties in Cottesloe.
From the material before the Court it appears that from at least early July 2023, the defendant's solicitors have sought information as to the plaintiff's financial position, which the plaintiff has declined to provide.
The plaintiff says that its $10 paid up capital is effectively neither here nor there in making the relevant assessment and that it is presently owed $133,666.58 by the defendant (Debt), which is the amount of the unsatisfied statutory demand.
The plaintiff says, and it was accepted by the defendant, that the defendant is unable to challenge the existence of the Debt in the winding up application by reason of s 459S. Further, I note that the defendant said in the hearing that it would not be making an application for the Court's leave to challenge the Debt at the hearing of the winding up application.
The consequence of that, the plaintiff says, is that this Court now must treat the Debt as an asset of the plaintiff. The plaintiff further submits that asset (the Debt) exceeds the amount of security sought.
I do not accept that submission. On my reading of s 1335, I am required to make a prospective assessment as to whether the plaintiff will be unable to pay the defendant's costs if the defendant is successful under s 1335.
If the defendant is successful in defending the winding up application then the defendant will, after its success, be able to dispute the Debt. That is, the Debt which cannot be presently challenged will, on the defendant's success, evaporate as an unchallengeable asset and will become a claim only.
So I have approached the task in s 1335 without regard to the 'asset' of the Debt as contended for by the plaintiff.
In approaching the question of whether the Court's jurisdiction has been enlivened under s 1335(1) and the exercise of discretion, I have, with respect, adopted the principles set down and the approach taken by Corboy J in Sugarloaf Hill Nominees v Rewards Projects Ltd [2011] WASC 19 [31] - [35] (without citing the large number of cases his Honour summarised).
From those paragraphs, the most significant considerations for my present assessment are:
1.a 'reason to believe' is a low threshold test: Sugarloaf Hill [35(a)];
2.the strength of the plaintiff's case (in this case, I have already considered the good arguable defence on solvency which the defendant advances): Sugarloaf Hill [36(b)]; and
3.whether there are persons standing behind the plaintiff who are likely to benefit from litigation and whether or not they have provided security: Sugarloaf Hill [36(b)(v) - (vi)].
On my assessment, the defendant has satisfied the low threshold test that there is a reason to believe that the plaintiff will be unable to pay the costs of the defendant if it is successful.
The plaintiff, of course, did not have to put on evidence as to its financial position in this Security Application. The defendant has put on evidence which shows the plaintiff’s nominal paid up capital and no real property in the State. It has also put on evidence of its requests for financial information of the plaintiff. I consider that it is sufficient to show a reason to believe within the meaning of s 1335(1).
In all of the circumstances, I considered that there is a reason to believe that the plaintiff will be unable to pay the costs of the defendant if the defendant is successful within the meaning of s 1335.
On the exercise of my discretion, I had regard to the draft bill of costs provided. That set out items totalling $126,952 which was the amount of the Security Application.
Of that, $60,000 was for 'expert evidence', which was for auditors (of the defendant's financial statements) and valuers of its six real properties. During the course of the hearing, counsel for the defendant was able to say that the figures which had been supplied earlier in the draft Bill as to the expert evidence could be firmed up to an amount of $54,300 (the auditor being $18,000 of that).
Without objection, from the Bar table counsel for the defendant told the Court that, but for the winding up application, the defendant would not have engaged auditors to audit its most recent financial statements and would not have engaged valuers to value its six properties. For the purposes of this Application, I accept those matters.
No great issue was taken by the plaintiff with the proposed quantum of the expert evidence disbursements. Rather, what was said was that as the valuation reports had now been provided and that it appeared the audit had commenced (but had not been finalised) that some of the $54,300 was for 'past fees' (ie, already incurred). And, not awarding security at this point would not place the defendant in a worse position. Counsel for the plaintiff, again quite properly, put that submission as going to the Court's discretion on the quantum rather than to the Court's power to order security for costs already incurred.
The legal costs in the draft Bill which made up the balance of the amount claimed contained items which proceeded on the basis of a one day, or for some items, two days’, final hearing of the winding up application.
Counsel for both parties in the course of the hearing considered that the winding up application should be able to be concluded in half a day. Counsel for the plaintiff put a caveat on that as the plaintiff had only just received the valuation reports and, although it was not expected that there would be a challenge to them, the plaintiff reserved its position until it had the opportunity to properly consider those reports. And, of course, the plaintiff has not yet had the benefit of the audited financial statements of the defendant.
Consistently with how I understand the authorities, in fixing an amount for security, I ought not adopt any particular rule (such as two-thirds of the draft Bill) as the discretion is 'unfettered': Sugarloaf Hill [36(a)]. Nor, is the purpose of giving security to provide a complete and certain indemnity to the defendant: Re Kitay (in his capacity as liquidator of Computer Accounting and Tax Pty Ltd (in liq)) [2022] WASC 350 [51] (Allanson J).
Taking into account the disbursements for the expert evidence (which would not otherwise have had to be incurred by the defendant) and taking into account the likelihood of a half-day hearing, I made the Orders that I did at the conclusion of the hearing.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

JC
Associate to the Honourable Justice Howard

2 OCTOBER 2023

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL

CITATION: EVERTHEN NOMINEES PTY LTD -v- LY PTY LTD [2023] WASC 378 (S)
CORAM:   HOWARD J
HEARD:   15 NOVEMBER 2023
DELIVERED          :   15 NOVEMBER 2023
FILE NO/S:   COR 76 of 2023
BETWEEN:   EVERTHEN NOMINEES PTY LTD
Plaintiff
AND
LY PTY LTD
Defendant

Catchwords:

Practice and procedure - Orders discontinuing application for winding up - Competing costs orders sought by parties following discontinuation by consent - Whether discontinuation was based on new information - Consideration of prior relationship between parties - Costs awarded to defendant

Legislation:

Nil

Result:

Costs awarded to defendant to be taxed if not agreed

Category: B

Representation:

Counsel:

Plaintiff	:	C S Williams
Defendant	:	P G Donovan

Solicitors:

Plaintiff	:	Solomon Brothers
Defendant	:	MDS Legal

Case(s) referred to in decision(s):

Beeson v Carrello [2010] WASCA 155
Everthen Nominees Pty Ltd v Ly Pty Ltd [2023] WASC 378
Future Invented Pty Ltd v Gebaut Environment Pty Ltd [2021] FCA 1034
Simatis v Walgenup Aboriginal Corporation (No 2) [2023] FCA 607

HOWARD J:

(This judgment was delivered extemporaneously on 15 November 2023 and has been lightly edited for clarity from the transcript.)

For the reasons given on 2 October 2023,[1] I made Orders on 27 September 2023 for the plaintiff (Everthen) to give security for the defendant's (Ly Pty Ltd) costs up to and including the hearing of Everthen's winding up application in the sum of $74,000 within 14 days ‑ ie by 11 October 2023.
[1] Everthen Nominees Pty Ltd v Ly Pty Ltd [2023] WASC 378.
That date came and went and there was no provision of security.
Ly Pty Ltd then sought the matter to be relisted for directions.
Subsequently, the parties agreed that Everthen's application to wind up Ly Pty Ltd be discontinued and I made Orders by consent on 30 October 2023 to that effect.
Both parties now seek their costs of the proceeding.
I approach the question of costs on the basis that I have a wide discretion where proceedings have been discontinued: see for example Beeson v Carrello [2010] WASCA 155 [13] (Pullin JA). His Honour said:
The conduct of the parties in the matter and the reasons for the discontinuance can bear heavily on the exercise of the discretion as to costs ...
Ly Pty Ltd essentially contends that the winding up application was:
(1)always doomed to fail as Ly Pty Ltd is solvent;
(2)brought by Everthen in circumstances where its sole director knew, from previous dealings, of Ly Pty Ltd's financial position; and
(3)brought to try and place pressure on a solvent company rather than Everthen commencing separate proceedings where it would bear the onus of proving its asserted debt.
Ly Pty Ltd relies, particularly, on a decision of Colvin J in Simatis v Walgenup Aboriginal Corporation (No 2) [2023] FCA 607 [3], [11] and [13].
Everthen, rather, contends that its discontinuance of its winding up application occurred in circumstances where it says it only received information after commencing the application which indicated that Ly Pty Ltd was solvent. In that regard, it relies on the decision of Cheeseman J in Future Invented Pty Ltd v Gebaut Environment Pty Ltd [2021] FCA 1034 [23].
The relationship between the sole director of Everthen and Ly Pty Ltd is, in my view, important for the resolution of the costs here. As deposed to by Everthen's sole director, Mr Agapitos, he was involved in the asset management services which (it was said) Everthen provided to Ly Pty Ltd.
Further, I infer that Mr Agapitos was familiar at all times with at least some of the very significant real property holdings of Ly Pty Ltd. Six properties were the subject of valuation reports by independent valuers; which were prepared in opposition to the plaintiff's application. These were supplied to Everthen by no later than 26 September 2023; that was before I had heard the security for costs application. At the same time, up to date relevant financial statements were provided by affidavit to Everthen.
Mr Agapitos’ evidence was that he provided asset management services to Ly Pty Ltd for 217 and 221 Willmott Drive, Waikiki in this State. They were independently valued respectively at $4.5 million and $8.6 million. I infer he was aware in that role of income received or receivable in respect of the properties.
Everthen's application relied on an unpaid statutory demand. Other than that, there appeared to be no real, available suggestion to the effect that Ly Pty Ltd was not solvent.
Further, relevant financial statements for the year ended July 2022 were provided to Everthen in July 2023; again well before I heard the security for costs application. By an affidavit dated 26 September 2023, the relevant financial statements for the year ended 30 June 2023 were provided. They relevantly showed a profit before tax of $884,598.00 and current assets of more than $1.1 million.
In all of the circumstances, I consider that the bringing of the winding up application and its maintenance on the unsatisfied statutory demand was more of an attempt to have a solvent company pay a disputed debt than an application to wind up an insolvent company.
Further, despite giving no indication at the hearing before me on 27 September 2023 that Everthen would not provide security if ordered, it did not do so.
I do not accept at face value the assertions made in Everthen's written submissions to the effect that it was new information it received, rather than the requirement to provide security, which led to it discontinuing its winding up application.
In all of the circumstances, I consider that Everthen should pay Ly Pty Ltd's costs of the winding up application.
Ly Pty Ltd seeks for those to be paid on an indemnity basis or that they should be paid without regard to the maximum hourly rates and/or maximum allowances fixed by the relevant determination as identified in the affidavit of Ms Radenti made 14 November 2023.
Although it is a close decision, on balance I do not consider the circumstances are such that I would order the costs to be paid on an indemnity basis.
Further, notwithstanding the affidavit of Ms Radenti of 14 November 2023, I do not consider that the defendant has made its case that a 'normal' costs order would not be appropriate in all of the circumstances.
I order Everthen pay Ly Pty Ltd's costs to be taxed if not agreed.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

JC
Associate to the Honourable Justice Howard

15 NOVEMBER 2023