Goldphyre WA Pty Ltd v Australian Potash Ltd
[2021] WASC 456
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: GOLDPHYRE WA PTY LTD -v- AUSTRALIAN POTASH LTD [2021] WASC 456
CORAM: REGISTRAR GRIFFIN
HEARD: 20 OCTOBER 2021
DELIVERED : 14 DECEMBER 2021
PUBLISHED : 14 DECEMBER 2021
FILE NO/S: CIV 1314 of 2021
BETWEEN: GOLDPHYRE WA PTY LTD
Plaintiff
AND
AUSTRALIAN POTASH LTD
Defendant
Catchwords:
Application for security of costs - Application for temporary stay of proceedings - 'credible testimony' threshold
Legislation:
Corporations Act 2001 (WA)
Evidence Act 1906 (WA)
Mining Act 1978 (WA)
Personal Property Securities Act 2009 (Cth)
Rules of the Supreme Court 1971 (WA)
Transfer of Land Act 1893 (WA)
Result:
Defendant's application for security of costs is dismissed
Defendant is to pay the plaintiff's costs of the application to be taxed if not agreed
Defendant's application for temporary stay is dismissed
Category: B
Representation:
Counsel:
| Plaintiff | : | J P Cook |
| Defendant | : | M Mckenna |
Solicitors:
| Plaintiff | : | Mendelawitz Morton Commercial Lawyers |
| Defendant | : | Gilbert + Tobin |
Case(s) referred to in decision(s):
Ansa Enterprises Pty Ltd v Australian Finance Group Ltd [2021] WASC 233
Flujo Sanguineo Holdings Pty Ltd v Universal Food Products Pty Ltd [2020] FCCA 251
Sarac v Croatian House Hrvatski Dom (Inc) (Unreported, WASC, Library No 950675, 12 December 1995)
Sugarloaf Hill Nominees Pty Ltd As Trustee For The Richard and Anna Trust v Rewards Projects Ltd [2011] WASC 19
REGISTRAR GRIFFIN:
This is the defendant's application for security for costs made by way of chamber summons dated 25 June 2021. The defendant seeks orders that the plaintiff pay $200,266 into court within 14 days, failing which further proceedings will be stayed, and the costs of the application.
The parties have filed submissions. The defendant has filed two supporting affidavits of Arabella Tolé, dated 25 June 2021(Tolé Affidavit 1) and 5 October 2021 (Tolé Affidavit 2). The plaintiff has filed an affidavit of Ian Hugh Hamilton dated 20 September 2021 (Hamilton Affidavit).
Jurisdictional point
The plaintiff raised a question in written submissions as to the registrars' jurisdiction with respect to applications for security for costs under both Rules of the Supreme Court 1971 (WA) (RSC) O 25 and s 1335 Corporations Act 2001 (WA) (Corporations Act). These submissions were not pursued at hearing and consequently, I have not considered the issue.
Principles
RSC O 25 r 1 states that no order for security for costs shall be made merely on account of the poverty of the plaintiff or the likely inability of the plaintiff to pay any costs which may be awarded against him.
The grounds for awarding security set out in RSC O 25 r 2 are not applicable to this case.
RSC O 25 r 3 states that the order for security for costs is in the discretion of the court, and 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; and
(c)whether the normal processes of the court would be available within the jurisdiction for enforcement of any order for costs made against the plaintiff.
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.
Discretionary factors
Similar discretionary factors apply to assessing applications for security for costs under either RSC O 25 or s 1335 of the Corporations Act:
(a)promptness with which the application for security has been brought;
(b) the strength and bona fides of the plaintiff's case;
(c) whether the plaintiff's impecuniosity was caused by the defendant's conduct the subject of the proceedings;
(d) whether the defendant's application for security for costs is oppressive, in the sense that it is being used merely to deny an impecunious plaintiff a right to litigation;
(e) whether there are any persons standing behind the company who are likely to benefit from the litigation and who are willing to provide the necessary security;
(f) whether persons standing behind the company have offered any personal undertaking to be liable for the costs and if so, the form of such undertaking; and
(g) security will only ordinarily be ordered against a party who is in substance a plaintiff, and an order ought not be made against parties who are defending themselves and thus forced to litigation.[1]
[1] Sugarloaf Hill Nominees Pty Ltd As Trustee For The Richard and Anna Trust v Rewards Projects Ltd [2011] WASC 19 [36] (Corboy J).
Pursuant to RSC O 25 the court has unlimited discretion with respect to an application for security for costs and the decision will depend upon the facts of any particular case.[2]
[2] Defendant's Submissions filed 5 October 2021 [19].
There is no evidentiary burden on either party in application for security for costs pursuant to s 1335 of the Corporations Act.[3]
Prima facie merits of the claim
[3] Plaintiff's Submission file 12 October 2021 [8].
The defendant submits that the plaintiff has no prospect of success. The plaintiff submits that the most the evidence can demonstrate at this point is that the claim is 'arguable'.
The plaintiff says that the defendant has not made any application to strike out the statement of claim thus demonstrating the strength of the plaintiff's position. If the case were so weak, the defendant should have taken appropriate steps. The defendant responds that this course of action should not be seen as a concession, but rather a nod to the practicalities of such interlocutory applications. There are issues with the statement of claim. The defendant will seek to cure them by way of a request for particulars. But, interlocutory applications take time, cost money and (in the case of a strike out application) will almost always result in the plaintiff being given leave to re-plead. Further to that, the defendant wishes to resolve the proceedings,[4] which desire is consistent with limiting the number and type of interlocutory applications.
[4] ts (20 October 2021) p 27.
The claim is about the relative value of sulphate of potash (SOP) and gold and interpretation of the contract between the plaintiff and defendant. That may over‑simplify it, but the court is not obliged, and is not in a position, to undertake a detailed assessment of the merits of the case when considering an application for security for costs.
The dispute arises out of sale of mining tenement agreements between the parties. Relevantly, cl 5.1(a) of the agreement as varied, required the defendant to issue two million shares to the plaintiff upon [the plaintiff] 'delineating 250,000 ounces of JORC [Australian Joint ore Reserves Committee] measured gold or equivalent (as a single commodity) that can be verified as an economic deposit by an independent expert'.
The plaintiff did not find a gold deposit. It found SOP. The plaintiff says that there can be an equivalence between gold and SOP. The plaintiff says the clause means that if another deposit had been found – say uranium, or lithium - then economic equivalence could be calculated, and that there is no reason not to do that in this situation. The defendant contends otherwise; gold and SOP do not move in price in the same way.[5] SOP is suspended in liquid brine, and cannot be said to be 'in' the tenement. The defendant pleads that the part of the liquid brine on the relevant tenements is not economic and cannot be verified as economic.[6]
[5] ts (20 October 2021) p 30.
[6] Amended Defence filed 8 June 2021 [11(b)].
The defendant says that the plaintiff has no prospects of success. The plaintiff's perspective is that 'all that can be drawn from the evidence and the state of the pleadings is that there is a serious issue to be tried'[7] and that in terms of discretionary factors, this is neutral.
[7] Plaintiff's Submission file 12 October 2021 [69].
I accept that submission. Whilst the disputes themselves are reasonably clear; the contractual interpretation issue – 'what is the scope of the phrase 'or equivalent'?' and the factual dispute as to the economic and physical relationship between gold and liquid brine of potash, it is beyond the scope of the evidence and argument presented in this application to form a view as to their relative merits.
Property within the jurisdiction/credible testimony
RSC O 25 r 2 requires consideration of what property may be available within the jurisdiction to satisfy any costs order. These considerations also inform the issue of 'credible testimony' as to the plaintiff's inability to pay any costs order made against it.
The defendant says that the plaintiff:
(a) is not the registered proprietor of any land in Western Australia;[8]
(b)had four security interests registered against it and its assets as indicated on a PPSR (Personal Property Securities Register) search on or around 27 May 2021;[9]
(c)holds no active mining tenements;[10]
(d)has 100 $1 ordinary shares issued,[11] which are held by Evisan Pty Ltd (held 100% by Mr Ian and Mrs Jane Hamilton) and Seatommy Pty Ltd (held 100% by Mr Brenton Siggs); and
(e)has directors of Mr Ian Hamilton and Mr Brenton Siggs.[12]
[8] Tolé Affidavit 1 [9].
[9] Tolé Affidavit 1 [12].
[10] Tolé Affidavit 1 [22].
[11] Tolé Affidavit 1 [5] - [6].
[12] Tolé Affidavit 1 [5(b)].
Against this evidence, the plaintiff says that it:
(a)is the 14th largest shareholder in the defendant, with a shareholding worth $300,000 as at 16 September 2021;[13]
(b)is solvent and trading and there is no reason to believe it will be unable to pay the defendant's costs;[14]
(c)has net assets of $906,916 as at 30 June 2020;[15] and
(d)has cash assets of $794,871.75 as indicated by a screenshot of its bank account.[16]
Results of searches
[13] Plaintiff's Submission filed 12 October 2021 [22]; Hamilton Affidavit [31].
[14] Hamilton Affidavit [35].
[15] Hamilton Affidavit [38].
[16] Hamilton Affidavit [36] - [37].
The PPSR securities are described by the plaintiff as 'legacy matters from earlier days wherein [the plaintiff] borrowed money to fund its investment activities. Those liabilities are long gone.'[17]
[17] Hamilton Affidavit [46] - [47].
The plaintiff submits that the Landgate and PPSR searches referred to in Tolé Affidavit 1 are 'practically useless'[18] for the purposes of s 1335 Corporations Act. The plaintiff further describes the defendant's ASIC, Landgate, PPSR and mineral tenement searches as 'barely probative and very superficial'[19] in the context of assessing application under RSC O 25. The plaintiff goes on to say that '[t]he ASIC searches of the shareholders of the plaintiff are irrelevant to the plaintiff's financial position. There is no rational explanation for these searches'.[20]
[18] Plaintiff's Submission filed 12 October 2021 [18].
[19] Plaintiff's Submission filed 12 October 2021 [49].
[20] Plaintiff's Submission filed 12 October 2021 [50].
The plaintiff has not adduced evidence that the ASIC, Mining Act or Landgate searches were inaccurate. I accept that the PPSR search contained outdated material as at 27 May 2021 but the defendant was entitled to rely upon that search. At all times, it was open to the plaintiff to ensure that the PPSR register was accurate. The defendant accepts that there are no longer any securities listed on the PPSR.
Plaintiff's shareholding in the defendant
The plaintiff is the 14th largest shareholder in the defendant. The source of this information is the defendant's 2020 Annual Report, annexed to the Hamilton Affidavit as Annexure 'IHH4'. As at 16 September 2021.[21] the share was worth $581,380 in itself,[22] sufficient to discharge any liability the plaintiff may have towards the defendant for party‑party costs (based on the defendant's own estimate of its costs of trial) should the claim be unsuccessful.
[21] Hamilton Affidavit, Annexure 'IHH4' - APC Annual Report (2020).
[22] Hamilton Affidavit [42].
The defendant acknowledges that the plaintiff holds those shares; but says that at the time of making the application there was no evidence that those shares are available to meet any costs order. There is no evidence before me that the plaintiff's shareholding in the defendant is currently encumbered.
Net assets and cash at bank
As at 30 June 2020, the plaintiff had net assets of $906,916,[23] which included its shareholding in the defendant. The plaintiff points out that the financial report was prepared by reputable accountants. Its cash at bank was $51,328. By 31 August 2021, cash at bank had increased to $794,871.75 to give a total net asset position of approximately $1,376,251.[24] The evidence as to the cash holding is a screenshot of the plaintiff's bank statement.[25] The plaintiff says that this increase is because the 'UPE', noted at page seven of the financial report, had been paid to the plaintiff. The plaintiff concedes 'it could have been the subject of clearer evidence'.[26]
[23] Hamilton Affidavit, Annexure 'IHH 12' - Financial Report (30 June 2020).
[24] Hamilton Affidavit [42].
[25] Hamilton Affidavit, Annexure 'IHH 11' - Bank Account (31 August 2021).
[26] Plaintiff's Submission filed 12 October 2021 [37].
Defendant's counsel objected to plaintiff's counsel's use of the acronym 'UPE' as meaning 'unpaid present entitlement', on the basis that whilst I could draw an inference as to that being the meaning of the acronym, it was not appropriate for plaintiff's counsel to give evidence from the bar table as to that. For clarity, the relevant part of the financial report states:
UPE – I & M Hamilton Family Trust (pre 15/12/09) $800,499
In the circumstances, given the close proximity of 'UPE' to the words 'I & M Hamilton Family Trust', I think I may fairly take judicial notice that 'UPE' is an acronym frequently used in that context to stand for 'unpaid present entitlement'. I infer that is what 'UPE' means in the financial reports.
When the financial reports were prepared, that entitlement was unpaid. Payment of that entitlement is the source of the cash currently in the plaintiff's bank account.[27] There is no evidence to this effect. The screenshot of the plaintiff's bank account does not indicate the source of the funds displayed, nor when they were deposited. The screenshot does not show the deposit at all; merely that the balance as at 31 August 2021 was $794,871.75.
[27] Plaintiff's Submission filed 12 October 2021 [37].
The defendant submits that the screenshot of the plaintiff's cash holdings at Annexure 'IHH 11' of the plaintiff's affidavit simply gives a point in time indication of the plaintiff's financial position. It does not give the defendant any comfort as to how long that money was in the account before the screenshot was taken, or how long it would remain there to be available to satisfy a costs order. There is no evidence, according to the defendant, that the cash is beneficially held by the company.
The defendant relies upon Flujo Sanguineo Holdings Pty Ltd v Universal Food Products Pty Ltd [2020] FCCA 251 (Flujo) in which an insolvent plaintiff was ordered to give security for costs pursuant to s 1335 Corporations Act in part due to an incomplete bank statement. The defendant says that the plaintiff in this case has failed to provide a complete picture of its financial position such that the defendant has no assurance that the funds will remain in its account in the future. Plaintiff's counsel counters this by pointing to the plaintiff's insolvency in Flujo, and notes that the plaintiff in this case is not insolvent. The case is thus distinguishable.
Disclosure by plaintiff of its financial position
There was substantial correspondence between the parties prior to this application being made.[28] The defendant sought information as to the plaintiff's financial position. The plaintiff declined to provide it. The defendant submits that the plaintiff's conduct gives rise to an inference that the plaintiff had no assets at the time the enquiries were made. The delay in providing financial information, it was said, was due to the plaintiff needing time to get the assets in, so that it could respond that it did have sufficient assets. Against that inference is the evidence in the defendant's annual report that the plaintiff held shares in the defendant with a value greater than the defendant's estimated costs.[29]
[28] Tolé Affidavit 1 [24] - [27].
[29] Tolé Affidavit 1, Annexure 'IHH 4' - APC Annual Report (2020) p 213.
The plaintiff's position is that the defendant cannot apply for security for costs unless it has evidence about the plaintiff's position. It cannot obtain that evidence by way of a 'fishing expedition'. (Although, as to that, the defendant enquired as to the plaintiff's financial position. In my view, merely asking a question cannot be characterised as a 'fishing expedition'.) The plaintiff submits that the statutory registers 'don't tell you anything'.[30]
[30] ts (20 October 2021) p 36.
The plaintiff agrees that its financial position has changed over time, but submits that the only relevant evidence is the evidence before the court today. I must, says the plaintiff, disregard the evidence of the interests noted on the PPSR search (which it says is of no value in any event) and relies upon Sarac v Croatian House Hrvatski Dom (Inc) (Unreported, WASC, Library No 950675, 12 December 1995)in support of this contention.
The plaintiff argues that no party is under any evidentiary onus, and that the defendant had the opportunity to cross examine Mr Hamilton but declined to do so. The defendant, it is said, cannot therefore submit that the plaintiff has declined to provide a full and accurate picture of its financial position in circumstances where it had the opportunity to cross examine Mr Hamilton but chose not to.
The plaintiff sought an order for mutual cross examination in directions for this application. I declined to make it. I do not consider that the plaintiff can rely upon the defendant's not cross‑examining its director on an interlocutory application to resist an argument that it has not made full disclosure (regardless of whether there is any obligation upon it to do so). This is particularly so in circumstances where cross‑examination was not available to either party given the programming orders made on 31 August 2021.
Conclusions on plaintiff's financial position
The plaintiff's assets are all highly liquid. It has held shares in the defendant since 2019. It is said that the cash component is accounted for because it is the distribution of the UPE noted in its 2020 Financial Report.
There are no historical bank statements to assist me in determining whether the plaintiff's cash situation as revealed in the Hamilton Affidavit is anomalous; if the plaintiff had consistently had significant funds in its account over the last say two years, it would be stronger support for an inference that it would continue along that path. That would, however, at best be an inference. The plaintiff might quite properly use any funds at its disposal to purchase real property, or shares in another company. Those are assets which could be realised to meet an adverse costs order. The nature of the assets available to satisfy an adverse costs order cannot be a factor in assessing whether the plaintiff is able to do so. As defendant's counsel conceded, any asset is inherently transitory.
There is no history in this matter of past defaults in payment of costs orders by the plaintiff (cfAnsaEnterprises Pty Ltd v Australian Finance Group Ltd[2021] WASC 233). The plaintiff is not insolvent (cf Flujo).
The ANZ bank account screenshot is of limited utility in considering the plaintiff's financial position and in that regard I accept the defendant's contention that there is no statement of account or recent audited, unaudited or even draft financial report of the company confirming this amount or its source.[31]
[31] Defendant's Submission filed 5 October 2021 [40].
Whilst I accept the plaintiff's submission that I can only consider the evidence before the court, that evidence includes the searches of the statutory registers the defendant has annexed to its supporting affidavits.
The test under s 1335 of the Corporations Act is whether there is 'credible testimony' that the plaintiff would be unable to satisfy an adverse costs order.
On the one hand, the plaintiff submits that the evidentiary value of statutory registers is severely limited. I note that generally speaking, extracts from registers are evidence of the information they contain.[32] On the other hand, the plaintiff submits that the screenshot of its bank account, a point in time document, created by the plaintiff and not subject to any form of regulatory oversight, should provide the defendant with comfort as to the plaintiff's financial position and shows that the 'credible testimony' threshold has not been met.
[32] Evidence Act 1906 (WA) s 81; Mining Act 1978 (WA) s 103G(3); Transfer of Land Act 1893 (WA) s 63; Personal Property Securities Act 2009 (Cth) s 174; Corporations Act s 1274(5), s 1274(7) and s 1274(7A).
There are two crucial differences between these two kinds of evidence. The searches are publicly available. They are also subject to correction and statutory oversight. The defendant could, if it so wished, regularly search the registers to understand if the plaintiff had bought or sold any real property, and if so, how it was held and whether it was encumbered; changed its corporate structure (and if so, how and when); acquired or divested any interest in mining tenements, or whether there had been any change in registered PPSR interests.
The defendant cannot access the plaintiff's bank accounts. The plaintiff is not a listed company and does not publish annual reports. The registers, therefore, are of evidentiary value in two ways. First, they are the only means by which the defendant may obtain any information about the plaintiff, absent co‑operation from the plaintiff which has not been forthcoming in this matter. Second, they are subject to oversight and control. As I have noted, the registers are evidence of the matters which they record. The same cannot be said of a screenshot of a bank account.
The plaintiff says that the credible testimony threshold has not been met because the searches have no evidentiary value. I disagree. The searches are evidence that the plaintiff holds nothing capable of registration.
However, the plaintiff does have a verified shareholding in the defendant which is part of the 'credible testimony' assessment. Presumably, the defendant is able to monitor the extent of that shareholding and any activity by the plaintiff in relation to it.
The plaintiff has cash at bank and a significant shareholding in the defendant. Even if I am to discount the cash (on the basis that the evidence of it is so limited and unsatisfactory), the value of the shareholding in the defendant exceeds the amount sought by way of security. The defendant says that this is a good reason to order security – it will not stifle the litigation. Whilst I accept that contention, the court should not order security simply because the plaintiff has the resources to satisfy that order.
Normal processes
I can see no reason why the normal processes of the court would not be available to enforce any order made against the plaintiff. The plaintiff is within the jurisdiction. No evidence was led or argument advanced before me on this point.
Discretionary factors
Promptness
The application has been brought promptly. There is no dispute on this point.
Strength and bona fides of the plaintiff's case
There is considerable dispute on this point. As to this issue, see the discussion as to the merits of the plaintiff's case.
Quantum of security sought
The defendant seeks orders for security in the amount of $200,266. The defendant made an open offer, open until hearing, for security in the amount of $150,000. The plaintiff did not respond.
The defendant initially estimated its costs based on a one day trial. That estimated subsequently changed to a five day trial.[33] Defendant's counsel explained this change in approach; initially, the defendant considered that this matter should proceed by way of originating summons purely on an issue of contractual construction. That would be a short hearing. The plaintiff thought differently however, and subsequently issued proceedings, by way of writ, with contested issues of fact and law.[34] That is necessarily a longer hearing at a greater cost. I accept the defendant's explanation in this regard.
[33] Plaintiff's Submission filed 12 October 2021 [55] - [56].
[34] ts (20 October 2021) 28 - 29.
There is no adverse inference to be drawn from the defendant's changed estimate of defence costs.
Paragraph 30 Tolé Affidavit 1
The plaintiff submits that paragraph 30 of Tolé Affidavit 1 should be struck out as inadmissible hearsay. That paragraph states:
I am informed by Mr Matthew Shackleton, Director and Chief Executive Officer of the Defendant, and believe it to be the case that the Defendant is concerned that Goldphyre will be unable to pay their taxed costs in the event that Goldphyre is unsuccessful in the proceedings or is the subject of an adverse costs order.
The plaintiff says that this falls foul of RSC O 37 r 6(3A) because '[n]o basis is provided for the unsubstantiated opinion of the defendant's CEO, nor for Miss Tolé's belief in it'.[35] Hearsay is permitted in an interlocutory application provided that the source of the statements of information and belief is identified.[36]
[35] Plaintiff's Submission filed 12 October 2021 [14].
[36] RSC O 37 r 6(2) and 6(3A).
The defendant submits that this paragraph is permissible as evidence of the bona fides of the application. I accept that contention. When read in context of the entire affidavit – which refers to the PPSR, Landgate, ASIC and Mineral Titles searches, all of which revealed either encumbered assets, or no assets, the paragraph serves the purpose for which the defendant's counsel contends.
Disposition
I do not consider that the 'credible testimony' threshold under the Corporations Act has been met. There is credible testimony that the plaintiff does have sufficient assets (its shareholding in the defendant) to satisfy any costs order against it.
As to the considerations going to RSC O 25 r 3, it follows that I am content there is property within the jurisdiction available to satisfy any costs order against the plaintiff.
I have considered the discretionary factors with respect to making an order for security for costs pursuant to RSC O 25 r 3.
It follows that the defendant's application is dismissed. The defendant is to pay the plaintiff's costs of the application 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.
TR
Customer Service Officer
14 DECEMBER 2021
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