Kahu NZ Ltd v Aviation Utilities Pty Ltd [No 2]
[2022] WASC 461
•22 DECEMBER 2022
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: KAHU NZ LTD -v- AVIATION UTILITIES PTY LTD [No 2] [2022] WASC 461
CORAM: SOLOMON J
HEARD: 21 DECEMBER 2022
DELIVERED : 21 DECEMBER 2022
PUBLISHED : 22 DECEMBER 2022
FILE NO/S: CIV 2012 of 2022
BETWEEN: KAHU NZ LTD
Plaintiff
AND
AVIATION UTILITIES PTY LTD
Defendant
Catchwords:
Practice and procedure - Security for costs - Where the plaintiff resides outside of Australia - Mobile assets - Quantum of security
Legislation:
Corporations Act 2001 (Cth), s 1335
Rules of the Supreme Court 1971 (WA), O 25
Result:
Application for security granted
Security granted in tranches
Category: B
Representation:
Counsel:
| Plaintiff | : | P J Hannon |
| Defendant | : | S M Davies SC & V N Ghosh |
Solicitors:
| Plaintiff | : | Peter May McAuliffe Legal (Busselton) |
| Defendant | : | Norton White |
Cases referred to in decision:
Armada Balnaves Pte Ltd v Woodside Energy Julimar Pty Ltd [2016] WASC 353
Kahu NZ Ltd v Aviation Utilities Pty Ltd [2022] WASC 405
Mabrouk Minerals Pty Ltd v Mabrouk Holdings Ltd [2008] WASC 132
Mighty River Intl Ltd v Mineral Resources Ltd [2017] WASCA 72
Milosevska v Milosevksi [2019] NSWSC 711
TSDack Pty Ltd v Australian Water Holdings [2015] FCA 931
Tucker v McKee [2022] FCA 315
Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty ltd [2013] WASC 57
SOLOMON J:
(This judgment was delivered extemporaneously on 21 December 2022 and has been edited from the transcript).
As this matter is listed for trial in the first half of 2023, I think it is appropriate that I deliver my decision without delay.
On 24 November 2022, I published reasons in this matter, dismissing the plaintiff's application for urgent interlocutory injunctive relief.[1] The background to the proceeding, including the relationship between the parties, is set out in those reasons and need not be repeated.
[1] Kahu NZ Ltd v Aviation Utilities Pty Ltd [2022] WASC 405.
The application presently before me is the defendant's application for security for costs. That application was made by letter to the court, dated 2 December 2022. The defendant seeks security in the sum of $292,500 or otherwise as the court deems appropriate.
The defendant's application is supported by an affidavit of its solicitor Mr John James Howard, sworn 2 December 2022. The plaintiff opposes the application.
The plaintiff's opposition is supported by an affidavit of its sole director and shareholder, Mr Mark Law, sworn 12 December 2022, and a subsequent affidavit correcting a minor error sworn on 20 December 2022.
The parties also relied on parts of affidavits filed previously in respect of the application for interlocutory relief.
The application
The essence of the application is that the plaintiff, a foreign registered company, does not have sufficient assets or indeed any assets in the jurisdiction to meet a costs order in the event that the defendant succeeds at trial. In any event, the defendant argues that the plaintiff's financial statements do not reflect a strong financial position, particularly as there are aspects of the financial statements which it contends are unreliable.
It is not disputed that the plaintiff company is incorporated in New Zealand, and that Mr Law is the sole director of the plaintiff. Mr Law also lives in New Zealand. The company was incorporated in July 1998 and Mr Law is the sole shareholder.
The affidavit material provided by the parties includes the plaintiff's financial statements for the year ending 31 March 2022, although I observe that they are signed by the plaintiff's chartered accountants on 19 October 2022 and that Note 10 to the financial statements states that 'no significant events have occurred subsequent to balance date'. The financial position reflected in those statements is therefore fairly current. The affidavit material also includes various company, property and security searches concerning the plaintiff and Mr Law.
The financial statements record that the company made a net profit of almost $450,000 in the year ending 31 March 2022, although it is to be noted that in the previous period, the plaintiff incurred a net loss of almost $28,000. I observe that these figures appear to be in New Zealand dollars, though the exchange rate between NZD and AUD does not result in any significant difference. The Statement of Financial Position discloses that the company has net assets of $3,089,065 and total liabilities of $2,605,605, and therefore net assets of $483,460. I note that in the previous period, the net asset position was considerably less; $34,456. There are also aspects of the financial statements that perhaps call for some further explanation. I note that the financial statements appear to have been prepared by someone with a pre-existing relationship, and perhaps even a close relationship, with the plaintiff and Mr Law.
By a considerable margin, the most significant asset of the plaintiff company is a Blackhawk helicopter which according to the Depreciation Schedule attached to the financial statements has a cost value of $2,286,795 and a depreciated value of $1,713,128. However, the plaintiff has provided a 'desktop valuation' which values the helicopter at AUD $3,731,321. The affidavit of Mr Law explains that the helicopter was purchased with the assistance of loans, and the 'payout figure' of the loans is approximately $405,000.
The financial statements disclose various other loans, both current and non-current, aggregating to approximately $1,500,000. It appears however, that security over the helicopter is only in the order of $500,000.
The affidavit material also refers to a prosecution of the plaintiff by WorkSafe NZ relating, it seems, to the plaintiff's involvement in the rescue operation arising from the volcanic eruption on Whakaari (White Island) in New Zealand in December 2019. There is some evidence of Mr Law anticipating some liability arising from that prosecution, however it is not possible to assess what that may be. Further, the plaintiff has not entered a plea in respect of those charges, and it has insurance which it says will cover its legal costs in the prosecution.
Legal Principles
The power of this court to order security for costs is found in O 25 of the Rules of the Supreme Court 1971 (WA) (RSC). That is a discretionary power, and the rules relevantly provide as follows:
(1)Factors that are not grounds for ordering security for costs
The court may order security for costs to be given by a plaintiff, but no order 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.
(2)Grounds for ordering security for costs
Without limiting the generality of rule 1 the Court may order security for costs to be furnished where the plaintiff –
(a)is ordinarily resident out of the jurisdiction, notwithstanding that he may be temporarily within the jurisdiction;
…
(3)Court has discretion
The granting of security shall be in the discretion of the Court, and in determining whether an order should be made 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;
(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.
The defendant also applies for security pursuant to s 1335 of the Corporations Act 2001 (Cth). That section relevantly provides as follows:
(1)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.
Although the discretion is broad and unfettered, the cases have established various factors that may be taken into account. These were conveniently collected in Milosevska v Milosevski.[2] The principles were also conveniently collected by this court in Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd.[3] The principles are not controversial and need not be repeated. I shall refer to them as relevant to the consideration of the application.
[2] Milosevska v Milosevksi [2019] NSWSC 711 [76].
[3] Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [2013] WASC 57[6].
Consideration
As the plaintiff is a foreign corporation, there is no doubt that the jurisdictional threshold provided by O 25 r 2(a) has been met.[4] It is then necessary to turn to the various other considerations to decide whether the court's discretion ought to be exercised in favour of the application.
[4] Armada Balnaves Pte Ltd v Woodside Energy Julimar Pty Ltd [2016] WASC 353[43] - [44] ('Armada Balnaves').
The fact that the plaintiff is a foreign company not only enlivens the court's jurisdiction but is of some weight, particularly as it has no assets within the court's jurisdiction. That factor is an important consideration in favour of the grant of security.[5]
[5] Armada Balnaves [2016] WASC 353 [87] - [88]; Mabrouk Minerals Pty Ltd v Mabrouk Holdings Ltd [2008] WASC 132[58] - [59]; Mighty River International Ltd v Mineral Resources Ltd [2017] WASCA 72[65].
O 25 r 3 requires the court to take into account the matters set out therein. I shall turn first to the prima facie merits of the claim. In my decision relating to the application for injunction, I discussed the prima facie merits of the claim. Those comments need not be repeated, suffice to observe that at this provisional stage, the plaintiff's case appears to be fairly strong in some respects and at least reasonably arguable in others. At this stage, a defence has not been filed. Some explanation was provided by senior counsel for the defendant as to the proposed defence, which he characterised as 'strong'. The proposed defence raises issues that were not raised, at least explicitly, in the contemporaneous correspondence or the injunction application. The absence of a defence in breach of the court's orders plainly does not advance the defendant's position. The issue of merit is therefore a factor that weighs against an order for security. However, the other factors in O 25 r 3 weigh in favour of the granting of security as there is no property within the jurisdiction to satisfy any order for costs and any enforcement of the order would likely have to be undertaken in New Zealand.
At this point I should observe that, as in Armada Balnaves, the plaintiff has not contended that it lacks the financial capacity to provide security and, importantly, nor did the plaintiff submit that the provision of security would stultify the litigation. Less still was it suggested that the defendant's conduct was the cause of any impecuniosity of the plaintiff.
The plaintiff points to a number of other factors which it says weighs against an order for security. They are the defensive nature of the action, the public interest factor, the plaintiff's undertaking not to contest any application by the defendant to register and enforce any costs order in New Zealand (which was formalised in a document that has been tendered as an exhibit)[6], the ease of the registration mechanisms that would cause any judgment of this court to be enforceable in New Zealand, and the preparedness of Mr Law to assume joint personal liability for any costs orders.
[6] Exhibit B.
I shall deal with those factors in turn.
Where an action is in reality brought defensively, the cases do establish that that is a factor weighing against an order for security. However, my review of the cases indicates that a claim for breach of contract, even accompanied by an order for reinstatement of the provision of services such as this case may yet be, is not easily characterised as defensive in the manner discussed by those cases. Those cases refer mainly to necessary responses to self-help remedies such as the retaking of property or where certain remedies may flow if a party does not initiate action. This matter is not quite in that category.
As to the public interest, it may be accepted that the public interest can be a factor in the exercise of the court's discretion. It may also be accepted that the fighting of bush fires is very much in the public interest. However, until the matter is substantively heard, it is not possible to ascertain where the public interest lies. For that reason, it is not presently a factor to which I can give any real weight.
I accept that the undertaking and preparedness of the plaintiff and Mr Law are factors weighing against the grant of security. So too is the relative ease with which a debt may be enforced in New Zealand. However, in all the circumstances, balancing the fairness between the parties I do not consider that those matters outweigh the difficulties associated with the plaintiff's position.
In that regard I consider that the most important factors are:
(a)The plaintiff is a foreign company;
(b)The plaintiff has no assets in the jurisdiction or indeed, it appears, in Australia;
(c)The plaintiff's financial position is not particularly difficult, but its net asset position is slim and the last year's results do not suggest that it is necessarily stable; and
(d)In relation to the value of the helicopter, it may be accepted that the plaintiff has substantial equity in that valuable asset. However, like the ship considered by Martin J in Armada Balnaves it is a highly mobile asset, not anchored in the jurisdiction and it is readily capable of being charged or dealt with or indeed disposed of.[7]
[7] Armada Balnaves [111].
As to Mr Law's preparedness to assume liability for costs, I have already noted that Mr Law is not domiciled in Australia, and it is not at all clear what the worth of that undertaking might be. Mr Law has not provided a statement of his financial position. He does not appear to have real property in his own name. To the extent that the evidence suggests anything about his financial position, it is that he appears to have organised his affairs to avoid assets in his own name. The house in which he lives is in the name of his fiancé and, it appears, an entity associated with his accountants.
In all the circumstances, I am persuaded that it is appropriate to order security.
Quantum
I turn then to the appropriate quantum. The defendant bears the evidentiary onus of satisfying the court as to the appropriate entitlement.[8]
[8] Milosevska v Milosevksi [76].
I have some difficulty with the quantum proposed by the defendant. The exercise of the court's discretion to fix the quantum of security involves a 'broad brush' assessment and does not involve a precise calculation.[9] I am not satisfied that the quantum and form of the security sought by the defendant is appropriate, for the following reasons.
[9] Tucker v McKee [2022] FCA 315 [33].
First, the matters that bear upon the exercise of the discretion to order security are also relevant to the question of quantum.[10] The matters referred to by the plaintiff and that I have referred to above, in my view, while not sufficient to defeat the application for security, go some way to reducing the risk to the defendant of a potential costs order against the plaintiff.
[10] TSDack Pty Ltd v Australian Water Holdings Pty Ltd [2015] FCA 931; (2015) 108 ACSR 379[71].
Secondly, the estimated future costs to be incurred by the defendant are deposed by a solicitor in NSW who does not provide information as to his experience in such matters in this jurisdiction. The information provided does not relate to experience litigating in WA courts.
Thirdly, the estimated costs provided by the defendant do not engage with the relevant WA costs determinations and scales. The defendant has annexed a draft bill of costs to the affidavit of Mr Howard. That bill reflects that the billable rates for fee earners are not aligned with the rates stipulated by the relevant WA scales. For example, the draft bill records senior counsel's rate as $1,000/hr. The 2022 WA scale allows a maximum rate of $693/hour. I also am not persuaded that it is appropriate to order security for travel and accommodation costs incurred by the defendant's NSW-based solicitors.
Fourthly, in my view, the circumstances do not necessitate the granting of security in the form of a lump sum. The proceedings are still at a preliminary stage, in the sense that the pleadings have not closed. I note that that is due, to some extent, to the defendant's failure to comply with the court's orders that the defence be served by 15 December 2022. The defendant wrote to the court to explain that delay on 16 December 2022 and indicated that the defence would be filed by 19 December 2022. The defence has yet to be filed.
Due to the preliminary nature of the proceedings, it is too early for the court, or indeed the parties, to estimate confidently the costs to be incurred for future stages the proceedings. It is more appropriate, therefore, to grant security in tranches.
At this stage, the defendant seeks close to $50,000 for the defence and provision of discovery. Taking account of the factors I have mentioned, I am prepared to allow security in the amount of $20,000 and will consider further tranches as the matter proceeds.
I am satisfied that the court should grant security pursuant to its discretion in O 25 of the RSC, and therefore do not need to deal with the application for security for costs pursuant to the Corporations Act.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
NW
Associate to Justice Solomon
22 DECEMBER 2022
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