Knights Capital Group Ltd v Bajada & Associates Pty Ltd [No 2]
[2017] WASC 245
•24 AUGUST 2017
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: KNIGHTS CAPITAL GROUP LTD -v- BAJADA & ASSOCIATES PTY LTD [No 2] [2017] WASC 245
CORAM: PRITCHARD J
HEARD: 30 JUNE & FURTHER WRITTEN SUBMISSIONS 27 JULY 2017
DELIVERED : 24 AUGUST 2017
FILE NO/S: CIV 1875 of 2014
BETWEEN: KNIGHTS CAPITAL GROUP LTD
Plaintiff
AND
BAJADA & ASSOCIATES PTY LTD
First DefendantSELWYN JOHN BAJADA
Second Defendant(BY ORIGINAL ACTION)
BAJADA & ASSOCIATES PTY LTD
PlaintiffAND
KNIGHTS CAPITAL GROUP LTD
First DefendantGRANT BARTLEY HODGETTS
Second DefendantMICHAEL JOHN BRITTON
Third DefendantGREGORY JAMES PARAMOR
Fourth DefendantGRANT CHARLES PRIEST
Fifth Defendant(BY COUNTERCLAIM)
Catchwords:
Practice and procedure - Application for security for costs - Relevant principles - Whether issues raised by counterclaim overlap with issues in main action - Whether plaintiff caused defendant's impecuniosity - Where director of defendant has offered personal undertaking - Quantum and form of security - Turns on own facts
Legislation:
Corporations Act 2001 (Cth), s 1335
Result:
Application granted
Category: B
Representation:
Original Action
Counsel:
Plaintiff: Mr S G Leslie
First Defendant : Mr C Chenu
Second Defendant : Mr C Chenu
Solicitors:
Plaintiff: Zafra Legal
First Defendant : Bennett + Co
Second Defendant : Bennett + Co
Counterclaim
Counsel:
Plaintiff: Mr C Chenu
First Defendant : Mr S G Leslie
Second Defendant : No appearance
Third Defendant : No appearance
Fourth Defendant : No appearance
Fifth Defendant : No appearance
Solicitors:
Plaintiff: Bennett + Co
First Defendant : Zafra Legal
Second Defendant : No appearance
Third Defendant : No appearance
Fourth Defendant : No appearance
Fifth Defendant : No appearance
Cases referred to in judgment:
Armada Balnaves Pte Ltd v Woodside Energy Julimar Pty Ltd [2016] WASC 353
Associated Euro Atlantic Shipping Corporation v Maritime Union of Australia (Unreported, FCA, 22 August 1997)
Blue Oil Energy Pty Limited v Tan [2014] NSWCA 81
Brundza v Robbie & Co [No 2] [1952] HCA 49; (1952) 88 CLR 171
Chartspike Pty Ltd (In Liq) v Chahoud [2001] NSWSC 585
Concrete Constructions Pty Ltd v Dalma Formwork Pty Ltd (Administrator Appointed) [1999] NSWCA 16
DIF III Global Co-Investments Fund, LP v BBLP LLC [2016] VSC 401
Edenham Pty Ltd v Meares [No 2] [2016] WASC 302
FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69; (2000) 22 WAR 241
Global Finance Group Pty Ltd (In Liq) v Marsden Partners (A Firm) [2004] WASC 52
Green v Australian Industrial Investment Ltd (1989) 90 ALR 500
Intercraft Cabinets Pty Ltd v Sampas Pty Ltd (1997) 18 WAR 306
Jaddcal Pty Ltd v Minson [No 2] [2011] WASC 138
KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189
LPH Developments Pty Ltd v Jamieson Moore Pty Ltd [2015] WASC 416
Northern Southern Western Supermarkets Pty Ltd (subject to a Deed of Company Arrangement) v HIH Casualty & General Insurance Ltd (In Liq) [2002] NSWSC 541
Public Transport Ticketing Corporation v Integrated Transit Solutions [2009] NSWSC 54
Rosengrens Ltd v Safe Deposit Centres Ltd [1984] 3 All ER 198
Swanside Pty Ltd v Whitcrest Pty Ltd [2010] WASCA 129
Sydmar Pty Ltd v Statewise Developments Pty Ltd (1987) 11 ACLR 616
Tirops Safety Technology Pty Ltd v Lazer Safe Pty Ltd [2005] WASC 164
Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [2013] WASC 57
PRITCHARD J: This is an application by Knights Capital Group Ltd (KCGL), which is the first defendant by counterclaim, for an order that Bajada and Associates (BAA) give security for KCGL's costs of the counterclaim by the payment into Court of $180,000, and that until such time as that amount is paid into Court, all further proceedings on the counterclaim be stayed (Application). The Application is brought pursuant to s 1335 of the Corporations Act 2001 (Cth) (the Act).
BAA opposes the Application, not on the basis that the threshold requirement for an order under s 1335 has not been made out, but because it says that the Court, in the proper exercise of its discretion, should refuse to grant the Application. Alternatively, BAA says that if the Court determines that the payment of security for costs should be ordered, the security should be significantly less than, and in a different form to, that sought by KCGL. BAA submits that any security ought to be provided either in the form of a personal undertaking by Mr Bajada (the second defendant) that he will be jointly and severally liable for any costs ordered against BAA on the counterclaim up to the amount of the security ordered, or in the form of a charge over some shares in KCGL which are held by another company, SJB Management Pty Ltd as trustee for the SB Trust (SJB).
On 12 July 2017, BAA provided a draft security agreement over the shares, which it proposed should be entered into by SJB and KCGL if the Court was persuaded that security for costs should be given. By submissions dated 27 July 2017, KCGL made submissions responding to the proposed security agreement, the thrust of which was to maintain its opposition to the alternative form of security, and to point out what it considered were deficiencies in the terms of the security agreement.
For the reasons which follow, I will make an order that BAA should provide security for KCGL's costs on the counterclaim, in the sum of $50,000, which sum should be paid into Court. In my view, that sum represents an appropriate quantum of security for costs up until the point when the counterclaim (together with the action) will be ready for a further mediation, by which time discovery will have been completed, and the lay witness statements prepared.
In these reasons I deal with the following matters:
1.The evidentiary basis for the Application and for the alternative orders sought by BAA as to the form of the security;
2.Why the threshold jurisdictional requirement under s 1335 of the Corporations Act 2001 (Cth) is satisfied;
3.Why an order for security for costs should be made ‑ discretionary considerations;
4.The proper quantum of the security for costs; and
5.The form in which the security for costs should be provided.
The evidentiary basis for the Application and for the alternative orders sought by BAA as to the form of the security
In support of the Application, KCGL relied on the affidavit of Grant Bartley Hodgetts sworn 1 March 2017. Some of the paragraphs in that affidavit were objected to on the basis of their admissibility. At the hearing, those objections were not abandoned but were, at best, faintly pressed.[1] Objection was taken to paragraphs 26 ‑ 28 on the basis that those paragraphs were either irrelevant, or constituted an opinion without specifying the basis for the same. I do not accept those objections. Paragraphs 26 ‑ 28 explain the basis for Mr Hodgetts' estimate of the costs which are likely to be incurred by KCGL in defending the counterclaim.
[1] ts 107.
It is not necessary to rule on the balance of the objections (which were primarily advanced on the basis that in those paragraphs Mr Hodgetts had referred to the parties' conferral, without leave to do so, or had disclosed communications which were subject to without prejudice privilege), because even if the paragraphs in question are inadmissible, the balance of Mr Hodgetts' affidavit suffices to support the making of an order for security for costs. Conversely, even if paragraph 29 is admissible, it does not warrant any weight.
In support of its submissions, BAA relied on the affidavit of Mr Selwyn John Bajada sworn 21 March 2017. Mr Bajada is the sole director of BAA. His affidavit described BAA's financial position. I refer to Mr Bajada's affidavit in more detail below.
Why the threshold jurisdictional requirement under s 1335 of the Corporations Act 2001 (Cth) is satisfied
KCGL brings the Application pursuant to s 1335(1) of the Corporations Act 2001 (Cth), which 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.
The precondition for the exercise of the Court's jurisdiction under s 1335(1), sometimes described as the 'threshold jurisdictional question', is whether it appears by credible testimony that there is reason to believe that the plaintiff corporation will be unable to pay the defendant's costs. If that condition is satisfied, the Court has jurisdiction to make an order for security for costs, and the question is whether it should exercise its discretion to make such an order.[2]
[2] FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69; (2000) 22 WAR 241 [20] (Pidgeon & Owen JJ).
Although BAA does not dispute that the threshold jurisdictional requirement under s 1335 of the Corporations Act 2001 (Cth) has been made out, it is appropriate to indicate, briefly, why I am satisfied that such an order should be made.
I am satisfied that Mr Hodgetts' affidavit contains credible evidence that if BAA is unsuccessful on the counterclaim, there is no realistic prospect that BAA would be in a position to pay a costs order in KCGL's favour.
According to Mr Hodgetts' affidavit, BAA has only two issued shares with a paid capital of $2. One of those shares is beneficially owned by SJB, and the other is owned by Mr Bajada.[3] SJB has only two issued shares with a paid capital of $2. One of those shares is owned by Mr Bajada and the other is owned by a third party, whose given address is the same as Mr Bajada's.[4] Neither BAA, nor Mr Bajada, nor SJB, own land in Western Australia,[5] and according to the Personal Property Securities Register, BAA's property is subject to registered charges in the 'general property ‑ no exceptions' class, granted to a bank. Mr Hodgetts deposed that BAA, Mr Bajada, or entities or persons who appear to be related to them, own shares in KCGL. However, his evidence is that because KCGL's shares are not publicly listed, there is no ready market for those shares.[6] Furthermore, Mr Hodgetts deposed that he believes that the KCGL shares held by BAA are held on trust.[7]
[3] Affidavit of Grant Bartley Hodgetts sworn 1 March 2017 [2].
[4] Affidavit of Grant Bartley Hodgetts sworn 1 March 2017 [3].
[5] Affidavit of Grant Bartley Hodgetts sworn 1 March 2017 [5].
[6] Affidavit of Grant Bartley Hodgetts sworn 1 March 2017 [6], [8], [12].
[7] Affidavit of Grant Bartley Hodgetts sworn 1 March 2017 [13].
That position is also entirely consistent with the evidence set out in Mr Bajada's affidavit. Mr Bajada deposed that BAA's primary commercial activity from April 1996 until July 2013 was to perform obligations under a Management Agreement with KCGL, and that the payment of fees under the Management Agreement was its primary and recurring source of income. Mr Bajada deposed that since the Management Agreement was terminated (which BAA contends was due to its repudiation by KCGL) BAA has had very little income.[8] Mr Bajada also deposed that because the litigation constitutes a potential threat to its solvency (which he says constitutes a potential breach of a condition of its financial services licence), BAA applied for a suspension of that licence, with the result that it is presently unable to provide corporate advisory or funds management services.[9]
[8] Affidavit of Selwyn John Bajada sworn 21 March 2017 [4] ‑ [5].
[9] Affidavit of Selwyn John Bajada sworn 21 March 2017 [6].
Why an order for security for costs should be made ‑ discretionary considerations
Once a defendant has satisfied the jurisdictional requirement, the question for the Court is whether, in the exercise of its discretion, security for costs should be ordered. The discretion must be exercised by taking into account all of the circumstances of the case, and having regard to whether the interests of justice will be best served by making an order that security for costs be provided.[10] The exercise of discretion involves balancing the interests of all the parties.[11]
[10] Edenham Pty Ltd v Meares [No 2] [2016] WASC 302 [15] (Le Miere J).
[11] Edenham Pty Ltd v Meares [No 2] [2016] WASC 302 [23] (Le Miere J).
Various factors may be relevant to that exercise of the Court's discretion under s 1335(1). These include (but will not be limited to) the strength and bona fides of the plaintiff's case; the likelihood of the plaintiff being unable to pay the defendant's costs; whether the plaintiff's impecuniosity was caused by the defendant's conduct which is the subject of the claim; whether the application for security is oppressive; whether the award of security would deny an impecunious plaintiff a right to litigate; whether there are persons standing behind the plaintiff who are likely to benefit from the litigation; 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; whether the plaintiff is in substance a plaintiff or whether the proceedings are defensive in the sense of directly resisting proceedings already brought or seeking to halt the defendant's self‑help procedures; whether the application for security has been brought promptly; whether the defendant has any rights which it can exercise against assets of the plaintiff to satisfy an order for costs in its favour; and any factors relating to the public interest.[12]
[12] Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [2013] WASC 57 [6] (Edelman J).
In this case, while BAA submits that 'the balance of relevant factors favours the refusal of an order for security',[13] it relies on two factors in particular, which it says support that conclusion. First, BAA submits that it would not be just to require it to provide security in circumstances where its counterclaim 'is in substance defensive of the claim' brought by KCGL.[14] Secondly, BAA submits that 'it would not be just to require it to provide security in circumstances where its impecuniosity is directly attributable to the conduct of KCGL in repudiating the [M]anagement [A]greement which was the primary source of [BAA's] income'.[15]
[13] BAA submissions [3.1].
[14] BAA submissions [4.1].
[15] BAA submissions [4.2].
I will deal with these two factors first before returning to consider the overall balance of all relevant factors and the parties' interests.
Whether the counterclaim is in substance defensive of the claim brought by KCGL or raises no new issues apart from those raised in the defence to KCGL's action
A factor which will militate against an order for security for costs is if the counterclaim is essentially a defensive measure, or covers substantially the same factual ground as will be covered in the plaintiff's claim.[16] One example of a case of that kind is where a cross-claim arises out of the same facts as the original claim.[17] Similarly, if substantially the same issues are likely to arise on the counterclaim as in the plaintiff's claim, the Court will be slow to order security for costs.[18] In LPH Developments Pty Ltd v Jamieson Moore Pty Ltd[19] Beech J refused an application by a defendant to counterclaim for security for its costs of the counterclaim, in circumstances where there was a substantial overlap between the subject matter and the issues raised on the counterclaim, and those raised on the plaintiff's claim.
[16] Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [2013] WASC 57 [6] (Edelman J).
[17] Public Transport Ticketing Corporation v Integrated Transit Solutions [2009] NSWSC 54 [48] (Einstein J).
[18] Sydmar Pty Ltd v Statewise Developments Pty Ltd (1987) 11 ACLR 616, 627 (Smart J); Concrete Constructions Pty Ltd v Dalma Formwork Pty Ltd (Administrator Appointed) [1999] NSWCA 16 [24] (Sheppard AJA, Mason P and Handley JA agreeing).
[19] LPH Developments Pty Ltd v Jamieson Moore Pty Ltd [2015] WASC 416 [9] (Beech J).
In order to assess BAA's claim that the issues raised by the counterclaim overlap with those raised by KCGL's action, it is necessary to briefly outline what those issues are.
KCGL's action
In its statement of claim, KCGL pleads that:
•It and BAA are parties to the Management Agreement, pursuant to which BAA was paid a management fee calculated in accordance with the Management Agreement;
•It was an inferred or implied term of the Management Agreement that BAA would not charge KCGL more than the management fee for the services it provided under the Agreement, and would not engage third parties to perform services which BAA was required to provide under the Management Agreement, or if it did so, that it would pay those third parties for those services (management services);
•BAA owed KCGL a duty to ensure that it complied with the requirements of the Act, including s 208, to ensure that if KCGL gave financial benefits to BAA or Mr Bajada, it would seek approval from its members;
•The Management Agreement was terminated by a notice of termination dated 22 July 2013, which KCGL issued as a consequence of BAA's failure to comply with a notice of default in respect of breaches of the Management Agreement;
•Alternatively, BAA repudiated the Management Agreement by purporting wrongfully to terminate it, and KCGL accepted that repudiation and terminated the Management Agreement on 22 July 2013;
•KCGL overpaid BAA for management fees, in that it made cash payments and paid for motor vehicle payments at the direction of BAA, and paid BAA's invoices in the mistaken belief that it was obliged to do so pursuant to the Management Agreement (the overpayments);
•By their causing, authorising or acquiescing in the overpayments, so as to receive the benefit of the overpayments, without the approval of KCGL's members (in circumstances where the members would not have given their approval), Mr Bajada breached his statutory and common law duties as a director of KCGL, BAA breached the Management Agreement, and/or BAA and Mr Bajada contravened s 209 of the Act, and as a result of those breaches, KCGL suffered loss and damage;
•BAA and/or Mr Bajada engaged various third parties to provide management services, and to provide facilities such as rental premises and telephone facilities, which KCGL says BAA was obliged to provide pursuant to the Management Agreement (third party services and facilities), and authorised payment by KCGL for those third party services and facilities, in breach of the Management Agreement and the duty to perform its services under the Management Agreement honestly, and with due skill, care and attention;
•BAA and/or Mr Bajada engaged third parties to provide services, namely legal advice and shareholder proxy solicitation services, for the benefit of BAA, and which services were not for the benefit of KCGL (unrelated benefits);
•BAA and Mr Bajada knew that KCGL should not have paid for those third party services and facilities, or the unrelated benefits, BAA received the benefit of, and was therefore unjustly enriched by, those third party services and facilities, and the unrelated benefits, and KCGL is entitled to recoupment of, or compensation for, those payments;
•Those overpayments and payments for third party services and facilities and unrelated benefits were authorised or acquiesced in by BAA and Mr Bajada, KCGL was operating under a mistake when it made those payments, and those payments were to the benefit of BAA or Mr Bajada, such that BAA or Mr Bajada were unjustly enriched as a result of those payments, and KCGL is entitled either to recoup the overpaid amount or to compensation;
•KCGL seeks the payment of just over $1.298 million from BAA (and the sum of just over $1.258 million from Mr Bajada) or alternatively damages or compensation pursuant to the Act in respect of the overpayments, and for the payments for third party services and facilities and unrelated benefits.
The defence and counterclaim
In their defence to KCGL's claim, BAA and Mr Bajada plead, in summary, that:
•In late 2008, KCGL and BAA orally agreed to amend the Management Agreement to increase BAA's remuneration for each year after 30 June 2009, to 2.5% of the net asset value of KCGL, or alternatively, since late 2008, BAA and KCGL have conducted their relations on the basis of an assumption that the remuneration to which BAA was entitled thereafter was 2.5% of the net asset value of KCGL and that KCGL is now estopped from resiling from that assumption;
•The Management Agreement was terminated, but that occurred as a consequence of BAA accepting KCGL's numerous (some 36 in total) incidents of repudiation of the Management Agreement;
•In respect of the variety of management services and facilities that KCGL alleges BAA was required to provide pursuant to the Management Agreement, but which it engaged third parties to provide, or for which it contracted, at a cost to KCGL, BAA was entitled to engage third parties to provide those services, that any loss suffered by KCGL was not due to BAA's wilful misconduct and that it is not liable to KCGL for that loss;
•In respect of the motor vehicle and unrelated expenses which KCGL claims it paid for BAA and Mr Bajada, BAA and Mr Bajada were entitled to the payment of those expenses pursuant to the Management Agreement, that any loss suffered by KCGL did not result from BAA's wilful misconduct and that it is not liable to KCGL for that loss;
•In respect of all such payments and expenses, KCGL and BAA proceeded on the assumption that any such services or expenses were payable by KCGL and that KCGL is estopped from resiling from that assumption, and if BAA received a benefit from the making of payments by KCGL to those third parties, BAA has so altered its position in reliance on the validity of those payments made by KCGL, that it would be inequitable to grant relief;
•If BAA was overpaid for its management fees, it received the overpayments in good faith and in the honest and reasonable belief that it was entitled to the amount of the overpayment, and that it has so altered its position in reliance on the validity of the overpayments that it would be inequitable to grant relief against it;
•KCGL should be denied relief on the basis of the equitable doctrine of laches because its delay in bringing its claim has caused BAA and Mr Bajada prejudice and it would be inequitable to grant relief in those circumstances, and because KCGL has acquiesced in the conduct of BAA and Mr Bajada on which it relies;
•Mr Bajada did not breach any of his duties under the Act but that if he did he acted honestly and his conduct ought be excused pursuant to s 1318 of the Act;
•If the payment of expenses and engagement of services constituted the giving of a financial benefit to Mr Bajada within the meaning of s 208 of the Act, approval of the members of KCGL was not needed in the circumstances;
•KCGL is not entitled to relief on the basis of unjust enrichment;
•Even if KCGL is entitled to an amount from BAA, BAA is entitled to set off, against that amount, what it says is owed to it by KCGL as management fees under the Management Agreement, and the damages it has suffered as a result of KCGL's repudiation of the Management Agreement (which it says amount to over $6.8 million) and which are the subject of the counterclaim.
In the counterclaim, BAA pleads that:
•In July 2003, KCGL, BAA and Mr Bajada agreed that BAA would forbear its full entitlement to remuneration and performance bonuses under the Management Agreement, but KCGL was obliged to make payment of the outstanding balance on demand by BAA;
•As a consequence of that agreement, KCGL owes BAA management fees and performance bonuses of over $1.86 million;
•But for KCGL's wrongful repudiation of the Management Agreement, BAA would have continued to perform its duties and be remunerated for a further 14 years, and has suffered a loss of future profits and claims special damages of over $6.8 million.
By way of relief, BAA and Mr Bajada claim:
•The outstanding management fees and performance bonuses of over $1.86 million said to be owing under the Management Agreement, or general damages in the same amount;
•Special damages in the amount of over $6.87 million for loss of profits;
•Interest;
•Declarations that KCGL is estopped from resiling from the various assumptions that it, BAA and Mr Bajada had made about the expenses BAA was entitled to incur, and the services BAA was entitled to engage to its benefit;
•A declaration that relief in respect of KCGL's claims for restitution for sums paid by mistake of fact should be wholly denied by reason of BAA and Mr Bajada having altered their position in reliance on the validity of the payments;
•A declaration that Mr Bajada ought to be relieved from liability for KCGL's claims pursuant to s 1318 of the Act;
•A declaration that member approval was not needed for each of the financial benefits alleged to have been given to Mr Bajada or BAA in contravention of the Act.
KCGL has not yet filed an amended reply and defence to counterclaim to respond to the amended defence and counterclaim. Having regard to the submissions of counsel for KCGL, it appears that the allegations introduced by the amended paragraphs are likely to be disputed by KCGL.
Counsel for BAA submitted that BAA's counterclaim seeks relief in three distinct components: declarations as to matters constituting defences to KCGL's claims in its action, an order for payment of unpaid management fees which, prior to the termination of the Management Agreement, it had agreed to forbear from demanding, and damages arising from KCGL's repudiation of the Management Agreement.[20] Counsel for BAA submitted that the first component of the claim was purely defensive, in that the declaratory relief goes entirely to questions of the existence of defences to KCGL's claims.[21] Counsel for BAA submitted that the second component of the counterclaim covered substantially the same factual background as will be covered in BAA's defence of KCGL's claim, because KCGL's claim is that it has mistakenly overpaid management fees to BAA, and BAA's counterclaim sets off its claim of underpayment against KCGL's claim of overpayment of the management fees.[22]
[20] BAA submissions [14].
[21] BAA submissions [15].
[22] BAA submissions [16] ‑ [17], ts 144.
BAA says that the third component of its counterclaim, namely damages for repudiation of the Management Agreement, will cover substantially the same factual ground as KCGL's claim and the defence of that claim.[23] It submits that because the management fees the subject of the forbearance claim, and the special damages claimed, were relied on as bases for a set‑off under the defence, there is therefore an overlap in the defence and the counterclaim.
[23] BAA submissions [18] ‑ [22].
As counsel for KCGL conceded, to the extent that BAA and Mr Bajada seek declarations in respect of the matters which are the subject of the defence, there is an overlap between the issues raised by the counterclaim and those arising from KCGL's claim (and BAA's defence thereto).[24] There is also an overlap in so far as both the action and the counterclaim will require attention to the terms of the Management Agreement and to the proper construction of those terms (in relation to third party services and facilities on the one hand, and the calculation of the management fee on the other hand).
[24] ts 110 ‑ 111, 117 ‑ 118.
However, it is also apparent that the counterclaim raises entirely new issues which are quite discrete from those raised by the statement of claim and which are not properly described as responsive. These include the alleged underpayment of the management fees, including the alleged agreement by BAA to forbear the payment of the management fees in full. Counsel for BAA submitted that KCGL had admitted the forbearance agreement, with the result that the issue of the remuneration owed to it would not occupy any significant portion of the Court's time because the issue was admitted.[25] While I accept that that is so, and while the forbearance issue may therefore not occupy much additional preparation and time at trial, it is nevertheless a new issue raised by BAA.
[25] ts 141.
The second component of BAA's case for which there is no substantive overlap with KCGL's claim is BAA's claim for special damages for future losses, based on its expectation of receiving the management fee for many years into the future. I am unable to accept the submission of counsel for BAA that that issue arises in response to KCGL's claim, by virtue of the set‑off claim. As counsel for KCGL submitted, to adopt that view of the pleadings would constitute a triumph of form over substance.[26] Given the quantum of that claim, and the assumptions which underlie it (which appear likely to be disputed), this claim constitutes a significant new component in the counterclaim which is unrelated to the issues arising from KCGL's claim.
[26] ts 160.
The third element of BAA's pleading for which there is no substantive overlap with KCGL's claim is its claim that it was KCGL which repudiated the Management Agreement. That claim (encompassing 36 paragraphs of allegations of conduct by KCGL amounting to repudiation) goes well beyond the factual substratum of KCGL's claim. This aspect of the counterclaim will undoubtedly give rise to numerous factual disputes,[27] over and above those which will arise in relation to the allegations made in the statement of claim.[28] Counsel for BAA submitted that all of the issues concerning the allegation that KCGL had repudiated the Management Agreement would be raised in response to KCGL's claim.[29] While pleaded in the defence, the alleged repudiatory conduct by KCGL goes well beyond being merely responsive. In my view, it is properly characterised as being primarily directed to establishing BAA's claim that the termination of the Management Agreement was attributable to KCGL's repudiatory conduct.
[27] ts 112.
[28] ts 115 ‑ 116.
[29] ts 143 ‑ 144.
Taking these matters into account, in my view, it cannot be said that the subject matter and issues raised in the counterclaim overlap to such an extent with those raised by KCGL's claim as to militate against an order for security for costs.
Whether it would be unjust to order the provision of security ‑ BAA's contention that its impecuniosity has resulted from KCGL's repudiation of the Management Agreement
While the fact that a party's inability to pay a costs order has resulted from the conduct of the other party is a factor relevant to the exercise of discretion, that factor should not be considered in isolation.[30] That is because the mere impecuniosity of a plaintiff is not, of itself, a bar to its pursuit of proceedings.[31] Instead, the question is whether an order for security for costs will stultify the action. That directs attention not only to the plaintiff's financial position, but to that of those who stand behind it or who will benefit from the litigation.[32]
[30] Tirops Safety Technology Pty Ltd & v Lazer Safe Pty Ltd [2005] WASC 164 [48] (Master Newnes).
[31] Intercraft Cabinets Pty Ltd v Sampas Pty Ltd (1997) 18 WAR 306, 315 (Malcolm CJ, Pidgeon & Steytler JJ agreeing).
[32] Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [2013] WASC 57 [38] (Edelman J).
Mr Bajada deposed that between July 2003 and June 2012, and because KCGL had limited cash flow, BAA had agreed to forbear from its entitlement to full remuneration under the Management Agreement, on the basis that it was entitled to demand the unpaid management fees at any future time.[33] Mr Bajada deposed that KCGL did not pay those outstanding unpaid management fees after the termination of the Management Agreement.[34] As I have already noted, BAA's claim to those unpaid management fees forms part of its counterclaim. Mr Bajada deposed that if KCGL had paid those fees, or a significant portion of them, BAA would not have been left in the position it now is, whereby it will be unable to pay KCGL's costs if KCGL successfully defends BAA's counterclaim.[35]
[33] Affidavit of Selwyn John Bajada sworn 21 March 2017 [13] ‑ [16].
[34] Affidavit of Selwyn John Bajada sworn 21 March 2017 [17].
[35] Affidavit of Selwyn John Bajada sworn 21 March 2017 [20].
Mr Bajada did not, however, go on to give any evidence in relation to BAA's assets and liabilities, nor did he depose to his own financial position, or that of SJB (of which he is the director). Consequently, there is no basis on which it could be said that BAA's financial position is such that an order for security for costs will render it unable to proceed with the action.[36]
Other factors relevant to the exercise of discretion
[36] Cf Tirops Safety Technology Pty Ltd v Lazer Safe Pty Ltd [2005] WASC 164 [47] (Master Newnes), and the cases cited therein.
I am satisfied that, taking all relevant factors into account apart from those particularly relied upon by BAA, security for costs should be given. In reaching that conclusion I have taken into account the following other factors.
The first is the strength of BAA's case. Given the early stage of the litigation and the absence of any evidence, it is neither possible, nor appropriate,[37] to undertake any real assessment of the prospects of BAA's claim. On the basis of the information before me, and in the 'absence of evidence to the contrary'[38] all that can be said is that BAA's claim appears to be brought bona fide and there is nothing to suggest that it does not have merit.
[37] Swanside Pty Ltd v Whitcrest Pty Ltd [2010] WASCA 129 [72] ‑ [74] (K Martin J, Pullin JA agreeing).
[38] Intercraft Cabinets Pty Ltd v Sampas Pty Ltd (1997) 18 WAR 306, 318 (Malcolm CJ, Pidgeon & Steytler JJ).
Secondly, as I have explained, the evidence suggests that BAA does not itself have any capacity to pay any costs order which might be made against it if it does not succeed on its counterclaim.
Thirdly, there is nothing to suggest that the Application is brought to shut out BAA from its claims.[39]
[39] Cf Jaddcal Pty Ltd v Minson [No 2] [2011] WASC 138 [15] (Le Miere J).
Fourthly, Mr Bajada has offered an undertaking that he will pay any costs BAA is ordered to pay KCGL in respect of the counterclaim. The availability of an undertaking of personal liability by a person who stands behind a plaintiff is a relevant consideration in determining whether, as well as in what form, security for costs should be given.[40] In this case, however, I am not persuaded that the undertaking Mr Bajada has offered warrants refusing an order for the provision of security. That is because BAA has provided no evidence whatsoever of Mr Bajada's means to satisfy the undertaking. The evidence to which I have referred at [13] suggests that Mr Bajada does not own land in Western Australia. There was some evidence in Mr Hodgetts' affidavit that entities associated with Mr Bajada own shares in KCGL, but there was no evidence that Mr Bajada himself owns shares in KCGL or in any other corporation. As I have already observed, although he swore an affidavit in relation to the Application, Mr Bajada did not provide any evidence of his own financial position.
[40] Intercraft Cabinets Pty Ltd v Sampas Pty Ltd (1997) 18 WAR 306, 316 (Malcolm CJ, Pidgeon & Steytler JJ agreeing); KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189, 204 (Beazley J).
Counsel for BAA acknowledged that deficiency in the evidence,[41] but submitted that 'this does not mean that the value of an undertaking by Mr Bajada is speculative'.[42] Instead, he submitted that because Mr Bajada's livelihood depended on his ability to provide financial advice and services (a matter about which there was also no evidence) 'the consequences to Mr Bajada of not satisfying an order for costs made against him personally demonstrates the value of a personal undertaking by [him] as a form of security for costs'.[43] I am unable to accept that submission. In circumstances where it appears that Mr Bajada has chosen not to provide evidence as to his ability to satisfy any order for costs which might be awarded against BAA, I place no weight on his offer of an undertaking to meet any such costs order. This factor therefore does not weigh against an order for security for costs.
[41] BAA submissions [37].
[42] BAA submissions [37].
[43] BAA submissions [37].
Finally, while the Application has not been brought at the earliest stage in these proceedings, BAA did not suggest that it was in any way prejudiced by delay.
Taking all of these factors into account, in my view, an order for security for costs is warranted. BAA's financial position supports the making of such an order, and neither the factors on which BAA particularly relies, nor the other factors which are commonly taken into account, and to which I have referred, weigh against such an order.
I turn to consider the quantum and form of such an order.
The proper quantum of the security for costs
KCGL seeks an order for security for costs in the amount of $185,000, to cover the entirety of the counterclaim, up to and including a trial. The sum reflects its solicitors' estimate of the taxed costs, on a party-party basis, which KCGL would be likely to be awarded were it successful in the counterclaim.[44] Counsel for KCGL pointed out that the estimate of $185,000 for the costs of the counterclaim, up to, and including the trial, did not reflect the number of issues raised by the most recent amendments made to the amended defence and counterclaim, the effect of which would be that the trial is likely to be longer, and the counterclaim will take up more days at trial than he had previously estimated. He also submitted that there was likely to be a significant discovery, particularly in respect of the very many bases for KCGL's alleged repudiation of the Management Agreement.[45]
[44] Affidavit of Grant Bartley Hodgetts sworn 1 March 2017 [28].
[45] ts 137.
Despite the fact that KCGL's action was commenced some time ago, this litigation is in its early stages. At this stage, the costs likely to be involved in its preparation for trial are difficult to estimate. Furthermore, it is possible that the action will not proceed to trial. Although the parties have participated in one mediation, they should engage in a further mediation after discovery and the preparation of at least the lay witnesses' evidence. Having regard to those considerations, it is appropriate, in my view, that any security for costs at this stage should cover the costs of this first tranche of the work which will take the parties up to the next mediation. Counsel for KCGL submitted that if security is to be provided in tranches then the Application should cover security for the costs incurred up to the point in time when the matter is ready to be entered for trial. There may not be much difference, whichever approach is adopted, as counsel for KCGL acknowledged.[46]
[46] ts 162.
Counsel for BAA submitted that the quantum of the security sought by KCGL was excessive, in that it had been calculated by the addition of every possible item of work in the relevant scale of costs, including items for which KCGL would not be entitled to claim, and that it assumed that the matter would go to trial.[47] The task for the Court in determining the quantum of the security for the costs of this next tranche of the action is to determine what amount would provide KCGL with adequate security for its costs, if it is successful at trial.[48] The aim is not to provide the defendant with a complete indemnity for its costs.[49] Rather, the task for the Court is to calculate the sum which it thinks just to order to be secured, having regard to a reasonable estimate of the likely taxable costs of the defendant in question.[50] In making that assessment, the Court does not engage in an exercise which is 'precisely arithmetical in character. The task essentially is one of discretionary judgment, reasonable estimation and projection … and ultimately it is one involving a technique of judicious estimation'.[51]
[47] BAA submissions [44] ‑ [46], [48] ‑ [63].
[48] Global Finance Group Pty Ltd (In Liq) v Marsden Partners (A Firm) [2004] WASC 52 [71] (Roberts‑Smith J).
[49] Brundza v Robbie & Co [No 2] [1952] HCA 49; (1952) 88 CLR 171, 175 (Fullagar J).
[50] Global Finance Group Pty Ltd (In Liq) v Marsden Partners (A Firm) [2004] WASC 52 [53] ‑ [58] (Roberts‑Smith J), referring to Associated Euro Atlantic Shipping Corporation v Maritime Union of Australia (Unreported, FCA, 22 August 1997).
[51] Armada Balnaves Pte Ltd v Woodside Energy Julimar Pty Ltd [2016] WASC 353 [82] (K Martin J).
Having regard to the draft bill of costs prepared by counsel for KCGL, to the items of work pursuant to the scale which counsel concedes would be undertaken prior to the next mediation, and taking into account the fact that by virtue of the amendments to the counterclaim, further work will be involved than that which was estimated when the draft bill of costs was calculated, in my view, the amount which would provide KCGL with adequate security for its costs on the counterclaim, if it is ultimately successful, would be $50,000. That figure does not make any allowance for the preparation of expert evidence, and the disbursements related thereto, or to trial costs (such as disbursements for counsel fees, and for witnesses' fees).
The form in which the security for costs should be provided.
The question of the adequacy of the security to be provided encompasses not only the amount of the security but the form in which it is provided. The Court has a discretion as to how the security for costs should be provided. Commonly, but certainly not inevitably, security for costs is in the form of the payment of funds into Court by a plaintiff. However, in other cases, bank guarantees have been provided by plaintiffs, or litigation funders, or orders have been made that security be provided by a bank guarantee or in such other form as is acceptable to a defendant's solicitors or to the Court.[52]
[52] Global Finance Group Pty Ltd (In Liq) v Marsden Partners (A Firm) [2004] WASC 52 [95] (Roberts‑Smith J); Armada Balnaves Pte Ltd v Woodside Energy Julimar Pty Ltd [2016] WASC 353 [96], [114] (K Martin J); and see also Chartspike Pty Ltd v Chahoud [2001] NSWSC 585 [6] (Young CJ), and Northern Southern Western Supermarkets Pty Ltd (subject to a Deed of Company Arrangement) v HIH Casualty & General Insurance Ltd (In Liq) [2002] NSWSC 541 [30] (Einstein J), discussed in Global Finance Group Pty Ltd (In Liq) v Marsden Partners (A Firm) [2004] WASC 52 [59] ‑ [60], [61] ‑ [68] (Roberts‑Smith J).
Counsel for BAA submits that if security is required to be given, then it should be given in a way that is least disadvantageous to the party giving security, provided that the other party is adequately protected in the event that a costs order in its favour is unable to be met.[53]
[53] Blue Oil Energy Pty Limited v Tan [2014] NSWCA 81 [21] ‑ [23]; Rosengrens Ltd v Safe Deposit Centres Ltd [1984] 3 All ER 198, 200.
In DIF III Global Co-Investments Fund LP v BBLP LLC,[54] Hargrave J discussed the Court's discretion as to the form in which the Victorian Supreme Court would require security for costs to be provided by a foreign plaintiff with no assets in the jurisdiction. His Honour's observations appear to me to apply equally to security for costs provided by corporations. His Honour observed:
… in exercising its broad discretion as to the form of security … the Court will usually apply the following principles:
(1)the plaintiff is entitled to propose security in a form least disadvantageous to it;
(2)the plaintiff bears a 'practical onus' of establishing that the proposed security is adequate and does not impose an 'unacceptable disadvantage' on the defendant;
(3)in order to be adequate, the proposed security must satisfy the protective object of a security for costs order, namely, to provide a fund or asset against which a successful defendant can readily enforce an order for costs against the plaintiff; and
(4)based on these and any other relevant considerations, the Court will determine how justice is best served in the particular circumstances of the case.
[54] DIF III Global Co-Investments Fund, LP v BBLP LLC [2016] VSC 401 [40] (Hargrave J).
As I have mentioned, BAA submitted that if security for costs is ordered in this case, it should take the form of either a personal undertaking by Mr Bajada, or the provision by SJB of a security over shares held by SJB in KCGL.
The undertaking offered by Mr Bajada
The availability of an undertaking of personal liability by a person who stands behind a plaintiff is a relevant consideration in determining in what form security for costs should be given.[55] An undertaking can constitute a form of security, provided it is of a sufficient quantum or value to satisfy the statutory purpose of s 1335(1) of the Act, and provided that the person giving the undertaking has sufficient means to meet it.[56]
[55] Intercraft Cabinets Pty Ltd v Sampas Pty Ltd (1997) 18 WAR 306, 316 (Malcolm CJ, Pidgeon & Steytler JJ agreeing); KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189, 204 (Beazley J).
[56] Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [2013] WASC 57 [41].
For the reasons outlined at [39] ‑ [40], I am not persuaded that the undertaking Mr Bajada has offered to give would constitute an adequate form of security. Because there is no evidence before the Court of Mr Bajada's means to satisfy the undertaking were it to be called upon, I am not satisfied that that undertaking in substance amounts to the provision of a fund or asset against which KCGL could readily enforce an order for costs against BAA.
Whether a security over shares in KCGL held by SJB would be an adequate form of security for costs
Alternatively, BAA proposed that the provision of a charge over shares held by SJA would suffice for security for costs. There have been cases in which shares have been offered as security for costs.[57]
[57] See, eg, Green v Australian Industrial Investment Ltd (1989) 90 ALR 500, 514 (French J, as his Honour was then).
Mr Bajada deposed that in 2003, KCGL issued over 1.6 million ordinary shares to BAA, of which just over 800,000 are held by SJB, as BAA's nominee.[58] Mr Bajada's evidence is that according to KCGL's estimate of its share value, the shares held by SJB in KCGL are worth just over $662,000.[59] Mr Bajada also deposed that according to KCGL's 2016 annual report, it is the intention of KCGL's directors that once this litigation is finalised, shareholders' capital should be returned, to allow shareholders to realise their investment in KCGL.[60] Counsel for BAA submitted that in those circumstances, 'security in a form which charges a relevant proportion of the shares, and any dividends or returns of capital on shares of SJB … with the payment of any amount as the Court considers appropriate to order as security for costs, is a satisfactory and adequate form of security'.[61] He submitted that because KCGL controls the funds from which any dividend would be paid, KCGL could readily satisfy the obligations arising under such a charge.[62]
[58] Affidavit of Selwyn John Bajada sworn 21 March 2017 [7] ‑ [8].
[59] Affidavit of Selwyn John Bajada sworn 21 March 2017 [10].
[60] Affidavit of Selwyn John Bajada sworn 21 March 2017 [11].
[61] BAA submissions [42].
[62] BAA submissions [43].
I am not persuaded that the proposed security will satisfy the objective of providing a fund or asset against which KCGL could readily enforce an order for costs against BAA. The proposed security over SJB's shares is far from the equivalent of a fund of cash in the bank or a bank guarantee.[63] Because KCGL is not publicly listed, it cannot be assumed that it would be possible to readily sell those shares. Notwithstanding that KCGL's directors presently intend to return its capital to shareholders, when that will occur and in what amount per share is not presently known. That might take some time. There is, therefore, no guarantee that the value in SJB's shares could readily be realised by KCGL in satisfaction of a costs order made in its favour if BAA failed to pay those costs.
[63] ts 135.
Furthermore, it was apparent from the further submissions filed by KCGL's solicitors that there are likely to be disputes in relation to the terms of the security offered by SJB. The proposed security contemplates that if, within 14 days of any costs order made against BAA being taxed or agreed, BAA has not paid KCGL an amount equal to the value of the security, then the amount of the security will be payable on demand and KCGL would be entitled to 'sell or deal with' the secured property (that is, the shares in KCGL) and to complete the transfer of such shares in accordance with the terms of the transfer provided by SJB. That entitlement is, however, dependent upon KCGL being 'entitled to dispose' of the shares, and SJB having been given notice of their intended disposal. In those circumstances, I am not persuaded that BAA has discharged its practical onus of establishing that the proposed security does not impose an 'unacceptable disadvantage' on KCGL.
In the circumstances, the security for costs provided by BAA in respect of the counterclaim should be in the form of funds paid into Court, in the sum of $50,000.
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