My Lift Company Pty Ltd t/as ALTO Lift v Luciver Pty Ltd as Trustee for the Kangaroo Inn Trust t/as Kangaroo Inn
[2019] WADC 125
•26 AUGUST 2019
JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CHAMBERS
LOCATION: PERTH
CITATION: MY LIFT COMPANY PTY LTD t/as ALTO LIFT -v- LUCIVER PTY LTD as Trustee for the KANGAROO INN TRUST t/as KANGAROO INN [2019] WADC 125
CORAM: PRINCIPAL REGISTRAR MELVILLE
HEARD: 10 MAY 2019
DELIVERED : 26 AUGUST 2019
FILE NO/S: CIV 4633 of 2018
BETWEEN: MY LIFT COMPANY PTY LTD t/as ALTO LIFT
Plaintiff
AND
LUCIVER PTY LTD as Trustee for the KANGAROO INN TRUST t/as KANGAROO INN
Defendant
MY LIFT CO PTY LTD t/as ALTO LIFT
Defendant by counterclaim
LUCIVER PTY LTD as Trustee for the KANGAROO INN TRUST t/as KANGAROO INN
Plaintiff by counterclaim
RUTH ANNA SUTTON
Second Defendant by counterclaim
WILLIAM JAMES SUTTON
Third Defendant by counterclaim
Catchwords:
Security for costs
Legislation:
Corporations Act 2001 (Cth), s 1335
Result:
The applications for security for costs are dismissed
Representation:
Counsel:
| Plaintiff | : | Mr J A Robertson |
| Defendant | : | Mr M P L Noonan-Crowe |
| Defendant by counterclaim | : | Mr J A Robertson |
| Plaintiff by counterclaim | : | Mr M P L Noonan-Crowe |
| Second Defendant by counterclaim | : | Mr J A Robertson |
| Third Defendant by counterclaim | : | Mr J A Robertson |
Solicitors:
| Plaintiff | : | Williams & Hughes |
| Defendant | : | Valenti Lawyers |
| Defendant by counterclaim | : | Williams & Hughes |
| Plaintiff by counterclaim | : | Valenti Lawyers |
| Second Defendant by counterclaim | : | Williams & Hughes |
| Third Defendant by counterclaim | : | Williams & Hughes |
Case(s) referred to in decision(s):
FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69
Unified Pty Ltd v The Cancer Council Western Australia Inc (No 3) [2011] WASC 16
Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [2013] WASC 57
PRINCIPAL REGISTRAR MELVILLE:
The plaintiff and the defendant entered into a contract whereby the plaintiff agreed to install a lift into premises occupied by the defendant as the trustee of the Kangaroo Inn Trust. The plaintiff commenced proceedings against the defendant in the Magistrates Court for the sum of $14,282.95 for what was alleged to be the unpaid final instalment due and owing under the contract.
The defendant filed a defence denying liability and alleging that the contract was terminated by the defendant as a result of the plaintiff's false and deceptive conduct and repudiatory breach of the contract. The defendant went on to allege that as a result of the plaintiff's conduct and acts constituting the repudiatory breach it suffered loss and damage. This loss and damage is alleged to give rise to an equitable set‑off and as such is pleaded as a defence to the plaintiff's claim.
The defendant also counterclaims against the plaintiff for the losses it alleges it has suffered. The value of the defendant's counterclaim is said to be in the region of $225,842.73 (Annexure JL11 to the affidavit of Mr J Lukman). This explains how an action that commenced in the Magistrates Court for $14,282.95 now finds itself in the District Court of Western Australia.
By chamber summons dated 25 January 2019 the plaintiff brought an application for an order that the defendant be ordered to pay security for the plaintiff's costs to be incurred in defending the defendant's counterclaim and that the counterclaim be stayed until that was done. This application was supported by an affidavit sworn by the plaintiff's solicitor, annexing correspondence to the defendant solicitors in which he expresses the view that there is credible testimony that the defendant would be unable to satisfy an adverse costs order and requesting financial records relating to the Kangaroo Inn Trust, being the trust for which it seems the defendant stands as trustee. The affidavit also annexed a draft bill of costs in which the costs estimated for defending the defendant's counterclaim are $76,175.
On 30 April 2019, the third defendant to the counterclaim Mr WJ Sutton, who is a director of the plaintiff, swore a further affidavit. This affidavit does little more than annex evidence to indicate that during the period that the new lift was being installed, the defendant's business was represented as trading in a manner which Mr Sutton believes is inconsistent with the defendant's counterclaim for loss of profits, and in which he refers to a conversation between the defendant's builder and Mr Sutton's wife to the effect that they should avoid getting into an argument with Mr Lukman who would use his power and money to crush anyone who stood up to him, and from which Mr Sutton infers that the defence and counterclaim is being used for the 'collateral purpose of avoiding payment of the final progress payment and to otherwise make mischief'.
By chamber summons dated 25 February 2019 the defendant brought its own application for orders that the plaintiff's action be stayed in the event it did not provide security for the defendant's costs. Also filed was an affidavit sworn by Mr J Lukman on the 27 February 2019 and an affidavit of the defendant's solicitor of the same date. The defendant's costs estimated in the draft bill attached to the affidavit were $91,415.
In the affidavit of Mr Lukman, ASIC records of the defendant were annexed which reveal he is the sole director and secretary of the defendant and that the defendant has a share capital of two dollars constituted by two issued shares both of which are held by Mr Lukman. The affidavit also annexes financial statements for the Kangaroo Inn Trust for the years ending 30 June 2017 and 30 June 2018. The financial statements for the year ending 30 June 2017 also address the previous year's financial position (ie 30 June 2016). However, I am not provided with any financial records of the defendant, Luciver Pty Ltd.
In short, and notwithstanding Mr Lukman's opinion that the defendant runs a profitable business and has assets capable of satisfying an adverse costs order (par 16), I have no information about the financial position of the defendant.
In my view, save to the extent they shed light on the defendant's right of recoupment from trust assets, the financial statements of the trust are largely irrelevant. However, to the extent they are relevant, the financial statements show the trust's net equity steady at $100 over the three financial years; total current assets of $301,133; total current liabilities of $448,223; total assets of $448,323 and total liabilities of $448,223. The financial statements also show that the trust owes $234,000 to Metty Lukman and has moved from a situation in which Mr J Lukman owed the defendant as trustee of the trust $116,004 in 2016 to the Defendant as trustee of the trust owing Mr J Lukman $212,951.31 in 2018. Accordingly, between Metty Lukman and Mr J Lukman, the defendant as trustee of the trust would appear to owe them alone a total of $446,951.31 out of total assets of $448,323.53.
Mr Lukman deposes to the defendant running a profitable business and having sufficient assets to satisfy any adverse costs order of the magnitude contemplated by the plaintiff. He refers in particular to two motor vehicles. However, these vehicles are not the property of the defendant. The vehicles appear to belong to the unknown beneficiaries of the Kangaroo Inn Trust as the evidence discloses that the trust has acquired two motor vehicles with an insured agreed value totalling $108,085 since the financial records for the year ending 30 June 2018 were prepared. I do not know where the trust found the money to be able to purchase these vehicles but infer it has borrowed the money. I do not know if there are any unregistered securities that the creditors hold over the trust assets. Further, whilst the defendant as trustee may have a right of recoupment of expenses from trust assets, that is of little value to the plaintiff. Nor am I persuaded that the agreed value of the vehicles for insurance purposes is necessarily reflective of the market value of the vehicles if they were to be sold for the purpose of satisfying the plaintiff's legal fees.
The affidavit of Mr Noonan-Crowe reveals that the plaintiff has an issued share capital of two dollars constituted by two shares, that Mr and Mrs Sutton are the directors and that the company holds no land.
The Law
By the Corporations Act 2001 (Cth) s 1335 it is established that upon credible testimony there is reason to believe a respondent would be unable to pay the applicant's costs the court may order the respondent to make payment into court by way of security for costs. Once this criteria is satisfied, the court has an unfettered discretion to order security for costs, or not, as the case may be. See FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69 [25]. The Court of Appeal in that case went on to observe that:
… the absence of land combined with a low share capital does give rise to an appearance that there is reason to believe there are no assets in this area to meet the costs. …
In Unified Pty Ltd v The Cancer Council Western Australia Inc (No 3) [2011] WASC 161 (Allanson J) conveniently summarised the factors relevant to the exercise of this discretion from [10] - [16]. He said:
10The relevant principles are not in dispute: see, for example, FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69; (2000) 22 WAR 241; Swansdale Pty Ltd v Whitcrest Pty Ltd [2010] WASCA 129. Once the court has jurisdiction under s 1335, there is an unlimited discretion which is to be exercised considering all of the circumstances of the case. Essentially, the section requires a balance to be struck between protecting the defendant from the possible consequences of being sued by an impecunious corporation with limited liability and avoiding injustice to the corporation by unnecessarily prejudicing it in the conduct of litigation: see Buckley v Bennell Design & Construction Pty Ltd (1974) 1 ACLR 301.
11I approach this matter on the basis that there is not an entitlement to security as of right once the defendant has established that the plaintiff will be unable to pay its costs if the defendant is successful; nor is there a predisposition towards an order for security: see the extensive review of the authorities in Re Bryan E Fencott and Associates Pty Ltd v Eretta Pty Ltd [1987] FCA 102; (1987) 16 FCR 497. In the circumstances of a particular case, however, the fact that the plaintiff is impecunious may be an important factor in determining the application: Spiel v Commodity Brokers Australia Pty Ltd (in liq) (1983) 35 SASR 294, 300; Pearson v Naydler (1977) 1 WLR 899, 906; BPM Pty Ltd v HPM Pty Ltd (1996) 14 ACLC 857, 860; Harpur v Ariadne Australia Ltd (1984) 2 ACLC 356, 361.
12Further, the court may give weight to the amount of the defendant's loss if the risk materialises: Sent v Jet Corporation of Australia Pty Ltd [1984] FCA 178; (1984) 2 FCR 201, 217.
13Where those who stand behind the company and would gain from the litigation are financially able to provide adequate security, it is at least a weighty consideration in favour of an order for security: Yandil Holdings Pty Ltd v Insurance Co of North America (1985) 3 ACLC 542, 545; Sent v Jet Corporation (215). A court is not justified in declining to make an order on the basis that the proceedings will be stultified unless the impecunious plaintiff establishes that those who stand behind it are also unable to provide the requisite security for costs: Bell Wholesale Co Pty Ltd v Gates Export Corporation [1984] FCA 34; (1984) 2 FCR 1, 3; Idoport Pty Ltd v National Australia Bank Limited [2001] NSWSC 744 [66]; Hession v Century 21 South Pacific Ltd (1992) 28 NSWLR 120, 123.
14Where, however, those who will benefit are without means, an order for security may stultify the litigation. Where the plaintiff does establish the possibility of stultification that is a powerful factor to be taken into account in exercising the court's discretion, although it does not automatically lead to refusal of the order: Yandil Holdings Pty Ltd v Insurance Co of North America (545).
15The effect of the authorities is that a company seeking to resist an order for security on the ground that it will frustrate the litigation must 'raise the issue of the impecuniosity of those whom the litigation will benefit and to prove the necessary facts': Bell Wholesale Co Pty Ltd v Gates Export Corporation. It is incumbent upon a plaintiff who wishes to resist an application for security to put before the court a full and frank statement of the assets and liabilities of the plaintiff, and also of its shareholders and creditors (if relevant), and, if there are trust assets, of the beneficiaries of the trust: Newtrend Pty Ltd v Oceanic Life Ltd [1990] WAR 1, 3; Tirops Safety Technology Pty Ltd v Lazer Safe Pty Ltd [2005] WASC 164. Without that evidence, no conclusion can properly be reached that the effect of an order for security will be to frustrate the plaintiff's claim. In this sense there is an onus on a plaintiff resisting an order for security: see BPM Pty Ltd v HPM Pty Ltd (862); Bell Wholesale Co Pty Ltd v Gates Export Corporation.
16Finally, the ability of the defendant to absorb the costs if successful may be a relevant consideration. The court may have regard to the position of the defendant, and may be 'more sympathetic to an application from a respondent with limited funds than a respondent which is a major corporation': Pioneer Park Pty Ltd (in liq) v Australia and New Zealand Banking Group Ltd [2007] NSWCA 344; (2007) 65 ACSR 383 [56]; Remm Construction (SA) Pty Ltd v Allco Newsteel Pty Ltd (1992) 57 SASR 180, 186.
In Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [2013] WASC 57 (Edelman J) said [6]:
Depending on the circumstances, various factors may have different strength and effect on the exercise of the discretion to award security for costs. The most commonly cited, nonexclusive, factors include the following, most of which I extrapolate from the cases footnoted: (footnote omitted)
(i)the strength and bona fides of the plaintiff's case;
(ii)the likelihood of the plaintiff being unable to pay the defendant's costs;
(iii)whether the plaintiff's impecuniosity was caused by the defendant's conduct which is the subject of the claim;
(iv)whether the application for security is oppressive;
(v)whether the award of security would deny an impecunious applicant a right to litigate;
(vi)whether there are persons standing behind the plaintiff who were likely to benefit from the litigation;
(vii)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;
(viii)whether the applicant was in substance a plaintiff or the proceedings were defensive in the sense of directly resisting proceedings already brought or seeking to halt the defendant's self-help procedures;
(ix)whether the application for security had been brought promptly;
(x)whether the applicant has any rights which it can exercise against assets of the plaintiff to satisfy an order for costs in its favour; and
(xi)any factors relating to the public interest.
The evidence in respect of the plaintiff's financial position gives reason to believe it is not in a financial position to pay the defendant's costs incurred in defending the action if the defendant is successful. The evidence reveals little in the way of paid-up capital ($2) and no land. No evidence has been filed by the plaintiff to suggest its financial position is otherwise.
However, in my opinion the justice of the case does not warrant the plaintiff being ordered to pay money into court by way of security for the defendant's costs. The considerations that I give most weight to in the circumstances of this case is that the plaintiff commenced an action for $14,282.95 in the Magistrates Court. The scale of costs for bringing and defending actions in the Magistrates Court is considerably less than bringing and defending actions in the District Court. The defendant could have defended this case in the Magistrates Court by limiting itself to a defence by a way of equitable set-off. However, by choosing to pursue the counterclaim it brought the case within the jurisdiction of this court. Effectively the defendant now has exposed itself to the costs of defending this action in the District Court as a result of its own decision.
In my view there is something unfair about then seeking security for costs from the plaintiff based on the District Court costs scale. Further, the prospect of a plaintiff who has commenced an action in the Magistrates Court in the sum of $14,282.95 then being exposed to potential costs order of $95,000 does not sit comfortably.
Finally, and most importantly, to require the plaintiff to pay security for the defendant's costs and to stay the action if it does not do so, would result in the plaintiff being unable to pursue a $14,282.95 claim, while still being required to defend the defendant's counterclaim in circumstances where the defendant will be required to prove the same facts to establish its counterclaim as it would need to prove to establish its equitable set-off by way of defence to the plaintiff's claim. In other words, the defendant is going to incur the same costs in prosecuting this counterclaim against the plaintiff as it would in defending the plaintiff's claim. Further, presumably the plaintiff could then plead the amount it alleges is owing by the defendant pursuant to the contract as a set-off against the counterclaim. All the same issues are going to have to be canvassed on exactly the same evidence and for exactly the same cost. In my opinion the interests of justice are not served in allowing this situation to arise.
This last consideration is in itself and without regard to the other considerations sufficient for me to refuse the application.
I hold the same views in respect of the plaintiff's application for security for costs in defending the defendant's counterclaim. The evidence gives reason to believe the defendant has little or no assets with which to pay the plaintiff's costs of defending the defendant's counterclaim. On the evidence the only asset the defendant has is the right to reimbursement from the trust assets which shows net assets of $100.
I do not consider there is any good evidence that the plaintiff's counterclaim has been brought oppressively. The evidence indicates the defendant has gone to considerable time, trouble and expense in obtaining evidence that suggests deficiencies in the workmanship provided by the plaintiff. Similarly, and perhaps somewhat ironically, I find the evidence presented in the affidavit of Mr Sutton annexing a page on the defendant's website which suggests the defendant has had to reduce its room rates to attract business as a result of removing the old lift and installing the new lift tends to support its case for loss of profits rather than undermines it. The fact that the trust statements show increasing net profit before tax for the relevant financial years does not necessarily mean the defendant did not lose profit.
Further, the hearsay evidence as to Mr Lukman's attitude towards those with whom he may have a dispute and Mr Sutton's evidence as to his opinion that the counterclaim is being used for the 'collateral purpose of avoiding payment of the final progress payment and to otherwise make mischief' is not persuasive of the proposition that the counterclaim is being used oppressively and I am not of the view that it is. The evidence presented suggests there is an arguable case, and that it, like the plaintiff's case is bona-fide.
Again, and most importantly, to preclude the defendant from being able to pursue its counterclaim in the event it did not make any payment by way of security for costs in circumstances when both parties including the plaintiff would be required to address all of those issues in the context of dealing with the equitable set-off pleaded by way of defence to the plaintiff's claim is pointless.
Accordingly, I would dismiss both applications for security for costs.
I certify that the preceding paragraph(s) comprise the reasons for decision of the District Court of Western Australia.
TS
Court Officer23 AUGUST 2019
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