My Moose Super Fund Pty Ltd v Mining Store Pty Ltd - [2024] WASC 340

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   MY MOOSE SUPER FUND PTY LTD -v- MINING STORE PTY LTD [2024] WASC 340
CORAM:   SEAWARD J
HEARD:   9 SEPTEMBER 2024
DELIVERED          :   19 SEPTEMBER 2024
PUBLISHED           :   19 SEPTEMBER 2024
FILE NO/S:   CIV 2252 of 2023
BETWEEN:   MY MOOSE SUPER FUND PTY LTD
Plaintiff
AND
MINING STORE PTY LTD
Defendant

Catchwords:

Practice and Procedure - Appeal from decision of a Registrar - Security for costs in appeal - Corporate plaintiff - Threshold jurisdictional question satisfied - Factors to consider in test for security for costs - Exercise of discretion - Appropriateness of personal undertaking - Turns on own facts

Legislation:

Corporations Act 2001 (Cth), s 1335
Rules of the Supreme Court 1971 (WA), O 25

Result:

Appeal allowed

Category: B

Representation:

Counsel:

Plaintiff	:	J Flinn
Defendant	:	C Horwood

Solicitors:

Plaintiff	:	Croftbridge Lawyers
Defendant	:	Piper Alderman

Cases referred to in decision:

Australian Reliance Group Pty Ltd v Coverforce Insurance Brokers Victoria Pty Ltd (No 5) [2017] WASC 171
Epping Plaza Fresh Fruit & Vegetables Pty Ltd v Bevendale Pty Ltd [1999] VSCA 43; [1999] 2 VR 191
George 218 Pty Ltd v Bank of Queensland Ltd [2016] WASCA 56
Jaddcal Pty Ltd v Minson [No 2] [2011] WASC 138
Knights Capital Group Ltd v Bajada & Associates Pty Ltd [No 2] [2017] WASC 245
Live Board Holdings Ltd v Cody Live Pty Ltd [2017] NSWCA 302
Patrick Jebb as trustee for Trafalgar West Investments Trust v Superior Lawns Australia Pty Ltd [2019] WASC 121
Phoenix Eagle Co Pty Ltd v Tom McArthur Pty Ltd [2019] WASC 378
Priority Networking Pty Ltd v Peterson [2018] WASC 36
SAS Global Forrestdale Pty Ltd v Samsera Pty Ltd [2010] WASC 309
Sugarloaf Hill Nominees Pty Ltd as Trustee for The Richard and Anna Trust v Rewards Projects Ltd [2011] WASC 19
Sunlea Enterprises Pty Ltd v Pollock [2014] WASC 91
Unified Pty Ltd v The Cancer Council Western Australia Inc [No 3] [2011] WASC 161
Veneziano Coffee Roasters WA Pty Ltd v Healthy Nut Café Pty Ltd [2018] WASC 363
Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [2013] WASC 57

SEAWARD J:

Introduction

This is an appeal by the defendant, Mining Store Pty Ltd, from the decision of Registrar Griffin to dismiss its application for security for costs.
The issue raised by this appeal is the appropriate exercise of the court's discretion. This requires the court to balance the competing interests between (a) the defendant being protected against the risk of not being reimbursed for its costs should it be successful in defending the litigation and (b) the plaintiff being able to vindicate its rights through the conduct of the substantive litigation.
For the reasons set out below, I am of the view that the appropriate balance in this case is to require an undertaking as to costs to be provided by Michelle Gibson, being the sole director and shareholder of the plaintiff and the person who stands to benefit from the plaintiff's action.

Factual background

The plaintiff, My Moose Super Fund Pty Ltd, is the corporate trustee of the self-managed superannuation fund, My Moose Super Fund (Fund). Michelle Gibson is the sole director and shareholder of the plaintiff, and the Fund holds superannuation for Ms Gibson. Between May 2022 - December 2022 Australian Super transferred $258,000 to a bank account in the name of the plaintiff, being the total amount of Ms Gibson's superannuation.
Commencing in early 2019, Ms Gibson was in a de facto relationship with Simone Wallace. Between May 2022 ‑ January 2023, Ms Gibson transferred all of the money in the Fund to Ms Wallace for the purposes of investing the money, at Ms Wallace's request.
The defendant operates a business that markets and sells computer systems designed for the purpose of mining cryptocurrency, known as 'miners', as well as providing hosting services for miners purchased from them.
Ms Gibson authorised Ms Wallace to act as the plaintiff's agent in relation to a transaction purportedly entered into between the plaintiff and the defendant.
In April 2022, Ms Wallace, as agent for the plaintiff, purportedly entered into a contract with the defendant whereby originally the plaintiff agreed to purchase 10 miners from the defendant, and also agreed that the defendant would host those miners. Ms Wallace was also originally going to purchase 10 miners in her own name. However, ultimately Ms Wallace did not purchase those miners, and it was instead agreed that the plaintiff would purchase 15 miners from the defendant at a price of $11,550 each, and the defendant would host those miners. The total contract price was $173,250.00.
Ms Wallace, as agent for the plaintiff, paid $115,500 of the contract price. The full purchase price was never paid. Ms Wallace also did not ultimately take the steps necessary to 'turn on' the miners. As a result, the miners did not mine any Bitcoin. Between July 2022 ‑ February 2023 the defendant engaged in email correspondence with Ms Wallace about both these matters.
Ms Gibson's evidence is that Ms Wallace had problems with drugs, alcohol and gambling. The evidence is also that Ms Wallace suffered from poor mental health. Ms Wallace died on 12 February 2023.
Ms Gibson does not know what happened to the remaining $142,500 from the Fund that was transferred to Ms Wallace for her to invest.
Neither the plaintiff nor Ms Gibson have asked for or taken the steps necessary to turn on the miners. Following a reduction in the price of Bitcoin, the individual miners were valued at approximately $150 each as at August 2023.
In February 2023 Ms Gibson was dismissed by her former employer, Provide Holdings Pty Ltd, and she has been charged with 280 counts of stealing as a servant. Ms Gibson has pleaded not guilty to the charges. By writ of summons filed on 4 May 2023, Provide Holdings Pty Ltd commenced an action in this court seeking recovery of the money alleged to have been stolen by Ms Gibson, in the amount of $1,020,239.82. Orders were made on 8 May 2023 in those proceedings (and then extended or varied on various occasions) freezing Ms Gibson's assets. The freezing orders also cover any money held by the plaintiff.
The defendant applied for security for costs by chamber summons filed 29 January 2024. The application was heard by Registrar Griffin and was dismissed on 16 July 2024.

Plaintiff's pleaded case

The plaintiff commenced proceedings against the defendant by writ of summons filed on 4 November 2023, seeking restitution or damages in the sum of $115,500 (plus interest and costs). By way of an amended statement of claim filed on 7 May 2024, the plaintiff pleads the following three claims:
(1)A claim that the purported contract between the plaintiff and the defendant for the sale of the 15 miners failed due to the failure of the parties to agree a pre-condition to entry into the contract, being the amount of the hosting fees.
(2)In the alternative, a claim for misleading and deceptive conduct on the part of the defendant by which it is pleaded that a representative of the defendant represented to Ms Wallace that:
(a)an entry level miner would make a 100% return on investment within 11 months if hosted by the defendant based on a hashing rate of 72 tera-hashes per second;
(b)if the price of Bitcoin dropped to as low as USD $20,000, a miner with the above hashing rate would still mine enough Bitcoin for the owner to cover the defendant's monthly hosting cost; and
(c)a miner with the above hashing rate would have a life span of up to five years.
The plaintiff pleads that Ms Wallace, as agent for the plaintiff, caused the plaintiff to purchase miners with a higher hashing rate in reliance on those representations. The plaintiff pleads that these representations were made in trade or commerce and were false or misleading in that the defendant knew, but failed to disclose or warn Ms Wallace, that a miner could lose more than 95% of its value within 12 months of its purchase if the price of Bitcoin decreased.
(3)In the alternative, an unconscionable conduct claim whereby it is broadly pleaded that the defendant knew or ought to have known the following:
(a)that payment for the miners would be coming from Ms Gibson's superannuation fund;
(b)the plaintiff was purchasing hosted miners so that the plaintiff could earn Bitcoin as a return on investment;
(c)between 22 July 2022 - 10 February 2023 Ms Wallace informed the defendant that the plaintiff did not want, or could not utilise, the hosting services; and
(d)from 24 June 2021 - 12 February 2023 Ms Wallace was under a special disadvantage which impeded her ability to make informed judgments about the transactions with the defendant both in her own capacity and in her capacity as agent for the plaintiff.
In these circumstances, it is pleaded that having accepted the payment of $115,500 the defendant had an obligation to make adequate enquiries to satisfy itself that:
(a)Ms Wallace was capable of making informed decisions on behalf of the plaintiff;
(b)if Ms Wallace was not capable of making informed decisions on behalf of the plaintiff, that the plaintiff wished to proceed with the contract; and did not want the defendant to provide hosting services; and understood the financial risk or consequences of not accepting hosting services from the defendant.
It is pleaded that the defendant did not make such enquiries and accordingly engaged in unconscionable conduct under the common law, or in the alternative contravened s 20 of the Australian Consumer Law, and the plaintiff suffered loss and damage as a result.

Legal principles

Appeal

The defendant appeals the decision of the Registrar pursuant to O 60A r 4 of the Rules of the Supreme Court 1971 (WA) (RSC). An appeal from a decision of a Registrar proceeds by way of a hearing de novo, subject to the identification of grounds of appeal. However, the powers of the court are exercisable regardless of whether the appellant can demonstrate error. The appeal may proceed on the evidence before the registrar, as supplemented by any additional evidence admitted in the appeal.[1]

Security for costs

[1] Priority Networking Pty Ltd v Peterson [2018] WASC 36 [27] - [28].

The defendant applies for security for costs under s 1335 of the Corporations Act 2001 (Cth) (Corporations Act) or alternatively O 25 of the RSC. There is no dispute as between the parties as to the principles to be applied in the determination of the application.
Under s 1335(1) of the Corporations Act, the court has the power to order that security be given for the likely costs of a proceeding over which it has jurisdiction. Further, the court has the power to order that any proceeding be stayed until any security ordered is given. Section 1335(1) provides as follows:
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.
There is no entitlement to security, nor any predisposition towards an order for security.[2] The test for security under s 1335 of the Corporations Act contains two requirements: [3]
(a)threshold jurisdictional question: being whether it appears by credible testimony that there is reason to believe that the plaintiff will be unable to pay the defendant's costs if successful; and
(b)discretionary question: if the threshold question is satisfied, whether the discretion to make an order for security for costs should be exercised.
[2] Phoenix Eagle Co Pty Ltd v Tom McArthur Pty Ltd [2019] WASC 378 [17].
[3] SAS Global Forrestdale Pty Ltd v Samsera Pty Ltd [2010] WASC 309 [9].
There is no dispute in the present case that the threshold jurisdictional question has been satisfied.
Once the court's jurisdiction is enlivened under s 1335(1), there is an unlimited discretion that is to be exercised considering all of the circumstances of the case.[4] The following non-exhaustive list of factors have been identified as being potentially relevant to the exercise of the discretion in the various authorities: [5]
[4] Unified Pty Ltd v The Cancer Council Western Australia Inc [No 3] [2011] WASC 161 [10].
[5] See Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [2013] WASC 57 [5] ‑ [6]; George 218 Pty Ltd v Bank of Queensland Ltd [2016] WASCA 56 [42] ‑ [48].
(a)the strength and bona fides of the plaintiff's case;
(b)the likelihood of the plaintiff being able to pay the defendant's costs;
(c)whether the plaintiff's impecuniosity was caused by the defendant's conduct which is the subject of the claim;
(d)whether the application for security is oppressive;
(e)whether the award for security would deny the impecunious plaintiff a right to litigate;
(f)whether there are persons standing behind the plaintiff who are likely to benefit from the litigation;
(g)whether the persons standing behind the plaintiff have offered any security or personal undertaking;
(h)whether the defendant 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;
(i)whether the application for security has been brought promptly;
(j)whether the defendant has any rights which it can exercise against the assets of the plaintiff to satisfy an order for costs in its favour; and
(k)any factors relating to public interest.

The purpose behind s 1335 of the Corporations Act has been described as follows:[6]
…the justification for the statutory rule is that the defendant, not being a voluntary litigant, deserves to be protected from the consequences of limited liability. Those who seek to conduct their businesses through limited liability companies expect to receive the benefits which such liability attracts. It seems to us a necessary corollary that they should be prepared to accept the strictures imposed by the section if the company embarks upon litigation. (citations omitted)
[6] Phoenix Eagle Co Pty Ltd v Tom McArthur Pty Ltd [2019] WASC 378 [49], citing Epping Plaza Fresh Fruit & Vegetables Pty Ltd v Bevendale Pty Ltd [1999] VSCA 43; [1999] 2 VR 191 [13] - [14].
The court also has a discretion to make an order for security for costs under O 25 of the RSC. That discretion is broad, and its exercise depends on the circumstances of the case. However, the following matters are to be borne in mind:[7]
(a)O 25 r 1 provides that an order for security for costs must not be made merely on account of the likely inability of the plaintiff to pay costs awarded against them;
(b)O 25 r 3 provides that when exercising the discretion, it is necessary to take into consideration the prima facie merits of the claim; what property within the State may be available to satisfy a costs order; and whether the court's normal enforcement processes would be available in respect of a costs order; and
(c)Order 25 r 1 and O 25 r 3 are to be applied so as to best ensure the attainment of the objects referred to in O 1 r 4B of the RSC - this includes the objects of promoting the just determination of litigation and ensuing that the costs of procedures are proportionate to the parties' financial positions.
[7] Patrick Jebb as trustee for Trafalgar West Investments Trust v Superior Lawns Australia Pty Ltd [2019] WASC 121 [214].
There is no dispute that the factors relevant to the exercise of the discretion under O 25 (over and above those specified in O 25 r 3) are the same as those relevant to the exercise of the discretion under s 1335 of the Corporations Act.[8]
[8] Patrick Jebb as trustee for Trafalgar West Investments Trust v Superior Lawns Australia Pty Ltd [2019] WASC 121 [217].
As outlined by Vaughan J in Patrick Jebb as trustee for Trafalgar West Investments Trust v Superior Lawns Australia Pty Ltd:[9]
The purpose of an order for security for costs is to protect the defendant against the risk of not being reimbursed for its costs by way of a costs order should the defendant be successful. A countervailing consideration is the interest that a plaintiff has in protecting or vindicating its rights through the conduct of litigation in the court. The factors which have been developed to aid in the exercise of the discretion inform the court in striking a balance between those competing interests.
[9] Patrick Jebb as trustee for Trafalgar West Investments Trust v Superior Lawns Australia Pty Ltd [2019] WASC 121 [218].
In relation to an application under s 1335 of the Corporations Act the balance has been described as:[10]
… 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.
[10] Sugarloaf Hill Nominees Pty Ltd as Trustee for The Richard and Anna Trust v Rewards Projects Ltd [2011] WASC 19 [31].
An order for security for costs is not intended to be a complete indemnity for the actual costs likely to be incurred by a defendant. Rather, if security is ordered, it should be an amount and a form which the court in all circumstances thinks just.[11]
[11] Patrick Jebb as trustee for Trafalgar West Investments Trust v Superior Lawns Australia Pty Ltd [2019] WASC 121 [219]; Knights Capital Group Ltd v Bajada & Associates Pty Ltd [No 2] [2017] WASC 245 [48] - [51].

The basis of the appeal

The defendant's application was dismissed by Registrar Griffin. Broadly, the Registrar concluded that the plaintiff's contractual claim was not strong; that the misleading and deceptive conduct claim was arguable; that the unconscionable conduct claim was not strong and that ordering security for costs would stifle the litigation.
In the present case it is not necessary to detail the specific errors asserted by the defendant in the notice of appeal. The substance of the grounds are that the Registrar made an error in the exercise of the discretion in refusing to order security for costs, and/or errors of law or fact in relation to the findings underpinning the exercise of that discretion. The grounds of appeal necessitate a review of the question of whether security for costs should be granted.
The parties relied on the evidence that was before the Registrar and two additional affidavits providing some additional or updated facts.

Threshold jurisdictional question - s 1335

There is no dispute between the parties that the plaintiff has no assets, save for $2.16 in its bank account, and therefore would be unable to meet the defendant's costs in the event that the defendant was successful in the proceedings. Accordingly, the jurisdictional question is satisfied.

Exercise of discretion

This appeal turns on the exercise of the discretion. In exercising that discretion, I have had regard to the purpose for which security is given and the various relevant discretionary factors.

Analysis of the various relevant factors

What is the likelihood of the plaintiff paying the defendant's costs?

There is no dispute that there is no current likelihood of the plaintiff paying the defendant's costs if it is unsuccessful in its claim. Whilst not determinative, this is a substantial factor in favour of the exercise of the discretion to award security under s 1335 of the Corporations Act.[12]

Strength and bona fides of the plaintiff's claim

[12] Australian Reliance Group Pty Ltd v Coverforce Insurance Brokers Victoria Pty Ltd (No 5) [2017] WASC 171 [19].

As observed by Allanson J in Phoenix Eagle Co Pty Ltd v Tom McArthur Pty Ltd,[13] the bona fides of the claim and its merits may be considered in the exercise of discretion. However, given the early stage of the proceeding and the limited evidence before the court, it is not possible, necessary, or appropriate that I attempt to undertake a detailed consideration of the merits.
[13] Phoenix Eagle Co Pty Ltd v Tom McArthur Pty Ltd [2019] WASC 378 [20].
In relation to the contractual claim, the key issue is the appropriate construction of the contract. The plaintiff says that the plaintiff and defendant purported to enter into a contract for the purchase and hosting of the miners. The plaintiff relies on clause 25, article 1.1(1) of the terms and conditions governing the contract, which provides:
For products sold by the supplier which are hosted on behalf of the client, hosting fees apply for electrical costs and Both [sic] maintenance and electrical rates are charged under a fixed hosting fee which is agreed on by both parties before the purchase of the product...Please contact Mining Store to find out the hosting fee …
The plaintiff also relies on clause 25, article 1.1(3) which provides:
Our hosting fees vary depending on which facility miners are hosted in. Please discuss current rates with your account manager.
The plaintiff says that no price for hosting was ever agreed. There was no evidence before the Registrar that the defendant used more than one hosting site or that there was more than one hosting price. In the appeal, the plaintiff filed and relied on the Second Affidavit of Timothy Lethbridge, affirmed 27 August 2024. Attached to that affidavit is a screen shot of the defendant's website which shows three different hosting locations, with different hosting prices. The plaintiff also relies on the lack of any monthly invoices for hosting the miners.
The plaintiff submits that the appropriate construction of the contract is that reaching an agreement as to the hosting fees was a condition precedent to entering into a valid contract, and the failure of the parties to agree a hosting fee means that no valid or enforceable contract exists.
The defendant submits that the appropriate construction of the contract is that it was possible to purchase miners without also entering into a hosting agreement. The defendant says that is what occurred here, and the hosting agreement was a separate matter. The defendant further submits that the facts raise a defence and counterclaim for a quantum valebat, as the miners were provided.
At this early stage in the proceedings, on the basis of the terms and conditions; the lack of any evidence of an agreement being entered into regarding hosting fees prior to entering into the contract; and the evidence demonstrating different hosting fees on the defendant's website, I consider the plaintiff's contractual claim is arguable.
In relation to the plaintiff's misleading and deceptive conduct claim, telephone calls between Ms Wallace and the relevant officer of the defendant were recorded. The dates of those conversations are 1 November 2021, 6 April 2022, 6 May 2022 and 14 June 2022. Copies of the transcripts are attached to the affidavit of Charlie James Richards, sworn 20 May 2024. The parties have taken the court to those transcripts. It is not necessary to set out the contents.
The plaintiff submits that the transcripts reveal that the pleaded representations were made; that the investment was portrayed as being a safe investment; the sales representative indicated that he had invested himself; and Ms Wallace was not informed that a miner could lose more than 95% of its value within 12 months of its purchase if the price of Bitcoin decreased. The plaintiff submits that any warnings contained in the terms and conditions do not absolve the defendant of the requirement to make sure clients understand the warning.
The defendant submits that the conversations the subject of the transcripts occurred up to six months prior to the purchase and concerned a different miner to that purchased by the plaintiff. Further, that the relevant sales officer was not a financial adviser; the value of Bitcoin was fluid; and the 'Background' section to the terms and conditions contains the following warning:
Mining, whether it be investing in a mining rig or cloud mining involves substantial risk of loss and is not suitable for everyone. The valuation of cryptocurrencies may fluctuate, and as a result, clients may lose their original investment and/or purchase price. …If the market moves against you, you may lose the amount you initially invested and or your purchase price of your rig…
On the basis of my review of the transcripts, I am of the view that the plaintiff has an arguable case in relation to the misleading and deceptive conduct claim. The transcripts do not reveal any warnings or indication to Ms Wallace that the value of the miners themselves could be reduced to the extent that occurred. The 'Background' section to the terms and conditions does contain a warning to this effect, but on the basis of the evidence before me, and bearing in mind the early stage of these proceedings, the extent to which that warning was drawn to Ms Wallace's attention is not clear.
The position in relation the plaintiff's unconscionable conduct claim is, in my view, weaker than the other two pleaded causes of action. The unconscionable conduct claim proceeds on the basis that the defendant became aware of Ms Wallace's pleaded special disadvantage and failed to take steps to determine if Ms Wallace had the capacity to continue as the plaintiff's agent, or if not whether the plaintiff wished to proceed with the transaction.
However, in my view the email evidence before the court raises a real question as to whether anything in those emails was sufficient to put the defendant on notice of the extent of Ms Wallace's mental health issues or raise questions regarding her capacity. Further, even on the plaintiff's case, the defendant's knowledge of Ms Wallace's mental health issues did not arise until after the contract was entered into and after the $115,500 had been paid. On the pleaded case, the defendant's knowledge that the plaintiff was the trustee of Ms Gibson's superannuation fund arose at the time of payment. The plaintiff's case also appears to be contrary to the pleadings that Ms Wallace was the plaintiff's agent. In these circumstances, at this early stage, I consider the strength of the plaintiff's case in relation to this cause of action to be weak.
Finally, I am satisfied that the plaintiff's claims have been made bona fide. There is no evidence before me that the plaintiff's claims have been made otherwise than in a good faith attempt to recover some of Ms Gibson's superannuation. The fact that the plaintiff amended the statement of claim after the application for security was made (but prior to the application being heard and determined by the Registrar) does not, in my view, indicate a lack of bona fides regarding the claims. A party is entitled to amend its statement of claim in accordance with the RSC.

Was the plaintiff's impecuniosity caused by the defendant's conduct?

I am not satisfied that the defendant's conduct is the cause of the plaintiff's impecuniosity.
As outlined by Le Miere J in Veneziano Coffee Roasters WA Pty Ltd v Healthy Nut Café Pty Ltd:[14]
Where a plaintiff's lack of funds has been caused or contributed to by the defendant, the court will take this consideration into account. The onus is on the plaintiff to prove that it was in an adequate financial state, before its association with the defendant began, to have been able to meet an adverse costs order in the proceeding. That does not mean that the court cannot conclude that the defendant's wrongdoing caused the plaintiff's impecuniosity unless there is evidence to establish the plaintiff's financial health before the wrongdoing occurred. However, the plaintiff must prove causation in the circumstances of the case. (citations omitted)
[14] Veneziano Coffee Roasters WA Pty Ltd v Healthy Nut Café Pty Ltd [2018] WASC 363 [18].
The plaintiff submits that the conduct of the defendant in selling it the miners is a cause of its impecuniosity. Whilst I accept that defendant's conduct is a cause of part of the plaintiff's impecuniosity, I am not satisfied that it is the sole cause or even the predominant cause.
Ms Gibson was the person responsible for setting up the Fund and the plaintiff. It was Ms Gibson who transferred all of her superannuation into the Fund. It was also Ms Gibson who transferred all of the Fund to Ms Wallace, for Ms Wallace to invest. Ms Gibson's evidence is that she did this at the request of Ms Wallace and she felt pressured to do so. The evidence suggests that Ms Gibson then left Ms Wallace to invest the money, seemingly without engaging in direct supervision of her investment activities.
The total amount in the Fund prior to Ms Gibson transferring it all to Ms Wallace was $258,000. The total amount paid by Ms Wallace to the defendant was $115,500. Whilst the sum paid to the defendant is not an insignificant sum in the context of the total amount of the Fund, it is less than half the total value of the Fund.
Ms Gibson is not able to account for what the remaining money from the Fund, being $142,500, was spent on. That amount alone would be sufficient to pay the amount of security sought by the defendant.
Notwithstanding the remaining $142,500 of the Fund, the plaintiff was unable to pay the total of the invoice from the defendant and (assuming the contract is valid) still owes the defendant $57,750.
Accordingly, on the basis of the evidence before me it is not clear that the defendant is the cause of the plaintiff's impecuniosity. Rather, both Ms Gibson and Ms Wallace also appear to be responsible for the plaintiff's impecuniosity, and there is a live question as to whether they are more responsible than the defendant. At best, the defendant's conduct has contributed to the plaintiff's impecuniosity.

Is the application for security oppressive?

I do not consider the defendant's application is oppressive. The indications that an application for security is oppressive include where a defendant has made the application as a means to stifle a genuine claim, or where a defendant has conducted its defence in a manner that prolongs the proceeding.[15]
[15] Jaddcal Pty Ltd v Minson (No 2) [2011] WASC 138 [15]; Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [2013] WASC 57 [31].
There is no evidence before me of any indication that the defendant is bringing the application as a means to stifle a genuine claim. That fact that the plaintiff's claim will be defended is not sufficient. There is no evidence of the defendant conducting its defence in a manner that prolongs the proceeding, although I acknowledge that the proceeding is at a very early stage.
The defendant is seeking security up until the end of discovery in an amount of $42,416.00. I have reviewed the draft bill of costs which explains the calculation of this figure. I do not consider there is anything in that draft bill alone that is unreasonable or could suggest the application is oppressive. I have considered the effect of an order for security on the ability of the plaintiff to prosecute its case later in these reasons.

Would an award deny the plaintiff a right to litigate?

I am satisfied that an award of security in a monetary sum will prevent the plaintiff from continuing to litigate the proceedings. Neither the plaintiff nor Ms Gibson have the present ability to pay any sum of money, even in stages.
The court may decline to order security where to do so would stultify a plaintiff's claim. However, while this a powerful factor in the exercise of discretion, it is only one factor.[16]

Has Ms Gibson offered any security or personal undertaking to be liable for costs?

[16] Phoenix Eagle Co Pty Ltd v Tom McArthur Pty Ltd [2019] WASC 378 [51]; see also Live Board Holdings Ltd v Cody Live Pty Ltd [2017] NSWCA 302 [92] ‑ [93].

Ms Gibson, as the sole director and shareholder of the plaintiff, and the person standing to benefit entirely from the action, has not offered any security or personal undertaking.
When considering an application for security it is appropriate to consider whether those who stand behind the plaintiff and would gain from the litigation are able to provide adequate security.[17] Where such persons can provide security this is a weighty consideration in favour of an order.[18]
[17] Phoenix Eagle Co Pty Ltd v Tom McArthur Pty Ltd [2019] WASC 378 [52].
[18] Sunlea Enterprises Pty Ltd v Pollock [2014] WASC 91 [84].
Ms Gibson is the sole director and shareholder of the plaintiff, and the Fund holds superannuation for Ms Gibson. Accordingly, Ms Gibson stands to benefit from the litigation.
However, Ms Gibson has not offered any security or undertaking as to costs. The plaintiff submits that Ms Gibson has insufficient assets and no ability to offer an undertaking.
Ms Gibson's evidence is that she has not worked since her employment was terminated. Ms Gibson has experienced mental health issues since this time and has been unable to work. Ms Gibson has been receiving Centrelink benefits since that time.
Ms Gibson's only asset of any value is a unit she owns in Bayswater. A valuation of that unit as at May 2024 valued it at $750,000. Ms Gibson owes $480,749.49 on the mortgage for that unit, and as at May 2024, was $47,121.48 in arrears on her repayments to her bank with no means to make any mortgage payments.
Ms Gibson has not lived in the unit since her employment was terminated and has instead resided with her parents or in other accommodation. The unit has not been rented in that period. However, Ms Gibson has recently sought and obtained a variation to the terms of the freezing orders to enable her to sell the unit. However, the unit has not yet been sold.
Ms Gibson's evidence is that her legal fees in the criminal matter are being met by Legal Aid, and she has a deferred fee arrangement with her solicitors in the present litigation and has not, to date, paid any legal fees.
The plaintiff also submits that even if Ms Gibson had sufficient money so as to offer an undertaking, she is not able to currently do so due to the terms of the freezing order. In these circumstances, the plaintiff submits that Ms Gibson is not in a position to offer security for costs or an undertaking as to costs.
It is not entirely clear from the wording of the freezing orders that they prevent Ms Gibson from offering an undertaking as to costs. However, the freezing orders would prevent Ms Gibson from making any payment pursuant to that undertaking. Counsel for the plaintiff accepted that an application for a variation to those terms could be applied for (although whether or not it is granted is a separate question).
The defendant submits that Ms Gibson has not put on any evidence to demonstrate that she has explored other options, such as third party funding from family, friends or litigation funders. The defendant also submits that Ms Gibson may have a claim under the Family Provision Act 1972 (WA) against Ms Wallace's estate. Further, that Ms Gibson and/or the plaintiff may also have a claim as creditors against Ms Wallace's estate, on the same basis as the plaintiff's action against the defendant.
The evidence establishes that Ms Wallace's estate is estimated to have a value of around $1.6 million (following the payment of a life insurance policy). Ms Gibson is not named in the only version of the Ms Wallace's will which has been located to date. Ms Wallace may have a claim for provision from Ms Wallace's estate under the Family Provision Act 1972 (WA), but no claim has yet been made. The evidence is to the effect that negotiations between the estate, Ms Gibson's lawyers and her former employer's lawyers regarding Ms Wallace's estate are on-going.
In response, the plaintiff submits that Ms Gibson is not required to attempt to obtain third party funding. In any event, owing to Ms Gibson's poor financial circumstances, the practical reality is that no third party funder would likely fund the litigation. Finally, the plaintiff submits that, at best, Ms Gibson has a contingent claim against Ms Wallace's estate, but no present entitlement.

Is the defendant in substance a plaintiff?

The defendant is not, in substance, a plaintiff in the proceedings. The plaintiff's claim is not defensive or in response to any action being commenced by the defendant.

Has the application been brought promptly?

The application for security has been brought promptly. The writ was filed on 4 November 2023, and the application for security was made on 29 January 2024.

Does the defendant have any rights which it can exercise against the assets of the plaintiff to satisfy an order for costs?

The defendant does not have any rights which it can exercise against the assets of the plaintiff.

Any other relevant public interest factors

The plaintiff submits that it is relevant that the monies being invested were from Ms Gibson's superannuation and that the defendant knew that the money to pay for the miners was coming from Ms Gibson's superannuation. The plaintiff submits that superannuation is part of a broad legislative policy actively encouraging individuals to provide for their own future and retirement, rather than relying on government assistance. For this reason, superannuation is protected in a number of contexts, including insolvency. The plaintiff submits that there is a public interest in ensuring that self-managed superannuation funds are not unfairly taken advantage of when investing in high-risk investments, such as cryptocurrency mining, by those offering the means to make such investments.
This public interest may be accepted in general terms.
However, it must also be balanced against the role played by Ms Gibson in dissipating the Fund. In the present case Ms Gibson transferred all of her superannuation to Ms Wallace to invest, and trusted her to invest those monies without seemingly keeping herself informed of the details or exercising any supervision of those activities. Whilst Ms Gibson's evidence is that she was not aware of the specifics of the transactions, I consider it reasonable to infer that Ms Gibson, as the de facto partner of Ms Wallace, would more likely than not be aware of Ms Wallace's drug and gambling issues. Accordingly, Ms Gibson is also partly responsible for the position in which both she and the plaintiff find themselves. Both these factors must be weighed.
The defendant submits that the defendant's costs of defending the proceedings will far exceed the amount claimed by the plaintiff. The plaintiff's claim is for $115,500 (plus interest and costs), and the defendant's updated draft bill of costs estimates its recoverable costs for the entire trial at approximately $187,000. On the basis of the current evidence, the defendant would not receive any of these costs if it were successful.
In response, the plaintiff submits that the amount of costs that will be incurred by the defendant will largely depend on how they run their defence of the proceedings. Whilst I accept this submission to a degree, ultimately the defendant will incur costs in defending the proceedings and there is nothing improper in costs being incurred.
The plaintiff also submits that the defendant has not led any evidence as to the precise effect of an unpaid costs order on the defendant. I accept that the defendant has not led any evidence that the defendant is unable to pay these costs, or that being left to pay these costs will result in the defendant entering any form of insolvency and that this is relevant to the exercise of the discretion.

Conclusion as to exercise of discretion

In all the circumstances, I am of the view that the appropriate exercise of the court's discretion is to order that Ms Gibson provide an undertaking as to costs.

I consider this to be the appropriate balance of the relevant interests of the parties in the present case and to be consistent with the object and purpose of s 1335 of the Corporations Act and with the case management principles contained in the RSC.
Ms Gibson has chosen to establish the Fund and the plaintiff as the corporate trustee of the Fund, and as such in addition to receiving the benefits of that limited liability structure, Ms Gibson must also be prepared to accept the structures imposed by s 1335 of the Corporations Act.
Whilst I accept that the contract and misleading or deceptive conduct claims were made bone fide and can be described as being arguable (noting the limits on the extent to which any assessment can be made at this early stage in the proceedings), there is no doubt that the plaintiff will be unable to satisfy a costs order in the defendant's favour if the defendant is successful in defending the proceedings. The financial circumstances of the plaintiff are so dire that it will not be in a position to pay any costs at any stage.
The defendant has provided a draft bill of costs. Whilst the defendant has not led any evidence to demonstrate that this level of costs exposure will have consequences of any particular significance, the defendant is still exposed to paying those costs if successful in defending the proceedings.
Ordinarily, a situation like this may be remedied by the provision of security or an undertaking as to costs by the directors or shareholders of the corporate plaintiff, or the persons likely to benefit from the litigation. In this present case, there is only one person who stands to benefit from the proceedings, and that is Ms Gibson.
However, Ms Gibson has not offered any undertaking as to damages. The plaintiff submits that Ms Gibson is not in a position to do so due to her own financial circumstances and the freezing orders currently in place. The plaintiff submits that in these circumstances, an order for security for costs will stultify the litigation.
I consider it to be significant that Ms Gibson has not even offered an undertaking as to costs. I accept that such an undertaking may presently have limited worth, however I do not consider it is entirely worthless. Ms Gibson does own an asset, being her unit in Bayswater which does have some equity. In the future, Ms Gibson may have a claim under the Family Provision Act 1972 (WA) in relation to Ms Wallace's estate. However, I accept that Ms Gibson has no current entitlement and at best has a contingent claim. Ms Gibson may also have a claim as a creditor of Ms Wallace's estate.
Ms Gibson's financial circumstances are further complicated by the Supreme Court litigation by her former employer and the associated freezing orders. It is also not entirely clear to me that the freezing orders prevent Ms Gibson offering an undertaking, although I accept that the freezing orders, as currently drafted, would prevent Ms Gibson from paying any costs orders made against her. However, there is no evidence before me that Ms Gibson has engaged in any discussions with her former employers about varying the terms of the freezing orders (if required) or has made any such application.
It is also significant that even if the payment to the defendant may have contributed to the plaintiff's current impecuniosity, it is not the sole cause or even the predominant cause. Ms Gibson and Ms Wallace are also responsible. Ms Gibson is the person who transferred the entirety of the Fund to Ms Wallace for her to invest, seemingly without exercising any supervision of those investment activities. The public interest in protecting superannuation funds must be balanced against the role played by Ms Gibson in establishing the Fund and the plaintiff and in transferring all of the Fund to Ms Wallace to invest.
Ultimately, the position is that Ms Gibson has chosen to use a corporate entity as the trustee for the Fund. Ms Gibson now seeks to rely on the impecuniosity of that corporate trustee, and the effect that will have on the ability of the plaintiff to prosecute this action (which is for Ms Gibson's benefit) as a reason to resist an order for security for costs.
I consider that the appropriate balance of the respective interests and the appropriate exercise of the court's discretion is that Ms Gibson ought be required to provide security in the form of an undertaking as to costs. Given the dire financial circumstances of the plaintiff and Ms Gibson, I do not consider the payment of a sum (even in stages) to be appropriate, as this will stultify the litigation. However, I consider the undertaking to be the appropriate balance between the interests of the plaintiff and the defendant, and consistent with the purpose of s 1335 of the Corporations Act. I have also had regard to the various other relevant factors as described earlier in these reasons.
Whilst the undertaking may currently be worth very little (and may possibly be worth very little in the future), the defendant is in no different a position with such an undertaking than if the plaintiff were an individual and not a corporate entity. The value of the undertaking may also alter over time. If Ms Gibson chooses not to provide the undertaking, then the defendant will not incur any additional costs.

Conclusion and orders

For the above reasons I consider the appeal should be allowed. I will hear further from the parties as to precise wording of the final orders, including as to an appropriate period of time for Ms Gibson to provide the undertaking. I will also order the proceedings be stayed if this undertaking is not provided in the time period ordered. I will also order there be liberty to apply so that if the circumstances change applications can made by either party.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
AA
Associate to the Honourable Justice Seaward
19 SEPTEMBER 2024