Nicolaou v Air Liquide W.A. Pty Ltd
[2024] WASC 309
•27 AUGUST 2024
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: NICOLAOU -v- AIR LIQUIDE W.A. PTY LTD [2024] WASC 309
CORAM: MASTER RUSSELL
HEARD: 6 MARCH 2024
DELIVERED : 27 AUGUST 2024
FILE NO/S: CIV 1921 of 2020
BETWEEN: PETER NICOLAOU
First Plaintiff
KARRI SPRINGS PURE NATURAL SPRING WATER BOTTLING COMPANY PTY LTD (ACN 119 060 267)
Second Plaintiff
AND
AIR LIQUIDE W.A. PTY LTD
Defendant
Catchwords:
Practice and procedure - Costs - Security for costs – Rules of the Supreme Court 1971 (WA), O 25 r 1 and r 3 - Corporations Act 2001 (Cth), s 1335 - Security for costs awarded - Turns on own facts
Legislation:
Corporations Act 2001 (Cth), s 1335, s 1335(1)
Rules of the Supreme Court 1971 (WA), O 25 r 1, O 25 r 3, O 1 r 4B
Result:
Application allowed in part
Category: B
Representation:
Counsel:
| First Plaintiff | : | Mr C S Williams |
| Second Plaintiff | : | Mr C S Williams |
| Defendant | : | Ms F A Stanton |
Solicitors:
| First Plaintiff | : | Solomon Brothers |
| Second Plaintiff | : | Solomon Brothers |
| Defendant | : | Wotton + Kearney |
Cases referred to in decision(s):
BBC Nominees (WA) Pty Ltd v Yangebup Developments Pty Ltd [2008] WASC 81
Braziron Corporate Services Pty Ltd v Road Rail and Mine Products Pty Ltd [2022] WASC 73
Brundza v Robbie & Co (No 2) [1952] HCA 49; (1952) 88 CLR 171
Bryan E Fencott and Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497
Carey-Hazell v Getz Brothers & Co (Aust) Pty Ltd [2004] FCA 1334
Construction Industries Australia Ltd (in liq) v WFI Insurance Ltd [2016] WASC 404
Crosswest Corporation Pty Ltd v Allstrike Enterprises Pty Ltd [2014] WASC 27
Jaddcal Pty Ltd v Minson [No 2] [2011] WASC 138
Live Board Holdings Ltd v Cody Live Pty Ltd [2017] NSWCA 302
Mabrouk Minerals Pty Ltd v Mabrouk Holdings Ltd [2008] WASC 132
Milosevska v Milosevksi [2019] NSWSC 711, 30
Modern Holdings Pty Ltd v Scentre Management [2022] WASC 19
Patrick Jebb as trustee for The Trafalgar West Trust v Superior Lawns Australia Pty Ltd [2019] WASC 12
Phoenix Eagle Co Pty Ltd v Tom McArthur Pty Ltd [2019] WASC 378
Pravenkav Group Pty Ltd v Diploma Construction (WA) Pty Ltd [No 2] [2014] WASCA 106
Soia v Bennett [2012] WASCA 231
Sugarloaf Hill Nominees Pty Ltd as Trustee for The Richard And Anna Trust v Rewards Projects Ltd [2011] WASC 19
Swansdale Pty Ltd v Whitcrest Pty Ltd [2010] WASCA 129
Western Areas Exploration Pty Ltd v Streeter [2008] WASCA 218
Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [2013] WASC 57
Yici Pty Ltd v Sun Wah Marine Products (HK) Co Ltd [No 2] [2010] WASC 27
MASTER RUSSELL:
Introduction
The first plaintiff, Mr Nicolaou, is the sole director and secretary of the second defendant, Karri Springs Pure Natural Spring Water Bottling Company Pty Ltd (Karri Springs), and the sole registered proprietor of the property known as 517 Waistcoat Road, Glenoran in the State of Western Australia (Property).[1]
[1] Being the whole of the land described in certificate of title volume 2536 folio 600, being lot 1 on deposited plan 36557. Affidavit of Michael Ian Hobson sworn on 13 June 2023 (First Hobson Affidavit) [6], 'MIH1'; Affidavit of Peter Sam Nicolaou sworn on 4 October 2023 (First Nicolaou Affidavit) [5].
Karri Springs is the corporate vehicle through which Mr Nicolaou intended to operate a bottling plant at the Property to produce and sell carbonated bottled beverages.
The defendant, Air Liquide W.A. Pty Ltd (Air Liquide), supplies industrial gases, including carbon dioxide.
In essence, the plaintiffs allege that, in about April 2014 and February 2015, Mr Nicolaou, alternatively Karri Springs, entered into supply agreements with Air Liquide for the supply of a static‑mixer and a Sparger for use in the bottling plant, which they claim Air Liquide represented would be fit for certain purposes, and were not. The plaintiffs claim damages (or compensation, as applicable) against Air Liquide for misleading or deceptive conduct, breaches of statutory consumer guarantees, breach of contract and negligence.
Air Liquide has not yet filed a defence, but denies it is liable to the plaintiffs. It applies for orders for security for costs against Mr Nicolaou and Karri Springs pursuant to O 25 r 1 and r 3 of the Rules of the Supreme Court 1971 (WA) (RSC), and against Karri Springs pursuant to s 1335(1) of the Corporations Act 2001 (Cth) (Application). Air Liquide seeks security in the total amount of $200,000, with security of $100,000 to be given by each of Mr Nicolaou and Karri Springs, or such other amount as the Court may order.
In support of the Application, Air Liquide relies on affidavits sworn by Michael Ian Hobson on 13 June 2023 and 19 February 2024, and an outline of submissions filed on 19 February 2024.
In opposition to the application, Mr Nicolaou and Karri Springs rely on affidavits sworn by Mr Nicolaou on 4 October 2023, 31 October 2023 and 23 January 2024, and an outline of submissions filed on 29 February 2024.
For the reasons that follow, the Application is allowed in part, limited at this stage to Mr Nicolaou and Karri Springs providing security for costs, jointly and severally, in the total amount of $30,000 up to close of pleadings. Air Liquide will have liberty to apply for further security for subsequent stages of the proceedings.
Relevant procedural history
The proceedings were commenced by writ of summons indorsed with a statement of claim on 4 September 2020.
The writ was served on Air Liquide on the eve of its expiry, on 3 September 2021.[2]
[2] First Hobson Affidavit [15].
Air Liquide entered an appearance on 10 September 2021.
On 3 November 2021, Mr Nicolaou's and Karri Springs' former solicitors, DLA Piper, applied ex parte for orders that, upon compliance with the requirements of O 8 r 7 RSC, they cease to be the solicitors acting for the plaintiffs.
There were then a series of adjournments agreed between the parties and, on 14 June 2022, the solicitors now acting on behalf of Mr Nicolaou and Karri Springs, Solomon Brothers, filed a notice of change of representation.
On 22 June 2022, orders were made by consent that Mr Nicolaou and Karri Springs file and serve a statement of claim by 4 August 2022. The statement of claim was filed and served on 24 November 2022, in accordance with orders made extending the time for doing so until that date.
On 19 April 2023, orders were made by consent for Air Liquide to file and serve any applications for security for costs or to strike out the statement of claim by 15 May 2023. An amended statement of claim was filed on 24 April 2023.
Orders were made by consent on 29 May 2023 extending the time for Air Liquide to file and serve any application for security for costs or to strike out the statement of claim to 12 June 2023.
Air Liquide filed the Application on 13 June 2023 together with a memorandum of conferral filed pursuant to O 59 r 9 RSC, stating, amongst other matters, that its solicitors raised the matter of security for costs in a letter to Mr Nicolaou's and Karri Springs' solicitors dated 17 February 2023. Air Liquide's solicitors had previously requested the plaintiffs to provide security for costs, or documents as to their capacity to meet an order for costs, in September 2021.[3]
[3] First Hobson Affidavit [31], 'MIH4'.
The Application was initially programmed to a hearing on 26 October 2023. That hearing was vacated by consent to allow Mr Nicolaou and Karri Springs to file and serve further affidavit evidence in opposition to the Application, for Air Liquide to file any affidavit evidence in reply and for the parties to file submissions. The hearing of the Application was re-listed for 6 March 2024.
The plaintiffs' claim
It is not immediately apparent from the amended statement of claim whether the alleged supply agreements referred to are said to be between Mr Nicolaou and Air Liquide or between Karri Springs and Air Liquide. In oral submissions, counsel for the plaintiffs said there was ambiguity as to which plaintiff contracted with Air Liquide, and as such, they each bring their claims in the alternative.
In summary, the plaintiffs' claim, as pleaded in the amended statement of claim, is as follows.
1.In 2010, Mr Nicolaou began building a bottling plant (Bottling Plant) on the Property to develop a business to be undertaken by him, alternatively by Karri Springs (Business), to produce and sell sugar free carbonated water beverages (Product).[4]
[4] Amended statement of claim filed on 24 April 2023 (ASOC) [6].
2.In about 2014, the Bottling Plant was completed and, except for implementing the capacity to carbonate bottled beverages, Karri Springs, alternatively Mr Nicolaou, was ready to begin production of the Product.[5]
[5] ASOC [7].
3.Development of the Bottling Plant and pursuit of the Business was funded by loans to Mr Nicolaou from Australia & New Zealand Banking Group Ltd (ANZ) secured by a first registered mortgage over the Property, and an overdraft taken out by Karri Springs from ANZ.[6]
[6] ASOC [8].
4.In about April 2014:
(a)in conversations between Mr Nicolaou and Bjorn Nielsen, representing Air Liquide, at the Bottling Plant, Mr Nicolaou informed Air Liquide that he, alternatively Karri Springs, operated the Bottling Plant and wanted to add the capacity to carbonate beverages to a specific level of carbonation (as pleaded in the amended statement of claim) (Disclosed Purpose);[7]
[7] ASOC [5], [12].
(b)in a telephone conversation between Mr Nicolaou and Mr Nielsen, Air Liquide advised Mr Nicolaou that a Sulzer static-mixer (Static-mixer) would assist with carbonation and would be suitable to achieve the Disclosed Purpose;[8]
[8] ASOC [13].
(c)in reliance on the alleged advice of Air Liquide, Mr Nicolaou, alternatively Karri Springs, entered into an agreement with Air Liquide for the supply of a Static‑mixer at a cost of $8,794.25 (First Supply Agreement).[9]
[9] ASOC [15].
5.Air Liquide supplied the Static-mixer to Karri Springs, alternatively Mr Nicolaou, on about 2 September 2014.[10]
[10] ASOC [17].
6.Use of the Static-mixer did not achieve the level of carbonation required by the Disclosed Purpose.[11]
[11] ASOC [19].
7.The plaintiffs allege that the Static-mixer was not fit for the Disclosed Purpose,[12] in breach of contract and in breach of the implied terms[13] of the First Supply Agreement.[14]
[12] ASOC [26].
[13] As pleaded in ASOC [16], including consumer guarantees under s 55 of the Australian Consumer Law (ACL), being Sch 2 to the Competition and Consumer Act 2010 (Cth) (CCA), s 19(2) of the Fair Trading Act 2010 (WA) (FTA), further or alternatively, s 131 of the CCA and the condition implied by s 14 of the Sale of Goods Act 1895 (WA) (SGA).
[14] ASOC [26] - [28], [31].
8.On about 5 February 2015, Mr Nicolaou:
(a)informed Air Liquide that the Static-mixer did not achieve the level of carbonation required by the Disclosed Purpose;[15]
[15] ASOC [20.1].
(b)requested a refund for the Static-mixer;[16] and
[16] ASOC [20.2].
(c)sought further advice from Air Liquide as to how the required level of carbonation could be achieved.[17]
[17] ASOC [35].
9.On about 6 February 2015:
(a)Air Liquide advised Mr Nicolaou that a Mott Sparger (Sparger) would assist with carbonation and recommended the Sparger to assist in achieving the Disclosed Purpose;[18]
(b)in reliance on the alleged advice of Air Liquide, Mr Nicolaou, alternatively Karri Springs, entered into an agreement with Air Liquide for the supply of a Sparger at a cost of $700, and a needle valve at a cost of $500 (Second Supply Agreement).[19]
10.Air Liquide supplied the Sparger to Karri Springs, alternatively Mr Nicolaou, in about June 2015.[20]
11.The Sparger supplied by Air Liquide was not suitable for carbonation of water and could not achieve the level of carbonation required by the Disclosed Purpose.[21]
12.Mr Nicolaou and Karri Springs allege that the Sparger was not fit for the Disclosed Purpose,[22] in breach of contract and in breach of the implied terms[23] of the Second Supply Agreement.[24]
13.Mr Nicolaou and Karri Springs claim that because the Static‑mixer and the Sparger were not fit for the Disclosed Purpose, Karri Springs, alternatively Mr Nicolaou, was not able to utilise the Bottling Plant to produce the Product and could not operate the Business.[25]
14.Mr Nicolaou undertook a number of trials between June 2015 and July 2017 to attempt to cause the Bottling Plant to manufacture Product consistent with the Disclosed Purpose, without success.[26]
15.The plaintiffs allege that in or about July 2017, Air Liquide made a further representation to Mr Nicolaou that use of the Sparger in the Bottling Plant was suitable for achieving the Disclosed Purpose,[27] which Karri Springs, alternatively Mr Nicolaou, relied upon and continued to persist with trials to attempt to utilise the Bottling Plant to achieve the Disclosed Purpose, without success.[28] They would not have done so but for the further representation.[29]
[18] ASOC [36].
[19] ASOC [37] - [38].
[20] ASOC [41].
[21] ASOC [42] - [43].
[22] ASOC [48].
[23] As pleaded in ASOC [39], including consumer guarantees under s 55 of the ACL, s 19(2) of the FTA, further or alternatively, s 131 of the CCA and the condition implied by s 14 of the SGA.
[24] ASOC [48] - [50], [52].
[25] ASOC [21], [43].
[26] ASOC [56] - [62], [65].
[27] ASOC [70], [76].
[28] ASOC [77].
[29] ASOC [78].
The plaintiffs claim that Karri Springs, alternatively Mr Nicolaou, has suffered loss and damage as a result of their inability to render the Bottling Plant operational, pursue development of the Business and sale of the Product. They claim that Air Liquide is liable to one or other of them in damages (or compensation, as applicable) for misleading or deceptive conduct, breach of consumer guarantees, breach of contract and in negligence, as pleaded in the statement of claim.[30]
[30] ASOC [21], [25], [32], [34], [43], [47], [51], [53], [55], [82], [84], [85].
No particulars are provided of the loss and damage alleged to have been suffered beyond a general plea that the loss and damage suffered includes loss of profits and service charges and interest accrued on the ANZ loan and overdraft, as a result of Mr Nicolaou's, alternatively Karri Springs', inability to render the Bottling Plant operational and to pursue the development of the Business and sale of the Product.[31]
[31] ASOC [85].
The defendant's position in relation to the plaintiffs' claim
Although no defence has yet been filed, Air Liquide disputes it is liable to either Mr Nicolaou or Karri Springs. In summary, its position in relation to the plaintiffs' claim is as follows:
1.The failure of Mr Nicolaou's business venture cannot be blamed on Air Liquide.[32] It submits that the plaintiffs are seeking to recover losses alleged to have been suffered as a result of Mr Nicolaou's imprudence in embarking on a complex venture without the necessary expertise.[33]
2.Air Liquide was not involved in the design or construction of the Bottling Plant,[34] and did nothing more than sell the Static‑mixer and Sparger to the plaintiffs for the relatively insignificant amount specified in the amended statement of claim. It did not install them in the Bottling Plant.[35]
3.Air Liquide was not engaged by the plaintiffs as a consultant to advise on the efficacy of the Static-mixer and Sparger.[36] In any event, there is no evidence that they were defective or unfit for the alleged Disclosed Purpose.[37]
4.There was no complaint by the plaintiffs about the efficacy of the Sparger until about two years after its supply.[38] The efficacy of the Sparger was first raised by the plaintiffs' lawyer (at that time) in April 2017 in response to a request by Air Liquide for payment of an outstanding amount of $24,302.36 owed to it by Karri Springs for the supply of carbon dioxide. That amount subsequently increased to an amount of over $28,000, at which point, the supply agreements were terminated. The outstanding amount has not been paid.[39]
5.Air Liquide denies that the Static-mixer or the Sparger are the cause of any losses claimed by the plaintiffs. It says, it is likely the Bottling Plant itself, or its operation, is defective and the cause of the loss claimed.[40]
[32] Defendant's submissions in support of application for security for costs filed on 19 February 2024 (Defendant's written submissions) [73].
[33] Defendant's written submissions [74] - [75].
[34] Defendant's written submissions [76].
[35] Defendant's written submissions [77].
[36] Defendant's written submissions [78].
[37] Defendant's written submissions [79].
[38] Defendant's written submissions [80].
[39] Defendant's written submissions [81] - [82]; Affidavit of Michael Ian Hobson sworn 19 February 2024 (Second Hobson Affidavit) [10] - [11], 'MIH22', 'MIH23'.
[40] Defendant's written submissions [83] - [84].
The defendant's application for security for costs
Air Liquide's application for security for costs is brought against Mr Nicolaou and Karri Springs pursuant to O 25 r 1 and r 3 RSC, and against Karri Springs pursuant to s 1335(1) of the Corporations Act 2001 (Cth).
Applicable legal principles
The principles that apply to an application for security for costs are well established and are not in dispute.
In relation to an application under O 25 r 1 and r 3 RSC, I refer to and gratefully adopt Vaughan J's[41] summary in Patrick Jebb as trustee for The Trafalgar West Trust v Superior Lawns Australia Pty Ltd:[42]
[41] As his Honour then was.
[42] Patrick Jebb as trustee for The Trafalgar West Trust v Superior Lawns Australia Pty Ltd [2019] WASC 121 (Jebb) [214] - [215].
214The court has a discretion to make an order for security for costs under O 25 r 1 and r 3 of the Rules of the Supreme Court1971 (WA). That discretion is broad and its exercise depends on all the circumstances of the case.[43] There are, however, some matters to be borne in mind:
(1)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 him or her.[44]
(2)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.[45]
(3)Order 25 r 1 and 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 Rules of the Supreme Court1971 (WA) - 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.[46]
215Accordingly, under O 25 the likely inability of the plaintiff to pay costs is not, standing alone, sufficient to justify ordering security for costs. However, this does not make the plaintiff's inability to pay costs if awarded irrelevant to the exercise of the discretion. To the contrary such a likelihood is one of the many factors that is relevant to the exercise of the discretion.[47]
[43] Mabrouk Minerals Pty Ltd v Mabrouk Holdings Ltd [2008] WASC 132 [57]; Crosswest Corporation Pty Ltd v Allstrike Enterprises Pty Ltd [2014] WASC 27 (Crosswest) [12].
[44] O 25 r 3 RSC.
[45] O 25 r 3 RSC.
[46] O 1 r 4B RSC.
[47] Crosswest [13].
Section 1335(1) of the Corporations Act provides:
(1)Where a corporation is plaintiff in any action or other legal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his, her or its defence, require sufficient security to be given for those costs and stay all proceedings until the security is given.
There is no entitlement to security, nor any predisposition towards an order for security for costs.[48]
[48] Phoenix Eagle Co Pty Ltd v Tom McArthur Pty Ltd [2019] WASC 378 (Phoenix Eagle) [17] (Allanson J), citing Bryan E Fencott and Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497.
Section 1335 carries both a threshold test and a discretionary test. The threshold test is whether it appears, by credible testimony, that there is reason to believe the plaintiff will be unable to pay the defendant's costs, if ordered to do so. It is a jurisdictional precondition to the exercise of the court's discretion.[49] In Western Areas Exploration Pty Ltd v Streeter,[50] in the context of an application for security for costs under s 1335 in an appeal, Pullin JA stated:
3The threshold requirement is met if credible testimony establishes that there is reason to believe there is a real chance that in events which can fairly be described as reasonably possible the appellant corporation will be unable to pay the respondent's costs of the appeal if the appeal is unsuccessful.
4This will be so even if in other events which can also be fairly described as reasonably possible the appellant would be able to pay the costs: Beach Petroleum NL v Johnson (1992) 7 ACSR 203, 205. It has been recognised that the threshold test is a fairly modest test: see Meni's Tailoring & Alterations Pty Ltd v Jeanswest Corporation Pty Ltd (2003) FCA 1108 [4].
5In ascertaining whether there is credible testimony, the court does no more than judge the quality of the evidence to see if it objectively gives rise to a reason to believe: see FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69; (2000) 22 WAR 241 [22].
6If the jurisdictional requirement is met, then the court's discretion is enlivened and there are a number of discretionary factors which have to be considered, but the first question here is whether the jurisdictional requirement has been met.
[49] Western Areas Exploration Pty Ltd v Streeter [2008] WASCA 218 (Western Areas) [2] (Pullin JA), referring to BBC Nominees (WA) Pty Ltd v Yangebup Developments Pty Ltd [2008] WASC 81 (BBC Nominees) [11].
[50] Western Areas [3] - [6].
Once satisfied the threshold has been met and its jurisdiction is enlivened under s 1335(1), the court has a broad, unfettered discretion, which is to be exercised judicially, having regard to the circumstances of the case at hand, and by reference to established principles. Various factors may be relevant to the exercise of the discretion to order security for costs, including but not limited to those collected by Edelman J in Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd,[51] which have been regularly applied by this court. Those non-exhaustive factors include:
[51] Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [2013] WASC 57 (Westonia) [6] (Edelman J), citing BBC Nominees [20]; Carey-Hazell v Getz Brothers & Co (Aust) Pty Ltd [2004] FCA 1334 [28] (French J); Sugarloaf Hill Nominees Pty Ltd as Trustee for The Richard And Anna Trust v Rewards Projects Ltd [2011] WASC 19 (Sugarloaf Hill) [36] (Corboy J); Swansdale Pty Ltd v Whitcrest Pty Ltd [2010] WASCA 129 (Swansdale) [71] ‑ [74] (Kenneth Martin J); Soia v Bennett [2012] WASCA 231 [16] (Newnes JA).
(a)the strength and bona fides of the plaintiff's case;
(b)the likelihood of the plaintiff being unable 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 of security would deny an impecunious applicant a right to litigate;
(f)whether there are persons standing behind the plaintiff who were likely to benefit from the litigation;
(g)whether the persons standing behind the plaintiff have offered any security or personal undertaking to be liable for the costs;
(h)whether the applicant was in substance a plaintiff or the proceedings were defensive in the sense of directly resisting proceedings already brought;
(i)whether the application for security had been brought promptly;
(j)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
(k)any factors relating to the public interest.
There is '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'.[52]
[52] Sugarloaf Hill [31].
The factors relevant to the exercise of discretion under s 1335(1) are also relevant to the exercise of discretion under O 25 r 1 and r 3 RSC,[53] and apply in a similar way to a natural person as to a corporation.
[53] Construction Industries Australia Ltd (in liq) v WFI Insurance Ltd [2016] WASC 404 (Construction Industries) [29] (Pritchard J).
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.[54] If the court is satisfied that an order for security for costs should be made, the security ordered should be an amount which the court considers just in all the circumstances, having regard to a reasonable estimate of the likely taxable costs.[55] It is not necessary to engage in a precise arithmetical exercise. The task is essentially one of discretionary judgment, reasonable estimation, and projection.[56]
[54] Jebb [219], citing Brundza v Robbie & Co (No 2) [1952] HCA 49; (1952) 88 CLR 171, 175.
[55] Jebb [219], citing Construction Industries [45].
[56] Construction Industries [45]; Armada Balnaves Pte Ltd v Woodside Energy Julimar Pty Ltd [2016] WASC 353 [82] (Kenneth Martin J).
The financial position of the plaintiffs
On the evidence adduced, I find that the plaintiffs' respective financial positions are as follows.
Mr Nicolaou
Mr Nicolaou receives only a modest income from a combination of agisting cattle, allowing another party to grow crops on the Property and selling hay. He has no surplus after meeting his living expenses.[57]
[57] First Nicolaou Affidavit [16].
Mr Nicolaou's main asset is the Property,[58] which was valued at $1,580,000 on 18 October 2023.[59] In his affidavit sworn on 4 October 2023, Mr Nicolaou states the improvements to the Property include the Bottling Plant.[60] Counsel for the plaintiff clarified that this refers to the workshop or shed in which the Bottling Plant is housed.[61]
[58] First Hobson Affidavit [6], 'MIH1'; First Nicolaou Affidavit [5], [8].
[59] Affidavit of Peter Sam Nicolaou sworn 31 October 2023 (Second Nicolaou Affidavit) [5], 'PSN-5'.
[60] First Nicolaou Affidavit [6].
[61] ts 56.
There is a mortgage over the Property which secures the ANZ business loan.[62] As at 11 December 2023, the balance owing under that loan was $1,244,052.60 and the interest rate was 9.5% per annum with interest accruing at the rate of around $9,619 per month.[63]
[62] First Hobson Affidavit [42], 'MIH13'.
[63] Affidavit of Peter Sam Nicolaou sworn 23 January 2024 (Third Nicolaou Affidavit) 'PSN-6', page 41.
It is evident from the bank statements attached to the Third Nicolaou Affidavit that no repayments of capital or interest have been made for a number of years, since 28 September 2016. Since that time interest has accrued, monthly late payment fees and quarterly loan administration charges have accumulated and been charged to the loan account increasing the amount owing from $801,081.41 on 17 January 2017 to $1,244,052.60 on 11 December 2023.[64]
[64] Third Nicolaou Affidavit 'PSN-6', pages 6 - 41.
Mr Nicolaou deposes that representatives of ANZ informed him on 11 April 2022 that ANZ would place his accounts on hold and not proceed with a mortgagee sale of the Property while these proceedings are on foot.[65] There is no evidence as to whether this remains the position more than two years later.
[65] Third Nicolaou Affidavit [11].
Though it is submitted on behalf of the plaintiffs that there is equity in the Property, I accept the submissions made on behalf of Air Liquide to the effect that the amount of any equity is being eroded and, by the time any adverse costs order would be payable, the balance of the loan secured by the mortgage over the Property is likely to have increased and may leave little, if any, equity after discharge of the mortgage to ANZ,[66] and costs of enforcement.
[66] Plaintiffs' written outline of submissions filed on 29 February 2024 (Plaintiff's submissions) [17].
In the First Nicolaou Affidavit, Mr Nicolaou deposed that his sole asset is the Property (inclusive of the improvements situated on it, which was stated to include the Bottling Plant sheds, a 100,000L capacity water tank and livestock yards, amongst the other things stated).[67] In the same affidavit he also deposed to what he described as Karri Springs' only material assets, which comprised various vehicles, farm plant and machinery as set out.[68] His estimates of value of these assets were said to be derived from his experience in attending numerous auctions of vehicles and farm plant and machinery, and observing the prices at which items such as those listed had been sold for. However, in the absence of any evidence to verify the valuations attributed to the items and independent valuation evidence, I afford little weight to Mr Nicolaou's evidence as to their value.
[67] First Nicolaou Affidavit [6], [8].
[68] First Nicolaou Affidavit [9].
In the Third Nicolaou Affidavit, Mr Nicolaou deposed that he had reviewed the position and determined that the statements he made as to ownership of the assets of himself and Karri Springs in the First Nicolaou Affidavit were incorrect.[69]
[69] Third Nicolaou Affidavit [6], [7].
Attached to the Third Nicolaou Affidavit is a depreciation schedule said to have been prepared by RSM Manjimup for the year ended 30 June 2023, which lists what Mr Nicolaou describes as his material assets.[70] I upheld Air Liquide's objection to that schedule being adduced as evidence of the value of those assets.
[70] Third Nicolaou Affidavit 'PSN-8'.
The depreciation schedule includes sheds and shed wiring as improvements, which appear to also have been taken into account by him as improvements to the Property.[71]
[71] First Nicolaou Affidavit [6.8].
There are a number of low‑cost assets in the depreciation schedule stated to have cost in total $4,533.82, which were acquired between 2001 and 2019. There is also some plant and equipment stated to have been acquired more recently between November 2020 and January 2023 at a total cost of $4,176.36. However, there is no evidence as to the saleability of those items or how much a sale of them would realise. It is unlikely given their age, and acquisition cost, that a sale of those items would be such as to meet any order for costs made against Mr Nicolaou.
The remaining items in the depreciation schedule relating to Mr Nicolaou's assets appear to be vehicles, farm machinery and equipment acquired between 1988 and 2014 at a total cost of $105,969.88. The most significant item, by reference to the cost for which the items are stated to have been acquired, are a bulldozer acquired in March 1989 at a cost of $41,688 and a Massey tractor stated to have been acquired in May 1998 at a cost of $17,475. Again, there is no independent evidence as to their value and no evidence as to the saleability of those assets and how much a sale of them would be likely to achieve.
Karri Springs
Karri Springs has a paid-up share capital of $1.00.[72] There is no evidence as to Karri Springs' financial position by way of profit and loss statements or balance sheets. However, it does not trade and has no income or cashflow.[73] There is no evidence it owns any real property.
[72] First Hobson Affidavit 'MIH2', page 18.
[73] First Nicolaou Affidavit [16]; ts 57.
Karri Springs has an overdraft with ANZ which, as at 22 December 2023, had a balance owing of $152,504.30, which has increased progressively from $46,815.77 in July 2016. The bank statements record that no payments have been made by Karri Springs in reduction of the overdraft since September 2016.[74] Since then, the only activity on the account is the addition of bank fees and charges (some of which have been reversed) and accrued debit interest.[75] As at December 2023, monthly interest of approximately $1,360 was accruing on the overdraft.[76]
[74] Third Nicolaou Affidavit 'PSN-7', page 43.
[75] The only credits applied to the account are a payment of $186.69 (transfer from ATO) on 18 December 2023 and reversal of bank fees and charges. Third Nicolaou Affidavit 'PSN-7', pages 44 - 133.
[76] Third Nicolaou Affidavit 'PSN-7', page 133.
Mr Nicolaou deposes that the mortgage on the Property in favour of ANZ secures Karri Springs' overdraft, as well as his loan account.[77]
[77] First Nicolaou Affidavit [11] - [14]. See also ts 56.
As referred to, in relation to Mr Nicolaou's financial position, in the First Nicolaou Affidavit, he deposed that Karri Springs' only material assets were vehicles and farm plant and machinery as set out in that affidavit.[78] In the Third Nicolaou Affidavit, Mr Nicolaou's evidence is that was incorrect.[79] Attached to the Third Nicolaou Affidavit is a depreciation schedule said to have been prepared by RSM Manjimup for the year ended 30 June 2023, which lists what Mr Nicolaou describes as Karri Springs' material assets.[80] I upheld Air Liquide's objection to that schedule being adduced as evidence of the value of those assets.
[78] First Nicolaou Affidavit [9].
[79] Third Nicolaou Affidavit [7].
[80] Third Nicolaou Affidavit [7], 'PSN-9'.
On the available evidence, and without any further explanation, it is difficult to discern from the depreciation schedule relating to Karri Springs which of the assets referred to form part of the Bottling Plant. Under plant and equipment is an item described as 'Spring Water Filling System' said to have been acquired at a cost of $427,876.72 in March 2008. However, there is no evidence as to its current value or its saleability.
Under the heading 'Property Improvements' is an item described as 'Shed/Water Bottling Plant' said to have been acquired at a cost of $70,889.84 in March 2008. Again, there is no evidence as to the saleability or achievable sale value of that asset. Counsel for the plaintiffs stated in oral submissions that it is not in issue that improvements to the Property include the workshop (shed) on the Property in which the Bottling Plant is housed, but not the Bottling Plant itself.[81]
[81] This is consistent with the valuation attached as ‘PSN-5’ to the Second Nicolaou Affidavit, which does not include the plant itself as an improvement.
Also included in the depreciation schedule for Karri Springs is a Crown diesel forklift stated to have been acquired in November 2015 at a cost of $24,590. This is subject to a charge by ANZ.[82]
[82] First Nicolaou Affidavit [15]; First Hobson Affidavit [43], 'MIH16'; ts 56.
I am not satisfied on the evidence adduced that either Mr Nicolaou or Karri Springs will be able to realise funds and pay any order for costs made against them.
Disposition
Threshold question
Air Liquide submits that the threshold question empowering the court to order security for costs against Karri Springs under s 1335 of the Corporations Act has undoubtedly been met.
It was accepted on behalf of Karri Springs that it is open to the court to find that the threshold test for s 1335 has been met, in that there is reason to believe by credible testimony that Karri Springs would be unable to meet any adverse costs order made against it.[83]
[83] ts 54.
Adopting a practical, common‑sense approach to the examination of the financial position of Karri Springs and the findings I have made, I am satisfied that the threshold test has been met. That there is reason to believe that Karri Springs will be unable to pay the defendant's costs is a substantial factor in favour of exercising the discretion to grant security for costs.[84] However, that of itself is not determinative. It is necessary to also consider other factors relevant to the exercise of the court's discretion, as outlined.
[84] Pravenkav Group Pty Ltd v Diploma Construction (WA) Pty Ltd [No 2] [2014] WASCA 106 [19]; Swansdale [80]; Modern Holdings Pty Ltd v Scentre Management [2022] WASC 19 [15]; Braziron Corporate Services Pty Ltd v Road Rail and Mine Products Pty Ltd [2022] WASC 73[35].
I turn then to consider those factors, as applicable in this case.
The strength and bona fides of the plaintiffs' case
In general terms, it was submitted on behalf of Mr Nicolaou and Karri Springs that their claim has prima facie merit and discloses clear causes of action against Air Liquide.
Air Liquide outlined in some detail why it submits that, on the face of the amended statement of claim and the documents referred to in it, the plaintiffs' case is weak. It says it lacks prima facie merit and is not bona fide. Air Liquide referred, amongst other things, to emails exchanged between Mr Nicolaou and Mr Nielsen on 5 and 6 February 2015, in which Mr Nielsen stated no promises were made by Air Liquide as to carbonation levels, and its scope was limited to suppling carbon dioxide and a mixer to assist carbonating.[85]
[85] Second Hobson Affidavit ‘MIH-18’, ‘MIH-19’.
As has been referred to and, as observed by Allanson J in Phoenix Eagle,[86] the bona fides of the claim and its merits may be considered in the exercise of the discretion. However, the court should not embark on a detailed consideration of the merits.
[86] Phoenix Eagle [20].
In any event, given the relatively early stage of the proceeding, no defence having yet been filed and the limited evidence before the court, it is not possible, nor appropriate to attempt to undertake a detailed evaluation of the plaintiffs' case.
Ultimately, whether representations as alleged were made, particularly those alleged to have been made orally in April 2024, if put in issue on the pleadings, will need to be the subject of oral evidence and cross‑examination.
I would not go so far at this stage to say that the plaintiffs' claim lacks merit, as Air Liquide submits. However, it appears the plaintiffs may have some challenges, given the lack of clarity as to which of them it is alleged the 'advice' was given and to whom Air Liquide is alleged to have made the representations. There is also ambiguity as to which of the plaintiffs relied upon the alleged advice and representations, which of them entered into the supply agreements with Air Liquide, and which of them suffered loss or damage as a result. The claim lacks particulars as to causation and the loss and damage alleged to have been suffered.
Although the plaintiffs did not raise any complaint until Air Liquide sought payment of its unpaid account, I am not satisfied that in itself is sufficient to establish that their claim is made other than in good faith.
The likelihood of the plaintiffs being unable to pay the defendant's costs
Air Liquide submits that the combined impecuniosity of the plaintiffs puts it at a high risk of being unable to recover any costs awarded in its favour.
It is accepted on behalf of Mr Nicolaou and Karri Springs that neither of them has any cashflow, and the only way funds could be raised to provide security for costs would be by the sale of assets.[87]
[87] ts 57 - 58.
Whilst the depreciation schedules relied upon indicate there may be assets owned by each of Mr Nicolaou and Karri Springs, as I have referred to, the schedules indicate that, other than some items acquired by Mr Nicolaou since 2020, most items were acquired a significant time ago, including some in the 1980s and 1990s. There is no evidence as to the saleability of the assets, and no evidence to which I can attribute any great weight as to how much any sale would achieve. I am not satisfied on the evidence before me that, if there is a market for the assets, their sale would realise sufficient funds to meet any order for costs when made.
In light of the plaintiffs' respective financial positions, as outlined, I find that the plaintiffs are unlikely to be able to pay the defendant's costs if a costs order were made against them. Mr Nicolaou is the sole shareholder of Karri Springs. There is no evidence of any other person standing behind Karri Springs who would be likely to benefit from the litigation, if successful, and who could meet an order for costs made against it.
Whether the application for security has been brought promptly
Although the proceeding was commenced in September 2020, as outlined in the procedural history earlier in these reasons, the writ was not served until September 2021 and the amended statement of claim was not served until 23 April 2023. The Application was brought within a matter of weeks on 13 June 2023, albeit a day later than ordered. Air Liquide's solicitors had previously raised the issue of security for costs with the plaintiffs' solicitors on 17 February 2023,[88] and with the plaintiffs in September 2021.[89] No issue has been taken by the plaintiffs in relation to the short delay.
[88] First Hobson Affidavit [33], 'MIH6'.
[89] First Hobson Affidavit [31], 'MIH4'.
The Application is brought at an early stage of the proceedings. No procedural steps have been undertaken between filing and service of the amended statement of claim and the Application being made. This is not a case in which the delay in bringing the application has encouraged the plaintiffs to rely to their detriment upon the defendant's failure to apply for security earlier.[90]
[90] See Yici Pty Ltd v Sun Wah Marine Products (HK) Co Ltd [No 2] [2010] WASC 27 [6].
In the circumstances, the delay in bringing the Application is not an undue delay, and not a factor I consider weighs against the granting of security.
Whether the plaintiffs' impecuniosity was caused by the defendant's conduct the subject of the claim
Mr Nicolaou and Karri Springs assert that, but for Air Liquide's conduct complained of in the amended statement of claim, they would have been in a better position to service the ANZ loans and overdraft, and in a better financial position generally.[91] This assertion is made at a high level of generality with no specific evidence to support it, such that I can give it little, if any, weight.
[91] Plaintiff's submissions [26] - [27]; First Nicolaou Affidavit [17].
Ultimately, to the extent it is suggested that any impecuniosity of the plaintiffs has been caused by the conduct the subject of their claim, such depends on the contested issues of fact to be determined in the proceedings. Given the early stage of the proceedings, it is not possible to reach any meaningful conclusion as to the cause of the plaintiffs' impecuniosity or diminished financial positions. There is no evidence from which I can determine, at this stage, that such are caused by Air Liquide's alleged conduct.
It is also difficult to reconcile whether Air Liquide's conduct could be responsible for the impecuniosity of both Mr Nicolaou and Karri Springs, when those parties are themselves unable to state clearly which of them contracted with Air Liquide, and which of them is said to have suffered loss and damage as a result of Air Liquide's conduct.
Whether the application is oppressive or an award of security would deny an impecunious plaintiff the right to litigate
Indications of an application for security that is oppressive include (but are not limited to) 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 proceedings.[92]
[92] Jaddcal Pty Ltd v Minson [No 2] [2011] WASC 138 [15]; Westonia [31].
There is no evidence that suggests the Application has been made to stifle the plaintiffs' claim, that Air Liquide has prolonged the proceedings, or the Applications is otherwise oppressive.
It was submitted on behalf of Mr Nicolaou and Karri Springs that they each have assets they could sell to meet their liabilities and an order for costs against them. As I have said, I am not satisfied on the evidence adduced that the assets referred to would be able to be sold to realise sufficient funds to pay costs if, and at the time, awarded in the amount claimed by Air Liquide. I do not consider that an order requiring the plaintiffs to provide security for costs, at this stage, would stultify their pursuit of the proceedings, as submitted, or deny them the right to litigate.
In any event, while stultification of a plaintiff's claim is a powerful factor in the exercise of discretion, it is only one factor.[93] I must also have regard to the possible consequences to Air Liquide of being sued by impecunious plaintiffs.
Other discretionary factors
[93] Phoenix Eagle [51]; see also Live Board Holdings Ltd v Cody Live Pty Ltd [2017] NSWCA 302 [92] ‑ [93].
For completeness, I note that this is not a case where the proceedings are defensive in the sense of directly resisting proceedings already brought Also, there is no suggestion that Air Liquide has any rights which it can exercise against the assets of Mr Nicolaou or Karri Springs to satisfy an order for costs in its favour. Nor are there any factors relating to public interest that bear on the exercise of discretion to grant security for costs.
Having considered the relevant discretionary factors, on balance, I am satisfied that the circumstances favour a grant of security for costs. I turn then to consider the quantum of the security to be provided.
Quantum of security
Air Liquide seeks security for costs in the total amount of $200,000, being $100,000 in respect of each plaintiff. The defendant bears the evidentiary onus of satisfying the court as to the appropriate entitlement.[94]
[94] Milosevska v Milosevksi [2019] NSWSC 711 [76].
In the First Hobson Affidavit, Mr Hobson deposed that Air Liquide's costs to date (as at 13 June 2023) were approximately $160,000. No information is provided as to what work has been undertaken or why the costs to that date are as much as $160,000 when a defence is yet to be filed and it is submitted on behalf of Air Liquide that the plaintiffs' claim lacks merit.
In the plaintiffs' solicitors' letter dated 17 February 2023,[95] Air Liquide's solicitors stated that, as at that date, Air Liquide had incurred costs and disbursements of $120,000 and anticipated costs 'may rise to over $300,000 to a final hearing, or more'. In that letter, Air Liquide's solicitors proposed that the plaintiffs provide for security for costs in the following amounts, at the following stages:
(a)$50,000 within 14 days of the parties serving all pleadings;
(b)$50,000 within 14 days of the parties serving all discoverable documents;
(c)$75,000 to be paid for undefined 'interim procedures'; and
(d)$100,000 within 14 days of the proceedings being set down for final hearing.
[95] First Hobson Affidavit 'MIH6'.
In his affidavit, Mr Hobson estimates Air Liquide's taxed legal costs to final hearing will be $300,00 with an additional $50,000 in fees for expert witnesses. He provides a high‑level summary of likely further work, including:
(a)drafting a defence;
(b)giving discovery;
(c)inspecting discovered documents;
(d)considering the plaintiffs' expert evidence in relation to the operation of the Static-mixer and Sparger and in relation to the cause and extent of any losses suffered by the plaintiffs;
(e)retaining and instructing experts and facilitating expert witness conferral;
(f)engaging in mediation;
(g)getting the matter up for trial; and
(h)trial hearing.
No breakdown of the costs or draft bill of costs has been provided and no information as to the time spent or estimated to be spent, by whom the work has been or will be undertaken and the applicable hourly rates.
It was submitted on behalf of the defendant that it is 'a very expensive case', which necessarily involves expert evidence in the fields of engineering, sales and marketing and forensic accounting. In my view, it cannot be certain what, if any, expert evidence may be required until the pleadings are closed and it is known what is in issue in the proceedings.
As submitted on behalf of Mr Nicolaou and Karri Springs, whilst the court may take judicial notice of costs by reference to the relevant costs determinations and scales, it is of little assistance to state global figures by reference to stages of litigation in broad terms with no breakdown, rates and time to be applied. It should not be for the court to undertake this exercise on behalf of the defendant.
In any event, it is not necessary, in my view, that security be granted in the form of a lump sum, as sought by Air Liquide. The proceedings are still at a preliminary stage. The issues, extent of discovery and any expert evidence are yet to crystalise. It is not possible, at this stage, to say what the extent of lay or expert evidence will be, or the length of any trial so as to project and arrive at a reasonable estimate of the likely taxable costs up to and including trial.
I make no determination at this stage but, for example, whether any representations were made, as alleged, may be a matter that could be determined before significant costs are incurred engaging experts of various disciplines, as suggested. However, until the issues in dispute are distilled, it is too early to say. In accordance with contemporary practice, I consider the appropriate course, in the circumstances, is to grant security in tranches.
At this stage, security is to be provided up to the close of pleadings. Given the same claim is effectively advanced by each of the plaintiffs in the alternative, I am satisfied the plaintiffs should be ordered to provide such security for costs jointly and severally.
As to the amount of security to be provided up to the close of pleadings, I consider that $30,000 is just in the circumstances of this case, as outlined. In my view, this reflects a reasonable estimate of likely taxable costs, having regard to the applicable costs determinations and scales, noting those are maximums on a solicitor/client basis, not a party/party basis.
Following close of pleadings, the parties should consider engaging in an early mediation, before incurring further costs of full discovery and expert evidence.
Conclusion and orders
For these reasons, I am satisfied that it is appropriate to make an order for security for costs in favour of Air Liquide but limited, at this stage, to $30,000 to close of pleadings. The plaintiffs are to provide security for costs by payment into court, unless some other form of security is agreed between the parties. Air Liquide will have liberty to apply for further security in relation to subsequent stages of the proceedings.
I will hear from the parties as to the final form of the orders to be made, including the date by which security is to be provided, and as to costs, including the costs reserved in relation to the orders made on 25 October 2023 and 30 November 2023.
If the parties are able to agree orders, they should file a minute of agreed orders by 3 September 2024. If they are unable to agree, they should each file minutes of proposed orders by that date.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
AP
Associate to Master Russell
27 AUGUST 2024
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