Nield v Contract Power Management Australia Pty Ltd
[2007] WADC 195
•7 NOVEMBER 2007
NIELD -v- CONTRACT POWER MANAGEMENT AUSTRALIA PTY LTD [2007] WADC 195
| DISTRICT COURT OF WESTERN AUSTRALIA | Citation No: | [2007] WADC 195 | |
| Case No: | CIV:794/2003 | 5 NOVEMBER 2007 | |
| Coram: | O'BRIEN DCJ | 6/11/07 | |
| PERTH | |||
| 10 | Judgment Part: | 1 of 1 | |
| Result: | Application dismissed | ||
| PDF Version |
| Parties: | MATTHEW JOHN NIELD CONTRACT POWER MANAGEMENT AUSTRALIA PTY LTD TRITON BROKING SERVICES (WA) PTY LTD |
Catchwords: | Application for security for costs Appeal against Registrar's decision |
Legislation: | Corporations Act 2001(Cth) s 1335 |
Case References: | Australian Lens Laboratory Pty (recs and mgrs apptd) v National Australia Bank Ltd [2007] WASC 73 Bryan E Fencott Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 CBS Records Australia Ltd v Telmak Teleproducts (Aust) Pty Ltd (1987) 72 ALR 270 FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd (2000) 22 WAR 241 Hazart Pty Ltd v Rademaker (1993) 11 WAR 26 Hunt & Anor v Knabe (No 2) (1992) 8 WAR 96 |
JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Plaintiff
AND
CONTRACT POWER MANAGEMENT AUSTRALIA PTY LTD
Defendant
TRITON BROKING SERVICES (WA) PTY LTD
Third Party
Catchwords:
Application for security for costs - Appeal against Registrar's decision
Legislation:
Corporations Act 2001(Cth) s 1335
(Page 2)
Result:
Application dismissed
Representation:
Counsel:
Plaintiff : No Appearance
Defendant : Mr P E Jarman
Third Party : Mr M P Cornes
Solicitors:
Plaintiff : Not applicable
Defendant : Jarman McKenna
Third Party : Minter Ellison
Case(s) referred to in judgment(s):
Australian Lens Laboratory Pty (recs and mgrs apptd) v National Australia Bank Ltd [2007] WASC 73
Bryan E Fencott Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497
CBS Records Australia Ltd v Telmak Teleproducts (Aust) Pty Ltd (1987) 72 ALR 270
FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd (2000) 22 WAR 241
Hazart Pty Ltd v Rademaker (1993) 11 WAR 26
Hunt & Anor v Knabe (No 2) (1992) 8 WAR 96
(Page 3)
1 O'BRIEN DCJ: This is the third party's appeal against the Registrar's decision dismissing its application that the defendant give security for the third party's costs.
2 The plaintiff commenced his action by writ of summons filed on 10 April 2003.
3 The third party notice was filed on 14 July 2003.
4 The plaintiff sues the defendant as his employer. The plaintiff claims that during his employment in Kalimantan he was exposed to unhygienic food and contracted an infection which had serious health consequences causing significant injury and financial loss.
5 The defendant brings third party proceedings against an insurance broker. The defendant alleges that the third party failed to procure an appropriate insurance policy which would cover a claim by a person in the plaintiff's position.
6 The chronology of the third party proceedings is outlined in an affidavit sworn by the third party's solicitor on 27 July 2007.
7 That undisputed chronology is as follows.
8 The third party's solicitors first raised the issue of security for costs with the defendant's former solicitors in February 2004.
9 By letter dated 5 February 2004 Minter Ellison requested security for costs in the sum of $25,000. Minter Ellison also posed the question to the defendant's former solicitors:
"Will you agree in the interests of saving costs that if we defer our application for the time being, you will not take a point about delay? That way, we can concentrate on cooperating to defeat the plaintiff's claim."
10 By letter dated 7 May 2004 Minter Ellison followed up the request for security for costs advising the defendant's former solicitors:
"We anticipate that our client will instruct us to apply to the court for appropriate orders to provide the requested information if it is not provided to us as requested …"
11 By letter dated 21 May 2004, the defendant's former solicitors informed Minter Ellison that they did not have the defendant's agreement
(Page 4)
- to provide security for costs and expressed the view that there is no basis for such a claim.
12 All interlocutory matters between the defendant and the third party were completed in November or December 2004.
13 Between then and mid 2007, the plaintiff and defendant were engaged in protracted interlocutory "stouches".
14 By letter dated 5 July 2007 to the defendant's solicitors, Minter Ellison noted that the matter was likely to proceed to trial and wrote that the third party "is considering security for costs" expressing the third party's concern that the defendant would not be able to meet a costs order against it in favour of the third party.
15 Minter Ellison outlined the third party's concerns about the defendant's inability to pay costs which are substantially the same as raised in this application.
16 Again, Minter Ellison expressed its view that "we expect we will be instructed to proceed to apply to the court for orders requiring [the defendant] to make a payment into court of not less than $50,000 as security for [the third party's] anticipated costs …".
17 As an alternative, Minter Ellison informed the defendant's solicitors that the third party "may be prepared to accept a personal undertaking from [the defendant's director] that he will meet any costs orders against [the defendant]".
18 The third party does not seek an order to this effect as an alternative to an order against the defendant or at all.
Applicable legal principles
19 The hearing of the appeal is a complete review de novo of the Deputy Registrar's orders (Hunt & Anor v Knabe (No 2) (1992) 8 WAR 96 and Hazart Pty Ltd v Rademaker (1993) 11 WAR 26).
20 The application is made pursuant to s 1335 of the Corporations Act 2001 (Cth) which provides:
"Where a corporation is a plaintiff in any action or other legal proceeding, the court having jurisdiction in any 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
(Page 5)
- defendant if successful in his, her, or its defence, requires sufficient security to be given for those costs and stay all proceedings until the security is given."
21 It is common cause that for the purpose of determining the application under that section, a third party proceeding should be treated as an action. Accordingly, the third party in this action should be in the position of the defendant referred to in the section.
22 It is also not in dispute that a consideration of an application for security of costs pursuant to s 1335 involves two steps:
(1) There is a threshold jurisdictional question of whether it appears by credible testimony that there is reason to believe that the corporation will be unable to pay third party's costs; and
(2) If the Court is satisfied as to (1), then the Court has an unlimited discretion as to whether to make an order for security for costs; FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd (2000) 22 WAR 241.
23 There is ample authority for the proposition that the Court's discretion to order security for costs is unfettered and each case must depend on its own circumstances. I refer to without citing the cases listed in par 6 of the third party's written outline of submissions filed on 31 October 2007.
24 The onus is on the party seeking to persuade the Court that an award should be made; CBS Records Australia Ltd v Telmak Teleproducts (Aust) Pty Ltd (1987) 72 ALR 270 at 284.
25 What is required by the Court is an evaluation of the evidence led by the applicant for the order to see whether that leads to a reason to believe that the corporation will be unable to pay the costs, in this case of the third party. There is no evidentiary burden of proof: FFE Minerals (supra) at 248 [22].
26 The parties agree that the relevant guidelines for determining an application include the following:
• That such applications be brought promptly.
• That regard is to be had to the strength and bona fides of the applicant's case.
(Page 6)
• Whether the third party has contributed to the defendant's inability to pay costs.
• Whether the respondent's application for security is oppressive.
• Whether there are any persons standing behind the company who are likely to benefit from the litigation and who are willing to provide necessary security.
• Whether the person standing behind the company have offered any personal undertaking to be liable for the costs.
• Whether an order for security for costs may have the effect of stultifying the action.
• Whether it appears that the third party is seeking to stifle a legitimate action.
27 It is not necessary in the context of this application to examine all those factors.
Whether the defendant is unable to pay the third party's costs
28 I turn to a consideration of the jurisdictional issue.
29 The third party relies on the affidavit of Mr Edwards sworn 27 July 2007 where it deposes by reference to appropriate documents that:
• The defendant has $4 in paid up capital.
• The defendant has no registered interest in land.
• The defendant has not filed a company return since 2002.
30 The third party submits that this information reveals that the defendant will be unable to pay the costs of the third party if it is unsuccessful in the third party proceedings.
31 This is particularly because of the following factors:
• The likelihood that the defendant will have already incurred substantial legal costs in relation to the action.
• The plaintiff is claiming around $2 million in damages.
(Page 7)
• The possible costs orders and quantum thereof that may ultimately be made in the action.
Failure to lodge annual return since 2002
32 The third party relied on the defendant's failure to lodge an annual return with ASIC since 2002 as evidence supporting a claim that the defendant has not been trading since then.
33 However, ASIC abolished the requirement to lodge annual returns from 1 July 2003. Thus that claim does not support the third party's application.
34 I was not referred to any other alleged breach of statutory or regulatory duty to support the submission that the defendant had ceased trading.
35 As to whether the defendant has been trading, a perusal of the ASIC search in relation to the defendant reveals there has been activity by the defendant principally relating to fixed and floating charges which have been registered and discharged over the years before and since this action was commenced.
36 The latest charge was created on 31 January 2005 and registered on 8 March 2005.
37 The chargee is Esanda Finance Corp Ltd. One would expect that if the company had ceased trading, that the chargee would have by now taken action to enforce its rights under the charge.
38 It is also a reasonable inference to draw that at least at the time the charge was created, the defendant had sufficient assets to satisfy the charge if the chargee sought to enforce it. However, it is not possible to draw any other inference as to the amount of the charge.
39 There is no evidence to establish that the defendant has ceased trading as there is no evidence, for example, that the defendant has no business premises, staff, telephone number or other indicia of carrying on a business. There is no evidence that an administrator has been appointed, enquiries about which would be simple to make.
(Page 8)
The third party has no real property
40 This fact does not establish impecuniosity of the defendant, either of itself or in conjunction with the other matters relied on by the third party. Many companies who operate businesses are in this position. Further, although it may not be possible to satisfactorily enquire into this, the defendant may well beneficially own property through a trustee company.
Paid up share capital
41 The third party relies on the evidence that the paid up shared capital is $4. Again, this is not unusual. Many companies are in this situation without being impecunious.
42 This action has been on foot since mid 2003 with significant interlocutory proceedings between the plaintiff and the defendant. It is a reasonable inference to draw that the defendant has incurred significant solicitor-client costs in that period of time. In those circumstances, it is highly unlikely that the defendant's solicitors would be "carrying" the defendant pending a successful outcome to the litigation which is likely to result in further significant solicitor-client costs, an example of which is contained in the third party's draft bill of costs filed on 30 July 2007 (Att JLE6).
Other inquiries
43 There is no evidence that the third party conducted a "writ search" in the registeries of WA courts to ascertain if the defendant had other litigation pending.
44 There is no evidence that the defendant (sic) interrogated credit reference agencies to ascertain if the defendant has outstanding costs.
45 These inquiries are simple to make.
Decision
46 On the evidence before me, I am not satified that the third party has produced credible testimony so that it appears that there is reason to believe that the defendant will be unable to pay the costs of the third party if it is successful in its defence.
(Page 9)
The discretion
47 For the sake of completeness, I turn to the discretionary issues to consider if the third party had overcome the jurisdictional preliminary issue.
48 First, the impecuniosity of the defendant does not automatically confer entitlement to an order for security of costs, although it is a factor to consider when exercising the discretion; Bryan E Fencott Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 at 506.
Strength and bona fides of third party's case
49 It would seem that as the third party's defence relies upon the defendant not communicating information that the defendant's employees were working overseas, the parties agree that the issue boils down to one of credibility, that is, whether the defendant can prove that it communicated the relevant information to the third party to ensure the appropriate insurance policy was taken out. Accordingly, it is not possible to make any realistic determination of the strength of the third party's case.
50 Suffice to say that the third party does not dispute that the defendant has a bona fide case.
Delay
51 I have outlined some of the factors to consider in the exercise of a discretion to make an order that a party give security for costs. In all the circumstances, the issue of delay in making the application is the most significant one.
52 It is not in dispute that applications for security for costs should be brought promptly. If there is a delay in bringing the application, the Court might have regard to the detriment caused by the delay.
53 The third party submits that the defendant has not been materially prejudiced by the third party's delay in bringing an application for security of costs.
54 In this regard the third party points to the following factors:
• The only progress in the third party proceedings since 2004 has been the completion of discovery and inspection of documents;
(Page 10)
• The plaintiff's action stalled due to several interlocutory disputes between the plaintiff and the defendant between 2004 and 2007;
• The third party seeks security for future costs only.
55 Notwithstanding an implied foreshadowing that an application for security for costs might be made if the defendant did not agree to such as outlined in the third party's letter dated 5 February 2004 and repeated in the third party's letter dated 7 May 2004 and despite the bald statement by the defendant's former solicitors in its letter to Minter Ellison dated 21 May 2004 that the defendant does not agree to provide security for costs, no further action was taken by the third party.
56 In those circumstances, the defendant could reasonably assume that the third party had second thoughts about making an application for security for costs. Certainly there is no evidence before the Court that suggests that the third party made inquiries earlier than in or around its letter to the defendant dated 5 July 2007 as to the defendant's financial position.
57 As a result of the delay, the defendant submits that it stands to lose the benefit of costs incurred since the third party first considered the security for costs issue.
58 As Master Newnes (as he then was) said in Australian Lens Laboratory Pty (recs and mgrs apptd) v National Australia Bank Ltd [2007] WASC 73 at [36]:
"In the exercise of its discretion the court will be concerned to achieve a balance between ensuring the defendant is adequately and fairly protected, and avoiding injustice to an impecunious plaintiff company by unnecessarily shutting it out or prejudicing it in the conduct of the litigation: Buckley v Bennell Design & Construction Pty Ltd (1974) 1 ACLR 301 at 304; Tradestock Pty Ltd v TNT (Management) Pty Ltd (1977) 14 ALR 52 at 56."
59 In all the circumstances, even if the third party had established the threshold issue, I would not exercise my discretion to make an order for security for costs against the defendant. It follows that even if the directors of the defendant have the means to give security for costs, that such an order should not be made.
60 I would dismiss the appeal.
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