Panlyn Australia Pty Ltd v Austin Computers Pty Ltd
[2023] WADC 80
•17 JULY 2023
JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CIVIL
LOCATION: PERTH
CITATION: PANLYN AUSTRALIA PTY LTD -v- AUSTIN COMPUTERS PTY LTD [2023] WADC 80
CORAM: HUGHES DCJ
HEARD: 27 JUNE 2023
DELIVERED : 17 JULY 2023
FILE NO/S: CIV 3741 of 2022
BETWEEN: PANLYN AUSTRALIA PTY LTD
Plaintiff
AND
AUSTIN COMPUTERS PTY LTD
First Defendant
ZHAN SHAN HUANG
Second Defendant
Catchwords:
Practice and procedure - appeal against registrar's decision granting security for costs - Application for security for costs
Legislation:
Corporations Act 2001 (Cth), s 1335
District Court Rules 1971 (WA), r 15(6)
Result:
Appeal allowed
Representation:
Counsel:
| Plaintiff | : | Mr M G S Crowley |
| First Defendant | : | Mr P G McGowan |
| Second Defendant | : | Mr P G McGowan |
Solicitors:
| Plaintiff | : | Exceed Legal |
| First Defendant | : | Metaxas Legal |
| Second Defendant | : | Metaxas Legal |
Case(s) referred to in decision(s):
Australian Lens Laboratories Pty Ltd (Receiver and Manager Appointed) v National Australia Bank Ltd [2007] WASC 73
CBS Records Australia Ltd v Telmark Teleproducts (Aust) Pty Ltd (1987) 72 ALR 270
FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd (2000) 22 WAR 241
KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189
Leader Computers Pty Ltd v Panlyn Australia Pty Ltd [2023] WADC 3
Mabrouk Minerals Pty Ltd v Mabrouk Holdings Ltd [2008] WASC 132
Vintage Marine Art Pty Ltd v Henderson and Cremer (No 2) (2019) 101 NSWLR 77
HUGHES DCJ:
On the 6 February 2022 the plaintiff filed an amended appeal notice seeking to appeal against the decision of Deputy Registrar Harman made on 2 February 2023 that:
1.the plaintiff do provide security for the defendant's (sic) costs of the action to the extent of $35,000 in a manner satisfactory to the defendant and failing agreement in a manner determined by the court; and
7.the plaintiff pay the defendant's (sic) costs of the application insofar as it relates to security for the defendant's (sic) costs of the action in any event.
The original appeal notice was filed on 3 February 2023 and was filed within time.
The primary proceedings
The plaintiff (Panlyn) commenced action by writ of summons filed on 30 August 2022 against the first defendant (Austin) and the second defendant (Mr Huang). Mr Huang is the sole director of Austin. Both Panlyn and Austin are duly incorporated companies in Western Australia. The third amended statement of claim filed on 16 March 2023 sets out an action against Austin and Mr Huang in conversion. Panlyn also alleges breaches of the franchise agreement and seeks payment and damages.
Although the writ was filed on 30 August 2022, this matter has had a lengthy history in this court. By way of background, on or around 9 January 2018[1] Austin granted Panlyn a licence by way of a franchise agreement to operate a business known as 'Austin Computers' from different premises in Perth. A term of the franchise agreement was Panlyn was to pay Austin a franchise fee. It was also agreed between Panlyn and Austin that Panlyn would lease commercial premises from Austin. It was subsequently alleged by Austin, Panlyn had not paid franchise fees and owed rent to the various landlords.
[1] Third amended statement of claim, filed on 16 March 2023 on behalf of the plaintiff, par 16.
Central to this dispute are the actions of Mr Huang that on or about 30 December 2019 Mr Huang locked Panlyn out of its premises due to unpaid fees and rent and took possession of all stock held by Panlyn.[2]
[2] Third amended statement of claim, filed on 16 March 2023 on behalf of the plaintiff, par 9.
As a result, on 29 May 2020 Austin commenced action in the Perth District Court by way of writ of summons against Panlyn, Mr Tan and Ms Xiao, CIV 1985 of 2020. On 23 February 2021 Panlyn, Mr Tan and Ms Xiao filed a defence and counterclaim. On 12 July 2021 the matter was listed on the inactive case list and on 12 January 2022 the case was dismissed for want of prosecution. On 20 January 2022 Panlyn, Mr Tan and Ms Xiao applied by way of chamber summons for the counter claim to be removed for the inactive case list. On 31 May 2022 Registrar Kingsley made an order reinstating the counter claim. On 1 June 2022 Austin filed an appeal notice seeking to appeal against the decision of the registrar. On 22 July 2022 the parties agreed Panlyn, Mr Tan and Ms Xiao would discontinue their counter claim, Austin would discontinue their appeal and Panlyn and Ms Xiao would commence fresh proceedings which are the current proceedings before this court.
Further, on 14 May 2020 Leader Computers Pty Ltd (Leader) commenced action in the Perth District Court by way of writ of summons against Panlyn, Honghua Ziao[3] and Austin, CIV 1776 of 2020. Leader seeks payment for computer hardware supplied to Panlyn pursuant to a written credit agreement which payment has not been made. The relevant history of proceedings in relation to those proceedings was set out by Registrar Kingsley in a decision delivered on 13 January 2023 refusing Leader's application for summary judgment.[4] Registrar Kingsley also found that by suing Austin, Leader acknowledges their claim is dependent on the extent Austin is found to be holding some, or all, of Leader's goods.[5]
[3] Honghua Ziao who I have assumed is Honghua Xiao.
[4] Leader Computers Pty Ltd v Panlyn Australia Pty Ltd [2023] WADC 3.
[5] Leader Computers Pty Ltd v Panlyn Australia Pty Ltd [13].
I also agree with the conclusion of Registrar Kingsley the claims of Leader, Panlyn and Austin are all interlinked.[6]
[6] Leader Computers Pty Ltd [17].
Austin's application for security for costs
The solicitor for Austin and Mr Huang first raised the issue of security for costs with the solicitor for Panlyn during a telephone conversation on 13 October 2022 and subsequently filed a chamber summons and affidavit in support on 14 October 2022.
Austin and Mr Huang relied on the affidavit of Mr Gregory Emerson Metaxas filed on 14 October 2022 in support of their application for security for costs. It was deposed:
•The plaintiff has no registered interest in any land in Western Australia.
•In related proceedings[7] Panlyn's director Ms Xiao deposed in an affidavit that for the financial year ended 30 June 2020, Panlyn suffered a loss of approximately $34,000 and have accumulated losses of approximately $130,000. And further, for the year ended 30 June 2020, Panlyn's liabilities were greater than its assets, creating a position of insolvency.[8]
•The plaintiff's creditors come to a total of $1,135,265.
•A draft bill of costs in the sum of $70,000.
[7] CIV 1776 of 2020, Leader Computers Pty Ltd v Panlyn Australia Pty Ltd.
[8] Annexure GEM-5 to the affidavit of Metaxas filed on 14 October 2022 is the affidavit of Ms Xiao filed on 5 April 2022 in relation to the related proceedings CIV 1776 of 2020, pars 27 and 29.
On 20 January 2023 Mr Tan filed an undertaking as to costs. There was no further evidence provided as to financial circumstances of Mr Tan. Panlyn did not file an affidavit or submissions opposing Austin's application for security.
The hearing before Deputy Registrar Harman
The matter was before Deputy Registrar Harman on 2 February 2023. On that occasion Panlyn sought an adjournment to a further special appointment in relation to both Austin and Mr Huang's application for security for costs and to strike out paragraphs of their statement of claim and Panlyn's application for summary judgment due to the amended chamber summons filed by Austin and Mr Huang on 31 January 2023.[9] The adjournment was opposed by Austin and Mr Huang.[10] Deputy Registrar Harman refused Panlyn's application to adjourn to a further special appointment in respect to the application for security for costs.[11] It was submitted on behalf of Austin and Mr Huang that the application for security for costs was not objected to by way of responsive affidavit by Panlyn, therefore the court should accept that the financial position of Panlyn as alleged by Austin, which was essentially insolvent. Panlyn disputed the total amount of Panlyn's creditors (being $1,135,000) submitting the amount contained alleged debts and some were subject to current litigation.[12] It was also submitted Panlyn's case was a 'defensive action' and the financial harm suffered by Panlyn was because of the actions of Austin, therefore this was a 'weighty' reason against the discretion to order security for costs.[13] It was accepted by Panlyn that at the time of the special appointment Panlyn was not in a position to put up any money for costs.[14]
[9] Transcript of proceedings dated 2 February 2023 (ts), ts 3.
[10] ts 7.
[11] ts 10.
[12] ts 13.
[13] ts 16.
[14] ts 17.
In ordering security for costs, Deputy Registrar Harman found Panlyn's financial position 'hadn't improved as a result of the proceedings taken by Leader', a sum sought in the order of $530,000, however Deputy Registrar Harman declined to make a determination as to the total debts owed by Panlyn.[15] The Deputy Registrar found the discretion whether or not to grant security for costs had been enlivened in favour of Austin and Mr Huang, there was 'some validity' to the defendants' submission and he was not in a position to find the likelihood of success of the litigation as submitted by Panlyn.[16] Deputy Registrar Harman found there was no specific disadvantage to the plaintiff that had been put forward and there was no value attached to the undertaking of Mr Tan.[17] Hence security for costs was ordered in favour of the defendants up to the conclusion of the pre‑trial conference, with the parties to determine what form of security was to be provided.[18]
[15] ts 20.
[16] ts 21.
[17] ts 22.
[18] ts 22.
The appeal hearing
Prior to the appeal hearing on 11 April 2023, both Mr Tan and Ms Xiao filed written undertakings as to security for costs and affidavits in support setting out their respective financial positions. Further affidavits were filed by both Mr Tan and Ms Xiao on 3 May 2023 (translated copy filed on 5 May 2023). On 31 May 2023 Austin filed an outline of submissions and relied on the affidavit of Mr Metaxas previously filed on 14 October 2022.
The appeal hearing was listed before me on 27 June 2023. The hearing is a hearing de novo and it is permissible to advance the application by points that were not advanced before the registrar, r 15(6) of the District Court Rules 2005 (WA).[19]
[19] Zaghloul v Bayly [2023] WASCA 64 [50].
It was submitted on behalf of Austin and Mr Huang there was credible testimony to believe Panlyn will be unable to pay the costs of the defendant if unsuccessful, that Mr Tan and Ms Xiao had not made full or frank disclosure of their assets and liabilities and their undertakings are of no value. Panlyn filed submissions on 7 June 2023 and relied on an additional affidavit of Mr Huang, the second defendant filed previously on 26 May 2022 in related proceedings.[20] At the hearing counsel for Austin and Mr Huang denied the merits of the plaintiff's case were strong or overwhelming against the defendants and submitted all of the relevant facts and circumstances of the case are in contest and will be issues at trial. Counsel submitted the chamber summons seeking security for costs was brought in a timely manner. Counsel also submitted the undertaking filed by Mr Tan and Ms Xiao were wholly inadequate and the affidavits filed in support were objected to. Firstly, in relation to the valuation of the property in Rivervale was an opinion obtained from the internet with no evidentiary basis, secondly, the income source of Mr Tan and Ms Xiao of approximately $2,300 per week is unknown, thirdly, the expenditure on Mr Tan's credit card appears to be at odds with the stated financial position of Mr Tan and Ms Xiao, and finally, the fact Mr Tan and Ms Xiao are at risk of losing their residency status in Australia is also made without any evidence.
[20] CIV 1985 of 2020, Austin Computers Pty Ltd v Panlyn Australia Pty Ltd. The affidavit was exhibit 2 of the appeal hearing on 27 June 2023.
Panlyn submitted the discretion to order security for costs should not be granted where a person behind the corporate offers an undertaking. It was also submitted there was sufficient equity in the family home (approximately $300,000) to satisfy the defendant's estimated costs ($70,000). Panlyn disagreed it owed $1,135,000 to various creditors as alleged by Austin. It was also submitted Panlyn's case is prime facie strong and Panlyn's impecuniosity is due to the actions of Austin in locking Panlyn out of the business, and in those circumstances the court ought not exercise its discretion in favour of granting security for costs. It was further submitted, this is a case where Austin availed itself of a 'self help remedy' and Panlyn was forced to sue in order to defend itself and in cases such as these security for costs should not be ordered.[21] At the hearing, counsel for Panlyn accepted that Panlyn is unable to pay the costs of the defendant if unsuccessful, but the undertakings now provided were sufficient, so the first threshold question as to whether it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the defendant's costs has not been met. Counsel relied on a case from NSW that states whilst not an absolute rule, if those behind the corporation make their own assets available to answer a costs order, then security will not be ordered.[22] It was also submitted the actions of Panlyn were defensive in that Panlyn is being pursued by Leader[23] for the same goods or non‑payment of goods seized by Austin and in those circumstances, security is rarely ordered. It was submitted Panlyn's impecuniosity is due to the actions of Austin and the case law indicates this is a factor that goes against the granting of security.
[21] Mabrouk Minerals Pty Ltd v Mabrouk Holdings Ltd [2008] WASC 132 [62] - [63].
[22] Vintage Marine Art Pty Ltd v Henderson and Cremer (No 2) (2019) 101 NSWLR 77 [24].
[23] CIV 1776 of 2020, Leader Computers Pty Ltd v Panlyn Australia Pty Ltd; Minute of proposed further amended statement of claim was exhibit 1 of the appeal hearing on 27 June 2023.
The relevant law
The application for security for costs is made pursuant to s 1335 of the Corporations Act 2001 (Cth) which provides:
Where a corporation is plaintiff in any action or other legal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his, her or its defence, require sufficient security to be given for those costs and stay all proceedings until the security is given.
It is well established the consideration of an application for security for costs pursuant to s 1335 of the Act involves two steps:[24]
1.There is the threshold jurisdictional question as to whether it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the defendant's costs; and
2.If the court is satisfied as to 1, then the court has unlimited discretion as to whether to make an order for security for costs.
[24] FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd (2000) 22 WAR 241.
Once the court's jurisdiction is enlivened the unlimited discretion of the court whether to make an order or not is unfettered and each case must depend on its own circumstances.[25]
[25] FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd[20].
The onus is on the party seeking to persuade the court that an award should be made.[26]
[26] CBS Records Australia Ltd v Telmark Teleproducts (Aust) Pty Ltd (1987) 72 ALR 270, 285.
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 would be unable to pay the costs. There is no evidentiary burden to prove the fact that the company now would not be able to meet a costs order.[27]
[27] CBS Records Australia Ltd v Telmark Teleproducts (Aust) Pty Ltd (285).
In KP Cable Investments Pty Ltd v Meltglow Pty Ltd[28] Beazley J set out the following well established guidelines which the court typically takes into account in determining applications for the security for costs:
•Applications for security for costs should be brought promptly;
•The strength and bona fides of the plaintiff's case;
•Whether the defendant's application for security is oppressive, in the sense that it is being used merely to deny a plaintiff the right to litigate;
•Whether there are any persons standing behind the plaintiff company who are likely to benefit from 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, and if so, the form of the undertaking; and
•Security will only ordinarily be ordered against a party who is in substance a plaintiff, and an order ought not be made against a party that is defending itself and this forced to litigate.
[28] KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 [196] - [197].
Determination
I agree with Deputy Registrar Harman that the threshold jurisdictional question of whether it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the defendant's costs has been met. Panlyn has admitted as much.
I have determined that the application for security for costs was brought promptly by Austin and Mr Huang. I have also determined that whilst Panlyn's case against Austin and Mr Huang cannot be described as overwhelming, there is a bona fide case. The case depends on a number of pleaded representations which are disputed matters of fact and will require determination at trial. Panlyn pleads Austin unlawfully took possession of the stock and refused to release the stock and caused Panyln to breach their agreement with Leader. Panlyn also pleads Austin had no entitlement to remove the stock because the stock did not belong to Panlyn. Austin pleads it was entitled to rely on the franchise agreement that they say was in place and denies any irregularity in the deed. In those circumstances, on the one hand there is a need to ensure adequate protection is provided for the defendants. But on the other hand, the plaintiff has a right to bring bona fide proceedings and should not be shut out by a requirement to put up security.[29] It is a balancing exercise.
[29] Vintage Marine Art Pty Ltd v Henderson and Cremer (No 2) [17].
I am unable to determine whether the impecuniosity of Panlyn was caused by Austin and Mr Huang's actions by locking Panlyn out of the premises and taking possession of the stock as submitted by Panlyn. Nor whether Austin availed itself of a 'self-help remedy'. It is the plaintiff who bears the evidentiary onus of proving the impecuniosity was caused by the defendant.[30] Austin and Mr Huang have pleaded they were entitled to exercise the right under the company charge as contained in the franchise agreement. Therefore, I am not in a position at this hearing to determine this issue. It is an issue for trial.
[30] Australian Lens Laboratories Pty Ltd (Receiver and Manager Appointed) v National Australia Bank Ltd [2007] WASC 73 [47].
Whilst I am satisfied the threshold test has been met, I find the undertaking provided by Mr Tan and Ms Xiao to be a powerful consideration, which in this case is determinative. The undertakings and supporting evidence were not before the Deputy Registrar at the original hearing and the lack of value of the bare undertakings that had originally been filed was taken into consideration by the Deputy Registrar when deciding to excise the discretion in favour of granting security.[31] Whilst I accept to a certain degree the submission of Austin and Mr Huang there are deficiencies in the undertaking including the lack of formal evaluation as to the current value of the house and the uncertainty around the personal finances of Mr Tan and Ms Xiao, including how their current income is derived, I find there is sufficient equity in the house to pay the defendants' costs if Panlyn was unsuccessful. Analysis of the alleged debts of Panlyn by Austin includes alleged debts that are the subject of current litigation including a $399,505.50 owed to Leader and $602,258.10 owed to Austin. Panlyn has only had formal judgment entered against it in respect to the debt owed to Dicker Data Pty Ltd in the sum of $100,000. So, accepting that the value of the Rivervale property is valued at approximately $642,000 leaving equity in the house of approximately $262,000 there is sufficient funds to cover the costs of the defendants if so ordered by the court. The bulk of the debt alleged is still the subject of current litigation and far from being determined.
[31] ts 22.
Further, I regard the claim by Panlyn to be defensive in nature given the proceedings against Panlyn by Leader are directly related to the actions of Austin and Mr Huang. This is evidenced by the fact in defending the alleged breach of the agreement with Leader, Panlyn pleads it was the result of the actions of Austin. This is an additional factor which I have taken into account when exercising my discretion against ordering security for costs.
In all of the circumstances of this case, I decline to exercise my discretion to make an order for costs against the plaintiff.
Orders
I make the following orders:
1.The appeal is allowed.
2.Orders 1 and 7 of Deputy Registrar Harman's orders made on 2 February 2023 be set aside.
3.In lieu thereof, the undertakings of Mr Tan and Ms Xiao filed on 11 April 2023 that they will be personally answerable for any costs order awarded to the defendants in these proceedings (CIV 3741 of 2022) is accepted by the court.
4.The defendants' application for security for costs filed on 14 October 2022 be dismissed.
5.The defendants pay the plaintiff's costs of the appeal and the application.
I certify that the preceding paragraph(s) comprise the reasons for decision of the District Court of Western Australia.
CK
Associate to the Judge
17 JULY 2023
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