FEDERAL COURT OF AUSTRALIA
Power Infrastructure Pty Ltd v Downer EDI Engineering Power Pty Ltd
[2010] FCA 1222
Citation: Power Infrastructure Pty Ltd v Downer EDI Engineering Power Pty Ltd [2010] FCA 1222 Parties: POWER INFRASTRUCTURE PTY LIMITED (ACN 126 099 643) v DOWNER EDI ENGINEERING POWER PTY LIMITED (ACN 000 983 700) File number: NSD 692 of 2010 Judge: KATZMANN J Date of judgment: 10 November 2010 Catchwords: PRACTICE AND PROCEDURE – security for costs – credible testimony that there is reason to believe that the applicant corporation will be unable to pay the respondent’s costs if successful – applicant company argued that it was not impecunious as it was owed a debt by the respondent or had a right to damages for breach of contract – where the alleged debt or right to damages is the subject of the proceedings Legislation: Corporations Act 2001 (Cth), s 1335(1) Cases cited: Beach Petroleum NL v Johnson (1992) 7 ACSR 203 not followed
FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69, 22 WAR 241 cited
Fiduciary Ltd v Morningstar Research Pty Ltd [2004] NSWSC 664, 208 ALR 564 applied
Health Information Pharmacy Franchising Pty Ltd v Khoo [2010] FCA 438 applied
Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 744 applied
Jazabas Pty Ltd v Haddad [2007] NSWCA 291, 65 ACSR 276 applied
KP Cable Investments v Meltglow Pty Ltd (1985) 56 FCR 189 applied
Livingspring Pty Ltd v Kliger Partners [2008] VSCA 93, 20 VR 377 applied
Reinsurance Australia Corporation Ltd v HIH Casualty & General Insurance(in liq) [2003] FCA 803 applied
Smart Co Pty Ltd v Clipsal Australia Pty Ltd [2009] FCA 1253 applied
Soul Pattinson Telecommunications Pty Ltd v Subex Americas Inc [2009] FCA 651 cited
Tradestock Pty Limited v TNT (Management) Pty Limited (1977) 14 ALR 52 citedDate of hearing: 14-15 October 2010 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 30 Counsel for the Applicant: Mr N Cotman SC with Mr I Griscti Solicitor for the Applicant: CLS Legal Counsel for the Respondent: Mr R Dick SC Solicitor for the Respondent: Mallesons Stephen Jaques
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 692 of 2010
BETWEEN: POWER INFRASTRUCTURE PTY LIMITED
(ACN 126 099 643)
ApplicantAND: DOWNER EDI ENGINEERING POWER PTY LIMITED (ACN 000 983 700)
Respondent
JUDGE:
KATZMANN J
DATE OF ORDER:
10 NOVEMBER 2010
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
1.The applicant is to provide security for the respondent’s costs of and incidental to defending the proceeding in the sum of $200,000 by payment into Court or by an irrevocable bank guarantee issued by an Australian bank for the same amount.
2.The sum is to be paid in two equal instalments, the first within 28 days of this order, the second at least 28 days before the date the proceeding is fixed for hearing.
3.The proceeding is stayed until the sum is…
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Details
- Case
- [2010] FCA 1222
- Decision Date
CaseChat Overview and Summary
Power Infrastructure Pty Ltd sought an order for security for costs against Downer EDI Engineering Power Pty Ltd (DEE) in a legal dispute. The case was heard in the Federal Court of Australia, where the primary issue was whether Power Infrastructure would be able to pay DEE's costs if it were to lose the case. The dispute arose from a claim for damages by Power Infrastructure against DEE for alleged breaches of contract and an unacknowledged debt. DEE, the defendant, argued that Power Infrastructure was impecunious and therefore unable to pay any potential costs awarded to DEE if it won the case.
The legal issues before the court included whether Power Infrastructure had demonstrated sufficient financial standing to meet any costs order and whether DEE had discharged its burden of proving that Power Infrastructure was likely to be unable to pay the costs. DEE provided affidavits from Ashley Black, a partner in Mallesons Stephen Jaques, and Valerie Higinbotham, a solicitor and costs consultant, to support its claim of impecuniosity. Power Infrastructure, on the other hand, tendered a report from Jason Murray, a chartered accountant, which was deemed irrelevant and inadmissible by the court.
The court found that the evidence provided by DEE was credible and persuasive enough to support a rational belief that Power Infrastructure would be unable to pay the costs if ordered. The court rejected Power Infrastructure's argument that its claim for an unacknowledged debt or breach of contract should defeat the impecuniosity argument, finding it to be specious. Given that Power Infrastructure did not present any other basis to resist the motion and that the application was made promptly and in good faith, the court exercised its discretion in favour of DEE. The court ultimately granted the application for security for costs, leaving the amount of the security to be determined.
The final orders of the court included granting DEE's application for security for costs and directing Power Infrastructure to provide a bank guarantee or other security to cover the anticipated costs. The exact amount of the security was to be determined in further proceedings.
The legal issues before the court included whether Power Infrastructure had demonstrated sufficient financial standing to meet any costs order and whether DEE had discharged its burden of proving that Power Infrastructure was likely to be unable to pay the costs. DEE provided affidavits from Ashley Black, a partner in Mallesons Stephen Jaques, and Valerie Higinbotham, a solicitor and costs consultant, to support its claim of impecuniosity. Power Infrastructure, on the other hand, tendered a report from Jason Murray, a chartered accountant, which was deemed irrelevant and inadmissible by the court.
The court found that the evidence provided by DEE was credible and persuasive enough to support a rational belief that Power Infrastructure would be unable to pay the costs if ordered. The court rejected Power Infrastructure's argument that its claim for an unacknowledged debt or breach of contract should defeat the impecuniosity argument, finding it to be specious. Given that Power Infrastructure did not present any other basis to resist the motion and that the application was made promptly and in good faith, the court exercised its discretion in favour of DEE. The court ultimately granted the application for security for costs, leaving the amount of the security to be determined.
The final orders of the court included granting DEE's application for security for costs and directing Power Infrastructure to provide a bank guarantee or other security to cover the anticipated costs. The exact amount of the security was to be determined in further proceedings.
Orders
Orders of the court
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Background
Background to the litigation
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Evidence
Evidence Before The Court
DEE relies on affidavits from Ashley Black, a partner in Mallesons Stephen Jaques, DEE’s solicitors, sworn 28 July 2010 and Valerie Higinbotham, a solicitor and costs consultant, sworn 16 September 2010. Power Infrastructure relies on affidavits from Kerrie-Ann Rosati, a solicitor and costs consultant, sworn 26 August 2010, and John Murray, a chartered accountant, sworn 1 September 2010.The evidence showing impecuniosity On 15 July 2010 Mr Black wrote to Power Infrastructure’s solicitors expressing his client’s concern about the prospect of significant costs being incurred in the defence of the proceeding. He noted that a company search of Power Infrastructure had disclosed that it has a paid-up share capital of $1 and has not filed accounts. In order to allow his client to assess Power Infrastructure’s ability to satisfy any adverse costs order, he requested details of its current financial position, including (but not limited to) copies of its most recent accounts (audited where available), details of any real property or other fixed assets held within the jurisdiction and details of any current loan facilities or other financial accommodation extended to it. In the event that Power Infrastructure was not willing to provide the information, Mr Black sought confirmation that it would provide a bank guarantee or some other form of security to be agreed upon to protect DEE’s costs in an amount not less than $A300, 000. On 23 July 2010 Power Infrastructure’s solicitors replied to Mr Black, the substance of which read:Our client was incorporated as a single purpose company for undertaking a joint venture enterprise of the type it undertook with your client.Accordingly, it has no significant assets, given the outcome of that enterprise for our client.Our client is unwilling to provide security for the costs of the proceedings.It is evident that, but for the wrongful conduct of your client, our client would be in a strong financial position.....The impecuniosity of our client is due entirely to your client’s actions.In those circumstances we do not consider that the Court will order that our client give security for the costs of the proceedings.We consider, in any event, your client should articulate a sworn Defence so that it may be seen what the genuine scope of the factual and legal controversy is between the parties before you take any further step in respect of security for costs.Please let us have your client’s sworn Defence promptly. Mr Black replied by letter dated 26 July 2010. He stated, amongst other things, that he assumed that Jason Power, whom the company search showed was the sole shareholder, director and secretary of Power Infrastructure, was not willing to put his company in funds to meet an adverse costs order although he stood to benefit from any success it might enjoy in the proceeding. He rejected the assertion that his client’s conduct was responsible for Power Infrastructure’s impecuniosity. He also indicated, in effect, that it was imprudent for DEE to incur the costs of drafting a defence when it was now plain Power Infrastructure would not meet the costs of DEE doing so if it ultimately failed in the proceeding.
Decision
Reasons for decision
Power Infrastructure tendered a report from Jason Murray, a chartered accountant, retained by Power Infrastructure. The report purports to detail the company’s “entitlement to profits for the year ending 30 June 2009 pursuant to the Memorandum of Understanding”. It purports to evaluate the alleged chose in action. It is based on a number of assumptions which DEE argued were not proved. Most of the report was the subject of objection. It is unnecessary to canvass the various objections or to deal with the alternative submission that the bulk of the report should be rejected in the exercise of the Court’s discretion under s 135 of the Evidence Act 1995 (Cth) or a limiting order made under s 136. Mr Murray’s report is inadmissible because it is irrelevant. As I am to approach the threshold question on the basis that Power Infrastructure will lose its case, the value of any part of its claim is not evidence that, if accepted, could rationally affect (directly or indirectly) the assessment of the probability of the existence of a fact in issue on the motion. Conclusion In my view, the evidence DEE adduced through Mr Black provides credible testimony that there is reason to believe that Power Infrastructure will be unable to pay DEE’s costs assuming it will be successful, thus discharging its evidentiary burden. To put it another way, the evidence is sufficiently persuasive to permit a rational belief to be formed that, if ordered to do so, the corporation would be unable to pay the costs of that party upon disposal of the proceedings. Power Infrastructure was unable to point to any authority in which an unacknowledged debt or action for breach of contract which was the subject matter (or part of the subject matter) of the proceeding was held to defeat an argument of impecuniosity. Mr Cotman SC, counsel for Power Infrastructure, frankly described the argument as “eccentric” or “unusual”. In my view it was a clever, but specious, one. It suffers from a fundamental flaw. Ultimately, Power Infrastructure’s position amounts to nothing more than an unsuccessful attempt to overcome the difficulties presented by the case law. As no other basis for resisting the motion was advanced, the application should be granted. There is no reason why I should not exercise my discretion in favour of it. There is no issue (nor could there be) that the application was brought promptly. Neither is there an issue concerning the bona fides of Power Infrastructure’s action. For the purpose of this application DEE was content to accept that Power Infrastructure had a reasonably arguable case. Power Infrastructure did not argue that the application was oppressive and would stultify the litigation. Indeed, Mr Cotman expressly disavowed such a position. Despite Mr Power’s position as sole officeholder and shareholder, there is no evidence of any agreement to guarantee DEE’s costs. The remaining question concerns the amount of the security.The amount of the security
Ratio Decidendi
Legal Principle Established
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