Satcom Business Exchange Pty Ltd v BCCC Pty Ltd - [2001] WASC 126

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: SATCOM BUSINESS EXCHANGE PTY LTD -v- BCCC PTY LTD & ORS [2001] WASC 126

CORAM: MASTER SANDERSON

HEARD: 7 MAY 2001

DELIVERED : 24 MAY 2001

FILE NO/S: CIV 1406 of 1996

BETWEEN: SATCOM BUSINESS EXCHANGE PTY LTD (ACN 009 381 917)
Plaintiff
AND
BCCC PTY LTD (ACN 006 525 140)
First Defendant
JOHN FALCONER HEGGIE
ROGER MILLS BUNN
Second Defendants

Catchwords:

Practice and procedure - Application for security for costs - Turns on own facts

Legislation:

Corporations Law, s 1335

Result:

Security ordered

Representation:

Counsel:

Plaintiff:     Mr N D Billington
First Defendant             :     Mr C Touyz
Second Defendants       :     Mr C Touyz

Solicitors:

Plaintiff:     Cahill Billington
First Defendant             :     Hammond King Touyz
Second Defendants       :     Hammond King Touyz

Case(s) referred to in judgment(s):

Beach Petroleum NL v Johnson [1992] 10 ACLC 525
FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd (2000) 22 WAR 241
Warren Mitchell Pty Ltd v Australian Maritime Officers' Union [1993] 11 ACLC 1238

Case(s) also cited:

Aspendale Pastoral Co Pty Ltd v WJ Drewer Pty Ltd (1983) 7 ACLR 937
Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1
Brundza v Robbie & Co (No 2) (1952) 88 CLR 171
Bryan E Fencot and Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497
Concorde Enterprises Ltd v Anthony Motors (Hutt) Ltd (No 2) [1977] 1 NZLR 516
Heller Factors Pty Ltd v John Arnold's Surf Shop (1979) 4 ACLR 492
J & M O'Brien Enterprises Pty Ltd v The Shell Company of Australia Ltd (1983) 70 FLR 264
Jennings Ltd (Invol Liq) v Cole (1934) GLR 165
KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 13 ACLC 437
Marconi Wireless Telegraph Company (Limited) v The Huddart-Parker and Compass Proprietary (Limited) (1912) 31 NSWLR 499
Microcorp Pty Ltd v Terran Computers Pty Ltd, unreported; FCA; Northrop J; 26 June 1992; No VG 258 of 1991
Pacific Acceptance Corporation Ltd v Forsyth (No 2) 2 NSWLR 402
PS Chellaram & Co v China Shipping Co (1991) 65 ALJR 642
Sir Lindsay Parkinson & Co Ltd v Triplan Ltd [1973] 1 QB 609
Southern Cross Exploration NL v Fire and All Risks Insurance Co Ltd (1985) 1 NSWLR 114
Tune Masters Pty Ltd (In Liq) v Sectam Pty Ltd, unreported; SCt of WA; Library No 970267; 23 May 1997
Westralian Gold Mines Ltd v Westralian Minerals & Drilling Pty Ltd (In Liq) (1986) 4 ACLC 167
Zortec Australia Pty Ltd and DHS Holdings Pty Ltd v The Rural and Industries Bank of Western Australia, unreported; SCt of WA; Library No 920609; 13 August 1992

MASTER SANDERSON: This is the first and second defendants' application for security for costs. The application is brought under s 1335 of the Corporations Law which is in the following terms:
"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."
This action was commenced in the District Court on 24 October 1995. It was transferred to this Court by order of Blaxell DCJ made 12 April 1996. Since that time the matter has progressed in a relatively leisurely fashion. The pleadings have been amended and re‑amended on a number of occasions. Particulars have been provided, discovery has been given and interrogatories have been administered and answered. It would appear that the matter is ready for trial save for the question of expert evidence. The summons seeking security for costs was issued on 15 March 2001.
The application is supported by an affidavit of John Falconer Heggie, the first‑named second defendant sworn 14 March 2001. Mr Heggie says that on 23 February 2001 on his instructions his solicitors wrote to the plaintiff's solicitors advising that the defendants had become aware that the plaintiff may be in financial difficulty and seeking security for costs. The plaintiff's solicitors advised that no security would be provided and any application for security would be resisted. Mr Heggie says that his inquiries have revealed that on 9 February 2001 a company styled Dmark Pty Ltd served a statutory demand on Satcom Pty Ltd. The amount claimed in the statutory demand was the sum of $10,000. It is to be noted that Satcom Pty Ltd is a different corporate entity from the plaintiff in these proceedings.
Mr Heggie says that he has held discussions with one Gerard Maguire. Mr Heggie was advised by Mr Maguire that Satcom Pty Ltd owed him (Maguire) approximately $10,000 which had not been paid. Maguire also advised Mr Heggie that Satcom Pty Ltd and the plaintiff operated from the same premises in Osborne Park. A search of the plaintiff shows that the plaintiff and Satcom Pty Ltd have the same registered office in West Perth and that one Ron Gallagher is a director and secretary of both companies. Furthermore, a number of the shareholders in the plaintiff are also shareholders in Satcom Pty Ltd.
Mr Heggie says that he has been unable to find a listing for the plaintiff in the White Pages telephone directory. However, he was able to find an entry for "Satcom Business Exchange". The address listed for this business was the same address in Osborne Park given for Satcom Pty Ltd. When Mr Maguire rang the telephone number for Satcom Business Exchange he found it was disconnected. He had no more success when he consulted the Yellow Pages telephone directory and when he made inquiries of directory assistance. Based upon this material Mr Heggie says he has concluded that there is a real prospect the plaintiff would not be able to meet any costs order which might be made against it.
The plaintiff filed no affidavit material in opposition to the application. It was submitted on behalf of the plaintiff that none of the material filed said anything about the financial position of the plaintiff. What material had been filed related to Satcom Pty Ltd, a separate corporation, that may or may not have any connection with the plaintiff. In the circumstances the plaintiff submitted that there was no evidence before the court such as would justify an order being made under s 1335 of the Corporations Law.
The approach to be adopted in applications of this nature was considered by the Full Court in FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd (2000) 22 WAR 241. At first instance I had concluded that the evidence relied on by the defendant was not sufficient to allow an order to be made. In their joint judgment Pidgeon and Owen JJ summarised the position of the evidence as follows (at 243):
"The affidavit filed on behalf of the applicant in support of the application deposed to the fact that the company's paid up capital was $4,001 and there was no land registered in the company's name. The affidavit exhibited the financial returns of the company for the years 1990 ‑ 1995. During this period proprietary companies were required to file financial returns. This requirement ceased at the end of 1995. These returns showed that, save for 1995, the company made an operating loss for each year after the payment of tax. They also showed that the company up until at least 1995 did not have assets which would allow it to meet any costs order against it. The affidavit of the applicant concluded by saying:
'By reason of the matters deposed to herein, I verily believe that the first plaintiff will be unable to pay the defendant's costs of the action if the defendant is successful.'
The company did not file any answering affidavit."
I concluded that this affidavit material did not satisfy the test of being "credible testimony" as required by s 1335. The majority took a different view. Their Honours traced the history of the section and concluded (at 248):
"It becomes necessary now to determine whether there was before the Master the necessary credible testimony to give him jurisdiction. In view of the history of the section we would, for our part, see no requirement to attempt to define further the expression (that is the expression 'credible testimony'). The words speak for themselves in that sense, the expression is similar to expressions such as 'beyond reasonable doubt'. For the reasons we have set out we are not in accord with one proposition referred to by Lee J in Warren Mitchell Pty Ltd v Australian Maritime Officers' Union when his Honour said (at 1241):
'qualification of the word "testimony" by the word "credible" suggest that evidentiary burden is undertaken by the parties seeking the order.'
We would not see any burden as nothing is sought to be proved. The legislature that first enacted the words, used them to replace words referring to proof and in our view, were dispensing with a requirement to prove a matter. What is required is an evaluation of the evidence led by the applicant to see whether that leads to a reason to believe that the corporation will be unable to pay the costs of the defendant.
In the present case there is evidence that it is anticipated that the total costs would be in the vicinity of $44,000. There is evidence of a limited share capital and no land on the register. There is no evidence of an apparent lack of other assets although the financial returns which were produced suggest this. It was submitted by Mr Martin on behalf of the company that the absence of registered land is of no probative value as the company may well be the beneficiary of land held on trust. We consider that the absence of land combined with the low share capital does give rise to an appearance that there is reason to believe that there are no assets in this area to meet the costs. It is open to the company to negate such belief by identifying sufficient land to meet the costs and the company alone would have that knowledge. We consider the evidence led combined with the absence of evidence as objectively gives rise to the necessary belief that the company is not in a position to pay the costs referred to. We consider that the Master had jurisdiction. The question therefore is whether his discretion should have been exercised in favour of making an order."
The court went on to decide that an order for security should have been made. A number of factors were considered and in the end the court allowed the plaintiff the opportunity to file an affidavit as to its ability to pay costs. The decision then is directed at the question of what satisfies the requirement of "credible testimony" as that expression is used in s 1335.
It should be noted that the decision in FFE Minerals was a majority decision with Murray J providing a strong dissent. His Honour referred to a number of decisions, in particular Warren Mitchell Pty Ltd v Australian Maritime Officers' Union [1993] 11 ACLC 1238 per Lee J at 1241 and Beach Petroleum NL v Johnson [1992] 10 ACLC 525 per von Doussa J at 527. Even allowing for the strength of his Honour's dissent it must be accepted that this case is to be determined in line with what was said by the majority.
On balance I am satisfied that in this case there is reason to believe that the plaintiff may not be able to pay any costs order made against it when called upon to do so. I accept that there is no direct evidence of the present financial position of the plaintiff. However, there does appear to be some form of association between the plaintiff and Satcom Pty Ltd. While the precise nature of that relationship is unclear, it is reasonable to suppose that if Satcom Pty Ltd is in financial difficulty then the plaintiff might also be in financial difficulty. Moreover, the fact that it has proved impossible to track down any trading business operated by the plaintiff gives cause for concern. It is hardly a sign of robust corporate health when the plaintiff's telephone has been disconnected. Weighing up all of the matters referred to in Mr Heggie's affidavit I am satisfied that there is reason to believe that the plaintiff may not be able to meet any costs order and I am therefore satisfied that the jurisdiction to make an order is enlivened.
The question then is whether in the exercise of my discretion I should make such an order. As I have indicated, no evidence was filed on the part of the plaintiff. The Full Court in FFE Minerals having determined that jurisdiction was enlivened gave the plaintiff the opportunity to file further affidavit evidence. Counsel for the plaintiff did not seek such an opportunity during the course of the hearing. Furthermore, the Full Court granted the appellant's application on the basis that the position on the jurisdiction question under s 1335 was uncertain and the plaintiff was not to be prejudiced as a consequence of a decision which ran counter to earlier authority. That is not the case here. In my view, there is one opportunity for a plaintiff to oppose an application under s 1335. There is no basis for approaching the section as two separate stages requiring two separate hearings. If a plaintiff decides it will not file any affidavit evidence then it must live with the consequences of that decision. That is so when the application is opposed not just on the basis that jurisdiction has not been enlivened but also when it is said that the discretion should not be exercised in favour of making an order for security.
Appearing as annexure "J" to Mr Heggie's affidavit is a draft bill of costs for taxation. That shows an amount of costs of $65,515. The bill covers the entire period from the issue of proceedings through to judgment. While I accept that this application was made as soon as the defendants became aware of the doubtful financial circumstances of the plaintiff I am of the view that to order security for costs incurred prior to this application would be unfair to the plaintiff. In my view the plaintiff should provide security for the defendants' costs in the sum of $45,000. Furthermore the action should be stayed pending the provision of that security.
I will hear the parties as to the form of the security and the precise form of the orders.