Site Accommodation Pty Ltd v Resource Engineering and Design Pty Ltd
[2011] WADC 41
•23 MARCH 2011
JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CHAMBERS
LOCATION: PERTH
CITATION: SITE ACCOMMODATION PTY LTD -v- RESOURCE ENGINEERING & DESIGN PTY LTD [2011] WADC 41
CORAM: PRINCIPAL REGISTRAR GETHING
HEARD: 1 MARCH 2011
DELIVERED : 23 MARCH 2011
FILE NO/S: CIV 1088 of 2010
BETWEEN: SITE ACCOMMODATION PTY LTD
Plaintiff
AND
RESOURCE ENGINEERING & DESIGN PTY LTD
Defendant
Catchwords:
Security for costs - Set-off
Legislation:
Corporations Act 2001 (Cth) s 1335
Result:
Application dismissed
Representation:
Counsel:
Plaintiff: Mr B P Wheatley
Defendant: Mr P C Hassett
Solicitors:
Plaintiff: Mossensons
Defendant: Lavan Legal
Case(s) referred to in judgment(s):
Allnation Corporation Pty Ltd v RSM Crane Sales & Hire Pty Ltd [2010] WASC 392
Attorney-General of Botswana v Aussie Diamond Products Pty Ltd [2009] WASC 299
BBC Nominees (WA) Pty Ltd v Yangebup Developments Pty Ltd [2008] WASC 81
Buckley v Bennell Design & Constructions Pty Ltd (1974) 1 ACLR 301
Crestland Investments Pty Ltd v Parisi Holdings Pty Ltd [2003] WASC 181
Darwin Offshore Logistics Base Pty Ltd v Cox [2010] WASC 356
FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69; (2000) 22 WAR 241
Mabrouk Minerals Pty Ltd v Mabrouk Holdings Pty Ltd [2008] WASC 132
Marand Holdings Pty Ltd v Cateus International Pty Ltd [2003] WASC 238
Meni's Tailoring & Alterations Pty Ltd v Jeanswest Corporation Pty Ltd [2003] FCA 1108
NewTrend Pty Ltd v Oceanic Life Ltd [1990] WAR 1
Spence Financial Group Pty Ltd v GE Commercial Corporation (Australia) Pty Ltd [2007] WASC 15
Sydmar Pty Ltd v Statewise Developments Pty Ltd (1987) 73 ALR 289
Weily's Quarries v Devine Shipping Pty Ltd (1994) 14 ACSR 186
Western Areas Exploration Pty Ltd v Streeter [2008] WASCA 218
PRINCIPAL REGISTRAR GETHING: By application dated 18 January 2011, the plaintiff sought security for costs from the defendant in relation to its counterclaim. The plaintiff also sought further and better discovery in the same application. I made orders in relation to further and better discovery at the hearing on 1 March 2011 and reserved my decision on the balance of the application.
In support of the application, the plaintiff filed an affidavit dated 4 February 2011 from one Steven Walsh, who is a director of the plaintiff. The plaintiff filed a second affidavit in support dated 24 February 2011 from one Peter Green, another director of the plaintiff. On the day of the hearing, 1 March 2011, the plaintiff filed a second affidavit of Mr Walsh.
The defendant filed an affidavit of Philip Hassett dated 11 February 2011. Mr Hassett is a solicitor employed by the defendant's solicitors. The defendant filed a second affidavit dated 28 February 2011, sworn by Christopher Gooch who is the general manager of the defendant.
Factual background
In the action, the plaintiff seeks to recover damages in relation to goods supplied, lease payments, transport and unloading charges and repair costs. The goods in question were transportable units used, among other purposes, in the mining industry. The units were transported by the plaintiff to a site at Pardoo, near Port Hedland, at which the defendant was engaged in contract work for a third party, Atlas Iron Ltd (Atlas). The amount claimed is around $150,000.
By its defence and counterclaim, the defendant claimed damages for breach of contract alleging that the transportable units were defective and for damages arising out of delays in the supply of the units. In particulars filed on 17 December 2010, the defendant claim damages in the counterclaim of just over $350,000.
Relevant law
The power to order a party to provide security for costs arises pursuant to Corporations Act 2001 (Cth) (CA) s 1335. So far as is relevant, it 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.
…
(2)The costs of any proceeding before a court under this Act are to be borne by such party to the proceeding as the court, in its discretion, directs.
The power in CA s 1335 contains a threshold test (or jurisdictional requirement) and a discretion: Western Areas Exploration Pty Ltd v Streeter [2008] WASCA 218 [2]; BBC Nominees (WA) Pty Ltd v Yangebup Developments Pty Ltd [2008] WASC 81 [11]. 'The 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 relevant corporation will be unable to pay the applicant's costs of the action if unsuccessful: Western Areas [3]. The threshold test is a 'fairly modest' test: Western Areas [4]; Meni's Tailoring & Alterations Pty Ltd v Jeanswest Corporation Pty Ltd [2003] FCA 1108 [4]. 'In 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': Western Areas [5], also FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69; (2000) 22 WAR 241 [22]. The onus is on the applicant to produce the necessary credible testimony that there is reason to believe the corporation will be unable to pay the costs in issue: Western Areas [15].
Once enlivened, the discretion is unlimited: Darwin Offshore Logistics Base Pty Ltd v Cox [2010] WASC 356 [3]; FEE Minerals [21]. The circumstances in which the discretion should be exercised cannot be stated exhaustively, and all of the circumstances of the case should be examined: Spence Financial Group Pty Ltd v GE Commercial Corporation (Australia) Pty Ltd [2007] WASC 15 [33].
'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': Spence, [38]; Buckley v Bennell Design & Constructions Pty Ltd (1974) 1 ACLR 301, 304; Tradestock Pty Ltd v TNT (Management) Pty Ltd (No 2) (1977) 14 ALR 52, 56. Among the relevant factors are:
(a)whether the plaintiff's claim is bona fide and has reasonable prospects of success;
(b)whether the defendant has contributed to the plaintiff's likely inability to pay costs;
(c)whether it appears the applicant is seeking to stifle a legitimate claim;
(d)whether there are others behind the corporate plaintiff who might reasonably be expected to contribute to the satisfaction of an order for security;
(e)whether the applicant for security is in substance the plaintiff or the proceedings are defensive in nature;
(f)where there is a counterclaim, whether the claim and the counterclaim cover substantially the same factual ground; and
(g)how far the action has progressed prior to the application being made.
See generally: Spence, Allnation Corporation Pty Ltd v RSM Crane Sales & Hire Pty Ltd [2010] WASC 392; Attorney-General of Botswana v Aussie Diamond Products Pty Ltd [2009] WASC 299; Marand Holdings Pty Ltd v Cateus International Pty Ltd [2003] WASC 238; Crestland Investments Pty Ltd v Parisi Holdings Pty Ltd [2003] WASC 181.
It is incumbent upon a party who wishes to resist an application for security to put before the court a full and frank statement of the assets and liabilities of the shareholders and creditors of the party: Spence [40]; NewTrend Pty Ltd v Oceanic Life Ltd [1990] WAR 1, 3.
In the present application, security for costs is sought in relation to a counterclaim. By Rules of the Supreme Court 1971 (WA) (RSC) O 18 r 2(2), a counterclaiming defendant is treated as a plaintiff. Security for costs may be ordered against a defendant on a counterclaim pursuant to CA s 1335. Specifically, a counterclaim is 'an action or other legal proceeding' for the purposes of s 1335: Weily's Quarries v Devine Shipping Pty Ltd (1994) 14 ACSR 186, 187.
The relevant principles regarding security for costs pursuant to RSC O 25 against a defendant on a counterclaim were summarised by Newnes J in Mabrouk Minerals Pty Ltd v Mabrouk Holdings Pty Ltd [2008] WASC 132, at [61] ‑ [62], in terms that are apposite for present purposes:
Order 25 r 4 expressly provides that an order for security may be made against a defendant who counterclaims in respect of a claim not arising out of the claim against him. I respectfully agree, however, with the learned authors of Civil Procedure Western Australia [25.4.1] that the rule does not limit the court's discretion to deal with a wide range of circumstances in which defendants are in substance plaintiffs. On an application for security for costs, what is relevant is not how the parties appear on the court record, but whether the counterclaim is in substance in the nature of a defence to the plaintiff's claim or whether it is a separate and distinct claim: Neck v Taylor [1893] 1 QB 560, 562, 563; New Fenix Compagnie Anonyme d'Assurances de Madrid v General Accident Fire & Life Assurance Corporation Ltd [1911] 2 KB 619, 625 - 626; see Buckley v Bennell Design & Constructions Pty Ltd (1974) 1 ACLR 301, 307. The question of whether a counterclaim is defensive or offensive in nature should be considered in a realistic commercial sense: see Classic Ceramic Importers Pty Ltd v Ceramica Antiga SA (1994) 13 ACSR 263, 266; D S Parklane Developments Pty Ltd v Korea First Finance Ltd (Unreported, NSWSC, 20 August 1997).
Security will generally not be ordered to be provided by a party who has been put into the position in which he or she has had to sue in order to defend himself or herself against the other party's prior attack; such as where a person has been forced to bring proceedings to protect their property from statutory acquisition or forfeiture: Maatschappij Voor Fondsenbezit v Shell Transport and Trading Co [1923] 2 KB 166, 177; Willey v Synan (1935) 54 CLR 175, 184 - 185; Re Travelodge Australia Ltd (1978) 21 ACTR 17; or where the defendant has obtained possession of disputed property by a pre-emptive 'self-help' remedy: Spence Financial Group Pty Ltd v GE Commercial Corporation (Australia) Pty Ltd [2007] WASC 15.
Defendant's financial position
The defendant is a corporation incorporated in Western Australia. From the company extract, it has a paid up capital of $10,000. It has two directors, one of whom resides in Thailand. The defendant does not own any land in Western Australia.
The plaintiff's solicitors have requested a statement of assets from the defendant's solicitors, which they have declined to provide.
Mr Walsh deposes that he has been advised by his solicitors that the cost of the counterclaim is likely to exceed $60,000.
The plaintiff relies upon six further facts in support of its submission that there is credible testimony that there is reason to believe that the defendant will be unable to pay the costs of defending the counterclaim.
The first is that the taxation hearing on 28 February 2011, that is, the day before this application was heard, the plaintiff had a bill of costs against the defendant taxed in the amount of $9,178.85. Those costs arise out of a parallel action commenced by the defendant against the plaintiff in late 2010 relating to the matters the subject of the counterclaim. That action was subsequently discontinued by the defendant, resulting in the liability to pay the plaintiff's costs.
Given that as at the time of hearing, less than 24 hours had passed between the costs being taxed, the fact that the costs have not to date been paid is of minimum weight.
The second fact emerges from a document entitled 'Company Scored Report' (Report) obtained by the plaintiff in relation to the defendant. This is annexed to Mr Walsh's affidavit of 1 March 2011. From the Report, it appears that there was an outstanding amount of $4,785 which appears to have been due for payment on 30 June 2010 but unpaid until 15 July 2010. The fact that an amount of just under $5,000 was unpaid for a period of 15 days in the middle of 2010 is of itself little weight in determining the current financial viability of the defendant.
The third fact relied on is the present action, which is one of two actions referred to in the Report. As already noted, this action is being defended on the basis that the goods supplied were defective and that they were supplied in breach of delivery times specified in the contractual relationship between the parties. The fact that this writ is in existence in the context of a dispute for payment means that I can place very little weight on the existence of the present writ as a factor calling into question the defendant's financial viability.
The fourth fact is the second writ, which was filed on 21 February 2010 by Burkeair Pty Ltd. This is a Magistrates Court claim in the amount of $7,333. The mere existence of this writ of itself does not indicate any issues relating to financial viability. There is no evidence of any unpaid judgment in relation to this claim.
The fifth fact relied on is that two charges have been registered over the defendant in recent months. The first was registered on 23 November 2010 by Westpac Banking Corporation. It is a fixed and floating charge. The second was registered on 21 January 2010. It is a fixed charge, and again the chargee is Westpac Banking Corporation. In submissions, counsel for the plaintiff characterised this as a 're‑finance'. There is no evidence before me that the creation of these charges was for the purposes of re‑financing. It is equally open that the charges were put in place for the purposes of a healthy expansion of the business.
The sixth and final fact is that the Report also contains what is referred to as a 'Bureau Score Result'. This concludes that the credit position of the defendant is '99.9 times worse than Veda Advantage average'. The Bureau Score Result appears to be calculated based on the information in the remainder of the Report including defaults recorded, history of credit type sought, court writs recorded and the number of credit enquiries. This is used to calculate a risk estimate. The explanation provides:
The primary purpose of the scores is to predict the likelihood of a future adverse event being recorded in the Company's Veda Advantage bureau file.
A score card is a statistical rank ordering tool only and as such should always be used in conjunction with your organisation's credit policies and procedures and other relevant information you may have about the company or business.
A score should not be and is not intended to be the sole basis for making a decision about whether or not to deal with a particular company or business.
…
This application has been scored using the Company/Business scorecard and is compared with the Veda Advantage sub‑population. The odds of recording in adverse with Veda Advantage within 12 ‑ 24 months of a Veda Advantage enquiry is 16:1.
The way in which the score is calculated is not apparent in the materials before me. Even if it were, the appropriate course for the court is to look at the underlying information and make an assessment of whether or not there is a credible testimony that the defendant will not be able to pay the plaintiff's cost of defending the counterclaim.
On the information before me, the plaintiff has not satisfied the burden on it to show sufficient credible testimony for me to form the reason to believe that the defendant will be unable to pay the costs of the plaintiff's defence of the counterclaim. There is nothing in the factual material before me indicating any degree of financial stress on the defendant. On this basis, the threshold requirement has not been met.
Discretion
Even if I were of the view that the jurisdiction to order security for costs had been enlivened, I would not be minded to order it in the present case.
In the present case, the counterclaim and the claim cover substantially the same factual ground. The counterclaim arises out of alleged defects in the transportable units delivered and/or delays in their delivery. The question of the terms of the contract will be a common question. The facts going to dates of delivery will be relevant both to the claim and the delays claim in the counterclaim.
Where substantially the same facts are likely to be canvassed in the determining the claim and the counterclaim, courts are slow to allow a situation where the counterclaim is stayed because of an inability to provide security but the claim covering substantially the same factual issues proceeds: Sydmar Pty Ltd v Statewise Developments Pty Ltd (1987) 73 ALR 289, 300; Marand [39] ‑ [41]; Crestland [18].
The extent of the factual overlap in the present case is similar to that in Marand. In that case, the plaintiff was the purchaser of the defendant's business. The plaintiff claimed damages for losses arising out of its reliance on misleading statements and misrepresentations. The defendant counterclaimed for the balance of the purchase price due under the contract. In relation to the issue of factual overlap, Master Newnes (as his Honour then was) stated ([41]):
It is true that, in this case, the issues raised in the counterclaim itself are limited and discrete. However, as the pleadings stand, the determination of the counterclaim will involve canvassing substantially the same factual issues as those raised in the plaintiff's claim. Accordingly, if the action were stayed because of the plaintiff's inability to provide security, the same factual issues would nevertheless have to be canvassed in order to determine the counterclaim. In my view, a Court should be slow to allow that situation to come about. I do not consider there is anything in the circumstances of this case that would justify the prospect of such a result.
In the present case, it would be equally unjust for the plaintiff to be able to pursue its claim without the defendant being able to seek to set-off its alleged damages and counterclaim. The position is made stronger by the fact that the alleged defects are raised as a set-off as well as in the counterclaim (par 15 defence). Even if the counterclaim is stayed, most of the factual issues will be raised in the action in order to determine the set-off.
None of the other factors referred to in submissions before me are sufficiently strong to displace the issue of factual overlap as the dominant consideration in the exercise of the discretion.
In particular, counsel for the plaintiff went into some detail as to the lack of merits of the counterclaim based on the evidence before the court. Specifically, five areas of concern were identified:
(a)the delay claim in the counterclaim is not sufficiently particularised to make it clear how the losses claimed relate to the breaches pleaded against the plaintiff;
(b)there was no agreed delivery date, meaning that the claim for delay, must be without merit;
(c)none of the discovered documents refer to any issues of delay as between the defendant and its head contractor, Atlas;
(d)the defendant appears to have billed Atlas for the amounts which it alleges as losses against the plaintiff, meaning it has in fact suffered no loss; and
(e)the units were supplied to the defendant as agent for Atlas, who had the benefit of the warranty claims – no such claims have been received by the plaintiff from Atlas.
Whilst each of these points casts doubt over the strength of aspects of the set-off and counterclaim, none is sufficient to call into question the bona fides of the counterclaim.
Thus, even if I was persuaded that the threshold requirement had been established, the existence of the factual overlap, in particular as to the set-off, would nonetheless have led me not to order security for costs of defending the counterclaim.
The application for security for costs is dismissed.
I will hear from counsel as to the final orders and costs.
0
17
1