The Forbes Agency Pty Ltd (as trustee for the Woods Family Trust) v BENBALLEY Pty Ltd
[2009] WADC 154
•2 OCTOBER 2009
JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CHAMBERS
LOCATION: PERTH
CITATION: THE FORBES AGENCY PTY LTD (as trustee for the Woods Family Trust) -v- BENBALLEY PTY LTD [2009] WADC 154
CORAM: GROVES DCJ
HEARD: 11 SEPTEMBER 2009
DELIVERED : 2 OCTOBER 2009
FILE NO/S: CIV 723 of 2007
BETWEEN: THE FORBES AGENCY PTY LTD (as trustee for the Woods Family Trust)
Appellant (Plaintiff)
AND
BENBALLEY PTY LTD
Respondent (Defendant)
Catchwords:
Practice and procedure - Security for costs - Plaintiff trustee company - Whether power enlivened - Turns on own facts
Legislation:
Nil
Result:
Plaintiff ordered to pay security for costs of $27,597
Representation:
Counsel:
Appellant (Plaintiff) : Mr T V Lyons
Respondent (Defendant) : Mr H Robinson
Solicitors:
Appellant (Plaintiff) : Gibson Lyons
Respondent (Defendant) : Haydn Robinson
Case(s) referred to in judgment(s):
BBC Nominees (WA) Pty Ltd v Yangebup Developments Pty Ltd [2008] WASC 81
Beach Petroleum NL v Johnson (1192) 10 ACLC 525
Billinudgel Pastoral Co Pty Ltd & Ors v Westpac Banking Corp & Ors [1997] FCA 863
Brundza v Robbie & Co [2] [1952] HCA 49
Citi Nominees v Fenny [2006] WASC 97
FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69
Laundry Coin – Wash Nominees Pty Ltd v Dunlop Olympic Ltd (1985) 7 ATPR 40–584
Meni's Tailoring and Alterations Pty Ltd v Jeans West Corporation Pty Ltd [2003] FCA 1108
Second Lenbourne Pty Ltd v Beagle Management Pty Ltd [1999] FCA 486
Spence Financial Group v GE Commercial Corporation [2007] WASC 15
GROVES DCJ: On 20 July 2009 a Deputy Registrar ordered that the plaintiff give security for the defendant's costs of the action in the sum of $48,640 by payment of that sum into Court.
The plaintiff appeals against that order.
History of the proceedings
By writ of summons filed 17 April 2007 the plaintiff sued the defendant for payment of the sum of $64,860.66 being in respect of design and related services rendered to the defendant during about November 2006.
By its defence filed 17 August 2007 the defendant denies that the plaintiff is entitled to the relief claimed and pleads that the agreement in respect of design and related services was compromised by an agreement reached in about January/February 2007. The defendant counterclaims for an order for specific performance of the compromise agreement.
Since then the pleadings have been amended but the foregoing basically describes the issues between the parties.
On 11 March 2008 the plaintiff entered the action for trial.
On 4 April 2008 the defendant made an application for security for costs pursuant to s 1335(1) of the Corporations Act 2001 (Cth).
On 12 May 2008 the application was adjourned sine die by consent.
On 30 May 2008 John Robert Woods as the sole director and sole shareholder of the plaintiff provided an undertaking to "… indemnify the defendant in respect of any costs that the Court may order the plaintiff to pay the defendant in respect of its claim against the defendant (but not any counterclaim brought by the defendant) in these proceedings."
On 16 February 2009 the action was listed for trial on 14 and 15 April 2009.
On 8 April 2009 the trial dates were vacated with costs to the defendant because the plaintiff had not paid the trial fee required under Regulation 9(5) of the District Court (Fees) Regulations 2002 and had not complied with r 45(F) and r 45(H)(1)(a) of the Rules of the District Court.
On 6 May 2009 a springing order was made against the plaintiff requiring it to appoint solicitors and it was ordered that the plaintiff pay costs of $375 to the defendant by 13 May 2009. Those costs were paid on 12 June 2009.
On 27 May 2009 further springing orders were made and the plaintiff ordered to pay further costs to the defendant of $375 by 3 June 2009.
On 17 June 2009 the plaintiff was ordered to file and serve a defence and any reply by 29 June 2009 and also ordered to pay further costs to the defendant of $375 by 2 July 2009. I was informed from the Bar table on the hearing of the appeal that the outstanding costs orders had been satisfied albeit beyond the time ordered for payment.
On 17 June 2009 the defendant sought to relist its application for security for costs.
The threshold test to be applied
The requirement of s 1335(1) is stated in the following terms:
"(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 give for those costs and stay all proceedings until the security is given."
The threshold test is a fairly modest test: Meni's Tailoring and Alterations Pty Ltd v Jeans West Corporation Pty Ltd [2003] FCA 1108.
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: FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69.
In Beach Petroleum NL v Johnson (1192) 10 ACLC 525, 527 Von Doussa J stated that the power under s 1335 arises if:
"Credible evidence establishes that there is reason to believe there is a real chance that in events which can fairly be described as reasonably possible the plaintiff corporation will be unable to pay the costs of the defendant on service of the allocatur, if judgment goes against it. This will be so even if in other events which can also be fairly described as reasonably possible the plaintiff corporation would be able to pay the costs. The degree of likelihood of the plaintiff corporation being unable to pay the costs along with all the circumstances, actual and possible, about its financial position, would be then to take into account in the exercise of the discretion, and in framing the orders of the court if the decision is to order security."
The correct approach to assessing the assets of the plaintiff in the context of an application for security for costs is referred to in BBC Nominees (WA) Pty Ltd v Yangebup Developments Pty Ltd [2008] WASC 81 in which Beech J quoted with approval what was said in Laundry Coin – Wash Nominees Pty Ltd v Dunlop Olympic Ltd (1985) 7 ATPR 40–584 (46,729) where Smithers J said:
"Where the only tangible assets of an applicant company are held in trust for another entity and its solvency depends on its right as trustee to indemnity as against that entity it is necessary for the court to have in mind the difficulties which a successful respondent would face in attempting to execute in respect for an order for costs. Indeed, unless some step is taken to alleviate those difficulties it is reasonable and just to treat the applicant company as if it were without assets to meet such a liability."
The evidence
The following facts emerge from the affidavits filed in relation to this application, principally the affidavit of the defendant's former solicitor Jonathan Eastoe sworn 4 April 2008.
The plaintiff is the trustee of the Woods Family Trust ("the Trust") and sues in that capacity.
The plaintiff was incorporated on 23 April 1996 and has a paid up capital of $1 comprising one fully paid $1 share.
The sole director, sole shareholder and company secretary is John Robert Woods.
The HSBC Bank Australia Ltd has a fixed and floating charge over the property/assets of the plaintiff created 24 January 2000.
The defendant requested that the plaintiff provide information relating to the financial standing of the plaintiff and the Trust. That request was made in correspondence dated 4 February 2008. The information has never been forthcoming.
The evidence filed by the plaintiff in response to the application is contained in the affidavits of John Robert Woods sworn 30 May 2008 and 9 July 2009.
Mr Woods deposes that the plaintiff is the trustee for the Trust. The main asset of the trust is the business known as the Forbes Agency which carries on business as a marketing and advertising consultancy. He estimates "the net value of the business to be about $1,700,000". That estimate is based upon a formula using four times annual earnings of the business.
Mr Woods deposes as to real estate owned or controlled by him:
(a)137 Wellington Street, Mosman Park. He estimated the net value of the property (estimated value less mortgage) to be $1,100,000. His latest affidavit advises that the property was sold in May 2009 "… for significantly less than the estimate in May 2008. Upon settlement there will be no funds leftover as the funds are going to reduce overall debt."
(b)2C Mosman Terrace Mosman Park. He estimated the net value to be $1,900,000. In his latest affidavit the estimated value is reduced and the mortgage increased leaving "… an estimated equity of $975,000."
(c)Mr Woods is the sole director and shareholder of Woomarra Pty Ltd which is said to own six properties in which it is said to have (by Mr Woods estimate) substantial equity.
Mr Woods did provide an undertaking to indemnify the defendant in respect of any costs in respect of the plaintiff's claim against the defendant. In his latest affidavit he states "the undertaking is extended to claiming an indemnity from the Woods Family Trust in this action."
The shortcomings of the plaintiff's evidence
The authorities clearly establish that it is incumbent upon a plaintiff seeking to resist an application for security for costs to put before the court a full and frank statement of assets and liabilities: Spence Financial Group v GE Commercial Corporation [2007] WASC 15 at 40 and Citi Nominees v Fenny [2006] WASC 97 at 72.
The plaintiff's response to the application is notable for its failure to condescend to providing a full and frank disclosure. This can be demonstrated in a number of areas:
(a)The Forbes Agency ("the business"). No financial statements are provided to support the assertion as to annual earnings. Nor is it indicated how the "formula using four times …" is arrived at or from what it is derived. Its legitimacy is not established.
(b)The Forbes Agency Pty Ltd. No financial statements are provided. There is no indication as to what if any assets and liabilities the company has in its own right aside from acting as trustee for the Trust. Whilst it is said that "the main asset of the Trust" is the business known as the Forbes Agency there is no information as to what if any other assets the Trust has. There is no indication that the Trust Deed provides that the trustee has an indemnity as against the Trust in the event that the plaintiff is ordered to pay costs.
(c)Charge in favour of HSBC Bank Australia Pty Ltd. There is no detail as to whether or not the charge is over present and future rights, assets and undertakings, the maximum liability under the charge or whether the charge is in respect of the plaintiff in its own right and as trustee for the Trust.
(d)Mr Woods own financial circumstances. It is acknowledged that by reasons of events beyond Mr Woods control property values have decreased since his estimates made in his first affidavit. However the shortcoming of the information provided is that he does not provide a comprehensive statement of assets and liabilities or of income and expenses. What is his level of "overall debt" referred to in the sale of 137 Wellington Street, Mosman Park? Reference is made to a sworn valuation for the Mosman Terrace property but that assertion is not supported by exhibiting a copy of the valuation.
(e)Woomarra Pty Ltd. No financial statements are forthcoming against which any assessment can be made as to the value of Mr Woods interest in this company. Mr Woods' assertions as to values and liabilities is not independently verified or its solvency satisfied.
All of that information would be known to Mr Woods but he has not been forthcoming to put that information before the Court. That is consistent with the failure to respond to the letter of the defendant's solicitor of 4 February 2008.
In SecondLenbourne Pty Ltd v Beagle Management Pty Ltd [1999] FCA 486 [18] Goldberg J held that the fact that the plaintiffs in that case had a paid up capital of two dollars and were trustee companies was, of itself, sufficient to conclude that the threshold under s 1335 was satisfied.
If the plaintiff has no assets in its own right (as to which there is no information) its solvency depends on its trustee's right of indemnity against the trusts assets. Whether or not there is an indemnity is not known to the Court. Nor can the worth of any indemnity (if there be one) be ascertained given the paucity of information.
By failing to provide a statement of its assets and liabilities in its own right and in its capacity as trustee of the trust, the failure to make a full and frank disclosure and the fact that the plaintiff is a $1 paid up company, I am satisfied that the discretion under s 1335(1) is enlivened.
Should security for costs be required
The discretion to order security of costs is unfettered and depends upon an examination of all the circumstances of the case. Some 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 an order for security for costs may have the effect of stultifying the action.
(d)Whether it appears the applicant is seeking to stifle a legitimate claim.
(e)Whether there are others behind the corporate plaintiff who might reasonably be expected to contribute to the satisfaction of an order for security.
As to the merits of the plaintiff's claim there is, as the defendant contends, compelling evidence that the claim was compromised by the plaintiff agreeing to deliver to the defendant its work (as defined in the defence and counterclaim) in exchange for the payment of $22,500 plus $360.66. Attached to the affidavit of the defendant's solicitor sworn 21 May 2009 and marked "HRR2" are copies of a chain of emails as between the plaintiff and the defendants previous solicitor which strongly supports that contention. The assertion in that affidavit that "… fundamentally it is not contested that the parties made a comprise agreement …" was not resisted by Mr Woods in his affidavit of 9 July 2009. In those circumstances the plaintiff's prospects of success in its action give rise to some reasonable doubt.
It is not suggested that the defendant has contributed to the plaintiff's likely inability to pay costs. On the other hand the defendant contends that the conduct of the plaintiff in its action has caused the defendant to incur additional costs. For unstated reasons the plaintiff has engaged at least five firms of solicitors and has attempted to be self represented. In at least one instance the basis of solicitors applying to cease acting was the failure by the plaintiff to provide funds in accordance with the terms of engagement. In another instance Mr Woods has an ongoing dispute with another firm relating to commercial transactions outside the scope of these proceedings. The several changes of solicitors has caused the defendant to incur unnecessary costs and undoubtedly has delayed the progress of this action. The defendant also points to the failure/delay of the plaintiff to pay even modest amounts pursuant to orders of the court. The trial dates were vacated because of the plaintiff's failure to pay the trial fee of $864. Mr Woods deposes that it is his "recollection" that he provided those funds to his former solicitors and that it was only recently that he was made aware that the fee was not paid. His "recollection" may have been reinforced by providing some documentary evidence indicating that in fact the fee was paid. Without further explanation it would seem surprising that trial dates having being fixed and then vacated that Mr Woods would not be aware as to the reason for the trial dates being vacated. I draw no conclusion from those circumstances in any event. Even so, no explanation has been forthcoming as to why the trial fee has not been paid since Mr Woods became aware that it was not paid. The plaintiff's conduct, insofar as fiscal matters and carriage of the action are concerned, weighs heavily against it.
There is no indication that an order for security for costs would have the effect of stultifying the action or that the defendant is attempting to stifle the claim.
I am satisfied that the conduct of the plaintiff demands that the defendant be protected for the costs in the event that the plaintiff does not succeed on its action.
That then leaves the undertaking given by Mr Woods on 30 May 2008 which by his affidavit of 9 July 2009 he extended to claiming an indemnity from the Woods Family Trust.
As indicated earlier in these reasons the financial circumstances of the plaintiff, the trust and Mr Woods have not been substantiated as one would expect. The plaintiff has provided the court with conclusions but not evidence from which those conclusions can be sustained. Mr Woods does not disclose his total assets and liabilities. Similarly no financial accounts were produced for Woomarra Pty Ltd to enable an assessment as to the solvency or otherwise of the company. Whilst Mr Woods may have control of that companies affairs the defendant if successful would nevertheless face difficulties in attempting to execute in respect of an order for costs on Mr Woods undertaking. (as to which see Laundry Coin Wash Nominees Pty Ltd v Dunlop Olympic Ltd (supra) ). The worth of Mr Woods undertaking cannot be ascertained.
I conclude therefore that something more than Mr Woods undertaking is required by way of security for costs.
The amount claimed for security for costs
The defendant in a draft bill of costs as at 24 April 2009 estimates legal costs of the action from commencement to completion to be $48,640. That was the amount for which the Deputy Registrar ordered security.
The plaintiff contends that the court should only be looking at costs which the defendant has or may incur since the application for security was relisted in June 2009. The reason for that being that as at April 2009 the defendant was content with the security given by way of Mr Woods undertaking. That does seem to be the case. The situation changed however when the defendant assumed impecuniosity of the plaintiff in failing to pay the entry for trial fee and modest cost orders.
In making an order for security for costs the court does not set out to give a complete and certain indemnity to a defendant and nor is it to be assumed that the plaintiff will fail in the proceedings: Brundza v Robbie & Co [2] [1952] HCA 49 (see Billinudgel Pastoral Co Pty Ltd & Ors v Westpac Banking Corp & Ors [1997] FCA 863.
The plaintiff submits that in the event that the court determines that the undertaking given is inadequate, any security to be ordered should be based on the following:
14.1 Item 16 – getting up say 50% $ 5,940
14.2 Item 19(b) – Counsel fees on brief $12,760
14.3 Item 19(c) – Counsel fee for second day of hearing $ 3,190
14.4 Item 19(e) – Solicitor attending trial $ 4,120
14.1 Item 19(g) – Attending a reserved judgment $ 396
14.6 Item 24 – Settling and extracting judgment $ 396
14.7 Item 29 Taxation of costs $ 792
14.8 Item – Photocopies – 300 pages at $1.00 $ 300
Total $27,597
In my opinion having regard to all these circumstances I am satisfied that an amount of $27,597 would be an appropriate amount to be ordered to be paid into court by the plaintiff by way of security for costs.
Orders of the court
(a)The order made by the Deputy Registrar on 20 July 2009 be set aside.
(b)The plaintiff do within 28 days from the date of this order pay the sum of $27,597 into court by way of security for costs.
(c) The action be stayed pending payment into court of the set amount.
(d) The costs of this appeal be costs in the cause.
(e) There be liberty to apply.
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