United Mining Pty Ltd v Tan
[2024] WADC 24
•11 APRIL 2024
JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: UNITED MINING PTY LTD -v- TAN [2024] WADC 24
CORAM: PRINCIPAL REGISTRAR MCGIVERN
HEARD: 4 APRIL 2024
DELIVERED : 11 APRIL 2024
FILE NO/S: CIV 4630 of 2022
BETWEEN: UNITED MINING PTY LTD
Plaintiff
AND
BEN LEE TAN
Defendant
Catchwords:
Practice and procedure - Application for security for costs - Turns on own facts
Legislation:
Corporations Act 2001 (Cth), s 1335
Rules of the Supreme Court 1971 (WA), O 1 r 4A, O 1 r 4B, O 20 r 4(2), O 25
Result:
Application allowed in part
Representation:
Counsel:
| Plaintiff | : | Mr L J Davies |
| Defendant | : | Mr C S Williams |
Solicitors:
| Plaintiff | : | Cornerstone Legal |
| Defendant | : | Solomon Brothers |
Case(s) referred to in decision(s):
Buckley v Bennell Design & Construction Pty Ltd (1974) 1 ACLR 301
Construction Industries Australia Ltd (in liq) v WFI Insurance Ltd [2016] WASC 404
FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69
Huntingdale Village Pty Ltd (Receivers and Managers Appointed) ATF Huntingdale Village Unit Trust v Perpetual Nominees Ltd [No 2] [2014] WASC 217
Jaddcal Pty Ltd v Minson [No 2] [2011] WASC 138
Knights Capital Group Ltd v Bajada & Associates Pty Ltd [No 2] [2017] WASC 245
McMurray v AIG Insurance Australia Ltd [No 2] [2018] WASC 391
Sugarloaf Hill Nominees Pty Ltd as Trustee for the Richard and Anna Trust v Rewards Projects Ltd [2011] WASC 19
Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [2013] WASC 57
PRINCIPAL REGISTRAR MCGIVERN:
Introduction
This is an application by the defendant for an order that the plaintiff provide security for the defendant's costs by payment of the sum of $192,680 into a court managed trust account.
In these reasons, I will refer to the applicant as the defendant, and the respondent as the plaintiff, reflecting their respective party status in the substantive action.
Having heard the application at a special appointment on 4 April 2024, and for the reasons that follow, the application is allowed in part.
The claim
The plaintiff's claim, as it is articulated in the pleadings against the defendant is, broadly, to the effect that:
(a)at all material times, the plaintiff engaged in the business of 'crypto mining' using a number of high performing computing machines (Machines);
(b)the defendant is and was the sole director of a company (Tesla Holdings) which carried on business as a specialist commercial supplier of electricity as well as storage and utility services at a property in Grass Valley (the Grass Valley Property);
(c)in or around November 2021, the parties entered into an agreement (Agreement) granting the plaintiff the right to store Machines in certain of the defendant's sheds on the Grass Valley Property in consideration of the plaintiff paying a monthly fee comprising a licence fee (for storage) and a utility fee (for the supply of electricity);
(d)the Agreement:
(i)was partly in writing and partly by conduct; and
(ii)commenced in January 2022 and ended (at the instance of the defendant) in August 2022;
(e)during its course, the defendant breached the Agreement by:
(i)failing to store the Machines in a safe and secure manner, resulting in the Machines suffering water damage;
(ii)overcharging the plaintiff for the use of electricity (by continuing to charge the full monthly utility fee, despite the plaintiff's consumption reducing over time due to water damage reducing the number of operative Machines); and
(iii)operating the plaintiff's Machines without permission to gain a financial benefit (by directing cryptocurrency amounts mined by the Machines to an account that did not belong to the plaintiff);
and
(f)the plaintiff claims damages for breach of contract, including for loss of profits and unjust enrichment.
Relevant procedural history
The action was commenced by a writ of summons, indorsed with a statement of claim, filed on 24 October 2022 and amended on 13 April 2023.
The writ was served on the defendant on 13 January 2023.[1]
[1] Affidavit of Lucre John Davies made 23 February 2024.
The defendant entered an appearance on 7 February 2023, but did not file a defence prior to 30 November 2023.
On 30 November 2023, the plaintiff filed an application for summary judgment.[2]
[2] Following that time, pursuant to O 20 r 4(2) of the Rules of the Supreme Court 1971 (WA) (RSC), the defendant would have required leave to defend.
On 22 December 2023, the defendant filed the present application.
Both applications were heard on 4 April 2024, at which:
(a)the plaintiff conceded the merits of its application for summary judgment[3] and that application was dismissed; and
(b)I reserved my decision on the defendant's application to today.
[3] Explaining that the application was essentially brought in lieu of an application for judgment in default of a defence.
Relevantly, in relation to the defendant's application:
(a)the defendant filed written submissions on 28 March 2024, and the plaintiff filed responsive submissions on 3 April 2024;
(b)the defendant relies upon the affidavit of Louis Lut-Yiu Lee made on 22 December 2023 (Lee affidavit);[4]
(c)the plaintiff relies upon the affidavit of Lucre John Davies made on 1 February 2024[5] (Davies affidavit); and
(d)the parties also referred in their oral submissions to various materials annexed to the affidavit of Thomas Jarryd Millar made on 10 November 2023 (Millar affidavit).[6]
[4] Respectively, filed in support of the defendant's application, and in response to the plaintiff's application.
[5] Although the date on the affidavit states the year as '2023', it appears from the content and context that it was made on the relevant date in 2024.
[6] Filed in support of the plaintiff's application.
Rules and principles
The application for security for costs is brought:
(a)primarily under s 1335 of the Corporations Act2001 (Cth) which relevantly 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.
and
(b)in the alternative, pursuant to RSC O 25 which relevantly provides:
1.The Court may order security for costs to be given by a plaintiff, but no order shall be made merely on account of the poverty of the plaintiff or the likely inability of the plaintiff to pay any costs which may be awarded against him.
…
3.The granting of security shall be in the discretion of the Court, and in determining whether an order should be made the Court shall take into consideration -
(a)the prima facie merits of the claim;
(b)what property within the jurisdiction may be available to satisfy any order for costs against the plaintiff;
(c)whether the normal processes of the Court would be available within the jurisdiction for enforcement of any order for costs made against the plaintiff.
There is no real contention between the parties in relation to the principles I ought to apply in dealing with the application, which are well accepted and summarised in the parties' written submissions and are outlined in brief below.
The precondition for the exercise of the court's discretion, often described as the 'threshold question',[7] is whether it appears by credible testimony that there is reason to believe the plaintiff corporation will be unable to pay the defendant's costs. It has been emphasised that this is a low threshold and does not impose an evidentiary burden on the applicant to establish that the party whom an order for security for costs is sought against will be unable to meet an adverse costs order.[8]
[7] Sugarloaf Hill Nominees Pty Ltd as Trustee for the Richard and Anna Trust v Rewards Projects Ltd [2011] WASC 19 [32] (Corboy J) (Sugarloaf).
[8] McMurray v AIG Insurance Australia Ltd [No 2] [2018] WASC 391 [36], [38] (Smith J), applying FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69; (2000) 22 WAR 241 [24] (Pidgeon & Owen JJ) (FFE). As to persuasive versus evidentiary onus, see Sugarloaf [34].
If the threshold is met, the court has jurisdiction to make an order for security for costs, and has a very broad discretion to do so (though that discretion is to be exercised judicially), and the question then becomes whether it should exercise its discretion to make such an order.[9]
[9] FFE [21].
Whether the application is determined under s 1335(1) of the Corporations Act or under RSC O 25, similar considerations will be relevant to the exercise of the court's discretion.[10]
[10] Construction Industries Australia Ltd (in liq) v WFI Insurance Ltd [2016] WASC 404 [29] (Pritchard J) (Construction Industries).
Factors relevant to the court's discretion in determining whether security for costs ought to be provided include (non-exhaustively):[11]
[11] Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd[2013] WASC 57 [6] (Edelman J) (Westonia).
(i)the strength and bona fides of the plaintiff's case;
(ii)the likelihood of the plaintiff being unable to pay the defendant's costs;
(iii)whether the plaintiff's impecuniosity was caused by the defendant's conduct which is the subject of the claim;
(iv)whether the application for security is oppressive;
(v)whether the award of security would deny an impecunious applicant a right to litigate;
(vi)whether there are persons standing behind the plaintiff who were likely to benefit from the litigation;
(vii)whether the persons standing behind the plaintiff have offered any security or personal undertaking to be liable for the costs, …;
(viii)whether the applicant was in substance a plaintiff or the proceedings were defensive in the sense of directly resisting proceedings already brought …;
(ix)whether the application for security had been brought promptly;
(x)whether the applicant has any rights which it can exercise against assets of the plaintiff to satisfy an order for costs in its favour; and
(xi)any factors relating to the public interest.
In essence, there is 'a balance to be struck between protecting the defendant from the possible consequences of being sued by an impecunious corporation with limited liability and avoiding injustice to the corporation by unnecessarily prejudicing it in the conduct of litigation'.[12]
[12] Sugarloaf [31], citing Buckley v Bennell Design & Construction Pty Ltd (1974) 1 ACLR 301.
If the court is persuaded to grant an application, then its task is to calculate the sum which it thinks is just to order to be secured, having regard to a reasonable estimate of the likely taxable costs of the defendant in question, but without aiming to provide a complete indemnity for costs. A 'broad-brush approach' is properly taken to that task.[13]
[13] Construction Industries [45], [50].
Consideration
Threshold question
As noted above, the threshold question is whether there is reason to believe, on the basis of credible evidence, that the plaintiff corporation will be unable to meet an adverse costs order. In the event, there was no real controversy between the parties that that threshold is met.
The defendant produced evidence that the plaintiff is a proprietary limited company and holds no real estate in Western Australia.[14] There is no other evidence of the plaintiff's financial position before the court.
[14] Annexures LLL-1 and LLL-2 of the Lee affidavit, pages 5 - 7.
The defendant also pointed to an application made on behalf of the plaintiff to pay a reduced fee under reg 8A of the District Court (Fees) Regulations 2002 (WA) (Fees Application). This particular ground was resisted by the plaintiff on the basis that the Fees Application was made in error, and was refused in any event.
In the event:
(a)the defendant submitted the Fees Application was not a necessary ground in relation to the jurisdictional threshold;
(b)the plaintiff put on no evidence regarding the plaintiff's financial position, the plaintiff's written submissions do not address the threshold question at all, and in oral submissions counsel for the plaintiff effectively conceded that the court's discretion was engaged; and
(c)I am satisfied that the 'low threshold' test can be satisfied without placing any weight on the plaintiff's Fees Application.
I am satisfied that the court's power to make a security for costs order is engaged and, therefore, that the application is to be decided on the balancing of the factors relevant to the exercise of the court's broad discretion:
(a)to make an order for security for costs; and
(b)as to the amount of any such payment.
Parties' contentions in relation to discretion
The plaintiff resists the application, in summary, on the basis that:
(a)the defendant has engaged in conduct that has delayed proceedings by failing to put on a defence and by the bringing and timing of this application;
(b)in those circumstances, the application for security is oppressive;[15]
[15] Referring in support to Jaddcal Pty Ltd v Minson [No 2] [2011] WASC 138 [15] (Le Miere J) (Jaddcal), and the authorities cited therein.
(c)the director of the plaintiff, Mr Fan (Frank) Jiang, has offered and the defendant has refused personal undertakings, including by way of:
(i)a Deed of Security and Guarantee for costs payable up to $50,000, signed by Mr Jiang;
(ii)an offer to sign a Deed of Guarantee in relation to costs payable up to $100,000;
and
(d)Mr Jiang has provided evidence as to his financial capacity to meet the personal undertakings he has offered in the form of:
(i)bank statements; and
(ii)proof of ownership of real property in the State.
The defendant contends, in summary, that:
(a)the satisfaction of the 'threshold question' is itself a powerful factor in favour of the exercise of the court's discretion;[16]
[16] Referring in support to Huntingdale Village Pty Ltd (Receivers and Managers Appointed) ATF Huntingdale Village Unit Trust v Perpetual Nominees Ltd [No 2] [2014] WASC 217 [13] (Le Miere J) and the authorities cited therein.
(b)the application is neither delayed nor oppressive in that it:
(i)was brought following reasonable steps taken to confer with the plaintiff; and
(ii)will not stifle the plaintiff's ability to advance a genuine claim;
(c)the proffering of an undertaking by a person standing behind a plaintiff company must be given weight having regard to the value of the proffered personal undertaking and the means of the person giving it;[17]
(d)in this case:
(i)the offers of undertakings made by the plaintiff have differed in value, with the lesser offer (in relation to costs of up to $50,000) being made last and being the only offer supported by a signed deed of security;
(ii)in any event, there is a paucity of evidence in support of Mr Jiang's capacity to honour an undertaking; and
(iii)in the premises, no weight should be given to Mr Jiang's proposed undertaking;
and
(e)there are no other discretionary factors that weigh against the ordering of the provision of security, and it is appropriate that such an order be made.
[17] Referring in support to Westonia [41] - [42] (Edelman J) and Knights Capital Group Ltd v Bajada & Associates Pty Ltd [No 2] [2017] WASC 245 [39] - [40] (Pritchard J).
The evidence produced on affidavit is to the effect, and I find, that:
(a)around six weeks after the writ was served, by letters dated 27 February 2023, the defendant wrote to the plaintiff inter alia:[18]
[18] Annexure LJD1 of the Davies affidavit, pages 6 - 12.
(i)identifying deficiencies in the plaintiff's pleadings;
(ii)addressing the 'merits of the claim' including by setting out the defendant's substantive response to various aspects of the pleaded case; and
(iii)putting the plaintiff on notice that the defendant would seek security for costs, identifying the matters in [21] ‑ [22] above as its reasons for doing so;
(b)the plaintiff responded on 8 March 2023[19] acknowledging that amendments would be made to the statement of claim, but resisting the defendant's contention that security for costs was appropriate and in particular objecting to the Fees Application as a reason;
(c)in the event, the plaintiff amended the writ and statement of claim on 13 April 2023;
(d)following service of the amended pleadings on the defendant on or about 22 May 2023, the defendant continued to press for security for costs, and identified that there were reasons other than the Fees Application to support its position;[20]
(e)over the ensuing months to November 2023, the parties continued to exchange correspondence, with the plaintiff pressing the defendant to file a defence and the defendant pressing for security for costs and declining to file a defence pending resolution of that issue; and
(f)as to Mr Jiang's offers of a personal undertaking:
(i)by letter dated 6 June 2023, the plaintiff first indicated Mr Jiang's willingness to give an undertaking for security in relation to the defendant's costs 'fixed at an amount to be agreed'. By email dated 5 July 2023 and letter dated 26 July 2023, the plaintiff's solicitors indicated Mr Jiang's willingness to fix that amount at $100,000 and, by letter dated 2 October 2023, the plaintiff provided a deed of security and guarantee executed by Mr Jiang securing up to $50,000;
(ii)in each instance, the defendant responded in terms that any personal undertaking should be supported by evidence of Mr Jiang's capacity to meet the amount secured; and
(ii)as to Mr Jiang's means, the plaintiff proffered a certificate of title and rates notice in relation to a property in Mount Hawthorn[21] (the Mount Hawthorn Property), and a number of redacted bank statements for a National Australia Bank (NAB) bank account in Mr Jiang's name, for the periods 12 January 2023 to 11 July 2023[22] and 31 July 2023 to 26 September 2023[23] (Bank Statements). By email dated 5 July 2023, the plaintiff's solicitors indicated that the Mount Hawthorn Property had an 'estimated value' of 'between $1.97m and $2.52m' and was 'subject to a mortgage to the National Australia Bank of $1.3m'.[24]
[19] Annexure LJD2 of the Davies affidavit, pages 13 - 14.
[20] Specifically, the matters in [21] above, and the nature of the plaintiff's business activity, being 'crypto mining': letter dated 26 May 2023, Annexure LJD3 of the Davies affidavit, pages 15 - 16.
[21] Annexure TJM7 of the Millar affidavit, pages 30 - 31; LLL-8 of the Lee affidavit, pages 23 - 24.
[22] Annexure TJM10 of the Millar affidavit, pages 37 - 47.
[23] Annexure TJM10 of the Millar affidavit, pages 56 - 58.
[24] Annexure TMJ7 of the Millar affidavit, page 27.
That evidence satisfies me that the considerations relevant to the exercise of the court's discretion, on balance, favour making an order for security against the plaintiff. The following considerations are of particular relevance to that conclusion.
First, there is credible evidence that the plaintiff may not be in a position to meet any adverse costs order, and despite the opportunity to do so, the plaintiff has not filed any evidence in relation to the financial position of the plaintiff to give any better clarity in that regard.
Second, and without attempting any detailed consideration of the merits of the action:
(a)notwithstanding that the defendant has not filed a defence, it is not the case that no assessment of any likely defence can be made; rather, the defendant's correspondence[25] with the plaintiff discloses a substantive response to the plaintiff's claim (made at an early stage);
(b)the plaintiff's case asserts a contract that is partly in writing and partly by conduct, in circumstances where there is a real dispute about the parties' competing version of events and the terms of any agreement between them; and
(c)the competing merits of the claim and likely defence, taken at this early stage and for the purposes of considering the exercise of discretion in the application, do not favour one party over the other. That is, there appears to be a plausible claim and a plausible defence, the precise and relative strengths of which are yet to be tested.
[25] Annexure LJD1 of the Davies affidavit, pages 6 - 9.
Third, I do not consider the application to be oppressive because:
(a)I do not accept the plaintiff's submission that the application is oppressive because it 'has been conducted in a way that prolongs the proceedings and adds to the cost'[26] and, more specifically, to avoid filing a defence;
(b)both parties brought interlocutory proceedings, with the inevitable delay that those steps involve;
(c)further, and more importantly, there has not been an undue and unexplained delay in bringing the application. Rather, there was ongoing conferral and exchange between the parties, including as to the proffered undertakings of Mr Jiang and his means to meet any such undertaking that continued until November 2023. The application was brought the following month, and on the same grounds as those articulated to the plaintiff at the first instance, in February 2023;
(d)the defendant has not declined, during the process of conferral, as to security for costs, to articulate a response to the plaintiff's pleaded case. On the contrary, deficiencies in the statement of claim were raised (and conceded and addressed by the plaintiff) and the defendant has otherwise responded in substance to the claim at an early stage; and
(e)finally, I do not consider the application to be oppressive in the more conventional sense of stifling the plaintiff's ability to pursue its claim. As noted above, no evidence has been put before the court in relation to the plaintiff's financial position (and therefore the impact on the conduct of the litigation of being ordered to pay security for costs). Further, to the extent that there is any evidence available, it appears that Mr Jiang is willing to stand behind the plaintiff in terms of funding the litigation and the plaintiff asserts he has sufficient means to do so.
[26] Plaintiff's written submissions, par 12, citing Jaddcal [15] in support.
Fourth, the proffered undertakings given by Mr Jiang could be a powerful factor against making an order in relation to security. However, the weight of that consideration is significantly weakened by the limited evidence going to his capacity to meet any such undertaking because:
(a)the ability or inability of a plaintiff to meet any adverse costs order is to be assessed at the time of judgment or immediately following, and taking account of the range of assets which could be immediately realised, to which recourse might be had.[27] It stands to reason that a similar approach should be taken when assessing the means of a person proffering an undertaking to assume the liability of the plaintiff in relation to costs;
(b)as to the Mount Hawthorn Property, Mr Jiang is one of two joint proprietors which casts some doubt over his unilateral ability to 'immediately realise' the asset if called upon to do so. Further, there is no evidence before me that reliably speaks to the current value of the property or the amount secured by any mortgage or mortgages against it; and
(c)although the Bank Statements suggest that in September 2023, Mr Jiang had a cash balance of over $1.4 million, there is no evidence as to the current balance or as to any liabilities to be paid from it. This is significant in light of the very substantial variations in the balances disclosed by the Bank Statements over the eight-month period they cover (from a low of around $20,000 in March 2023 to a high in excess of $1.6 million in August 2023), and the redaction of all transaction details which might shed light on the nature and cause of those variations.
[27] Sugarloaf [35] (Corboy J).
I also consider the appropriate form of security to be by way of a payment into court.
Quantum of security
The defendant's solicitor has prepared a draft bill of costs, annexed to the Lee affidavit,[28] by which he estimates the defendant's costs of the proceedings, including a five-day trial, to be $192,680 (being the amount sought as security in the application). That sum includes estimates relating to disbursements for expert witness fees in an amount of $20,000 and costs:
(a)to conclude pleadings, in an amount totalling $6,094;
(b)to attend to discovery, in an amount totalling $14,960;
(c)to conduct a mediation or pre-trial conference, in an amount of $8,800;
(d)to attend a listing conference and prepare for trial, in an amount totalling $62,744; and
(e)to take the action to trial (for five days), in an amount totalling $77,770.
[28] Annexure LLL-3 of the Lee affidavit, pages 8 - 10.
As to quantum, the plaintiff contends that the sum sought by the defendant is unreasonable because:
(a)it is calculated on the basis of a complete indemnity - under the Legal Profession (Supreme and District Courts) (Contentious Business) Determination 2022 (Scale) - in relation to the defendant's costs of the action; and
(b)in the absence of a defence, there can be no adequate basis on which to assess the likely costs of the defendant (although, for the reasons outlined at [30(a)] above, I do not accept this latter submission).
The defendant contends that the quantum of the security proposed by the defendant:
(a)is supported by the Lee affidavit;
(b)is not calculated on an indemnity basis, but in accordance with the Scale; and
(c)will provide the defendant with adequate, but no more than adequate, security.
In oral submissions, the defendant acknowledged that it was open to the court to approach the quantum and adequacy of security for costs by reference to 'tranches' corresponding with various stages in the litigation. I invited each of the parties to make submissions in relation to such an approach in this case.
(a)The plaintiff advanced the position that, if I was otherwise satisfied that the application should succeed,[29] then I should order security for costs to be paid in tranches, with the first tranche corresponding to the close of pleadings.
(b)The defendant advanced the position that, if I was minded to make an order for security for costs other than in accordance with the application (that is, other than by reference to the whole of the defendant's estimated costs of the action), then the appropriate first tranche should correspond with entry for trial.
[29] By reason of [34(b)] above.
In the exercise of my discretion in this regard, I take account of the likely impact of any order on the plaintiff, what reasonableness requires in relation to security, and the objectives of contemporary case management.[30]
[30] Which include promoting the just determination of litigation, disposing efficiently of the business of the court, maximising the efficient use of available judicial and administrative resources, and facilitating the timely disposal of business: RSC O 1 r 4A, O 1 r 4B.
I consider that the amount provided as security should secure the defendant's costs up to and including any mediation or pre-trial conference. Further, since expert evidence is often essential to efficacy of the parties' negotiations, the amount should include an allowance for disbursements for expert witness fees.
On the defendant's estimate, this would amount to a total of $49,854. On the face of it, taking a 'broad-brush' approach and having regard to the Scale, that estimate is not unreasonable. However, noting that the time allowed for discovery and inspection appears fairly generous in the context of the claim, and allowing for the possibility that some experts' fees may be incurred after any mediation or pre‑trial conference, I consider that an appropriate amount to be ordered to be paid into court as security for the defendant's costs for this first tranche is $45,000.
Costs
Costs ordinarily follow the event, and subject to hearing from the parties, I am inclined to follow that usual course in relation to the application.
Conclusion
I will hear the parties as to the precise terms of the orders that should be made.
I certify that the preceding paragraph(s) comprise the reasons for decision of the District Court of Western Australia.
MB
Associate to Registrar
16 APRIL 2024
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