Vicon Services Pty Ltd v BHP Billiton Worsley Alumina Pty Ltd

[2012] WASC 109

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION:   VICON SERVICES PTY LTD -v- BHP BILLITON WORSLEY ALUMINA PTY LTD [2012] WASC 109

CORAM:   LE MIERE J

HEARD:   18 NOVEMBER 2011

DELIVERED          :   30 MARCH 2012

FILE NO/S:   CIV 1064 of 2011

BETWEEN:   VICON SERVICES PTY LTD

Plaintiff

AND

BHP BILLITON WORSLEY ALUMINA PTY LTD
First Defendant

BHP BILLITON ALUMINIUM (RRA) PTY LTD
Second Defendant

BHP BILLITON ALUMINIUM (WORSLEY) PTY LTD
Third Defendant

JAPAN ALUMINA ASSOCIATES (AUSTRALIA) PTY LTD
Fourth Defendant

SOJITZ ALUMINA PTY LTD
Fifth Defendant

Catchwords:

Practice and procedure - Security for costs - Threshold jurisdictional question - Discretion - Turns on own facts - Corporations Act 2001 (Cth) s 1335

Legislation:

Corporations Act 2001 (Cth), s 1335(1)

Result:

Application allowed

Category:    B

Representation:

Counsel:

Plaintiff:     Mr M D Howard SC

First Defendant             :     Mr M G Lundberg

Second Defendant         :     Mr M G Lundberg

Third Defendant           :     Mr M G Lundberg

Fourth Defendant          :     Mr M G Lundberg

Fifth Defendant            :     Mr M G Lundberg

Solicitors:

Plaintiff:     Kott Gunning

First Defendant             :     Mallesons Stephen Jaques

Second Defendant         :     Mallesons Stephen Jaques

Third Defendant           :     Mallesons Stephen Jaques

Fourth Defendant          :     Mallesons Stephen Jaques

Fifth Defendant            :     Mallesons Stephen Jaques

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

FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69; (2000) 22 WAR 241

Livingspring Pty Ltd v Kliger Partners (2008) 20 VR 377; (2008) 66 ACSR 455

1. LE MIERE J:  The defendants have applied for an order that the plaintiff provide security for the defendants' costs up to and including the provision of discovery and inspection by way of bank guarantee in the sum of $75,000 and in the meantime further proceedings be stayed and that the defendants have liberty to apply for further security.

Security for costs ‑ legal principles

1. Where a corporation is a plaintiff in a legal proceeding, the court, 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 its defence, may require sufficient security to be given for those costs and stay all proceedings until the security is given:  Corporations Act 2001 (Cth) s 1335(1) (the Act).

2. Section 1335 carries both a threshold test and a discretionary test. The first question is whether the threshold condition for the exercise of the power is satisfied, that is, that 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. The jurisdictional condition must be satisfied before the discretionary power to order security for costs is enlivened: FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69; (2000) 22 WAR 241 [21] (Pidgeon & Owen JJ).

3. The threshold test was discussed by Maxwell P and Buchanan JA in Livingspring Pty Ltd v Kliger Partners (2008) 20 VR 377; (2008) 66 ACSR 455, where they said:

   The phrase 'reason to believe' is the touchstone of jurisdiction.  It requires a rational basis for the belief - and no more.  The wording adopted may be contrasted with other familiar formulations such as 'if the court is satisfied that' or 'if in the view of the court it is likely that.'  The section requires the making of a judgment, a risk assessment:  is there a risk that the corporation will be unable to pay?  (It adds nothing, in our view, to say that it must be a 'real risk'.)  A risk assessment is, of necessity, imprecise.  The section calls for a practical, commonsense approach to the examination of the corporation's financial affairs.

   It may be said, with justification, that this is a low threshold.  But the test simply reflects the policy of the provision, which is to protect a defendant against the risk of the plaintiff corporation's impecuniosity.  The provision equips the court with the means to require that the defendant be secured against that risk [15] - [16].

The plaintiff's claim

1. The plaintiff claims against the defendants the sum of $1,105,260.27 plus GST for fees and outgoings which the plaintiff says it is owed by the defendants pursuant to a contract between the plaintiff and the defendants made on or about 19 January 2009 as varied in writing on or about 12 May 2009.

2. The material before me does not enable me to form a reliable opinion as to the strength of the plaintiff's claim.  I regard the strength of the plaintiff's claim to be a neutral factor in determining this application.

Defendants' legal costs

1. Ms Jorissen, a senior associate employed by the defendants' solicitors, has prepared a draft bill of costs which sets out the relevant professional costs and disbursements incurred by the defendants at the date of the hearing of this application which are allowable under the relevant Legal Practitioners (Supreme Court Contentious Business) Determination 2010 (Determination) and an estimate of the costs and disbursements allowable under the Determination that are likely to be incurred by the defendants in defending the claims brought by the plaintiff up to and including the provision of discovery and inspection.  Ms Jorissen is an experienced commercial litigation solicitor.  Having regard to Ms Jorissen's experience and my own assessment of the matter I accept Ms Jorissen's estimate of $89,295 as a reasonable estimate of the costs and disbursements allowable under the Determination that are likely to be incurred by the defendants.

Plaintiff's financial position

1. The plaintiff is a proprietary limited company.  The director of the plaintiff has prepared financial statements for the year ended 30 June 2011 on the basis that the company is a non‑reporting entity.  The financial statements are therefore special purpose financial statements that have been prepared for the purposes of its members.

2. The plaintiff relies upon an affidavit of Niall Conlon, a director of the plaintiff, sworn 1 November 2011.  Mr Conlon states in his affidavit that the total liabilities for the company as at 30 June 2011 were $1,831,368 against total assets of $3,333,966 leaving net assets of $1,502,598.  The liabilities consist primarily of bank and other long term loans, accounts payable and intercompany loans.  The assets consist primarily of accounts receivable, motor vehicles, plant and machinery and the ADI licence fee.

3. The plaintiff's net assets as at 30 June 2010 are shown to be $6,607.  The largest single asset is 'ADI licence fee' of $908,135.  The licence fee was shown to have zero value as of 30 June 2010.   Mr Conlon makes no reference to the ADI licence fee.  There is no explanation concerning the inclusion of the ADI licence fee as an asset as at 30 June 2011 and not 30 June 2010.  There is no evidence that the licence fee is a realisable asset, that is, it could be sold to meet costs payable to the defendants.  On the face of it, a licence fee is an amount paid by the plaintiff and there is no evidence that the licence can be sold or the amount of the fee otherwise realised.

4. The accounts receivable of $1,488,331 represent 33% of the plaintiff's total income of $4,502,263 for the year ended 30 June 2011.  The special purpose financial statements contain no note concerning the accounts receivable.  It is not stated whether they include all or any part of the debt claimed by the plaintiff from the defendants.  There is no evidence of the plaintiff's usual terms of trade.  However, I note that under the contract between the plaintiff and the defendant the defendants were required to make progress payments as soon as reasonably practicable following the end of each of calendar month.  There is no explanation for the apparently high ratio of accounts receivable to total income.

5. The non‑current assets include $223,277 for motor vehicles and $357,920 for plant and machinery, a total of $581,197.  The special purpose accounts state that they are based on historical costs unless otherwise stated in the notes.  There are no relevant notes.  There is no evidence of the market or realisable value of those assets.

6. In his affidavit Mr Conlon states that he believes that the plaintiff is solvent and is able to pay its debts as and when they fall due and that the solvency of the plaintiff has been confirmed by CIB Accountants and Advisors by letter of 8 September 2011 which is an attachment to Ms Jorissen's affidavit sworn on 22 September 2011. However, that is not the test required by s 1335 of the Act. Furthermore, the accountants prepared the special purpose financial statements on the basis of information provided by the director and the statements do not include the detail in relation to accounts receivable, motor vehicles, plant and machinery and the ADI licence fee to which I have referred.

7. Mr Conlon states that the profit and loss account for the plaintiff shows that for the financial year ending 30 June 2011 the plaintiff had a net profit of $590,891.  The special purpose financial statements show that in the year ended 30 June 2010 the plaintiff made an operating loss of $13,127.  In the year ended 30 June 2011 the plaintiff's gross profit was $1,251,415, a decrease from $1,713,242 in the previous year.  The special purpose financial statements show that the plaintiff made a profit in the year ended 30 June 2011 because its expenses fell from $1,726,369 for the year ended 30 June 2010 to $661,632 for the year ended 30 June 2011.  The decrease in expenses came about principally because in 2010 there was an expense of $580,000 for Vicon Group Management fee and no such fee was incurred for the year ended 30 June 2011.  A further decrease in expenses from the 2010 year to the 2011 year is explained by a reduction in 'allocation of group overheads' from $303,974 to $151,383.  Thus, the plaintiff making a profit depends, amongst other things, on whether a management fee is paid to the Vicon Group and the allocation of group overheads.  The plaintiff is a member of the Vicon Group of companies and is wholly owned by Vicon Group Holdings Pty Ltd.  Having regard to the fact that the plaintiff made a loss for the financial year ended 30 June 2010 and its profit in the year ended 30 June 2011 was dependent upon not paying a group management fee and upon the allocation of group overheads there can be no assurance that the plaintiff will make a profit in succeeding years.

8. The plaintiff commenced this action in January 2011.  It has incurred substantial costs and disbursements since then.  The special purpose financial statements make no reference to the plaintiff's legal costs and disbursements.  There is no explanation for that.  In any event, the plaintiff will incur substantial costs and disbursements of its own in defending this action.

The threshold test is met

1. It is not necessary that the court should be satisfied that the plaintiff will be unable to pay the costs of the defendant if successful in its defence.  The test is whether 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.  Having regard to all of the matters to which I have referred I find that the test is met; that is, it appears by credible testimony that there is reason to believe that the plaintiff will be unable to pay the costs of the defendants if successful in their defence.

Discretion

1. Credible testimony from which it appears that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in its defence enlivens the court's discretion.  It is also a relevant factor, along with other factors, in determining whether an order for security for costs should be made.  In this case the plaintiff raised no factors going to the exercise of the court's discretion whether or not to order security for costs.  The plaintiff's submissions were confined to the submission that the threshold test was not met.

2. I consider that it is appropriate that an order for security should be made against the plaintiff.

Amount of security

1. Ms Jorissen has estimated that the costs and disbursements incurred and that are likely to be incurred by the defendants in defending the claims brought by the plaintiff up to and including the provision of discovery and inspection which are allowable under the Determination amounted to $89,295.  The defendants seek security for costs in the sum of $75,000.

2. The basic rule regarding the appropriate quantum of security is that the court fix an amount it considers will be adequate.  The court must have regard to the probable costs which the defendants may be put to so far as it can be ascertained.  I consider that an amount of $75,000 for the defendants is adequate.  The plaintiff should give security for the defendants' costs in the sum of $75,000 up to and including the provision of discovery and inspection.