WA Glass Pty Ltd v Auto Control Systems Pty Ltd - [2024] WADC 108

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CIVIL

LOCATION:   PERTH
CITATION:   WA GLASS PTY LTD -v- AUTO CONTROL SYSTEMS PTY LTD [2024] WADC 108
CORAM:   GETHING DCJ
HEARD:   5 DECEMBER 2024
DELIVERED          :   13 DECEMBER 2024
FILE NO/S:   CIV 614 of 2024
BETWEEN:   WA GLASS PTY LTD
Plaintiff
AND
AUTO CONTROL SYSTEMS PTY LTD
Defendant

Catchwords:

Practice and procedure - Security for costs - Turns on own facts

Legislation:

Corporations Act 2001 (Cth) s 1335

Result:

Application dismissed

Representation:

Counsel:

Plaintiff	:	Mr D H Solomon
Defendant	:	Mr J P Cook

Solicitors:

Plaintiff	:	Solomon Brothers
Defendant	:	Mendelawitz Morton Commercial Lawyers

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

Arvind Pty Ltd v Lamers [2020] WASCA 47
Auto Control Systems Pty Ltd v WA Glass Pty Ltd [2024] WASC 160
Braziron Corporate Services Pty Ltd v Road Rail and Mine Products Pty Ltd [2022] WASC 73
Colmax Glass Pty Ltd v Polytrade Pty Ltd [2013] VSC 311
Donald Campbell‑Smith as executor of Martin Banning v Graeme Trevor Lean (in his capacity as Receiver) [2017] WASCA 89
FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69; (2000) 22 WAR 241
G & R Rossen Pty Ltd v Buchanan [2019] WASC 373
George 218 Pty Ltd v Bank of Queensland Ltd [2016] WASCA 56
Golden Eagle International Trading Pty Ltd v Zhang [2007] HCA 15; (2007) 229 CLR 498
Hearne v Street [2008] HCA 36; (2008) 235 CLR 125
Livingspring Pty Ltd v Kliger Partners (2008) 20 VR 377; (2008) 66 ACSR 455
Modern Holdings Pty Ltd v Scentre Management Ltd [2022] WASC 19
Ogbonna v Programmed Integrated Workforce Ltd [No 2] [2022] WASCA 79
Phoenix Eagle Company Pty Ltd v Tom McArthur Pty Ltd [No 2] [2019] WASC 378
Pravenkav Group Pty Ltd v Diploma Construction (WA) Pty Ltd [No 2] [2014] WASCA 106
Sugarloaf Hill Nominees Pty Ltd as Trustee for the Richard and Anna Trust v Rewards Projects Ltd [2011] WASC 19
Swansdale Pty Ltd v Whitcrest Pty Ltd [2010] WASCA 129
Vantage Holdings Group Pty Ltd v Donnelly [No 4] [2019] WASC 398
Vicon Services Pty Ltd v BHP Billiton Worsley Alumina Pty Ltd [2012] WASC 109
Vynben Pty Ltd v PA Audit Pty Ltd [2019] WASC 219
WA Glass Pty Ltd v Auto Control Systems Pty Ltd [2021] WASC 187
WA Glass Pty Ltd v Auto Control Systems Pty Ltd [2021] WASCA 162
WA Glass Pty Ltd v Auto Control Systems Pty Ltd [2023] HCASL 160
WA Glass Pty Ltd v Auto Control Systems Pty Ltd [No 2] [2023] WASCA 85
WA Glass Pty Ltd v Auto Control Systems Pty Ltd [No 3] [2023] WASCA 153
WA Glass Pty Ltd v Auto Control Systems Pty Ltd [No 4] [2023] WASCA 154
Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [2013] WASC 57
Zaghloul v Bayly [2023] WASCA 64

GETHING DCJ:

Introduction

Between approximately December 2019 and November 2020 WA Glass Pty Ltd (WAG), the plaintiff, engaged Auto Control Systems Pty Ltd (ACS), the defendant, to perform electrical works at its Bassendean glass recycling plant. There is a dispute as to the terms on which this work was done. By 12 February 2021, ACS had issued invoices to WAG totalling $248,391.81 which had not been paid (though other invoices had been paid). Accordingly, on that date it issued a statutory demand to WAG in this amount (Statutory Demand).
WAG commenced proceedings in the Supreme Court to have the Statutory Demand set aside. On 18 August 2021, the Master dismissed the application.[1] WAG appealed. On 6 September 2021, the Court of Appeal made an order that the time within which WAG is to comply with the Statutory Demand be extended to seven days after the final determination of the appeal or earlier order. However, this was subject to WAG paying $248,391.81 into court.[2] WAG paid the money into court in accordance with the condition.[3] The Court of Appeal ultimately dismissed the appeal. The court held that WAG had not established that there was a genuine dispute about the existence or amount of the debt the subject of the Statutory Demand. Nor had it established that it had an offsetting claim.[4] WAG made an application to the High Court for special leave to appeal. The High Court dismissed the application leave on the papers, describing the Court of Appeal's decision as being 'plainly correct'.[5]
[1] WA Glass Pty Ltd v Auto Control Systems Pty Ltd [2021] WASC 187.
[2] WA Glass Pty Ltd v Auto Control Systems Pty Ltd [2021] WASCA 162 [2] (judgment of the court).
[3] WA Glass Pty Ltd v Auto Control Systems Pty Ltd[No 2] [2023] WASCA 85 [31] (judgment of the court) (Appeal No 2)
[4] Appeal No 2 [110] (judgment of the court).
[5] WA Glass Pty Ltd v Auto Control Systems Pty Ltd [2023] HCASL 160 [2] (judgment of the court).
After the extended time for compliance with the Statutory Demand had expired, ACS sought an order for payment to it of the $248,391.90 paid into court as security for compliance with the Statutory Demand. In response, WAG applied to stay this application as being an abuse of process. This was essentially on the basis that by that time ACS had applied to wind up WAG relying on the non-compliance with the Statutory Demand (Winding Up Application). The Court of Appeal declined to stay the application.[6] In a second decision delivered the same day, the Court of Appeal ordered that amount in court be paid out to ACS on condition that it file an undertaking that it would not rely on WAG's failure to comply with the Statutory Demand in any winding up application.[7] The money was paid out to ACS. ACS subsequently sought and obtained leave to discontinue the Winding Up Application, with the court also making an order that WAG pay a portion of ACS's costs.[8]
[6] WA Glass Pty Ltd v Auto Control Systems Pty Ltd[No 3] [2023] WASCA 153 [5] - [6] (judgment of the court) (Appeal No 3).
[7] WA Glass Pty Ltd v Auto Control Systems Pty Ltd[No 4] [2023] WASCA 154 [109] (Judgment of the court) (Appeal No 4).
[8] Auto Control Systems Pty Ltd v WA Glass Pty Ltd [2024] WASC 160 [37] (Cobby J).
The net result of the Supreme Court proceedings was that ACS was put in the position of having been paid the amount of the invoices the subject of the Statutory Demand. However, as the Court of Appeal made clear, its decisions on the statutory demand process did not finally determine the dispute about ACS's claimed debt due by WAG or WAG's alleged offsetting claim against ACS.[9] These matters could still be agitated in a court of competent jurisdiction.[10]
[9] Appeal No 2 [77]; Appeal No 4 [106].
[10] Appeal No 4 [106].
It is in this context that the present action was commenced by WAG in this court by writ filed 6 February 2024 (Action). The remedies it seeks are twofold. The first is for recovery of the $248,391.90 paid out of the Supreme Court to ACS on the basis that the money was only paid into court as a result of the 'illegitimate pressure' which ACS put on WAG by the issue of the Statutory Demand. The second is for damages for breach of the contract by which ACS installed electrical equipment at WAG's principal place of business in Bassendean.

By application dated 19 April 2024 ACS sought orders that WAG provide security for its costs (Application).
The Application was heard on 28 August 2024. The Deputy Registrar made orders that (Decision):
1.within 21 days the plaintiff do give security for the defendant's costs of the action in the sum of $100,000 by provision of a bank guarantee and in the meantime all further proceedings be stayed;
2.after the action is entered for trial the defendant do have liberty to relist the application for the provision of further security in the sum of $100,000 upon 72 hours' notice to the plaintiff; and
3.the plaintiff do pay the defendant's costs of the application in any event.
By Appeal Notice filed 2 September 2024 WAG appealed from the Decision (Appeal).
On 13 September 2024 the court made orders, by consent, that:
1.paragraph 1 of the order of Deputy Registrar Harman dated 28 August 2024 be amended be deleting the words 'by provision of a bank guarantee' and replacing them with 'by payment into court'.
On 16 September 2024, WAG filed a notice that it had paid the amount of $100,000 into the District Court.
The Appeal was heard by me on 5 December 2024.
For the reasons which follow, the Application should be dismissed.

Documents before the court

ACS relies on the following affidavits:
(a)Jonathon Peter Cook (a solicitor employed by ACS's lawyers) sworn 19 April 2024 (April Cook Affidavit);
(b)Mr Cook sworn 14 June 2024 (June Cook Affidavit);
(c)a second affidavit sworn by Mr Cook on 14 June 2024, annexing a copy of an affidavit sworn by Brett Smith, an employee of ACS (Second June Cook Affidavit); and
(d)Mr Cook sworn 29 October 2024 (October Cook Affidavit).
Counsel for ACS relied on submissions dated 5 July 2024, 23 July 2024, 27 August 2024 and 29 October 2024.
WAG relies on the following affidavits:
(a)Peter William Harkins (the sole director of WAG) sworn 8 May 2024 (May Harkins Affidavit);
(b)Louis Lut-Yiu Lee (a solicitor employed with WAG's lawyers) sworn 27 June 2024 (June Lee Affidavit);
(c)Mr Harkins sworn 26 June 2024 (June Harkins Affidavit);
(d)Mr Harkins sworn 9 October 2024 (October Harkins Affidavit); and
(e)Mr Harkins sworn 8 November 2024 (November Harkins Affidavit).
Counsel for WAG relied on submissions dated 28 May 2024, 10 July 2024, 14 October 2024 and 8 November 2024.

Issues arising for determination

The Appeal is by way of a new hearing of the matter that came before the Deputy Registrar.[11] It involves a complete de novo review. I am to treat the Application as if it was before the court for the first time, save that WAG, as the party appealing, has the right as well as the obligation to open the Appeal. There is no requirement on WAG to show that the Deputy Registrar made an error of law or principle in the Decision.[12]
[11] District Court Rules 2005 (WA) r 15(6) (DCR).
[12] Ogbonna v Programmed Integrated Workforce Ltd [No 2] [2022] WASCA 79 [98] (judgment of the court) (Ogbonna); Zaghloul v Bayly [2023] WASCA 64 [50] (reasons of the court) (Zaghloul).
As the Appeal is by way of a new hearing of the Application, the parties are not confined to the evidence presented to the Deputy Registrar, and the court should ordinarily allow the parties to rely on additional evidence, subject to a discretion to exclude.[13] Neither counsel submitted that any of the evidence filed after the Decision was made should be excluded.
[13] Ogbonna [98]; Zaghloul [50].
While the Appeal is confined by the scope of the Application, the hearing is a hearing de novo so it is permissible to advance the Application by points which were not advanced before the Deputy Registrar.[14] By parity of reasoning, the same would apply to points in opposition.
[14] Zaghloul [50].
The Application is brought pursuant to Corporations Act 2001 (Cth) s 1335(1) (CA), Rules of the Supreme Court 1971 (WA) O 25 (RSC) and in the inherent jurisdiction of the court. However, it is sufficient for me to determine the Application pursuant to CA s 1335(1), as no counsel suggested that the outcome would be different applying RSC O 25 or in the inherent jurisdiction of the court.
CA s 1335(1) provides:
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.
The District Court is a 'court' for the purposes of CA s 1335(1).[15]
[15] CA s 58AA.
The power in CA s 1335(1) contains a threshold test or jurisdictional requirement and a discretion. The threshold requirement 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 in his, her or its defence'. Once enlivened, the discretion is unfettered by the terms of CA s 1335(1), though must be exercised judicially by reference to established principle and considering all the circumstances of the case.[16]
[16] Swansdale Pty Ltd v Whitcrest Pty Ltd [2010] WASCA 129 [67], [71] (Kenneth Martin J with whom Pullin JA agreed) (Swansdale); FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69; (2000) 22 WAR 241 [21] (Pidgeon & Owen JJ) (FFE); Phoenix Eagle Company Pty Ltd v Tom McArthur Pty Ltd [No 2] [2019] WASC 378 [14] (Allanson J) (Phoenix); Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [2013] WASC 57 [5] - [6] (Edelman J) (Westonia); Braziron Corporate Services Pty Ltd v Road Rail and Mine Products Pty Ltd [2022] WASC 73 [37] (Strk J) (Braziron); Modern Holdings Pty Ltd v Scentre Management Ltd [2022] WASC 19 [18] (Strk J) (Modern Holdings).
Consequently, four issues arise for determination:
•What costs would WAG be required to pay ACS if it was successful in its defence?
•Is there reason to believe that WAG be unable to pay the costs of ACS if it is successful in its defence?
•If there is, how should the discretion be exercised?
•What final orders are appropriate?

What costs would WAG be required to pay ACS if it was successful in its defence?

Mr Cook deposes that he expects that the level of recoverable costs following taxation at the conclusion of the Action, should ACS be successful in its defence, to be in the order of $200,000. He annexes a draft bill of costs detailing his analysis.[17]
[17] April Cook affidavit, pars 54 ‑ 61; Annexure JPC 12.
Counsel for WAG submitted that the figure was high, but in the end was content for it to be relied on for the purposes of determining the Application.
In my view, the amount of $200,000 is an appropriate estimate. The Application is to be determined on the basis that the taxed costs of ACS if successful in its defence would be $200,000.

Is there reason to believe that WAG would be unable to pay the costs of ACS if it is successful in its defence?

The threshold question posed by CA s 1335(1) is whether it appears by credible testimony that there is reason to believe that WAG will be unable to pay ACS's costs if it is successful in its defence.
There is no evidentiary burden to be undertaken or discharged by a party seeking the security order. Rather, 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 applicant if successful in its defence.[18]
[18] FFE [24]; Swansdale [69]; Sugarloaf Hill Nominees Pty Ltd as Trustee for the Richard and Anna Trust v Rewards Projects Ltd [2011] WASC 19 [34] (Corboy J) (Sugarloaf); Vantage Holdings Group Pty Ltd v Donnelly [No 4] [2019] WASC 398 [206] (Smith J); Vynben Pty Ltd v PA Audit Pty Ltd [2019] WASC 219 [27] - [28] (Smith J); G & R Rossen Pty Ltd v Buchanan [2019] WASC 373 [59] (Kenneth Martin J); Braziron [33]; Modern Holdings [14].
The principles by which this evaluation is to be carried out are well settled, and may be summarised as follows:[19]
(a)the court will adopt a practical, common‑sense approach to the examination of the corporation's financial affairs;
(b)it is necessary to make an assessment of the risk that the corporation will be unable to pay, an assessment that will necessarily be imprecise;
(c)a 'reason to believe' is a low threshold test;
(d)the requirement that there be 'credible testimony' is an obvious safeguard to ensure that the application is not founded purely upon speculation;
(e)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';
(f)the court will need to fix the time at which the corporation's inability, or apprehended inability, is to be assessed, which will generally require an opinion to be formed as to the date on which judgment is likely to be given;
(g)the court will need to identify the range of assets to which recourse might be had for the purpose of enforcing an adverse costs order; and
(h)generally, the relevant assets will be those that might be immediately realised and those which could be realised in sufficient time to enable the corporation to comply with a costs order in the usual terms.
[19] George 218 Pty Ltd v Bank of Queensland Ltd [2016] WASCA 56 [40] - [48] (Murphy JA); Pravenkav Group Pty Ltd v Diploma Construction (WA) Pty Ltd [No 2] [2014] WASCA 106 [18] (Murphy JA) (Pravenkav); FFE [22] ‑ [24]; Vicon Services Pty Ltd v BHP Billiton Worsley Alumina Pty Ltd [2012] WASC 109 [17] (Le Miere J); Sugarloaf [35]; Livingspring Pty Ltd v Kliger Partners (2008) 20 VR 377; (2008) 66 ACSR 455 [15] - [16] (Maxwell P & Buchanan JA) (Livingspring); Donald Campbell‑Smith as executor of Martin Banning v Graeme Trevor Lean (in his capacity as Receiver) [2017] WASCA 89 [63] (Murphy JA).
The time at which WAG's capacity to pay an order for costs is to be assessed is following trial, delivery of a reserved judgment and taxation of any costs order made. Based on the state at which the Action is at in the litigation process and the court's current listings, I assess this to be at the end of 2025.
As to the position of WAG, the following is not in issue:
(a)WAG is a proprietary limited company;
(b)Mr Harkins is its sole director and shareholder;
(c)its 1,000 shares are held between Mr Harkins (10), Collette Roberta Harkins (10), Jorche Investments Pty Ltd (680) and MNS Investments Pty Ltd (300);
(d)WAG does not own any real property;
(e)it leases the premises in Bassendean at which the works, the subject of the Action, were performed;
(f)its 'personal property' is the subject of a number of registered security interests; and
(g)WAG is not required under the CA to have its accounts audited by reason of being a small proprietary company.[20]
[20] November Harkins Affidavit, par 4.
Mr Harkins provides detailed information as to the trading and financial position of WAG. Given the prospective focus of the inquiry I am required to make, I only need refer to the most current information. This is:[21]
(a)WAG has a long-term contract with the operator of the Western Australian State Government Container Deposit Scheme which provides for annual revenues of WAG of approximately $6,200,000, which contract currently runs to October 2027;
(b)WAG has an overdraft facility with Judo Bank in the amount of $250,000;
(c)as at 9 October 2024, the facility had a nil balance owing;
(d)the payment of the $100,000 into court was paid from WAG's business income without drawing on WAG's overdraft facility with Judo Bank;
(e)as at 9 October 2024, WAG did not owe any money to the ATO;
(f)all of the personal property securities granted by WAG are securities granted in connection with typical credit accounts; and
(g)as at 8 November 2024, every company with which WAG trades has been paid all amounts owing as and when due.
[21] See generally: November Harkins Affidavit; October Harkins Affidavit.
Counsel for ACS put weight on the current asset position of WAG set out in management accounts of WAG annexed to the October Harkins Affidavit being:
(a)its current assets are $646,814;
(b)its current liabilities are $1,127,578; and
(c)so it has a deficit in the current position of $480,764.
From these figures, counsel for ACS invited the court to find that WAG currently cannot pay its debts as an when they fall due, and will not be able to do so in the future.
Mr Harkins' response is that of the total current liabilities, $627,062 is owed to Crusha Pty Ltd (Crusha), a company of which he is the sole director and shareholder. WAG and Crusha have entered into a documented arrangement whereby 'Crusha is concerned about the time frame in which this money is paid', which Mr Harkins deposes means that the amount owing by WAG to Crusha will not be paid prior to a costs judgment being paid.[22] Though, as counsel for ACS notes, this agreement is entirely unenforceable.
[22] October Harkins Affidavit, par 6.

Counsel for ACS then made the submission that the assets of WAG were not assets that could readily be realised to satisfy a judgment debt. The fixed assets comprise plant and equipment of $3,006,739 and furniture and fixtures of $970,992.[23]
[23] October Harkins Affidavit, par 6.
Counsel for ACS was critical of WAG for not providing any audited reports. Counsel submitted that the position in the Application mirrored that considered by Derham AsJ in Colmax Glass Pty Ltd v Polytrade Pty Ltd where the following observation as made:[24]
Until the production of the evidence, such as it was, of the unaudited balance sheet of Colmax, there was by credible testimony reason to believe that Colmax will be unable to pay the costs of Polytrade if Polytrade is successful in its defence. That is the prima facie position.
The evidence of the unaudited balance sheet is problematic, first, because it is unaudited and in the nature of mid-year management accounts, lacking in detail or notes. Secondly, because on close analysis it shows, in my view, a serious cash flow problem. The result is that the prima facie position is not adequately rebutted. True it is that there are net assets. of over $1.8 million, but the make up of those assets is such that the Court could not be satisfied of the ability of Colmax to trade without the support of its bankers or creditors, or both.
[24] Colmax Glass Pty Ltd v Polytrade Pty Ltd [2013] VSC 311 [29] (Derham AsJ).
Mr Harkins explains that the plant used by WAG is not affixed to any land or building. If WAG was to leave its leased premises, it could remove the plant and equipment. The values of the fixed assets are said to have been calculated based on their historic cost, less accrued depreciation, in accordance with standard accounting requirements. However, Mr Harkins further deposes that given the facts in [33(a)], [33(b)] and [33(c)], WAG would be able to pay from its operating revenue, without selling any fixed assets, all of ACS's costs in the Action if ACS succeeds in its defence, immediately on those costs becoming payable.[25]
[25] November Harkins Affidavit, par 4.
Counsel for ACS was also critical of WAG for not providing a cashflow statement or a profit and loss statement.
Finally, in relation to the facility with Judo Bank, counsel for ACS made the point that there is no guarantee that the facility would be available at the end of 2025. On the other hand, ACS did not put on any credible evidence to the effect that it would not be so available.
ACS did not place before the court any evidence, let alone credible evidence, challenging the facts set out at [33]. It could have obtained an order that Mr Harkins attend the hearing and be cross‑examined, but did not.[26] In my view, the evidence of Mr Harkins on the matters set out at [33] is not inherently incredible or implausible. Nor are the facts identified specifically undermined by any other credible evidence presently before the court.
[26] RSC O 36 r 2(2).
Further, ACS did not place before the court any evidence to the effect that WAG is currently the subject of any debt recovery proceedings or statutory demand proceedings.
A series of costs orders were made in the Supreme Court against WAG in favour of ACS all of which have now been paid.[27] So the evidence about the non‑payment these costs orders in Mr Cook's affidavits falls away.[28]
[27] June Lee Affidavit, pars 5 ‑ 10.
[28] April Cook Affidavit, pars 46 ‑ 53.
The picture that emerges from the evidence that I have set out so far is that WAG is not currently under any financial stress. Rather, it appears to be a profitable trading company. More specifically, it at least has the ability to satisfy an order for costs in the amount of $200,000 at the end of 2025 using the Judo Bank facility and most likely also from its ordinary trading activities.
In the analysis so far, it does not appear by credible testimony that there is reason to believe that WAG will be unable to pay the costs of the ACS if successful in its defence at the end of 2025.
ACS relies on six further tranches of evidence in order to establish that there is reason to believe that WAG will be unable to pay the costs of the ACS if successful in its defence at the end of 2025.
Dealing with the tranches in order of recency, the first tranche is that WAG was not able to provide a bank guarantee within 21 days of the Decision. Instead, it paid the $100,000 into court. Mr Harkins provides an explanation for this in the November Harkins Affidavit.[29] To my mind, the fact that WAG was able to pay $100,000 into court is evidence of a stronger financial position that had it provided security by way of bank guarantee in the same amount. It does not change the position set out at [45].
[29] November Harkins Affidavit, par 5.3.
The second tranche is specific financial information which predates the information provides by Mr Harkins set out at [33]. Somewhat self‑evidently, this information does not change the position set out at [45].
The third tranche is information relating to the financial position of WAG at the time of the Supreme Court proceedings which is not the subject of objection. Essentially, this is that the Statutory Demand was not complied with. Mr Harkins provides a response to this issue in the November Affidavit. The historical nature of this fact means that it does not change the position set out at [45].
The fourth tranche is evidence filed in the Supreme Court proceedings which is the subject of objection. In the June Cook Affidavit, Mr Cook annexes the service copy of an affidavit of Mr Harkins sworn 10 October 2023 in the Winding Up Application. This in turn annexes a redacted version of a solvency report on WAG prepared by David Hurt on the instructions of WAG's solicitors. The filed form of Mr Harkins' affidavit contained both the redacted report and the unredacted report. At the conclusion of the hearing to discontinue the Winding Up Application, his Honour Justice Cobby made a confidentiality order in respect of the filed Harkins' affidavit and the filed affidavit of Mr Hurt. The order recorded that these affidavits contained information which is confidential to WAG, and restricted access to all person except the court and WAG. The order was made subject to further order. ACS did not apply to vary this order.
It is apparent from the redacted version of Mr Hurt's report that he concludes that WAG was solvent as at 9 October 2023. However, counsel for ACS submits that this conclusion is inadmissible on the basis that he has not had a chance to test it in cross‑examination. Rather, counsel relies on three factual matters set out in Mr Hurt's report:[30]
(a)WAG was then in a payment plan with the ATO for a total debt of $80,580 and this was 'typical' for WAG;
(b)WAG had an 'unadjusted' working capital deficiency of $1,605,108 in April 2023 and $1,460,542 in September 2023; and
(c)WAG the plaintiff had an 'adjusted' working capital deficiency of $491,788 in April 2023 and $575,285 in September 2023.
[30] Defendant's submissions dated 29 October 2024, pars 22(ii) ‑ 22(iv); Second Cook Affidavit, par 4.1; Annexure PWH-3.
ACS submits that the affidavit of Mr Harkins sworn 10 October 2023 including the redacted version of Mr Hurt's report, were received into evidence in the Winding Up Application and so the Harman obligation (implied obligation of confidentiality) does not arise.[31] Counsel for WAG did not take issue with this conclusion. Rather, objection is taken on the best evidence rule. 'An aspect of the rule is that courts should act upon the least speculative and most current admissible evidence available.'[32] The unredacted Solvency Report, it says, is the best evidence. In its absence, the redacted Solvency Report is inadmissible. Moreover, WAG submits that the fact that the court cannot consider the unredacted Solvency Report means that the court does not have available to it all of the material which Mr Hurt relied on, and so his opinion is inadmissible by virtue of the best evidence rule.
[31] Hearne v Street [2008] HCA 36; (2008) 235 CLR 125 [96] (Heydon, Hanye & Crennan JJ); Arvind Pty Ltd v Lamers[2020] WASCA 47 [19] (reasons of the court).
[32] Golden Eagle International Trading Pty Ltd v Zhang [2007] HCA 15; (2007) 229 CLR 498 [4] (Gummow, Callinan & Crennan JJ).
The issues can be dealt with summarily. The facts which I have identified at [51] are historical and do not change the position in [45]. Whether or not the evidence is admissible, it does not affect the outcome of the Application. So I do not need to decide this.
The fifth tranche is what Mr Cook refers to as 'the delinquent payment history of the plaintiff in relation to the works the subject of the present Action'.[33] He does this by annexing a copy of an affidavit sworn by Mr Smith in the Statutory Demand proceedings. The contents of this affidavit are essentially the evidence of ACS in relation to the substantive issues the subject of the Action. There is nothing in this evidence which directly addresses the issue of the financial position of WAG at the end of 2025. The evidence does not change the position set out at [45].
[33] Second June Cook Affidavit, par 5.
The sixth tranche is evidence that:[34]
(a)Mr Harkins has been the director of seven deregistered companies;
(b)Mr Harkins was bankrupt between 16 April 2014 and 17 April 2017;
(c)on 14 June 2013 an order was made in litigation commenced by Colmax Glass Pty Ltd, a company of which Mr Harkins was a director, that the company provide security for the costs of litigation it was then involved in; and
(d)Colmax was wound up in insolvency by the Supreme Court of Victoria and liquidators were appointed on 18 September 2013.
Mr Harkins again provides an explanation of these issues in the November Harkins Affidavit.[35] In my view, the general and historical nature of this material means that it does not change the position set out at [45].
[34] October Cook Affidavit, pars 35 ‑ 42.
[35] November Harkins Affidavit, par 6.
For these reasons, adopting a practical, common-sense approach to the examination of the financial affairs of WAG, it does not appear to me by credible testimony that there is reason to believe that WAG will be unable to pay a costs order in the amount of approximately $200,000 at the end of 2025. The threshold test or jurisdictional requirement has not been established. So the discretion to order security for costs in CA s 1335 is not enlivened.

What final orders are appropriate?

It follows that the Application should be dismissed. The amount which WAG paid into court should be paid out to it. I will hear from counsel as to the precise form of the final orders.
I will also hear from counsel as to costs.

I certify that the preceding paragraph(s) comprise the reasons for decision of the District Court of Western Australia.
OS
Associate
12 DECEMBER 2024