Wealth Psychology Pty Ltd as Trustee for the Private Trust t/as Taxation STRATEGIES and Accounting Services v Morhall
[2017] WADC 131
•3 OCTOBER 2017
WEALTH PSYCHOLOGY PTY LTD as Trustee for THE PRIVATE TRUST t/as TAXATION STRATEGIES & ACCOUNTING SERVICES -v- MORHALL [2017] WADC 131
| DISTRICT COURT OF WESTERN AUSTRALIA | Citation No: | [2017] WADC 131 | |
| Case No: | CIV:4140/2016 | 26 MAY 2017 | |
| Coram: | EATON DCJ | 3/10/17 | |
| PERTH | |||
| 10 | Judgment Part: | 1 of 1 | |
| Result: | Appeal allowed | ||
| PDF Version |
| Parties: | WEALTH PSYCHOLOGY PTY LTD as Trustee for THE PRIVATE TRUST t/as TAXATION STRATEGIES & ACCOUNTING SERVICES JOHN IVOR MORHALL |
Catchwords: | Practice and procedure Appeal from a registrar Security for costs Jurisdictional foundation |
Legislation: | Corporations Act 2001 s 1335, s 1335(1) District Court Rules 2005 reg 15 |
Case References: | Concrete Constructions Pty Ltd v Dalma Formwork Pty Ltd (administrator appointed) [1999] NSWCA 16 Marand Holdings Pty Ltd v Cateus International Pty Ltd [2003] WASC 238 Re Beach Petroleum NL and Claremont Petroleum NL v Johnson [1992] FCA 110 Sydmar Pty Ltd v Statewise Developments Pty Ltd (1987) 11 ACLR 616 Wise Energy Group Company Ltd v Rocke [2015] WASCA 192 |
JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
- IN CIVIL
- Appellant
AND
JOHN IVOR MORHALL
Respondent
Catchwords:
Practice and procedure - Appeal from a registrar - Security for costs - Jurisdictional foundation
Legislation:
Corporations Act 2001 s 1335, s 1335(1)
District Court Rules 2005 reg 15
Result:
Appeal allowed
Representation:
Counsel:
Appellant : Mr J R Ludlow
Respondent : Mr K C B Staffa
Solicitors:
Appellant : HWL Ebsworth Lawyers
Respondent : Legal Success Pty Ltd
Case(s) referred to in judgment(s):
Concrete Constructions Pty Ltd v Dalma Formwork Pty Ltd (Administrator appointed) [1999] NSWCA 16
Marand Holdings Pty Ltd v Cateus International Pty Ltd [2003] WASC 238
Re Beach Petroleum NL and Claremont Petroleum NL v Johnson [1992] FCA 110
Sydmar Pty Ltd v Statewise Developments Pty Ltd (1987) 11 ACLR 616
Wise Energy Group Company Ltd v Rocke [2015] WASCA 192
1 EATON DCJ: The appellant filed a writ of summons in this court on 7 November 2016. It was accompanied by a statement of claim which pleaded that on 29 October 2012 the respondent verbally engaged the appellant to provide taxation and accounting services. Further, it was alleged that on or about 18 July 2014 the appellant and the respondent entered into a written agreement for the provision of taxation and accounting services.
2 The appellant pleads that, in accordance with the two agreements, it provided those services to both the respondent and a company associated with him called Pipewest Pty Ltd and issued invoices for those services. In each case payment of the invoice was to be made by a certain date after which interest would accrue.
3 The appellant further pleads that the respondent failed to pay particularised invoices by the due date or at all and that, as at 1 November 2016, the outstanding balance of the unpaid invoices, inclusive of interest and discounts allowed, was $226,731.41.
4 It is alleged that on 31 March 2015 a provisional liquidator was appointed to Pipewest Pty Ltd. The appellant, on about 15 April 2015, submitted a proof of debt to the liquidator and the claim was allowed in the sum of $60,500 (including GST) for work done for an Australian Tax Office audit of Pipewest Pty Ltd. The appellant pleads that, after that payment, an amount of $166,231.41 remained outstanding and owing by the respondent. The appellant claims judgment in that amount and interest thereon at the rate of 18.2% per annum from 2 November 2016 until payment.
5 On 23 November 2016 the respondent, John Ivor Morhall, entered an appearance. On 29 November 2016 he filed a defence and counterclaim. In his defence he pleads that he is not liable to pay the invoices referred to in par 9 of the statement of claim or any amounts claimed by the appellant. He asserts that the amounts claimed by the appellant against him comprise amounts claimed from Pipewest and interest thereon. He asserts that, if there is any liability on his part for any of the amounts referred to in the invoices, he was jointly and severally liable with Pipewest and one Kevin Richards, a former director of Pipewest. Further, he pleads that, as a result of entering into a settlement agreement with Pipewest, the appellant is estopped from claiming the amounts due in the invoices or any amounts from him. In addition, the respondent claims that the invoices rendered are excessive and unverified.
6 The respondent further pleads that the verbal agreement referred to was for the appellant to act as accountancy services for Pipewest and that all work performed by it was performed for Pipewest.
7 The respondent pleads that the written agreement referred to was entered into by him on behalf of Pipewest and not in his own right.
8 By way of counterclaim, the respondent pleads that the appellant owed certain duties to him and breached those duties. He counterclaims against the appellant an amount of $84,040.80 and interest thereon.
9 By a chamber summons filed on 29 November 2016 the respondent applied for an order that the appellant give security for costs in the sum of $150,000 by payment of that amount into court and that, in the meantime, all further proceedings on the appellant's claim be stayed.
10 The application was supported by an affidavit of Kevin Colin Staffa sworn 29 November 2016. Annexed to that affidavit is a draft bill of costs suggesting that the respondent's costs might amount to $188,826 based on what the deponent might envisage or anticipate as set out in par 5 of the affidavit.
11 Other than the annexation of the draft bill of costs, there is no mention in that affidavit of any proper foundation for an order for security for costs.
12 On 7 December 2016 the respondent filed a further affidavit sworn by Kevin Colin Staffa on that day, being supplementary to the earlier affidavit. It purports to be in support of the respondent's application for security for costs. It annexes a copy of an Australian Securities and Investments Commission (ASIC) search result for the appellant undertaken on 6 December 2016. Other than annexing the search result, the affidavit does not evidence a foundation for an order for security for costs.
13 On 19 January 2017 the respondent filed an outline of submissions in support of his application for security for costs. Paragraph 2 of those submissions makes it clear that his application is made pursuant to s 1335(1) of the Corporations Act 2001.
14 That section provides that where a corporation is a plaintiff in any action or other legal proceeding the court having jurisdiction in the matter may, if it appears by credible evidence 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.
15 It is quite apparent from the section that jurisdiction to order security for costs rests upon there being credible testimony that there is reason to believe that the plaintiff in the proceeding will be unable to pay the defendant's costs in the event of the defendant being successful.
16 In par 3 of his written submissions, the respondent asserts:
There is 'credible testimony' that the plaintiff may not be able to pay the defendant's costs.
17 That assertion is referrable to a footnote in the following terms:
Refer to ASIC search for plaintiff attached to affidavit of Kevin Staffa made 7 December 2016. It shows that the plaintiff has a paid up capital of only $1,000 of which only $100 has been paid.
18 The appellant filed written submissions in opposition to the application on 9 February 2017. At par 7 of the submissions the appellant outlined its contentions. First, it contended that the threshold set out in s 1335(1) of the Corporations Act had not been met and that the jurisdiction to make the order had not been enlivened.
19 Second, the appellant contended that the counterclaim raised by the respondent arises out of the same, or essentially the same, factual matrix. It would, therefore, be unjust to stay the claim while allowing the counterclaim to proceed.
20 The appellant contends that its claim has merit and that the respondent's draft bill of costs is exaggerated.
21 The respondent's application came before Deputy Registrar Harman on 8 March 2017. Both parties were represented. The deputy registrar ordered that:
1. the plaintiff give security for the defendant's costs of the action up until the pre-trial conference in the sum of $90,000 to be secured to the defendant's satisfaction; and
2. the defendant's application be otherwise adjourned to 11 April 2017 at 11.00 am.
22 He gave no written reasons.
23 By notice dated 17 March 2017 the appellant filed an appeal from the deputy registrar's decision.
24 Regulation 15 of the District Court Rules 2005 provides that a party dissatisfied with the decision of a registrar may appeal to a judge. Such an appeal must be commenced within 10 days of the date of the decision complained of by filing a notice of the appeal. The regulation provides that the appeal is to be by way of a new hearing of the matter that was before the registrar.
25 In Wise Energy Group Company Ltd v Rocke [2015] WASCA 192 the Court of Appeal considered the relevant principles on an application for security for costs. The matter concerned an application under s 1335(1) of the Corporations Act. In that case Newnes JA said [22]:
The starting point is whether it appears by credible evidence that there is reason to believe Wise will be unable to pay the respondent's costs if the appeal is unsuccessful. That is, whether there is reason to believe that, at the time judgment is delivered, Wise will not have assets available to it that can be realised in sufficient time to comply with an adverse costs order in the usual terms.
26 As Newnes JA pointed out, the starting point is the presence of 'credible testimony' affording reason to believe that the plaintiff will be unable to pay the defendant's costs in the event of the defendant's success.
27 In Re Beach Petroleum NL and Claremont Petroleum NL v Johnson [1992] FCA 110 (18 March 1992) Von Doussa J said [8]:
The Court is required to form an opinion about what the financial position of the plaintiff will be at the time of judgment and immediately thereafter. The financial position of the plaintiff at the time when the application is made will be an important guide, but is not the sole consideration. Not infrequently a plaintiff corporation will be carrying on business. Its financial position at the end of the anticipated trial will depend not only on the outcome of the trial, and the costs likely to be associated with it, but on the successfulness or otherwise of its business and investments in the meantime. Many uncertain factors may influence the corporation's financial position. In many of these cases the uncertainties will mean that the Court will be faced with a range of possibilities, which, depending on whether fortunes run with or against the plaintiff in the meantime, extend from insolvency at one extreme and at the other extreme to more than sufficient immediate cash resources to meet the costs and other debts as they fall due. Between the extremes a variety of quite possible, but not necessarily probable, contingencies could render the plaintiff company, in the event of the proceedings being lost, unable to pay the costs in full and without delay in the ordinary course of business upon service of an allocatur.
28 He went on to say [10]:
In my opinion the power of the Court 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 be taken into account in the exercise of the discretion, and in framing the orders of the Court if the decision is to order security.
29 In the affidavit material filed by the respondent in support of his application for security for costs there is, as earlier mentioned, no statement of belief in the terms required by the section. Rather, in the affidavit sworn 7 December 2016 there is reference to an ASIC search result. A copy of the search result referred to is annexed. According to the respondent's written submission in support of his application, the ASIC search result is relied upon as affording a reason to believe. As mentioned, the footnote from the written submissions suggests that the basis of the respondent's contention is the nominal capital and paid up capital disclosed by the search result. That information affords no indication as to the assets, liabilities, financial circumstances or the business of the appellant. It is trite to say that a company with paid up capital of $2 might have assets worth many millions of dollars.
30 The respondent, in support of his application, provided no evidence as to the appellant's commercial activities, its longevity, its income and expenditure or its assets and liabilities. There is no evidence to suggest that the appellant's ventures or businesses are speculative or risky. There is no evidence of the appellant's failure to meet it debts or that might support an inference that it might not be able to do so at some time in the future.
31 I am not suggesting that the applicant for an order for security for costs must support the application with a comprehensive statement of the respondent company's financial circumstances but it is fundamental to such an application that there be credible testimony with an appropriate foundation. That must be evidence on oath or affirmation of more substance than an unsupported or poorly supported statement of belief.
32 A company's ability to pay a costs order at some future point in time will depend upon its financial state in terms of its assets and liabilities at that time. Its financial state and its assets and liabilities at the time of the application will be a significant factor in judging that issue.
33 There was, before the deputy registrar, no credible testimony as to the financial state of the appellant, its assets or liabilities. In other words, there was no information as to the appellant's ability to meet a costs order in the event of the respondent's ultimate success.
34 There are other factors to be considered on an application for security for costs including the prospects of success in the claim made by the plaintiff. Having perused the pleadings, it is not possible to conclude that one party has greater prospects of success than the other.
35 Moving from its primary contention as expressed in its written submissions before Deputy Registrar Harman, counsel for the appellant, Mr Ludlow, before me on 26 May 2017 said:
So our primary contention today is that as the defendant is making a counterclaim against the plaintiff that arises out of the same - or essentially the same factual matrix, it would be and was an injustice for the court to stay the claim but permit the counterclaim to proceed.
36 Mr Ludlow contended that the order made by Deputy Registrar Harman would allow the respondent to pursue his counterclaim against the appellant in circumstances where the appellant may not be able to pursue its claim if it failed to comply with the deputy registrar's order, that being to provide security for costs in the sum of $90,000, such security to be to the respondent's satisfaction.
37 Counsel for the respondent contends that the appellant's claim and the respondent's counterclaim are factually 'totally different' and give rise to 'entirely different legal issues'. Each, he submits, will be based on different evidence and different legal principals. Counsel further submits that his client's counterclaim will be 'relatively simple and straightforward'. Such expressions are not particularly helpful as they are essentially statements of opinion without explanation as to why the counterclaim might be simple or straightforward. As mentioned, by way of counterclaim, the respondent alleges that the appellant owed certain duties to him and breached those duties. The duties allegedly owed by the appellant to the respondent presumably arise out of the relationship that existed between those two parties.
38 The appellant pleads that the relationship is a contractual one. On the pleadings there would appear to be a factual dispute as to the terms of the verbal agreement. As to the written agreement there would appear to be a dispute as to the capacity in which the respondent contracted with the appellant.
39 Counsel for the appellant relies upon a line of authority, referring, in particular, to Concrete Constructions Pty Ltd v Dalma Formwork Pty Ltd (Administrator appointed) [1999] NSWCA 16 in which Sheppard AJA, with whom Mason P and Handley JA agreed, referred with approval to the words of Rolfe J to the effect that a court would be slow to allow a situation where the action was stayed because of the inability to provide security for costs while a cross-action arising out of the same factual matrix might be pursued.
40 In Marand Holdings Pty Ltd v Cateus International Pty Ltd [2003] WASC 238 Master Newnes referred with approval to the statements of Smart J in SydmarPty Ltd v Statewise Developments Pty Ltd (1987) 11 ACLR 616 and Rolfe J at first instance in Dalma Formwork (to which I have referred) and continued [43]:
It is true that, in this case, the issues raised in the counterclaim itself are limited and discrete. However, as the pleadings stand, the determination of the counterclaim will involve canvassing substantially the same factual issues as those raised in the plaintiff's claim. Accordingly, if the action were stayed because of the plaintiff's inability to provide security, the same factual issues would nevertheless have to be canvassed in order to determine the counterclaim. In my view, a Court should be slow to allow that situation to come about. I do not consider there is anything in the circumstances of this case that would justify the prospect of such a result.
41 Had I been satisfied that the threshold question was satisfied, I may have been disinclined to order security for costs in circumstances where the appellant is essentially in the position of a defendant in the context of the counterclaim. That situation might be different if the respondent had undertaken not to pursue his counterclaim pending provision of security by the appellant.
42 There is substance to the appellant's contention that the factual matrix of its claim and that of the respondent's counterclaim are largely the same. It is the commonality of the factual matrix that underlies the claim and counterclaim which gives rise to the principle relied upon by the appellant, rather than the legal issues that might arise from there being different causes of action. I accept that the counterclaim is not essentially defensive in nature as it claims damages for breach of alleged express and implied duties and obligations owed to it and for negligence.
43 There is, however, no need to decide the issue as to the factual matrix because of my finding that the threshold for the operation of s 1335 of the Corporations Act has not been met.
44 As mentioned, the application before Deputy Registrar Harman was flawed in that there was no evidentiary foundation for making the order made by him. In my view, the appeal should succeed. The order for security for costs and a stay are quashed. The appellant seeks that the respondent's application for security for costs be dismissed. That seems appropriate. The appellant also seeks the costs of the appeal. That also seems appropriate. I will hear counsel with regard to both matters.
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