Welink Group Pty Ltd v GJ PD Pty Ltd

[2022] WASC 76

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION:   WELINK GROUP PTY LTD -v- GJ PD PTY LTD [2022] WASC 76

CORAM:   MASTER SANDERSON

HEARD:   12 JANUARY 2022

DELIVERED          :   11 MARCH 2022

PUBLISHED           :   11 MARCH 2022

FILE NO/S:   CIV 1865 of 2020

BETWEEN:   WELINK GROUP PTY LTD

First Plaintiff

WELINK CONSTRUCTION PTY LTD

Second Plaintiff

AND

GJ PD PTY LTD

First Defendant

THE REGISTRAR OF TITLES

Second Defendant

GJ PD PTY LTD

First Plaintiff by counterclaim

THE REGISTRAR OF TITLES

Second Plaintiff by counterclaim

AND

WELINK GROUP PTY LTD

WELINK CONSTRUCTION PTY LTD

Defendants by counterclaim

Catchwords:

Practice and procedure - Application for security for costs - Turns on own facts

Legislation:

Corporations Act 2001 (Cth) s 1335

Result:

Application dismissed. 

First defendant to pay plaintiffs' costs of the application.

Category:    B

Representation:

Original Action

Counsel:

First Plaintiff	:	C Slater
Second Plaintiff	:	C Slater
First Defendant	:	T J Porter
Second Defendant	:	No appearance

Solicitors:

First Plaintiff	:	Torrens Legal
Second Plaintiff	:	Torrens Legal
First Defendant	:	Lavan
Second Defendant	:	No appearance

Counterclaim

Counsel:

First Plaintiff by counterclaim	:	T J Porter
Second Plaintiff by counterclaim	:	No appearance
Defendants by counterclaim	:	C Slater

Solicitors:

First Plaintiff by counterclaim	:	Lavan
Second Plaintiff by counterclaim	:	No appearance
Defendants by counterclaim	:	Torrens Legal

Cases referred to in decision:

Sugarloaf Hill Nominees Pty Ltd ATF The Richard and Anna Trust v Rewards Projects Ltd (2011) WASC 19

Welink Group Pty Ltd v GJ PD Pty Ltd (2021) WASC 188

Western Areas Exploration Pty Ltd v Streeter (2008) WASCA 218

MASTER SANDERSON:

1. By chamber summons filed 6 September 2021, the first defendant sought the following orders:

   1.Within 14 days of the date of this order the plaintiffs do each separately give security of the first defendant's costs of the action in the sum of $186,167.00 by payment of that amount into the Court, and that in the meantime all proceedings be stayed.

   2.The plaintiffs do pay the first defendant's costs of this application.

2. The application was brought under s 1335 of the Corporations Act 2001 (Cth). The application was structured slightly differently with respect to each of the plaintiffs. It was the position of the plaintiffs that neither of them should be required to give security. However, if security was to be given, it was submitted there should only be one amount and it should not be as much as the defendant sought. In my view, this is one of those cases where the defendant has not made good its application and with respect to both plaintiffs, the application should be dismissed.

3. Before dealing with the relevant facts, I should say something about the proper approach to s 1335. It requires a two stage process. First, there must be credible testimony which establishes that there is reason to believe there is a real chance that, in the event which can fairly be described as reasonably possible, the plaintiff corporation will be unable to pay the costs of the defendant. That is the well known test drawn from decisions such as Western Areas Exploration Pty Ltd v Streeter (2008) WASCA 218 at [3] - [4] and Sugarloaf Hill Nominees Pty Ltd ATF The Richard and Anna Trust v Rewards Projects Ltd (2011) WASC 19 at [32]. If the threshold test is met, then there is a discretion as to whether or not security ought be ordered. There are a range of factors which are to be taken into account depending on the particular circumstances of the case. One factor which is relevant is whether properly considered, the plaintiff is taking defensive action. As will become clear from these reasons, that consideration is in my view, a decisive factor in this case.

4. Dealing first with the Welink Group Pty Ltd, it is the trustee for the Welink Funds Management Unit Trust.  In response to the application, the company itself did not provide any evidence of its financial position.  It relied on the financial position of the unit trust.  An unaudited balance sheet is annexed to the affidavit of Qingfeng Zhao sworn 12 October 2021 and filed in opposition to the application.  What that balance sheet shows is a trust which is in a sound financial position.  As at 30 June 2021, it had cash assets of over $250,000.  It had 'land held for resale' to a value of just over $2 million.  The total assets were put at just over $7 million.  Against that, there were current liabilities of just over $4.5 million.  So there can be no doubt that if the unit trust was called upon to meet a costs order, it could do so.  I accept the authorities are to the effect it is a question of whether the trustee company can meet the costs order not the trust.  In this case, it could not meet a costs order out of its own assets.  But if the right of indemnity the trust undoubtedly has against the trust assets was exercised, there is every reason to believe the costs order would be met. 

5. In his affidavit, Mr Zhao details his history as a company director and the history of the first and second plaintiffs as property developers.  It is clear the two companies have been in business for some time and have undertaken major developments.  As was submitted by counsel for the plaintiffs, it is difficult to see how in a case such as this where the costs would not be a significant burden for the trust (assuming an adverse costs order was made), that the trust would not meet those costs.  Properly advised, Mr Zhao would understand that if a liquidator were appointed to the first plaintiff, it would be destructive of value in the trust.  It is the case that Mr Zhao does not offer a personal undertaking to meet the costs.  But in the circumstances of this case and particularly given the nature of the action, I am satisfied that in the exercise of discretion, an order for security for costs is not justified. 

6. Nor am I satisfied a costs order ought be made against the second plaintiff. 

7. In an earlier decision in this matter, I considered the first defendant's complaints about the plaintiffs' pleading of their claims: see Welink Group Pty Ltd v GJ PD Pty Ltd (2021) WASC 188. In the course of those reasons, I summarised the plaintiffs' claim against the defendants. I will not repeat here what I said in those earlier reasons. However, two things are clear. First, the plaintiffs are taking action to recover money they say they are owed under certain contracts entered into between the plaintiffs and the defendants. In essence, they say they have not been paid what they are owed for constructing certain townhouses. The amount claimed is modest - around $500,000. Although the first defendant has lodged a counterclaim, the real argument between the parties is whether or not the plaintiffs are entitled to money they say they have not been paid pursuant to a contract. While the contractual position between the parties is difficult to work out from the statement of claim and from the defence, I am satisfied the claim is both bona fide and meritorious. Of course, it is not for me to determine any issue of liability in an interlocutory proceeding such as this. But it is clear the plaintiffs' actions have merit.

8. It is also clear that the plaintiffs brought these proceedings to protect a right to lodge a caveat which they claimed they had under their contractual agreement with the first defendant.  In fact, the caveat has lapsed and is no longer an issue between the parties.  However, the assets of the first defendant are the subject of a freezing order made by Justice Kenneth Martin on 19 May 2021.  It would appear that the order was made by consent.  Nonetheless, the fact the order was made reinforces the view the plaintiffs' claims are not without merit.  Furthermore, the plaintiffs were forced to bring these proceedings in circumstances where they sought to maintain a caveat; and they now have the benefit of a freezing order.  While it would not be appropriate to describe the plaintiffs as 'quassi defendants', the fact they have issued proceedings to protect their position is a factor to be weighed in the balance. 

9. In all the circumstances, I am not satisfied this is an appropriate case to order the plaintiffs to provide security for costs.  The application will be dismissed.  The first defendant should pay the plaintiffs' costs of the application.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

MM

Court Officer

11 MARCH 2022