Energy Resources Corporation Pty Ltd v Cathedral Place Community Body Corporate [2005] QDC 19

DISTRICT COURT OF QUEENSLAND CITATION: Energy Resources Corporation Pty Ltd v Cathedral Place Community Body Corporate [2005] QDC 019 PARTIES: ENERGY RESOURCES CORPORATION PTY LTD ACN 090 438 761 Plaintiff/Respondent v CATHEDRAL PLACE COMMUNITY BODY CORPORATE Defendant/Applicant FILE NO/S: BD4665 of 2004 DIVISION: Civil PROCEEDING: Application ORIGINATING COURT: District Court of Queensland at Brisbane DELIVERED ON: 17/02/2005 DELIVERED AT: Brisbane HEARING DATE: 14 February 2005 JUDGE: Alan Wilson SC,DCJ ORDER: 1. Application dismissed 2. Costs of and incidental to the application (assessed on the standard basis) be the plaintiff’s costs in the cause. CATCHWORDS: COSTS – SECURITY FOR COSTS – threshold tests under UCPR r 671(a) and Corporations Act s 1335 – whether it appears by credible testimony that there is reason to believe that the plaintiff will be unable to pay costs if the defendant is successful. Uniform Civil Procedure Rules 1999 r 671(a) Corporations Act (2001) (Cth) s 1335(1) Cases considered: ASIC v Marlborough Gold Mines Ltd (1993) 177 CLR 485 FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd (2000) 22 WAR 241 Logan Control Systems Pty Ltd v Barlina Pty Ltd [2004] QDC 410 Warren Mitchell Pty Ltd v Australian Maritime Officers -- 1 of 4 -- 2 Union (1993) 12 ACSR 1 COUNSEL: Mr P A Looney for the applicant defendant Mr C A Wilkins for the respondent plaintiff SOLICITORS: Nicol Robinson Halletts for the applicant defendant Abbott Tout for the respondent plaintiff [1] This is an application by the defendant for an order for security for costs, that security to be in the sum of $50,000 or such other amount as the court considers appropriate. It is brought under the UCPR, r 670 and, further and alternatively, s 1335 of the Corporations Act 2001 (Cth). [2] The defendant is a community Body Corporate for the units’ property known as Cathedral Place. The parties entered into an agency agreement whereby the plaintiff was required to manage the sale of electricity purchased by the defendant and sold to occupiers of Cathedral Place which, the plaintiff alleges, was repudiated by the defendant (or breached) in circumstances entitling the plaintiff to damages. The defendant denies liability, essentially on the grounds that the contract could be terminated on reasonable notice or, alternatively that it was the plaintiff who repudiated, thereby entitling the defendant to terminate. [3] UCPR r 671(a) provides: The court may order a plaintiff to give security for costs only if the court is satisfied – (a) The plaintiff is a corporation and there is reason to believe the plaintiff would not be able to pay the defendant’s costs if ordered to pay them … [4] Section 1335(1) of the Corporations Act 2001 relevantly 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, requires sufficient security to be given all those costs and stay all proceedings until the security is given. [5] Both provisions contain a threshold provision enlivening the jurisdiction if there is reason to form a belief about the plaintiff’s ability to pay costs, but the test under the latter is less stringent. It is convenient, then, to consider the application by first asking whether there is an entitlement to an order for security for costs under s 1335. [6] That is a two stage process: first, the threshold jurisdictional question is whether it appears by credible testimony that there is reason to believe the corporation would be unable to pay the costs; and, secondly, if there is jurisdiction, the question is whether the court should, in its unlimited discretion, make the order: FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd (2000) 22 WAR 241, at 247-8 per Pidgeon and Owen JJ1. 1 This interpretation of the section will usually apply: ASIC v Marlborough Gold Mines Ltd (1993) 177 CLR 485, at 492. -- 2 of 4 -- 3 [7] On the morning of this hearing the plaintiff filed, by leave, affidavit material including an affidavit from its sole director Mr Hudson showing the company still trades and, at least at the end of November last year, was trading profitably and had assets. His evidence also established (and he was not required for cross- examination) that the plaintiff currently manages the on-sale of electricity to about 50 bodies corporate and commercial enterprises; that in the period 1 July – 30 November 2004 its gross profit was slightly over $200,000; its contract with the defendant accounted for less than 10% of that gross profit; it has monthly gross receipts of about $48,000; and, its current net assets are almost twice the amount of $50,000 for which security is sought. [8] The word “credible” in s 1335 suggests a requirement that the evidence to be relied upon has some characteristic of cogency: Warren Mitchell Pty Ltd v Australian Maritime Officers Union (1993) 12 ACSR 1, at 5 per Lee J. It was also said, in that case that the evidence ought to be: … sufficiently persuasive to permit a rational belief to be formed that, if ordered to do so, the corporation would be unable to pay the costs of that party upon disposal of the proceedings. and that: … speculation as to insolvency or financial difficulties likely to confront the corporation will be insufficient to ground the exercise of a discretion … [9] Although the figures produced by Mr Hudson were the subject of careful analysis by, and some criticism from, Counsel for the applicant defendant I was not, ultimately, persuaded that the evidence gives rise to a reasonable belief that there are no assets available to meet the costs – the test in FFE Minerals. [10] In Warren Mitchell the applicant adduced evidence that the respondent’s interest as lessee of certain land had been charged to a lender, and that the DCT had commenced proceedings seeking recovery of sums totalling $113,800. The respondent adduced evidence that it was trading profitably and had an excess of assets over liabilities and had reduced its indebtedness to the DCT to $20,000 by periodical payments. Lee J described the evidence as showing that the respondent was a trading corporation engaged in several different businesses some of which were more profitable than others and, ultimately concluded that: Nothing has been put before the court to ground the belief that the future trading of the respondent will be unprofitable or that the company is headed for insolvency … the whole of the material before the court does not suggest that there is a real chance that the corporation will be unable to pay the costs … [11] The evidence here points to the same conclusion and the threshold or jurisdictional test has not been surmounted. The application is, therefore, dismissed. [12] Before the defendant brought this application its solicitors conducted searches and enquiries which showed, relevantly, that the plaintiff company owned no property and had a paid-up share capital of $10,000. On 13 January it wrote a letter under UCPR r 444 expressing concern that, in light of this information, the plaintiff might be unable to meet a costs order and seeking “… sufficient credible testimony to satisfy us that it could meet an adverse costs order of that size”. The plaintiff’s -- 3 of 4 -- 4 solicitors replied, shortly, on 17 January simply relaying instructions that its client could meet a costs order. The application was brought, and it was not until shortly before the hearing that the plaintiff adduced the evidence from Mr Hudson, mentioned earlier. As Tutt DCJ said in Logan Control Systems Pty Ltd v Barlina Pty Ltd [2004] QDC 410 at [14], it is a simple matter for a respondent to place before the court adequate material of its financial standing from which it may reasonably be inferred that an applicant’s apprehension as to its being unable to recover its costs from the respondent is misplaced. [13] As explained in FFE Minerals at 248, these provisions do not attract or attach an evidentiary burden, but so far as costs are concerned at the first enquiry – whether it was reasonable for the defendant to apply – must be answered by considering the evidence upon which it relies as a reasonable basis for an inference that its costs might be in jeopardy. Until Mr Hudson’s affidavit was filed the evidence the defendant had gleaned could be said to justify it holding that belief, so the application was not unreasonable. As the affidavits filed for the plaintiff showed, however, once more was known the belief became unsustainable. It is not inappropriate, in those circumstances, to exercise the discretion in respect of costs by ordering that they be the plaintiff’s costs in the cause. -- 4 of 4 --