JURISDICTION	:	SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION	:	MINING AUSTRALIA PTY LTD & ANOR -v- FFE MINERALS AUSTRALIA PTY LTD [1999] WASC 133

CORAM	:	MASTER SANDERSON

HEARD	:	6 AUGUST 1999

DELIVERED	:	17 AUGUST 1999

FILE NO/S	:	CIV 1124 of 1999

BETWEEN	:	MINING AUSTRALIA PTY LTD (ACN 009 012 551)
First Plaintiff
 
MICHAEL YOVICH
Second Plaintiff
 
AND
 
FFE MINERALS AUSTRALIA PTY LTD (ACN 000 221 590)
Defendant

Catchwords:
Corporations law - Application for security for costs - Requirement on applicant to establish "by credible testimony" costs order will not be met - "Threshold hurdle" - Refusal of respondent to supply financial information - Application of rule in Jones v Dunkel (1959) 101 CLR 298
Legislation:
Corporations Law, s 1335
Result:
Application refused

Representation:
Counsel:
First Plaintiff	:	Mr T J Kavenagh
Second Plaintiff	:	Mr T J Kavenagh
Defendant	:	Mr M H Zilko
Solicitors:
First Plaintiff	:	Corsers
Second Plaintiff	:	Corsers
Defendant	:	Phillips Fox

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

HPM Pty Ltd v BPM Pty Ltd, unreported; SCt of WA; Library No 950243; 19 May 1995
Jones v Dunkel (1959) 101 CLR 298
Second Lenbourne Pty Ltd v Beagle Management Pty Ltd [1999] FCA 486
Tipperary Developments Pty Ltd v State of Western Australia (1996) 22 ACSR 241
Warren Mitchell Pty Ltd v Australian Maritime Officers' Union (1993) 11 ACLC 1238

Case(s) also cited:

Aspendale Pastoral Co Ltd v W J Drever Pty Ltd (1983) 7 ACLR 937
Brundza v Robbie & Co (No 2) (1952) 88 CLR 171
Electrona Carbide Industries Pty Ltd v Tasmanian Government Insurance Board (1985) 3 ACLC 702
John Bishop Caterers Ltd v Nation Union Bank Ltd [1973] 1 All ER 707
Pacific Acceptance Corporation Ltd v Forsyth (No 2) [1967] 2 NSWR 402
Pasdale v Concrete Constructions Ltd (1995) 131 ALR 268
Remm Construction (SA) Pty Ltd v Allco Newsteel Pty Ltd (1992) 57 SASR 180
R P Securities Pty Ltd v Martin, unreported; SCt of WA; Library No 6387; [delivered]
Southern Cross Exploration NL v Fire and All Risks Insurance Co Ltd (1985) 1 NSWLR 114
Yandil Holdings Pty Ltd v Insurance Co of North America (1985) 11 ACLC 1238

1	MASTER SANDERSON:  This is the defendant's application for an order that the first plaintiff provide security for the costs of the action.  The application is brought under the provisions of s 1335 of the Corporations Law.  That section is in the following terms:
"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 security is given."
2		In support of its application the defendant filed two affidavits sworn by Paul Vincent Gavazzi ("Gavazzi"), the first sworn 21 June 1999, the second sworn 26 July 1999.  There was a further affidavit of Stephen Donald Hicks ("Hicks"), sworn 5 August 1999.  The first plaintiff filed an affidavit of Kirsten Ingeborg Margarete Matthews ("Matthews"), sworn 21 July 1999.  This affidavit was of limited effect and was not referred to throughout the course of the application.
3		Annexed to Gavazzi's affidavit of 26 July 1999 were financial returns for the first plaintiff covering the financial years 1990 through to 1995 (Annexure "M" to "R").  What these returns show is that the first plaintiff's paid up capital is $4,001.  The returns show an operating loss for each year after the payment of tax, save for 1995.  Each of the returns shows negative shareholder's equity.  It would appear that the first plaintiff has undertaken limited trading, has generally traded at a loss and, up until at least 1995, did not have assets which would allow it to meet any costs order made against it.  The defendant sought an order for security in an amount of $44,025.  This was based upon a draft bill appearing as Annexure "K" to both Gavazzi's affidavits.
4		The affidavit of Hicks dealt with the assets held by the second plaintiff.  Although no application was made with respect to the second plaintiff, he is the sole shareholder and director of the first plaintiff.  Presumably the evidence was provided to cover the possibility that the second plaintiff might offer a personal guarantee in relation to the costs of the first plaintiff.  In the event, no such guarantee was offered and so the evidence was largely irrelevant.  For what it is worth, it does tend to suggest that the second defendant's property holdings would not be sufficient, if realised, to satisfy any costs order made against the first plaintiff.
5		The writ in this matter was issued on 5 February 1999.  The defendant's solicitor first raised the question of security for the defendant's costs in a letter to the plaintiffs' solicitors dated 3 June 1999 (Annexure "D" to Gavazzi's second affidavit).  By the time this letter was written a mediation conference had taken place and the dispute had not been resolved.  The request for further financial details of the first plaintiff's position was addressed again in letters of 9 June 1999 and 11 June 1999 (Annexure "E" and "F").  By letter also dated 9 June 1999 (Annexure "G") the plaintiffs' solicitors indicated they would take instructions in relation to the question of security for costs, but they have provided no response to the defendant's requests for details.  On the day prior to the hearing the defendant's solicitors wrote to the plaintiffs' solicitors requesting that financial statements be produced at the hearing of this application.  The plaintiffs' solicitors did not reply to that correspondence and no accounts were produced at the hearing.  As I have indicated, the first plaintiff has filed no affidavit material dealing with its financial position.
6		It was argued on behalf of the defendant that the material before the court was sufficient and that there was "credible testimony" to the effect that if security was not ordered the first plaintiff might not be able to meet any costs order made after the proceedings.  On behalf of the defendant it was argued that the defendant simply had not established what the financial position of the first plaintiff was at present.  It was argued that the financial material which had been provided was stale and gave no indication of the present financial position of the first plaintiff.  It was submitted that the failure of the first plaintiff to respond to requests for information by the defendant's solicitors was of no moment.  All that the defendant could do was speculate about the financial position of the first plaintiff and that was not a sufficient ground upon which to make an order for security for costs.  This was the crisp issue between the parties.
7		Under the Corporations Law, as it stands at present, there is no requirement that a private company such as the first plaintiff lodge financial returns with the ASIC.  This has been the case for a number of years and what information is held by the ASIC is now somewhat dated and, really, of historical interest only.  That then creates a difficulty for any party seeking to rely upon s 1335.  How are they to establish what the financial position of a company might be?  Such information is particularly within the knowledge of the company.  In the face of a refusal to co‑operate, an applicant's ability to put information as to the financial position of the company before the court is limited.  That in turn would seem to limit the effectiveness of s 1335.
8		What the section requires is that the applicant produce credible testimony that the respondent would not be able to meet any costs order made against it.  This test has been described as "the threshold hurdle":  see HPM Pty Ltd v BPM Pty Ltd, unreported; SCt of WA; Library No 950243; 19 May 1995; per Bredmeyer M at 4.  In Tipperary Developments Pty Ltd v State of Western Australia (1996) 22 ACSR 241, Murray J dealt with the meaning of the phrase "credible testimony".  His Honour cited with approval what was said by Lee J in Warren Mitchell Pty Ltd v Australian Maritime Officers' Union (1993) 11 ACLC 1238 at 1241:
"The use of the word 'credible' suggests a requirement that the evidence to be relied upon has some characteristic of cogency.  Qualification of the word 'testimony' by the word 'credible' suggests that an evidentiary burden is undertaken by the party seeking the order.  It amounts to an obligation on an application for an order to show that the material before the court is 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.  To what extent the satisfaction of that standard may fall short of the demonstration of a likelihood that the corporation will be insolvent at the relevant time is unnecessary to decide.  It is enough to say that speculation as to insolvency or financial difficulties likely to confront the corporation will be insufficient to ground the exercise of the discretion."
9		During the course of his submissions, counsel for the defendant made much of the first plaintiff's failure to provide any financial information to the defendant.  It was submitted that this failure by the first plaintiff suggested that there was no information which could have been provided which would have advanced the first plaintiff's case.  If I understood the submission correctly, it appears to seek to apply the principles identified in Jones v Dunkel (1959) 101 CLR 298.  This issue was raised in the Tipperary case.  In that case the respondent had filed no affidavit material in answer to the application for security.  The applicant sought to have the Court draw inferences from this failure to provide any information.  Murray J put the position as follows (at 244):
"For the defendant it is argued that I may have regard to the failure of the plaintiff to provide complete information about its financial position and prospects by applying what is generally referred to as the rule in Jones v Dunkel, that the unexplained failure of a party to give evidence may, in appropriate circumstances, lead to an inference that the uncalled evidence would not have assisted that party's case, so entitling the court the more readily to draw an inference against that party which might otherwise fairly be drawn from the evidence which was adduced.  That is, of course, an important limitation upon the operation of the rule.  It is limited to assisting the court to draw an inference which is available from circumstantial evidence.  The absence of evidence to the contrary may not, however, be directly converted into circumstantial evidence itself tending to prove the fact in issue against the silent party, as was made clear in Jones v Dunkel itself.  The rule cannot be used to fill gaps in the evidence or to convert conjecture or suspicion into a matter of inference … Therein lies the impediment to the application of the rule in this case."
10		The use to be made of the rule in Jones v Dunkel was recently further considered by Goldberg J in Second Lenbourne Pty Ltd v Beagle Management Pty Ltd [1999] FCA 486.  His Honour cited the Tipperary case with approval and put the position in the following terms (at par 9):
"However, I do not consider that there is any onus on the applicants to adduce evidence of their ability to pay their debts or that the issue should be determined on the basis whether or not that onus has been satisfied.  Rather the appropriate proposition is that there has to be credible testimony before the Court that there is reason to believe the applicants will be unable to pay the respondents' costs if the respondents are successful."
11		The position may be different if some evidence is put forward by the respondent.  In the Tipperary case, Murray J said (at 243):
"However, where a matter raised by the plaintiff resisting the making of an order was peculiarly within its knowledge, then, as would ordinarily be the case, the onus would rest upon the plaintiff to establish such matters."
12		In this case no evidence has been put forward at all by the first plaintiff.  It has not raised any matter peculiarly within its knowledge in an attempt to resist the application.  Therefore the onus rests squarely with the defendant.  The fact that the first plaintiff has failed to disclose any financial records, peculiarly within its control, is not a factor which can assist the defendant's case.
13		It is, perhaps, instructive to look at the way in which Goldberg J approached the question of security in the Second Lenbourne case.  His Honour had before him rather more factual material as to the financial position of the plaintiff than is available in this case.  But, nonetheless, the material was thin.  As a starting point, his Honour said (at par 18):
"The evidence discloses that each applicant has a paid up capital of $2.  It is not disputed that each applicant is a trustee company so that it has no other assets.  On this ground alone I consider that there is credible testimony that there is reason to believe the applicants will be unable to pay the respondents' costs if the respondents are successful."
14		It is not difficult to see how his Honour reached that conclusion.  It is generally the case that trustee companies have limited assets in their own right.  It is true that, if called upon to pay a costs order, they are entitled to an indemnity out of the trust property.  But that is not to the point.  The fact is that having limited paid up capital and no assets of their own they clearly cannot meet any costs order.  It is almost axiomatic then that once it is established the plaintiff is a corporate trustee the threshold hurdle will be satisfied.
15		But that is not the position here.  The first plaintiff is not a trustee.  It is a trading corporation in its own right.  The question then is this.  Does the fact that in 1995 the first plaintiff would not have been able to meet any costs order made against it, mean that it will not be able to meet such a costs order in 1999?  To conclude that it does would, in my view, be nothing more than speculation.  It would involve an assumption that the company has continued to trade in precisely the same way in the last four years as it traded between 1990 and 1995.  In my view the evidence led by the defendant does not satisfy the test of being credible testimony as required by s 1335.  The application should fail for this reason.
16		I would dismiss this application.  I will hear the parties as to costs.