KALX CAPITAL SECURITIES PTY LTD -v- RICHARDSON 1 PTY LTD [2021] WASC 236 (16 July 2021)

I verily believe Mr P.D. Scott intends to finalise and swear the draft affidavit.

1. No basis is given for that belief at all.
2. Even if I was to accept Ms Grant's affidavit into evidence, there is no indication in her affidavit or in the attached unsworn affidavit of Peter Scott as to why the director resists giving a personal undertaking.
3. In Rhys Scott's affidavits, he sets out what he says is the financial position of the plaintiff.
4. The defendants have concerns about the information:[3]
   1. The Plaintiff has filed no financial information of any substance. What it has filed is a cryptic table it says gives rise to some sort of interest in loans. It is not clear if those loans are on the Plaintiff's balance sheet or not because there is no balance sheet in evidence before the Court.
   2. The cryptic table refers to convertible notes which infers the right to the loans or income from them is converting into something - perhaps shares. It is unclear and unsatisfactory as to what assets the Plaintiff has and how it could satisfy a judgment if the extension of the caveat causes the Defendants loss and damage.

1. In this case the Plaintiff has $1,000 paid share capital, owns no real property and it has given an ALPAAP security interest to a creditor. It has obfuscated about the loan book assets and it has not engaged in requests to clarify its financial position despite requests.
2. The plaintiff refers to Rhys Scott's affidavit and says it shows that it has assets exceeding $400,000 and an income of approximately $580,000 a year.
3. The defendants filed an affidavit of the third defendant, Mr Ferguson. It included conferral emails between the parties. I gave the defendants leave to adduce the conferral material. Among the materials were emails from the defendants' solicitors to the plaintiff's solicitors requesting information, advising what searches they had undertaken and the results of those searches, and asking for some fairly basic financial documents.[4]
4. The first email was sent on 24 June, which is just over a week ago.[5] The defendants' solicitors sent further emails the next day and on 27 June making further observations and asking further questions.
5. On 28 June, the plaintiff's solicitors responded to these emails by saying:

Our client does not intend to debate and respond to your demands via email.

1. It appears that the plaintiff continues to choose not to provide that information. Instead, it filed Ms Grant's affidavit late without leave on the morning of the hearing, containing an unsworn affidavit of the director.[6] If regard is had to the contents of the director's unsworn affidavit, there are plainly multiple documents that could have been provided to the defendants that would have addressed the defendants' concerns at least in part, even if particularly sensitive material was redacted.[7] The only documents annexed to that affidavit appear to relate to the defendants' financial position, not the plaintiff's.
2. Counsel for the defendants, Mr Robertson, has raised concerns about the sensitivity of some of the information in the director's unsworn affidavit. However, as I will not accept Ms Grant's affidavit into evidence, it is unnecessary to deal with that.

1. Ordinarily, an undertaking as to damages may be seen as the price of an extension of a caveat. The plaintiff submits that the lack of value of an undertaking is not determinative, citing Bateson v Jones[8] and Iron Ore Resources.[9] The plaintiff submits:[10]
   1. On an application to extend a caveat an undertaking as to damages is often described as the price a Plaintiff must pay for the extension (or injunction). However, the value (or lack thereof) of an undertaking is not determinative against the grant of relief. (Bateson v Jones [2013] WASC 8 at [42] and Iron Ore Resources Pty Ltd v Argyle Iron Ore Pty Ltd [2009] WASC 20 at [41]).
   2. More specifically, the value (or lack thereof) of an undertaking as to damages is relevant but not a determinative consideration in determining where the balance of convenience lies overall (See Bateson v Jones at [43]).
2. When one has regard to what was said in those authorities and the context, the authorities are plainly to the effect that where a plaintiff is unable to give an undertaking of value, this does not mean an extension will not be granted.
3. In relation to Bateson v Jones, I refer, in particular, to par 42 and par 43 where Pritchard J[11] said (underlining added):

In the context of an application for an interim injunction an undertaking as to damages is often described as the price a plaintiff must pay for the injunction, and as such it is a very important, if not essential, means of preventing injustice before the rights of the parties have been determined. The same rationale applies in relation to an application to extend a caveat. However, the value (or lack thereof) of an undertaking is not determinative against the grant of relief. In Iron Ore Resources Pty Ltd v Argyle Iron Ore Pty Ltd [2009] WASC 20, Newnes J, as his Honour was then, observed (at [41]):

Where the financial position of a plaintiff is such that it is unable to give an undertaking as to damages which has real value, the fact that the undertaking as to damages has little or no value is not conclusive as to the result of an application for an interlocutory injunction.

See also the decisions referred to by his Honour: Allen v Jambo Holdings Ltd [1980] 2 All ER 502; and Custom Credit Corporation Ltd v Whitehall Holdings Pty Ltd (Unreported, WASC, Library No 920231, 7 April 1992).

What is clear from these decisions is that the value (or lack thereof) of an undertaking as to damages is a relevant but not determinative consideration in determining where the balance of convenience lies overall.

1. In Custom Credit Corporation Ltd v Whitehall Holdings Pty Ltd, Ipp J[12] said (underlining added):[13]

The fact that an undertaking as to damages has little or no value is not conclusive as to the result of an application for an interlocutory injunction. It is only a factor which must be born in mind: Allen v Jambo Limited [1981] WLR 1252 to 1258 per Templeman LJ. Lord Denning MR said in that case at 1256 to 1257:

It is said that whenever a Mareva injunction is granted the plaintiff has to give the cross-undertaking in damages. Suppose the widow should lose this case altogether? She is legally aided. Her undertaking is worth nothing. I would not assent to that argument ... I do not see why a poor plaintiff should be denied a Mareva injunction just because he is poor whereas a rich plaintiff would get it. One has to look at these matters broadly.

Shaw LJ remarked at 1257:

Questions of financial stability ought not to affect the position in regard to what is the essential justice of the case as between the parties.

It is of course desirable for an applicant for an interlocutory injunction to provide undertakings as to damages which are of value. Nevertheless, where there is a serious issue to be tried, and when those who stand behind the applicant company have offered undertakings so that the applicant has done the best it can to provide appropriate undertakings, justice may well require the grant of an injunction even though the undertakings are of little or no value.

In my view the paramount consideration is embodied in the remarks of Bowen LJ in Cowell v Taylor [1885] 31 Ch 34, where he said at 38:

The general rule is that poverty is no bar to a litigant. That, from time immemorial, has been the rule at common law and also, I believe, in equity.

1. In Iron Ore Resources, Newnes J[14] said (underlining added):[15]

Where the financial position of a plaintiff is such that it is unable to give an undertaking as to damages which has real value, the fact that the undertaking as to damages has little or no value is not conclusive as to the result of an application for an interlocutory injunction: see Allen v Jambo Holdings Ltd [1980] 2 All ER 502, 506; Custom Credit Corporation Ltd v Whitehall Holdings Pty Ltd (Unreported, WASC, Library No 920231, 7 April 1992) [23]. Equally, nor can it be conclusive as to the continuation of an injunction. But it was not suggested that that was a relevant issue here. While the first plaintiff has no assets of any value in its own right, the party behind it and who stands to benefit from the litigation, Battle Mountain, is certainly in a financial position to provide security for the undertaking or (as the defendant seeks) to provide an undertaking of its own.

In Custom Credit, the plaintiff companies had not provided an undertaking as to damages as their financial position was such that their undertakings would be of no value. The persons standing behind them had, however, provided such undertakings. In that case, Ipp J observed that in such circumstances undertakings as to damages from those who stand behind the plaintiff are necessary before an injunction could be granted.

It seems to me that some guidance can also be gained from the position in relation to security for costs. It is well established in relation to security for costs that where a corporate plaintiff does not have adequate assets to meet an order for costs if such an order is made against it at trial, those who stand behind the company and who stand to benefit from the litigation may be required to come out from behind the corporate shield and make funds of their own available to provide security for costs if the action is not to be stayed: Bell Wholesale Co Pty Ltd v Gates Export Corporation (No 2) [1984] FCA 34; (1984) 2 FCR 1; BPM Pty Ltd v HPM Pty Ltd (1996) 131 FLR 339.

Similarly, where the only tangible assets of a plaintiff are held in trust, so that its only asset is its right of indemnity against the trust property, it may be required to establish that recourse to that property will be available to meet an order for costs. In that connection, the court must bear in mind the difficulties which a successful defendant would face in attempting to execute in respect of an order for costs. Where the court is not satisfied that such recourse is available, the trustee will be treated as having no available assets and the beneficiaries may be required to make funds of their own available to provide security for costs if the action is not to be stayed: Laundry Coin-Wash Nominees Pty Ltd v Dunlop Olympic Ltd (1985) ATPR 40-584; Lagarna Pty Ltd v Bridge Wholesale Acceptance Corporation (Australia) Ltd [1995] VicRp 9; [1995] 1 VR 150.

1. I accept that, even where a plaintiff could give an undertaking of value, or those behind the plaintiff could, the fact that they have not would not prevent a caveat being extended.
2. However, in those circumstances, I consider that one would expect an explanation as to why those standing behind the plaintiff were unwilling. In my view, an explanation is particularly called for when the defendants have alerted the plaintiff to the results of their searches for assets of the plaintiff, their concerns about the plaintiff's financial position, have asked for some largely standard financial records and have been met with refusal.
3. In this case there is no explanation. This is despite 11 pages of submissions and three affidavits filed in relation to today's hearing.
4. Instead, a great deal of attention has been devoted to the merits of the plaintiff's claim with the plaintiff asserting it is extremely strong. In addition, the plaintiff submits that it is highly unlikely that the defendants would suffer any prejudice if the caveat is extended and they were successful in the ultimate action because there are already multiple encumbrances on the title. Assuming both things are true or at least are genuinely believed by the plaintiff, the resistance to an undertaking by the director is difficult to fathom.

1. For the purposes of today's hearing I will assume the plaintiff has a strong case on its claim and I will assume the defendants are unlikely to suffer substantial prejudice if the caveat is extended and they are successful in the ultimate action. These assumptions do not, in my view, lead to the conclusion that the director should not give a personal undertaking. On the contrary, no reason has been offered as to why the director is unwilling to provide a personal undertaking. Indeed, I am not even told that he is unwilling. Given the plaintiff's assertions as to the strength of its case and the unlikelihood that the defendants could suffer substantial prejudice, the refusal warrants an explanation.
2. The plaintiff's submission appears to be that the director should not have to provide a personal undertaking. There is sufficient material before me to raise concerns about the capacity of the plaintiff to meet an award of damages. The concerns are reinforced by the plaintiff's refusal to provide the records sought by the defendants and, indeed, its refusal to even engage with the defendants' concerns. Even on the assumptions I have made for today's purposes, the plaintiff does not suggest, nor could it sensibly do so, that there is no risk that it will fail in the ultimate action and no risk that the defendants will suffer a loss if the caveat is extended.
3. Requiring the director to give a personal undertaking will not have the effect of shutting an impoverished litigant out of litigation. I am satisfied that it is appropriate that the director be required to provide a personal undertaking and, if the director fails to do so, the caveat should be removed.

(Orders were then made to reflect these reasons and, after hearing from the parties, as to programming and costs).

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

Research Associate to the Honourable Justice Archer

[1] Affidavit of Rhys Scott sworn 28 June 2021.

[2] Affidavit of Julie Elizabeth Grant sworn 2 July 2021.

[3] Outline of Submissions in relation to Undertaking Hearing or Undertaking Objection Hearing, filed 30 June 2021 [2], [3] and [7].

[4] Affidavit of Chad William Ferguson sworn 29 June 2021.

[6] The plaintiff also filed, the day before the hearing, an affidavit of another of its solicitors, Robert Henry Hughes II. The plaintiff did not seek to rely on this affidavit in this hearing - see Plaintiff's Submissions on Defendants' Challenge to Plaintiff's Undertaking filed 30 June 2021 (Plaintiff's Submissions) [10].

[7] This was accepted by counsel for the plaintiff - see ts 18.

[8] Bateson v Jones [2013] WASC 8.

[9] Iron Ore Resources Pty Ltd v Argyle Iron Ore Pty Ltd [2009] WASC 20.

[10] Plaintiff's Submissions [22] and [23].

[13] Custom Credit Corporation Ltd v Whitehall Holdings Pty Ltd (Unreported, WASC, Library No 920231, 7 April 1992).

[15] Iron Ore Resources [41] - [44]. See also [45] - [51].