BETWEEN : WESTERN AREAS EXPLORATION PTY LTD (ACN 076 025 066)

Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA

Citation : WESTERN AREAS EXPLORATION PTY LTD -v- STREETER [2008] WASC 78

Interlocutory application - Application for security for costs - Failure to produce the necessary credible testimony required - No costs order made

Corporations Act 2001 (Cth), s 1335(1)

Supreme Court (Court of Appeal) Rules 2005 (WA), r 3(1), r 44(1)

1 PULLIN JA: This is an application by the respondents who seek an order that the appellant provide security for costs of the appeal. The application is made under the Corporations Act 2001 (Cth) s 1335(1) and the Supreme Court (Court of Appeal) Rules 2005 (WA) r 44(1), read with par (f) of the definition of interim order in r 3(1).

2 I am satisfied that the section applies to security for costs applications for an appeal. The requirement of the section is that there be credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the respondent. That is a jurisdictional precondition to the exercise of the court's discretion. It is a threshold requirement: see BBC Nominees (WA) Pty Ltd v Yangebup Developments Pty Ltd [2008] WASC 81 [11].

3 The threshold requirement is met if credible testimony establishes that there is reason to believe there is a real chance that in events which can fairly be described as reasonably possible the appellate corporation will be unable to pay the respondents' costs of the appeal if the appeal is unsuccessful.

4 This will be so even if in other events which can also be fairly described as reasonably possible the appellant would be able to pay the costs: Beach Petroleum NL v Johnson [1992] FCA 110; (1992) 7 ACSR 203, 205. It has been recognised that the threshold test is a fairly modest test: see Meni's Tailoring & Alterations Pty Ltd v Jeanswest Corporation Pty Ltd (2003) FCA 1108 [4].

5 In ascertaining whether there is credible testimony, the court does no more than judge the quality of the evidence to see if it objectively gives rise to a reason to believe: see FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69; (2000) 22 WAR 241 [22].

6 If the jurisdictional requirement is met, then the court's discretion is enlivened and there are a number of discretionary factors which have to be considered, but the first question here is whether the jurisdictional requirement has been met.

7 The evidence that is proffered on behalf of the applicant is that in effect the appellant had only one asset consisting of certain shares and that as at 28 July 2006 it had 325,000 of these shares. The applicant deposes to the fact that based on certain documents that it has available to it, it can be seen that there was a sale of several tranches through until 15 February 2007 of a total of 150,000 shares, leaving it with a balance of 200,000 shares.

8 The applicant is also able to extract from information available to it that 25,000 of the 150,000 shares were sold at an average price of $3.04 which means that that tranche must have raised about $75,000 and it may also be inferred that they were the shares sold on 13 October 2006.

9 The applicant also proffers information in the form of a document from the appellant, being an update of a notice of meeting scheduled to occur on 3 November 2006, which spelled out a number of things. First, that the company's lawyers estimated that the legal costs of prosecuting the proceedings that were taking place in CIV 2126 of 2006 would be in the vicinity of $200,000 plus GST.

10 It also reveals that the company had sold 25,000 shares which I have already referred to, the ones sold at a price of $3.04, to 'Allow the company to meet its legal bills and its general administrative expenses up until the date of the meeting'.

11 From this the applicant says it may be inferred that these shares are being sold from time to time in order to meet legal expenses and that if all of the shares have been sold, and it is the case that all of the shares have now been sold, that the proceeds of sale have all been dissipated in meeting legal bills and general administrative expenses in relation to the conduct of litigation and the running of the company.

12 The appellant has filed an affidavit and that affidavit is by Peter William van der Zanden dated 25 July 2008 and relevantly he deposes that the company sold the 200,000 remaining shares at prices in excess of $4, producing a total of about $845,000. If I assume for the moment or infer for the moment that the $75,000 which had been raised by the sale of the 25,000 shares back in October 2006 had been spent, it means that as at August 2007 the appellant had available to it $845,000.

13 I will also infer that these parties have been actively involved in the litigation. One can see from the master's decision that there was a hearing before him in April 2008, a decision in May 2008 and there must have been a mediation because the costs relate to the mediation itself.

14 There is a reference in the master's reasons to a hearing on 11 December 2007 before Le Miere J who is managing the matter in the Commercial and Managed Cases List. One can see by the master's reasons that various affidavits were filed which would also have resulted in the incurring of legal expenses.

15 So therefore it is possible to infer that the appellant has ongoing expenses to meet and that these are being met out of the $845,000 that was raised by the sale of the remaining shares. The point is, however, that the onus is on the applicant to produce the necessary credible testimony that there is reason to believe the corporation will be unable to pay the costs that we are concerned with here.

16 The costs that we are talking about are costs totalling about $15,000 and in my opinion what would have been necessary would have been for the applicant for security to have produced some evidence to indicate that the level of activity in the litigation between August 2007 and the present time is likely to have consumed $800,000 in legal expenses and administrative expenses within the company. It would have been possible to do that by deposing to what exactly had been happening in the litigation and then to give some estimate of costs from the applicant's side. That information has not been provided and in those circumstances, there has not been sufficient material put forward to lead me to the conclusion that the appellant will be unable to pay the $15,000 which would be payable by it if it is unsuccessful in the appeal and I am conscious of the test that has to be applied when making this assessment. I have already referred to the authorities.

17 In the absence of that material, there was nothing in my opinion for the appellant to have to answer. This is not a case like FFE Minerals where there was evidence which suggested that it might be concluded that the company in that case would be unable to meet the costs and then in the face of that material and in the absence of any evidence from the appellant to negate the suggested conclusion that security should be ordered. Such a case would require the appellant to provide some evidence to refute the inference that could be drawn in the absence of that evidence. For those reasons I would dismiss the application for security for costs.