A Hint of Byron Pty Ltd v Ginger Necktar Drink Company Pty Ltd
[2013] FCCA 1797
•28 October 2013
FEDERAL CIRCUIT COURT OF AUSTRALIA
| A HINT OF BYRON PTY LTD v GINGER NECKTAR DRINK COMPANY PTY LTD | [2013] FCCA 1797 |
| Catchwords: PRACTICE AND PROCEDURE – Security for costs – where applicant refused to provide respondent with information regarding financial position – whether applicant’s claim has strength – whether security for costs should be ordered. PRACTICE AND PROCEDURE – Application to transfer matter to Brisbane Registry of Federal Circuit Court – where all parties in New South Wales – where court in Sydney able manage matter from Sydney and able to hear matter in Lismore – whether to transfer matter. |
| Legislation: Competition and Consumer Act 2010 (Cth), s.18 |
| White Industries Aust Pty Ltd v FCT (2007) 160 FCR 298 Spencer v Commonwealth (2010) 241 CLR 118 Gould v Vaggelas (1985)157 CLR 215 Harris v Milfull [2002] FCAFC 442 Merribee Pastoral v ANZ Banking Group (1998) 193 CLR 502 |
| Applicant: | A HINT OF BYRON PTY LTD |
| Respondent: | GINGER NECKTAR DRINK COMPANY PTY LTD |
| File Number: | SYG 1890 of 2013 |
| Judgment of: | Judge Raphael |
| Hearing date: | 28 October 2013 |
| Date of Last Submission: | 28 October 2013 |
| Delivered at: | Sydney |
| Delivered on: | 28 October 2013 |
REPRESENTATION
| Counsel for the Applicant: | Mr C Simpson |
| Solicitors for the Applicant: | Carters Law Firm |
| Counsel for the Respondent: | Ms L Andelman |
| Solicitors for the Respondent: | Maxwell & Co. Solicitors |
ORDERS
Second applicant be struck out.
Security for costs in the sum of $7,500.00 to be paid as to $2,500.00 within 3 days of the filing of the Respondent’s defence, such defence to be filed by 11 November 2013; as to the $2,500.00 to be paid on 18 December 2013; as to the final $2,500.00 to be paid on 31 January 2014.
For the purposes of these orders “paid” shall mean paid to and held in the Trust account of the applicant’s solicitors and transferred to any subsequent solicitors to abide the decision of the court or further order.
The Second Applicant to pay the Respondent’s costs of the interim application, assessed in the sum of $1,500.00, within 28 days.
The costs of the second ground of application be the Respondent’s costs in the cause.
No order for costs on the third ground of application.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 1890 of 2013
| A HINT OF BYRON PTY LTD |
Applicant
And
| GINGER NECKTAR DRINK COMPANY PTY LTD |
Respondent
REASONS FOR JUDGMENT
On 14 August 2013 there was commenced an application in this Court by a company known as ‘A Hint of Byron Pty Ltd’ against the respondent, ‘Ginger Necktar Drink Company Pty Ltd’. Both companies operate out of northern New South Wales. The claim that was made by the applicant was essentially one for an alleged breach of contract. It was said that the applicant promised the respondent to make it the master distributor of the respondent’s product for a period of 10 years with a 10 year option for the State of Queensland.
There was tacked onto that application a misrepresentation claim alleging that there was a breach of s.18 of schedule 2 of the Competition and Consumer Act2010 (Cth)[1] in respect of the representations that an officer of the respondent was alleged to have made, those representations being exactly the same representations as were said to constitute the contract. No application has been made to the court to strike the matter out as not being within its jurisdiction because the claim under the Competition and Consumer Act merely colours the substantive claim for breach of contract, but the respondent does have certain criticisms of the claim with which I will deal later.
[1] Competition and Consumer Act.
When the matter came before the court for the first directions hearing on 16 September 2013, the court gave leave for an amended statement of claim to be filed and made certain other interlocutory orders. It was assumed by the court at that time that the amended statement of claim would flesh out the rather sparse claim found in the original statement of claim. But when the amended statement of claim was filed on 16 September 2013 the only amendment that was made was to add a Mr Joshua Wickett as second applicant. It is alleged that as a result of the misrepresentations Mr Wickett jointly and/or separately relied on the representations and suffered loss or damage as a result of them. No particulars of the loss or damage that he personally suffered are provided. However, it is suggested in paragraph 11(e) that one of the losses suffered was a proportion of the money provided by the applicants for the business.
The respondent did not file a defence, instead on 4 October 2013 an application in a case or notice of motion was filed and that sought three orders. The first was:
“That the amendments to the Statement of Claim adding Joshua Wickett as applicant to the proceedings and adding sub-paragraph (f) to paragraph 1 be struck out as failing to disclose any course of action for Joshua Wickett”
The second was:
“That pursuant to s.80 of the Federal Circuit Court Act 2001 [sic] and Division 21.1 of the Federal Circuit Rules 2001 [sic] the Applicant gives security for the Respondent’s costs in the sum of $25,000.00”
And the third was:
“That the venue for the proceedings be changed to the Brisbane Registry for hearing at Lismore.”
Both parties were represented by counsel at today’s hearing and provided me with helpful written submissions as to their position in relation to the application. It is not disputed that under s.17A(2) and (3) of the Federal Circuit Court of Australia Act1999 (Cth) and Rule 13.10 of the Rules a matter can be disposed of summarily where a party prosecuting proceedings has no reasonable prospect of success. The Federal Court has provided a helpful interpretation of what reasonable prospect of successfully prosecuting proceedings might be in White Industries Aust Pty Ltd v FCT (2007) 160 FCR 298; see also Spencer v Commonwealth (2010) 241 CLR 118[2].
[2] Spencer.
In the instant case the allegations affecting the second applicant are that he controlled and managed the first applicant and was its sole director and sole shareholder (paragraph 1(f) Amended Statement of Claim), although in paragraph 1(e) of the same document it is suggested that the company was managed and operated by Mr Joshua Wickett, Mr Steve Wickett and Ms Crystal Wickett. It is said that the second applicant was present when the alleged contract was made. The terms of that contract are set out in paragraph 4 of the Statement of Claim and are :
“a. the first applicant be the master distributor of the respondent’s product for a 10 year contract with a 10 year option for Queensland apart from a small portion of South East Queensland;
b. the first applicant received a 33% margin on all sales of the product;
c. the contract could be reviewed if there was a sales slump.”
In paragraph 7, the alleged misrepresentation is pleaded:
“Further or in the alternative, the respondent breached section 18 of schedule 2 of the Act on or about 9 October 2012 by Ms Vickery-Hall making the following representations to Mr Steve Wickett and Mr Joshua Wickett:
a. The first applicant was the respondent’s master distributor for a 10 year contract with a 10 year option for Queensland apart from a small portion of South East Queensland;
b. The first applicant would receive a 33% margin on all sales of the product;
c. The first applicant would receive a written contract with the terms in paragraph 7(a) and 7(b) above by about 21 January 2013; and
d. The first applicant would become the respondent’s master distributor for Australia (Representations).
PARTICULARS
A. The Representations was [sic] made orally at a café in Byron Bay New South Wales.”
In paragraph 11 the damages that the applicants are said to have suffered are also set out:
“The applicants have suffered or are likely to suffer loss or damage by conduct of the respondent that was in contravention of section 18 schedule 2 of the Act in the following terms:
a. Labour costs;
b. Operational costs;
c. Reputational loss;
d. Cost of going in and out of business; and
e. A proportion of the money provided by the applicants for the business.”
There are no particulars of these damages provided. In particular, nothing is provided in relation to 11(e).
The respondent’s position is simple. It says that if there was a contract at all it was between the first applicant and the respondent. The second applicant had nothing to do with it. He was not required by the contract to do anything, and no consideration under the contract would pass to him or from him. In these circumstances there was no basis for the contract claim. In regard to the claim under s.18 of the Consumer Law Act the reliance pleading is simply that the second applicant relied on the representations in entering into the contract; but he did not enter into the contract, the first applicant entered into the contract. The second applicant argues that he is entitled to be joined in the proceedings as a shareholder in the company on the basis of the authority of the High Court in Gould v Vaggelas (1985)157 CLR 215[3] which was followed substantively by the Full Bench of the Federal Court, Drummond, Cooper and Dowsett JJ in Harris v Milfull [2002] FCAFC 442[4].
[3] Gould.
[4] Harris.
What one takes from these cases is that there may be grounds upon which shareholders in a company can bring proceedings in addition to the company where those shareholders have suffered individual losses that are separate or independent of the claims made by the company. The difficulty that I have in utilising those cases to assist the second applicant is that absolutely no evidence has been provided of any such loss and there is only the bold statement made in paragraph 11(e) of the Amended Statement of Claim. That was certainly not the case in Gould or Harris. Another difficulty which the second applicant has is that in the ASIC extract of the company, a copy of which is found annexed to the affidavit of John Hamilton Maxwell dated 12 September 2013, the second applicant, whilst being listed as the owner of the 20 shares in the company that exist, is said to be not the beneficial owner of them.
In Spencer the High Court considered the powers under s.31A of the Federal Court Act 1976 (Cth) to grant summary judgment and, as Mr Simpson notes in his written submissions, the joint judgment of Hayne, Crennan, Kiefel and Bell JJ found that the concept of “reasonable prospect” in section 31A represents a “radical departure” from previous powers of summary dismissal in the earlier cases that dealt with those powers. It is not necessary under s.31A that there be a certain and concluded determination that a proceeding would necessarily fail [at [53]].
It is the view of this Court that as things stand at the moment and noting that the applicants have had an opportunity to amend their statement of claim and properly plead, there are serious doubts as to the reasonable prospects of success of either applicant. But the court is not being asked to pass any judgment in respect of the first applicant, only the second. Nothing that I have heard today convinces me that the court should decline to exercise its discretion to strike out the second applicant on the basis that he may have some claim as articulated in Gould. It was suggested that he may have had some stress as a result of the failure of the contract but that was not pleaded.
In the court’s view it behoves persons who wish to plead cases that are in all respects unusual, as the joinder of a shareholder to a claim for breach of contract on the part of a company is, properly to plead so that the court can be in no doubt that the matter is arguable on the basis of those pleadings and should be allowed to proceed to trial. That has not been done here and the court proposes to exercise its discretion to strike out the second applicant.
The second application is for security for costs. Again, it is not disputed that the court has power to order security for costs in appropriate cases. A general view, supported by s.1335 of the Corporations Act 2001 (Cth) is that corporations who bring claims may be required to provide security for costs in appropriate cases. The general principles relating to what those appropriate cases might be was set out by Kirby J in Merribee Pastoral v ANZ Banking Group (1998) 193 CLR 502 at [26]. In this particular case the respondent wrote to the applicant asking for details of the applicant’s financial position and that information was declined. The respondent relies therefore on that refusal and on the only information it has, which is the ASIC extract which reveals that the company has a paid up capital of $20.00.
Whilst there is no hard and fast rule that the mere impecuniosity of a party is sufficient to provide security for costs, the inability of a party to meet the costs of an unsuccessful proceeding is “not irrelevant to the exercise of the jurisdiction”. When coming to a decision on this matter the court is instructed to look at the strength of the case of the party resisting the order that it provide security.
The case being made by the applicant company here is that it entered into a 20 year contract (10 years with a 10 year option for renewal) on what most people in business would consider to be the vaguest of terms. For example, it refers to the applicant being the “master distributor of the respondent’s product” but no definition of “master distributor” is provided. It refers to a 10 year contract “for Queensland apart from a small portion of South East Queensland”. What is the small portion of southeast Queensland referred to? Southeast Queensland is where the majority of persons in Queensland live and where, presumably, the most profit is likely to be made. Any contract would need to know its geographical limitations. The contract provides for the first applicant to receive “33% margin on all sales of the product”. But what is the margin on? Is it on the producer’s cost? The wholesale price? Looked at on this basis, it would seem to the court that that it is arguable that there is a strong possibility that the whole claim will fail for uncertainty. It definitely cannot be said that the grounds of the application reveal any particular strength.
It is normally considered that an application for security for costs should be brought speedily and, in this case, the respondent cannot be criticised. One of the grounds utilised by parties against whom an order for security for costs is sought, is impecuniosity which they may suffer as a result of the actions of the defendant or respondent to the proceedings. The applicant in this case has put on no such evidence. The court has no idea about the financial situation of the company or if it is parlous why that is the case.
It is the court’s view that this is one of those cases when appropriate order for security should be made. But the order should not, of itself, shut the applicant out from the claim. The respondent asks for security in the sum of $20,000.00 and provides evidence of a possible total cost of the hearing of up to $30,000.00.
In the court’s view, an appropriate sum to be ordered by way of security, at this stage, would be $7,500.00 with the ability of the respondent to approach the court at a later time to reconsider that amount. The court also believes that the payment should not be required to be made in one lump sum.
It believes that the appropriate order would be for security in the sum of $7,500.00 to be paid as to $2,500.00 within three days of the filing of the respondent's defence. Such defence to be filed by 11 November. As to $2,500.00, to be paid on 18 December 2013. As to the final $2,500.00, on 31 January 2014. The security to be paid to and held in the trust account or the applicant’s solicitors and transferred to any subsequent solicitors to abide the decision of the court or further order.
With regard to the third application, there appears to be some confusion. As explained to the solicitor for the respondent at the first hearing of this matter on 16 September 2013, the Federal Circuit Court is able to hear cases in venues other than the capital of the state in which the proceedings were commenced. That is why the court is appropriately named the Federal Circuit Court. The court is aware that there is the ability to hear cases in the Commonwealth Courts Building in Lismore and it has, in the past, heard matters there or in local courts in the surrounding area. There is no need for the case to be transferred to Brisbane, even though many cases that are filed in Brisbane are heard in Lismore in New South Wales.
The case can be managed from Sydney, if necessary, by telephone attendances or video-conference and the hearing can be held where most convenient to the parties. The applicant has pressed for the matter to remain in Sydney on the basis that this would be the most convenient place for its counsel and whilst the court understands and sympathises with certain psychical difficulties that Mr Evatt has, this is, with respect, not an entirely appropriate ground for having a matter heard at a place that is otherwise not convenient to the witnesses of either party.
There already is an order in existence for mediation of this matter to be completed before 13 September 2013. I am told that the respondent has resisted making arrangements for such a mediation. That resistance should cease. In the court’s view arrangements should be made as soon as possible with the Registry of the court in Sydney for a mediation. If the registrars involved believe that it would be more appropriate for such mediation to be conducted in Lismore or somewhere near there by a Registrar from the court in Brisbane then the Registry will so advise the parties and appropriate arrangements can be made through the Registry. If the Registry here is prepared to delegate a Registrar to mediate the matter who will travel then that will also be notified to the parties. If there are any difficulties then the liberty to apply provisions can be utilised.
There remains only to make some changes to the original orders of 16 September, which were not complied with on the part of the respondent, presumably because of this application. The court orders that the orders of 16 September 2013 be amended by:
a)In order 3 deleting 30 September 2013 and replacing it with 4 November 2013.
b)In order 4 by deleting 7 October 2013 and replacing it with 11 November 2013.
c)In order 5 deleting 21 October 2013 and replacing it with 14 November 2013.
d)In order 6 deleting 28 October 2013 and replacing it with 21 November 2013.
Otherwise those orders will stand, which means that the matter will be listed for further directions on 16 December 2013 at 9.30 am. If any party wishes to be represented at the telephone they should let us know in advance. The second applicant shall pay the respondent’s costs of the interim application assessed in the sum of $1,500.00 within 28 days. The costs of the second ground of application be the respondent’s costs in the cause. No order for costs on the third ground of application.
I certify that the preceding twenty-four (24) paragraphs are a true copy of the reasons for judgment of Judge Raphael
Associate:
Date: 4 November 2013
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