Applied Electro Systems Pty Ltd v John Holland Pty Ltd - [2017] WASC 75

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: APPLIED ELECTRO SYSTEMS PTY LTD -v- JOHN HOLLAND PTY LTD [2017] WASC 75

CORAM: MASTER SANDERSON

HEARD: 13 MARCH 2017

DELIVERED : 21 MARCH 2017

FILE NO/S: CIV 2984 of 2016

BETWEEN: APPLIED ELECTRO SYSTEMS PTY LTD
Plaintiff
AND
JOHN HOLLAND PTY LTD
Defendant

Catchwords:

Practice and procedure - Application for summary judgment - Application for security for costs - Turns on own facts

Legislation:

Corporations Act 2001 (Cth)

Result:

Both applications dismissed

Category: B

Representation:

Counsel:

Plaintiff: Mr R D Shaw
Defendant: Mr M Feutrill

Solicitors:

Plaintiff: Lavan
Defendant: Corrs Chambers Westgarth

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

Nil

MASTER SANDERSON: This was the return of two applications. The first in time was the plaintiff's application for summary judgment. There followed an application by the defendant for security for costs. That second application only needed to be determined if the plaintiff's application for summary judgment was not successful. During the course of argument, I indicated I would not order security for costs and I indicated I would provide reasons for that decision. These reasons detail why summary judgment should not be entered for the plaintiff and why security for costs ought not be ordered.
The relevant material facts can be briefly stated. The plaintiff and the defendant are parties to a subcontract dated on or around 22 November 2011 for electrical works to be completed on Barrow Island at the Gorgon Gas Project. The parties fell into dispute as to 198 different aspects of the subcontract works. Notices of dispute were issued under the terms of the subcontract for each of these dispute items. I will deal with the relevant clause in the subcontract below. For present purposes, it is enough if I say that once notices of dispute were issued the parties were then bound to follow the dispute resolution procedure contained within the relevant clause of the subcontract.
Each of the 198 dispute items were resolved by the parties' compliance with the dispute resolution procedure. One hundred and nineteen of the dispute items were resolved by agreement reached between senior executives of the parties at an executive negotiation held pursuant to the subcontract on 3 August 2016. The remaining 79 dispute items were resolved by expert determination held pursuant to the subcontract. Mr Laurie James AM was appointed as the expert and delivered a written expert determination on 1 November 2016. Mr James determined that the defendant owed the plaintiff an amount of $13,178, 332.84. On 4 November 2016 the plaintiff demanded payment from the defendant in the sum of $13,702,126.53, adjusted for errors in the expert's calculations, interest, GST and the general balance between the parties. The defendant declined to pay the amount as adjusted.
The plaintiff issued proceedings on 16 November 2016. The writ of summons was indorsed with a statement of claim. It identified the parties, referred to the relevant provisions of the subcontract agreement, referred to the expert determination and sought payment of the amount as determined by the expert.
By this application, the plaintiff says the defendant has no defence to the claim and judgment ought be entered. There was no dispute between the parties as to the principles to be applied. Both agreed the defendant bore the evidentiary onus of establishing there was a serious question to be tried.
The dispute resolution procedure is found in cl 16 of the subcontract. It reads as follows:
16.1 Application of Clause
If a dispute or difference arises between the Subcontractor and John Holland in respect of any fact, matter or thing arising out of or in connection with the Works or the Subcontract, or either party's conduct before but related to or associated with the Subcontract either party may give a notice in writing to the other party specifying:
(a)the dispute or difference:
(b)particulars of the party's reasons for being dissatisfied; and
(c)the position which the party believes is correct.
Where a dispute or difference relates to a Direction of John Holland, the notice of dispute must be given to John Holland within 7 days of the date of the Direction the subject of the dispute or difference otherwise the dispute or difference is barred.
16.2 Executive Negotiation
If the dispute or difference is not resolved within 14 days after a notice is given under clause16, it must be referred to the Senior Executives who must:
(a)meet and undertake genuine and good faith negotiations with a view to resolving the dispute or difference; and
(b)if they cannot resolve the dispute or difference, endeavour to agree upon a procedure to resolve the dispute or difference.
16.3 Expert Determination
If the Senior Executives cannot resolve, or agree upon a procedure to resolve, the dispute or difference within 21 days after the giving of the notice under clause 16.1, or within such longer period of time as the Senior Executives may agree in writing, the dispute or difference must be submitted to an expert for his or her determination.
16.4 The Expert
The expert determination under clause 16.3 is to be conducted by:
(a)the Expert specified in Schedule A; or
(b)where the Expert or a person appointed under this clause 16.4:
(i)is unavailable;
(ii)declines to act; or
(iii)does not respond within 14 days to a request by one or both parties for advice as to whether he or she is able to conduct the determination,
a person appointed at the request of either party by the president for the time being of the branch of the Institute.
16.5 Not Arbitration
An expert determination conducted under this clause 16 is not an arbitration. The Expert may only reach a decision in accordance with this clause 16 and the terms of the Expert Determination Agreement in Schedule I.
16.6 Procedure for Determination
The parties will enter into an agreement in the form of Schedule I with the Expert, which:
(a)describes the procedure by which the Expert will determine the matter;
(b)entitles each party to lodge with the Expert a written submission setting out that party's position as to how the matter should be determined;
(c)requires the Expert to select which of the alternative submissions lodged by the parties best reflect the terms of this Subcontract;
(d)precludes the Expert from imposing on the parties a position other than one submitted by one of the parties; and
(e)requires each party to release the Expert from and against all claims, except in the case of fraud on the part of the Expert, which may be made against the Expert in connection with the Expert's appointment to determine the matter.
16.7 Disclosure of Interest
The Expert must disclose to the parties any interest he or she has in the outcome of the determination and not communicate with one party to the process without the knowledge of the other.
16.8 Costs
Each party will bear its own costs in respect of any expert determination.
16.9 Conclusion of Expert Determination
An expert determination conducted under this clause 16 must be concluded within 28 days from the acceptance by the Expert of his or her appointment, unless otherwise agreed between the parties.
16.10 Determination of Expert
The determination of the Expert must be in writing and will be final and binding upon the parties unless:
(a)the determination requires a party to pay an amount in excess of $250,000; and
(b)a party gives a written notice of intention to appeal to the other within 21 days of the date of the determination, in which event clause 16.11 applies.
16.11 Arbitration or Litigation
If this clause 16.11 applies and the dispute or difference remains unresolved, the dispute or difference will be resolved by arbitration or litigation, as determined by John Holland in its absolute discretion. John Holland must within 28 days of the date of receipt by it or the other party of the notice of intention to appeal under clause 16.10(b) give written notice to the Subcontractor as to whether the dispute or difference is to be resolved by arbitration or litigation and if John Holland determines that the dispute or difference is to be resolved by arbitration, the dispute or difference will thereby be referred to arbitration.
16.12 Arbitration
If the dispute or difference is to be referred to arbitration, the arbitration will be conducted before a person to be:
(a)agreed between the parties; or
(b)failing agreement within 28 days after the giving of the notice by John Holland under clause 16.11, appointed by the president for the time being of the Institute.
The Rules for the Conduct Of Commercial Arbitration of the Institute will apply to the arbitration. The arbitrator will have power to grant all legal, equitable and statutory remedies, including the power to open up and review a determination of the Expert under this clause.
16.13 Survive Termination
This clause 16 will survive the termination of the Subcontract.
16.14 Continuation of Works
Despite the existence of a dispute or difference between the parties the Subcontractor must continue to carry out the Works and otherwise comply with its obligations under the Subcontract.
For present purposes, it is cl 16.10 and cl 16.11 which are important. Without going into detail, a number of the disputes determined in favour of the plaintiff required the defendant to pay an amount in excess of $250,000. With respect to each of these items, the defendant gave written notice of its intention to appeal within 21 days of the date of the determination. Pursuant to the first sentence of cl 16.11, the defendant decided its 'appeal' would be resolved by litigation. Quite how that appeal procedure operates is unclear from the wording of cl 16.11, but that issue can be put to one side for the present. The issue on the summary judgment application was whether or not cl 16 required the defendant to make payment of the amount found owing on the expert adjudication pending the appeal.
As I have determined summary judgment should not be granted it is inappropriate for me to offer any view one way or another as to the proper interpretation of cl 16.10 in particular, and the subcontract in general. Suffice it to say it is, in my view, arguable that once an appeal is initiated under cl 16.10 the expert adjudication is not 'final and binding' and the defendant is not obliged to make payment to the plaintiff. On that basis the summary judgment application must be dismissed.
Turning then to the application for security for costs, the application was brought under s 1335 of the Corporations Act 2001 (Cth). That section is in the following terms:
(1)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 the security is given.
(1A)Subsection (1) does not apply to a corporation that is an Aboriginal and Torres Strait Islander corporation.
Note: Similar provision is made in relation to Aboriginal and Torres Strait Islander corporations under section 581‑20 of the Corporations (Aboriginal and Torres Strait Islander) Act 2006.
(2)The costs of any proceeding before a court under this Act are to be borne by such party to the proceeding as the court, in its discretion, directs.
The evidence established there was reason to believe the plaintiff would not be able to meet any adverse costs order. In support of its application for security for costs, the defendant relied on an affidavit of Marc Anthony Hamilton sworn 12 January 2017. Appearing as attachment MAH‑2 is a garnishee notice from the Australian Tax Office. The notice requires any money payable by the defendant to the plaintiff up to an amount of $2,081,508.41 to be paid to the Australian Tax Office. As counsel for the defendant noted ‑ generally a company which is in a position to pay the ATO will do so. Any lingering doubt about the plaintiff's capacity to meet a costs order is settled by consideration of its latest financial statements. In opposition to the application the plaintiff relied on an affidavit of Gregory John Hutley sworn 1 February 2017. Attachment GJH‑1 is a copy of the plaintiff's financial statements for the year ending 30 June 2016. These accounts disclose it has no readily available cash.
The question then is whether in the exercise of my discretion, I ought order for security for costs. Two factors which are often taken into account when exercising this discretion are the strength of the plaintiff's case and whether or not the impecuniosity of the plaintiff is caused by the defendant. As a general rule consideration of those two issues is not generally determinative of the application for security of costs. Assessment of the merits of a plaintiff's case at an early stage of proceedings is always difficult. Following on from that, if it is not possible to make an assessment of the merits of the case it is difficult to conclude the defendant is responsible for the plaintiff's impecuniosity.
This case is somewhat different. The plaintiff has in its favour an expert determination. Not only that, the determination was conducted pursuant to the terms of the agreement between the parties. While the defendant may well be within its rights to appeal the expert determination the fact that the determination is in the plaintiff's favour must suggest the plaintiff has a more than arguable case. Furthermore, it is not clear how the appeal procedure will unfold ‑ there may be a hearing de novo on each determination by the expert or it may be a question of whether the expert made an error in reaching the conclusion he did. I express no concluded view on how the appeal procedure will unfold. It nonetheless remains the case at present, there is finding in the plaintiff's favour.
That then leads into the second point. The accounts of the plaintiff make it plain if the expert adjudication amount was paid the plaintiff would have more than adequate funds to cover any adverse costs order. While I accept there is a serious question to be tried as to the proper interpretation of the contract it can be said in one sense at least that the present impecuniosity of the plaintiff is due to the actions of the defendant.
In addition to these two matters, it is clear the defendant is presently indebted to the plaintiff in an amount which is not in dispute as a consequence of the settlement reached between the senior executives. The defendant, for its part, points out that it has a claim for breach of the subcontract agreement which it says will exceed the amount presently owing. It may be the defendant's claim will succeed. It nonetheless remains the case at present, the defendant owes the plaintiff an amount which is not in dispute. That being so, to make an order for security for costs would in my view be inappropriate.
For these reasons I would dismiss both applications. The costs of both applications including the reserve costs ought be costs in the cause.