Challenge Australian Dairy Pty Ltd (in liq) (Receivers and Managers Appointed) v Pinnacle Foods Pty Ltd
[2011] WASC 159
•22 JUNE 2011
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: CHALLENGE AUSTRALIAN DAIRY PTY LTD (in liq) (Receivers and Managers Appointed) -v- PINNACLE FOODS PTY LTD [2011] WASC 159
CORAM: MASTER SANDERSON
HEARD: 23 MAY 2011
DELIVERED : 22 JUNE 2011
FILE NO/S: CIV 2009 of 2010
BETWEEN: CHALLENGE AUSTRALIAN DAIRY PTY LTD (in liq) (Receivers and Managers Appointed)
Plaintiff
AND
PINNACLE FOODS PTY LTD
Defendant
Catchwords:
Security for costs - Turns on own facts
Legislation:
Corporations Act 2001 (Cth), s 1335
Rules of the Supreme Court 1971 (WA), O 25
Result:
Application dismissed
Category: B
Representation:
Counsel:
Plaintiff: Mr M J Feutrill
Defendant: Mr A P Herschowitz
Solicitors:
Plaintiff: Clayton Utz
Defendant: Henry Davis York
Case(s) referred to in judgment(s):
Swansdale Pty Ltd v Whitcrest Pty Ltd [2010] WASCA 129
MASTER SANDERSON: This is the defendant's application for security for costs. The application was brought under both O 25 of the Rules of the Supreme Court1971 (WA) and s 1335 of the Corporations Act 2001 (Cth). As the plaintiff is in liquidation and has had appointed to it receivers and managers, the defendant is, prima facie, entitled to an order under O 25 r 2(e). Furthermore, by definition, the plaintiff would be unable to meet any costs order made against it. It is insolvent. Therefore, the requirements of s 1335 are satisfied.
The issue, then, was whether or not, in the exercise of my discretion, I ought order security for costs. Both parties agreed the making of an order was discretionary, albeit a discretion exercised in line with decided authorities.
It is convenient to look first at the plaintiff's claim. The plaintiff is a manufacturer, trader and wholesaler of cheese and other dairy products. By a longstanding agreement, the plaintiff would sell and the defendant would purchase quantities of cheese according to availability of supply at prices agreed from time to time. The plaintiff says there was an agreement pursuant to which the defendant purchased cheese from the plaintiff. As a consequence of this agreement and the supply of the cheese, the plaintiff says the defendant is indebted to it in an amount of $740,416.85.
The defendant admits that there was a supply arrangement between the plaintiff and the defendant. However, the defendant says there was a series of separate agreements covering the supply of cheese. The defendant also challenges some of the invoices. The defendant concedes it owes the plaintiff an amount of just on $700,000 for products supplied.
In answer to the plaintiff's claim, the defendant says it is entitled to an equitable set‑off. The defendant's position is explained in the affidavit of Ian Wayne Fuzi, sworn 16 March 2011. Essentially, Mr Fuzi says from around December 2009 through to March 2010 and thereafter, the plaintiff did not supply either adequate quantities or any cheese to the defendant. As a consequence of the plaintiff's failure to supply the cheese, the defendant says it has suffered loss and damage in an amount of $648,000 (see par 20 of Mr Fuzi's affidavit). If that amount is put against what is admittedly owing by the defendant to the plaintiff, then, with a few other small adjustments to the account, the defendant says it would not be indebted to the plaintiff at all.
It can be seen from this analysis of the parties' respective positions, the plaintiff will have to do very little to establish its claim. There is really only a matter of $40,000 in dispute and whether or not that sum is owing can be ascertained by a simple accounting reconciliation. It is difficult to imagine, once discovery has taken place and the parties have added up the amount of cheese supplied and deducted what has been paid, anything will be left to argue about. That really leaves the defendant's case. Two aspects of this case are important. First, the question of whether or not there was one contract for the supply of cheese or a series of individual contracts. Second, the defendant will need to establish it has suffered the loss as claimed. Establishing this loss might be a complicated process. It would be necessary for the defendant to produce expert evidence based upon its historical trading records which would establish the plaintiff's failure to supply cheese has led to the claimed loss. Of course, the defendant will have primary carriage of that issue.
Viewed in this way, it is clear in this case that the defendant is actually the party mounting the claim. It is highly likely at trial the defendant would begin. After all, it is the defendant which needs to establish the series of separate contracts and it is the defendant which has to establish it has suffered loss and damage. It is for the plaintiff to answer the defendant's claim. In my view, this is a factor against ordering security for costs.
It is clear from a consideration of relevant cases the discretion to order security for costs is unfettered and must be exercised judicially. In Swansdale Pty Ltd v Whitcrest Pty Ltd [2010] WASCA 129 Kenneth Martin J, with whom Pullin JA agreed, summarised some of the factors commonly taken into account in the exercise of the court's unfettered discretion. His Honour said (at [71]):
In the judicial exercise of the unfettered discretion to make a security for costs order in pending litigation, potential factors that may arise, on a case by case basis, for potential consideration upon the application could encompass a range of considerations, including (non‑exclusively):
(a)the public interest;
(b)the timing of the application, in terms of its promptitude;
(c)whether the impecuniosity of an applicant(s) arises out of (mis)conduct alleged against the defendant/respondent;
(d)whether the making of an order for security for costs would essentially prevent the plaintiff from pursuing the claim; and
(e)the merits of the claims.
It should also be said the fact of the impecuniosity of the plaintiff must be a factor strongly in favour of the ordering of security. While this is not a discretionary matter, it is a factor which overlays and informs the jurisdiction to make the order. In this case, the fact the plaintiff is in liquidation is, in my view, a factor, and a strong factor, in favour of ordering security.
There is no public interest in this litigation one way or the other which influences a decision. It might be said it is in the public interest that a company in liquidation should be able to proceed against an admitted debtor because any recovery would benefit creditors, both secured and unsecured. That assumes the litigation will not go ahead if security is ordered. Whether or not the ordering of security will stifle the action is a separate question. However, this is not a case where there is a point of principle involved which is in the public interest to resolve by litigation. In my view, consideration of the public interest in this case does not influence the exercise of discretion.
The application for security was brought promptly. The plaintiff did not suggest otherwise. I need not recount the course of events. It is sufficient if I say delay in bringing the application is not a factor against ordering security.
It is not entirely clear whether the making of an order for security for costs would stultify these proceedings or not. I was advised by counsel for the plaintiff instructions were presently being provided by the receiver manager. However, the receiver manager anticipates retirement in the near future and the matter will then pass to the liquidators. There is no evidence from the liquidators as to whether or not they would provide security if they were ordered to do so. In opposition to the application, the plaintiff relied on an affidavit of Derrick Craig Vickers, sworn 7 April 2011. Mr Vickers is one of the joint receivers and managers of the plaintiff. At par 25 of his affidavit, Mr Vickers says, relevantly:
... if the plaintiff is ordered to provide security for costs none of the receiver and manager, the Bank, nor the plaintiff, as controlled by the receiver and manager, intends providing such security.
This suggests an order for security would stultify the proceedings. However, as I have indicated, there is no evidence from the liquidator as to what attitude he might take. It was submitted on behalf of the defendant the lack of evidence from the liquidator and the impending retirement of the receivers and managers meant there was no evidence ordering security would stultify the proceedings.
On balance, I am satisfied this consideration favours a refusal to order security, but only marginally. I accept, without evidence from the liquidator, it is not possible to say the action will not proceed. All that can be said is the action will not proceed so long as the receivers and managers control the plaintiff. This might not be for much longer. So, while this consideration is in favour of refusing security, the position is marginal.
The plaintiff maintained it had a very strong case to the extent security ought not be ordered. I accept the plaintiff does have a strong case. The defendant admits its indebtedness as to $700,000. Moreover, as I have indicated above, litigation of the issues between the parties will see the defendant effectively have carriage of the action. While it would not, strictly speaking, be correct to say the plaintiff is, in reality, the defendant in the proceedings, the way the action will develop would mean it is not far short of that situation.
In my view, the strength of the plaintiff's position and the fact it is a quasi‑defendant in the proceedings is a factor against the ordering of security.
Taking all of these matters into account, I am satisfied that this would not be an appropriate case in which to order security. In favour of ordering security, is the fact of the insolvency of the plaintiff and the fact the application was made in a timely fashion. Against the ordering of security are the merits of the plaintiff's claim and the fact it is quasi‑defendant. Also marginally (and I emphasise marginally) against the ordering of security is the prospect the action will be stultified. These are the discretionary considerations I have weighed in the balance.
In the end, I am satisfied security ought not be ordered. In my view, the all important consideration is the nature of the claim and the way it will be litigated. In my view, it would not be in the interests of justice to order a plaintiff in the position of this plaintiff to provide security. That would be like ordering a defendant to provide security to allow a plaintiff to pursue a claim.
On that basis, then, I would dismiss the defendant's application. I will hear the parties as to costs.
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