Coca-Cola Amatil Victoria Ltd v PAA Enterprises Pty Ltd
[2003] VSCA 135
•11 September 2003
SUPREME COURT OF VICTORIA
COURT OF APPEAL
No. 3719 of 2003
| COCA-COLA AMATIL VICTORIA LTD. | |
| Appellant | |
| v. | |
| PAA ENTERPRISES PTY. LTD. | Respondent |
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JUDGES: | CALLAWAY, BUCHANAN and EAMES, JJ.A. | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 4 September 2003 | |
DATE OF JUDGMENT: | 11 September 2003 | |
MEDIUM NEUTRAL CITATION: | [2003] VSCA 135 | |
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Practice and procedure – Security for costs – Defendant requiring contracting party to incorporate a relevant factor – Corporations Act 2001, s.1335.
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| APPEARANCES: | Counsel | Solicitors |
For the Appellant | Mr J.G. Santamaria, Q.C. | Clayton Utz |
| For the Respondent | Mr D. Graham, Q.C. Mr G. Dalton | Daly & Kernaman |
CALLAWAY, J.A.:
I agree with Buchanan, J.A.
BUCHANAN, J.A.:
On 18 February 2002, the respondent and one Neil Andrew, the sole director of the respondent, brought proceedings in the County Court against the appellant claiming damages for various causes of action said to have arisen out of or in connection with an agreement made on 1 October 1997 between the respondent and the appellant whereby the respondent agreed to fill vending machines with products supplied by the appellant.
In an amended statement of claim the respondent alleged that the appellant breached the agreement by failing to pay sums due to the respondent, failing to allow the respondent to service certain vending machines, interfering with the contractual relationship between the respondent and its sub-contractors, failing to provide agreed training to the respondent's sub-contractors and wrongfully purporting to terminate the agreement. The respondent also alleged that in its dealings with the respondent's sub-contractors the appellant engaged in conduct that was unconscionable, in contravention of s.51AC of the Trade Practices Act 1974. Andrew also alleged that the appellant forcibly detained him in its premises for three hours and claimed damages for wrongful imprisonment.
By a summons dated 9 April 2003 the appellant sought an order that the respondent give security for the appellant's costs of the proceeding pursuant to Rule 62.02(1)(b) of the County Court Rules and s.1335(1) of the Corporations Act 2001. The section provides that a court may order that security be provided by a plaintiff corporation 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." The application was supported by affidavit evidence that the paid-up capital of the respondent was $2 and it had no assets.
The respondent admitted that it was impecunious and would not be able to pay the appellant's costs of the proceeding if the appellant succeeded in its defence. The respondent relied upon an affidavit by Andrew in which he deposed that in 1996 he was employed by the appellant as a vending machine filler. In August 1997, the appellant decided to replace its employee fillers with independent contractors. Andrew and his fellow vending machine fillers were told that they would be retrenched. They were invited to form companies which would be engaged by the appellant to perform the same work. The appellant said that it "can only deal with an incorporated company". Andrew accepted the invitation by acquiring the respondent and entering into the agreement made on 1 October 1997. Andrew deposed that he and his wife owned a dwelling house which was mortgaged to secure loans which equalled the value of the house. He concluded:
"If the court orders that PAA provide security for Coke's costs, neither PAA nor Anita and I will not (sic) be able to provide it. The result of such an order would be to prevent PAA from pursuing its claim against Coke."
On the basis of this affidavit the respondent resisted the application for security for costs on the grounds that an order would stultify the proceeding and, as the appellant had chosen to deal with a company, it should be limited to the resources of the company to satisfy any order for costs it might obtain. The judge who heard the application accepted the second ground. Her Honour dismissed the applicant's application, saying:
"Now, that falls fairly and squarely within the principle of what Justice McDonald was talking about in the Letore case. It seems to me that the defendant voluntarily entered into a commercial arrangement with a corporation. Well, here even more so. Not only did they enter into this arrangement, they induced this arrangement. But for this arrangement they would have been dealing with a natural person because the exact same services were being provided as I understand it by Mr Andrew through the corporate structure. And if it weren't for that and there had been a similar contractual arrangement for these sorts of services and there had been an alleged breach, it would be Mr Andrew alone who would now be the plaintiff and there wouldn't be an opportunity for the defendant to seek security for costs."
The appellant was granted leave to appeal from the primary judge's decision.
The facts that the appellant deliberately brought about a contract with a corporation in the place of a contract with a natural person and that the litigation arose from the performance of the contract were relevant to the exercise of the judge's discretion. I do not understand the appellant to deny the relevance of those facts.[1] The appellant's complaint, which is expressed in the first two of the three grounds of appeal, is that the primary judge erred by elevating a relevant factor to a principle. Counsel for the appellant submitted that her Honour treated the facts as determining the application, so that once she found that the appellant had entered into a voluntary contractual relationship with the respondent and that relationship had given rise to the proceeding, it necessarily followed that security should not be ordered.
[1]Buckley v. Bennell Design and Constructions Pty. Ltd. (1974) 1 A.C.L.R. 301 at 303-4 per Street, C.J.; Letore Pty. Ltd. v. Associated International Finance Pty. Ltd., unreported, McDonald, J., 28 May 1993; A.J. Espie Transport Pty. Ltd. v. TNT Australia Pty. Ltd. [2002] VSC 344 at [24] per Nettle, J.
I agree that usually no one factor in isolation will determine an application for security for costs. The weight to be given to any fact or facts depends upon its intrinsic persuasiveness and its impact on all the other circumstances which have to be weighed.[2] In my opinion, however, the primary judge did not fall into the error identified by the appellant.
[2]See Gentry Bros Pty. Ltd. v. Wilson Brown & Associates Pty. Ltd. (1992) 8 A.C.S.R. 405 at 415 per Cooper, J.
The principal factor that emerged from the evidence in favour of ordering security for costs was the impecuniosity of the respondent and the consequent risk as to costs to which the appellant was exposed.[3] The fact that a plaintiff is unable to pay the defendant's costs if the plaintiff fails is usually a most significant factor, but I do not think that her Honour lost sight of that factor or the other matters relied on by the appellant or failed to give them due weight. After describing the appellant's role in the formation of a new contract with a corporation, the judge said that it was "appropriate for the Court to exercise a discretion not to award security for costs …." Although she had earlier referred to the "principle" of the Letore case, I would not conclude that she regarded the circumstances in which the contract was formed as requiring the refusal of the application no matter what other facts existed. Such an approach is at odds with the exercise of a discretion, which is how her Honour described her function, and with the weight which she gave to the circumstance that the appellant required Andrew to form a company. If the "Letore principle" demanded the refusal of the application, this circumstance, which was not present in the Letore case, was irrelevant.
[3]Interwest Ltd. v. Tricontinental Corporation Ltd. (1991) 5 A.C.S.R. 621 at 624 per Ormiston, J.; Ariss v. Express Interiors Pty. Ltd. (in liq) [1996] 2 V.R. 507 at 514 per Phillips, J.A.
By its third ground of appeal the appellant complained that the primary judge erred in failing to take into account that, if the contract had remained one between Andrew and the appellant, Andrew's assets would have been liable to satisfy any judgment for costs which the appellant might obtain. It is not the purpose in order for security for costs, however, to place the defendant in the same position in relation to costs as it would occupy if the plaintiff were an individual rather than a corporation.[4] In exercising the power conferred by s.1335, the courts have been concerned to balance the injustice to the defendant of being unable to recover pursuant to an order for costs because of the limited liability of the plaintiff against the injustice to the plaintiff of having its pursuit of a legitimate claim stultified.[5] In this case the evidence established that Andrew was impecunious and was no more likely than the respondent to be able to satisfy any judgment for costs which the appellant might obtain.
[4]Epping Plaza Fresh Fruit and Vegetables Pty. Ltd. v. Bevendale Pty. Ltd. [1999] 2 V.R. 191 at 198 per Winneke, P. and Phillips, J.A., at 202 per Callaway, J.A.
[5]Buckley v. Bennell Design and Constructions Pty. Ltd. above, at 303-4 per Street, C.J.; Tradestock Pty. Ltd. v. TNT (Management) Pty. Ltd. (1977) 14 A.L.R. 52 at 56 per Smithers, J.
I am not altogether convinced of the significance in all cases of the fact that a defendant seeking security for costs has voluntarily contracted with a corporation. It is one thing to expose oneself to the risk of non-performance or breach of a contract
by an entity with limited liability. It is another to be involuntarily sued by a company with which a contract has been made and be placed at risk in respect of the costs of the litigation. Further, a person contracting with a corporation can rely upon the existence of a right to seek security for costs.
In my opinion, it was more telling that the appellant had been instrumental in creating a contract with a corporation in place of a contract with an individual. If security for costs had been ordered in this case, the appellant, at whose instigation the reconstruction of the contract was made, would have been placed in a better position in relation to costs than it would have been in had it not brought about that reconstruction. In my opinion, the primary judge did not err in giving that factor considerable weight, but I do not think it has been demonstrated that her Honour did so without having due regard to the factors relied upon by the appellant, including the factor that enlivened the discretion her Honour said she was exercising, namely, the impecuniosity of the respondent.
If the primary judge had required the respondent to furnish security in the form of a personal guarantee of the appellant's costs in the event that it succeeded in its defence to the action, the situation that existed before the making of the contract on 1 October 1997 would have been restored, but such security was neither sought nor offered.
In my view, it has not been demonstrated that the exercise of the primary judge’s discretion was attended by any error of principle. I would dismiss the appeal.
EAMES , J.A.:
I agree with Buchanan, J.A. that this appeal should be dismissed, for the reasons he has stated. I express one qualification, however, insofar as it might be implied from his Honour’s reasons that had there been an application made to the
judge that the respondent furnish a personal guarantee of the appellant’s costs then it would appropriately have been granted. Whether that would have been an appropriate order to have been made in the circumstances of this case is a question which is unnecessary to decide. The circumstances in which such an order might be appropriate is a matter I would prefer to leave open, to await consideration when and if the issue directly arises.
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