Command Energy P/L v Nauru Phosphate Royalities Trust
[1998] VSC 19
•13 August 1998
SUPREME COURT OF VICTORIA
CAUSES JURISDICTION
Not Restricted
No. 6425 of 1997
| COMMAND ENERGY PTY. LIMITED | Plaintiff |
| v | |
| NAURU PHOSPHATE ROYALTIES TRUST | Defendant |
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| JUDGE: | BEACH, J. |
| WHERE HELD: | MELBOURNE |
| DATE OF HEARING: | 30 APRIL 1998 |
| DATE OF JUDGMENT: | 13 AUGUST 1998 |
| MEDIA NEUTRAL CITATION: | [1998] VSC 19 |
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| CATCHWORDS: | Security for costs - Application refused. |
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| APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | J. Delaney | Blake Dawson Waldron |
| For the Defendant | Dr. C. Pannam Q.C. with | Clayton Utz |
| V. Morfuni |
HIS HONOUR:
This is an appeal from the order of Master Wheeler made on 15 April 1998 whereby the Master dismissed the defendant's application for security for costs. The background to the application and appeal may be summarised as follows.
In January 1993 the plaintiff entered into a maintenance contract with the defendant whereby it agreed to provide the total maintenance and operation of building services and equipment at Nauru House in Melbourne. The contract was for 15 years at an initial fee of $1,140,000 per annum. Simultaneously with the execution of the maintenance contract, the parties entered into a capital works agreement whereby the plaintiff agreed that during the first four years of the maintenance contract it would reimburse the defendant for certain equipment installed by it in Nauru House and would itself progressively install further other equipment and would bear the cost of such additional equipment. At that time it was estimated that the cost of the additional equipment to be installed by the plaintiff would be of the order of $3,510,000.
It is the case for the plaintiff that the performance by it of the services under the maintenance contract required that it have access to and control of the control room at Nauru House.
In May 1997 the defendant's agent Gardiner & Lang notified the plaintiff that as from 1 July 1997 Chubb Security would take over the control and management of the control room and that the plaintiff would be excluded from access to the control room; further that the plaintiff would no longer be required to provide certain services relating to the security system in the building, the lifts, public relations and reception. Not surprisingly, this led to a dispute between the parties and on 28 July 1997 the plaintiff filed an originating motion in the Court seeking orders to the effect that the defendant was not entitled to withdraw any of the services to be provided by the plaintiff under the maintenance contract, that the defendant was not entitled to exclude the plaintiff from access to the control room and that the defendant was not entitled to have services previously provided by the plaintiff under the maintenance agreement performed by another contractor.
There then followed lengthy negotiations between the parties with a view to resolving the dispute. However, they proved to be unsuccessful.
On 16 January 1998 the defendant notified the plaintiff that the plaintiff had repudiated the maintenance contract and that it, the defendant, had accepted the repudiation. Thereafter the defendant has excluded the plaintiff from Nauru House and has prevented it from performing any services under the maintenance contract.
It is relevant to note that as at the date of the notice of termination the plaintiff had supplied and installed in Nauru House at its own cost, capital items and equipment to the value of $2,453,208.93. The benefit of those assets, so it is said, is now being enjoyed by the defendant. It is also relevant to note that pursuant to the maintenance contract the plaintiff has provided bank guarantees in favour of the defendant from Banque Nationale de Paris amounting to $366,863. The defendant continues to hold those guarantees.
On 24 February 1998 the plaintiff delivered its amended statement of claim in the proceeding. By its statement of claim the plaintiff seeks a number of declarations including declarations that the defendant was not entitled to withdraw any of the services provided by the plaintiff under the maintenance agreement, was not entitled to exclude the plaintiff from access to essential mechanical services equipment within the control room and the control room itself, and was not entitled to have the services previously provided by the plaintiff under the maintenance agreement provided by another contractor, a number of orders including orders that the defendant forthwith restore to the plaintiff the services withdrawn from it and that it specifically perform its obligations under the maintenance agreement, and injunctive relief.
By its defence and counterclaim delivered 23 March 1998 the defendant alleges (inter alia) that the plaintiff has been guilty of various breaches of the maintenance agreement, materially falsified reports it gave the defendant relating to the work it had carried out under the maintenance agreement and failed to perform its obligations under the maintenance agreement. In that situation the defendant maintains it was justified in terminating both the maintenance agreement and the capital works agreement. By its counterclaim it seeks, amongst other things, declarations to that effect. The defendant also seeks to recover a sum of $200,000 in respect of what it claims was the installation of a defective security system.
The case for the defendant is that from the material presently before the Court, it is clear that the plaintiff is impecunious and that in that situation there is reason to believe that the plaintiff will not be able to pay the defendant's costs in the event the defendant is successful in the proceeding. It is necessary, therefore, to have regard to the background of the plaintiff and its present financial situation.
The plaintiff was incorporated in New South Wales and registered in that State on 24 April 1981. It has a paid up share capital of $5,500,000. It is a subsidiary of Lyonnaise Australasie (Lyonnaise) a French corporation located in Nawterre France which is the holder of the whole of the plaintiff's paid up share capital. Lyonnaise is itself part of the Suez Lyonnaise des Eaux group of companies.
In his affidavit sworn 9 April 1998 the plaintiff's State operations manager for Victoria, Owen Langley Braddock, has sworn that the Suez Lyonnaise group of companies has world wide interests in more than 100 companies, employs approximately 184,000 people and has a revenue of approximately $56 billion. The plaintiff itself employs approximately 60 personnel and conducts its operations in Victoria, New South Wales and New Zealand. It is currently involved in a number of significant projects in both this State and New South Wales.
The most recent annual return filed on behalf of the plaintiff is for the year ended 31 December 1996. That return shows an operating loss for that year of $5,194,269 and accumulated losses at that time i.e. 31 December of $6,433,667. It also shows a deficiency of funds of $933,668.
It is clear, therefore, that without the guarantee of financial support from its parent company, which guarantee the parent company has in fact given, the plaintiff probably could not continue as a going concern. It is, of course, by virtue of those facts, that the defendant contends that the plaintiff is impecunious and will be unable to pay its costs if it is successful in the proceeding. In that regard it also points to the fact that the parent company of the plaintiff has not offered to give any undertaking to the Court to be responsible for the defendant's costs in the event the plaintiff fails to establish its claim.
Whilst on the face of it those are substantial arguments in the defendant's favour, there are nevertheless other factors to be taken into account. The fact of the matter is that the plaintiff is trading well within the banking facilities available to it. As at 31 December 1996 it had an unused loan facility available to it of $1,400,000 and an unused trading facility of $4,215,000, such facilities being guaranteed by its parent company. According to its State operations manager Braddock, the reason for the accumulated losses as at 31 December 1996 is that the company is engaged in long term contracts which are capital intensive at the outset such as the contracts the subject of the present dispute. If one adds to those facts the value of the equipment which has been installed by the plaintiff in Nauru House, the benefit of which is now being enjoyed by the defendant, plus the fact that the plaintiff has given the defendant the guarantee to which I have referred, in my opinion it puts an entirely different complexion upon the matter. There is also, of course, the fact that the plaintiff was driven to instituting the present proceeding by the defendant's action in terminating the two contracts and the fact that the defendant has counterclaimed against the plaintiff to be taken into consideration.
In all the circumstances I am not satisfied that it is appropriate to make an order for security for costs and the appeal from the Master will therefore be dismissed with costs to be taxed and paid by the defendant including any reserved costs.
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