Donnybrook Holdings Pty Ltd Trading as TES Electrical v Powerstart Nominees Pty Ltd Trading as Intervid (in Liquidation)
[2020] WASC 199
•9 JUNE 2020
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: DONNYBROOK HOLDINGS PTY LTD TRADING AS TES ELECTRICAL -v- POWERSTART NOMINEES PTY LTD TRADING AS INTERVID (IN LIQUIDATION) [2020] WASC 199
CORAM: MASTER SANDERSON
HEARD: ON THE PAPERS
DELIVERED : 9 JUNE 2020
PUBLISHED : 9 JUNE 2020
FILE NO/S: CIV 2828 of 2019
BETWEEN: DONNYBROOK HOLDINGS PTY LTD TRADING AS TES ELECTRICAL
Plaintiff
AND
POWERSTART NOMINEES PTY LTD TRADING AS INTERVID (IN LIQUIDATION)
First Defendant
HENRY ROBERT EPSKAMP
Second Defendant
Catchwords:
Practice and procedure - Application by second defendant to strike out portions of amended statement of claim and for security of costs - Turns on own facts
Legislation:
Competition and Consumer Act 2010 (Cth)
Corporations Act 2001 (Cth)
Rules of the Supreme Court 1971 (WA)
Result:
Second defendant's application to strike out portions of the amended statement of claim dismissed
Security ordered
Category: B
Representation:
Counsel:
| Plaintiff | : | No appearance |
| First Defendant | : | No appearance |
| Second Defendant | : | No appearance |
Solicitors:
| Plaintiff | : | Blackwall Legal LLP |
| First Defendant | : | Birman & Ride |
| Second Defendant | : | Birman & Ride |
Case(s) referred to in decision(s):
FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69
Transocean Capital Pty Ltd v AFSIG Pty Ltd (2006) 202 FLR 270
Vantage Holdings Group Pty Ltd v Donnelly [No 4] [2019] WASC 398
Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [2013] WASC 57
MASTER SANDERSON:
This is the return of two applications brought by the second defendant, pursuant to O 4A r 5A(i) of the Rules of the Supreme Court 1971 (WA). By the first application the second defendant seeks to strike out certain paragraphs of the plaintiff's amended statement of claim. By the second application the second defendant seeks security for costs against the plaintiff. It is convenient to begin with the strike out application. The plaintiff trades under the business name of TES Electrical.[1] Throughout the submissions the plaintiff is referred to as 'TES'. That is the descriptor that I will use. The first defendant entered liquidation on 1 November 2019[2] and the claim against it is stayed. The second defendant was at all material times a director of the first defendant.[3] The second defendant says in his written submissions that the claim by TES against him is an attempt to hold him personally responsible for the first defendant's alleged contractual failings.[4] That is a fair description of the plaintiff's cause of action.
[1] Amended statement of claim filed 23 January 2020 [1(b)].
[2] Amended statement of claim filed 23 January 2020 [2(c)].
[3] Amended statement of claim filed 23 January 2020 [3(b)].
[4] Second defendant's outline of submissions in support of application to strike out portions of the amended statement of claim filed 14 April 2020 [1].
The case pleaded against the second defendant refers to three agreements. They are designated the 'West Coast Eagles Agreement', 'UWA Agreement' and 'Kings Square Agreement'. The material facts pleaded in relation to the West Coast Eagles Agreement are as follows. First, it was entered into on 23 April 2018.[5] Second, there was a term of the West Coast Eagles Agreement that the second defendant represented that the first defendant was experienced in the work required under the West Coast Eagles Agreement and had the capacity to complete the West Coast Eagles works in the required time.[6] Further, it is alleged by entering into the West Coast Eagles Agreement the first defendant represented to TES that it had the requisite skill, knowledge and resources to complete the West Coast Eagles works by 2 February 2019.[7]
[5] Amended statement of claim filed 23 January 2020 [7].
[6] Amended statement of claim filed 23 January 2020 [9(a)].
[7] Amended statement of claim filed 23 January 2020 [38].
The plaintiff then pleads the first defendant did not have the requisite skill, knowledge and resources to complete the West Coast Eagles works. It is said the first defendant engaged in misleading and deceptive conduct by failing to complete the West Coast Eagles works in accordance with the representations made in the West Coast Eagles Agreement.[8] The claim against the second defendant is that he aided and abetted or was knowingly concerned in the first defendant's misleading and deceptive conduct. TES says it is entitled to recover from the second defendant, pursuant to s 236(1) and s 18 of the Competition and Consumer Act 2010 (Cth) (Australian Consumer Law).[9]
[8] Amended statement of claim filed 23 January 2020 [39A].
[9] Amended statement of claim filed 23 January 2020 [43].
The pleas in relation to the UWA Agreement and the King Square Agreement largely mirror the pleas in relation to the West Coast Eagles Agreement. The only significant difference is the dates upon which these agreements were entered into. That material fact is not of significance in this application. Thus the complaints made by the second defendant in relation to all three of the agreements are largely the same.
Before dealing with the specific complaints I should say something about the general principles applying to strike out applications. There was no real difference between the parties as to these principles. The plaintiff referred to the recent decision of Smith J in Vantage Holdings Group Pty Ltd v Donnelly [No 4] [2019] WASC 398 as setting out the currently applicable principles. Her Honour's judgment does provide a clear and concise statement of the relevant principles. Drawing from the submissions of the plaintiff at par 9, the principles can be summarised as follows:
(a)the essential functions of a pleading are to define and limit the issues for decision, to provide the basis for determining discovery and the admissibility of evidence for trial, and to ensure a fair trial by putting the other side on notice of the case it must meet;
(b)a statement of claim must not plead allegations at too high a level of generality. A pleading must be sufficiently particular to conform with one of the primary objects of pleadings, to inform the opposing party of the case that it must meet;
(c) a statement of claim must state specifically the relief or remedy claimed;
(d)the court should proceed with caution before striking out a pleading on the ground that it does not disclose a reasonable cause of action;
(e) while the court may determine a difficult question of law on such an application, it would usually be appropriate to leave the determination of such questions for trial;
(f) in alleging no reasonable cause of action:
(i) the question to be decided is not whether the facts pleaded are in themselves sufficient to give rise to a cause of action. Rather, the question is whether it would be open to the party (on its pleadings) to prove facts at the trial which would constitute a cause of action; and
(ii) 'reasonable' means reasonable according to law. If the facts pleaded conceivably give rise to relief, then the cause of action should be held to be reasonable;
(g) the court will only strike out in a clear case;
(h) in considering a strike out application, it is now necessary to consider the role of pleadings in the context of case management techniques. Case management considerations are not, however, necessarily antithetical to the observance of pleading rules. The objects of O 1 r 4A and 4B of the Rules of the Supreme Court 1971 (WA) are often promoted by a clear and precise statement of the issues for decision;
(i) provided a pleading fulfils its basic functions of identifying the issues, disclosing an arguable cause of action (or defence), and apprising the parties of the case that has to be met, the court ought properly be reluctant to allow the time and resources of the parties and the limited resources of the court to be spent extensively debating the application of technical pleading rules that evolved in, and derive from, a very different case management environment;
(j)pleadings may be struck out on the ground that they may prejudice, embarrass or delay the fair trial of the action because they are evasive, they conceal or obscure the real questions in controversy, they are ambiguous or not reasonably intelligible, they raise immaterial or irrelevant issues, they fail to confine the issues or state the case of the party in question with reasonable particularity, or they raise a case in terms which are simply too general; and
(k) irrelevant or unnecessary pleas in a statement of claim will be struck out on the grounds that they will prejudice, embarrass or delay the fair trial of the action where the defendant must traverse the allegations and, thereby, raise false issues.
Turning then to the specific objections of the second defendant, he complains of pars 4, 5, 6, 47 and 48 of the amended statement of claim. By way of example, par 4 says that in April 2018 the first defendant submitted a tender to the plaintiff for the supply of certain electrical equipment. Paragraph 5 sets out what the first defendant allegedly represented to the plaintiff in the tender. Paragraph 6 alleges the tender was signed by the second defendant on behalf of the first defendant. Paragraphs 47 and 48 are in similar terms and relate to the UWA tenders.
The second defendant says the representations should be struck out for three reasons. First, the representations pleaded in the paragraphs are not relied upon by TES in its case. Consequently the pleas go nowhere and are therefore immaterial to the case advanced and tend to obscure the real questions of controversy.[10] Second, it is said the matters pleaded are irrelevant as they constitute pre‑contractual negotiations and are not permissible aids to construe the final agreements.[11] Finally, it is said the paragraphs plead evidence and not facts material to TES' pleaded causes of action.[12]
[10] Second defendant's outline of submissions in support of application to strike out portions of the amended statement of claim filed 14 April 2020 [12.1].
[11] Second defendant's outline of submissions in support of application to strike out portions of the amended statement of claim filed 14 April 2020 [12.2].
[12] Second defendant's outline of submissions in support of application to strike out portions of the amended statement of claim filed 14 April 2020 [12.3].
In response the plaintiff says pars 4, 5 and 47 plead the fact tenders were presented by the first defendant for the West Coast Eagles works and the UWA works. The paragraphs plead material facts not evidence and not inherently offensive.[13] Furthermore, TES says the pleaded material facts are essential to understanding the nature of the relationship between the parties culminating in the signing of the two agreements.[14]
[13] Plaintiff's outline of submissions in opposition to second defendant's application to strike out portions of the amended statement of claim filed 24 April 2020 [15].
[14] Plaintiff's outline of submissions in opposition to second defendant's application to strike out portions of the amended statement of claim filed 24 April 2020 [17].
The submissions by TES ought be accepted. There is nothing offensive about these pleas. They may arguably be unnecessary but they set out background facts. It helps put the claim by TES in perspective. Moreover, the material facts can either be admitted or denied. Even if they are denied proof of these facts would take no time at all. It is a matter of producing correspondence referred to in the pleading. These paragraphs can stand.
Complaint is made as to pars 9(a) and 51(a) of the amended statement of claim. Paragraph 9(a) is in the following terms:
The following were terms of the West Coast Eagles Agreement:
(a)The Second Defendant represented that the First Defendant was experienced in the work required under the West Coast Eagles Agreement and had the capacity to complete the WCE Works in the required time.
In support of its application the second defendant relied on an affidavit of Nigel Jerome Siegwart sworn 13 February 2020. That affidavit attached copies of the relevant contractual documents and certain correspondence passing between the parties. No objection was taken to that affidavit. Appearing as attachment NJS 3 is a copy of the West Coast Eagles contract. Paragraph 3 of the recitals is in the following terms:
In reliance of (sic) the representation that the Subcontractor [first defendant] is experienced in the work required under this Subcontract and has the capacity to complete the Works in the required time.
There is nothing in the body of the contract which says anything about whether or not the recitals are contractual representations. It is not entirely clear from reading the contract what status the recitals have. It is a matter for trial as to how this clause is to be treated. There is no basis for striking out the paragraphs complained of by the second defendant.
Complaint is made of pars 14, 20, 30, 31, 32, 35, 36, 54, 55, 56, 57, 58, 59, 60, 61, 63, 64, 66, 67, 88, 89 and 90 of the amended statement of claim. The complaint is these paragraphs plead evidence rather than material facts. An example of the second defendant's complaint is provided by par 20 of the amended statement of claim. It is in the following terms:
On 9 June 2019, the Plaintiff tested the CCTV cameras installed by the First Defendant and discovered that 17 of the CCTV cameras had not been mounted and 15 of the CCTV cameras had not been cabled in accordance with the West Coast Eagles Agreement.
It is arguable that what is provided in par 20 are particulars. The material fact is the alleged breach by the first defendant of the West Coast Eagles contract. What appears in par 20 could then be provided as part of the particulars of that alleged breach. It is not unusual for there to be an overlap of material facts and particulars. It is also not unusual for there to be an overlap between particulars and evidence. Even assuming the second defendant's complaint is made out, the provision of information such as this is not raising a false issue nor is it likely to lead to the length of trial being extended. It is open to the second defendant to admit a breach by the first defendant of the West Coast Eagles Agreement. If that is done, all of the paragraphs complained of will be admitted and no time will be taken at trial. But if no such admission is made then at trial the plaintiff will have to establish there was a breach of contract. By virtue of the pleading in its present form the second defendant will know in what way the first defendant is alleged to have breached the contract. No purpose would be served in striking out these paragraphs.
Complaint is made of pars 44, 45 and 46. Paragraph 44 says that representations made by the second defendant in pars 9(a), 12(b), 16(b), 19 and 21 were made in trade and commerce. (In the pleading these representations are defined as the WCE representations). Paragraph 45 then pleads reliance on the WCE representations and par 46 pleads loss and damage as a result of the reliance on the WCE representations. As I understand the second defendant's complaint, it is that what was said by the second defendant does not amount to a representation. Or perhaps put slightly differently, what was said was a representation as to a future matter and the pleading does not detail how the representation as to a future matter is actionable. It may be the second defendant has a point. But it is a point which goes to the merits of the plaintiff's claim; it is a point to be determined at trial. It does not justify striking out the pleading in its present form.
There is a further complaint that the plaintiff has not falsified the representations. For its part the plaintiff says it has done so by incurring costs set out in par 28. This plea, taken with the plea found in par 45(a), the plaintiff says is a sufficient plea that representations were false.
The plaintiff's contentions on this point should be accepted. It is clear from the pleading as a whole the plaintiff maintains the alleged representations were false. That is not in any doubt and the complaints of the second defendant are without substance.
Complaint is made of pars 81, 82 and 83. Really these complaints mirror those made with respect to pars 44, 45 and 46. There are subtle differences but the reasoning is essentially the same. I am not satisfied any of these paragraphs should be struck out.
Complaint is made as to pars 39A, 40, 76A, 77, 92A, and 93. These paragraphs plead that representations alleged to have been made by the first defendant at the time it entered into all three agreements were misleading because 'it did not have the requisite skill, knowledge and resources' to complete the works. The second defendant says the representations are not pleaded as 'future matters' under s 4 of the Australian Consumer Law.[15]
[15] Second defendant's outline of submissions in support of application to strike out portions of the amended statement of claim filed 14 April 2020 [31].
In response the plaintiff says it is not pleading future matters. Indeed in response to a request for further and better particulars the plaintiff said:
Evidence that the First Defendant did not have the requisite skill, knowledge and resources to complete the WCE Works will be adduced at trial.[16]
[16] Plaintiff's response to request for further and better particulars filed 16 March 2020 [4.2].
There can then be no question of the alleged representation being as to future matters. So the complaint that representations as to future matters is not properly pleaded cannot be made out. The second defendant knows with precision the case it has to meet. An action in a pleading summons cannot force a plaintiff to plead a case it does not intend to run.
Finally, complaint is made as to pars 42, 43, 79, 80, 95 and 96. These paragraphs plead the second defendant 'aided, abetted or procured; and/or was directly knowingly concerned or a party to' the first defendant's alleged misleading and deceptive conduct thereby invoking liability under s 236 of the Australian Consumer Law. The second defendant says that in order to establish liability through 'involvement' it is necessary to show the person had actual knowledge of the essential facts which go to make up the contravention namely, knowledge of the representation and its falsity.[17] It is said here that making of a representation on behalf of a corporation without knowledge of the falsity cannot constitute 'involvement' in misleading and deceptive conduct.[18]
[17] Second defendant's outline of submissions in support of application to strike out portions of the amended statement of claim filed 14 April 2020 [40].
[18] Second defendant's outline of submissions in support of application to strike out portions of the amended statement of claim filed 14 April 2020 [41].
In response TES says that the second defendant was the sole director and secretary of the first defendant. That being so he must have knowledge what skill, knowledge and resources the first defendant had available to it and, on the plaintiff's case must have known that it did not have the requisite skill, knowledge and resources. Accordingly it is argued the second defendant had knowledge of the essential matters which go to make up the offence.[19]
[19] Plaintiff's outline of submissions in opposition to second defendant's application to strike out portions of the amended statement of claim filed 24 April 2020 [34].
Clearly the position of TES is arguable. Furthermore, the second defendant knows precisely the case it has to meet. What is important is the state of knowledge of the second defendant – that knowledge being gained through his position in the first defendant. There is no basis for striking out these paragraphs.
For these reasons I would dismiss entirely the second defendant's application to strike out the amended statement of claim. I will deal with the costs of both applications at the conclusion of these reasons.
Turning then to the application for security for costs the second defendant seeks an order that within 14 days the plaintiff gives security for the costs of the second defendant in an amount of $196,297. Pending payment of the security it seeks to have the plaintiff's claim stayed. The application is brought under s 1335 of the Corporations Act 2001 (Cth).
Both parties agree that the 'threshold question' posed by s 1335 is whether it appears by credible testimony there is reason to believe the corporation will be unable to pay the costs of the defendant. Furthermore, both parties accept that what is required is an evaluation of the evidence led by the plaintiff to see whether that leads to a reason to believe the corporation will be unable to pay the costs of the defendant: see FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69.
In his written submissions counsel for the plaintiff says the evidence led by the second defendant discloses the following facts:
the Plaintiff:
(a)has a paid‑up share capital of $100;
(b)it is not the registered proprietor of any real property in Western Australia;
(c)has granted security interests to Capital Finance and Commonwealth Bank of Australia over all present and after acquired property;
(d)has granted security interests to other third parties over specific property;
(e)has traded profitably for 30 years;
(f)as at 3 April 2020 holds $732,793.71 in its bank account;
(g)this amount is held in the Plaintiff's bank account despite the fact that the First Defendant improperly withdrew $188,238.56 from its bank account pursuant to a debt appropriation order in October 2019.[20]
[20] Plaintiff's outline of submissions resisting the second defendant's application for security for costs filed 24 April 2020 [13].
It is the second defendant's position that TES is trustee of the TES Electrical Unit Trust.[21] That being so the second defendant says TES does not have the ability to meet any costs order but will need to rely on an indemnity for the trust.[22] That it is said is good reason for making the order sought: See Transocean Capital Pty Ltd v AFSIG Pty Ltd (2006) 202 FLR 270 [29] – [42].
[21] Second defendant's outline of submissions in support of application for security for costs filed 24 April 2020 [4.3].
[22] Second defendant's outline of submissions in support of application for security for costs filed 24 April 2020 [12].
In his written submissions, counsel for the plaintiff says that at present TES is not a trustee and owns all of the property it has in its own right.[23] Counsel says this issue of TES being a trustee was raised late in the day and for that reason was not addressed in the evidence. Counsel indicated further evidence to clarify the plaintiff's position would be filed.[24] That has not been done. For the purposes of this application I will proceed on the assumption the plaintiff is not a trustee and holds all of the property in its own right.
[23] Plaintiff's outline of submissions resisting the second defendant's application for security for costs filed 24 April 2020 [28].
[24] Plaintiff's outline of submissions resisting the second defendant's application for security for costs filed 24 April 2020 [27].
In the course of correspondence the solicitors for the second defendant invited TES to make full disclosure of its financial position. It declined to do so. It cited as a reason commercial confidentiality. That is perfectly proper and no criticism can be made of the plaintiff for that decision. But it means a view has to be formed on the evidence without the benefit of the plaintiff's financial information. It is necessary to make an evaluation as to whether the corporation will be unable to pay its debts. What is clear is the plaintiff does have debts – that is conceded in the plaintiff's submissions. While it also has assets in the form of cash there is no way of knowing what call may be made on those cash reserves. There is no way of knowing what the plaintiff's outstanding debts may be. There is no warrant for suggesting it is in default under any of its borrowing covenants but it is unclear how much of the cash assets would be needed to satisfy those borrowings.
Given the state of the evidence in this case it is very difficult to evaluate whether or not the plaintiff might be able to meet any costs order. The difficulty with a cash asset is that the cash can be disbursed. It may be disbursed to pay expenses and if the cash represents retained earnings it could be disbursed by way of dividends. Either way substantial cash assets held do not mean funds will be available to meet any costs order. On balance then, I am satisfied it is proper to proceed on the basis that the threshold test has been satisfied by the second defendant and there is credible testimony that the plaintiff will not be in a position to meet a costs order.
Having reached that conclusion there is then a residual discretion as to whether or not to order security. The relevant factors in the exercise of that discretion were considered by Eidelman J in Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [2013] WASC 57. Looking at the criteria referred to by his Honour there is no suggesting the plaintiff's impecuniosity (if indeed it is impecunious) was caused by the defendant's conduct which is the subject of the claim. The application for security is not oppressive. The award of security would not deny the plaintiff the right to litigate because it is impecunious. The plaintiff is not taking defensive action – it is a plaintiff in the true sense. There has been no undue delay in bringing the application for security. There are no external assets the second defendant could rely upon to satisfy an order for costs. There is no public interest in this litigation.
As to the strength and bona fides of the plaintiff's case all that really can be said is that it is arguable. I have had the opportunity to consider the amended statement of claim in some detail. It is inappropriate in an interlocutory application to offer any view as to the strength or otherwise of the plaintiff's claim. All that can be said is that it is arguable. It is also arguable the plaintiff will be in a position to pay the second defendant's costs if the second defendant is successful. I have already considered the evidence in relation to the plaintiff's financial position and while I concluded the threshold test was satisfied I would accept there is a real prospect any costs order would be met. That is a factor in favour of refusing an order for security.
It is clear that the shareholders of the plaintiff will benefit from any litigation. But no one standing behind the plaintiff has offered an indemnity in relation to the second defendant's costs. That is a factor in ordering security.
The factors which really weigh in the balance in this case are on the one hand the possibility the plaintiff would be able to meet a costs order and on the other, the fact the persons likely to benefit from the litigation have not offered an undertaking to pay costs. In the end, I am satisfied it is the latter consideration which carries the day. Accordingly, I am satisfied an order for security for costs ought be made. There remains the question of the amount of that security. On behalf of the plaintiff it was submitted that a suitable amount of security would be $40,000 ‑ that amount to be viewed as a first tranche with leave to apply for further security depending upon the way the case developed. I am satisfied security should be provided in tranches but I think in this case the first tranche ought be $80,000. The next step for the second defendant is to file a defence. Given the complexities of the amended statement of claim that may well be a costly and time consuming exercise. Discovery is likely to be extensive. It is difficult to see how a mediation conference could take place before discovery was provided. An amount of $80,000 by way of security is appropriate at present.
On publication of these reasons the parties ought confer about the timeframe for providing security and the form in which it is to be provided. They should also confer in relation to the costs of both applications. Without the benefit of submissions it is my view that the costs of the strike out application ought be paid by the second defendant and the costs of the application for security for costs ought be costs in the cause. If no agreement can be reached as to the form of orders the parties ought provide competing minutes of orders and short submissions dealing with matters in issue within 14 days.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
CB
Associate to Master Sanderson9 JUNE 2020
0
4
3