Dow & Sykes v Pearce & Fairway Industries Pty Ltd

[1987] TASSC 50

TASSC A46/1997

CITATION:             Dow & Sykes v Pearce & Fairway Industries Pty Ltd [1987] TASSC 50; A46/1997

PARTIES:  DOW & SYKES
  v
  PEARCE & FAIRWAY INDUSTRIES PTY LTD

TITLE OF COURT:  SUPREME COURT OF TASMANIA
JURISDICTION:  ORIGINAL
FILE NO/S:  BDR 35/1986
DELIVERED ON:  15 September 1987
DELIVERED AT:  
HEARING DATE:  
JUDGMENT OF:  Cox J

CATCHWORDS:

REPRESENTATION:

Counsel:
           Plaintiffs:  
           Defendants:  
Solicitors:
           Plaintiffs:  
           Defendants:  

Judgment Number:  A46/1997
Number of paragraphs:  12

Serial No A46/1997
  File No BDR 35/1986

DOW & SYKES v PEARCE & FAIRWAY INDUSTRIES PTY LTD

REASONS FOR JUDGMENT  COX J
  15 September 1987

1. This is an appeal from the refusal of the Master to order that the second named defendant in this action give security for the costs relating to the counterclaim brought by it.

1. The plaintiffs initially brought an action against the first named defendant for the recovery of $13,818.96 due under a contract made in September 1984 for the hire of a Cessna aircraft. The plaintiffs pleaded as follows:

"1       By an agreement in writing contained in letters from the Defendant to the Plaintiff dated the 20th of September, 1984, and from the Plaintiff to the Defendant dated the 25th of September, 1984, it was agreed between the Plaintiff and the Defendant that the Defendant hire the Plaintiff's Cessna 206 aircraft:

(a)      At the rate of $75.00 per hour as recorded on a V.D.O. less 5%.

(b)At the rate of $70.00 per hour for hours flown in excess of 500 per year less 5% as recorded on a V.D.O.

2        That since September 1985, the Defendant has paid the Plaintiff under the said agreement, a number of periodical payments.

3        The Defendant has neglected and refused to pay to the Plaintiff the balance of monies payable by him to the Plaintiff under the said agreement."

1. By his defence the first named defendant denied all the allegations contained in each of those pleadings, but claimed that at all material times he was acting in his capacity as a director of Fairway Industries Pty. Ltd. and that he did not personally enter into an agreement with the plaintiffs as alleged by them. He then commenced a counterclaim alleging that:

"7       ...... if there was an agreement between the Plaintiff and the Defendant as alleged in paragraph 1 of the Plaintiff's claim, which is denied, then it was a term of such agreement that the Plaintiff would pay all the maintenance costs in relation to the Cessna 206 aircraft referred to in the Plaintiff's claim.

8        In breach of any such agreement as referred to in Paragraph 7 herein, the Plaintiff has failed and/or refused to pay all maintenance costs.

9        As a result of the Plaintiff's said breach, the Defendant has suffered damage and loss and been put to expense."

The first named defendant then counterclaimed for $12,610.41.

1. In consequence of this plea of agency the plaintiffs sought and obtained leave to add the second named defendant, but amended its pleadings to allege an agreement with both defendants and breaches of the agreement by both of them rather than pleading against each as a party to the contract in the alternative. This amended writ of summons was duly served on the second named defendant on the 2 December 1986 at its registered office in Cairns in Queensland. No appearance was entered and the plaintiffs procured a judgment by default against it on the 18 February 1987. This judgment was set aside on the 20 May 1987 and the second named defendant given leave to defend. In its defence to this amended statement of claim the second named defendant likewise denied the whole of the plaintiffs' allegations and pleaded a counterclaim in substantially the same terms as that pleaded by the first named defendant. However, the amount actually counterclaimed was $15,249.93. The plaintiffs thereupon sought an order that the second named defendant give security for costs.

1. The practice of requiring security for costs to be given by a plaintiff has existed in a limited number of circumstances for many years. The basic rule was always that a natural person who sues will not be ordered to give security for costs, however poor he is (Pearson v Naydler [1977] 3 All ER 531 at 533 per McGarry VC, citing Bowen LJ in Cowell v Taylor (1885) 31 ChD 34 at 38). The exceptions to the rule notably included persons normally resident abroad and companies whose financial position made it probable that they would be unable to pay the costs of the defendant if successful in his defence. One reason for the latter exception can be discerned from the following observation of Nettlefold J in Heritage Boats Pty Ltd v GRE Insurance Ltd, B5/1986:

"There are many situations where an impoverished company has an unfair advantage. If such a company wins it will get the benefit of the verdict and an order for costs against the defendant to the advantage of those who have an interest in the assets of the company but the defendant sued will, if successful, be at a disadvantage in being unable to recover his costs if the company is financially insecure. In those circumstances it may be fair that he be placed in an equal position with the company by the company providing or having provided by those concerned in the fruits of the litigation a means of the defendant sued recovering his costs if he wins. (Pacific Acceptance Corpn. Ltd v Forsyth (1967) 2 NSWR, 402 at 407)."

In the case of foreign residents there were obvious difficulties in recovering costs from unsuccessful litigants whose assets may have been outside the jurisdiction of the court.

1. In the case of defendants the same basic principle applies. In Maatschappij voor Fondsenbezit v Shell Transport and Trading Co [1923] 2 KB 166 at 176, Scrutton LJ gave as the reason for it the fact that the defendant "is required to attend at the suit of the plaintiff, and if the plaintiff chooses to sue the defendant where he has no property, that is the plaintiff's concern".

1. The plaintiffs in this case relied in their application before the Master on the Companies (Tasmania) Code, s533, which provides as follows:

"533(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 defence, require sufficient security to be given for those costs and stay all proceedings until the security is given."

1. There can be no doubt that a defendant company which counterclaims can be a "plaintiff" for the purposes of this section (Watkins Ltd v Ranger Uranium Mines Pty Ltd (1985) 35 NTR 27; Buckley v Bennell Design and Constructions Pty Ltd (1974) ACLR 301; and Specialised Building Materials Pty Ltd v EU Occusted Pty Ltd (1981) 5 ACLR 653). Whether or not the second named defendant should be treated as a plaintiff for the purposes of the section depends upon the character of the counterclaim. Is it in substance a mode of mounting an attack by the defendant or a method of defending himself from attack by the plaintiff? The court always endeavours to be guided by the substance and not the form of the matter. The question to be asked is "Who is the attacker and who the defender in this case?" (see Maatschappij voor Fondsenbezit v Shell Transport Co (supra) at 177 and 178 per Scrutton LJ)

1. In Visco v Minter [1969] 2 All ER 714, Ormrod J expressed the principle this way:

".... where a defendant counter–attacks on the same front on which he is being attacked by the plaintiff, it will be regarded as a defensive manoeuvre. But if he opens a counter–attack on a different front, even to relieve pressure on the front attacked by the plaintiff, he is in danger of an order for security for costs depending on the court's assessment of the position in each case." (At 716).

1. The cases of Neck v Taylor [1893] 1 QB 560 and Mapleson v Massini (1879–80) 5 QBD 144 are both instances where the court took the view that the defendants' counterclaim far from being put forward in respect of a matter wholly distinct from the claim in fact arose in respect of the same matter or transaction upon which the claim was founded and was in reality the defendants' defence to the action, although as a matter of pleading it was necessarily put forward by way of counterclaim. On the other hand New Fenix Compagnie Anonyme D'Assurances De Madrid v General Accident, Fire, and Life Assurance Corporation Limited [1911] 2 KB 619 and Washoe Mining Co v Ferguson [1866] LR 2 Eq 371 provide instances where counterclaiming defendants were ordered to provide security because the counterclaims were regarded as independent claims being pursued in respect of matters foreign to the plaintiff's action.

1. In the present case the plaintiffs have been put to proof as to the terms of their contract. They say it is evidenced only by two letters. The defendants say there are additional parole terms. Furthermore, the defendants deny any breach of the terms relied on by the plaintiffs and say the latter have in turn breached the parole terms. Both claim and counterclaim arise out of the same subject matter, that is the contract between the parties to it, although it is true that each side relies on a different version of that contract. The fact that the claim and counterclaim do arise out of the same subject matter provides strong support for the proposition that the counterclaim is in reality the defendants' defence to the claim. Furthermore, as a matter of fact, it would seem that the initiative for any attack so far has come from the plaintiffs. They instituted the proceedings, they joined the second named defendant when the first named defendant alleged he was merely acting as agent for it, they procured judgment by default and when that was set aside on the affidavit of the first named defendant and the defence and counterclaim were delivered they instituted the proceedings for security for costs. Despite the fact that the proceedings were commenced in February 1986 against a person who is the holder of one of only two issued shares in the company, the other shareholder it appears being his wife, the defendant company made no move to seek recovery of the amount counterclaimed until its delivery in late May 1987. I think the inescapable inference from the pleadings and the circumstances surrounding these proceedings is that the counterclaim is in reality a defensive manoeuvre rather than the active prosecution of a claim in respect of which the plaintiffs in their defence thereto should in fairness be given protection for costs.

1. In my view the Master was right to refuse to make the order sought. The appeal is dismissed.