Duckworth v Water Corporation - [2013] WASC 383

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: DUCKWORTH -v- WATER CORPORATION [2013] WASC 383

CORAM: MASTER SANDERSON

HEARD: 26 & 29 AUGUST & 12 SEPTEMBER 2013

DELIVERED : 24 OCTOBER 2013

FILE NO/S: CIV 1795 of 2013

BETWEEN: KARL JAMES DUCKWORTH
RACHEL ALICE DUCKWORTH
ANDREW DANIEL DUCKWORTH
CLARE LEONORA DUCKWORTH
Plaintiffs
AND
WATER CORPORATION (ABN 28 003 434 917)
Defendant

Catchwords:

Stay of action pending payment of costs in discontinued proceedings - Whether issue in both actions 'substantially the same' - Discretion to order or refuse stay - Factors taken into account in exercising discretion

Legislation:

Nil

Result:

Stay refused

Category: A

Representation:

Counsel:

Plaintiffs: Mr J M Healy
Defendant: Mr M C Goldblatt & Ms S E Ivey

Solicitors:

Plaintiffs: Nova Legal
Defendant: Lavan Legal

Case(s) referred to in judgment(s):

Cargill International SA v Bangladesh Sugar & Food Industries Corporation [1996] 2 Lloyd's Rep 524
CGU Insurance Ltd v Watson [2007] NSWCA 301
Duckworth v Water Corporation [2012] WASC 30
In re Payne; Randle v Payne (1883) 23 Ch D 288
Letang v Cooper [1965] 1 QB 232
Mariotti v Wanneroo North Pty Ltd [2008] WASCA 243
Morgan v Banning (1999) 20 WAR 474
Thames Investment & Securities PLC v Benjamin [1984] 3 All ER 393

MASTER SANDERSON: This is the defendant's application for a stay of this action pending payment of costs in an earlier discontinued action. The application is brought under O 23 r 4 of the Rules of the Supreme Court 1971 (WA) (the Rules). On its face it is relatively simple. However, as argument progressed a number of difficult questions were raised. The answers to these questions involves consideration of little utilised provisions of the Rules. The parties also raised another short rather more straightforward point. That had to do with the costs on a summary judgment application by the plaintiff which was withdrawn. It is convenient to begin with the relevant facts.

The present action

The present proceedings were commenced by writ dated 16 May 2013. A statement of claim was endorsed on the writ. The plaintiffs say they are assignees of certain causes of action transferred to them from the bankrupt estate of Mr Neil James Duckworth. There is no argument about this aspect of the case. A copy of the deed of assignment appears as annexure KJD1 to the affidavit of the first-named plaintiff sworn 30 May 2013. At least for the purposes of this argument counsel for the defendant accepted there was a valid assignment of Mr Neil Duckworth's rights to the plaintiffs.
Returning to the pleading it is said on or about 3 March 2006 Mr Neil Duckworth entered into a 'Customer Constructed Works Agreement' (the CCWA) in relation to certain property which was being developed in Nilgen, Western Australia. The plaintiffs say and the defendant accepts the CCWA required Mr Neil Duckworth to provide a financial guarantee in a format acceptable to the defendant which could be called upon by the defendant to complete construction of the works required by the CCWA. The plaintiffs also pleads that upon completion of the works the unused portion of the financial guarantee would be returned to Mr Neil Duckworth. That too is accepted by the defendant.
The plaintiffs say and the defendant agrees on or about 4 September 2006 Mr Neil Duckworth provided a banker's undertaking in an amount of $3 million pursuant to the CCWA.
It is further pleaded on or about 20 September 2006 a duly authorised agent of Mr Neil Duckworth executed a Land Servicing Bond Agreement (the Bond Agreement). The terms of the Bond Agreement allowed the defendant, without notice to Mr Neil Duckworth, to call upon an unconditional and irrevocable undertaking provided by Mr Neil Duckworth to recover any loss the defendant suffered by reason of a failure of Mr Neil Duckworth to follow and perform his duties under the Bond Agreement. The Bond Agreement further provided the defendant could, if Mr Neil Duckworth failed to follow and perform his duties under the Bond Agreement, step in and complete the works and call upon the financial guarantee provided by Mr Neil Duckworth to recover all costs incurred in completing the works. This plea is in my view an accurate statement of the terms of the Bond Agreement. I will have more to say about the specifics of the relevant terms later in these reasons.
The plaintiffs then plead a temporal limitation in both the CCWA and the Bond Agreement. The plea is as follows:
8On its proper construction, the CCWA and the Bond Agreement necessitated that in the event that the defendant drew down upon the financial guarantee provided by NJD that the defendant would commence construction and complete the construction of the Works within a reasonable period of time, in the circumstances being a period of not more than 2 years, from the date of draw down of the financial guarantee provided by NJD.
9Further or alternatively to paragraph 8, there was an implied term of the CCWA and the Bond Agreement that the defendant would commence construction and complete the construction of the works within a reasonable period of time, in the circumstances being a period of not more than 2 years, from the date of draw down of the financial guarantee provided by NJD.
After pleading the basis upon which it is said there is to be a term implied into the CCWA and the Bond Agreement the plaintiffs go on to detail the circumstances in which the guarantee was called upon. They say in December 2007 the defendant issued a notice of default to Mr Neil Duckworth with respect to 'alleged' breaches of the CCWA and the Bond Agreement. In January 2008 the defendant called upon the $3 million guarantee fund and it was paid to them. The plaintiffs then say:
The defendant is obliged to account to the plaintiffs with respect to how the $3,000,000 Banker's Undertaking drawn down by the defendant has been used to complete the works described in the CCWA and Bond Agreement (par 16).
On behalf of the defendant counsel submitted this claim was incompetent. Essentially it was said it was an action for an account and on the case as pleaded by the plaintiffs the remedy of an equitable account was not open. It is necessary to analyse this submission in some detail but before doing so further relevant facts need to be considered.

Action by Mr Neil Duckworth against the defendant

In December of 2010 Mr Neil Duckworth issued proceedings against the present defendant. Mr Neil Duckworth in these proceedings raised issues in relation to the same CCWA and Bond Agreement that are the subject of the present action. A trial of the claim brought by Mr Neil Duckworth was to commence on 30 January 2012. However a preliminary matter arose. Mr Neil Duckworth became bankrupt on 27 September 2011. The question raised was whether as a consequence of Mr Neil Duckworth's bankruptcy the action he brought was stayed pursuant to s 60(2) of the Bankruptcy Act 1966 (Cth). This matter was heard by Justice Edelman and on 2 February 2012 his Honour published reasons detailing why the application was stayed: see Duckworth v Water Corporation [2012] WASC 30. His Honour concluded as follows [91]:
The action is therefore stayed until the trustee in Mr Duckworth's bankruptcy, after receipt of proper notice, makes an election, in writing, to prosecute or discontinue the action. Failing an election within 28 days after service of the notice, the action is deemed abandoned (s 60(3)). The consequences of abandonment are discussed by Wheeler J in Temsign Pty Ltd v Biscen Pty Ltd (58).
On 1 March 2012 after receipt of notice Mr Neil Duckworth's trustee in bankruptcy elected to discontinue the action. On 22 March 2012 Justice Edelman made orders discontinuing the action. On 17 May 2012 Edelman J considered two further questions. The first was an application by Mr Neil Duckworth to reinstate the proceedings. His Honour dismissed that application. The second application was by the present defendant seeking costs orders. Mr Neil Duckworth's trustee in bankruptcy consented to the costs orders; Mr Neil Duckworth personally opposed them. His Honour resolved the question by determining the defendant was entitled to its costs both in relation to the earlier proceedings and the further applications such costs to be taxed without regard to the limits in item 10(a) of the Legal Practitioners (Supreme Court) (Contentious Business) Determination 2010 (WA). Subsequently these costs were taxed and were allowed in an amount of $123,808.66. They have not been paid. It is the fact these costs have not been paid which the defendant says should give rise to a stay of the present action under O 23 r 4.
Order 23 r 4 is in the following terms:
Subsequent action stayed pending payment
If any subsequent action shall be brought before payment of the costs of a discontinued action, for the same, or substantially the same, cause of action, the Court may, if it thinks fit, order a stay of such subsequent action, until such costs shall have been paid.
The main point at issue between the parties was whether this present action is 'for the same, or substantially the same, cause of action' as the earlier proceedings brought by Mr Neil Duckworth. To answer that question it is necessary to see what was at issue in the proceedings brought by Mr Neil Duckworth.
A copy of the amended statement of claim in those proceedings appears as annexure GEB1 to the affidavit of Georgia Elyse Bevis sworn 15 August 2013. The first thing to note is there are different plaintiffs in both actions - Mr Neil Duckworth as trustee for the Ocean Farm Trust in the earlier proceedings and the plaintiffs as assignees from Mr Neil Duckworth's bankrupt estate in the present action.
Mr Neil Duckworth pleads the CCWA. He further pleads an implied 'stipulation' in the CCWA that:
(a)he could use the monies provided by the guarantee to fund the works;
(b)the defendant was precluded from calling upon the guarantee except in cases of actual legal entitlement; and
(c)the guarantee could not be called upon if the defendant had terminated or repudiated the CCWA.
Mr Neil Duckworth then pleads the Bond Agreement. He alleges that too was covered by the same three limitations referred to above. The claim alleges effectively the defendant breached one or all of the implied terms in the CCWA and the Bond Agreement. There is also a plea Mr Neil Duckworth was entitled to relief under the Trade Practices Act 1974 (Cth). That claim relates to the circumstances in which the CCWA and/or the Bond Agreement were entered into. Certain material facts are pleaded to support this claim but the claim has at its heart the central feature of the CCWA and the Bond Agreement.
There is one further relevant issue raised. Mr Neil Duckworth pleads the Bond Agreement was entered into by a person without his authority. Essentially it is said the agent who purported to sign on behalf of Mr Neil Duckworth was not authorised to do so and therefore the Bond Agreement was of no force and effect. On that basis it was alleged the defendant was not entitled to call upon the guarantee for a breach of the Bond Agreement actual or alleged.

Is the cause of action in this proceeding the same or substantially the same as the cause of action in Mr Neil Duckworth's action

During the course of their submissions counsel for both the plaintiffs and the defendant devoted considerable attention to what was actually meant by the phrase 'cause of action' in the Rules. There have been a number of cases which have considered this question. Perhaps the most comprehensive analysis is that by Giles JA in CGU Insurance Ltd v Watson [2007] NSWCA 301. It is doubtful whether his Honour omitted to consider any relevant authority. Unfortunately no clearly defined statement of principle can, in my view, be drawn from his Honour's discussion. More helpful observations are to be found in the judgment of Wheeler J in Morgan v Banning (1999) 20 WAR 474. In that case the Full Court was dealing with the so‑called 'relation back' rule as it applies in relation to amendment of pleadings. Her Honour referred to the definition of a 'cause of action' offered by Diplock LJ in Letang v Cooper [1965] 1 QB 232. His Lordship said:
A cause of action is simply a factual situation the existence of which entitles one person to obtain from the court a remedy against another person. Historically, the means by which the remedy was obtained varied with the nature of the factual situation and causes of action were divided into categories according to the 'form of action' by which the remedy was obtained in the particular kind of factual situation which constituted the cause of action (242 ‑ 243).
Her Honour then went on to approve and adopt what was said by Diplock LJ. In other words in deciding what is a 'cause of action' it is necessary to look at the pleaded material facts. On that basis it would not be unreasonable to pose the question in this case: are the material facts pleaded in the present action the same, or substantially the same, as those pleaded in Mr Neil Duckworth's action?
In my view they are. The fact that the plaintiffs in the two actions are different does not in my view assist the plaintiffs. They bring this action consequent upon an assignment of the causes of action held by Mr Neil Duckworth. They cannot be in any better position than Mr Neil Duckworth. Consequently if a stay would be granted to the defendant against Mr Neil Duckworth it must be available to the defendant against the plaintiffs. In this context it is also relevant to note the provisions of O 9A of the Rules. Under O 9A r 1 an 'interested non‑party' is defined to mean a person providing financial assistance to a party conducting a case provided that person exercises direct or indirect control over the way in which the party conducts the case. Order 9A r 2 requires a party to the proceeding to give notice when there is an interested non‑party. That was not done in this case. But prior to this hearing the solicitors for the defendant queried with the solicitors for the plaintiffs whether or not Mr Neil Duckworth fell into the category of an interested non‑party. The plaintiffs' solicitors acknowledged that he did. The question is what consequences flow from this fact.
Order 9A does not by its terms impose any sanction for breach of the order. For instance, a failure to serve the requisite notice would not appear to entitle a party to a stay at least until the notice was filed. The most obvious use for the rule is to identify a non‑party who may be responsible for costs in certain circumstances. Other than that it may be useful to know of the existence of a Svengali in planning the conduct of the proceedings.
At the heart of those actions is the CCWA and the Bond Agreement. In the present proceedings both are accepted as valid. Furthermore, in the present proceedings the plaintiffs accept the defendant was entitled to call upon the guarantee. True it is the word 'alleged' is used in relation to breaches of the CCWA and the Bond Agreement which led to the default notices and the defendant calling upon the guarantee. But nothing turns on the use of that word. It may even be appropriate. On the defendant's case it was entitled to call upon the guarantee when it determined it was proper to do so - that is to say, when the defendant determined there had been a breach of the CCWA or the Bond Agreement. To that extent it does not matter whether the breaches were actual or 'alleged'. The plaintiffs in the present proceedings are not disputing the defendant's entitlement to claim against the guarantee. They simply want to know what amount is left now that the guarantee has been called upon. They want the defendant to 'account'. In Mr Neil Duckworth's claim the issues were much wider. Above I identified the three issues raised in relation to the CCWA and the Bond Agreement. There was also the Trade Practices Act claim and the alleged invalidity of the Bond Agreement. But in my view the relevant material facts are substantially the same.
On a proper analysis the relevant material facts are these. First, the parties entered into the CCWA and the Bond Agreement. Second, a guarantee was provided by Mr Neil Duckworth to the defendant. Third, the guarantee was called upon. These are the essential material facts. True it is the plaintiffs in this case say there was implied into the CCWA and the Bond Agreement a temporal limitation. That was not pleaded in Mr Neil Duckworth's action. Rather he said there were certain terms implied as to the use that could be made of the guarantee funds and the circumstances in which the guarantee would be called upon. That is a point of departure. But the essential feature in both actions is the entry into these two agreements. They are the central material facts from which everything else flows.
The requirement in O 23 r 4 of the Rules that the subsequent action be 'the same or substantially the same cause of action' as the earlier proceedings has been satisfied.

Are there grounds for granting the stay?

There is contained within O 23 r 4 of the Rules a discretion to grant or refuse a stay. The order is silent as to how that discretion ought be exercised. That stands in contrast to several other orders - for instance, O 25. Order 25 r 1 grants a discretion in relation to an order for security for costs. Order 25 r 2 then gives certain guide as to factors to be taken into account in exercising the discretion. The rules do not seek to limit the exercise of discretion but simply provide a guide. Not so O 23 r 4.
The commentary found in Kendall C & Curthoys J, Civil Procedure Western Australia [23.4.1], refers to the English decision of Thames Investment & Securities PLC v Benjamin [1984] 3 All ER 393. The judgment in this matter, which appears to have been extempore, was delivered by Goulding J. His Honour says:
Quite apart from authority, two propositions would seem to me plain as a general rule. The first is that where an application has been made for particular relief and has been dismissed with costs because of some fault or lack of success on the part of the applicant, then, generally speaking, the applicant ought not to be allowed to apply again for identical or equivalent relief if he is guilty of failure to pay the costs of the previous application. The second proposition that would seem generally clear is that it cannot be said that the applicant has failed to pay the costs in question until they have been quantified and their amount is known. Now those propositions do not entirely meet the difficulties of the present case, as I shall indicate in a moment but let me first say that I find nothing in authority to cast doubt on them. The first principle is put by Cave J in a judgment in the Queen's Bench Division in Morton v Palmer (1882) 9 QBD 89 at 92, where, after speaking of previous authorities both in the Court of Chancery and the common law courts, the judge said:
'The principle of the practice in each Court was the same, viz, that, if a litigant had brought an action or made a motion against another and had failed, he should not bring a fresh action or renew his motion until he had paid the costs of the previous proceeding.'
Strangely his Honour did not mention O 21 r 5 of the English rules which is substantially in the same terms as O 23 r 4 of the Rules. Even then when stating the principle his Honour says it applies 'generally speaking'. That implies a discretion but says nothing about how that discretion is to be exercised.
The only case where the authorities agree there is an exception to the general rule is where the plaintiff is a person under a disability who sues by his next friend who has not the capacity to pay the costs: see In re Payne; Randle v Payne (1883) 23 Ch D 288, 289.

Before dealing further with the discretion conferred by the rule it is proper to acknowledge the defendant's submission that apart from O 23 r 4 the court has an inherent jurisdiction to control its processes so as to prevent an abuse of process. A comprehensive statement of principle is set out by Steytler P in Mariotti v Wanneroo North Pty Ltd [2008] WASCA 243 [57] ‑ [60]. It was counsel's submission, quite apart from the provisions of O 23 r 4, to allow the present action to proceed when the costs in the earlier action have not been paid, would amount to an abuse of the processes of the court.
What then are the factors to be taken into account in exercising a discretion to grant or refuse a stay in the present circumstances? Counsel for the defendant submitted one factor which must be taken into account is the contempt involved in a party seeking to use the processes of the court when an earlier order of the court - that is to say a costs order - has not been complied with. With respect that seems to me to be stating the obvious. The rule anticipates a stay because a costs order has not been met. That must necessarily involve an element of contempt. But it is in those circumstances the discretion arises. So the fact that the circumstances have arisen cannot oust the discretion.
In this case it seems to me there are two factors which are relevant. The first is the strength of the plaintiffs' claim. About that there was considerable dispute. The plaintiffs say, accepting as they do the defendant had the right to call on the guarantee, the defendant is nonetheless obliged to account to the plaintiffs for how the guarantee was spent and to repay any amount which has not been spent. To support this proposition they rely on the decision in Cargill International SA v Bangladesh Sugar & Food Industries Corporation [1996] 2 Lloyd's Rep 524. The question at issue related to a performance bond and when such a bond could be called upon. His Honour determined it was proper for the party holding the bond to call upon it where there was an alleged default with whether or not it should have been called upon and to what extent to be determined at a later date. His Honour anticipates a party who calls upon a bond may not be entitled to the whole amount. His Honour says 'there will be an "accounting" at trial or arbitration to ensure that the buyer has not been underpaid or overpaid' (572).
That really is what the plaintiffs say is the point of the action. Accepting the defendant called upon the guarantee, and they were entitled to do so, tell us what was spent and how it was spent. If there is any money left pay it back to us. In other words account to us for the money paid under the guarantee.
The defendant's response is to submit the plaintiffs' action is incompetent. It says an account is not available in the circumstances of this case. Counsel submitted it would be necessary for the plaintiffs to sue for the return of the money paid under the guarantee with presumably the defendant counterclaiming for the amount it says it properly spent as a consequence of Mr Neil Duckworth's default. This raises the question of when the equitable remedy of account is available. That is not an easy question to answer. In Meagher RP, Heydon JD & Leeming MJ, Meagher, Gummow & Lehane's Equity: Doctrines & Remedies (4th ed, 2002) the learned authors discuss the equitable remedy of account generally. They outline seven different circumstances when the remedy of account is available. Most of them are familiar - for example, in intellectual property cases where there has been a breach of a party's right by infringement of a trademark the offending party can be required to account for profits. Perhaps even more familiar are the accounts taken as a consequence of a trustee/beneficiary relationship. But this case does not fit easily within any of the seven categories the authors outline.
Master's Chambers are not the place to attempt to expand or redefine the equitable doctrine of account - particularly when the matter is not directly in issue. However, to my mind it is strongly arguable an account would be available to the plaintiffs in this case. The authorities say, and the defendant accepts, that at some stage there needs to be an 'accounting' between the parties. The defendant cannot simply hang on to the money paid under the guarantee irrespective of whether it used any or all of the funds. The guarantee was given in 2007. Given equity is always flexible in the remedies it has available it is difficult to see why an account should not be provided by the defendant in this case. Furthermore, O 45 seems by its terms to be the ideal mechanism for getting the matters at issue between the parties before the court.
On balance then I am satisfied the plaintiffs have a strong prima facie case for obtaining the orders they seek in the statement of claim.
The second consideration relates to the right of the defendant to recover the outstanding costs from the monies paid under the guarantee. Under the Bond Agreement the extent of the indemnity offered by Mr Neil Duckworth to the defendant is expressed as follows:
C10To indemnify the Corporation for any loss, cost, claims or liability suffered or incurred by the failure of the Developer to follow and perform any of its duties under this agreement including all costs the Corporation incurs in completing the works.
C11Pay all the Corporation's costs of this agreement and the cost of doing everything it must do under this agreement.
C12The Corporation may, without notice to the Developer, call on the Financial Security to recover any loss it suffers arising out of the failure by the Developer to follow and perform its duties under this agreement. This right does not affect the indemnity under C10.
During the course of submissions I raised with counsel the prospect these clauses were wide enough to allow the defendant to claim the outstanding costs from the guarantee funds. This was not an issue counsel had raised in their written submissions and it received only limited attention after I raised it during the course of the hearing. It therefore seemed to me appropriate to allow the parties to further consider the question and to make written submissions on the issue.
Predictably enough the parties differed as to whether or not it was open to the defendant to deduct the unpaid costs from the bond. The plaintiffs said it was probably not open to the defendant to make such a deduction but in the interests of moving the action forward it would consent to such a deduction being made. The defendant said it was not open on a proper construction of the CCWA or the Bond Agreement to deduct costs. Even if it were possible the defendant maintains the costs of the work estimated in sch 2 of the CCWA would be $4.6 million. Therefore the bond was not sufficient to meet all of the costs incurred by the defendant.
So my attempt to resolve the matter by obtaining some agreement as to deduction of unpaid costs from the bond failed.
What is remarkable about this application is not the evidence that was led but the evidence that was not led. Given the plaintiffs maintain there was a discretion not to stay the action pending payment of the costs it is surprising they did not go on and deal with some matters which might have been relevant. It is the case that there is limited authority on the circumstances in which a discretion should be exercised. But as I have indicated above an application of this type has something in common with an application for security for costs. So, under s 1335 of the Corporations Act 2001 (Cth), a company resisting an order for security for costs might be expected to give some detail of the financial strength of those standing behind the company and to lead evidence as to whether if an order for security were made it would stultify the proceedings. No evidence of that sort was led by the plaintiffs.
Nor did the defendant address any of the matters which might go to an exercise of discretion. For instance there was no evidence as to whether the works anticipated under the CCWA had been started let alone completed. If the works had not been started evidence could have been led as to when construction might have commenced and what the anticipated costs may have been. This is not to say it was necessary for the defendant to actually provide some form of 'account' which was the point of the action. But some general statement as to what had been done might have been expected.
As with any exercise of discretion it is a matter of weighing up the competing interests. What seems to me to be compelling in this case is the strength of the plaintiffs' claim. They are simply asking for an explanation as to what has become of the bond. The defendant concedes at some stage such an explanation or 'account' is not unreasonable. The defendant has had the bond of money for years. It offers no timeframe as to when it will tell the plaintiffs what became of the funds. It made no attempt in these proceedings to explain its actions.
In reaching this conclusion I have weighed all of the competing elements in the balance. In particular I am mindful the costs have not been paid and that is in effect a contempt of the court. I have also taken into account the fact Mr Neil Duckworth is still involved with the plaintiffs. But weighing all matters in the balance I am not satisfied it would be in the interests of justice to prevent the plaintiffs from obtaining some explanation as to what became of the $3 million.
I would dismiss this application. The costs of the application ought be costs in the cause.
That leaves then the question of the aborted application by the plaintiff for an account. Although the plaintiff did not press the application it seems to me what was done to make the application will be of use in the proceedings generally. Accordingly I am satisfied the costs in relation to that application ought be costs in the cause.