Duratech Industries Pty Ltd v Cube Furniture Pty Ltd
[2014] ACTSC 405
•30 October 2014
SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Case Title: | Duratech Industries Pty Ltd v Cube Furniture Pty Ltd & Anor |
Citation: | [2014] ACTSC 405 |
Hearing Date: | 30 October 2014 |
DecisionDate: | 30 October 2014 |
Before: | Mossop M |
Decision: | See [41] |
Category: | Procedural and other rulings |
Catchwords: | PRACTICE AND PROCEDURE – Removal of proceeding from Magistrates Court – whether by filing a counterclaim the defendants have permanently abandoned that portion of their claim which exceeds the jurisdictional limit of the Magistrates Court – r 463 Court Procedure Rules 2006 (ACT) COSTS – Security for costs – whether an order for security for costs should be made ‑ where there is a corporate and individual defendant – where part of the claim only pursued by one defendant |
Legislation Cited: | Magistrates Court Act 1930 (ACT) s 270 Court Procedure Rules 2006 (ACT) rr 463, 1725 |
Cases Cited: | Fiduciary v Morningstar Research (2004) 208 ALR 564 First Pty Ltd & Ors v Owners Corporation Strata Plan 66609 & Ors (No. 2) [2008] NSWSC 428 |
Parties: | Duratech Industries Pty Ltd ACN 084 439 716 (Plaintiff) Cube Furniture Pty Ltd ACN 122 691 678 (First Defendant) Christopher Robert Devoy (Second Defendant) |
Representation: | Counsel: Mrs A Hogan (Plaintiff) Mr M Malicek (Defendants) |
| Solicitors: Moray & Agnew (Plaintiff) Colquhoun Murphy (Defendants) | |
File Number: | SC 430 of 2014 |
Application
By originating application dated 19 September 2014 the defendants in proceedings presently before the Magistrates Court seek orders that the proceedings in the Magistrates Court be removed into this Court pursuant to s 270 of the Magistrates Court Act 1930 (ACT) (Magistrates Court Act) and r 1432 (1) of the Court Procedures Rules 2006 (ACT) (Rules) and that the pleadings in the proceedings stand as the pleadings in the removed proceedings.
The grounds of that application are set out in the originating application and provide a useful statement of the background to the application.
1.The Plaintiff’s claim in Proceedings CS 610 of 2013 (‘the Proceedings’) seeks recovery of an alleged debt.
2.The Defendants have made a Counterclaim in the Proceedings, alleging, inter alia, that goods and services provided by the Plaintiff were not fit for purpose, defective, undelivered or not charged for in accordance with the contract between the Plaintiff and the First Defendant. The Defendants have also made a counterclaim against the Plaintiff for injurious falsehood.
3.On 7 May 2014, the Plaintiff’s solicitors made a request for further and better particulars of the Defendants’ Defence and Counterclaim in the Proceedings.
4.On 26 August 2014, the ACT Magistrates Court ordered the Defendants to respond to the Plaintiff’s request for particulars.
5.On 2 September 2014, in compliance with the order referred to in paragraph 4 above, the Defendants provided a response to the Plaintiff’s request for particulars.
6.In the course of preparing the Defendants’ response, it became apparent that if the Defendants were wholly successful in their counterclaim, they sought to recover an estimated sum of $538,612.
7.By reason of the matters stated in paragraph 6 above and section 257(1) of the Magistrates Court Act 1930 (ACT), the value of the Defendants’ Counterclaim in the Proceedings exceeds the jurisdictional limit of the ACT [Magistrates Court].
8.The Defendants have not elected to abandon the excess of their claim in the ACT Magistrates Court.
9.On 16 September 2014, the ACT Magistrates Court ordered the Defendants to file any applications, including an application to transfer the Proceedings to this Court, by 19 September 2014.
10.By reason of the matters stated above, it is in the interests of justice to remove the Proceedings into this Court.
Section 270 of the Magistrates Court Act provides:
Removal of proceedings into Supreme Court
On the application of a party to a proceeding in the Magistrates Court, the Supreme Court may order that the proceeding be removed into the Supreme Court on the conditions about costs, security for the amount claimed all costs, or otherwise, that the Supreme Court considers just.”
Rule 1432 is in similar terms. It is not clear why the terms of s 270 are effectively repeated in the Rules.
The main issue between the parties appears to be whether or not the transfer should be made conditional upon the defendants providing security for costs in relation to their counterclaim. The plaintiff has submitted that security in the sum of $50,000 should be provided. The defendants contended that security should not be ordered. However, notwithstanding their position, they have previously made an open offer to provide security in stages at the rate of $5000 per month up to an amount of $25,000.
I was told that there was presently on foot in the Magistrates Court an application for security for costs brought by the plaintiff against the defendants. Notwithstanding that there is a reasonable argument that the issue related to security for costs was not an issue raised by the transfer per se, given that the parties had prepared the application on the basis that security was to be an issue to be agitated, it appeared to me to be more efficient to address the question of security at the point of transfer, rather than making an order for transfer and then being required to determine on a separate occasion the question of security.
There were also submissions by the plaintiff directed to the making of an order that:
in the event that the proceedings result (either by adjudication or by consent) on terms whereby the plaintiff is entitled to payment of its costs of the proceedings, those costs shall be assessed at the ACT Supreme Court rates from the date of the transfer onwards notwithstanding rules 1725 (1) and (2).
Position of the parties
The defendants contended that the proceedings should be transferred and that neither of the conditions relating to security for costs or costs should be made. In the alternative, the defendants contended that any order for security should be in the terms that they had previously offered in a letter dated 10 October 2014.
The position of the plaintiff on transfer was somewhat equivocal. On the one hand, it did not oppose the transfer. On the other hand, it made submissions to the effect that, as a consequence of the filing of a counterclaim in the Magistrates Court, the defendants had necessarily abandoned any excess on that counterclaim over the jurisdictional limit of $250,000. The consequence of that submission would be that the defendants would not be entitled to prosecute any claim over $250,000 and hence that any ground for transfer relying upon the counterclaim exceeding the jurisdictional limit would disappear.
Issues
Having regard to the submissions of the parties the issues that I need to determine for the purposes of this application are as follows:
(a)Does r 463 have the effect that the defendants have permanently abandoned that portion of their claim which exceeds the jurisdictional limit of the Magistrates Court?
(b)Should the defendants be required to provide security for the costs of the counterclaim?
(c)Should an order being made under r 1725(3), or as a condition of transfer, dispensing with the operation of rr 1725(1) and (2)?
Before I deal with each of these issues in turn it is necessary to say something more about the claim and the defence and counterclaim.
The claim was dated 11 June 2013. An amended the claim dated 8 October 2013 was filed in the Magistrates Court. It claims an amount of $79,521.84 plus interest and costs for the provision of goods and services and also on the basis of an account stated. The amount claimed represents the balance of the account and involves a large number of individual transactions. There is also a claim against the second defendant as guarantor of the obligations of the first defendant.
The defence and counterclaim is dated 24 March 2014. The defendants claim that:
(a)not all the goods and services were ordered by the first defendant;
(b)not all the goods and services were actually delivered to the first defendant;
(c)some of the goods and services supplied were defective; and
(d)the plaintiff has overcharged the defendant by the amount of $177,369.95.
There is also a claim of an entitlement to set off damages in relation to overcharging, non-delivered goods and defective goods against the amount of the plaintiff’s claim.
A separate claim of injurious falsehood is pleaded. This relates to statements made by a person acting on behalf of the plaintiff on 21 May 2013 to representatives of the Department of Defence. In the defence this is pleaded as a ground of set-off. What is alleged to be set-off is damage suffered by the first defendant as a consequence of the injurious falsehood. It is not necessary for the purposes of this application to address the plaintiff’s submission based on the decision in Product Development Solutions Australia Pty Ltd v Parametric Technology Corporation [2012] NSWCA 211at [15] that there is not sufficient nexus or connection between the plaintiff’s claim for an account stated or for goods sold and delivered and the counterclaim such that, for the purposes of an equitable set-off, the counterclaim could be said to impeach the plaintiff’s claim. That is because, in any event, in common with the claims of overcharging, non-delivered goods and defective goods, the claim of injurious falsehood has been also pleaded as a counterclaim. Once again the damages that are alleged are those of the first defendant which are claimed against the plaintiff.
The process of particularisation of the defendants’ counterclaim has led to the quantum of the claims for defective, unfit and undelivered goods and overcharging being in total $180,835. The claim relating to injurious falsehood is an amount of $357,777.
It can therefore be seen that the injurious falsehood claim, which as presently pleaded only relates to the first defendant, is the major part of the claim and the reason for the counterclaim exceeding the jurisdiction of the Magistrates Court.
Does r 463 have the effect that the defendants have permanently abandoned that portion of their claim which exceeds the jurisdictional limit of the Magistrates Court?
Rule 463 of the court procedures rules provides:
Counterclaim—abandonment of excess in Magistrates Court
(1)This rule applies to a defendant in a proceeding in the Magistrates Court if the defendant has a cause of action against a plaintiff for an amount that is more than the maximum amount for which the court has jurisdiction (the maximum amount).
(2)The defendant may make a counterclaim in relation to the cause of action if the defendant abandons the amount over the maximum amount in the counterclaim.
(3)In the counterclaim proceeding—
(a)the defendant may not recover an amount that is more than the maximum amount; and
(b)final judgment in the proceeding operates in full discharge of all claims in relation to the cause of action.
The plaintiff submitted that the filing of the counterclaim by the first defendant in the Magistrate Court on 24 March 2014 had the effect of abandoning forever the excess on that counterclaim over $250,000. The plaintiff submits that in contrast with the now-repealed r 3743, r 463 mandates abandonment of the excess is a precondition of the making of the counterclaim. The plaintiff submits that, unlike r 55, which applies in relation to originating claims, r 463(2) does not require an express statement of abandonment. The plaintiff therefore submits that the excess has been abandoned. It submits that in order to preserve its rights in relation to the excess, a defendant would need to file an application for transfer to the ACT Supreme Court prior to filing the counterclaim.
No authority was provided for the proposition that this rule had the substantive effect contended for. No authority was cited for the proposition that any implied abandonment, if it had occurred, was irreversible.
In order to understand the submission, it is necessary to understand how this transfer came to be made. There was a dispute between the parties as to particulars of the plaintiff’s claim. There came a point where the plaintiff was not minded to permit the defendant any more time to file a defence and counterclaim. The defendant therefore filed a defence and counterclaim. Subsequently, for the purposes of particularising the damages claimed in the counterclaim, it became apparent to the solicitor for the defendants that the quantum of the counterclaim would exceed the jurisdictional limit of the Magistrates Court. It was only then that the defendants brought the application for transfer.
In my view, r 463 does not have the substantive effect contended for by the plaintiff. While, if the defendants continued with their claim until judgment, they would, as a consequence of r 463(3), not be entitled to recover an amount that is more than the jurisdiction of the Court in relation to that cause of action, nothing in the Rules means that any excess is irrecoverable, even if the proceedings are transferred to the Supreme Court which has unlimited jurisdiction. The effect of r 463 is to regulate the making of such claims (sub-rule (2)) and to ensure that the cause of action is finally and completely determined by a judgment of the Magistrates Court (sub-rule (3)). It means that the abandonment of the excess is given effect to at the point of judgment and that, other considerations aside, it is open to a party to seek transfer of the proceedings to the Supreme Court, which can adjudicate on the whole of the cause of action.
Should the defendants be required to provide security for the costs of the counterclaim?
The evidence established that there was reason to believe that the first defendant might be unable to pay the costs of its counterclaim, if ultimately ordered to do so. The defendants accepted that the threshold for making an order for security for costs against the first defendant was satisfied. The defendants submitted, however, that in circumstances where there was also an individual counterclaimant and no basis for a different costs order being made as between each defendant, no security should be ordered against the first defendant.
The evidence about the financial circumstances of the first defendant was very limited. The most recent accounts in evidence were dated 2012. The profits that were made in 2011 and 2012 were modest, in the order of $31,000 and $22,000 respectively. It is evident that the company was acting as a trustee. That is a factor which, at the very least, favours a finding that the threshold is met: Seminars Australia Pty Ltd v ABN Amro Morgans Ltd [2006] ACTSC 101 at [10]-[13].
The only evidence as to the future costs of the counterclaim was that in the affidavit of the plaintiff’s solicitor, which included an estimate that the costs of defending the counterclaim will be approximately $50,000 on a party and party basis. That allowed for discovery, interrogatories, determination of various interlocutory applications foreshadowed by the first and second defendants, and a three-day hearing conducted by a junior counsel.
There was no attempt in that evidence to assess the costs that were involved in the plaintiff’s claim, as opposed to the counterclaim, in so far as those issues were interrelated. Similarly, there was no attempt to differentiate between the costs incurred in defending the counterclaim in so far as it related to non-delivery, defects or overcharging, as opposed to the claim for injurious falsehood which, although related in some ways, raised issues going substantially beyond the matters raised in the plaintiff’s claim.
There was a statement in the affidavit of the second defendant that if the Court makes a costs order against the first defendant: “I am willing to contribute my own personal funds in order to satisfy it.” While this might provide the basis for a suitable form of security in some circumstances if it was given effect to by way of an enforceable instrument or undertaking, in my view the mere statement in an affidavit is not likely to be enforceable and hence not an appropriate means by which security could be provided.
The fact that there is an individual counterclaimant as well as a corporate counterclaimant is a matter relevant to the exercise of the Court’s discretion whether to order security for the costs of the counterclaim. A number of cases have considered those issues and have placed significance on the extent to which any order made against the corporate plaintiff would also necessarily be made against the individual plaintiff.
Where there is a complete identity between the claims made by the corporate plaintiff and the claims made by the individual plaintiff so that all plaintiffs must succeed or fail together, then security will generally not be ordered against one of them. However, where the plaintiffs’ claims have different components, so that they will not necessarily succeed or fail together, then the existence of an individual plaintiff is a matter to be weighed in the balance, but does not preclude the making of an order for security for costs. The relevant authorities are Street & Ors v Luna Park Sydney Pty Ltd & Ors [2006] NSWSC 1317 at [28]; Ingot Capital Investments Pty Ltd & Ors v Macquarie Equity Capital Markets Ltd & Ors [2002] NSWSC 609 at [84]; K & J Acquisitions Pty Ltd & Anor v Manauzzi & Anor [2009] NSWSC 279 at [40]-[45]; Fiduciary v Morningstar Research (2004) 208 ALR 564 at [53]-[62]; Funds First Pty Ltd & Ors v Owners Corporation Strata Plan 66609 & Ors (No. 2) [2008] NSWSC 428 at [12]; Narradine Pty Ltd & Anor v Mascot Steel and Tools Pty Ltd & Ors [2012] NSWSC 385 at [15]-[18].
In the present case, while there is a complete identity between the positions of the two defendants in relation to most of their counterclaim, the claim for injurious falsehood is brought only by the first defendant. The defendants did submit that there was some possibility of the making of an amendment to bring an alternative claim on behalf of the second defendant, however, I place little weight on that suggestion as it is not reflected in the current pleadings and, in the absence of other detail, the basis for that claim is not clear at this stage.
In relation to the claim brought by the first defendant, the first defendant claims a loss of a chance to earn profits on contracts which it says were not awarded to it because of the statements made about its payments to the plaintiff. The method of calculating the quantum of damages adopted in the particulars is to compare the rate of tendering success that the company had before the alleged false statement, and compared that to its rate of tendering success after the alleged false statement. On the basis of the difference in work won the first defendant claims a percentage of the value of that work as representing the profit lost as a result of not being successful on the tenders.
The claim, on its face, is not an overwhelmingly strong one. For the purposes of security for costs it is neither necessary, nor appropriate, to go any further than that. It is clear that in terms of assessing damages there are a variety of means by which that could be achieved and that may lead to significant differences in the quantum of damages awarded. There is some relationship between the claim and the balance of the counterclaim in that the falsity of the statements alleged to constitute injurious falsehood is dependent upon the state of the trading account between the first defendant and the plaintiff. That is why the issues that are necessary to explore for the purposes of the plaintiff’s claim and the balance of the defendants’ counterclaim overlap to an extent. However, for present purposes it is significant that this substantial portion of the counterclaim is a matter where there is a difference between the position of the corporate defendant and the individual defendant. In my view, that difference means that it is appropriate to take a different approach in relation to security on those issues. Because of the identity between the positions of the two defendants in relation to the counterclaim other than the claim for injurious falsehood, it is not appropriate to make any order for security in relation to those aspects of the counterclaim. However, in relation to the claim for injurious falsehood, because of the separate position of the first defendant, I consider it appropriate to make an order for security in relation to that component of the claim.
There is no specific evidence dealing with the costs attributable to that component of the claim. However, in my view they are unlikely to exceed $25,000. Having regard to the fact that the first defendant has already offered to provide security in a staged way for that amount, I am satisfied that making an order of that quantum would not have the effect of stultifying the proceedings. Similarly, I am satisfied that it is appropriate to make an order in a staged fashion and, in my view, that will not cause any prejudice to the plaintiff or delay in the conduct of the proceedings. As a consequence, I propose to make orders 1 through 4 as set out in the letter from the defendants’ solicitors to the plaintiff’s solicitors, except that I will hear the parties as to the date for the making of the first payment.
In reaching this conclusion, I have not overlooked the detailed submissions that were made upon the substantial volume of evidence relating to the second defendant’s personal financial circumstances. Having regard to the authorities which I have referred to above and the “striking contrast between the approach taken to security for costs against a corporation and the approach taken where the plaintiff is an individual”, it appeared to me to be unnecessary to evaluate in detail the second defendant’s circumstances.
Should an order being made under r 1725(3), or as a condition of transfer, dispensing with the operation of rr 1725(1) and (2)?
The plaintiff submitted that whatever happened in the proceedings it would, in relation to its claim to recover $79,521.84, be faced with the operation of r 1725(1) and (2). It therefore submitted that it was appropriate to make an order under r 1725(3) or, alternatively, as a condition of the transfer, that those sub-rules not apply.
It is clear that the reason that the proceedings are to be transferred into this Court is because of the defendants’ counterclaim. The plaintiff is required to defend that counterclaim and, on the face it, would be entitled to its costs at the Supreme Court rate. However, in my view, it is appropriate to defer the issue of any orders to vary the operation of r 1725 until the outcome of the proceedings is known. It does not appear to me to be a useful exercise to make an order at this stage which may need to be subsequently varied when the full circumstances of the case are known. In my view the appropriate time to deal with such general costs issues is at the point where the outcome of the case is known. Therefore, I decline to make an order either under r 1725(3) or as a condition of transfer of the proceedings from the Magistrates Court.
Costs
In Kalis v Waltham [2010] ACTSC 94 that [23] Master Harper said that the Court will generally order that the costs of the application for removal be reserved so that this issue can be revisited in the light of the eventual assessment of damages.
In my view, this is not the appropriate outcome in this case. In this case, the necessity for a contested hearing over half of a day in length arose because the plaintiff wished to agitate the question of security on the counterclaim, its proposed order under r 1725 and maintained its argument about the operation of r 463 of the Rules. I have rejected the plaintiff’s interpretation of r 463. I have also found that it is more appropriate to leave any question arising under r 1725(3) to the conclusion of the proceedings. In relation to security for costs I will make an order for security but one which is no more favourable to the plaintiff then that which was offered in advance of the hearing. I accept that the offer may have been made in relation to the application for security for costs in the Magistrates Court but, in my view, as a matter of substance the issue of security could have been resolved on the basis of that offer.
In those circumstances, it appears to me that the substantive contest in the proceedings were on matters on which the plaintiff has failed and that there is no reason to defer the question of costs in so far as it related to those issues.
The issue which took up most of the evidence and time of the hearing was that of security for costs. The application for transfer was made on 19 September 2014. The plaintiff offered to provide security by letter dated 10 October 2014, the offer closing on 13 October 2014. In my view, parties should be encouraged to reach reasonable compromises in relation to interlocutory disputes which have the potential to absorb a disproportionate amount of court time if they are not resolved. In the light of this, in my view, the appropriate costs order is that the plaintiff pay the defendants’ costs of the application incurred after 13 October 2014, but that otherwise the costs of the application be reserved.
As a consequence, subject to any particular submissions as to the terms of the orders, and subject to the fixing of the date of the first payment of security, the orders of the Court are:
1. Proceedings CS610/13 in the ACT Magistrates Court (“The Proceedings”) are removed into this Court pursuant to s 270 of the Magistrates Court Act 1930 (ACT) and rule 1432(1) of the Court Procedures Rules 2006 (ACT).
2. The pleadings in the proceedings stand as the pleadings in the removed proceedings.
3. The first defendant is to provide security for the plaintiff’s costs in the sum of $25,000 which sum is to be paid by the first defendant into the trust account of its solicitors and is not to be released except in accordance with a further order of the Court.
4. At the request of the first defendant, the first defendant’s solicitors may invest the said trust deposit out into an interest-bearing account with a reputable financial institution in the joint names of the parties with interest to accrue to and all investment costs to be borne by the first defendant. The plaintiff must do all things necessary to facilitate any such investment.
5. The security pursuant to Order 1 above is to be paid in instalments of $5,000 on or before the last day of each calendar month, except with the first instalment being due on 14 November 2014.
6. The plaintiff is to pay the defendants’ costs of the Originating Application dated 19 September 2014 incurred after 13 October 2014 but that otherwise costs of the application are reserved.
7. Liberty to apply is granted to the parties to have the matter relisted to in relation to any variation necessary to the order in relation to security or for any application arising out of non-compliance with the order for provision of security.
8. Order 4 made on 13 October 2014 and the continuation of that order made in Order 3 on 23 October 2014 are discharged.
9. The matter is listed for Directions on 7 November 2014.
| I certify that the preceding forty-one [41] numbered paragraphs are a true copy of the Reasons for Judgment of his Honour Master Mossop. Associate: Date: 5 May 2015 |
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