Fletcher Tailleur Associates Ltd v Force Commodities Ltd

[2019] WADC 132

JURISDICTION     :   DISTRICT COURT OF WESTERN AUSTRALIA

IN CHAMBERS

LOCATION:   PERTH

CITATION:   FLETCHER TAILLEUR ASSOCIATES LTD -v- FORCE COMMODITIES LTD [2019] WADC 132

CORAM:   PRINCIPAL REGISTRAR MELVILLE

HEARD:   23 MAY 2019

DELIVERED          :   9 SEPTEMBER 2019

FILE NO/S:   CIV 4759 of 2018

BETWEEN:   FLETCHER TAILLEUR ASSOCIATES LTD

Plaintiff

AND

FORCE COMMODITIES LTD

Defendant

Catchwords:

Joinder of second plaintiff - Rectification of contract - security for costs - Striking out pleadings

Legislation:

Corporations Act 2001 (Cth)
Rules of the Supreme Court 1971 (WA)

Result:

Action be stayed until security for costs paid into court

Representation:

Counsel:

Plaintiff	:	Mr P J Tydde
Defendant	:	Ms F A Stanton

Solicitors:

Plaintiff	:	Gilbert & Tobin
Defendant	:	MDC Legal

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

Ashwin v Minara Resources Ltd [No 2] [2010] WASC 330

Barclay Mowlem Construction Ltd v Dampier Port Authority [2006] WASC 281

FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69

Kidd v Mitchell Frederick Artus Trading As Downings Legal [2013] WASC 264

P S Chellaram & Co v China Ocean Shipping Co (1991) 102 ALR 321

Unified Pty Ltd v The Cancer Council Western Australia Inc [No 3] [2011] WASC 161

PRINCIPAL REGISTRAR MELVILLE:

1. By writ of summons endorsed with a statement of claim and dated 19 December 2018, Fletcher Tailleur Associates Ltd (FTA) commenced proceedings against Force Commodities Ltd (Force) for non‑payment of service fees alleged to be owing pursuant to a contract entered into between FTA, Alastair James Stephens (Stephens) and Force dated 28 February 2017.  Stephens is a director and shareholder of FTA.

2. The substance of FTA's case is that it agreed with Force that it would provide management services to Force, more particularly would provide the services of Stephens as executive director or in other roles as determined by the board of Force.

3. FTA also seeks rectification of the agreement on the basis that mistakenly the parties have described 'Fletcher Tailleur Australia having its registered office at 140 Crawford Road, Maylands, Perth, Western Australia, Australia 6015' as the contractor to the agreement, rather than FTA.

4. At par 5 of the statement of claim FTA pleads the material fact, namely that on and before the date of execution of the agreement it was the common continuing intention of FTA, Force and Stephens, that FTA was to be the contractor under the agreement.  It then alleges that the common continuing intention is to be inferred from the following facts and matters:

   5.At all material times on and before the date of execution of the Services Agreement, it was the common continuing intention of FTA, Force and Stephens that FTA was to be the 'Contractor' under the Services Agreement.

   Particulars

   The common intention is to be inferred from the following facts and matters:

   (a)the entity 'Fletcher Tailleur Australia' does not exist;

   (b)the Contractor was intended to be the Seychelle incorporated company nominated by Mr Stephens of which he was a director and principal;

   (c)FTA is the Seychelle incorporated company of which Mr Stephens is director and principal.

5. On 12 March 2019 TFA amended the statement of claim.  The material amendments are found at pars 4 and 5, as set out below:

   4.By a Services Agreement dated 28 February 2017 between FTA, Force and Stephens (Services Agreement), Force agreed to engage FTA to provide services to Force on terms agreed.

   Particulars

   The Services Agreement was executed by Stephens in his personal capacity and in his capacity as principal of FTA.

   A copy of the Services Agreement is available for inspection at FTA's solicitor's offices by prior appointment.

   5.At all material times on and before the date of execution of the Services Agreement, it was the common continuing intention of FTA, Force and Stephens that Stephens was to be engaged by Force under the Services Agreement, and an entity of which Stephens was the principal, as chosen by Stephens, FTA was to be the 'Contractor' under the Services Agreement.

   Particulars

   The common intention is to be inferred from the following facts and matters:

   (aa)prior to and at the time of executing the Services Agreement, Force and Stephens contemplated that:

   (i)the services to be performed under the Services Agreement would be performed by an entity to be identified in the Services Agreement as the Contractor;

   (ii)Stephens would have sole discretion as to the identity of the entity which was to be the Contractor, save that Stephens was to be the principal of that entity;

   (ab)at no point prior to the execution of the Services Agreement did Force enquire of Stephens as to:

   (i)the proposed identity of the entity which was to be the Contractor;

   (ii)the existence, legal status or credentials of 'Fletcher Tailleur Australia';

   (ac)at no point prior to the execution of the Services Agreement did Force make any enquiries as to the existence, legal status or credentials of 'Fletcher Tailleur Australia';

   (a)the entity 'Fletcher Tailleur Australia' did not, and does not exist;

   (b)Not Used the Contractor was intended to be the Seychelle incorporated company nominated by Mr Stephens of which he was a director and principal;

   (c)FTA is the Seychelle incorporated company entity:

   (i)of which Mr Stephens is director and principal;

   (ii)which Stephens intended to be the Contractor;

   (iii)on whose behalf Stephens executed the Services Agreement;

   (iv)which performed the Services Agreement;

   (d)at all material times after the execution of the Services Agreement, Force acted in accordance with and did not dispute the pleaded common intention, in that in or around March 2017:

   (i)Stephens and Mr Michael Fry discussed the fact of FTA’s incorporation in the Seychelles;

   (ii)Stephens proposed to amend the Services Agreement to replace FTA with an Australian entity;

   (iii)Mr Fry told Stephens it was unnecessary to amend the Services Agreement; and

   (e)subsequently, Force continued to perform the Services Agreement.

6. On the 28 March 2019 FTA brought an application by way of chamber summons to join Stephens as a second plaintiff to the action, to amend the writ accordingly and to further amend the statement of claim.  Stephens consents to the application.

7. Given that FTA sought rectification of a contract to which Stephens is a party it seemed appropriate that he should be joined to the action so that he can be bound by the result.  Force does not oppose Stephen's joinder and in my view and save for what follows it would be appropriate he be joined as a second plaintiff.

8. However, curiously, the proposed amendments to the writ and the statement of claim whilst now seeking an order for rectification as the relief sought by Stephens, also seeks to delete rectification as the relief sought by FTA.  In my opinion that is nonsensical and I would not grant leave to amend the writ and statement of claim in those terms.  If FTA no longer seeks rectification of the agreement, it is no longer necessary to join Stephens as a second plaintiff.  I also observe that the proposed amended writ now describes the plaintiff as 'Fletcher Tailleur Australia'.

9. Force in the meantime has brought its own application seeking an order for security for costs, to strike out pars 5(aa), 5(ab), 5(ac), 5(c), 5(d) and 5(e) of the amended statement of claim filed 12 March 2019 and an order for the costs thrown away by the amendments such order to expressly include the costs associated with preparing an application for summary judgement which has now been rendered otiose.

The application for security for costs

1. There is no dispute that FTA is a company incorporated overseas in the Seychelles. Force relies on s 1335(1) of the Corporations Act 2001 (Cth) (the Act) in support of its application for security for costs. Section 1335(1) of the Act vests the court with discretion to order security for costs where there is credible testimony to give reason to believe the company will be unable to pay costs.

2. Renae Jade Harg in her affidavit sworn 4 April 2019 annexes what appears to be a certificate issued by the Registrar of International Business Companies which provides no detail as to the paid‑up capital of FTA.  Ms Harg also annexes evidence of a Landgate search that demonstrates no land is registered in the name of FTA.

3. The fact that FTA is a company registered overseas in the Seychelles raises legitimate concerns as to the nature and extent to which Force could recover any costs in the event it was successful in its defence.  This is a relevant consideration in deciding whether or not to order security for costs.  See P S Chellaram & Co v China Ocean Shipping Co (1991) 102 ALR 321.

4. FTA has provided no information about its financial position.

5. Putting aside the question whether or not the evidence found in the affidavit of Renae Jade Harg is sufficient in itself to give reason to believe the company will be unable to pay its costs, other evidence constituted by communications between the parties in which FTA has made an offer in respect of security for costs and Stephens has offered to undertake to the court to pay any cost orders against the plaintiff in my view constitutes credible testimony to give reason to believe the company will be unable to pay its costs.  See FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69 [25].

6. Stephens gives evidence that he has a significant amount of cash held in a bank account, has a significant amount of equity in real estate on which he can draw down, and that he is earning a substantial income.  On that evidence it is clear that he would have sufficient assets available to meet the costs that are estimated by Force to be incurred in defending this claim.

7. In Unified Pty Ltd v The Cancer Council Western Australia Inc [No 3] [2011] WASC 161 Allanson J set out a number of factors relevant to the exercise of discretion. He said at [10] ‑ [16]:

   10The relevant principles are not in dispute: see, for example, FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69; (2000) 22 WAR 241; Swansdale Pty Ltd v Whitcrest Pty Ltd [2010] WASCA 129. Once the court has jurisdiction under s 1335, there is an unlimited discretion which is to be exercised considering all of the circumstances of the case. Essentially, the section requires a balance to be struck between protecting the defendant from the possible consequences of being sued by an impecunious corporation with limited liability and avoiding injustice to the corporation by unnecessarily prejudicing it in the conduct of litigation: see Buckley v Bennell Design & Construction Pty Ltd (1974) 1 ACLR 301.

   11I approach this matter on the basis that there is not an entitlement to security as of right once the defendant has established that the plaintiff will be unable to pay its costs if the defendant is successful; nor is there a predisposition towards an order for security: see the extensive review of the authorities in Re Bryan E Fencott and Associates Pty Ltd v Eretta Pty Ltd [1987] FCA 102; (1987) 16 FCR 497.  In the circumstances of a particular case, however, the fact that the plaintiff is impecunious may be an important factor in determining the application: Spiel v Commodity Brokers Australia Pty Ltd (in liq) (1983) 35 SASR 294, 300; Pearson v Naydler (1977) 1 WLR 899, 906; BPM Pty Ltd v HPM Pty Ltd (1996) 14 ACLC 857, 860; Harpur v Ariadne Australia Ltd (1984) 2 ACLC 356, 361.

   12Further, the court may give weight to the amount of the defendant's loss if the risk materialises: Sent v Jet Corporation of Australia Pty Ltd [1984] FCA 178; (1984) 2 FCR 201, 217.

   13Where those who stand behind the company and would gain from the litigation are financially able to provide adequate security, it is at least a weighty consideration in favour of an order for security: Yandil Holdings Pty Ltd v Insurance Co of North America (1985) 3 ACLC 542, 545; Sent v Jet Corporation (215).  A court is not justified in declining to make an order on the basis that the proceedings will be stultified unless the impecunious plaintiff establishes that those who stand behind it are also unable to provide the requisite security for costs: Bell Wholesale Co Pty Ltd v Gates Export Corporation [1984] FCA 34; (1984) 2 FCR 1, 3; Idoport Pty Ltd v National Australia Bank Limited [2001] NSWSC 744 [66]; Hession v Century 21 South Pacific Ltd (1992) 28 NSWLR 120, 123.

   14Where, however, those who will benefit are without means, an order for security may stultify the litigation.  Where the plaintiff does establish the possibility of stultification, that is a powerful factor to be taken into account in exercising the court's discretion, although it does not automatically lead to refusal of the order: Yandil Holdings Pty Ltd v Insurance Co of North America (545).

   15The effect of the authorities is that a company seeking to resist an order for security on the ground that it will frustrate the litigation must 'raise the issue of the impecuniosity of those whom the litigation will benefit and to prove the necessary facts': Bell Wholesale Co Pty Ltd v Gates Export Corporation.  It is incumbent upon a plaintiff who wishes to resist an application for security to put before the court a full and frank statement of the assets and liabilities of the plaintiff, and also of its shareholders and creditors (if relevant), and, if there are trust assets, of the beneficiaries of the trust: Newtrend Pty Ltd v Oceanic Life Ltd [1990] WAR 1, 3; Tirops Safety Technology Pty Ltd v Lazer Safe Pty Ltd [2005] WASC 164. Without that evidence, no conclusion can properly be reached that the effect of an order for security will be to frustrate the plaintiff's claim. In this sense there is an onus on a plaintiff resisting an order for security: see BPM Pty Ltd v HPM Pty Ltd (862); Bell Wholesale Co Pty Ltd v Gates Export Corporation.

   16Finally, the ability of the defendant to absorb the costs if successful may be a relevant consideration.  The court may have regard to the position of the defendant, and may be 'more sympathetic to an application from a respondent with limited funds than a respondent which is a major corporation': Pioneer Park Pty Ltd (in liq) v Australia and New Zealand Banking Group Ltd [2007] NSWLR 344; (2007) 65 ACSR 383 [56]; Remm Construction (SA) Pty Ltd v Allco Newsteel Pty Ltd (1992) 57 SASR 180, 186.

8. Stephens, as a person standing behind FTA and standing to benefit from the litigation, offers to provide an undertaking to the court to pay any costs for which FTA might become liable and points to the evidence of his financial position referred to at [15] to be able to honour that undertaking.

9. It is submitted on behalf of FTA that Stephens' undertaking to pay Force's costs if Force is successful should be sufficient and weighs against the need to order FTA provide security for costs.  It is submitted also that by the joinder of Stephens as a second plaintiff, Stephens will become jointly liable with FTA for the legal fees incurred by the defendant in the event it successfully defends the action.  Whether that is in fact the case is not clear.  Stephens has been joined to the action so that he can be bound by the verdict.  His only interest is in the question of whether the agreement should be rectified.  He does not claim for any monies owing under the agreement.  Bearing in mind the costs are discretionary and a trial will take place on other issues, apart from the question of whether there was a common mistake in naming the parties to the agreement, in my view it cannot be guaranteed that Stephens will be jointly and severally liable for any costs order that might in the end be made in favour of the defendant.

10. In my view, money paid into court stands as better security than an undertaking.  Things can change in the unpredictable future which might cause the undertaking to become unenforceable or have no financial value.  However, money paid into court for security for costs stays there.  In the circumstances I would order that the action be stayed until FTA makes payment into court by way of security for Force's costs in the event it should be successful in its defence of the action.

11. The draft bill of costs by which Force estimates costs incurred and to be incurred totals $79,955.34.  However, it seems to me the amounts estimated are towards the maximum allowed under the costs scale and in several areas it seems likely that the costs claimed have been duplicated or overlap.  I am also mindful that it is not a requirement that the full amount of the estimated costs should be ordered to be paid into court once it is determined that security for costs should be provided.

12. That being said, and having regard to the various relevant considerations, I give the greatest weight to the following considerations:

    (a) FTA has not provided any evidence of its financial position and an undertaking has been offered by a person standing behind FTA from which I infer FTA has little in the way of its own financial resources with which it could pay any adverse costs order.

    (b)Recovery of any costs awarded in favour of Force from FTA is highly problematic given it is registered or incorporated in the Seychelles.

    (c) Stephens being a person standing behind FTA and who stands to gain from the litigation is able to provide adequate security.

13. Accordingly, I would order FTA to pay the sum of $50,000 into court by way of security for Force’s costs.

The application to strike out

1. Unfortunately the defendant did not state in its chamber summons under which paragraph of the Rules of the Supreme Court 1971 (WA) O 20 r 19(1) the application is made. It is important to know under which of the paragraphs the application is made because if the application to strike out is on the basis the pleading discloses no defence no affidavit material is admissible, whereas affidavit material is admissible where the application is brought on the basis that the pleading may prejudice, embarrass or delay the fair trial of the action, or is otherwise an abuse of the process of the court.

2. Some assistance is obtained from the defendant's submissions.  The application does not seek to strike out the entire pleading or any pleading of material facts, but is focused on particulars at pars 5(aa), 5(ab), 5(ac), 5(c), 5(d) and 5(e) of the material fact pleaded, that material fact being:

   At all material times on and before the date of execution of the Services Agreement, it was a common continuing intention of Force and Stephens that Stephens was to be engaged by Force under the Services Agreement, and an entity of which Stephens was the principal, chosen by Stephens, was to be the 'Contractor' under the Services Agreement.

3. Force challenges the particulars at pars 5(aa), 5(ab), 5(ac), 5(c) 5(d) and 5(e) on the basis that they are embarrassing.  The words 'prejudice embarrass or delay the trial of the action' have been considered by the Supreme Court in Kidd v Mitchell Frederick Artus Trading As Downings Legal [2013] WASC 264 where Allanson J said at [26]:

   The ground that a plea may prejudice, embarrass or delay the fair trial of the action evokes a composite phrase.  Pleadings may be struck out on this ground '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': see HartRoach v Public Trustee (Unreported, WASC, Library No 980044, 11 February 1998).

1. Whether or not the particulars should be struck out requires attention to be given to what purpose is served by the pleadings.  In Barclay Mowlem Construction Ltd v Dampier Port Authority [2006] WASC 281 Martin CJ said at [4]:

   It is, I think, important when approaching an issue of that kind to bring to mind the contemporary purposes of pleadings.  The purposes of pleadings are, I think, well known and include the definition of the issues to be determined in the case and enabling assessment of whether they give rise to an arguable cause of action or defence as the case may be, and apprising the other parties to the proceedings of the case that they have to meet.

2. A little further into his judgement he said at [7]:

   In my view, it follows that provided a pleading fulfils its basic functions of identifying the issues, disclosing an arguable cause of action or defence, as the case may be, and appraising 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 pleadings rules that evolved in and derive from a very different case management environment.

3. It must be held in mind that Force does not seek to strike out the defence on the basis that the material facts and particulars thereof do not give rise to a defence.

4. In my view FTA's case on the pleading of common intention is sufficiently clearly set out to enable Force to appreciate the case that is being brought and to act to defend itself.  FTA pleads the common continuing intention at par 5 and no challenge is made to that pleading per se.  The particulars then attempt to establish a factual basis from which the common intention is to be inferred.  The question of whether those particulars are sufficient to justify the inference that the common continuing intention is as pleaded in par 5 should be determined at trial.  Ironically, Force's submissions that the particulars cannot establish a common continuing intention indicates Force has a clear understanding of the case being presented by FTA and is well placed to defend it.

5. As to par 5(aa) Force complains that the use of the word 'contemplated' cannot establish intention.  In my opinion this misunderstands the particulars.  FTA pleads this fact of 'contemplation' as one of several particulars that it says will establish the factual foundation from which an intention may be inferred.  Arguably, one must contemplate something before one can form an intention about something.

6. Further, if Force's submission is correct Force presumably will be successful at trial.  In my view the particulars do not create any false issues that will delay the fair trial of the matter.  To the contrary, the pleading at par 5(aa) is one of the very issues that lie at the heart of the plaintiffs case being presented for determination.

7. As to par 5(ab) Force complains that no facts are pleaded as to the basis on which it is alleged that Force by its officers ought to have made any enquiry prior to the execution of the agreement as to the identity of the contracting party and why it is alleged, impliedly, that Force ought to have made any enquiry as to the existence or status of the purported contracting entity.  In my view this concern can be addressed by a request for further and better particulars and an application for orders in the event they are not provided.

8. As to par 5(ac) Force complains that it is simply a repetition of what is pleaded at par 5(ab).  That submission is correct and the pleading is unnecessary.  That particular should be struck out although that seems to me to be the type of technical objection that having regard to the comments in Barclay Mowlem Construction Ltd v Dampier Port Authority the court should be reluctant to entertain.

9. As to pars 5(c)(iii) and 5(c)(iv) Force pleads that the particulars are embarrassing because the allegation that Stephens executed the agreement on behalf of the plaintiff is not consistent with the agreement which does not refer to the plaintiff either in the execution clause or at all and that no facts are pleaded which form the foundation for the allegation that the agreement was executed by Stevens in these circumstances.

10. However, at par 4 of the amended statement of claim it is clearly pleaded that the agreement is between FTA and Force.  The whole purpose of this pleading is to have the alleged mistake manifested in the agreement, namely the absence of FTA in the execution clause and elsewhere in the agreement, rectified so as to have Force named as the party to the agreement.  Further, in my view the complaint as to the lack of pleaded facts that underpin this particular can be addressed by a request for further and better particulars.  In my view any lack of particulars do not justify striking out these pleadings.

11. As to par 5(d) Force complains that the particulars do not plead any facts which if proven would establish a common intention.  As observed above, the particulars are one of several particulars which might be considered individually or collectively that are said to establish a factual foundation from which a common intention can be inferred.  On that basis it cannot be said the particulars are embarrassing or should be struck out on the basis they fail to establish common intention.  Whether the inference of common intention can be drawn from that fact considered in isolation or in conjunction with the other particulars is a matter that should be determined at trial.

12. Nevertheless, in my view there is a more fundamental problem with the particular.  The proposition that 'at all material times Force acted in accordance with and did not dispute the pleaded common intention' assumes the very fact that it is intended to prove, namely the common intention.  It is not possible to draw an inference of common intention from an assumed fact of common intention.  In my view this particular should be struck out on the basis it may prejudice, embarrass or delay the fair trial of the action.

13. As to par 5(e) Force complains that no facts are pleaded to demonstrate the alleged performance by Force.  However, when the statement of claim is considered in its totality, as it is required to be, it is alleged that Force made payments in accordance with the contract and appointed Stevens as the chief executive officer of Force in accordance with the contract.  Facts are pleaded in support of the allegation of performance of the contract by Force and to the extent Force considers them insufficient, in my view the remedy is to seek further and better particulars rather than to strike out this particular.

The application for costs thrown away

1. There is little argument that the defendant should obtain a costs order that the plaintiff paid its costs thrown away by the amendment to the statement of claim filed the 12 March 2019.  The defendant also wants those costs fixed and payable now.  The defendant refers to the practice directions issued by the Supreme Court in support of the proposition that costs of an interlocutory application should be fixed.

2. The defendant further submits that the costs thrown away in this case include costs incurred in preparing to bring a summary judgement application based on the state of the pleadings as they originally were when the writ was issued.  The defendant wants it made clear in the order for costs that the costs thrown away include costs incurred in preparation of the summary judgement application.

3. The Supreme Court's practice directions do not apply to the District Court.  That is not to say they're not a relevant consideration.  The sentiments that underpin those practice directions are of universal application.

4. The plaintiff says that the appropriate order is simply the plaintiff pay the costs thrown away by reason of the amendment of the statement of claim.  Whether or not those costs that are thrown away include any costs associated with the preparation of a summary judgement application and if so the nature and extent of those costs is a matter that should be determined at the conclusion of the action by taxing officer. In this regard plaintiff refers to Ashwin v Minara Resources Ltd [No 2] [2010] WASC 330 [8] in which it was held that costs thrown away of those costs that have to be incurred on a second occasion. I agree with the submissions that at this stage of the proceedings it is not possible to determine what costs have been thrown away. Accordingly, I am not prepared to fix costs.

5. In my opinion the standard cost order will cover the costs, if any, incurred and wasted by the defendant in preparing its summary judgement application. 

I certify that the preceding paragraph(s) comprise the reasons for decision of the District Court of Western Australia.

KT
Court Person

9 SEPTEMBER 2019