Inchgower Co Pty Limited and 2 Ors v NAB

[2003] NSWSC 390

CITATION:

Inchgower Co Pty Limited & 2 Ors v NAB [2003] NSWSC 390

HEARING DATE(S):

2 May 2003

JUDGMENT DATE:

13 May 2003

JURISDICTION:

Common Law

JUDGMENT OF:

Master Harrison

DECISION:

(1) The plaintiff has leave to file a FASC. Such FASC is to be filed within 14 days; (2) Paragraphs 1 and 2 of the defendant's notice of motion are dismissed; (3) The first plaintiff is to provide security for costs in the sum of $10,000. Such security is to be provided within 28 days otherwise the proceedings are stayed until such security is provided; (4) Each party is to pay its own costs.

CATCHWORDS:

Summary judgment - Secutiry for costs

LEGISLATION CITED:

Companies Act 1948 (UK) - s 447
Corporation Act - s 1335
Supreme Court Rules - Pt 13 r 5; Pt 15 r 26; Part 53(2)(e)

CASES CITED:

Agar v Hyde (2000) 201 CLR 552; [2000] HCA 41
Air Services Australia v Zarb (NSWCA unreported, 26 August 1998)
Bell Wholesale v Gates Export (1984) 2 FCR 1
BPM Pty Ltd v HPM Pty Ltd (1996) 131 FLR 347
Causley & Anor v Countryside (No 3) Pty Ltd & Ors NSWCA unreported 2 September 1996
Dey v Victorian Railways Commissioners (1949) 78 CLR 62
General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125
John Bishop (Caterers) Ltd & Anor v National Union Bank Ltd & Ors [1973] 1 All ER 707
Pearson & Anor v Naydler & Ors 1997 1 WLR 899
Ravi Nominees Pty Ltd v Philips Fox (1992) 10 ACLC 1313
Webster & Anor v Lampard (1993) 177 CLR 598

PARTIES :

Inchgower Co Pty Limited
(First Plaintiff)

Bruce Harvey Adams
(Second Plaintiff)

Winifred Margaret Adams
(Third Plaintiff)

National Australia Bank
(Defendant)

FILE NUMBER(S):

SC 20215/2002

COUNSEL:

Ms N Obrart
(Plaintiffs)

Mr SMP Reeves
(Defendant)

SOLICITORS:

Jackson Smith
(Plaintiffs)

Dibbs Barker Gosling
(Defendants)

- 8 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

MASTER HARRISON

TUESDAY, 13 MAY 2003

20215/2002 - INCHGOWER CO PTY LIMITED & 2 ORS v
NATIONAL AUSTRALIA BANK

JUDGMENT (Summary judgment; security for costs)

1 MASTER: By amended notice of motion filed 26 November 2002, the defendant seeks, firstly, that the proceedings be dismissed pursuant to Part 13 r 5 of the Supreme Court Rules (SCR); secondly, in the alternative, that the whole of the statement of claim be struck out pursuant to Part 15 r 26 of the SCR; thirdly, further or in the alternative, that the proceedings be stayed pending provision by the first plaintiff to the defendant of a bank guarantee in the sum of $50,000; fourthly, further or in the alternative, that pursuant to Part 53 r 2 of the SCR, the first plaintiff, within 14 days of the date of this order, give such security as the Court thinks fit for the costs of the defendant of and incidental to these proceeds; fifthly, that, further or in the alternative, pursuant to s 1335 of the Corporations Act, the first plaintiff, within 14 days of the date of this order, give such security as the Court thinks fit for the costs of the defendant of and incidental to these proceedings; sixthly, that the proceedings be stayed until such security is provided; seventhly, that the defendant have leave to apply on seven days notice for an increase in the amount of such security; and eighthly, that the order made by deputy registrar Younes on 6 November 2002, that the defendant file its defence and DCM documents by 15 November 2002, be set aside pursuant to Part 40 r 9(3)(b) of the SCR. The plaintiff relied on the affidavit of Bruce Adams sworn 23 April 2003. Paragraphs 3 to 8 are not pressed today and are stood over to a date to be fixed. The defendant relied on the affidavits of Justin Lian Sintang sworn 15 November 2002, Bronwyn Sharon Smith sworn 26 November 2002 and Fiona Thomson sworn 26 November 2002. The first plaintiff in Inchgower Co Pty Limited. The second plaintiff is Bruce Harvey Adams. The third plaintiff is Winifred Margaret Adams. The second and third plaintiffs were directors of the first plaintiff. The first plaintiff is the trustee of Bruce and Margaret Adams Family Trust. The defendant is the National Australia Bank.

2 The plaintiffs have filed a notice of motion seeking to file a further amended statement of claim. For the purposes of a strike out application, I should take the plaintiffs’ case at its highest so I shall consider the plaintiffs’ case as raised in the further amended statement of claim (FASC). The plaintiffs’ counsel submitted that the defendant had been permissive towards the plaintiffs and that the case pleaded ignores the reality.

The law in relation to summary judgment

3 Part 15 r 26 provides:

“(1) Where a pleading -
(a) discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading;
(b) has a tendency to cause prejudice, embarrassment or delay in the proceedings; or
(c) is otherwise an abuse of the process of the Court,
the Court may at any stage of the proceedings, on terms, order that the whole or any part of the pleading be struck out.
(2) The Court may receive evidence on the hearing of an application for an order under subrule (1).”

4 Part 13 r 5 says:

“(1) Where in any proceedings it appears to the Court that in relation to the proceedings generally or in relation to any claim for relief in the proceedings-
(a) no reasonable cause of action is disclosed;
(b) the proceedings are frivolous or vexatious;
or
(c) the proceedings are an abuse of the process of the Court,
the Court may order that the proceedings be stayed or dismissed generally or in relation to any claim for relief in the proceedings.”

5 In Agar v Hyde (2000) 201 CLR 552; [2000] HCA 41 the High Court held at 57 that:

“Ordinarily a party is not to be denied the opportunity to place his or her case before the court in the ordinary way, and after taking advantage of the usual interlocutory processes. The test to be applied has been expressed in various ways, but all of the verbal formulae which have been used are intended to describe a high degree of certainty about the ultimate outcome of the proceeding if it were allowed to go to trial in the ordinary way.”

6 According to their Honours, this is because:

“It would be wrong to deny a plaintiff resort to the ordinary processes of a court on the basis of a prediction made at the outset of a proceeding if that prediction is to be made simply on a preponderance of probabilities” (at 58).

7 Similarly, in Air Services Australia v Zarb (NSWCA unreported, 26 August 1998) Rolfe AJA at 13 found it useful to remind himself of the highly demanding test imposed on a party seeking summary judgment. His Honour referred to Dey v Victorian Railways Commissioners (1949) 78 CLR 62; General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 and Webster & Anor v Lampard (1993) 177 CLR 598. I have reproduced some of the passages quoted in Zarb.

8 In General Steel Barwick CJ, who heard the application alone, stated at 130:

“Although I can agree with Latham CJ in the same case when he said that the defendant should be saved from the vexation of the continuance of useless and futile proceedings, in my opinion great care must be exercised to ensure that under the guise of achieving expeditious finality a plaintiff is not improperly deprived of his opportunity for the trial of his case by the appointed tribunal. On the other hand I do not think that the exercise of the jurisdiction should be reserved for those cases where argument is unnecessary to evoke the futility of the plaintiff’s claim. Argument, perhaps even of an extensive kind, may be necessary to demonstrate that the case of the plaintiff is so clearly untenable that it cannot possibly succeed.”

9 Barwick CJ also said at 129:

“It is sufficient for me to say that these cases uniformly adhere to the view that the plaintiff ought not to be denied access to the customary tribunal which deals with actions of the kind he brings, unless his lack of cause of action - if that be the ground on which the Court is invited, as in this case, to exercise its powers of summary dismissal - is clearly demonstrated. The test to be applied has been variously expressed; ‘so obviously untenable that it cannot possibly succeed’; ‘manifestly groundless’; ‘so manifestly faulty that it does not admit of argument’; ‘discloses a case which the Court is satisfied cannot succeed’; ‘under no possibility can there be a good cause of action’; ‘be manifest that to allow them’ (the pleadings) ‘to stand would involve useless expense’.”

10 In Webster Mason CJ, Deane and Dawson JJ reinforced the rigorous testing stating, at 602:

“The power to order summary judgment must be exercised with ‘exceptional caution’ and ‘should never be exercised unless it is clear that there is no real question to be tried.”’

11 According to Rolfe AJA in Zarb at 15-16:

“The demanding nature of the test is in no way lessened in circumstances where there are the potential for difficult factual and legal issues to arise. Rather, as the decision in Webster made clear, it is heightened: see also Wickstead & Ors v Browne (1992) 30 NSWLR 1 and Esanda Finance Corporation Limited v Peat Marwick Hungerfords (1997) 188 CLR 241.”

The agreement

12 It is common ground that on 19 March 1999 the defendant approved in writing a Farm Management Account facility in the sum of $420,000 which was due to expire on 20 February 2000 (“the Approved Farm Management Account”). It was pleaded that the terms of the Farm Management Agreement included:

“7(a) that the advance was the maximum of the Bank’s assistance, with no further increases permitted;
(b) that the full proceeds from the sale of land (“Pine View”) and house block were to be utilised for that debt reduction of the Farm Management Account (“the Farm Management Account”); and
(c) on review in February 2000, and in line with cash flow budget, the Farm Management Account limit was to be reduced to $50,000.
(“the initial terms”).

13 The plaintiffs pleaded that in consideration for the Farm Management Account, the first, second and third plaintiffs executed a guarantee and indemnity. The first plaintiff executed mortgages over the properties known as Pine View and Yarrangong North and executed a registered mortgage debenture over its assets. After this facility was given, the plaintiffs pleaded that the bank made three representations.

The alleged representations

14 These representations are the lynchpin of the plaintiffs’ pleaded causes of action.

15 On 5 December 1999, the terms of the Farm Management Agreement were varied to the effect that the initial terms described at 7(a) and 7(b) were no longer terms of the Farm Management Agreement (“the first variation”). Hence it is important to appreciate that the initial terms 7(a) and 7(b) no longer existed.

16 On 31 December 1999, the Farm Management Agreement, in particular, the term that, on review in February 2000, and in line with cash flow budget, the Farm Management Account limit was to be reduced to $50,000, was varied to the effect that the debt level for the Farm Management Account was to be reduced to $50,000 by 30 May 2000 (“the second variation”).

17 On 18 April 2000, the defendant put the plaintiffs on notice that: the first plaintiff was currently in default under the initial terms as it had not reduced the Farm Management account to $50,000; the defendant was not prepared to advance any further funds; that if the first plaintiff did not immediately pay out its debt under the Farm Management Account, the defendant could immediately enforce its securities and take possession of the plaintiffs’ secured properties, and sell them; and if the first plaintiff did not sell all property by 30 September 2000 the defendant would take possession of all the properties and sell them itself (“the demand”).

18 It is alleged that the demand was in breach of the Farm Management Agreement as amended by the flexible terms. In compliance with the demand, the first plaintiff sold the house block of Pine View in August 2000 and sold Yarrangong North and the balance of Pine View in October 2000. These sales are alleged to have been at under value as there was not enough time to properly market these country properties. On the plaintiffs’ own evidence, one previous auction in October 1999 was held but the property failed to sell (tab 20). However, it is the plaintiffs’ case that had they been aware that they were obliged to sell Pine View by April 2000 they would have marketed it earlier so as to obtain a more favourable price.

19 It is alleged that the defendant breached a contract which caused the plaintiffs to suffer loss and damage. The plaintiffs plead further causes of action, including breach of the Trade Practices Act 1974, economic duress and unconscionable conduct, estoppel and breach of duty to act in good faith.

20 The defendant’s counsel strongly submitted that none of these representations detracted from the obligation of the first plaintiff to repay the moneys due by 30 May 2000. But it was on 2 April 2000 that the defendant issued a notice of default when it had already agreed to extend the time for the plaintiffs to reduce the debt level to $50,000 until 30 May 2000. Where oral representations and/or unconscionable conduct is pleaded, summary judgment is not normally an available remedy. This is because the success or failure of such action relies upon the content of oral conversations and the course of conduct between the parties. These factual issues can only be properly determined at trial. It is the oral evidence given at trial that will establish the factual matrix, such as whether one representation was to be construed as the principal representation. This case is no different. While the plaintiffs’ case may be weak, I cannot, at this stage, say that is hopeless. Leave is granted to the plaintiffs to file a further amended statement of claim within 14 days. I decline to make the orders sought in paragraphs 1 and 2 of the amended notice of motion filed 26 November 2002.

Security for costs

21 The defendant has sought security for costs. The first plaintiff is a company. As previously stated, the first plaintiff is a trustee of the Bruce and Margaret Adams family trust. The second and third plaintiffs are beneficiaries of the trust as are some other family members. The second and third plaintiffs are natural persons who do not ordinarily attract an order for costs. The fundamental purpose of the power to order security is to secure justice between the parties.

22 The plaintiff referred to BPM Pty Ltd v HPM Pty Ltd (1996) 131 FLR 347. The defendant’s counsel referred to a number of authorities namely Bell Wholesale v Gates Export (1984) 2 FCR 1, Star v NAB [1999] NSWSC 353, Ravi Nominees Pty Ltd v Philips Fox (1992) 10 ACLC 1313, Pearson & Anor v Naydler & Ors 1997 1 WLR 899, Causley & Anor v Countryside (No 3) Pty Ltd & Ors NSWCA unreported 2 September 1996 and John Bishop (Caterers) Ltd & Anor v National Union Bank Ltd & Ors [1973] 1 All ER 707.

23 There is a wide discretion to make an order for security for costs. The rationale for the principle is that poverty is no bar to a litigant. Where, in any proceedings, it appears to the Court on the application of a defendant, that there is reason to believe that a plaintiff being a body corporate will be unable to pay the costs of the defendant, if ordered to do so, the Court may order the plaintiff to give such security as the Court thinks fit for the costs of the defendant of, and incidental to, the proceedings and that the proceedings be stayed until security is given – Part 53(2)(e) SCR. Section 1335 of the Corporations Act contains a similar provision.

24 The plaintiffs submitted that it was the defendant’s conduct that caused the first plaintiff to sell Pine View and thus the plaintiffs would be shut out of proceedings by virtue of the defendant’s actions. Unlike BPM Pty Ltd, the plaintiffs have pleaded that the bank’s actions caused it to sell Pine View at undervalue. Pine View was the major asset of the trust. As I have previously mentioned, I regard the plaintiffs’ case as not being a strong one.

25 The defendant alleges that the first plaintiff is insolvent. The plaintiffs have not put on any evidence as to their true financial position. The last accounts were filed in 1999. The company had capital of $4.00 and its primary asset was the property at Pine View. The first plaintiff last filed accounts in 1999. The proceeds from the sale of Pine View were paid to the bank.

26 The defendant’s solicitor estimates its costs up to and including this application at $11,750. Mr Kang, the defendant’s solicitor, anticipates the cost of work to be performed prior to trial at $35,630 and the disbursements at $29,000. The defendant’s solicitor stated that this is a conservative estimate. If this motion was not brought, then to date, the costs incurred would have been a great deal less considering that the defendant has not filed a defence as yet. I accept that the defendant has brought this application without delay.

27 In John Bishop (Caterers) Ltd, Plowman J ordered a plaintiff company to give security for costs despite the fact that an individual was a co - plaintiff with the company. In that case, the judge considered that the overlap of the claim was small so, if the claim failed, the individual plaintiff might therefore not be ordered to pay the costs incurred by the defendants in meeting the claim of the plaintiff company. Plowman J commented that s 447 of the Companies Act 1948 (UK) (similar to 1335 of the Corporations Act) provided some protection for the community against litigious abuses by artificial persons manipulated by natural persons but one should be as slow to whittle away this protection as one should be to whittle away a natural person’s right to litigate despite poverty. According to Plowman J, it is inherent in the whole concept of the section that the Court is to have power to order the company to do what it is likely to find difficulty in doing, namely, to provide security for the costs which ex hypothesi it is likely to be unable to pay. At the same time, the Court must not allow the section to be used as an instrument of oppression, as by shutting out a small company from making a genuine claim against a large company. His Honour ordered that the company provide security for costs.

28 Taking all of these factors into account, I have come to the view that in order to do justice between the parties, the defendant should be entitled to security for costs. I assess that the sum of $10,000 should be paid by way of security for costs up to the date of trial in accordance with Part 53 r 2(3). It may be when a hearing date is allocated a further order for security for costs may be appropriate. I do not have a view on this issue. Such security is to be provided within 28 days, otherwise the proceedings are stayed until such security is provided.

29 Costs are discretionary. The appropriate order for costs is that each party pay its own costs.

30 The orders I make are:

(1) The plaintiff has leave to file a FASC. Such FASC is to be filed within 14 days.

(2) Paragraphs 1 and 2 of the defendant’s notice of motion are dismissed.

(3) The first plaintiff is to provide security for costs in the sum of $10,000. Such security is to be provided within 28 days otherwise the proceedings are stayed until such security is provided.

(4) Each party is to pay its own costs.
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Last Modified: 05/15/2003