Lars S.A. v Bone China Pty Limited - [2015] NSWSC 1070

Supreme Court

New South Wales

Medium Neutral Citation: Lars S.A. v Bone China Pty Limited & Ors [2015] NSWSC 1070
Decision date: 29 July 2015
Before: Sackar J
Decision:
See para [42]

Category: Costs
Parties: LARS S.A - plaintiff
Bone China Pty Limited – defendant/cross claimant
LARS S.A. – first cross defendant
Jacques Phillippe Laboureau – second cross defendant
Bertus Jozef Quint – third cross defendant
Representation:
Counsel:
D Maxwell (solicitor) - plaintiff
J Arnott – cross claimant
R Gration – 2nd cross defendant
Solicitors:
Holman Webb - plaintiff
BTF lawyers
Hahm lawyers – 2nd cross defendant

File Number(s): 2012/339587
Publication restriction: N/A

Judgment – Ex Tempore

His Honour

This case has some unusual features associated with it. It has been extensively argued and there has been a substantial amount of evidence read. I have also been given detailed written submissions from both sides. I have also had the benefit of counsel making oral submissions during the course of the day.
In the exercise of my discretion, although this is an unusual step, I do not consider this is a case where security should be ordered and I propose to give my reasons now in some little detail although I will try to be brief about it.
This is an application by the second cross defendant for security for costs. He is the only party to make such an application. The proceedings have been on foot in one form or another since around about 13 October 2012. They have changed in form and in substance since that time and there have been arguments, which I have heard from time to time, concerning the form of the pleadings, the arguability of the case and whether or not Australia is a clearly inappropriate forum.
In broad terms, the principal proceedings are brought by Lars, the plaintiff, and in essence and without being disrespectful, it is merely a claim in debt. There does not appear to be any live issue in those proceedings that the goods were delivered and that the debt is owed by the defendant, Bone China.
The cross claim which is the subject of the present application has been the centre of attention for some little time. That cross claim is in its third further amended form and makes claims against the plaintiff in the principal proceedings, Lars, a Dr Laboureau and a Mr Quint. It is the entire focus of the security of costs application.
Without dealing in any specific detail but in broad terms, it is suggested by Bone China that by reason of the conduct of one or more of the defendants, it suffered damage. The damage is put in a number of ways and if damages are awarded, a question might arise, subject to the quantum, as to whether the plaintiff’s principal claim in debt is entirely overshadowed by the damages awarded on the cross claim or at least there is a potential for the plaintiff’s damages to be reduced.
The case now sought to be agitated is, unlike its predecessors, an entirely representational case. In other words, it is said that various things were said and done by Dr Laboureau and/or Mr Quint, with the requisite authority of Lars. As a result Mr Gerber relevantly on behalf of Bone China caused the company to act to its detriment by ordering goods and undertaking certain activities to its detriment financially, in relation to the possible exploitation of Lars products in China.
Mr Gerber has placed before the court some considerable time ago what is in effect his evidence in chief on the cross claim. His evidence goes through the myriad of oral conversations that allegedly occurred from time to time between himself and the other two persons named and he attaches to that affidavit extensive email communications between himself and various persons purporting to corroborate aspects of the representations which he alleges were made and which caused Bone China to act to its detriment.
The first question is, whether the court has jurisdiction to entertain an application for security, whether the application is made under UCPR 42.21(d) or, alternatively, under s 1335(1) of the Corporations Act. The court needs to be satisfied that there is reason to believe that a plaintiff or a party who is effectively a plaintiff will be unable to pay the costs of the defendant, if ordered to do so in due course. For reasons which follow that apprehension is satisfied here.
Prima facie there is little doubt here that Bone China has no assets of any kind whatsoever. Mr Gerber who steps forward and undertakes effectively to stand behind Bone China, invites the court to accept that he has no assets relevantly of any kind but, nonetheless, he says he is the only person, if anyone exists, who could stand behind the company, or at least offer or undertake to be responsible for any costs that may be incurred.
There is little doubt that again prima facie his current position financially is on one view parlous. He is, on the available evidence unemployed and perhaps unemployable. He has had a number of jobs including acting as a casual driver and working for a charitable organisation in recent times. He does not set out in the evidence whether he has any tertiary qualifications or any skill set but it seems he was an experienced sales and marketing person in the medical or quasi-medical world.
At the moment, as far as Mr Gerber is concerned, he stands before the court as, a failed entrepreneur who is also as it happens to be embroiled in Family Court proceedings. He is understandably very concerned about the proceedings in this court and on behalf of Bone China resists any order for security.
The cross defendant, Dr Laboureau, forcefully argues that on any number of the factors to be taken into account in such an application, Bone China should fail in its resistance to such an order and that Mr Gerber’s evidence as to his financial position is either rejected or treated with significant suspicion. Along with the allegedly corroborative evidence placed before the court by his daughter, for various reasons it is submitted none of that evidence should carry any weight.
I do not propose to deal with these matters at any length but I will say this, that some of the allegations made from the bar table about Mr Gerber and his solicitor daughter may or may not be true but there has been no attempt whatsoever beyond making what are serious and grave allegations and which reflect very much to the discredit of both of those persons, to cross-examine them and hence to test the various assertions about Mr Gerber’s means, and especially his activities in transferring his half interest in an apartment to his daughter.
Browne v Dunn really requires a person to be confronted with matters of this sort, not brutally, not crossly, but candidly and transparently and that has not been done by Dr Laboureau in these proceedings. He is, as Alexander Pope once said, “anxious to wound but afraid to strike”. No attempt has been made to substantiate what on any view as I have said are very serious allegations. The fairest thing to do to those allegations therefore is give them little if any weight.
Beazley J, as she then was, in KP Cable Investments Pty Limited v Meltgrow 56 FCR 189 at 197-198 articulated a number of factors which might be taken into account when a court considers an application such as this. I do not propose to go through them seriatim but I will obviously deal with some because they loom larger than others.
The first factor that I propose, briefly, to deal with is the question of the prospects of success. There are complex factual and legal issues that undoubtedly will arise in this case. Lars, as it is entitled to do, has placed the authority of at least Dr Laboureau in issue and Mr Quint before a particular point in time. Such issues are sometimes difficult to determine but essentially in the end, they will be factual issues which will have to be weighed up.
It is probable that Mr Gerber will not be able to contribute very much to that issue because he will give evidence as to what he was told by either of these people and there will be other factual issues which will need to be taken into account to determine whether each of those persons had actual or ostensible authority, when certain representations were made.
There is a fall back case against Dr Laboureau, of course, and Mr Quint for breach of warranty of authority. If proven, it would be considered a strict liability issue on one view.
However, that said, it is by no means clear to me that Bone China’s cross claim is weak to the point of hopeless, unarguable to the point of capable of being struck out and, indeed, in fairness there has been no application to strike it out on a General Steel or other basis.
I note in passing that Mr Gerber is the only person so far to put his cards on the table. Dr Laboureau and Mr Quint have not and others, perhaps, associated with Lars have not yet put their evidence on although the filing of such material is imminent. It awaits the outcome of the trial to see whose version is to be believed or accepted or not as the case may be.
However, having determined the question of authority, there will be issues of causation and ultimately the potential for the quantification of losses, whether it be in the nature of quantum meruit or a lost opportunity. I need not make any comment about that at the moment but at least on the basis of the question of whether there are prospects of success, there clearly are prospects of success and on the basis of what I currently see. This is not a mere case where oral representations are uncorroborated. There appears to be an abundance of contemporaneous emails passing between various people which may tend to support Bone China.
On the other hand I have been taken to one document in argument on the question of Mr Quint and Dr Laboureau‘s authority, by Dr Laboureau’s counsel. It may be of assistance to Dr Laboureau. That said there are many documents that follow that particular circular from Lars and which will bear upon the issue of authority and which will need to be looked at in context.
The next issue that I propose to deal with briefly is impecuniosity and whether or not the impecuniosity can in any sense be attributable to Dr Laboureau’s conduct. As I have said before, Bone China is on any view impecunious. It has no assets and nor does Mr Gerber. He offers however to stand behind it for what it is worth.
It may well be that Bone China’s failure in the Chinese market or in its marketing campaign is solely its own fault. It may be that it had a flawed marketing strategy. It may be that it could not achieve things which it thought it could in order to exploit LARS product in China and it may also be the fact that Bone China did not rely at all, on any of the representations which were allegedly made. However it does seem to me that in the absence of any evidence to the contrary, the evidence at the moment points rather strongly in favour of the impecuniosity of the company and its commercial failure being caused by the failure on the part of Lars and/or Dr Laboureau to make good their promise or their assurance of exclusivity or some degree of exclusivity being given to Bone china to exploit the Chinese market.
As I have said it may be in the end that not all of the losses that are claimed can be seen to be caused by that conduct but at the moment it does seem to me that there is no other cause on the in evidence that I can currently assess as even remotely relevant to the alleged losses other than the representations said to have been allegedly made and allegedly acted upon.
To that extent, I consider on the current evidence, the better view is that Bone China’s failure or lack of success seems to me to be causatively connected to one factor only and that is the failure on the part of Lars or Dr Laboureau to live up to the promises.
I should say in passing on the question of alleged impecuniosity as I have already commented there has been significant criticism levelled at Mr Gerber and his daughter about their conduct and about the materials that they have put forward, to prove his financial incapacity. As examples, the explanations proffered in relation to the transfer of Mr Gerber’s interest in the apartment he jointly owned with his daughter, a rental agreement and his level of expenditure have been criticised. His motivation has been questioned. I will say, that there are some aspects of the case which cause me some concern. To some degree, I share some of the scepticism or cynicism that Mr Gration put to the court during the course of his argument about that evidence but that said and without repeating myself, if a party is going to put that kind of submission and expect a court to take it seriously, the relevant witnesses have as a matter of fairness to be cross examined. Given the gravity of the allegations but especially by reason the failure to cross examine I am not prepared as a matter of fairness to make any adverse findings against Mr Gerber or his daughter. After all they do provide explanations which point to entirely legitimate motivations. Those explanations could have been tested.
In fairness, some judges in interlocutory applications may not permit cross examination. However, I should say for the record that had I been asked to provide a means by which either Mr Gerber or his daughter be available for cross examination, I would not have stood in his way if Mr Gration had he sought to take that course. But no application was made.
The next question I will deal with very briefly is whether or not an order for security would have the effect of stifling the proceedings. Basten JA in the decision referred to in Mr Gration’s outline of submissions of Pioneer Park Pty Limited (In Liq) v Australia and New Zealand Banking Group remarked whether or not the ordering of security for costs would stifle proceedings, will not be made out merely by reference to the company’s impecuniosity. Here however I consider there are several factors that converge.
The first one is, as I have already said I consider on the current state of the evidence, the impecuniosity of Bone China can be sheeted home to Dr Laboureau or to Lars over and above any other cause that may or may not exist or be shown to exist. For that reason alone there is an issue about whether security in any event should be ordered.
It does seem to me, however, that whatever view one takes of Mr Gerber’s behaviour and in particular the transfer for one dollar of the balance of his interest in the Kirribilli unit to his daughter he can provide no real financial support for Bone China. Even assuming that he had not transferred his share and assuming that he had some equity in that unit to be drawn upon for the purposes of assisting Bone China to meet an order for security and assuming he had not expended monies as to the evidence suggests at Bunnings or Jetstar or cashed in his superannuation and further assuming I ordered something between $100,000 and $150,000 for example by way of security, I would not find it too difficult to accept that he would still not be able to procure a bank guarantee or something equivalent in order to facilitate Bone China in providing security. However on the state of current evidence he simply cannot provide any financial support.
Some of the criticisms made of Mr Gerber by Dr Laboureau had a distinct air of unreality about them. They proceeded upon the assumption seemingly that people do or should live on thin air. It also assumes they do not eat and it assumes they are not entitled to have indulgences from time to time which may include paying for a piano lesson for his young daughter. Not only is there an air of unreality about that submission but it rather beggars belief of how a person in Mr Gerber’s position could on the state of the evidence assist Bone China to provide security.
I am not suggesting at the moment that it would be theoretically impossible but it would seem to me that a person who is unemployed and who may well be unemployable and whose Company’s business has failed, on one view of the evidence solely or substantially because of the conduct of Lars or Dr Laboureau, could without considerable difficulty facilitate Bone China to provide the requisite security. It seems to me as a matter of common sense that if security were ordered in this case, it would have the obvious consequence of stopping the litigation in its tracks. Even if Mr Gerber had not transferred the unit and even if some equity could have been accessed for the purposes of such an order, it would seem to me that an order for security in this case of the kind which would otherwise be appropriate, as I have said, would have been unobtainable. But that is not the case in any event on the evidence as it stands.
On the available evidence Mr Gerber does not have, apart from a daughter who is presently able to help him meet legal fees, any assets or any income. He has an unquantified and unquantifiable Family Court commitment. In that context he has ongoing maintenance of a young daughter, and at least I think I can infer, and he is entitled to live from week to week. The evidence is that he receives a modest amount and to order any security even for a token amount against Bone China would in my view stifle the proceedings.
I am satisfied on the evidence that the test as articulated by Basten JA is well and truly satisfied.
The current state of the proceedings is a matter that I think is relevant. Counsel for Bone China has informed me from the bar table today that all of the evidence in chief on its cross claim is on. Dr Laboureau’s evidence is imminent. I am not immediately familiar with the timetable concerning Mr Quint or Lars but I have no doubt that that evidence either is going to be filed or will be filed in the near future.
I should note that the parties have today, at my invitation, during argument discussed the possibility of separating liability from quantum. I do not think that is really an issue that I can take into account on the current application.
The other point I should note, as it is relevant to the likely costs of the proceedings is that no specific defence is put forward such as to give rise to some foreign law issue arising and which would require the filing of expert evidence. That was on my mind at the beginning of this application because given the rather diverse and exotic locations where some of the representations are said to have occurred, I anticipated that expert evidence may well be deployed but that does not seem to be so.
Mr Gration in fairness has not ruled that prospect out but there is nothing in the current defence that would suggest such evidence would be needed.
The other factor that was discussed and that does bear on costs, is that Mr Arnott, counsel for Bone China, has indicated that there would be no opposition to video link evidence from as I understand it any witness called by Dr Laboureau. It may be that LARS and Dr Laboureau, consider that is not the most desirable course to adopt, but I have been told there would be no opposition to such a course from Bone China's point of view.
For the reasons expressed and in the exercise of my discretion, I do not consider this is an appropriate case in which to order security.

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Decision last updated: 04 August 2015

Medium Neutral Citation:	Lars S.A. v Bone China Pty Limited & Ors [2015] NSWSC 1070
Decision date:	29 July 2015
Before:	Sackar J
Decision:	See para [42]
Category:	Costs
Parties:	LARS S.A - plaintiff Bone China Pty Limited – defendant/cross claimant LARS S.A. – first cross defendant Jacques Phillippe Laboureau – second cross defendant Bertus Jozef Quint – third cross defendant
Representation:	Counsel: D Maxwell (solicitor) - plaintiff J Arnott – cross claimant R Gration – 2nd cross defendant Solicitors: Holman Webb - plaintiff BTF lawyers Hahm lawyers – 2nd cross defendant
File Number(s):	2012/339587
Publication restriction:	N/A