Lima Orthopaedics Australia Pty Ltd v Proactive Ortho Pty Ltd
[2021] NSWSC 1014
•12 August 2021
Supreme Court
New South Wales
Medium Neutral Citation: Lima Orthopaedics Australia Pty Ltd v Proactive Ortho Pty Ltd [2021] NSWSC 1014 Hearing dates: 6 August 2021 Decision date: 12 August 2021 Jurisdiction: Equity - Commercial List Before: Stevenson J Decision: Order to be made for security for costs of cross-claim
Catchwords: COSTS – security for costs – application by cross-defendant for security for the costs of the cross-claim – common ground that cross-claimant will be unable to pay costs if unsuccessful – whether cross-claim in substance defensive – where delay in bringing application
Legislation Cited: Competition and Consumer Act 2010 (Cth)
Cases Cited: Bevwizz Group Pty Ltd v Transport Solutions Pty Ltd [2008] NSWSC 1399
Category: Procedural rulings Parties: Lima Orthopaedics Australia Pty Ltd (Plaintiff/Cross-Defendant/Applicant)
Proactive Ortho Pty Ltd (Defendant/Cross-Claimant/Respondent)Representation: Counsel:
Solicitors:
D Farinha (Plaintiff/Cross-Defendant/Applicant)
S Philips (Defendant/Cross-Claimant/Respondent)
Hogan Lovells (Plaintiff/Cross-Defendant/Applicant)
Betar Lawyers (Defendant/Cross-Claimant/Respondent)
File Number(s): 2020/317630
Judgment
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By Notice of Motion filed on 6 July 2021, the plaintiff/cross-defendant, Lima Orthopaedics Australia Pty Ltd seeks security for the costs of the Cross-claim brought against it by the defendant/cross-claimant, Proactive Ortho Pty Ltd, in the sum of $372,539.91.
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There is no dispute that there is reason to believe that Proactive will be unable to meet a costs order, were it to be unsuccessful on its Cross-claim and that, accordingly, the Court’s jurisdiction to make an order for security for costs is enlivened.
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The question is whether, as a matter of discretion, I should decline to make such an order.
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Lima is engaged in the business of selling and distributing devices, instruments and related products for the treatment of musculoskeletal disorders.
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Proactive is in the business of promoting and marketing medical products in Sydney, Campbelltown, Bowral and to identified surgeons in Goulburn.
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By an Agency Agreement dated 20 September 2017, Lima engaged Proactive as its agent to sell its products in that territory.
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It was a term of that agreement that Lima could terminate the agreement if Proactive committed a breach of any “Special Condition” of the agreement, including a condition that Proactive achieve specified minimum sales during certain periods.
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On 1 October 2020, Lima purported to terminate the agreement on the basis of Proactive’s alleged breach of the condition requiring it to achieve sales at a nominated level for “End of Year 3”. Proactive accepts that it did not achieve the requisite levels of sales for “Year 3” but contends that overall, for years one to three, it achieved the requisite number of sales. Proactive alleges for that reason, and by reason of an alleged implied term of the agreement that Lima act in good faith and cooperate, there has been no breach of the agreement.
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Lima commenced these proceedings on 6 November 2020 seeking a declaration that it had validly terminated the agreement, an injunction that Proactive be restrained from purporting to hold itself as Lima’s agent and orders for delivery up of various records.
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Proactive filed a Response on 27 November 2020 and then an Amended Response, Cross-Summons and Cross-Claim List Statement on 7 December 2020.
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Proactive’s pleadings have evolved since then, including, recently, by adding a claim under s 21 of the Australian Consumer Law [1] alleging that Lima has engaged in unconscionable conduct.
1. Competition and Consumer Act 2010 (Cth), Sch 2 – Australian Consumer Law.
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The parties have exchanged evidence. Orders have been made for the exchange of categories of documents for disclosure and, according to Proactive, the matter is very nearly ready for allocation of a hearing date.
Is the Cross-Summons defensive?
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The primary basis on which Proactive resists an order for security for costs is its contention that Lima is, in substance, the “attacking party” in these proceedings and that Proactive’s Cross-Summons is, in substance, defensive in nature. [2]
2. For example, Bevwizz Group Pty Ltd v Transport Solutions Pty Ltd [2008] NSWSC 1399 at [18]-[19] (Brereton J, as his Honour then was).
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In my opinion, both Lima and Proactive can be seen as the “attacking party” in these proceedings and that the distinct claim that Proactive makes in its Cross-Summons, albeit by repeating allegations made in its Commercial List Response, shows that the Cross-Summons is not merely defensive in nature.
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By its Summons and List Statement, Lima alleges that:
it was entitled to and did terminate the agreement by reason of Proactive’s admitted failure to achieve the requisite level of sales in Year 3;
Proactive’s appointment as agent was thereby terminated;
Proactive nonetheless purported to act as Lima’s agent; and
Lima is entitled to the declaration and orders that I have set out.
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By its Commercial List Response, Proactive:
denies, on various bases, Lima’s entitlement to terminate the agreement; and
separately alleges a breach by Lima of the agreement, including of the implied term to act in good faith and to cooperate.
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In its Cross-Claim List Statement, Proactive repeats the latter allegations and alleges it has suffered damage as a result of Lima’s alleged breaches of the agreement.
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Thus, although the claims made by both Lima and Proactive arise out of the agreement, they are different in nature. Both parties can be seen as being the “attacker” in relation to the claims that they bring.
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Although Proactive has for the most part repeated, in its Cross-Claim List Statement, the allegations it makes in its Commercial List Response, as far as concerns the alleged breach of the agreement by Lima, it does not do so in a merely defensive manner, but rather, as the foundation for the damages claim it makes in the Cross-Claim. Further, in its Cross-Claim List Statement Proactive now makes the allegation of unconscionable conduct in contravention of s 21 of the Australian Consumer Law.
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For these reasons, I am not persuaded that this factor is a reason not to order security.
Delay
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Lima’s application is brought late, some nine months after Proactive’s Cross-Claim was filed.
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I do not, however, find that reason to decline to order security, but rather, see it as a reason why security should only be ordered for Lima’s future costs.
Stultification, whether Lima’s conduct contributed to Proactive’s impecuniosity
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In his written submissions, Mr Philips, who appeared for Proactive, submitted that security should be declined upon the basis that an order for security would stifle the proceedings and on the separate basis that Proactive’s impecuniosity has been caused by the conduct of which it claims in the Cross-Summons.
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Mr Phillips did not develop either of these submissions orally.
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Each depends upon very general evidence given on information and belief by Proactive’s solicitor.
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That evidence is, in effect, untestable and not in a form that persuades me that I should take it into account when exercising my discretion on this Motion.
Quantum
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Lima’s solicitor, Ms Jacobson, has estimated that Lima’s future costs of the proceedings will be in the order of $200,000.00.
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That estimate assumes, among other things, a trial lasting 10 days.
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It is unlikely that the hearing of this matter will last that long. In my opinion, a five day hearing is more likely.
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To arrive at the amount of security sought, Ms Jacobson has applied a 30% discount to the actual costs that she estimates Lima will achieve.
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Applying a like discount and adopting the broad-brush approach called for on an application such as this, I fix the amount of security to be provided by Proactive at $125,000.00.
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The parties should confer and agree on the orders necessary to give effect to these reasons.
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Endnotes
Decision last updated: 12 August 2021
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