Modakboard Australia Pty Ltd v Matthew Howard Brady

[2018] NSWSC 399

Supreme Court

New South Wales

Medium Neutral Citation:	Modakboard Australia Pty Ltd v Matthew Howard Brady [2018] NSWSC 399
Hearing dates:	6 March 2018
Date of orders:	04 April 2018
Decision date:	04 April 2018
Jurisdiction:	Equity
Before:	Ward CJ in Eq
Decision:	(1) Refuse leave for the filing of the proposed further amended cross-claim in the form annexed to the affidavit of Matthew Howard Brady sworn 5 March 2018 and dismiss with costs the defendants/cross-claimants’ amended notice of motion filed 17 January 2018. (2) Give leave for the second cross-claimant (Crewmark Pty Ltd) to serve any further proposed further amended cross-claim (addressing the deficiencies identified in these reasons) on the first cross-defendant (Modakboard Australia Pty Ltd) and the proposed second and third cross-defendants (Ms Cohen and Mr Jones) within 21 days of compliance with order [4] below, such further proposed further amended cross-claim against the proposed second and third cross-defendants to be limited to the second cross-claimant’s cross-claims against them in relation to alleged misleading or deceptive, or unconscionable, conduct (or accessorial liability therefor) but not to include any claim for negligent misstatement. For the avoidance of doubt, I refuse leave for the first cross-claimant (Mr Brady) to serve any further proposed further amended cross-claim. (3) If there is objection to the filing of any such further proposed further amended cross-claim on the basis that it does not adequately address the pleading deficiencies identified in these reasons or otherwise, give liberty to the parties to relist the matter before me on 3 days’ notice to determine whether leave should be granted to file that further proposed further amended cross-claim. (4) Pursuant to rule 42.21(1) of the Uniform Civil Procedure Rules 2005 (NSW) and s 1335(1) of the Corporations Act 2001 (Cth), order that the second cross-claimant (Crewmark Pty Ltd) provide security within 28 days for the second cross-defendant’s (Ms Cohen’s) costs of and incidental to the cross-claim from the date of service of any pleading in accordance with order 2 above up to but not including the final hearing of this matter, in the amount of $50,000 (that being calculated at 80% of $60,940 – namely $42,658.00 – rounded up to $50,000), such security to be provided by way of an unconditional bank guarantee in a form acceptable to the proposed second cross-defendant (Ms Cohen). (5) In the event that the security ordered in order 4 above is not provided within the time specified, order that the proceedings on the cross-claim against the proposed second cross-defendant (Ms Cohen) be stayed until further order. (6) Grant the proposed second cross-defendant (Ms Cohen) liberty to apply on 3 days’ notice for further security to be provided for the period from the commencement of the hearing or to increase the amount of security ordered in order 4 if that amount proves insufficient or in the event that there is disagreement as to the acceptability of the unconditional bank guarantee provided pursuant to order 4. (7) Order that the second cross-claimant (Crewmark Pty Ltd) pay the proposed second cross defendant’s (Ms Cohen’s) costs of the motion for security for costs. (8) Order that the defendants/cross-claimants pay the costs of the first cross-defendant (Modakboard Australia Pty Ltd) and the proposed third cross-defendant (Mr Jones) thrown away by the proposed amendment of the initial cross-claim, including the costs of the motion ordered in order 1. (9) Order that the defendants/cross-claimants pay the proposed fourth cross-defendant’s (Libbie Pty Ltd’s) costs of the proceedings (other than to the extent that these costs have already been made the subject of costs orders). (10) Order that the costs awarded at [1], [8] and [9], as well as the costs ordered by Rein J on 8 September 2017 in favour of the proposed second and fourth cross-defendants (Ms Cohen and Libbie Pty Ltd), be assessable and payable forthwith.
Catchwords:	CIVIL PROCEDURE – Pleadings – Amendment   COSTS – Security for costs – application for costs to be payable forthwith
Legislation Cited:	Civil Liability Act 2002 (NSW), s 5B Civil Procedure Act 2005 (NSW) ss 3, 64 Competition and Consumer Act 2010 (Cth), ss ; 18; s 21(2) of Schedule 2 Corporations Act 2001 (Cth), ss 9, 1335(1) Trade Practices Act 1974 (Cth), ss 51A, 52 Uniform Civil Procedure Rules 2005 (NSW), rr 13.4; 14.28; 19.1, 42.21(d)
Cases Cited:	ABN AMRO Bank NV v Bathurst Regional Council (2014) 224 FCR 1; [2014] FCAFC 65 Addenbrooke Pty Ltd v Duncan (No 2) [2013] FCA 820 Addenbrooke Pty Ltd v Duncan (No 2) [2017] FCAFC 76; 348 ALR 1 Adelaide Petroleum NL v Poseidon Ltd (1988) ATPR 40-901 Allstate Life Insurance v ANZ Banking Group Limited (1995) 134 ALR 187; [1995] FCA 1778 Aon Risk Services Australia Limited v Australian National University (2009) 239 CLR 175; [2009] HCA 27 Attorney General (NSW) v World Best Holdings Ltd (2005) 63 NSWLR 557; [2005] NSWCA 261 Australian Commercial Research and Development Ltd v Commonwealth of Australia [1995] 2 Qd R 336 Australian Competition and Consumer Commission v Woolworths Limited [2016] FCA 1472 Beach Petroleum NL v Johnson [1992] 7 ACSR 203 Bennett v Elysium Noosa Pty Ltd (in liq) [2012] FCA 211; 291 ALR 191 Bhagat v Murphy [2000] NSWSC 892 Brocklebank & Co v The King's Lynn Steamship Co (1878) 3 CPD 365 Bryan E Fencott & Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 Buckley v Bennell Design & Constructions Pty Ltd (1974) 1 ACLR 301 Chameleon Mining NL v Murchison Metals Limited [2010] FCA 1129 Collier v Country Women’s Association of New South Wales [2016] NSWSC 1361 Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447; [1983] HCA 14 Compaq Computer Australia Pty Ltd v Merry (1998) 157 ALR 1 Contamination Control Laboratories Pty Ltd v Reyer [2010] QSC 1 Cornelius v Global Medical Solutions Australia Pty Ltd; Farrag v Global Medical Solutions Australia Pty Ltd [2014] NSWCA 65; 98 ACSR 301 Coshott v Spencer [2017] NSWCA 118 Dalma Formwork Pty Ltd v Concrete Constructions Group [1998] NSWSC 472 Donoghue v Stevenson [1932] AC 562 Empire Shipping Co Inc v Owners of the Ship Shin Kobe Maru (1991) 32 FCR 78; 104 ALR 489 Fabcot Pty Ltd v Port Macquarie-Hastings Council [2011] NSWCA 167 Fernandez v Glev Pty Ltd [2000] FCA 1859 Fiduciary Limited v Morningstar Research Pty Ltd (2002) 55 NSWLR 1; [2002] NSWSC 432 Fubilan Catering Services Limited v Compass Group (Australia) Pty Ltd [2007] FCA 1205 General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125; [1964] HCA 69 Giorgianni v The Queen (1985) 156 CLR 473 Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82 Grant v Hall [2012] NSWSC 779 Guss v Veenhuizen (No 2) (1976) 136 CLR 47; [1976] HCA 57 Harvey v Jacob (1817) 106 ER 59 Heller Factors Pty Ltd v John Arnold's Surf Shop Pty Ltd (in liq) (1979) 4 ACLR 492 Houghton v Arms (2006) 225 CLR 553; [2006] HCA 59 HP Mercantile Pty Ltd v Dierickx [2013] NSWCA 87 Idoport Pty Limited v National Australia Bank Limited; Idoport Pty Limited & Market Holdings Pty Limited v Donald Robert Argus; Idoport Pty Limited "JMG" v National Australia Bank Limited [2001] NSWSC 744 Idoport Pty Ltd v National Australia Bank Limited [2002] NSWCA 271 In the Matter of Felan’s Fisheries Pty Limited [2016] NSWSC 1351 In the matter of Idylic Solutions Pty Ltd - Australian Securities and Investments Commission v Hobbs [2012] NSWSC 1276 Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (2008) 73 NSWLR 653; [2008] NSWCA 206 Interwest Ltd v Tricontinental Corporation Ltd (1991) 5 ACSR 621 John Arnold’s Surf Shop (in liq) v Heller Factors Pty Ltd [1979] 22 SASR 20; (1979) 4 ACLR 4 Johnston v Australia & New Zealand Banking Group Ltd [2006] NSWCA 218 JWH Turner & Co Ltd v O'Riordan (1923) 40 WN (NSW) 64 Kenneth A Pethers v Minister for Agriculture [2010] NSWSC 805 KP Cable Investments Pty Ltd v Meltglow Pty Ltd [1995] 56 FCR 189 Living Spring Pty Ltd v Kliger Partners (2008) 20 VR 377; [2008] VSCA 93 London Scottish Benefit Society v Chorley (1884) 13 QBD 872 Lynx Engineering Consultants Pty Ltd v The ANI Corporation Limited trading as ANI Bradken Rail Transportation Group (No 2) [2009] FCA 363 MA Productions Pty Ltd v Austarama Television Pty Ltd (1982) 7 ACLR 97; 1 ACLC 404 Massey v Allen (1879) 12 Ch D 807 Maylord v Nauer Maylord Equity Management Pty Ltd as trustee of the Batterham Retirement Fund v Nauer [2017] NSWSC 634 Melunu Pty Ltd v Claron Constructions Pty Ltd [2004] NSWSC 1064 Meni’s Tailoring & Alterations v Jeanswest Corporation Pty Ltd [2003] FCA 1108 Millhouse IAG Pty Ltd v Environautics Pty Ltd [2000] QDC 196 Mutual Life and Citizens Assurance Co Ltd v Evatt (1968) 122 CLR 556; [1968] HCA 74 Nadinic v Drinkwater [2017] NSWCA 114 National Bank of New Zealand Ltd v Donald Export Trading Ltd [1980] 1 NZLR 97 North East Equity Pty Ltd v Proud Nominees Pty Ltd [2007] FCA 1587 North East Equity Pty Ltd v Proud Nominees Pty Ltd [2010] FCAFC 60 Northam v Favelle Favco Holdings Pty Ltd (Supreme Court (NSW), Bryson J, 7 March 1995, unrep) O'Keefe v Seafresh Holdings Pty Ltd trading as Westmore Seafoods [2009] NSWSC 1090 Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 Paciocco v Australia and New Zealand Banking Group Ltd (2015) 236 FCR199; [2015] FCAFC 50 Plaza Print Pty Ltd v South British Insurance Co Ltd (1984) 54 ACTR 3; 68 FLR 340 Porter v Gordian Runoff Limited [2004] NSWCA 171 Presser v Caldwell Estates Pty Ltd [1971] 2 NSWLR 471 Smith v Australian Executor Trustees Limited [2017] NSWSC 1406 Southern Cross Exploration NL v Fire & All Risks Insurance Co Ltd (1985) 1 NSWLR 114 Spiel v Commodity Brokers Australia Pty Ltd (in liq) (1983) 35 SASR 294; 8 ACLR 410 Sullivan v Moody (2001) 207 CLR 562; [2001] HCA 49 Sydmar Pty Ltd v Statewise Developments Pty Ltd [1987] 11 ACLR 616 Traderight (NSW) Pty Ltd v Bank of Queensland Ltd [2015] NSWCA 94 Tyneside Property Management Pty Limited v Hammersmith Management Pty Ltd [2013] NSWCA 404 Watiwat v Dixon [2017] NSWSC 360 Watson v Foxman (1995) 49 NSWLR 315 Webster v Lampard (1993) 177 CLR 598; [1993] HCA 57 Winnote Pty Ltd (in liq) v Page (2005) 64 NSWLR 244; [2005] NSWCA 362 Wollongong City Council v Legal Business Centre Pty Ltd [2012] NSWCA 245 Yandil Holdings Pty Ltd v Insurance Co of North America (1985) 3 ACLC 542 Yorke v Lucas (1985) 158 CLR 661; [1985] HCA 65
Texts Cited:	R Miller, Miller’s Australian Competition and Consumer Law Annotated (Thomson Reuters)
Category:	Procedural and other rulings
Parties:	Modakboard Australia Pty Ltd (Plaintiff/1st Cross Defendant) Matthew Howard Brady (1st Defendant/1st Cross Claimant) Crewmark Pty Ltd (2nd Defendant/2nd Cross Claimant) Elizabeth Cohen (2nd Cross Defendant) Peter William Jones (3rd Cross Defendant) Libbie Pty Ltd (4th Cross Defendant)
Representation:	Counsel: W Robinson (Solicitor) (Plaintiff/1st and 3rd Cross Defendants) J Manner (1st and 2nd Cross Claimants) D Feller SC (2nd and 4th Defendants)   Solicitors: Robinson Lawyers (Plaintiffs) Dora A Jabbour (2nd and 4th Cross Defendants) Tyndall & Co Lawyers (1st and 2nd Defendants/Cross Claimants)
File Number(s):	2015/00156508
Publication restriction:	Nil

Judgment

1. HER HONOUR: Before me for hearing on 6 March 2018 were a number of interlocutory applications in proceedings commenced by way of summons in May 2015 by the plaintiff, Modakboard Australia Pty Limited (Modakboard), against Mr Matthew Brady and Crewmark Pty Limited (Crewmark). In those proceedings, Modakboard had sought urgent relief in the form of a mandatory injunction to compel the restoration to it of Modakboard’s website, emails and other communications. That injunctive relief was granted by Hallen J on 28 May 2015 and orders were subsequently made for the matter to proceed by way of pleadings. Modakboard then filed a statement of claim in the proceedings on 18 June 2015 seeking declaratory and other relief in relation to its domain name, website and certain email communications. The defendants/cross-claimants filed their defence on 24 August 2015 and a cross-claim on 31 August 2015 (initially only against Modakboard) before filing (without leave) on 22 September 2016 an amended cross-claim joining three further cross-defendants as parties to the proceedings. That amended cross-claim was struck out by consent by Rein J in September 2017 leaving extant only the initial cross-claim against Modakboard.

2. The respective interlocutory applications before me on 6 March 2016 were an application by Mr Brady and Crewmark (the defendants/cross-claimants) for leave to file a further amended cross-claim; an application (arising only if the leave application be successful) by the proposed second and fourth cross-defendants (Ms Elizabeth Cohen and Libbie Pty Ltd (“Libbie”)) for security for costs; and an application by those proposed cross-defendants (joined by the first cross-defendant, Modakboard, and the remaining proposed third cross-defendant, Mr Peter Jones) for costs the subject of orders made by Rein J last year to be payable forthwith.

Background and procedural history to the present applications

3. Modakboard is a company that produces a certain type of building material. Its claim against the defendants, in essence, is that it was at all material times the owner of a particular website that had been built by Mr Brady on its behalf (allegedly for consideration in the form of shares in the company) and of a domain name registered by Mr Brady on its behalf (see statement of claim at [20]; [22]; [23]). Mr Brady was one of the two founding directors of Modakboard, which was incorporated on 19 April 2011. He resigned as a director on 11 April 2015. The steps taken by him at that stage in relation to the company’s website, domain name and email communications were the subject of Modakboard’s claim for urgent injunctive relief.

4. The other founding (and now, as I understand it, sole) director of Modakboard is Mr Peter Jones (the proposed third cross-defendant). However, there was at one stage a third director of the company (a Mr Peter Newman), whose affidavit dated 29 July 2016 was read by the defendants/cross-claimants on the present applications (whether it was sworn or affirmed is a mystery on the face of the affidavit).

5. The second defendant, Crewmark, is a company controlled by Mr Brady as its sole director and shareholder. Crewmark has invoiced Modakboard for the work carried out by Mr Brady. Some of Crewmark’s invoices have been paid by Modakboard, on Mr Brady’s evidence. The unpaid balance is in contention as is Crewmark’s claim for an unpaid minimum annual consultancy fee.

6. Libbie, as trustee for the Libbie Superannuation Fund, holds shares in Modakboard. Ms Cohen and/or Libbie (a company in which Ms Cohen has an interest) have apparently made loans at various times to Modakboard (this being one of the matters to which the defendants/cross-claimants point for the proposition that Ms Cohen has an interest in the outcome of the proceedings).

7. The initial cross claim brought by the defendants/cross-claimants against Modakboard was for liquidated damages for work done and services provided by Crewmark in the sum of $13,880.85 (relating to certain unpaid invoices) and for judgment in favour of each of the cross-claimants for damages for breach of contract in the sum of $924,000 (relating to the annual consultancy fee claim) and, in the alternative to that second damages claim, an amount of $968,781 on a quantum meruit for work done. The cross-claim also sought a dissolution of the injunctive relief that had been granted on 28 May 2015. The more substantial damages claim (relating to the unpaid annual consultancy fee) was based on breach of an alleged oral agreement in relation to the provision of services to Modakboard (see [5]-[7] of the cross-claim).

8. On 22 September 2016, as already noted, an amended cross-claim was filed (without leave). This brought into the proceedings Ms Cohen (as the named second cross-defendant), Mr Jones (as the named third cross-defendant) and Libbie as trustee for the Libbie Superannuation Fund (as the named fourth cross-defendant). The relief claimed against those named second to fourth cross-defendants included judgment for damages on the basis that they had contravened, or were persons involved in a contravention by Modakboard of, s 21(2) of Schedule 2 of the Competition and Consumer Act 2010 (Cth) (the Australian Consumer Law).

9. By notice of motion filed 3 July 2017, Ms Cohen and Libbie sought an order pursuant to r 13.4 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) dismissing the amended statement of cross-claim as not disclosing a reasonable cause of action; alternatively, an order pursuant to r 14.28 of the UCPR striking out the amended cross-claim as disclosing no reasonable cause of action or other case appropriate to the nature of the pleadings and as having a tendency to cause prejudice, embarrassment or delay in the proceedings, and also sought orders for security for costs against each of the cross-claimants.

10. That notice of motion was listed for hearing by Rein J on 8 September 2017, in advance of which (on 5 September 2017) submissions were served on the defendants/cross-claimants on behalf of Ms Cohen and Libbie detailing the perceived deficiencies in the amended cross-claim. Nonetheless, on 5 September 2017, the defendants/cross-claimants’ solicitors advised the solicitor acting for Ms Cohen and Libbie of their clients’ intention to file and rely on a notice of motion seeking leave further to amend the cross claim. Ms Cohen and Libbie did not consent to the filing of the proposed further amended cross-claim (on the basis that they still perceived it to be deficient – the defendants/cross-claimants emphasise in this regard that the merits of the cross-claim had at that stage, and still have, yet to be determined).

11. When the matter came before Rein J on 8 September 2017, after some submissions were made by the parties in relation to the then proposed further amended cross-claim, the defendants/cross-claimants consented to the striking out of the existing amended cross-claim (hence my reference in these reasons to the named second to third cross-defendants as proposed cross-defendants, since the only extant cross-claim is one to which they were not joined).

12. The defendants/cross-claimants emphasise that on that occasion his Honour contemplated the filing of a further amended cross-claim. In the sense that his Honour made directions on that occasion for the service of a further amended cross-claim (to the filing of which the proposed cross-defendants might then either consent or oppose), the submission that his Honour contemplated the filing of a further amended cross-claim is clearly correct. However, insofar as the defendants/cross-claimants’ outline of submissions appears at one point to suggest that the Court has already determined that leave to file a further amended cross-claim is or would be appropriate, that is incorrect. His Honour, in the passage of transcript cited by the defendants/cross-claimants in their submissions, contemplated the need for a motion to be filed seeking leave for the filing of a further amended cross-claim and was clearly not at that stage making any ruling (nor could his Honour have done) on the document now sought to be filed (or, for that matter, any of the preceding versions of that proposed further amended cross-claim dated 22 September 2017 and 8 November 2017 all of which post-dated the application before Rein J).

13. The complaint by the defendants/cross-claimants as to the need for the present motion (as also does their argument that the further time and expense involved is “in abrogation of” the overriding purpose of the Civil Procedure Act 2005 (NSW) and the facilitation of the just, quick and cheap resolution of the real issues in the proceedings) ignores the fact that if the proposed further amended cross-claim suffers from the fundamental pleading deficiencies identified by the cross-defendants then it could not be appropriate for leave to be granted for it to be filed.

3. A notice of motion was filed by the cross-claimants on 11 September 2017 seeking leave, pursuant to r 19.1 of the UCPR, for the further amendment of the cross-claim in the form of the proposed further amended cross-claim which was annexed to an affidavit sworn 5 September 2017 by Mr Brady (that being in the same form as the document that had been served on 5 September 2017).

4. By letter dated 22 September 2017, the defendants/cross-claimants served another version of the further amended cross-claim (see CB Tab 15) incorporating further amendments together with those that appeared in the 5 September 2017 version.

5. The matter then came before Registrar Walton on 8 October 2017, on which occasion the position of the defendants/cross-claimants was that they did not intend to rely on the proposed further amended cross-claim dated 5 September 2017 (CB Tab 14) but instead on a further amended cross-claim dated 22 September 2017 (CB Tab 15).

6. On or about 8 November 2017, another version of the further amended cross-claim (dated 8 November 2017) (CB Tab 4) was served.

7. On 28 November 2017, further directions were made by Registrar Walton in relation to the filing by the defendants/cross-claimants of a notice of motion and affidavit in support. Then, on 18 December 2017, Registrar Walton ordered that the first and second cross-claimants amend the notice of motion so that it seek an order for leave to file the proposed further amended cross-claim (rather than, as it then did, leave further to amend the cross-claim). That amended notice of motion was filed by the defendants/cross-claimants on 17 January 2018 (CB Tab 3). The order there sought was that the defendants/cross-claimants be granted leave to file and serve a cross-claim in the form annexed to Mr Brady’s affidavit sworn 12 December 2017 (that being the further amended cross-claim dated 8 November 2017).

8. That was the first of the motions before me for hearing on 6 March 2018. By the time of the hearing of that motion, however, the defendants/cross-claimants’ position was that they no longer sought to file the further amended cross-claim dated 8 November 2017 (that being the order sought in the amended notice of motion) but now wished to serve a further amended cross-claim dated 2 March 2018. In that latest (sixth) iteration of the cross-claim, Libbie is no longer named as the fourth cross-defendant. (Irrespective of the fate of the current leave application the defendants/cross-claimants accept that further amendment is necessary to that sixth version of the cross-claim; so that on any view of the matter we would now be up to the seventh iteration of the cross-claim.)

9. The second of the applications before me was that made by Ms Cohen and Libbie in their notice of motion filed 3 July 2017 for the cross-claimants to give security for costs of the cross-claim so far as it affects them. That application is made pursuant to r 42.21(d) and (f) of the UCPR and s 1335(1) of the Corporations Act 2001 (Cth), in the case of Modakboard, and in the inherent jurisdiction of the Court, in the case of Mr Brady. That application was not pursued or heard when the motion came before Rein J in September 2017 on the application for the amended cross-claim filed 22 September 2016 to be struck out or dismissed so far as it affected the second and fourth cross-defendants. It was not, however, abandoned as I understand it.

10. The third of the applications before me was the application by Ms Cohen and Libbie to have the costs the subject of orders already made in their favour by Rein J in September 2017 paid forthwith. His Honour declined to make such an order at the time on the basis, as I understand it, that the fate of the amendment application had not then been determined. (The remaining cross-defendant, Modakboard, and the proposed cross-defendant, Mr Jones, who did not seek an order for costs thrown away by the amendments when the matter was before Rein J also now seek an order for their costs thrown away by the amendments to date.)

11. The current state of play, therefore, is as follows: although Modakboard commenced the proceedings, it has already obtained the injunctive relief sought by it in relation to the website, domain name and email communications and is not actively pursuing further relief at this time (a matter of relevance to the security for costs application); there have been some six iterations of the proposed amended cross-claim (which the proposed cross-defendants say is still deficient and which the defendants/cross defendants accept should be further amended and have orally sought leave now to do); Ms Cohen resists the grant of leave further to amend the cross-claim and seeks an order that her costs thrown away by the last amendment be payable forthwith and (if leave to amend is granted) an order for security for costs, as well as the costs of the present motions; the defendants/cross-claimants no longer seek to press a cross-claim against Libbie; Mr Jones, who adopts Ms Cohen’s submissions on the pleading deficiencies but has not filed a comparable notice of motion in relation to security for costs, seeks an order for the costs thrown away as a result of the amendments or proposed amendments to the cross-claim and adopts the submissions made for Ms Cohen on the pleading issues; and the only extant cross-claim, filed 31 August 2015, is the original cross-claim that is limited to claims against Modakboard for liquidated damages for breach of contract (in an amount of $924,000) or in the alternative in quantum meruit and for the dissolution of the injunctive relief.

(i)   Leave to amend

23. The principles applicable on an application such as this for leave to amend pursuant to s 64 of the Civil Procedure Act and rule 19.1 of the UCPR were not in contest. They are well known. The application for leave to amend must be made for a proper purpose; the proposed amendment must be proper both as to substance and form and not liable to be struck out; the amendment must not cause undue prejudice to the other party; and the amendment must be consistent with the dictates of justice.

24. It is submitted for Ms Cohen that, subject to the constraints in General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125; [1964] HCA 69, leave should not be granted for the filing of the proposed further amended cross-claim if (which she submits is the case) it would be liable to be dismissed under r 13.4 of the UCPR, as not disclosing a reasonable cause of action, or liable to be struck out under r 14.28, as not disclosing a reasonable cause of action or other case appropriate to the nature of the pleading or as having a tendency to cause prejudice, embarrassment or delay in the proceedings. Ms Cohen stresses the importance of pleadings (and particulars) as recognised in Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (2008) 73 NSWLR 653; [2008] NSWCA 206 per Ipp JA (at [419]-[428]).

25. Both parties referred to my decision in Smith v Australian Executor Trustees Limited [2017] NSWSC 1406 – Ms Cohen for the statements at [67]-[76] as to the requirements of a proper pleading; the defendants/cross-claimants for the statements at [68]-[70] as to the threshold to be met before a claim will be summarily dismissed (though the present is not a summary dismissal application as such).

26. Ms Cohen also referred to the following statements of principle in other authorities: that a pleading should not create a multitude of possibly arguable causes of action, leaving identification of the true nature of the case to final addresses or, perhaps, for ultimate identification by the trial judge or appellate court (see Addenbrooke Pty Ltd v Duncan (No 2) [2017] FCAFC 76 at [87]; 348 ALR 1); that a pleading containing “rolled up” allegations is undesirable by reason of the difficulties it can cause and may be embarrassing (Johnston v Australia & New Zealand Banking Group Ltd [2006] NSWCA 218, per Basten JA at [60]-[65]); and that a pleading of misleading or deceptive conduct, in addition to pleading representations must also show why those representations were misleading and must link the representations to the particular conduct said to demonstrate the falsity of the representations (see Lynx Engineering Consultants Pty Ltd v The ANI Corporation Limited trading as ANI Bradken Rail Transportation Group (No 2) [2009] FCA 363 at [66]).

27. For Ms Cohen, it is submitted that the proposed pleading does not reveal arguable causes of action and/or does not adequately or properly plead the various proposed causes of action against her (or against Mr Jones and Modakboard, for that matter); and that it is embarrassing and likely to lead to considerable wastage of time and expense. Ms Cohen further submits that, having regard to the history of the matter, if leave is not granted the cross-claimants should not have any further leave to re-plead – in effect, that they have had long enough. The defendants/cross-claimants’ response to this, broadly, is to argue that the proposed pleading adequately discloses a prima facie cause of action and that much of the complaint goes to matters that will fall to be determined in due course on the evidence, the merits of which are not here to be determined. However, if leave to file the proposed further amended cross-claim is refused they seek a further opportunity to plead the claims sought to be brought against Ms Cohen and Mr Jones. It was submitted that the “benchmark minimum” in that regard would be that there are “at least visible signs of causes of action within those pleadings” - T 56.

The proposed further amended cross-claim

28. The claims sought to be made against Ms Cohen are for damages for: misleading or deceptive conduct in breach of s 18 of the Australian Consumer Law by the making of certain alleged payment representations (the First Payment Representations, defined at [25] of the proposed further amended cross-claim, and the Second Payment Representations, defined at [29] of the proposed further amended cross-claim) which it is alleged were false and/or misleading or deceptive or likely to mislead or deceive (see [40]-[44]; [45]-[49], respectively); accessorial liability as a person involved in the alleged misleading or deceptive conduct ([50]); unconscionable conduct in breach of s 21 of the Australian Consumer Law ([51]); accessorial liability as an involved person in the alleged unconscionable conduct ([52]); and negligent misstatement ([53]).

29. The claims sought to be made against Mr Jones are in broad terms the same, although the statements alleged to have been made by him and constituting the respective Payment Representations are, unsurprisingly, not in the same terms as those relied upon against Ms Cohen.

30. The conduct alleged on the part of Ms Cohen as giving rise to liability on her part in relation to the misleading or deceptive conduct claims is, broadly, giving an assurance that the consultancy services provided by Crewmark and/or by Mr Brady commencing April 2011 (including services already provided) would be paid for by Modakboard with no other condition placed upon the payment for those services than the provision thereof (see [25.a] (the First Payment Representations) and later giving further assurances in relation to payment for the provision of consultancy services – (a) on 23 June 2011, that a particular agreement (the Second Consultancy Agreement) “guaranteed” the right of Mr Brady and Crewmark to payment by Modakboard and the Modak Group for payment for the services since April 2011 and from that point in time onward (see [29.a]); (b) on 30 September 2014, that Modakboard would commence paying Mr Brady in the following month ([29.b]); (c) in about November 2014, that Modakboard would commence paying Mr Brady in the following month and would ensure that he and, it is said, Modakboard (though this presumably is a typographical error) were paid for the consultancy services provided to date ([29.c]); and (d) on about 25 December 2014, that Modakboard would pay all money owed to Mr Brady and Crewmark in relation to the consultancy services ([29.d]) (the Second Payment Representations).

31. It is alleged that Mr Brady “individually and on behalf of Crewmark” relied upon the respective Payment Representations – first, in continuing to provide the Initial Consultancy Services to Modakboard notwithstanding the absence of timely, or any, payment, for such services in the period from April 2011 to 23 October 2011 (see [26]; [43] – the latter paragraph also including the allegation that this was notwithstanding the breaches of the Initial Consultancy Agreement as a consequence of “such untimely or non-payment”); and, second, in continuing to provide the Further Consultancy Services to Modakboard notwithstanding the absence of timely, or any, payment for such services in the period from 26 October 2011 to 1 April 2015 (see [30]; [48] – the latter paragraph including a similar additional statement to that contained in [43]). In each case it is alleged that, but for the Payment Representations, the defendants/cross-claimants would not have provided services during the relevant period “in the absence of timely payment, or any payment at all, for such services” ([27], [31]).

32. It is alleged that, by reason of the misleading or deceptive conduct, “the plaintiff” (this is conceded to be a typographical error and is said to be intended to mean the cross-claimant(s)) has suffered loss or damage. That loss or damage is particularised, in relation to the First Payment Representations, by reference to unpaid Crewmark invoices or expenses totalling the amount of $16,546.85 plus interest ([44]); and, in relation to the Second Payment Representations, as that amount together with damages in the amount of $792,000 incl GST, that being defined as the “Unpaid Further Consultancy Amount” (calculated at $132,000 per annum for 6 years from October 2011 to October 2017). (The disparity between the $924,000 claim and the $792,000 claim is not clear to me but ultimately nothing turns on it because, as I explain below, even the lesser amount is conceded to be unsustainable.)

33. The defendants/cross-claimants now concede that the whole of the amounts presently sought to be claimed by way of loss or damage cannot be maintained (see for example [111], [133], [176], [195] below) and seek leave to amend the particulars of loss and damage in various places in the proposed further amended cross-claim. Relevantly, they are abandoning any claim for what is defined as the “Additional External Consultancy Loss and Internal Consultancy Costs” (of $3,152.79) or any claim for the Unpaid Further Consultancy Amount after the time that Mr Brady ceased to provide services to Modakboard in April 2015 (the quantum of that claim is now to be reduced to around $500,000).

34. The accessorial liability claim in respect of the misleading or deceptive conduct is based on an allegation that Ms Cohen: aided and abetted the contraventions by speaking the words which constituted the Payment Representations (and therefore the conduct which is alleged to be misleading or deceptive) ([50.a]); and was directly and knowingly concerned in and a party to the contraventions by speaking those words, “knowing or ought to be knowing” by virtue of the “Cross-Defendants’ Knowledge of Modakboard Affairs” (a term earlier defined at [33]), the import of the words and the “reliance had” upon the misleading or deceptive conduct by the defendants/cross-claimants ([50.b]) by virtue of the direct involvement of Ms Cohen in the entity for which the consultancy services were provided.

35. Counsel for the defendants/cross-claimants conceded in oral argument that the reference in the proposed pleading to Ms Cohen’s “direct involvement” in Modakboard is “not elucidated in that particular pleading” (T 55.45-55.46) but points to the reference to the “knowledge of Modakboard affairs”, which is said to plead “the full extent of her involvement”. The latter proposition is untenable once one looks at the generality of what is comprised by that defined term – see below at [40-[41]).

36. The unconscionable conduct claim against Ms Cohen, in essence, is that she made the payment representations in order to induce, by the promises which they contained, Mr Brady and Crewmark to continue to provide the consultancy services without timely payment or payment at all and notwithstanding the breaches of the alleged agreements as a consequence of such untimely or non-payment ([51.a]). The making of the representations is alleged to be unconscionable in that: Mr Brady and Crewmark were not paid for the provisions of the Further Consultancy Services; and Ms Cohen “knew or ought to have known by virtue of the Cross-Defendants’ Knowledge of Modakboard Affairs”: the terms of the agreements; that they would not be paid for the services pursuant to the terms of the agreements or at all; that such non-payment would be and was in breach of an essential term of the agreements; and that such non-payment was reasonably foreseeable” ([51.b]). The loss claimed by the “plaintiff” is again particularised as damages in the amount of $792,000 incl GST and the Unpaid Crewmark expenses of $16,546.85 ([51.d]).

37. The allegation of involvement in the alleged unconscionable conduct is pleaded in similar terms to the allegation of involvement in the alleged misleading or deceptive conduct (see [52]).

38. The negligent misstatement claim, pleaded further and in the alternative, alleges (at [53]), relevantly: (a) that Ms Cohen owed a duty of care to Mr Brady and Crewmark “by virtue of the Cross-Defendants’ Knowledge of Modakboard Affairs”; (b)-(c) that she made the said payment representations and did so in order to induce, by the promises which the representations contained, Mr Brady and Crewmark to provide the Initial Consultancy Services without timely payment or payment at all and notwithstanding the breaches of the Initial Consultancy Agreement as a consequence of such untimely or non-payment; (d) that at the time of making the representations, Ms Cohen knew or ought to have known “by virtue of the Cross-Defendants’ Knowledge of Modakboard Affairs” certain matters (the terms of the agreements; that Mr Brady and Crewmark would not be paid for the Initial or Further Consultancy Services pursuant to the terms of the agreements or at all; that such non-payment would be and was in breach of an essential term of the said agreements; and that Mr Brady and Crewmark would “rely upon the veracity of the statements” in continuing to provide the Further Consultancy Services notwithstanding late payment of non-payment of the Consultancy Fees); (e) that Ms Cohen could reasonably foresee that in the event that the payment representations were untrue Crewmark and Mr Brady would suffer economic loss as a result; (f) that, but for the payment representations, they would not have suffered economic loss as they would not have continued to provide the services; (g), that by reason of the matters pleaded at [50(a)-(f)] (presumably a reference to [53.a-f]), the statements constituting the payment representations were made:

i.   with negligent indifference as to:

1.   the truth of the matters contained in those representations;

2.   the harm to be caused to Crewmark and Mr Brady by the    making of those statements if they were untrue.

and, (h), that the statements were untrue, were negligently made, breached the duty of care owed to Crewmark and Mr Brady, and caused economic loss.

39. Again, the loss pleaded is particularised as the damages claim of $792,000 (now to be reduced to around $500,000) and the Unpaid Crewmark expenses claim of $16,546.85.

40. Returning to what is comprised by the term (used later in the pleading as the basis for the allegation that Ms Cohen knew or ought to have known certain things and relied upon in oral submissions as disclosing the full extent of her involvement in the company) “the Cross-Defendants’ Knowledge of Modakboard Affairs”, this is defined at [33] but it is defined not in terms of what is alleged to be the knowledge, as such, but as to what matters are “relevant” to the alleged knowledge. Paragraph 33 of the pleading thus commences:

33.   The following factual matters are relevant to the knowledge of the operational, financial, and legal matters relating to Modakboard generally, and specifically relevant to matters relating to the First Consultancy Agreement and the Second Consultancy Agreement, held by Mr Jones and Ms Cohen respectively (“the Cross-Defendants’ Knowledge of Modakboard Affairs”) [my emphasis].

41. In relation to Ms Cohen, those factual matters (at [33.b]) are that she:

i.   is and was at all material times:

1.   a barrister-at-law with a practising certificate issued in New    South Wales;

2.   a sole director shareholder of Libbie Pty Limited A.C.N 098    093 255 as trustee for the Libbie Superannuation Fund, which    is a 35% shareholder in Modakboard;

3. a de facto and/or shadow director of Modakboard as defined by section 9 of the Corporations Act 2001 (Cth), as alternately:

a.   Ms Cohen acted in the position of a director of Modakboard; and

b.   the directors of Modakboard were accustomed to act in accordance with the [sic] Ms Cohen’s instructions and/or wishes.

4.   a legal representative of, and legal advisor to, Modakboard    relating to:

a.   operational matters;

b.   financial matters;

c.   investment matters;

d.   legal matters.

ii.   was the drafter of the written Second Consultancy Agreement; [I    interpose to note that this is denied by Ms Cohen]

iii.   was present at the execution of the Second Consultancy Agreement    by Mr Brady on behalf of himself and Crewmark on 26 October, 2011;

iv.   undertook to sign the Second Consultancy Agreement on 26 October,    2011;

v.   attended Modakboard board meetings and general meetings;

vi.   was kept apprised of Modakboard affairs daily;

vii.   was the maker of some of the statements constituting the First    Payment Representations and the Second Payment Representations;

viii.   provided legal advice to Mr Brady.

42. There is no articulation of what legal advice is referred to at [33.b.viii]; or of the basis for any of the conclusory matters stated at [33.b.i]. Therefore, the suggestion that this discloses “the full extent” of Ms Cohen’s “involvement” with the company cannot possibly be accepted.

Alleged deficiencies in the pleading

Claim for loss incurred by Mr Brady personally

43. The first complaint made by Ms Cohen in relation to the proposed pleading goes to the claim by Mr Brady in his personal capacity for $792,000 (incl GST) for loss and damage by reason of the various alleged contraventions of the Australian Consumer Law or negligent misstatement. (I note here that, logically, the same pleading difficulty arises with the claim by Mr Brady personally for loss in respect of the Initial Consultancy Services Agreement – the “Initial Unpaid Invoice Amount” – of $2,698.21, where the terms of the pleaded agreement provide for payment to be made to Crewmark for those services; and in respect of amounts invoiced by Crewmark (not Mr Brady) in relation to the internal consultancy costs and external consultation costs arising under cll 3 and 5 of the Second Consulting Agreement in the Unpaid Costs Invoices of $10,695.85.)

44. Ms Cohen submits that there is nothing in the proposed further amended cross-claim which explains the basis on which Mr Brady claims, in his personal capacity, to have suffered loss and damage as a result of the non-payment by Modakboard of the claimed consultancy fee under the Second Consultancy Agreement (see, for example, [39] of the proposed further amended cross-claim – there pleaded as $924,000, whereas elsewhere it is put at $792,000) in circumstances where that amount, on the terms of the Second Consultancy Agreement (pleaded at [13] of the proposed further amended cross-claim), is payable to Crewmark (not to Mr Brady) – see cl 2 of the service contract dated 19 April 2011 annexed to the 3 June 2015 affidavit of Mr Brady to which reference is made in the particulars to [15.h].

45. It is submitted for Ms Cohen that any such loss must be a loss incurred by Crewmark. Ms Cohen argues that there is no basis for assuming that, because Mr Brady was the sole shareholder of Crewmark, he sustained an equal or any loss. It is submitted that, apart from impermissibly piercing the corporate veil, such a contention ignores the particular financial circumstances of Crewmark at each relevant financial period over the span of time concerned. Thus, it is submitted that the claims by Mr Brady (cast in various ways) for loss and damage as a result of the alleged breach of the Second Consultancy Agreement for failure to pay the Unpaid Further Consultancy Amount are incompetent and do not disclose a reasonable cause of action.

46. While Ms Cohen accepts that the same issue would not necessarily arise in respect of claims for reimbursement of what are described in the pleading as internal costs (see cl 3 of the Second Consultancy Agreement) or external service contractors’ costs (see cl 5 of the Second Consultancy Agreement) – since the alleged contract is one under which both Crewmark and Mr Brady were to be reimbursed or, as the case may be, were to recover such amounts – Ms Cohen points out that the invoices issued in respect of those costs are all invoices issued by Crewmark (not by Mr Brady) (as pleaded at [20] of the proposed further amended cross-claim). The amount claimed for those amounts (defined in the pleading as the Unpaid Costs Invoices Amount) is relatively small ($10,695.85 – see [22], [36]).

47. The response by the defendants/cross-claimants to this criticism of the proposed further amended cross-claim included the submission that any criticism as to whether $792,000 is in fact payable (by reference to whether the payment of the consultancy fee was approved by the board and, if so, whether such approval was retrospective in effect or not) is an evidentiary matter and that, for the purposes of a strike out application, allegations in the pleading are taken to be factually sustained (referring to Empire Shipping Co Inc v Owners of the Ship Shin Kobe Maru (1991) 32 FCR 78; 104 ALR 489). Whatever the ultimate determination of the factual dispute as to whether the Board gave the approval referred to in the contract and whether or not such approval operated retrospectively, that does not in my opinion address the gravamen of Ms Cohen’s complaint as to the lack of any pleading of any matters giving rise to a claim by Mr Brady in his personal capacity for loss or damage sustained as a result of non-payment of amounts said to be contractually due to (or invoiced by) Crewmark.

48. As to that issue, the defendants/cross-claimants maintain that the complaint as to the competency of Mr Brady’s personal claim “is predicated upon deficient logic and an erroneous conflation of payment of contractual entitlements and the rights of the parties pursuant to the contract”. What is said, in essence, is that Mr Brady is a party to the contract and that the contractual stipulation that the payments be made “to” Crewmark “does not abrogate the right of Mr Brady to claim damages pursuant to a breach of contract by the counterparties, nor does it diminish in any way the ultimate entitlement of Mr Brady to the payments themselves as a party”.

49. It is submitted by the defendants/cross-claimants that “[t]he mere obligation” that payment be made to Crewmark “is a contractual obligation as to the entity to which payment must flow”. In oral submissions it was put that the alleged contractual term providing for payment of moneys to Modakboard “is merely a procedural element”; that “procedurally … the moneys are to be paid to Crewmark, but that the right to claim that money arises in relation to Mr Brady also as a party to the contract”; and that “[t]he fact that clause 2 refers to the flow of the actual payment of the consultancy fees, our contention is that is merely the pathway by which the money is to be paid” (see T 36-37).

50. The defendants/cross-claimants maintain that as Mr Brady is the sole director and shareholder in the corporate entity Crewmark “thereby, the losses or damages to Crewmark is realised with full equivalence by Mr Brady” and that this applies equivalently to the claims based on contraventions of the Australian Consumer Law. It is submitted that Mr Brady, as sole director and shareholder, is the “corporate conscience” of Crewmark and that:

Those damages accruing contractually whether personally or by losses suffered to a wholly owned entity are equally attributable to the representations and other actions of the Cross Defendants manifesting by virtue of those breaches. But for the breaches, the decisions of Mr Brady personally, and as the corporate mind of Crewmark, would have taken other courses of action, avoiding the claimed detriment.

51. It is submitted that:

In any case, as stated above, Mr Brady is a party to the contract and the failure of counter-parties to make payment is enforceable against the counter-parties on that basis, regardless of the contractual stipulation that the monies be paid to Mr Brady’s wholly owned entity or otherwise.

52. This, in my opinion, misses the point. The loss claimed by Crewmark for breach of contract (or otherwise) in relation to the $792,000 Unpaid Further Consultancy Amount is loss referable to its claimed contractual entitlement to that amount (or the representation(s) said to have been relied upon to its detriment that that amount would be paid). Under the alleged agreement, Mr Brady had no personal entitlement to payment of that amount. Whether, as a party to the contract, he might have had standing to seek an order to compel performance by Modakboard of its contractual obligation to Crewmark is beside the point – here, he is asserting a claim for loss sustained personally as a result of the non payment. Similarly, whether or not he is the corporate “conscience” or corporate mind of Crewmark is irrelevant to the question whether he has personally suffered loss or damage as a result of the fact that the payment was not made to Crewmark.

53. Mr Brady argues that it is a matter of clear logic that he has suffered loss, on the basis that “[t]he diminution in value of a wholly owned asset is met perfectly with the equivalent loss or damage to the owner” and that the particular financial circumstances of Crewmark are irrelevant to the consideration that failure (by Crewmark) to receive a particular sum is “equivalently reflected” in loss/damage to the owner of that entity. It is submitted that (T 37):

There is an obligation. I am now talking about the other side of the equation and the right to those moneys and the damages which would flow from those moneys not being paid. …The contention is … [that] $100,000 going to Crewmark is as valuable to Mr Brady as $100,000 going to Mr Brady and vice versa.

54. I disagree. If Mr Brady has a personal claim to damages for loss in some way suffered as a result of non-payment of moneys said to be contractually owed to the company of which he is the sole shareholder, then the basis for that claim should be pleaded. If, for example, it is said that he (personally or as the corporate mind of Crewmark) would have taken other action (or caused Crewmark to take other action), that would need to be properly pleaded. In other words if Mr Brady alleges he personally suffered loss as a result of a failure by Modakboard to pay moneys to Crewmark or by reason of reliance by him (as opposed to Crewmark) on a representation that moneys would be paid to Crewmark, it would be necessary for him to plead the facts, matters and circumstances giving rise to that loss. It cannot simply be assumed. Ms Cohen (and, for that matter, Mr Jones) should not be expected to meet a case that has nowhere been articulated in that regard.

55. Not only have no facts, matters or circumstances been pleaded that would (if established at the ultimate hearing) give rise to a claim by Mr Brady for loss or damage calculated by reference to the Unpaid Further Consultancy Amount (or any other amount payable to or invoiced by Crewmark), no such claim was able to be articulated by Counsel for Mr Brady at the hearing before me. There was simply reliance on the fact that Mr Brady was a party to the contract and an assumption that the company’s loss must necessarily equate to the sole shareholder’s loss. Mr Brady’s claims for damages in that regard are misconceived and leave should not be given for the filing of any proposed further amended cross-claim which includes those claims. Mr Brady has had ample opportunity to articulate the basis for any such claimed loss. The fact that he has not done so suggests that there is none.

Complaint as to pleading of Payment Representations

56. The second complaint (or, more accurately, series of complaints) is as to the pleading of the alleged payment representations (at [25] and [29] respectively), which form the basis of the misleading or deceptive conduct claims ([40]-[44]; [45]-[49]) and on which the unconscionable conduct, accessorial liability and negligent misstatement claims are also premised. The complaint for the most part in this regard is as to ambiguity in the pleadings although it is also argued that no reasonable cause of action is disclosed (see T 29, in regard to the claimed reliance over a three year period on alleged representations made in October 2011).

57. For Ms Cohen, it is submitted that what the pleader must identify in a misleading or deceptive conduct case is what it is alleged that the impugned statements conveyed to their intended audience (referring to In the matter ofIdylic Solutions Pty Ltd - Australian Securities and Investments Commission v Hobbs [2012] NSWSC 1276 at [1463]; Addenbrooke Pty Ltd v Duncan (No 2) at [87]); and that it is necessary for the claimant to prove both what the alleged conduct was and the circumstances which rendered the conduct misleading (referring to Watson v Foxman (1995) 49 NSWLR 315 per McLelland CJ in Eq at 318-9).

58. As to [25.a], complaint is made that: the pleading does not set out any material facts in support of the allegation that Ms Cohen made the alleged statement in the capacity as a de facto director of Modakboard; there is no clarity as to what the impugned statements are alleged to have conveyed to Mr Brady (in particular, insofar as the First Payment Representation is formulated as a promise, how it is alleged that it was misleading or deceptive); and the pleading does not identify whether the promise referred to is relied on as a representation of present intent, a representation as to a future matter or a statement of presently held opinion. It is noted that if the allegation is as to intent, there is no allegation that Ms Cohen did not hold that intent; if the allegation is as to opinion, there is no allegation that Ms Cohen did not have a reasonable basis for the opinion.

59. Particulars are provided of the First Payment Representations, being responses allegedly made to “the question of payment of fees for the provision of consultancy services by Mr Brady since April 2011” by each of Mr Jones and Ms Cohen. The particulars assert that, in making the representations, each of Mr Jones and Ms Cohen “spoke as representatives of Modakboard” in that Mr Jones was a director of Modakboard; Ms Cohen was a de facto director of Modakboard; and “[t]he circumstances in which the discussions were had, in that, in response to Mr Brady, both Mr Jones and Ms Cohen purported to speak on behalf of, and with the actual or apparent authority of Modakboard”.

60. For Ms Cohen, it is submitted that the First Payment Representation is not reasonably capable of being inferred from the statements alleged in the particulars to [25] in that, on 23 June 2011 Mr Brady was a director and shareholder of Modakboard Australia Pty Limited and in his capacity as a director he necessarily undertook the duties and obligations of corporate governance including matters pertaining to the financial status of Modakboard and its capacity to trade and discharge its debts.

61. It is further submitted that the statements attributed to Ms Cohen and Mr Jones by their own terms cannot support the representation alleged at [25.a.i] and, on one view, are no more than words of encouragement (having regard to Mr Brady’s capacity and duty as a director to satisfy himself at any time as to the financial status and capacity of Modakboard to discharge its debts as they were incurred). It is submitted that, even at their highest and taken literally, the statements are no more than statements that past services would be paid for and are not statements about future services, since they were allegedly made in response to the query about payment for services provided since April 2011.

62. For Ms Cohen, it is submitted that there is no allegation of fact or context or circumstance that would support any wider inference as to the meaning of the statements as particularised. Pausing here, there is an obvious problem with reliance on a representation allegedly made in June 2011 being alleged by reference to conduct in a period prior to the time at which the representation was made, as is the case here where the relevant reliance is pleaded by reference to the period spanning April to October 2011; but that may simply be infelicity in the pleaded reliance case.

63. As to the particular at (2.b) to [25], that the statement by Ms Cohen (“Of course you’ll be paid”) was made as a representative of Modakboard in that Ms Cohen was a de facto and/or shadow director of Modakboard, the complaint made is that this is a “rolled up” allegation and that the proposed pleading does not identify the facts and circumstances alleged to support a finding that Ms Cohen was either or both a de facto or shadow director of the company. It is said that no assistance can be drawn in that regard from the pleading (at [4.c]) as that is a bare assertion that Ms Cohen is and was at all material times a de facto and/or shadow director as defined by s 9 of the Corporations Act.

64. Ms Cohen argues, that while it is possible for a person to be both, those definitions encompass different roles (see Chameleon Mining NL v Murchison Metals Limited [2010] FCA 1129 at [87]-[99]). So, for example, complaint is made that the proposed further amended cross-claim does not identify the conduct alleged to have been engaged in by Ms Cohen necessary to establish the allegation that she was either a de facto director or a shadow director; and does not identify the basis on which it is alleged that the directors of Modakboard were accustomed to acting in accordance with the instructions or wishes of Ms Cohen. It is submitted that the facts and matters relied on to support the allegations are vital to establishing the means of knowledge of Ms Cohen which would underlie the misleading nature of any representations alleged to have been made by her with respect to payment by Modakboard.

65. Similarly, complaint is made as to particular (2.c) to [25], which refers in general terms to “[t]he circumstances in which the discussions were had”, and goes on to identify those circumstances as being “that in response to Mr Brady, both Mr Jones and Ms Cohen purported to speak on behalf of, and with the actual or apparent authority of Modakboard”. It is submitted that the pleading does not identify the facts matters and circumstances on which the defendants/cross-claimants rely for the allegation that, in responding to Mr Brady’s question on 23 June 2011, Ms Cohen purported to speak on behalf of Modakboard, nor for the allegation that she did so with the actual or apparent authority of Modakboard.

Response by the defendants/cross-claimants to the above criticisms

66. As to the complaint that the material facts as to Ms Cohen’s position as a de facto or shadow director are not pleaded, the defendants/cross-claimants point simply to the proposed pleading (which contains the bare allegations that Ms Cohen acted in the position of a director of Modakboard and that the directors of Modakboard were accustomed to act in accordance with Ms Cohen’s instructions and/or wishes), saying that evidentiary matters are to be determined at trial, and referring to affidavit evidence of Mr Brady “attesting to such conduct consistent with shadow and/or de facto directorship” and corporate documents making reference to Ms Cohen as a company director.

66. As I have said elsewhere (see Watiwat v Dixon [2017] NSWSC 360), it is not for a party to have to trawl through affidavit evidence to try and ascertain the case made against it. In Northam v Favelle Favco Holdings Pty Ltd (Supreme Court (NSW), Bryson J, 7 March 1995, unrep) Bryson J pointed to the unfairness to a party if that party is required “to flesh out general expressions or indirect allusions by piecing together information in other documents such as affidavits or experts’ reports”. See also Collier v Country Women’s Association of New South Wales [2016] NSWSC 1361 per McCallum J. The answer that there is material in the affidavit evidence to support the allegation that Ms Cohen was a de facto and/or shadow director of Modakboard does not address the pleading defects in that regard.

67. As to the complaint made as to the lack of clarity as to what the impugned statements are alleged to have conveyed to Mr Brady, (which Counsel for the defendants/cross-claimants found vexing – T 40) the defendants/cross-claimants say that this has no substance – urging that “clarity could not be higher than to have the verbatim text cited without a gloss of translation or effect”. That, however, misses the point. The complaint is that it is not clear whether it is contended that the statements amounted to a promise of payment or a statement of intention; nor is it made clear what is said to be misleading or deceptive about the statements (bearing in mind that in Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82 at 88, referred to in Fubilan Catering Services Limited v Compass Group (Australia) Pty Ltd [2007] FCA 1205 at [546], it was said that to make a promise which is not performed or prediction which is not fulfilled is not of itself misleading or deceptive).

68. As to the complaint that there is no allegation (at [25.a]) as to intention/or as to lack of a reasonable basis for opinion, the defendants/cross-claimants say that there is no requirement of an intention to mislead (referring to Yorke v Lucas (1985) 158 CLR 661; [1985] HCA 65 and Houghton v Arms (2006) 225 CLR 553; [2006] HCA 59. However, what the complaint by Ms Cohen here addresses, as I understand it, is that it is not clear whether the allegation is as to a representation of intention or promise or opinion. The defendants/cross-claimants in their written submissions contend that the pleaded representations must be read as representations as to future payment to the cross-claimants by Modakboard and that such moneys will be paid. They say that the promise is as to a future matter (the future payment for services rendered or to be rendered). If so, that should be made clear in the pleading, particularly where it is then contended that, by virtue of the matters pleaded at [41.b] and the Cross Defendants’ Knowledge of Modakboard Affairs (see [33]), the cross-defendants knew or ought to have known that this would not occur.

69. I consider in due course the adequacy of the pleading at [33]. Suffice it for present purposes to say that what the further amended cross-claim fails to make clear is that which is now asserted by the defendants/cross-claimants – namely that this is an allegation of a representation as to future payment – and that this is relied on as a promise (not as a statement of present intention as to a future matter). It is particularly important to make this clear if what is sought to be relied upon by the defendants/cross-claimants (as their argument suggested) is the operation of s 4 of the Australian Consumer Law to deem the promise misleading unless the person who made the representation adduces evidence that there were reasonable grounds for making it.

70. In that regard, I note that s 4(1) of the Australian Consumer Law provides:

If:

(a)   a person makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act); and

(b)   the person does not have reasonable grounds for making the representation;

the representation is taken, for the purposes of this Schedule, to be misleading.

72. In oral argument, it was argued for Ms Cohen that, to the extent that the proposed cross-claim alleged the making of a representation as to a future matter, the pleading was deficient, referring to what was said by French J, as his Honour then was, in Fubilan at [547]:

In my opinion a pleading of misleading or deceptive conduct which relies upon s 51A should make clear that it involves the allegation that the representor did not have reasonable grounds for making the statement alleged.

73. It was pointed out that the proposed further amended cross-claim contains no allegation of a want of reasonable grounds. However, his Honour also said (at [547]):

If a pleading of misleading or deceptive conduct based upon a statement about future facts does not expressly plead want of reasonable grounds yet invokes s 51A, then it should be taken to so plead or if that implication is not open it should be regarded as deficient.

74. The approach in Fubilan was applied in Bennett v Elysium Noosa Pty Ltd (in liq) [2012] FCA 211 at [105]; 291 ALR 191; and in North East Equity Pty Ltd v Proud Nominees Pty Ltd [2007] FCA 1587 at [20]. There is, however, a decision to contrary effect (Adelaide Petroleum NL v Poseidon Ltd (1988) ATPR 40-901), where French J said:

It was submitted by the respondents that the applicants should be obliged to plead as material facts the reasonable grounds said to be lacking. In my opinion that is not a requirement of a viable plea in reliance upon s 51A.

75. Whether or not that controversy was ultimately resolved in relation to s 51A of the now repealed Trade Practices Act 1974 (Cth) (see R Miller, Miller’s Australian Competition and Consumer Law Annotated (Thomson Reuters), [4.200]), s 4(1) has been taken as an attempt to change and clarify the law on the separate issue of burden of proof (see Miller, [4.180]). (On that issue in relation to the former s 51A, see North East Equity Pty Ltd v Proud Nominees Pty Ltd [2010] FCAFC 60 at [29]-[35].)

76. Without entering into the debate that previously raged in relation to s 51A of the former Trade Practices Act, as to whether and how reliance on that section was required to be invoked in a pleading, it is in my opinion not unreasonable for Ms Cohen to require clarification of precisely what is pleaded against her in this regard. Insofar as it has now been made clear in submissions that the defendants/cross-claimants are here asserting that the statements by Ms Cohen were representations as to a future matter, being a promise that the services would be paid for by Modakboard (without any further condition being placed on the obligation to make payment other than that the services be provided) – see T 40/41; if the pleading goes forward that should be clearly articulated. (If there is a dispute as to the operation of the deeming provision that will be a matter for trial.)

77. As to whether the alleged representation is able to be divined from the statements alleged to have been made, the defendants/cross-claimants say this is a finding of fact to be made by the Court at trial, “and as such the Cross Defendants’ opinion in the matter is irrelevant to the question of pleading”. I accept that issues of fact are to be determined at trial. However, Ms Cohen is in my opinion entitled to clarification as to just what it is that the alleged representations are alleged to have conveyed to the defendants/cross-claimants, particularly where it is alleged that Ms Cohen knew or ought to have known of the falsity of the alleged representations.

78. As to the “de facto” director allegation, the defendants/cross-claimants submit that “[f]urther, the representations are in and of themselves indicia of the degree of control possessed and exercised by Ms Cohen within the organisation”. This involves to my mind a degree of circularity of reasoning. It seems to be argued that the making of the alleged statement by Ms Cohen (to the effect that one or another of the defendants/cross-claimants would be paid) is of itself a matter on which reliance can be placed to demonstrate that, in so acting, Ms Cohen was speaking as a de facto or shadow director as on behalf of and with the actual or apparent authority of Modakboard.

79. At T 42.48, Counsel for the defendants/cross-claimants submitted that “the very fact that Mr Jones and Miss Cohen responded to those questions [rather than he or she answering that he or she did not know] … is prima facie evidence in itself” of them having that authority.

80. If that is the only basis for the allegation of actual or ostensible authority then it is difficult to see how the allegation of authority can properly be made but if it is to be made then the basis for it should be properly pleaded. I note that in oral argument (T 43) the basis for this pleading was limited to the fact that there was an answer given to an unparticularised question by Mr Brady that went beyond “I don’t know”. If that is the basis for the pleading, then that should be made clear and the defendants/cross-claimants’ case on authority should be understood as limited to that.

Complaint as to allegation of inducement

81. At [40], it is alleged that the First Payment Representations were made by Mr Jones and Ms Cohen on behalf of Modakboard “in order to induce” Mr Brady and Crewmark to continue to provide the Initial Consultancy Services. Complaint is made by Ms Cohen that the pleading in this regard is deficient.

82. First, it is said that that there is nothing identifying the facts and circumstances relied on to establish that the purpose of the alleged representation was as pleaded (so, for example, no pleading of the material facts and circumstances relied on to establish the intention of both Mr Jones and Ms Cohen to induce Mr Brady and Crewmark to continue to provide the services notwithstanding the absence of their intention to pay or of a reasonable basis for belief that payment would be made).

83. Second, it is said that there is ambiguity arising from the coupling of the alternatives of “without timely payment” and without “payment at all”, it being submitted that there is a significant difference between knowledge that payments would not be timely and knowledge that payments would not be made at all. In this regard, the pleading is said to be embarrassing and oppressive.

Response by defendants/cross-claimants

84. The defendants/cross-claimants argue that the intention of a person is a matter of fact and a finding of that fact is an evidentiary matter to be determined by the Court. They submit that “[n]o further pleading of the issue is required, warranted, or feasible” (my emphasis). Reference is made to the decision of the Queensland Court of Appeal in Australian Commercial Research and Development Ltd v Commonwealth of Australia [1995] 2 Qd R 336 at 339 that “[w]hether there was a particular intention, and if so who held it, are distinct matters of fact” and to the statement of the Queensland District Court that “where it was material to allege knowledge, it was sufficient to allege it as a fact without setting out the circumstances from which it was to be inferred” (Millhouse IAG Pty Ltd v Environautics Pty Ltd [2000] QDC 196 at [19]).

85. It is also submitted that the proscription, in s 18 of the Australian Consumer Law, of misleading or deceptive conduct in trade or commerce is one which calls for an objective assessment and imposes strict liability, in that intention is not an essential element, and that the “benchmark” is merely that the cross-claimants were misled by the cross defendants’ actions, noting that whether conduct would be misleading or deceptive or likely to mislead or deceive “is not a question which turns upon ... intention” (referring to the High Court’s decision in Yorke v Lucas) and that intention is not a necessary element of the cause of action (though, if established, may act as the indicia that the recipient was indeed misled or deceived).

86. Pausing there, it is all very well to say that intention is not a necessary element of a misleading or deceptive conduct claim. However, by their very pleading (at [40]), the defendants/cross-claimants have put it in issue. If they choose to do so then they should properly plead the facts, matters and circumstances on which they rely for this allegation or intention. The submission by the defendants/cross-claimants that it is not “feasible” to do so rather suggests that the defendants/cross-claimants are unable to plead such an allegation and that it should not be permitted to be made.

87. As to the complaint made about the alleged ambiguity inherent in the significant difference in an allegation as to knowledge that payments would not be timely and as to knowledge that payments would not be made at all, the response by the defendant/cross claimants is simply that in any pleaded alternative, there are differences and these assertions of intention are findings of fact to be made by the Court based upon evidence. That, however, does not answer the complaint that the pleading is embarrassing in that it is not clear what is here being asserted. I consider this further in due course.

Complaint that the Payment Representations were false

88. As to the allegation at [41] that the First Payment Representations were false and/or misleading or deceptive or likely to mislead or deceive, it is pointed out by Ms Cohen that s 18 of the Australian Consumer Law does not refer to a representation that is false, but only to representations that are misleading or deceptive or likely to mislead or deceive. It is submitted that the introduction of an allegation of falsity is embarrassing and has the potential to give rise to the problems outlined in Nadinic v Drinkwater [2017] NSWCA 114 at [45] and [116] as to whether the case is one based in fraud in addition to misleading or deceptive conduct.

89. I note in this regard that the defendants/cross-claimants do not now press the words “false and/or” in this or equivalent parts of the pleading. Any further proposed further amended cross-claim should delete reference to the falsity of the representations since this is no longer pressed.

Complaint as to pleading of misleading or deceptive conduct

90. Again from the allegation of falsity, the following difficulties are identified with the proposed pleading of misleading or deceptive conduct. First, that there is nothing pleaded which would enable the alleged First Payment Representation to be elevated to anything more than a statement that Crewmark would be paid for its past work; no pleading that the representation contained an implied representation that Modakboard had the ability and intention to fulfil the promise; and no allegation that the maker of the promise knew it to be false other than the allegation (unparticularised other than by reference to the “Cross-Defendants’ Knowledge of Modakboard Affairs”) that Ms Cohen “knew or ought to have known” that Mr Brady and Crewmark would not be paid pursuant to the terms of the Initial Consultancy Agreement or at all.

91. Complaint is made that constructive knowledge is irrelevant to the consideration of the issues raised under s 18 of the Australian Consumer Law and thus the proposed pleading raises a false issue. In any event, it is submitted that the allegation that Ms Cohen “knew or ought to have known” that the cross claimants would not be paid for the Initial Consultancy Services is not supported by any pleaded facts or circumstances. It is noted that there is no allegation in the pleading that Modakboard did not have the capacity to pay Crewmark in respect of its past work or that there was no reasonable expectation that it would not be able to pay Crewmark for future services provided. It is submitted that any allegation as to expectation concerning future capacity to pay would have to be very specific having regard to the fact that Modakboard was a new and developing company at the time of the alleged representation.

92. Further, it is said that, absent falsity and in so far as the representation is said to be misleading, it is necessary for the pleading to make clear whether the allegation is that Ms Cohen had no reasonable basis for making the statement and the basis for any such allegation. If the alleged representation is read as a representation as to future payment, it is noted that it would span an indefinite period of time. Ms Cohen notes that non-payment for the services (as alleged at [4.a]) does not establish that the representations, when made, were misleading or deceptive.

93. Complaint is also made that there is no allegation as to when, in relation to the date of the alleged representations, the services to which the outstanding amount of $2,698.21(“the Initial Unpaid Invoice Amount”) relates were provided. It is noted that (at [10], [11] and [34] of the proposed pleading) the allegation is not as to non-payment for the services in their entirety but only as to non-payment of the balance outstanding (that being the difference between the invoiced $45,661.33 and the amount paid of $42,963.12); in other words, that claims were submitted and payments were made over a lengthy period, extending after the alleged representation was made. Complaint is made that the pleading does not address why there was a balance on account of $2,698.21 or how this outstanding balance relates to the alleged representations.

94. Insofar as it is alleged (at [41.b.iii]) that Ms Cohen knew or ought to have known that “such non-payment would be, and was, in breach of an essential term of the Initial Consultancy Agreement”, the complaint is that this introduces “a further layer of uncertainty and irrelevance”. It is submitted that this allegation is immaterial to whether or not the alleged representation was misleading or deceptive. (I also note that there does not appear to be any allegation in the pleading that payment or timely payment was an essential term of the Initial Consultancy Agreement, this being introduced – as it were – by a sidewind with the allegation that Ms Cohen knew or ought to have known that it was. A similar issue arises in relation to the Second Consultancy Agreement where the allegation of an essential term is rolled up in the allegation of breach of an essential term – see [38].)

Response by defendants/cross-claimants

95. As to the complaint as to the generality of what is alleged at [41], the cross-claimants take issue with the submission that “there is nothing pleaded which would enable the alleged representation to be elevated to anything more than a statement that Crewmark would be paid for its past work”. They say that the actual words, circumstances in which the words were spoken, and effect of those words are comprehensively pleaded at [25]; that the cross-defendants’ characterisation as to the import of the representations is the cross-defendants’ own choice of interpretation, but that these matters “are for submissions at trial, and are evidentiary matters” and have no effect upon the validity of the pleading.

96. As to the submission that there is no pleading that the representation contained an implied representation that Modakboard had the ability and intention to fulfil the promise, it is said that no such implied representation is pleaded “nor is it required to be pleaded to establish that the representation was misleading and deceptive, nor likely to be”. The defendants/cross-claimants also take issue with the proposition (at [30(b)] of Ms Cohen’s submissions) that “a promise is not deceptive unless the maker knew it to be false”.

97. The defendants/cross-claimants reiterate that the test is whether the acts were misleading or deceptive or likely to mislead; nor is there any requirement of knowledge of the falsity of representations in order to make out misleading or deceptive conduct under s 18 (though they say such knowledge or intention is considered to be one of the indicia that such conduct was misleading, specifically - that “where there is such a finding of intention to deceive, the court may more readily infer that the intention has been or in all probability will be effective”).

229. In asserting that the cross-claim is defensive, the defendants/cross-claimants argue that there almost a total overlap in the subject matter (as opposed to the type of relief sought) of the respective proceedings when juxtaposed; that the statement of claim filed on 18 June 2015 pursues declaratory relief and ownership rights including possession in relation to property produced by and/or under the control of the cross-claimants, whilst the proposed cross-claim claims moneys owed in respect of damages relating to the performances of professional services to Modakboard, including producing and/or dealing with that property sought in the statement of claim.

230. Thus they say that the basis of the proposed further amended cross-claim revolves entirely around services provided in relation to the two service agreements (the Initial Consultancy Services Agreement and the Further Consultancy Services Agreement). It is submitted that this overlap in effect means that the cross-claimants were “forced to litigate”. They argue that the cross-defendants are the “legal aggressors”, adopting the language used in the Supreme Court of Victoria in Interwest Ltd v Tricontinental Corporation Ltd. They argue that “[t]he overlap itself is a consequence of the defensive posture of the Cross Claimants in the proceedings, notwithstanding the 2nd and 4th Cross Defendants are not a party to the primary proceeding, the reasons for which are the intensive crossover of control and interests between the Plaintiff and those Cross Defendant”.

231. In that regard, the defendants/cross-claimants emphasise the positions occupied and role played by the respective cross-defendants (including that Ms Cohen, through her superannuation fund and personally, claims to have lent moneys to the company). The defendants/cross-claimants submit that the proposed cross-defendants have a financial interest and connection with the plaintiff in the primary proceedings; and that the control and interests of the proposed cross-defendants are such that it is a reasonable inference that the cross-defendants were the aggressors in the primary proceedings behind the plaintiff corporation.

232. As to Mr Brady, it is submitted that he, as owner, is not seeking to use the corporation as a “shield” and “indeed stands next to the corporation in the proceedings as the First Cross Claimant”. (That ignores, however, that he is a claimant in his own right.)

233. Second, the defendants/cross-claimants submit that the failure of Modakboard “directed to some degree by the 2nd and 3rd Cross Defendants” to pay moneys owing under the agreements has deprived the cross-claimants of a substantial amount of money (noting the amount of the contractual damages that have been claimed). It is submitted that “[s]uch damages were exacerbated by the actions of the Cross Defendants as is stated in the proposed Cross Claim”. (The assertion that the non-payment was “directed to some degree” is vague and is unpleaded.)

234. In particular, the defendants/cross-claimants say that the expenses relating to legal action stemming from the actions of the cross-claimants in the pursuit of relief, together with the defence of the original claim brought by Modakboard (shown in the 2016 financial reports of Crewmark as $61,691.73), are solely attributable to those proceedings and that those expenses have turned a company profit for Crewmark into a loss (which they say “is a directly commensurate loss” of Mr Brady – a submission that I have already addressed).

235. It is submitted that the contractual damages claimed represent a significant burden upon the financial position of both cross-claimants and that the actions of the cross-defendants are “directly attributable to the extant financial position of the Cross Claimants and the burden remains until resolution of the proceedings”. Reference is made in that regard to O'Keefe v Seafresh Holdings Pty Ltd trading as Westmore Seafoods [2009] NSWSC 1090, where security was refused. It is submitted that the connection between the conduct of the cross-defendants and the cross-claimants is “directly attributable to the extreme diminution of the financial position of the Cross Claimants” (my emphasis).

236. Reference is made to the statement made by the Queensland Supreme Court in Contamination Control Laboratories Pty Ltd v Reyer [2010] QSC 1 that what must be shown is a real connection between the conduct and the impecuniosity which, in the exercise of the Court’s discretion, would make it unjust to require security; and that it must be established that the applicant for security for costs has been guilty of some form of misconduct or unacceptable business dealings qua the respondent (there citing Melunu Pty Ltd v Claron Constructions Pty Ltd [2004] NSWSC 1064 at [31], which in turn cited Rolfe J in Dalma Formwork Pty Ltd v Concrete Constructions Group [1998] NSWSC 472).

237. The defendants/cross-claimants submit that in the present case the effect of the role played by the cross-defendants in the impecuniosity of both the defendants/cross-claimants is “real, palpable, demonstrable in evidence” and that the application for security ought to be dismissed on that basis.

238. The defendants/cross-claimants argue that there is “no separation” of Mr Brady, the sole director and shareholder of Crewmark, and Crewmark in the proceedings “either in terms of the direct financial support provided by one to the other, but in the direct connection and therefore liability to costs of Mr Brady as the First Cross Claimant”. They argue that:

… there can therefore be no likely inability of the corporate litigant to be unable to meet its obligations than that of Mr Brady himself, but further, the point is rendered moot in that Mr Brady does not “hide behind the skirt” of the corporate entity - the Cross Defendants [sic] position in that regard is already as secure as it could possibly be.

239. It is submitted that any attempt to impose “a large security for costs” as against Crewmark would be oppressive to Mr Brady as a natural person and his ability to seek justice; and would abrogate the fundamental principle that a person may seek to enforce his rights in Court.

240. Third, the defendants/cross-claimants submit that the amount estimated by the applicant is excessive. Pausing there, in circumstances where the legal expenses of the company in defending the proceedings to date and in pursuing the cross-claims are noted in the accounts at some $61,000 odd, the estimate of $50,000 by the defendants/cross-claimants’ solicitor to the end of a five day hearing seems to me highly questionable.

241. In summary, the defendants/cross-claimants submit that their cross-claim clearly falls within the realm of a defensive proceeding; that the weight of authority indicates against the award of a security for costs against them as oppressive and counter to the realisation of justice for the parties. It is submitted that the cross-defendants’ “interests and control of the Plaintiff in the primary proceedings appears obvious”. It is submitted that there is a demonstrable effect which the direct actions of the cross-defendants have had upon the defendants/cross-claimants; and that the fact that the corporate cross-claimant is accompanied as a party in the cross-claim by the natural person, Mr Brady, beside it, renders moot the question of impecuniosity of the cross-claimant company.

Determination

242. The threshold question to be determined on the application for security to be provided by Crewmark is whether there is reason to believe that Crewmark will be unable to pay Ms Cohen’s costs of defending the cross-claim if it were to be ordered to do so. That requires the formation of an opinion as to the financial position of Crewmark as it will be at the time of judgment and immediately thereafter.

243. It is not disputed that the onus is on Ms Cohen, as an applicant for security, to establish that there is reason to believe that Crewmark will be unable to pay the costs of the litigation if unsuccessful (see Cornelius v Global Medical Solutions Australia Pty Ltd; Farrag v Global Medical Solutions Australia Pty Ltd [2014] NSWCA 65 at [17], [56]-[59]; 98 ACSR 301).

244. The test as to whether there is reason for the requisite belief is not a demanding one (see Beach Petroleum NL v Johnson [1992] 7 ACSR 203; Meni’s Tailoring & Alterations v Jeanswest Corporation Pty Ltd [2003] FCA 1108; HP Mercantile Pty Ltd v Dierickx [2013] NSWCA 87) and it has been said that there is a low threshold (Living Spring Pty Ltd v Kliger Partners (2008) 20 VR 377; [2008] VSCA 93 at [15]-[16]) and Cornelius v Global Medical at [57]-[60]; In the Matter of Felan’s Fisheries Pty Limited [2016] NSWSC 1351 at [10]). It has also been said that the Court should adopt a “practical commonsense approach” to the examination of the financial affairs of the corporation (Wollongong City Council v Legal Business Centre Pty Ltd [2012] NSWCA 245 at [28]).

245. I am satisfied that there has been credible evidence put forward by Ms Cohen that provides more than sufficient reason to believe that Crewmark will be unable to meet an order for costs if such a judgment were to be made at the end of a contested hearing and hence that the threshold issue is satisfied. (I note that the submissions made to the effect that security would stifle the cross claim proceeding is telling support for such a conclusion.)

246. Once the threshold question is satisfied, the next issue to be considered is whether, in the exercise of the Court’s discretion, security should be granted and in that regard it has been said that there is an evidentiary onus on the part of the party from whom security is sought to establish a reason why security should not be granted (see Wollongong City Council (at [30]) and Cornelius v Global Medical (at [18]-[20])).

247. In Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72, McHugh J said at 97 that:

[T]he jurisdiction to award security for costs should thus be seen as protecting the efficacy of the exercise of the jurisdiction to award costs. The discretion should be exercised with the same rationales in mind, namely that, to the extent it can be avoided, the court should not permit a situation to arise where a party’s success is pyrrhic.

248. At [52] in Idoport Pty Limited v National Australia Bank Limited; Idoport Pty Limited & Market Holdings Pty Limited v Donald Robert Argus; Idoport Pty Limited "JMG" v National Australia Bank Limited [2001] NSWSC 744), Einstein J said:

The purpose of a security for costs order is therefore a protective jurisdiction to ensure that the primary purposes for having costs orders themselves, can be achieved. A defendant is protected against the risk that a costs order obtained at the end of the day may turn out to be of no value by reason of the impecuniosity of the plaintiff. The jurisdiction therefore assists both the compensation purpose as well as the public interest objective.

249. A number of discretionary considerations have been identified as relevant in this context by Beazley J (as her Honour then was) in KP Cable Investments Pty Ltd v Meltglow Pty Ltd [1995] 56 FCR 189 (at 196-198)). They include: the strength of the case; whether the relevant party’s impecuniosity is attributable to the applicant for security; whether the application for security is oppressive; whether there is any person behind the company to benefit from the litigation; and whether, where security is sought against a cross-claimant, the cross-claimant is in substance a plaintiff. Those matters are now largely reflected in amendments to r 42.21 of the UCPR which came into effect on 9 August 2013.

250. Of the non-exhaustive considerations set out in r 42.21(1A) of the UCPR, the first is the prospects of success and genuineness of the proceedings (r 42.21(1A)(a)-(b)). Although much criticism has been made as to the pleaded claim, I would accept (assuming the pleading defects can be remedied), that this case falls within the general rule, namely that where a claim is prima facie regular on its face and discloses a cause of action then, in the absence of evidence to the contrary, the Court should proceed on the basis that the claim is bona fide and has reasonable prospects of success (KPCable at [197]). While I consider that there may well be difficulties in establishing the misleading or deceptive conduct and unconscionable conduct claims based solely on the face of the representations alleged to have been made by Ms Cohen, I cannot conclude that such a claim is untenable.

251. As to impecuniosity (r 42.21(1A)(c)), this not only enlivens the Court’s discretion under s 1335(1) of the Corporations Act but it has also been recognised as a substantial factor favouring the exercise of the discretion to order security (see Idoport Pty Ltd v National Australia Bank Limited [2002] NSWCA 271 at [40] (Mason P); Tyneside Property Management Pty Limited v Hammersmith Management Pty Ltd [2013] NSWCA 404 at [18] (Sackville AJA)).

252. In the Idoport proceedings, Einstein J noted that the possibility of stultification of proceedings is a powerful factor to be taken into account in exercising its discretion as to whether an order is appropriate (citing KP Cable and also Yandil Holdings Pty Ltd v Insurance Co of North America (1985) 3 ACLC 542). However, his Honour also noted the observation of Clarke J (as his Honour then was) in Yandil that the fact that a plaintiff is financially unable to provide security does not lead to the inevitable conclusion that the making of the order will stultify the plaintiff’s claim nor does it lead to the automatic refusal of an order (referring also to cases where the financial position of those standing behind the plaintiff was taken into account).

253. Although it is here submitted that the company’s impecuniosity is attributable to the failure to pay the consultancy fees, and I am prepared to accept Mr Brady’s evidence to the effect that the company otherwise has had a positive finding history and credit rating, it is impossible at this stage to sheet home responsibility for its current financial position to the fault of Ms Cohen.

254. As to whether Crewmark, as cross-claimant, is effectively in the position of a defendant (r 42.21(1A)(e)), as it strongly maintains, it is relevant to note that in Interwest v Tricontinental (at 627) Ormiston J noted that proceedings have been characterised as defensive where they are either directly resisting proceedings already brought or seeking to halt self-help procedures, observing that in those circumstances:

It would seem that to require security would be oppressive, or at least would provide serious grounds for refusing to make an order. At the least it is a factor to be considered in the exercise of the discretion. In particular, it is a basis for adducing the amount of security ordered to a sum relating to the cost of those claims which cannot be characterised as defensive.

255. Examples of what may be characterised as defensive proceedings to halt self-help procedures may be seen in KPCable at [199]-[202]); John Arnold’s Surf Shop (in liq) vHeller Factors Pty Ltd [1979] 22 SASR 20; (1979) 4 ACLR 492 and Interwest. In Sydmar Pty Ltd v Statewise Developments Pty Ltd [1987] 11 ACLR 616 (at 626-627), Smart J said that the Court would be slow to allow a situation where the action is stayed because of the inability to provide security but the cross claim covering substantially the same factual areas proceeds.

256. Here, there is obviously an overlap in the subject matter of the proceedings, but it is to be noted that Modakboard is not now actively pursuing any relief in the proceedings. The cross-claim against Modakboard could have been brought absent any earlier dispute as to the website/domain name ownership issues. Moreover the claim against Ms Cohen is quite separate from any dispute as to ownership of the website/domain name/email communication.

257. In Sydmar (at 302), Smart J considered that the defendant/cross-claimant was, in the words of Legoe J in John Arnolds Surf, “one seeking to go out for the recovery from the opposition by attack”. I consider that description applies here. This is a factor which must be balanced against all the others, but in my opinion it weighs in favour of the grant of security.

258. There was no submission that there had been delay on the part of Ms Cohen in making her application for security for costs (the factor referred to in r 42 (1A)(i)). Nor do the factors in r 42.21(1A)(g)-(h) appear to be applicable.

259. As to the factor raised in r 42.21(1A)(j), namely as to the costs of the cross-claim, where a party is likely to incur significant legal costs in defending the claim, and will be unprotected if no order for security is made, this is a consideration for the making of an order for security (see Porter v Gordian Runoff Limited [2004] NSWCA 171 at [13]-[32]). In the circumstances, (leaving aside the question of Ms Cohen’s own legal fees) there is no reason not to accept Ms Jabbour’s estimate that significant costs are likely to be involved in defending the cross claim as being a genuine one. On its face it appears not unreasonable. There is every likelihood, therefore, that significant costs will be incurred in defending the cross-claim and a real risk that they will be irrecoverable.

260. Balancing the above factors, I am of the view that the discretionary matters favour an order for security for costs being made against Crewmark in this case. The submission that such an order will be sheeted home in some fashion to Mr Brady was not supported by any evidence.

261. As to the position of Mr Brady, this is somewhat different. Security for costs orders sought against an impecunious plaintiff (and, as cross-claimant he is nevertheless in my opinion here proceeding, in effect, as a plaintiff) are generally more difficult to obtain due to the potential that orders will stifle the proceedings. However, the disproportion between this claim and the cost of his cross-claim is also a factor to take into account in that respect and there is nothing other than Mr Brady’s assertion from which to conclude that such an order would stifle his cross-claim. However, in circumstances where I am not proposing to allow a further opportunity for Mr Brady to prepare a further proposed amended cross-claim, that issue does not arise.

Quantum

262. As to the quantum (and manner of provision) of security, there are a number of issues that arise.

263. First, the claimed amount includes not only future but also past costs (in the order of $63,600). There is power to aware security for costs already incurred (if the application is made promptly) (Brocklebank & Co v The King's Lynn Steamship Co (1878) 3 CPD 365; Massey v Allen (1879) 12 Ch D 807; JWH Turner & Co Ltd v O'Riordan (1923) 40 WN (NSW) 64; Harvey v Jacob (1817) 106 ER 59; Bryan E Fencott & Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497). Relevant matters to be taken into account in that regard can include the nature of the acts done during the intervening period between commencement of the proceedings and when security is sought (Southern Cross Exploration NL v Fire & All Risks Insurance Co Ltd (1985) 1 NSWLR 114).

264. In this regard, the promptness with which a party acts to seek security is relevant in that it has been said that a plaintiff is entitled to know its position in relation to the security before it embarks to any real extent to its litigation and before it is allowed to commit substantial sums of money towards litigating its claim (see Buckley v Bennell Design & Construction Pty Ltd per Moffitt P; Bryan E Fencott per French J, as his Honour then was).

265. Here, there was no significant delay in the seeking of security for costs. The fact that the application was not pressed (and hence not dealt with) in September 2017 is not in my view determinative against the award of security (since the defendants/cross-claimants have been on notice for some time of the concern of Ms Cohen as to the costs position). The amount claimed for costs already incurred as at the date the motion for security for costs was filed is not able to be determined but on the material before me it seems unlikely to have amounted to a significant proportion of the total amount sought (particularly as it includes an amount for Ms Cohen’s own fees, which I am not proposing to include in the order for security). I would therefore have been inclined to allow some amount for the past costs. However, I do not propose to do so in circumstances where at least a portion of the past costs will now (presumably) be covered by the costs orders made to date and which I will make on the current application.

262. Second, the amount claimed includes an amount for Ms Cohen’s time. The issue whether a self-represented litigant who is a solicitor (or by extension a barrister) can recover professional costs when acting for himself or herself in proceedings (the so-called Chorley exception) (see London Scottish Benefit Society v Chorley (1884) 13 QBD 872; and see Guss v Veenhuizen (No 2) (1976) 136 CLR 47; [1976] HCA 57) is the subject of an appeal pending before the High Court on the issue of the costs assessor’s jurisdiction (being the appeal from the decision in Coshott v Spencer [2017] NSWCA 118). Although there may well be points of distinction between the fact situation in that case, I am not at this stage prepared to order the provision of security by reference to Ms Cohen’s own fees.

263. Third, as to the amount if security, Ms Jabbour has given an indication of the breakdown of the estimated costs. While she has not done so on a party/party basis, it has been recognised that the Court may fix the amount of security based on a general estimate (Allstate Life Insurance v ANZ Banking Group Limited (1995) 134 ALR 187; [1995] FCA 1778). I am satisfied in the present case that adopting a discount of, say, 20% from the solicitor/client costs (as Senior Counsel for Ms Cohen suggested) would not be inappropriate in this regard.

264. During the hearing I raised the question whether security should be ordered at this stage to the conclusion of the hearing. Senior Counsel for Ms Cohen did not seek to dissuade me from such a course. I am of the view that security should be awarded in tranches, bearing in mind that, as with many matters, this case might not ultimately proceed to a contested hearing. At this stage I propose to order security for the future costs of the proceedings from the date of service of any further proposed amended statement of cross-claim to the close of evidence.

(iii)   Forthwith costs order

269. Finally, as to the third application, I have already noted that Modakboard and Mr Jones now join in that application and seek an order for their costs incurred from the filing of the amended cross claim on 22 September 2016 (to which they filed a defence) to the date of the hearing before Rein J on 8 September 2017, as costs thrown away by reason of the defendants/cross-claimants’ application for leave to file the proposed further amended cross-claim. They argue that even if the defendants/cross-claimants were successful in obtaining the relief sought in their amended notice of motion, the first and third cross defendants would not have incurred the costs so far incurred in relation to the cross claim had the defendants/cross-claimants filed on 24 August 2015 the cross-claim upon which they now wish to rely.

270. In Fiduciary Limited v Morningstar Research Pty Ltd (2002) 55 NSWLR 1; [2002] NSWSC 432 at [10-[13] Barrett J, as his Honour then was, considered the circumstances in which it was appropriate to make an order for costs to be payable forthwith: namely where the application or aspect in respect of which the particular costs order is made, though before conclusion of the proceedings, represents the determination of a separately identifiable matter or may be viewed as the completion of a discrete aspect; where there is some unreasonable conduct on the part of the party against whom costs have been ordered; and where “there is much to come in the proceedings” and “one can see a fairly long time before the proceedings are disposed of” – in other words where the final determination of the proceedings is far away.

271. In my opinion, given the delay in the defendants/cross-claimants producing an acceptably pleaded further amended cross claim and the likely delay in the matter proceeding to a final hearing, the costs ordered to date should be payable forthwith.

272. It was suggested by Senior Counsel for Ms Cohen that leave to proceed further might be conditional on payment of the costs ordered. In Maylord v Nauer Maylord Equity Management Pty Ltd as trustee of the Batterham Retirement Fund v Nauer [2017] NSWSC 634, I had cause to consider orders of that kind made previously by Bergin CJ in Eq, namely for the plaintiff to pay certain costs of the proceedings and staying the proceedings until satisfaction of the costs orders made in the proceedings to date. A similar order was sought here by Ms Cohen. There would be merit in such an order in the present case, having regard to the conduct of the proceedings to date and the misgivings I have as to the likelihood of a properly pleaded claim emanating (even after what have been referred to by Senior Counsel for Ms Cohen as two very expensive “advices on pleading” to date). However, in the Maylord case the costs had been fixed. Here, such an order would potentially place the proceedings further into limbo if the defendants/cross-claimants were to invoke the costs assessment process and in the circumstances I do not propose to make such an order.

Orders

273. For the above reasons, I make the following orders:

1. Refuse leave for the filing of the proposed further amended cross-claim in the form annexed to the affidavit of Matthew Howard Brady sworn 5 March 2018 and dismiss with costs the defendants/cross-claimants’ amended notice of motion filed 17 January 2018.

2. Give leave for the second cross-claimant (Crewmark Pty Ltd) to serve any further proposed further amended cross-claim (addressing the deficiencies identified in these reasons) on the first cross-defendant (Modakboard Australia Pty Ltd) and the proposed second and third cross-defendants (Ms Cohen and Mr Jones) within 21 days of compliance with order [4] below, such further proposed further amended cross-claim against the proposed second and third cross-defendants to be limited to the second cross-claimant’s cross-claims against them in relation to alleged misleading or deceptive or unconscionable conduct (or accessorial liability therefor) but not to include any claim for negligent misstatement. For the avoidance of doubt, I refuse leave for the first cross-claimant (Mr Brady) to serve any further proposed amended cross-claim.

3. If there is objection to the filing of any such further proposed further amended cross-claim on the basis that it does not adequately address the pleading deficiencies identified in these reasons or otherwise, give liberty to the parties to relist the matter before me on 3 days’ notice to determine whether leave should be granted to file that further proposed further amended cross-claim.

4. Pursuant to rule 42.21(1) of the Uniform Civil Procedure Rules 2005 (NSW) and s 1335(1) of the Corporations Act 2001 (Cth), order that the second cross-claimant (Crewmark Pty Ltd) provide security within 28 days for the second cross-defendant’s (Ms Cohen’s) costs of and incidental to the cross-claim from the date of service of any pleading in accordance with order 2 above up to but not including the final hearing of this matter, in the amount of $50,000 (that being calculated at 80% of $60,940 – namely $42,658.00 – rounded up to $50,000), such security to be provided by way of an unconditional bank guarantee in a form acceptable to the proposed second cross-defendant (Ms Cohen).

5. In the event that the security ordered in order 4 above is not provided within the time specified, order that the proceedings on the cross-claim against the proposed second cross-defendant (Ms Cohen) be stayed until further order.

6. Grant the proposed second cross-defendant (Ms Cohen) liberty to apply on 3 days’ notice for further security to be provided for the period from the commencement of the hearing or to increase the amount of security ordered in order 4 if that amount proves insufficient or in the event that there is disagreement as to the acceptability of the unconditional bank guarantee provided pursuant to order 4.

7. Order that the second cross-claimant (Crewmark Pty Ltd) pay the proposed second cross defendant’s (Ms Cohen’s) costs of the motion for security for costs.

8. Order that the defendants/cross-claimants pay the costs of the first cross-defendant (Modakboard Australia Pty Ltd) and the proposed third cross-defendant (Mr Jones) thrown away by the proposed amendment of the initial cross-claim, including the costs of the motion ordered in order 1.

9. Order that the defendants/cross-claimants pay the proposed fourth cross-defendant’s (Libbie Pty Ltd’s) costs of the proceedings (other than to the extent that these costs have already been made the subject of costs orders).

10. Order that the costs awarded at [1], [8] and [9], as well as the costs ordered by Rein J on 8 September 2017 in favour of the proposed second and fourth cross-defendants (Ms Cohen and Libbie Pty Ltd) be assessable and payable forthwith.

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Decision last updated: 04 April 2018