Moir v Vodafone - [2009] SASC 234

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
MOIR v VODAFONE
[2009] SASC 234
Judgment of The Honourable Justice Anderson
14 August 2009
PROCEDURE - COSTS - SECURITY FOR COSTS - POVERTY - LACK OF MEANS
SECURITY FOR COSTS - INTERESTS OF JUSTICE
Application by defendant for security for costs - plaintiff sues in personal capacity and pursuant to deed of assignment from company in liquidation - plaintiff impecunious - whether impecuniosity caused by defendant - whether action brought by plaintiff in a representative capacity - whether another solvent party stands behind the plaintiff in the action and stands to benefit by a successful action - whether security for costs should be ordered in the interests of justice.
Held: Plaintiff impecunious - uncertainty as to cause of plaintiff's impecuniosity - no need to determine if plaintiff acting in a representative capacity - plaintiff's wife stands behind the plaintiff in the action, stands to benefit from a successful action and is solvent - security for costs ordered in the interests of justice, subject to a mediation taking place.
Supreme Court Civil Rules 2006 r 194, referred to.
Bond v Trustee of the property of Alan Bond; a bankrupt (1994) 20 AAR 1; Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1, discussed.

MOIR v VODAFONE
[2009] SASC 234
ANDERSON J.
Introduction

In this matter the defendant Vodafone has applied pursuant to r 194 of the Supreme Court Civil Rules 2006 for an order for security for costs. Mr Moir is representing himself in this matter, although on earlier occasions he was represented by solicitors.
Rule 194 states:
194—Security for costs
(1)The Court may order a plaintiff to provide security for costs if—
(a)     the action is brought in a representative capacity and the plaintiff is insolvent or would have insufficient resources to meet an order for costs if the action were to prove to be unsuccessful; or
(b)     the plaintiff is ordinarily resident outside Australia; or
(c)     there are reasonable grounds to suspect that the action may have been brought for an ulterior purpose; or
(d)     the order is authorised by statute; or
(e)     the order is necessary in the interests of justice.
(2)Security for costs is to be given in the form and manner directed by the Court.
(3)If the Court orders security for costs, the action may be stayed until the security is given.
(4)The Court may, at any time, vary or revoke an order for security for costs and make consequential directions.
(5)An amount paid into the Court by way of security for costs may be paid out by consent of the interested parties.
Vodafone relies on both r 194(1)(a) and r 194(1)(e).
Mr Blight, counsel for Vodafone, argued that the action was brought by Mr Moir in a representative capacity. He argued that the scope of the present rule is wider than the former rule in two important respects, namely, the inclusion of the words “representative capacity” in r 194(1)(a) replacing the words “mere nominal plaintiff” in the old rules, and also the inclusion of the words “necessary in the interests of justice” in r 194(1)(e) replacing the words “special circumstances” in the old rules.
Mr Blight submitted that, even if Mr Moir has not brought the action in a representative capacity, an order for security for costs is necessary in the interests of justice. He argued that an order was necessary because of the combination of Mr Moir’s impecuniosity, the acknowledged fact that he has no realisable assets, that there are others (including Mrs Moir) who stand to benefit from the litigation, that Mrs Moir has been actively involved in the litigation, that the prospects of success are poor, that Mr Moir is unemployed, and finally that the legal costs will be substantial.
Mr Moir brings the action not only in his personal capacity but in addition, pursuant to a Deed of Assignment, he is obliged to pay 50% of any net proceeds of the action to HTi Communications Pty Ltd (in liq) (“HTi”). Mr Moir is the sole director of HTi and he and his wife Kristina own one $1 share each. They are the sole shareholders.
Background
The action by Mr Moir against Vodafone can be summarised as follows. Mr Moir, through the company HTi, sold mobile telephone equipment and was involved in the resale of mobile telephone services. Until late 2000, the company had an agreement with Telstra.
It is alleged that Vodafone sought out Mr Moir and HTi, with a view to convince them to change allegiance to that company. Certain discussions took place and several meetings were held. These culminated in Vodafone making an offer.
There were then negotiations, including a counter offer from HTi, and then what is alleged by Mr Moir to be a binding agreement was reached in November 2000. The agreement is alleged to be partly oral, partly written and partly implied. Training of HTI staff by Vodafone then took place, and new fixtures and fittings were delivered by Vodafone to HTi’s various premises.
After the alleged agreement in November 2000, Mr Moir received a letter from Vodafone which required a charge to be “put in place for Vodafone’s protection”. Mr Moir alleges that a conversation then followed in which he said he was told by an officer of Vodafone that the mention of the charge in the letter was merely to appease the legal department and would have no effect. Mr Moir alleges that he relied on that assurance.
Vodafone alleges that no formal agreement was entered into until April 2001. Later, Vodafone terminated the agreement. Mr Moir says that contrary to its obligation under what he alleges was the agreement, Vodafone failed to pay him amounts due under the contract. He alleges misleading and deceptive conduct in breach of the Trade Practices Act. HTi eventually became insolvent and liquidators were appointed.
Under the agreement that Mr Moir claims was reached in November 2000, he alleges that Vodafone should have paid to HTi, at the time they entered into a formal agreement, the equivalent of six months existing revenue that HTi should have obtained had it continued its existing agreement with Telstra. For a six-month period after this Mr Moir claims that Vodafone would have had to make monthly payments to HTi of the equivalent of one month’s revenue under the existing Telstra agreement. Finally, Mr Moir alleges that Vodafone would have had to pay HTi various fees and commissions relating to the connection and airtime usage of customers to the Vodafone network.
Although the defendant has not yet filed its defence, it has attached to the outline of argument accompanying this application a “draft points of defence” document which clearly places many, if not most, of the plaintiff’s contentions in issue.
In particular, in the draft points of defence Vodafone denies the formation of any contract as alleged by Mr Moir. Vodafone asserts that any agreement at the stage alleged by Mr Moir was merely an agreement to enter into a later formal agreement, that is, it was subject to a formal contract.
Vodafone alleges that the formal agreement was in fact finalised on 30 April 2001 and that it was the entire agreement. It claims that its only obligation to pay any of the amounts suggested by Mr Moir was subject to HTi providing securities, and that HTi failed to do so. Under this formal agreement, Vodafone was to pay HTi the sum of $200,000 on the execution of the formal agreement, and then a further $200,000 within 14 days. Vodafone was also to pay HTi $50,000 per month for the period from March to August 2001, and a further $40,000 per month for the period September 2001 to May 2002.
Vodafone asserts that in any event any failure by it to make payments was not the cause of HTi’s insolvency. Vodafone alleges that the financial position of HTi at the time, namely, late 2000 and early 2001 and for some time previously, was parlous and that it had not traded profitably as a Telstra dealer for some time.
There is also an assertion that a substantial amount of the payments claimed by Mr Moir are statute barred. The alleged misrepresentations are disputed by Vodafone. Finally, it is alleged that HTi acted at all relevant times with formal advice from a solicitor.
Security for costs consideration
It is not in dispute that Mr Moir is insolvent and that he has insufficient resources to meet a costs order if he is unsuccessful in the action. He has no assets of any value and he is currently unemployed. He brings the action for his own benefit and for the benefit of HTi. As I have indicated, he has entered into a deed of assignment which obliges him, in the event that he is successful in the action, to pay 50% of the net proceeds to HTi.
Mr Moir’s wife, Kristina, is a 50% shareholder and an unsecured creditor of HTi. She is not a co-assignee with Mr Moir, nor is she a plaintiff in her own right. She does have assets and Vodafone suggests that she has been actively involved in the litigation, both in relation to providing instructions to the former solicitors and also in seeking external funding for the litigation through Messrs Sheahan Lock who arrange for such funds to be provided.
Vodafone suggests that because she is so involved in the litigation and because she stands to benefit from any successful action by Mr Moir, it is unfair and not in the interests of justice that Vodafone has no recourse to her for costs in the event of an unsuccessful action.
Applicant’s submissions
Mr Blight put six propositions which he submitted supported the application for security for costs. His propositions are as follows:
1.The action is brought in a representative capacity within the meaning of r 194(1)(a). He submits that Mr Moir is in an analogous position to a plaintiff in a representative proceeding, or alternatively as a trustee, so that if he receives any damages he would then hold those damages on trust for the benefit of the company. That is as to 50% of those damages.
2.In the alternative, even if it is not found that he is acting in a representative capacity, it is in the interests of justice to make an order.
The aspect emphasised by Mr Blight, and relevant to the interests of justice, is that by virtue of the assignment, others, including Mrs Moir, stand to benefit but are at no risk for an order for costs. Whilst the court can look behind a corporate plaintiff and make an order for security, there is no means available under the rules to do that other than pursuant to r 194(1)(e) in the interests of justice.
Mrs Moir is protected from any order for costs because of the assignment, even though she may ultimately benefit. I deal with this aspect later when I consider Mr Moir’s submission that the action will be stifled if an order is made.
3.The plaintiff is insolvent and has insufficient resources to meet an adverse costs order. An assessment has been made by a specialist in taxation of costs that up to and including the first day of trial the costs would be in the order of $300,000.
4.Vodafone submits that the case which Mr Moir proposes to run is open to serious doubt and has insufficient prospects of success. It relates essentially to a claim for payments alleged to be owed by Vodafone to Mr Moir and the allegation that because those payments were not made HTi became insolvent. There are clearly serious issues as to causation in relation to that contention. Mr Moir suggests that Vodafone was in fact the cause of the impecuniosity of the company. Mr Blight outlined various other difficulties which he says Mr Moir faces, not the least of which is the doubt surrounding the ability to prove his allegations of misrepresentation by Vodafone.
5.Vodafone submits that an order for security for costs will not stifle the action. That proposition is directly linked with the financial capacity of Mrs Moir and the suggestion that she stands behind the plaintiff.
6.As a separate proposition, Vodafone contends that there is no case, or at least it is open to very serious doubt, as to whether Vodafone is the cause of the plaintiff’s impecuniosity, as Mr Moir suggests. This involves in turn a detailed examination of the matters which led to the insolvency of the company and the situation between Mr Moir and Telstra, with whom Mr Moir previously had a contract.
HTi’s financial problems
It is sufficient to observe at this stage that the commercial relationship between Telstra and HTi was under considerable strain in 1999 and 2000. Mr Moir gave Telstra notice of intention to terminate the agreement he had with it. An undated letter from Mr Moir to Telstra sets out a history of disputes and disagreements. It states:
The decision to terminate my relationship with Telstra has been a most difficult decision for me to make given that over the past ten years HTi Communications has been able to develop into the largest independent Telecommunications dealership in South Australia with very little support of the network we were promoting. With the constraints placed on our company by Telstra during this time feel we have lost many opportunities which in turn has left us with little choice but to terminate our relationship.
It can be seen that HTi asserted that it had to terminate the relationship with Telstra because of constraints placed on it by Telstra that caused it to lose “many opportunities”.
Vodafone claims that HTi was moving from Telstra regardless of any representations made by Vodafone.
HTi had experienced cash flow problems before any alleged conduct by Vodafone. It went into voluntary liquidation on 23 February 1998 on the recommendation of its auditors.
Vodafone asserts that it will not be possible for Mr Moir to establish a causal link between any representations it made and the subsequent liquidation of HTi.
It is not appropriate to delve into these aspects of causation at this stage. However, Vodafone maintains that it is sufficient to cast substantial doubt on Mr Moir’s view that “the plaintiff’s parlous state of finances has been largely brought about as a consequence of the alleged conduct of the defendant”, and his ability to prove that allegation.
Mrs Moir’s involvement
If Mrs Moir is involved in the litigation and does stand to benefit from a successful outcome, and is in possession of assets which were derived as a result of a sale of property jointly owned by Mr and Mrs Moir, then on the face of it the justice of the case would require an order, regardless of the other factors mentioned by Mr Blight.
Mr Moir filed an affidavit dated 17 June 2009 (FDN 34). He deposed to various reasons why an order for security for costs should not be made. He did not, however, deal with the question of his wife’s involvement, nor her ability to meet a judgment. Accordingly, at the outset of the hearing I advised him that I believed this to be a deficiency and invited him to consider the matter.
Kristina Moir filed an affidavit (FDN 33) on 18 June 2009. In that affidavit she deposes to her involvement in the history of the matter and deals also with the question of the present real estate which she owns.
Whereas earlier information indicated that her property was worth approximately $250,000 and that there was a mortgage of $100,000 to the ANZ Bank, Mrs Moir’s affidavit deposes to the fact that she has now extended the mortgage to $150,000. She does not give any indication as to the reason for that extension of mortgage and whether it was related in any way to this action. Likewise she says nothing about the present value of the property. In any event, there is still a substantial equity which she has in the property, of at least $100,000, assuming that the current valuation is not less than $250,000.
It is apparent that Mrs Moir did attend meetings with her husband relating to the litigation, but she deposes to the fact that he was ill at the time. She says that she was not prepared to give a guarantee which would expose the family home. The property previously owned jointly by Mr and Mrs Moir was sold and she deposes to the fact that the residual funds were used to pay off their debts, including the legal fees incurred to that time. She gives no details of the sale price or the extent of the debts.
Vodafone submits that at an earlier stage in the proceedings Mrs Moir was prepared to provide $125,000 by way of mortgage to fund the action. This was in respect of the matrimonial home at that time. This information appears in an email from Mr Moir to Sheahan Lock.
In her affidavit Mrs Moir responds to that submission. She deposes to the fact that, when asked, she expressed concern that she would be exposed to losing the family home. She says it was then discussed that any guarantee be limited to Mr Moir’s share of the property. She says that this discussion was repeated at a meeting with the solicitors Lynch Meyer, who were then acting for the Moirs. She deposes as follows:
My husband repeated to Lynch Meyer that he was willing to provide a bank guarantee over our property, limited to the $125,000 previously agreed. I was aware that I would have to sign any guarantee, despite the limit being applied.
Although Mrs Moir’s response is somewhat equivocal, it tends to support the assertion by Vodafone that she has been involved in some way in discussions to fund the action and that she was, at that time, prepared to sign a guarantee.
It is my view that Mrs Moir, as a shareholder of HTi, does stand to benefit from a successful outcome of Mr Moir’s action. As I have said, she has been involved in the litigation at least to some extent but she is not at risk for an order for costs. Her affidavit does not complete the full picture of her involvement.
Mr Moir’s submissions
Mr Moir claims that if an order for security for costs is given, the action will be stifled. The court may therefore look behind the plaintiff to see who stands to benefit from the successful outcome of the case: see Bond v Trustee of the property of Alan Bond; a bankrupt (1994) 20 AAR 1 at 8 per French J, and also see Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1. I have held that Mrs Moir stands to benefit from a successful outcome. The action would not be stifled if Mrs Moir assisted in providing funds. I have already given my reasons as to how she has been involved in the litigation and how she stands to benefit through the assignment but with no obligation on costs.
Mr Moir further asserts that Vodafone is the cause of his impecuniosity. I have been provided with many documents annexed to the affidavits filed in this matter showing the history of the matter. It is not for me at this stage to make a decision on the information available as to the cause of the plaintiff’s impecuniosity. However, the issue of the causation of Mr Moir’s impecuniosity will be a difficult matter to decide. There is no certainty that Mr Moir will be able to sheet home the cause of his impecuniosity to Vodafone. It is clear that there are many factors which may have potentially contributed.
There is the suggestion that HTi was not trading profitably as a Telstra dealer and that it had been undergoing significant cash flow problems for sometime. All these matters need to be tested in a trial but, on the face of it, Mr Moir’s suggestion that Vodafone is the cause of his impecuniosity is far from certain.
Mr Moir argued that there were no “exceptional” circumstances in this matter. Those words do not appear either in the old rules or the present rules. The words “special circumstances” appeared in the old rules but do not appear in r 194. As I have said, those words have been replaced by the words “necessary in the interests of justice”. My reasons indicate why I consider that an order is necessary in the interests of justice.

Mr Moir also denied that he is suing in a representative capacity. However, I have decided that it is not necessary to decide that issue in this matter because of the views I have reached on the application of r 194(1)(e).
As I have indicated earlier, the stage has not been reached where Vodafone has filed its defence. If the matter proceeds, it will be ordered to file its defence and then the necessary pre-trial procedures can be put in place.
Suggested mediation
I suggested to the parties that they should consider mediating and that if they did not, I would consider ordering a mediation in any event. Mr Moir gave me his assurance that he was interested in mediating, and Mr Blight was to obtain instructions. Those instructions have now been communicated to me by letter from Vodafone’s solicitors. The solicitors say that they are willing to mediate but that any mediation should wait until after discovery has been made.
I do not consider that mediation needs to await discovery. Both parties know their cases and their strengths and weaknesses. It is important, in my view, that a mediation take place as soon as possible. Therefore I will order a mediation as part of the final orders.
Conclusion
For the reasons I have given, it is in the interests of justice to order security for costs in this matter. I consider that the combination of Mr Moir’s impecuniosity, the fact that his wife stands to benefit but is not at risk on costs, and the very large amount of costs which have already been incurred are all persuasive factors for the making of an order for security for costs. In the circumstances, it seems to me that an appropriate initial amount is $40,000. This can be reviewed, if necessary, as the matter progresses towards trial.
Because I have reached the view that security is required in the interests of justice, I do not intend dealing with Mr Blight’s carefully researched argument on whether Mr Moir is acting in a representative capacity. Despite the changes to the rules that I referred to earlier, I still have considerable doubt that this ground has been made out under r 194(1)(a).
I will order a mediation, and order that if the mediation is unsuccessful then within 21 days of the conclusion of the mediation the plaintiff is to provide security by way of the payment of $40,000 into court.
I will hear the parties as to how they now wish to proceed.