Nato International (Australasia) P/L v Tlig Marketing Coporations
[2000] QSC 341
•5/10/2000
[2000] QSC 341
THE SUPREME COURT
OF QUEENSLAND
BRISBANE No. 7435 of 1999
BETWEEN:
NATO INTERNATIONAL (AUSTRALASIA) PTY LTD (ACN 069 759 217) & ANOR
Plaintiffs
AND:
TLIG MARKETING CORPORATIONS & ORS
Defendants
CONSOLIDATED WITH
BRISBANENo. 7812 of 1999
BETWEEN:
NATO INTERNATIONAL (AUSTRALASIA) PTY LTD (ACN 069 759 217) & ANOR
Plaintiffs
AND:
ROBERT HENRY PERCIVAL OSBORNE & ORS
Defendants
REASONS FOR JUDGMENT
B.W. AMBROSE J.
Delivered the 5th day of October 2000
CATCHWORDS:PRACTICE – SECURITY FOR COSTS – further disclosure/particulars required to show case defendant must meet before security for costs issue can be determined
Trade Practices Act (Cmth) 1974
Fair Trading Act (Qld) 1989
Appearances: Mr P.G. Bickford of counsel for the plaintiffs
Mr P.G. Lynch (solicitor) for the defendants
Solicitors: Mark Treherne & Associates for the plaintiffs
Lynch & Co for the defendants
Hearing Date: 8 September 2000
This is an application by the defendants in this consolidated action for an order that the plaintiffs provide security for costs. It was filed on 25 August 2000 and heard on 8 September 2000. It was on a case review on 26 May 2000 that it was first indicated that the defendants were considering making an application for security for costs.
The action was commenced in August 1999. There have been three interlocutory applications upon which orders were made in August, September and December 1999 and one in January 2000.
The claims initially made have been amended and it will suffice to state very briefly the nature of the claims and the quantum of damage sought to be recovered.
The first plaintiff is a private company registered in Australia. The second plaintiff is a public company registered in New Zealand. The second plaintiff is in a sense a subsidiary of the first. The defendants are business competitors of the plaintiffs.
The business apparently common to both plaintiffs and defendants is the distribution in Australia and New Zealand of additives to both fuel and lubricants used by motor vehicles to make them function more efficiently.
The plaintiffs have set up dealership arrangements with a large number of people in Australia and New Zealand for the distribution of the products to which I have referred which seem to be manufactured in and/or distributed in North America and particularly in Canada.
Dealers persuaded by the plaintiffs to distribute their products pay to the plaintiffs a commission on the materials sold.
It appears from the material that the defendants also supply fuel-lubricant additives which they assert to be superior to those supplied by the plaintiffs.
It is the case for the plaintiffs that the defendants made statements to the plaintiffs’ dealers which were misleading and deceptive within s 52 of the Trade Practices Act (Cmth) 1974 and within s 38 of the Fair Trading Act 1989 (Qld) and which were also defamatory concerning the business of the plaintiffs.
It is unnecessary and would be unhelpful upon this application to analyse the substance of these allegations pleaded in the Statement of Claim.
In paragraph 19 of the consolidated Statement of Claim delivered 24 December 1999, it is alleged –
“19.The statements alleged paragraph 18 have by the means described in paragraphs 16A and 16B:
(a)Caused many distributors to request cancellation of their distributorship agreements with the plaintiffs and to cease ordering Bi-Tron products;
Particulars
(i)A list of distributors who have requested cancellation of their distribution agreements and have ceased ordering Bi-Tron products in respect of which the plaintiffs can presently give particulars at the date of such request is set out in attached Schedule No. 1A;
(ii)A list containing the names of further distributors whose cancellation of distributorship agreements have been cancelled and who have ceased ordering Bi-Tron products in respect of which the plaintiff cannot yet give particulars of the date of such request is set out in attached Schedule No. 1B.
(aa)Caused many distributors to cancel their existing ordering arrangements (without requesting cancellation of their distributorship agreement);
Particulars
A list containing the names of such distributors is contained in Schedule No. 1C. The plaintiffs cannot yet provide particulars of the date of cancellation of such ordering arrangements.
and:
(b)In consequence of such cancellations led to a substantial loss of sales of Bi-Tron products in consequence of which the plaintiffs have suffered and will continue to suffer loss and damage;
Particulars
Particulars of the loss and damage suffered are set out in Schedule 2 hereto.”
Reference to Schedule No. 1A discloses the names (but not addresses) of 88 persons beside each of whom the date of request for cancellation of agreement with the plaintiffs is specified. Those dates are in June 1999.
Schedule No. 1B to the Statement of Claim extends for just over 107 foolscap pages and contains the names of more than 5000 persons in my estimation. The names are not in alphabetical order and the Schedule does not indicate the addresses of the persons named or the place where they conduct business.
Schedule 1C contains something over 33 foolscap sheets listing names of persons (again without their addresses or place of business, if any) and I estimate looking at the sheets that there would be approximately 1,750 persons so named.
It is the contention of the defendants that properly to prepare their defence it is necessary for each of the persons so named to be interviewed and/or perhaps for statements to be taken from them.
No objection seems to be taken to the form of the Statement of Claim which in my view leaves something to be desired. I have already set out the content of paragraphs 19(a), (aa) and (b). It is clear that those paragraphs do not allege that all the persons named in those three Schedules cancelled their contractual arrangement with the plaintiffs because of the alleged statements made by the defendants (which they deny making). In fact clause 19(a) seems to have been carefully drawn to avoid particularising which distributors were caused to cancel their distributorship agreement with the plaintiffs as a result of the alleged misleading or deceptive conduct on the part of or defamation by the defendants. Indeed the so called “particulars” of the allegation in paragraph 19(a) do not assert that the thousands of persons named in Schedules 1A and 1B were indeed “caused to request cancellation of their distributorship agreements” as a result of the statements allegedly made by or on behalf of the defendants.
Neither is it asserted that the distributors named in Schedule 1C were caused by the alleged statements to cancel existing ordering arrangements.
In essence paragraphs 19(a) and (aa) both assert that “many distributors” were caused to cancel their distributor agreements and to cease ordering Bi-Tron products or to cancel their existing ordering arrangements but there is no suggestion that the lists of thousands of persons attached to the Statement of Claim do more than indicate persons “many” of whom it is alleged were caused to terminate their relationship with the plaintiffs by reason of the conduct of the defendants of which the plaintiffs complain.
In my view before any rational evaluation can be made of the likely cost of reasonable preparation for trial required of the defendants, particulars need to be obtained from the plaintiffs as to precisely who of the persons named in the three Schedules it is asserted were “caused” to request cancellation of the contractual arrangements or ordering arrangements they had with the plaintiffs as a consequence of the defendants’ conduct.
In my view it would be ludicrous for the defendants to attempt to prepare a defence (insofar as it relates to quantum of damage) by embarking upon the exercise of interviewing even a random selection of, much less all of the approximately seven thousand persons named in the Schedules to the plaintiffs’ Statement of Claim.
It emerges quite clearly in the latest affidavit filed on behalf of the plaintiffs that their solicitors certainly do not expect that the whole of the seven thousand people (approximately) specified in the Schedules to the Statement of Claim will be called to give evidence that they cancelled their distribution agreement or ordering agreement with the plaintiffs because they heard or learned of the statements alleged to amount to a breach of s 52 of the Trade Practices Act or to defamation. Indeed as I have already indicated whether by oversight or design it is not alleged in the Statement of Claim that each of those persons named in the various Schedules was caused by the statements about which complaint is made to sever or vary contractual arrangements with the plaintiffs. At the very most one might infer that the names of persons who did so would be included in the list of names in the Schedules.
In paragraph 19(b) it is alleged –
“19.The statements alleged in paragraph 18 have by the means described in paragraphs 16A and 16B;
--
(b)In consequence of such cancellations led to a substantial loss of sales of Bi-Tron products in consequence of which the plaintiffs have suffered and will continue to suffer loss and damage.
Particulars
Particulars of the loss and damage suffered are set out in Schedule 2 hereto.”
Reference to Schedule 2 discloses what appears to be an accountant’s estimation of “loss of gross profit” within the period 13 June 1999 to 31 October 1999 upon a figure described as “total notional turnover” of $7.7 million from which is deducted “actual turnover” of $4.2 million leaving a “loss of turnover” of $3.53 million. There is then a calculation of loss of gross margin of $707,677.00 from which is deducted “savings and overheads” of $63,000.00 arriving at a “total loss of gross profit” of $644,677.00.
Loss of “Gross Profit” during rebuilding of business is claimed at $928,062.00.
The balance of the Schedules made part of the Statement of Claim – Schedules 3, 4 and 5 all appear to be accounting calculations.
Schedules 2 to 5 suggest the case on damages to be advanced by the plaintiffs is not to be based upon calling thousands or even large numbers of the persons named in Schedules 1A, 1B and 1C – although one might expect a selection of such persons who might support the plaintiffs’ case to be called. If they are, the defendants will be entitled to be provided with a copy of their statements prior to trial.
Exhibit “RJF 25” filed on behalf of the plaintiffs contains a number of “cancellations”. I have not attempted to peruse all of them as it seems that they relate to the persons named in Schedule 1A to the Statement of Claim. On the face of some of them at least it seems unlikely that those persons were motivated to cancel their arrangements because of the matters of which the plaintiffs complain. No doubt that is a matter which will be determined upon trial. Some assert that they were simply being supplied with too much of the plaintiffs’ material – indeed one observed that he had “enough to last 5 years”. Another sought to cancel the arrangement “due to financial reasons”. Another cancelled ostensibly on the grounds of ill health. Yet another complained of the products being inferior resulting in clients claiming damage caused to their motor vehicles as a consequence of their use.
I draw attention to these matters quite properly put before me on behalf of the plaintiffs in this case simply to demonstrate that it would be unreasonable for the defendants to embark upon inquiries of all the persons named in the Schedules attached to the Statement of Claim to ascertain who if any of them had been “caused” to sever their commercial ties with the plaintiffs by reason of any statements made by the defendants of the kind complained of in the Statement of Claim. If some were “caused” to sever their ties with the plaintiffs it would be no answer to the plaintiffs’ entitlement (if any) to damages resulting from the loss of those distributors for the defendants to prove that perhaps thousands of other distributors listed in the Schedules were not caused to sever their ties with the plaintiffs by the conduct of the defendants complained of.
The onus will be on the plaintiffs of course to prove not merely that the statements complained of were made but also that the making of them constituted either or both a breach of s 52 of the Trade Practices Act and defamation or an inducement to breach the contract and also that whatever wrong may have been done to the plaintiffs by making those statements that wrong resulted in financial loss of the sort pleaded.
While it might be of assistance to the defendants to lead evidence that perhaps thousands of the seven thousand persons named in the Schedules were not induced by those statements to sever their connection with the plaintiffs but indeed were induced to do so for other reasons altogether – perhaps their perception that the quality of the product supplied by the plaintiffs was inferior – that evidence would seem to be relevant only to meet the plaintiffs’ case based on accountant’s evidence – as reflected in Schedules 2 to 5.
In my view it is impossible at this stage to come to any satisfactory conclusion as to the work that may be involved in the defendants seeking to meet the quantum of damage claimed by the plaintiffs and it will not be possible to do so unless there is some further indication as to the nature of the case on damages to be mounted by the plaintiffs.
This is a supervised case and undoubtedly the plaintiffs will be required well prior to the listing of the case for trial to provide the defendants with the statements of persons to be called to give evidence that they were motivated to sever their contractual relationship with the plaintiffs by reason of the statements of which they complain.
Presumably some of the persons to whom the statements were made or who heard about them have not attempted to sever their contractual arrangement with the plaintiffs. Some who have severed their relationship with the plaintiffs may well have done so for other reasons altogether. There is nothing in either the pleadings or the attached Schedules to give any indication of who if any of those nominated persons severed their relationship with the plaintiffs as a consequence of the statements made by or on behalf of the defendants of which complaint is made.
In my view it is open to the defendants to seek further and better particulars of who of the seven thousand (approximately) persons whose names are contained in the Schedules to the Statement of Claim the plaintiffs allege were caused to sever their commercial arrangement with the plaintiffs as a consequence of the defendants’ statements of which complaint is made.
In the event that no such particulars are given (at least after disclosure by the parties of relevant documents and records) in my view it would be open to the defendants simply to seek to have the Schedules to the Statement of Claim struck out as being an embarrassment to the defendants in the preparation of their case.
What the defendants need to know to prepare their defence (if any) is who of the thousands of persons named in the Schedules the plaintiffs allege were caused to sever or vary their relationship with them by the conduct of the defendants.
A perusal of some of the cancellations contained in Exhibit “RJF 25” to the affidavit of Mr Fox sworn 6 August 1999 suggests that perhaps some of those persons may have been motivated to cancel their relationship with the plaintiffs by reason of the defendants’ conduct. It appears equally clear that some of them may not have been so motivated.
One would expect that upon the plaintiffs’ disclosure of documents the extent of the loss of distributors and/or the cancellation of their agreements etc would emerge with reasonable clarity. I do not believe that the defendants properly advised would set about taking statements from the thousands of persons named in the schedule.
It may be that the plaintiffs will be willing to rely upon the evidence from their accountant as to the gross turnover of the plaintiffs before and after the making of the statements complained of and to seek to have the Court infer that any drop in takeover was probably attributable, at least in part, to the making of the statements by or on behalf of the defendants without attempting to call persons who severed their relationship with the plaintiffs to show that they did so because of the making of those statements. It may be that some persons names in the Schedules will be called by the plaintiffs to support their accountancy evidence and others will be called by the defendants to weaken that evidence.
The terms of the Statement of Claim to which I have referred seem to have been carefully drafted to avoid alleging that any identifiable persons named in the Schedules to it were caused to sever relationship with the plaintiffs as a consequence of the statements in issue.
In my view it is too early yet to estimate the likely cost to the defendants of properly defending the plaintiffs’ claim against them. The solicitors for the plaintiffs suggest a cost perhaps of one hundred and fifty thousand dollars or so up to trial. The costs expert upon which the defendants rely has arrived at a figure of nearly $10M. The basis however upon which his opinion rests seems to my mind ill-founded. It assumes that if 7,500 witnesses are called to give oral evidence the trial will take about 5 years and further if statements are used instead, it is estimated that the trial would be shortened to about 3½ years. It is on this basis that the defendants’ costs from the second day of the trial are estimated at $8.9M and the costs to be incurred between now and the end of the first day at $1M.
This approach seems inconsistent with the estimate of 3 weeks given for the length of the trial to Moynihan J on review.
Having regard to the terms of paragraph 19 of the Statement of Claim, for the purpose of preparing their defence to the plaintiffs’ action, the defendants properly advised would at this stage simply ignore the content of those Schedules and take what steps are necessary to have the plaintiffs give full particulars of the nominated persons – if any – who were induced to sever their commercial relationship with the plaintiffs as a consequence of the defendants’ statements. The plaintiffs’ contend that they are unable to give full or even further particulars until the defendants have made disclosure and perhaps until they have obtained third party disclosure. Some of the representations in issue are said to have been made by email and others by telephone. They are entitled to obtain disclosure of all documents relating to this issue. The defendants will be entitled to have signed statements from all former distributors the plaintiffs propose to call (if any) from the thousands nominated in the Schedules to the Statement of Claim delivered well before a trial date is fixed.
Looking at the material generally the defendants at this stage have failed to demonstrate to my satisfaction that the plaintiffs are in such a state of impecuniosity as to justify the making of an order for security in the absence of a reliable estimate of the likely costs of the defendants’ reasonable preparation to defend the action.
In my view on the present state of the pleadings Schedules 1A, 1B and 1C to the Statement of Claim give the defendants no idea of either the number of persons alleged to have been affected by the alleged statements or the identity of such persons. Indeed the latest amendment to paragraph 19(a) of the Statement of Claim seems to have been designed to make even more vague the current allegation, than that made before the amendment. At least prior to the amendment it was alleged that “more than 70” distributors were affected by the statements. Subsequent to the amendment the paragraph now reads “many distributors” were so affected.
If the evidence of the solicitor for the plaintiffs as to the reasonable costs of trial up to the first day be accepted – say up to $150,000.00 then having regard to the excess of assets over liabilities of the plaintiff companies and their current net profit I would be disinclined to make any order for security – particularly having regard to the lengthy delay in seeking security. If the case went for 3 weeks one might suspect the total reasonable costs would not exceed $300,000 to $350,000. On the other hand in the absence of proper particulars of paragraph 19 of the Statement of Claim I am loathe to dismiss the defendants’ application out of hand at this stage. I propose therefore to adjourn the further hearing of this application for security to a date to be fixed to enable proper particulars of paragraph 19 of the Statement of Claim to be sought and obtained. This may require full disclosure of documents relevant to the issue to be effected by the defendants. The particulars must identify the persons named in the Schedules (if any) who the plaintiffs allege come within the category of “many distributors” referred to in paras 19(a) and 19(aa) of the Statement of Claim. One would expect disclosure of documents to enable such particulars to be given. On the Statement of Claim as it stands, the plaintiffs have also of course alleged that the loss they identify in Schedules 2 to 5 result from the misrepresentation of which they complain and no further particulars of that claim are sought.
Should the defendants pursue this application for security after obtaining disclosure/particulars there is no apparent reason why the plaintiffs should not provide their taxation returns, statements of assets and liabilities etc for the 1998/99 and 1999/2000 financial years and some independent evidence as to their current financial position. Failure to do so may lend some weight to the defendants contention of the plaintiffs’ inability to meet any cost order made in their favour.
At the present time the evidence indicates that the trial should not take more than 2 to 3 weeks to hear.
I adjourn the further hearing of the defendants’ application for security to a date to be fixed. I reserve the costs of the application.
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