NELDUE Pty Ltd v Moran
[2004] WASC 100
NELDUE PTY LTD -v- MORAN & ORS [2004] WASC 100
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2004] WASC 100 | |
| 19/05/2004 | |||
| Case No: | CIV:1867/2002 | 8 APRIL 2004 | |
| Coram: | MASTER SANDERSON | 8/04/04 | |
| 6 | Judgment Part: | 1 of 1 | |
| Result: | Security refused | ||
| B | |||
| PDF Version |
| Parties: | NELDUE PTY LTD ROBERT JAMES MORAN VASSAL PTY LTD WENDY'S SUPA SUNDAES PTY LTD |
Catchwords: | Practice and procedure Application for security for costs Turns on own facts |
Legislation: | Corporations Act, s 1335 |
Case References: | BPM Pty Ltd v HPM Pty Ltd (1996) 14 ACLC 857 Bell Wholesale Co Pty Ltd v Gates Expert Corporation (1984) 52 ALR 176 Buckley v Bennell Design & Constructions Pty Ltd (1974) 1 ACLR 301 Crypta Fuels Pty Ltd & Anor v Svelte Corporation Pty Ltd (1996) 14 ACLC 393 FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] 22 WAR 241 Idoport Pty Ltd v National Australia Bank Ltd; Idoport Pty Ltd v Argus; Idoport Pty Ltd ("JMG") v National Australia Bank (No 35) [2001] NSWSC 744 Scanlan v Greenport Nominees [2001] WASC 307 Westralian Gold Mines Ltd v Westralian Minerals & Drilling Pty Ltd (In Liq) (1986) 4 ACLC 167 Yandil Holdings Pty Ltd v Insurance Co of North America & Ors (1985) 3 ACLC 542 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Plaintiff
AND
ROBERT JAMES MORAN
First Defendant
VASSAL PTY LTD
Second Defendant
WENDY'S SUPA SUNDAES PTY LTD
Third Defendant
Catchwords:
Practice and procedure - Application for security for costs - Turns on own facts
Legislation:
Corporations Act, s 1335
(Page 2)
Result:
Security refused
Category: B
Representation:
Counsel:
Plaintiff : Mr H R Robinson
First Defendant : Mr M P Cornes
Second Defendant : Mr M P Cornes
Third Defendant : Mr M P Cornes
Solicitors:
Plaintiff : Haydn Robinson
First Defendant : Minter Ellison
Second Defendant : Minter Ellison
Third Defendant : Minter Ellison
Case(s) referred to in judgment(s):
BPM Pty Ltd v HPM Pty Ltd (1996) 14 ACLC 857
Case(s) also cited:
Bell Wholesale Co Pty Ltd v Gates Expert Corporation (1984) 52 ALR 176
Buckley v Bennell Design & Constructions Pty Ltd (1974) 1 ACLR 301
Crypta Fuels Pty Ltd & Anor v Svelte Corporation Pty Ltd (1996) 14 ACLC 393
FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] 22 WAR 241
Idoport Pty Ltd v National Australia Bank Ltd; Idoport Pty Ltd v Argus; Idoport Pty Ltd ("JMG") v National Australia Bank (No 35) [2001] NSWSC 744
Scanlan v Greenport Nominees [2001] WASC 307
Westralian Gold Mines Ltd v Westralian Minerals & Drilling Pty Ltd (In Liq) (1986) 4 ACLC 167
Yandil Holdings Pty Ltd v Insurance Co of North America & Ors (1985) 3 ACLC 542
(Page 3)
1 MASTER SANDERSON: This is the defendants' application for security for costs. At the conclusion of the hearing I indicated to the parties that I would not make an order for security and that I would dismiss the chamber summons. I indicated that I would publish reasons at a later date. These are those reasons.
2 The defendants' application is brought under the provisions of s 1335 of the Corporations Act. Under that section, it must first be determined whether it appears by credible testimony that there is reason to believe that the corporation be unable to pay the costs of the defendant if successful in his, her or its defence. In this case the plaintiff conceded that if it was unsuccessful in its claim, it could not meet any order for costs. The question then was whether, in the exercise of my discretion I should make such an order.
3 The plaintiff's claim against the defendants can be briefly summarised in this way. Paul Richard Higginson and Sandra Kaye Higginson were at all material times, and still are, the directors and shareholders of the plaintiff. Some time prior to 1994 the third defendant developed the business of selling specialised icecreams, frozen yoghurt and the like. Also prior to 1994 the second defendant and the third defendant entered into a master franchise agreement which granted to the second defendant the right to operate and franchise others to operate businesses under the name of "Wendy's" in Western Australia. The first defendant is a director of the second defendant. Between October 1992 and March 2002 the Higginsons owned and operated a business selling icecream, chocolates and the like in the Albany Plaza Shopping Centre. This business was operated under the name Pippins Ice-Creams ("Pippins"). It is pleaded that the business operated by Pippins was not materially different to the business operated under a Wendy's franchise.
4 In June 1996 the plaintiff entered into a store franchise agreement with the second defendant and the third defendant, with the effect that the plaintiff established and operated a Wendy's store in the Dog Rock Shopping Centre in Albany. The franchise agreement, so the plaintiff says, was to run between June 1996 and June 2001. The franchise agreement contained certain terms and conditions. The main terms relevant to this dispute are first that the plaintiff was to pay $152,174 for the franchise. The second defendant was to lease the premises in the Dog Rock Shopping Centre and the Higginsons were to guarantee the lessor that the second defendant would comply with the terms of the lease.
(Page 4)
5 Regrettably, the business was a failure. As a consequence of the failure of the business, the plaintiff suffered losses and the guarantees given by the Higginsons were called upon. It is the plaintiff's case that it entered into the franchise agreement as a consequence of misrepresentations made by either the first, second or third defendants. A claim is also made for negligent misstatement in relation to the representations. It is worthy of note that no claim is made under the provisions of the Trade Practices Act.
6 The defendants all deny that they are liable in any way to the plaintiff. It is not necessary for me to detail the defence of the defendants. It is sufficient if I say that they deny making any false representations and that they deny any breach of duty. During the course of his submissions, counsel for the defendants went through the facts and submitted that his clients had a very strong defence to the plaintiff's claim. On an interlocutory application such as this, it is inappropriate to attempt to make any determination of the strength or otherwise of the respective parties' positions. But there is no doubt, based upon the evidence contained in the affidavit material, that the plaintiff faces very serious obstacles in establishing its case.
7 This action was commenced by writ issued on 24 June 2002. A statement of claim was not filed until 13 December 2002. A defence and counterclaim was filed on 28 February 2003 and a defence to the counterclaim was filed on 20 March 2003. The plaintiff provided discovery on 10 April 2003 and the defendants provided discovery on 30 May 2003. A mediation conference was held on 23 June 2003. The plaintiff's amended statement of claim was filed on 24 September 2003 and the defendants' amended defence and counterclaim were filed on 17 October 2003. An amended defence to the counterclaim was filed on 23 October 2003. This application was issued on 23 January 2004. It was the plaintiff's submission that the defendants' delay in bringing this application was such that no security ought be ordered. I will deal with this issue more fully later in these reasons.
8 The principles governing applications of this nature have been canvassed in cases too numerous to mention. In BPM Pty Ltd v HPM Pty Ltd (1996) 14 ACLC 857, Anderson J, speaking on behalf of the Full Court, put the position as follows (at 860):
"However it remains true the Court has an unfettered discretion whether to make an order for security for costs, and in what amount. … The exercise of the discretion in this case required
(Page 5)
- the Master, on the facts established before him, to consider the decision as to security which he considered just, having regard to the competing interests and situations of the respective parties, after taking into account and giving appropriate weight to all relevant considerations and excluding all irrelevant considerations.
In the particular circumstances of this case, in addition to the likely inability of the plaintiff to pay the first defendant's costs and the prejudice to the first defendant that would flow from that should the first defendant succeed in resisting the plaintiff's claim, the matters that had to be considered included the strength and bona fides of the plaintiff's case, the bona fides of the first defendant's application for security, whether the making of an order would shut out the plaintiff from prosecuting its case and whether the inability of the plaintiff to meet a costs order has been caused by conduct of the first defendant."
9 His Honour went on (at 862):
"It is well established that the onus lies on the plaintiff, who resists giving security on the grounds that to do so will effectively stultify the action, to establish that '… those who stand behind it and who will benefit from the litigation if it is successful … are without means.' Bell Wholesale Co Pty Ltd v Gates Exports Corporation (1983) 52 ALR 176."
10 It is upon this last point that the plaintiff relies. In an affidavit sworn 10 March 2004 and filed in opposition to this application, Paul Richard Higginson says (at par 65):
"The investment in the Wendy's shop has caused the plaintiff to be unfinancial and consumed all of the assets of myself and my wife, including the loss of our home, Pippin's, cash, investments and superannuation."
11 Counsel for the defendants criticised this paragraph as being too vague to properly establish the present financial position of Mr and Mrs Higginson. Counsel submitted that for it to be established that the Higginsons do not have the financial wherewithal to provide any security ordered against the plaintiff, would have required far more detailed evidence about their present financial position. With respect, I doubt that there is much more that could be said. The paragraph quoted from Mr Higginson's affidavit paints a bleak picture. It is consistent with the
(Page 6)
- history of the business venture undertaken as a result of the franchise agreement. I am satisfied, on the evidence, that not only is the plaintiff without means but those who stand behind the plaintiff are without means.
12 The result is then, if security is ordered, the action will be stultified. It seems to me that on the evidence, no other conclusion is open. In my view, that is a compelling factor against ordering security. I appreciate that in weighing the various factors in the balance, the very fact that the defendants' costs will not be paid by plaintiff if the defendants are successful is a significant factor in the defendants' favour. Other factors are rather more evenly balanced. As I have indicated, I am not in a position to make an assessment of the relative merits of each party's case. The evidence does suggest that prior to entering into the franchise agreement, the plaintiff was in a sound financial position. Now the company is without means. However, whether it can be said that the defendants were responsible for the present financial position of the plaintiff is dependent upon whether or not the plaintiff's action succeeds. As I am not in a position to make that assessment, I cannot make an assessment of whether or not the defendants are responsible for the plaintiff's present financial plight. On balance then, I am satisfied that the fact that the action will be stultified if an order for security for costs is made is sufficient to justify the application being dismissed.
13 In reaching that conclusion I have not taken into account the delay in bringing this application. I would not see the delay in and of itself as being reason to refuse to make an order for security. But it must be said that applications for security ought be made promptly. So far as I can see, this action is now all but ready for trial. The plaintiff - and I assume the Higginsons - have incurred costs which, on the evidence, they have no way of paying. To now order security after all those costs have been incurred has about it an element of unfairness. In my view, it is an additional factor which, when weighed in the balance, supports the conclusion that in the exercise of my discretion, I ought not order the plaintiff to provide security for the defendants' costs.
14 It was for these reasons that I dismissed the defendants' application. I will hear the parties as to the form of order and as to costs.
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