Ning Chui & Co Inc v Target Australia Pty Ltd (Ruling)
[2024] VCC 1514
•2 October 2024 (revised 7 October 2024)
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised (Not) Restricted Suitable for Publication |
GENERAL LIST
Case No. CI-24-01560
| Ning Chiu & Company Inc | Plaintiff |
| v | |
| Target Australia Pty Ltd (ACN 004 250 944) | Defendant |
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JUDGE: | His Honour Judge Anderson | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 25 September 2024 | |
DATE OF RULING: | 2 October 2024 (revised 7 October 2024) | |
CASE MAY BE CITED AS: | Ning Chui & Co Inc v Target Australia Pty Ltd (Ruling) | |
MEDIUM NEUTRAL CITATION: | [2024] VCC 1514 | |
RULING
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Subject:SECURITY FOR COSTS
Catchwords: Practice and procedure – Security for costs – Plaintiff a foreign corporation with no significant assets in Australia – Claim arises out of substantial ongoing commercial relationship between the parties – Supply and licensing of software - After two years the defendant wished to terminate the relationship – Defendant alleged contractual relationship obtained by misleading and deceptive conduct – Licence and hosting fees claimed by the plaintiff would otherwise have been payable under the contractual arrangements – Defendant’s counterclaim the principal driver of the litigation – Relevance of defendant’s solicitors’ delay in giving notice that security required and in bringing application - Application for security to the completion of mediation granted in a modest sum.
Cases Cited:Concrete Constructions v Dalma Formwork Pty Ltd (Administrator Appointed) [1999] NSWCA 16; Fairfield Pastoral Holdings Pty Ltd v Ridge Estate Pty Ltd (No 2) [2020] FCA 312
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr N Cozens | Madgwicks Lawyers |
| For the Defendant | Ms H Tiplady | HWL Ebsworth Lawyers |
HIS HONOUR:
1The defendant (“Target”) has made application for security for its costs up to and including the court-ordered mediation. The plaintiff (“daVinci”) is an American corporation with no significant assets in Australia. The Court has power to order security and, in determining whether to make an order, the Court must accord “great weight” to daVinci’s lack of connection with the jurisdiction.
2daVinci’s counsel, Mr Cozens, submitted that there were overriding considerations that militated against an order for security being made:
(a) the dispute between the parties arose in relation to substantial commercial agreements for the supply of computer software that had been in place between the parties for at least two years before the dispute arose;
(b) the dispute was initiated by Target’s action in refusing to pay the third annual software licence agreement to daVinci. Until this time, Target had regularly made the licensing and hosting payments and many further payments for specific work requested by Target; and
(c) after the proceeding was commenced by daVinci, Target did not for some months indicate that it would be making an application for security of costs. During this period, the interlocutory steps had proceeded with the completion of pleadings and discovery.
3The material filed in the proceeding reveals that daVinci and Target entered into three agreements:
(a) on 8 June 2021 for the payment of an annual licence fee for a period of 3 years totalling USD $1,435,816.00 for software equipment;
(b) on or about 8 June 2021 for the payment of an annual hosting fee of USD $86,400.00 until the software licence agreement was terminated.
(c) a professional services agreement dated about 8 June 2021 pursuant to which services were to be provided by the defendant.
4Pursuant to these arrangements, Target made the following payments:
(a) the annual licence fee of USD $545,307.00 on 3 June 2021 and USD $445,272.00 on 1 June 2022;
(b) the annual hosting fees of USD $86,400.00 on 8 June 2021 and in June 2022;
(c) USD $763,502.75 for services performed by daVinci for Target between 11 January 2021 and 19 January 2023 on 24 separate occasions, including USD $264,805.00 in June 2021, USD $260,947.00 between July and December 2021, USD $131,915.00 between January and June 2022 and USD $99,290.00 between July and December 2022.
5daVinci’s claim in the proceeding is for the total sum of USD $531,707.00 made up of USD $445,272.00 for the annual licence fee due in June 2023, and USD $86,400.00 for the annual hosting fee due in June 2023, and USD $35 for the bank fees. By its defence, Target does not dispute the agreements, the earlier payments and the fact that daVinci would ordinarily be entitled to claim and be paid the amounts it seeks in the proceeding unless the three year term of the agreement had been terminated earlier by Target.
6Target asserts that it is not obliged to pay any sum to daVinci by reason of matters it pleads in its counterclaim. Target pleads in paragraph 14(b) that it terminated the software licencing agreement on 1 September 2023 and that the software was not fit for purpose and did not meet the standards and targets that daVinci had represented it would, and which Target relied upon to enter into the agreements.
7Target claims that daVinci should pay it damages in the total sum of AUD $2,764,764.86, adopting the Reserve Bank of Australia exchange rate as at 13 September 2024. This sum is made up of two elements:
(a) the amount of USD $1,840,517.25 being the total of all sums paid by Target to daVinci for the licence and hosting agreements and for the additional services provided since 11 January 2021, as I have set out above;
(b) the amount of AUD $26,714.00 being the total of two invoices, dated 15 June 2021 for AUD $14,060.42 and 5 July 2021 for UAD $12,654.38 paid to “KIT Consulting Group Pty Ltd”.
8Pursuant to the agreements between the parties, any disputes between the parties are to be litigated in the State of Victoria and in accordance with Victorian law. DaVinci commenced the proceeding on 25 March 2024. It was not until 24 July 2024 that Target gave notice to daVinci that it required daVinci to provide security for its costs. On 29 August 2024, Target issued a summons making the present application.
9After the proceeding was issued, the parties completed the following interlocutory steps:
(a) pleadings, comprising the statement of claim with the writ, a defence and counterclaim (20 May 2023) and a reply and defence to counterclaim (25 June 2024) and a reply to the defence to counterclaim (10 July 2024);
(b) discovery by 26 July 2024; and
(c) timetabling orders were obtained from the court on 6 June 2024. They provided for mediation by 26 September 2024 and a 5-7 day trial commencing on 4 August 2025.
The commercial dealings between the parties
10In my view, the commercial dealing between the parties is a matter of some importance. The arrangements seem to reflect a significant degree of care with which Target chose to enter into a commercial relationship with daVinci. The relationship continued over a lengthy period with repeated engagements of daVinci to carry out further work.
11On the other hand, it was presumably Target’s wish to have disputes litigated in Victorian courts according to Victorian law and those matters were incorporated into the contractual documents. Victorian law ensures that appropriate consideration is given for the provision of security for costs by a foreign corporation commencing a proceeding in Victorian courts. Further, because of the absence of a treaty between the United States and Australia in relation to the enforcement of civil judgments and orders, the processes for an Australian entity to seek recovery of an outstanding order (including a costs order) in the United States are generally regarded as extremely cumbersome.
12Nevertheless, I regard the parties’ commercial arrangements as significant, both from the perspective that Target had sufficient trust in daVinci to enter into those arrangements and that they continued to operate for a lengthy period, but also as relevant to the nature of the dispute which is now being litigated.
The nature of Target’s counterclaim
13As I earlier referred to, the commercial arrangements apparently worked satisfactorily for some time. After more than two years, Target decided that the services that had been provided to it by daVinci were entirely worthless. It terminated the arrangement by refusing to pay the annual licence and hosting fees when they were invoiced in June 2023 and served a purported notice of termination on 1 September 2023. The damages Target counterclaims, and sets off in defence of daVinci’s claim in the proceeding, comprise every payment it had paid to daVinci over the previous two and a half years in respect of their commercial arrangements.
14A small portion of the damages relates to consultant’s fees of AUD $26,714.80. Presumably, these consultants identified shortcomings in the suitability of the software and other services provided by daVinci which form the basis of Target’s counterclaim. There is no attempt, for example, to quantity the actual cost to Target of installing replacement software that was fit for purpose, or the losses of, for example, sales or efficiency savings in marketing costs which might have been made if the software and services provided by daVinci had been as Target says daVinci represented.
15A further related issue is the extent the quantum of Target’s counterclaim bears to daVinci’s claim for outstanding payments, and therefore the extent to which security should be provided. The quantum of Target’s counterclaim is presently AUD $2,764,764.86; daVinci’s claim is AUD $790,995.24, or about 28%. Target’s counsel, Ms Tiplady, submits that this matter might be dealt with in a similar manner as in cases such as Concrete Constructions v Dalma Formwork Pty Ltd (Administrator Appointed) [1999] NSWCA 16 at [15] and Fairfield Pastoral Holdings Pty Ltd v Ridge Estate Pty Ltd (No 2) [2020] FCA 312 at [6], [55]. Ms Tiplady said that she was instructed to offer an undertaking to the court that, if security is ordered to be paid and the proceeding is stayed pending payment by the plaintiff/defendant by counterclaim, the defendant/plaintiff by counterclaim undertakes not to prosecute its counterclaim while the proceeding is stayed and, in the event the proceeding is dismissed as a consequence of the plaintiff/defendant by counterclaim failing to pay security as ordered, the defendant/plaintiff by counterclaim will consent to the dismissal of its counterclaim.
16I am satisfied that such an undertaking would substantially ameliorate the disparity between the quantum of the claim and the counterclaim. As the quantum of the counterclaim is presently pleaded, it essentially seeks the repayment of all monies paid by Target to daVinci during their commercial relationship. It is likely, therefore, that the disparity in quantum has little relationship to the actual legal costs Target would incur in order to defend the claim made against it by daVinci by seeking to establish the matters it has raised both by way of defence and counterclaim. Establishing the quantum of the counterclaim, as presently pleaded, would add little to those costs.
17However, I consider that the principal driver in the dispute between the parties, and consequently in the litigation, is a decision made by Target that the software and other services provided by daVinci were worthless, as the software was not performing as Target might have expected from the representations which daVinci allegedly made to induce Target to enter into their arrangements.
18There is no real dispute that if the relationship were to continue in accordance with the parties’ arrangements, that Target would have been obliged to pay the specific amounts now claimed by daVinci in the proceeding. In my view, this is a matter of significance that needs to be taken into account in determining whether security should be ordered.
Delay as a disentitling factor
19The proceeding was issued by daVinci on 25 March 2024 and served on Target between 15 March 2024 and 18 April 2024. On 24 July 2024, Target’s solicitors foreshadowed to daVinci’s solicitors that their client was seeking security for its costs of defending the proceeding. On 29 August 2024, Target’s solicitors issued the present summons.
20Generally, the time periods reflected by these dates would not be regarded as significant. In fact, Mr Cozens conceded as much in his oral submissions. That is not to say that the time periods would not be relevant as to the quantum of any security, if I were minded to order it. I shall discuss that matter shortly.
21In my view, the issue of delay in the giving of an indication that security was required, and the making of the application, should not of itself be regarded as a determinative factor in whether to order security. However, I must consider the relevant dates in my consideration of whether:
(a) security should be required from the commencement of the proceeding; and
(b) the quantum of any security that might be ordered to the stage of the proceeding when mediation has taken place.
Conclusions on the issue of whether security should be ordered
22I consider that on the present application, modest security should be ordered for the following reasons:
(a) notwithstanding the fact that daVinci is a foreign corporation with no significant assets within Australia, there are other factors which should be given more weight on the present application;
(b) the parties had a substantial commercial relationship for a lengthy period before the disputes between them arose;
(c) it was Target who decided on 1 September 2023 that the relationship could not continue because of what it determined were matters indicating that it had been induced to enter into commercial arrangements with daVinci on the basis of misleading and deceptive representations;
(d) Target purported to terminate the relationship by notice after its failure to pay annual licence and hosting fees, that would otherwise, as in previous years, have been payable to daVinci pursuant to their commercial arrangements;
(e) Target has relied upon a counterclaim to establish losses resulting from the false representations to offset daVinci’s claim; and
(f) Target’s losses are presently calculated as, primarily, the total of all sums paid by it to daVinci during the course of their commercial relationship for the provision of software and services which ultimately were said to be of no value to it.
23In addition to, and consequential upon these matters:
(a) it would be inappropriate for Target to obtain security for costs for the period prior to its solicitors notifying daVinci’s solicitors that Target required security for its costs of the proceeding. The application of Victorian law in the parties’ contractual arrangements to the resolution of disputes may have suggested that the provision for costs in any initiated proceeding would be ordinarily expected. However, in the circumstances of a significant continuing commercial relationship, I consider that Target’s solicitors, in fairness, should have indicated its intention to require security at an earlier time. This would not be so that an impecunious plaintiff could as early as possible decide to abandon the proceeding, but rather to fairly set the ground-rules by which Target intended to conduct the litigation in the forum of its choosing. I also take into account, in this regard, the nature of the initiation of the dispute, and as how this is reflected in Target’s counterclaim which is the principal driver of the litigation;
(b) notice was not given by Target’s solicitors that security would be required until after substantial interlocutory steps had been taken, including pleadings and discovery;
(c) Target’s summons, making the application, was not issued until 29 August 2024;
(d) Target’s solicitors filed an affidavit by a senior litigation lawyer expressing his opinion as to the reasonableness of the quantum of costs likely to be incurred up to and including mediation.
24I have essentially had regard to the guidance in the authorities which describe the balancing of competing circumstances.
25Accordingly, I will only accede to Target’s application in part. Without intending to in any way influence any future decision maker, I wish to emphasise that my decision has been made upon the application before me, and the circumstances as they presently are. These include the following:
(a) the application was limited to the period to the completion of mediation. This period gives the parties the opportunity to articulate the dispute in their pleadings, make discovery and to attempt to resolve the dispute at an early court-ordered mediation. Past that point, more substantial costs would be incurred in the preparation for trial and the trial itself. The circumstances that I have relied upon for the earlier period – the timing of notice that security was required and the making of the application for security are unlikely to have relevance at later stages in the litigation;
(b) DaVinci’s claim and Target’s defence to that claim, and its counterclaim including the particulars of loss are presently framed as I have described.
26I will order on Target’s summons dated 29 August 2024 that security be provided in the sum of $25,000.00. Although Target has been partially successful on the application, and costs would normally follow the event, I nonetheless consider that the appropriate order in this case is that Target’s costs of the application should be costs in the cause. The nature of the determination of these types of applications, as I have earlier referred to, is essentially a balancing exercise where the true justice of the parties’ positions can only be determined at trial, or as the parties themselves agree when negotiating the resolution of their dispute.
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Certificate
I certify that these 11 pages are a true copy of the ruling of his Honour Judge Anderson delivered on 2 October 2024.
Dated: 2 October 2024
Alexandria Peck
Associate to his Honour Judge Anderson
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