O and D Pty Limited v Pangalos
[2015] ACTCA 4
•19 March 2015
HUMAN RIGHTS ACT
SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
COURT OF APPEAL
Case Title: | O & D PTY LIMITED V PANGALOS |
Citation: | [2015] ACTCA 4 |
Hearing Date: | 7 February 2014 |
DecisionDate: | 19 March 2015 |
Before: | Refshauge J |
Decision: | 1. The Applicant have leave to appeal against the decision of his Honour Acting Justice Nield made on 13 December 2013 to order that the Applicant provide security for costs and associated orders. 2. The costs of this application be costs on the appeal. |
Category: | Principal Judgment |
Catchwords: | PRACTICE AND PROCEDURE – LEAVE TO APPEAL – leave to appeal interlocutory orders – prospect of success PROCEDURE – costs – security for costs – relevance of delay – relevance of prospects of success CONTRACT – breach of contract – cascading restraint of trade clause |
Legislation Cited: | Corporations Act 2001 (Cth), s 1335 Human Rights Act2004 (ACT), s 6 Court Procedures Rules 2006 (ACT), rr 1900-1902, 5312, 6126, 6145 |
Cases Cited: | Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288 Brendon Pty Ltd v Russell (1994) ATPR 41-340 |
Parties: | O & D Pty Limited (Applicant) Dion Pangalos (First Respondent) Selene Pangalos (Second Respondent) |
Representation: | Counsel Mr R J Arthur (Applicant) Ms M R Courtney-Tennent (Respondents) |
| Solicitors Capital Lawyers (Applicant) Chamberlains Law Firm (Respondents) | |
File Number: | ACTCA 90 of 2013 |
Decision under appeal: | Court: ACT Supreme Court Before: Nield AJ Date of Decision: 25 September 2012 Case Title: O & D v Pangalos Citation: [2013] ACTSC 250 |
Refshauge J:
On 5 August 2005, the Applicant, O & D Pty Limited, entered into a contract with the Respondents, Dion Pangalos and Selene Pangalos, by which they sold to the Applicant a pamphlet distribution business.
Included in the contract of sale was a restraint of trade clause by which the Respondents covenanted not to engage in the business of the delivery of pamphlets within certain defined areas, for certain periods of time from the date of the contract. The periods of time were expressed to be 1 year, 2 years, 3 years, 4 years or 5 years.
On 20 February 2008, that is within the three longer periods, the Respondents notified the Applicant that they intended to engage in the business of pamphlet distribution, which they did from about 1 May 2008.
By Originating Claim filed on 23 July 2008, the Applicant, as plaintiff, commenced proceedings against the Respondents, as defendants, claiming damages for breach of the sale contract, specifically the restraint of trade clause.
On 15 August 2008, Master Harper granted an interim injunction to restrain the Respondents from competing with the Applicant or delivering pamphlets in the Australian Capital Territory or the Great Queanbeyan City Council Local Government area.
The Applicant proceeded with its claim and certain interlocutory steps were taken. On 25 September 2012, in circumstances referred to below, the Respondents applied for an order that the Applicant provide security for costs. On 13 December 2013, Nield AJ ordered that the Applicant pay $20,000 as security for costs within 56 days of the order, failing which the proceedings be deemed to be dismissed: see O & D Pty Limited v Pangalos [2013] ACTSC 250.
On 9 January 2014, the Applicant sought leave to appeal against this order.
Jurisdiction
The Court of Appeal has jurisdiction under s 37E of the Supreme Court Act 1933 (ACT) to hear and determine appeals from orders of the Supreme Court. Under s 37E(4), however, appeals from interlocutory orders may only be brought by leave.
There seems no doubt that an order that a plaintiff pay security for costs is an interlocutory order. If authority is needed, the Full Court of the Supreme Court of Western Australia so held in Tymor Pty Ltd v Executor Holdings Pty Ltd (Unreported, Full Court of the Supreme Court of Western Australia, Rowland, Ipp and Owen JJ, 2893 of 1990, 14 January 1993).
Under r 5312 of the Court Procedures Rules 2006 (ACT), an applicant for leave to appeal must file in the Registry the application for leave to appeal and the accompanying affidavit, together with a draft Notice of Appeal, not later than 7 days after the interlocutory order was made.
In this case, the application was lodged on 20 December 2013, that is on the last day on which it could have been filed. A date stamp on the documents notes that they were lodged on that date but another date stamp states that the documents were filed on 9 January 2014. It appears to me that r 6126 of the Court Procedures Rules requires me to accept the earlier date as the correct date of filing. Even were the discrepancy as to dates to be accounted for by a requisition or rejection of the document as lodged, r 6145 would mean that, for the purposes of filing, the earlier date was the relevant date of filing.
Section 37J(1)(a) of the Supreme Court Act authorises a single judge of the Court of Appeal to hear and determine applications for leave to appeal.
Leave to Appeal
In Capital Property Projects (ACT) Pty Ltd v Planning and Land Authority (ACT) [2008] ACTCA 9, I considered, at some length, the law relating to applications for leave to appeal from interlocutory orders or judgments. I summarised the principles in Manny v Australia and New Zealand Banking Group Ltd [2012] ACTCA 40 at [13] as follows:
(a) leave will be granted sparingly to avoid delaying and fragmenting the hearing of cases;
(b) a court will be particularly hesitant to grant leave where the decision is one in respect of practice and procedure or is made in the exercise of a discretion;
(c) decisions which, though interlocutory, determine substantive rights will more readily be the subject of a grant of leave;
(d) the party seeking leave bears the onus of satisfying the Court of the necessary criteria to justify the grant of leave;
(e) the Court will ordinarily grant leave where the decision is wrong and prejudice will be suffered by the appellant;
(f) leave may also be granted where the decision is attended with sufficient doubt to warrant its reconsideration or, to put it another way, where the decision is, “attended with difficulty and its correctness is open to dispute” (Decor Corporation Pty Ltd v Dart Industries Inc (1991) 33 FCR 397 at 400), and, if it is wrong, significant consequences will be suffered by the applicants; and
(g) it may be a factor favouring the grant of leave that:
(i) the decision involves a matter of public importance; or
(ii) the decision may affect the fairness of the trial for consideration under s 21 of the Human Rights Act 2004 (ACT), though this can also weigh against the decision if the appeal is and unfair delay or fragmentation of the trial.
These principles may be applied more liberally in the light of s 21 of the Human Rights Act, which expresses the right to a fair trial, since an error in the interlocutory decision may have the effect of derogating from the fairness of the trial.
The latter matter, the Human Rights Act2004 (ACT), may be of less or no significance here, as the Applicant is not a natural person and the rights under that Act are only available to natural persons: s 6 of the Human Rights Act. Otherwise, these are the principles I shall apply.
The Factual Background
The sale contract entered into between the Applicant and the Respondents as referred to above (at [1]-[2]) had what is sometimes known as a “cascading” restraint of trade clause (D’Souza v Royal Australian and New Zealand College of Psychiatrists (2005) 12 VR 42 at 67; [222]). It was in the following terms:
1.2. Covenant in Restraint
This clause has effect as if it were separate clauses each one and being severable from the others:
1.2.1 Each such separate clause consists of the covenant set out in clauses 1.2.1.1 to 1.2.1.5 inclusive combined with each separate period referred to in clause 1.2.2 and if any of the separate clauses are invalid or unenforceable for any reason such invalidity or unenforceability will not affect the validity or enforceability of any other separate clause. The Vendors must not whether individually or as a principal agent, partner, joint venturer, manager, agent, appointor, assistant, clerk, director, majority shareholder or person with the capacity to exercise substantial control of the corporation, without the previous consent in writing of the purchaser, be concerned in or interested in or employ, manage or operate or participate in the management or operation or marketing of any services in competition or relation to the delivery of pamphlets within the following areas:
1.2.1.1. Australian Capital Territory;
1.2.1.2. Yass Valley City Council Local Government area;
1.2.1.3. Greater Queanbeyan City Council Local Government area;
1.2.1.4. Goulburn Mulwaree Council Local Government area;
1.2.1.5. Cooma Monaro Council Local Government area;
during the period specified in this clause.
1.2.2. The periods specified are:
1.2.2.1. Five (5) years from the date of this agreement;
1.2.2.2. Four (4) years from the date of this agreement;
1.2.2.3 Three (3) years from the date of this agreement;
1.2.2.4 Two (2) years from the date of this agreement.
1.2.2.5 One (1) year from the date of this agreement.
1.3 The parties agree that this Agreement is NOT intended to restrict the use of any derivative of the Business Names currently registered that are based on a derivative of Pro Pamphlets by the Vendors subject to compliance by the Vendors with clause 1.4 of this Agreement.
1.4 The parties agree that the Vendors must not register any further business names which use or incorporate the words pro pamphlets. This clause does not merge on completion.
1.5The parties agree that this Agreement is NOT intended to exclude or in any way limit the capacity of the Vendors to engage in any business activity which is involved or related to the delivery of pamphlets in any areas outside the areas detailed at paragraph 1.2.1.1 to 1.2.1.5 inclusive.
As also noted above (at [3]), the Respondents, having given the Applicant notice of their intention, commenced a business which the Applicant claims breached this clause.
The Applicant commenced proceedings for breach of the contract and an interim injunction was obtained, restraining the Respondents from competing with the Applicant. Later, the Applicant amended its Statement of Claim to include a claim based on an alleged breach of a representation made by one of the Respondents as to the Respondents’ gross income for the prior three and a half years to 31 December 2004 and also as to the likely future income of the business.
I note that the sale contract contained a clause excluding all pre-contractual or collateral representations by constituting the agreement as the entire agreement, supplanting and superseding any prior negotiations or agreements, exempting the parties from being bound by any collateral agreements and also exempting the parties from being bound by any warranties, representations or implied terms, other than as imposed by legislation.
The Respondents filed a defence in which they admitted that they had entered into the sale contract, but claimed that the restraint of trade clause was void and unenforceable as being uncertain and unreasonable. They admitted to making the representation as to past gross income, which they said was correct, but denied making any representation as to future income.
Between the first directions hearing on 15 December 2008 and the filing of the application for security for costs, a number of interlocutory steps were taken, including discovery, completed in October 2009, after various directions hearings and applications had been made, and directions made for the filing of expert evidence.
The Respondents first raised the question of security for costs in July 2011. The solicitor for the Applicant deposed in an affidavit in support of the application:
Despite directions to do so made in September 2011, and repeated 5 times thereafter, the defendant did not bring its application until September 2012.
On 17 January 2010, the Applicant was deregistered. The Respondents’ solicitor was only informed of this on 11 July 2011 and that day wrote to the Applicant’s solicitor requesting payment of $25,000 as security for costs. That request was declined.
On 26 August 2011, the Applicant’s solicitor informed the Respondents’ solicitor that the Applicant had been reregistered.
In an affidavit filed in the proceedings below, a director of the Applicant deposed that the Applicant had no assets. He also deposed that if security were ordered, the Applicant would not be able to pursue the claim it had made.
The decision below
Nield AJ set out the facts and course of the proceedings, from which I have taken the summary above. He referred to the basis for the application as being found in rr 1900-1902 of the Court Procedures Rules. Curiously, his Honour did not refer to s 1335 of the Corporations Act 2001 (Cth) which is a usual source of power to make such an order in respect of a plaintiff corporation, such as is the Applicant, particularly an impecunious corporation. There is, of course, no reason why the application should not be made only under the Court Procedures Rules. The principles applicable may be similar and r 1901(a) is a relevantly identical source of jurisdiction. This is not the place to explore that issue.
His Honour then considered the issues to which r 1902 of the Court Procedures Rules suggested the court may have regard when considering the application. The following were the major considerations.
There was no challenge to the fact that the Applicant had no assets nor that none of the persons standing behind the Applicant were in a financial position to provide security.
His Honour then considered the prospects of the Applicant succeeding in the litigation. He first considered the alleged breach of the restraint of trade and opined the Respondents’ claim that the periods of 3, 4 and 5 years were unreasonable “to have merit”. He referred to a decision of this Court in Capital Aircraft Services Pty Ltd v Brolin [2007] ACTCA 8.
As to the claim of misrepresentation, his Honour noted that the representation of past income appeared on the evidence to be true. His Honour considered that the claim was an “afterthought”, especially as no claim was made until the Respondents advised of their intention to recommence in the business of pamphlet distribution.
His Honour considered that the Applicant’s claim as plaintiff was made because the directors believed that the failure of their business was due to the actions of the first Respondent rather than their own conduct of the business. His Honour also considered that there was nothing to show that the Applicant’s lack of resources, apparently through the failure of its business, was due to actions of the defendants.
His Honour considered that an order for security for costs might be oppressive and may result in the Applicant not continuing with its claim, which was not a matter of public importance.
His Honour found no delay in the Applicant commencing the proceedings but did find that there was some delay in the Respondents seeking security for costs. His Honour accepted that it was not until the Respondents were informed that the Applicant had been deregistered that it was appropriate to consider whether they should apply for security as to costs. After all, once deregistered, the Applicant, strictly speaking, ceased to exist and so could not continue the litigation.
The delay was, therefore, between 26 August 2011 and 25 September 2012. His Honour did not see this delay as prejudicing the Applicant any more than it prejudiced the Respondents.
Balancing the various factors, his Honour considered that the Applicant should give security in the amount of $20,000 for the Respondents’ costs of the proceedings.
Security as to Costs
It was pointed out in CBS Records Australia Ltd v Telmak Teleproducts (Aust) Pty Ltd (1987) 72 ALR 270 at 284-5 that the power of the court to make an order for security is a discretionary power. That means, of course, that the Applicant must show, on appeal, that the court below has erred in the way described in Norbis v Norbis (1986) 161 CLR 513 at 520, that is, that the decision “stands outside the limits of a sound discretionary judgment ... or was plainly wrong”. That is to say, as held in House v The King (1936) 55 CLR 499 at 505, that the court below must be shown to have acted on a wrong principle, given weight to irrelevant matters, failed to give weight to relevant considerations or made a mistake as to the facts.
There are a whole range of factors that a court may, or must, take into account in deciding whether to order security. The factors need to be balanced and no one factor will necessarily, or always, outweigh another.
Submissions of the Applicant
Mr R Arthur, who appeared for the Applicant, made his submissions in the context that the order for security would bring an end to the litigation, which Nield AJ accepted and which submission was not controverted by Ms M Courtney-Tennent, who appeared for the Respondents.
Mr Arthur submitted that Nield AJ erred in his Honour’s treatment of the question of delay. He submitted that his Honour failed to give proper consideration to the principle that the Applicant’s prejudice is the relevant matter for the aspect of delay and not any prejudice suffered by the Respondents. Secondly, he submitted, his Honour did not consider the fact that the delay was unexplained.
Mr Arthur also submitted that Nield AJ applied the wrong test in relation to the prospects of success that the Applicant was likely to have had in the proceedings.
Mr Arthur referred, also, to the other grounds of appeal in the draft Notice of Appeal.
Delay
It is an accepted principle that applications for security for costs should be brought promptly. Beazley J accepted this as an “established guideline” in KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 at 197. See also the authorities there cited by his Honour.
More recently, the Court of Appeal of the Supreme Court of Western Australia, in upholding an appeal from the Master, in Christou v Stanton Partners Australasia Pty Ltd [2011] WASCA 176 at [20]-[21], said:
20 It is, however, incumbent upon a defendant who wishes to obtain security for its costs to apply promptly for that relief once it is, or ought reasonably be, aware that the plaintiff would be unable to meet an order for costs. Security for costs is not a card that a defendant can keep up its sleeve and play at its convenience. Delay is an important consideration in the determination of an application for security for costs because it is capable of causing prejudice or unfairness to the plaintiff. A plaintiff is entitled to know at the earliest opportunity, before it has committed substantial resources to pursuing the litigation, whether it will be required to provide security. The later an application is made the greater the likelihood that it will cause substantial disruption or distraction in the conduct of the plaintiff's case, and if the plaintiff is unable to provide security, the greater the costs that will have been wasted. The oft-cited words of Moffitt P in Buckley v Bennell Design & Constructions Pty Ltd(1974) 1 ACLR 301 are apposite:
The right to seek security for costs and to stay proceedings, with the possible result that a claim for damages is frustrated, is a powerful weapon. Therefore, the litigant who seeks to use it against his opponent is at risk of not having it available, unless the application is made and persevered with in circumstances involving the least oppression of his opponent. The primary reason why the application should be brought promptly and pressed to determination promptly is that the company, which by assumption has financial problems, is entitled to know its position in relation to security at the outset, and before it embarks to any real extent on its litigation, and certainly before it is allowed to or commits substantial sums of money toward litigating its claim.
21 I would add that in an era when the need to ensure the efficient use of judicial resources has become increasingly important, delay may also be significant in that regard. A late application which frustrates the action will mean that the judicial resources already devoted to the case will have been wasted.
The significance of the delay, however, as implied in the quotation, is the effect on the plaintiff. That is to say, prejudice suffered by the plaintiff is an important part of the rationale for delay being a relevant factor.
Thus, while there are cases where security has been ordered despite there being delay (see, for example, Crypta Fuels Pty Ltd v Svelte Corporation Pty Ltd (1995) 19 ACSR 68, January Force Pty Ltd v Tricon Restaurants Australia Pty Ltd [1999] FCA 1746), the issue of prejudice to a plaintiff has always been a significant factor. See, for example, what Street CJ said in Buckley v Bennell Design & Constructions Pty Ltd (1974) 1 ACLR 301 at 308.
In Southern Cross Exploration NL v Fire & All Risks Insurance Co Ltd (1985) 1 NSWLR 114, Waddell J said (at 125):
In the present case it seems to me that the circumstances mentioned are such as to make it quite impossible, without severe and unexpected prejudice to the plaintiffs, to make an order for security in respect of costs which have already been incurred by the defendants. The plaintiffs have incurred very substantial costs in relation to the proceedings to date and have been allowed to do so by the defendants in the absence of any intimation of any application for security for costs. It would clearly be highly unjust to make such an order in respect of costs already incurred.
There is no doubt that delay, associated with prejudice occasioned to a plaintiff by the delay in making an application for security for costs, can justify a court in declining to make such an order, even where a corporate plaintiff is impecunious. See Farmwide Pty Ltd v Commonwealth [2013] ACTSC 74. See also Ravi Nominees Pty Ltd v Phillips Fox (1992) 10 ACLC 1,313 at 1,317-8.
There are two matters that are of concern in this case. In the first place, Nield AJ considered that the delay was between the date when the Respondents’ solicitors were advised of the deregistration of the Applicant. It was put to his Honour that, as a result of the misleading conduct of the Respondents, the business of the Applicant had failed. Thus, in an affidavit in support of the application for an injunction, one of the Applicant’s directors deposed:
The plaintiff is struggling to stay in business. We are only just able to service the loan which was taken out to finance the purchase of the business. That loan is secured by a mortgage over our house from which we also run the business. At the present rate it is likely that we may have to close down by the end of the year. It is vital to our survival that we have access to our full customer base without competition from the defendants for the full period of restraint which was agreed.
There were no reasons given by his Honour for holding that this did not give the Respondents notice of the likely impecuniosity of the Applicant and for his Honour to prefer it to the later time as the time from which the delay should be measured.
That is particularly significant because the chronology available to his Honour showed that there was considerable work done in the proceedings after this time, with the inevitable expenditure of costs. Those costs would be wasted were the Applicant then to be unable to meet the requirement of any security ordered, which his Honour accepted was the case. See Rhema Ventures Pty Ltd v Standesis [1993] 2 Qd R 326 at 333.
In my view, it is reasonably arguable that his Honour erred in identifying the period of the delay and, therefore, the prejudice to the Applicant that was a relevant consideration in the determination of the application.
Mr Arthur also complained that his Honour seemed to suggest, in error it was submitted, that the Respondents had also suffered prejudice and that this was relevant. His Honour said (at [42]):
Accordingly the period of delay was between 11 July 2011 at the earliest or 26 August 2011 at the latest and 25 September 2012 (see paragraph 19 above). But time did not stand still during this period and steps were taken by both the plaintiff and the defendants (as revealed by the chronology in the affidavit of Mr Seif) and I assume that both the plaintiff and the defendants incurred costs in relation to the steps that they took during this period. However, I do not see the passage of time between either 11 July 2011 or 26 August 2011 and 25 September 2012 as prejudicing the plaintiff any more than it prejudiced the defendants.
No authority or principle was referred to by his Honour and no authority or principle was referred to me suggesting that the expenditure of costs by the defendant Applicant for security for costs is relevant on such an application or can somehow be “offset” against the costs incurred by the plaintiff Respondent. It does not seem to me to be in accordance with principle or authority.
In apparently taking such a matter into account, his Honour may have erred. It seems to me that the Applicant has a reasonably arguable case to that effect.
Prospects of success
Nield AJ held that the prospects of success of the Applicant was not strong: “I see weaknesses in the plaintiff’s claim on the law and in the facts” (O & D Pty Limited v Pangalos at [30]).
It is always difficult to assess the strength of a case on an interlocutory application but there is a suggestion that his Honour may have approached the task on an incorrect basis.
In relation to the issue of the restraint of trade clause, his Honour relied on Capital Aircraft Services Pty Ltd v Brolin. There is no doubt that this was authority for the general preposition that a restraint of trade is void if contrary to public policy. The Court there said (at [8]):
It is well established that otherwise valid contractual provisions will be void if contrary to public policy by reason of imposing unlawful restraint of trade. In Herbert Morris Ltd v Saxelby [1916] 1 AC 688 at 699 Lord Atkinson cited the even earlier case of Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co [1894] AC 535 in which Lord Macnaghten said, at 565:
The true view at the present time, I think, is this: The public have an interest in every person’s carrying on his trade freely: so has the individual. All interference with individual liberty of action in trading, and all restraints of trade of themselves, if there is nothing more, are contrary to public policy, and therefore void. That is the general rule. But there are exceptions: restraints of trade and interference with individual liberty of action may be justified by the special circumstances of a particular case. It is a sufficient justification, and indeed it is the only justification, if the restriction is reasonable – reasonable, that is, in reference to the interest of the parties concerned and reasonable in reference to the interest of the public, so framed and so guarded as to afford adequate protection to the party in whose favour it is imposed, while at the same time it is in no way injurious to the public.
That case was, however, an entirely different case from the present one before me. In the first place, the restraint there was of an individual worker and not the vendor of a business, as here. In the second place, the contract in which the restraint appeared in that case did not actually guarantee any work to the worker, whilst restraining him from working for other entities in competition with the plaintiff company. Thirdly, that case did not concern a “cascading” covenant nor, indeed, refer to a post employment covenant, which may have had some relevance to a post-sale covenant.
In this case, the purchase price involved a payment of $400,000, of which $370,000 was for goodwill. The amount paid for goodwill in the purchase of a business is very relevant to the reasonableness of a covenant in the sale contract restraining the vendor from competing with the purchaser. See, for example, Brendon Pty Ltd v Russell (1994) ATPR 41-340 at 42,446.
In Cream v Bushcolt Pty Ltd (2004) ATPR 42-004 at 48,722; [23]-[24]. Malcolm CJ, with whom Miller and McKechnie JJ agreed, said:
23.In considering whether a covenant in restraint of trade is reasonable as between the parties, the amount of the purchase price paid when a business is sold, particularly the amount paid for good will or distributed to it, is relevant to the question of reasonableness, but not decisive. The question in each case is whether the covenant goes no further than is necessary to afford the covenantee adequate protection in respect of the interests in respect of which he is entitled to be protected: Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd, (supra) at 306 per Walsh J; Peters v Petersville (supra) at 43, 204, per French, Kiefel and Nicholson JJ. The question whether a restraint is reasonable is in the end a question of law: Buckley v Tutty (1971) 125 CLR 353 at 377, per Barwick CJ, McTiernan, Windeyer, Owen and Gibbs JJ; and see Amoco Australia Pty Ltd, above, at 317-318, per Gibbs J.
24.A restraint may be imposed more readily and more widely upon the vendor of a business in the interests of the purchaser than upon a former employee in the interests of the employer: Lindner v Murdock’s Garage (supra); cf Butt v Long (supra).
See also Pearson v Arcadia Stores Guyra Ltd [No 1] (1935) 53 CLR 571 at 583 and Geraghty v Minter (1979) 142 CLR 177 at 185, 190.
While an equality of bargaining power is also relevant (but not determinative) to the reasonableness of a restraint of trade covenant (Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288 at 306-7, 316-20) this was, in fact, recognised as the position in Capital Aircraft Services Pty Ltd v Brolin.
Ms Courtney-Tennent pointed out that his Honour saw that the arguments of the Respondents that the covenant was not reasonable “have merit”. That, however, seems to reverse the onus. On an application for security for costs, it is not whether the defendant has a reasonably arguable case, but whether the plaintiff has made out a case that it has prospects of success. The defence by the defendant is relevant and a strong defence will be very relevant to that. Conversely, a weak defence would also be relevant. That the defence “has merit”, however, does not, of itself, show that the case of the plaintiff is appropriately unarguable or the plaintiff’s prospects of success are weak.
Ms Courtney-Tennent also referred to the fact that the First Respondent, who had worked in the pamphlet distributing industry, had deposed in an affidavit that two years would have been ample time to gain full advantage of the purchased goodwill. She submitted that this was powerful, particularly in the absence of any evidence from the Applicant to answer such evidence.
As Mr Arthur pointed out, however, the First Respondent, so far as he is an expert, is opining in his own case and that this would substantially reduce the weight of that evidence as expert evidence. In any event, Nield AJ did not refer to it and, presumably, did not rely on it.
I also note that in his affidavit of 17 April 2012, Orce Petreski, a Director of the Applicant, deposed:
I knew that we would have to have a sufficient period of time to get the customers to transfer their loyalty to us and forget about Dion. I thought that five years would be appropriate.
In the absence of reasons by his Honour as to what weakness he saw in the claim for restraint of trade and in the circumstances of the case, it seems to me that his Honour was reasonably arguably in error in seeing a weakness in fact and law in the claim by the Applicant in this respect.
As to the claim in misleading and deceptive conduct, it is also reasonably arguable that his Honour erred. The reasons his Honour gave for seeing a weakness in the case was that there was no apparent substance in the claim for misrepresentation as to past income. The evidence seemed, in fact, to show that the representations were true. While Mr Arthur did not concede this, it seems to me that the evidence does show that this seems the likely position.
As to the future forecasts, however, his Honour considered that it was weak because it was “an afterthought by the plaintiff”. That, however, is not completely correct. While the Statement of Claim did not initially plead this claim, the affidavit of Dragana Petreski, a Director of the Applicant, filed in support of the application for an injunction, did expressly refer to the alleged misrepresentations. That affidavit was dated 30 July 2008, well before the Statement of Claim was amended.
That, of course, is not determinative, but it seems to me that it is a reasonably arguable error of fact made by his Honour which was then taken into account by his Honour.
Ms Courtney-Tennent also raised the question of whether the alleged misleading and deceptive conduct caused any damage. She submitted that there was no evidence of this. In particular, she relied on the comment by his Honour that:
It is not unknown that a business which is profitable when conducted by someone is unprofitable and fails when conducted by someone else.
While that is, of course, a true statement, it does not seem to me to mean necessarily that the Applicant’s case has no prospects of success. It is true that there was some evidence that Ms Petreski returned to work as a public servant, which may have affected the profitability of the business because of the time she could no longer devote to it, but his Honour did not refer to that.
Ms Courtney-Tennent did refer to other evidence which was to be found in some of the affidavits filed in the proceedings. In the first place, however, it was not clear to me that his Honour had read or relied on them. In the second place, it is not the case that his Honour had to come to a view about the final outcome, only whether the Applicant had reasonable prospects of success.
Ms Courtney-Tennent did refer to evidence of Mr Petreski that he had consulted an accountant and to another businessman. She submitted that this showed that the Applicant did not rely on any representation made by the Respondents.
I do not agree with this submission. The relevant paragraph was as follows:
Around this time I talked to the wife of a friend who was an accountant and showed her the yearly figures. She commented with words to the effect ‘It looks like it’s making money’. Dragana and I also talked to her father who runs a business. He also thought the yearly figures showed that the business was a good one.
It seems to me that the advice was based on the information supplied by the Respondents. If that information was misleading, then the advice from those persons consulted based on that information would not correct the misleading information.
Ms Courtney-Tennent also submitted that the evidence was that the information about the finances of the business sold to the Applicant had been provided by the accountant for the Respondents. She referred to a decision of the Full Court of the Supreme Court of Western Australia in Stewart v Goldrange Pty Ltd [2003] WASCA 131. She submitted that this decision stood for the proposition that:
when someone with greater expertise on the subject provides information, such as the real estate one, which is now shown to be correct, and someone else provides some other comment about that statement, then the accountant’s statement is to be relied upon rather than the comment by the lay person as to what that statement means.
I am not quite sure exactly what is being submitted there. In Stewart v Goldrange Pty Ltd, Wheeler J, with whom Parker J agreed, held that the plaintiff’s director, an experienced developer, to whom certain representations were made by an estate agent in connection with a land purchase, could not reasonably have expected to rely on the representations of the agent, who did not claim any personal knowledge of the matter in issue. In any event, the agent referred the developer to the vendor who made a representation.
That, however, is not this situation. The directors of the Applicant had no contact with the Respondents’ accountant. The representation was made by the Respondents. That the source of the representations may have been their accountant does not mean that it was a representation of the accountants. It was a representation of the Respondents.
I do not find that this issue undermines the Applicant’s case or its prospects of success.
Conclusion
It seems to me that, although the decision of Nield AJ was a discretionary decision on a matter of practice and procedure, there is sufficient doubt as to his Honour’s decision to justify an appeal. There is no doubt that there is great prejudice to the Applicant were the decision not to be overturned and, although I cannot say his Honour was wrong, there are certainly questions that raise in my mind a sufficient doubt to warrant reconsideration by the Court of Appeal.
Accordingly, I will grant leave to appeal. The costs of this application must be costs in the appeal. I will make orders accordingly.
| I certify that the preceding eighty-one [81] numbered paragraphs are a true copy of the Reasons for Judgment of his Honour Justice Refshauge. Associate: Date: 2015 |
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