Proride Services Pty Ltd v Pro-Ride Racing Australia Pty Ltd
[2019] VCC 1879
•29 November 2019
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE GENERAL LIST | Revised Not Restricted Suitable for Publication |
Case No. CI-17-06137
| PRORIDE SERVICES PTY LTD (ACN 610 210 378) as Trustee for the PRORIDE SERVICES UNIT TRUST | Plaintiff |
| V | |
| PRO-RIDE RACING AUSTRALIA PTY LTD (ACN 095 608 709) & ORS (according to the attached schedule) | Defendants |
---
JUDGE: | HER HONOUR JUDGE A RYAN | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 31 July 2019 | |
DATE OF RULING: | 29 November 2019 | |
CASE MAY BE CITED AS: | Proride Services Pty Ltd v Pro-Ride Racing Australia Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2019] VCC 1879 | |
REASONS FOR RULING
Subject: PRACTICE AND PROCEDURE
Catchwords: Security for costs of counterclaim – whether threshold test enlivened – discretionary factors – whether security should be ordered where co-counterclaimant is a natural person – counterclaim defensive or offensive – extent of overlap – security ordered
Legislation Cited: County Court Civil Procedure Rules 2018 (Vic) r62.02; Corporations Act 2001 (Cth) s1335(1); Australian Consumer Law ss236, 237, 243; Evidence Act 2008 (Vic) ss59, 75, 135
Cases Cited:Butler Market Gardens Pty Ltd v GG & PM Burrell Pty Ltd [2018] VSC 461; Coonawarra Pty Ltd v Cornonero Pty Ltd & Ors [2018] VSC 333; Grace Christian Chapel v Canaan Holdings Pty Ltd [2019] VSC 5; Livingspring Pty Ltd v Kliger Partners (2008) 20 VR 377; Madgwick v Kelly (2013) 212 FCR 1; Pun v Poon [2019] NSWSC 918; Saint-Gobain RF Pty Ltd v Maax Spa Corporation Pty Ltd (2004) VSC 335; US Realty Investments LLC #1 v Need [2013] VSC 590; Warren Mitchell Pty Ltd v Australian Maritime Officers’ Union (1993) 17 ASCR 1
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr S Rosewarne | Strongman & Crouch |
| For the First and Second Defendants | Mr A Meagher | Blue Rock Law |
| For the Third Defendant | Ms S Hooper | KHQ Lawyers |
| For the First and Second Third Parties | - | No appearance |
Schedule of Parties
| PRORIDE SERVICES PTY LTD (ACN 610 210 378) as Trustee for the PRORIDE SERVICES UNIT TRUST | Plaintiff/ Defendant by Counterclaim |
| V | |
| PRO-RIDE RACING AUSTRALIA PTY LTD (ACN 095 608 709) | First Defendant/ First Plaintiff by Counterclaim |
| IAN ROBERT PEARSE | Second Defendant/ Second Plaintiff by Counterclaim |
| and | |
| MARK ANTHONY EWING | Third Defendant |
| and | |
| JOHN GORDON BENNETTS | First Third Party |
| and | |
| GEOFFREY PETER MATTHEWS | Second Third Party |
HER HONOUR:
Introduction and summary
1 By summons dated 14 June 2019, the defendant by counterclaim (“Proride Services”) seeks security for its costs of defending a counterclaim brought by the first plaintiff by counterclaim (“Pro-Ride Racing”). Proride Services seeks security up to and including the first day of trial. Its costs to that point are estimated at $198,427.26.
2 The application is made under r62.02 of the County Court Civil Procedure Rules 2018 (Vic) and s1335(1) of the Corporations Act 2001 (Cth). It is not in dispute that an order for security can be made where the applicant is a defendant to a counterclaim.[1]
[1]See r62.01 and per Habersberger J in Saint-Gobain RF Pty Ltd v Maax Spa Corporation Pty Ltd (2004) VSC 335 at [38]
3 In support of its application, Proride Services relies on three affidavits of Jonathan Guy Joseph, solicitor, sworn 14 June, 5 July, and 19 July 2019, together with an affidavit from Raymond John De La Rue, costs consultant, sworn 5 July 2019.
4 Pro-Ride Racing resists the application and relies on the affidavits of Lisa-Marie Catherine Parks, solicitor, sworn 16 July and 26 July 2019.
5 For the following reasons, I will order Pro-Ride Racing provide security for Proride Services’ costs up to and including the first day of trial, in the sum of $100,000.
Background
6 Proride Services, as trustee of the Proride Services Unit Trust, entered into an Asset Sale Agreement (“ASA”) with Pro-Ride Racing on or about 12 May 2016. Pursuant to the ASA, Proride Services purchased assets, including intellectual property rights from Pro-Ride Racing as vendor, for the sum of $1,590,027.
7 It was further agreed under a Cooperation Deed entered into at the same time as the ASA that the parties would regulate the ownership rights and management of the intellectual property, and carry out their respective businesses on the terms and conditions set out in the deed. Proride Services took over the maintenance side of the business which concerns the manufacture, installation and maintenance of non-grass or synthetic equestrian and thoroughbred racing and training services. The construction side of the business, which related to the construction and installation of tracks but excluded the maintenance business, was to be performed by Pro-Ride Racing
8 This proceeding was commenced by writ dated 27 December 2017.
9 Proride Services claims Pro-Ride Racing breached various warranties and terms of the ASA relating to the operation of the maintenance business. Proride Services alleges it was provided with inaccurate information and there was material non-disclosure by Pro-Ride Racing in the period leading up to the execution of the ASA. It also alleges Pro-Ride Racing and its sole director, Mr Ian Pearse (“Pearse”), the second defendant, made various misleading and deceptive representations which induced Proride Services to enter into the ASA. Proride Services further claims Mr Mark Ewing (“Ewing”), a chartered accountant and the third defendant, breached fiduciary duties he owed to Proride Services. Proride Services claims to have suffered loss and damage because of the defendants’ conduct. Proride Services seeks damages and/or compensation, together with relief under the Australian Consumer Law (“ACL”) and various declarations, including an order that the ASA be declared void ab initio.
10 Pro-Ride Racing and Pearse filed a counterclaim on 24 April 2019, some 16 months after the writ was filed. Pro-Ride Racing alleges that in breach of the Cooperation Deed, Proride Services has not conducted the maintenance business is accordance with industry best practice. As a result of the faulty way in which Proride Services has conducted the maintenance business, Pro-Ride Racing claims it has suffered loss in its construction side of the business. Pro-Ride claims it has lost out on tenders for existing contracts and future contracts. It seeks compensation for losses of opportunities and loss of profits as a result of Proride Services’ conduct of the maintenance business, various orders under the ACL and, in the alternative, damages. The damages claimed exceed $12.5M.
11 The plaintiff’s claim was originally set down for hearing on 3 July and then again on 16 September 2019, with an estimate of seven days. The parties informed the Court in June 2019 that the trial estimate needed to be revised as result of the amended pleadings, including the counterclaim, as the hearing could now take up to six to eight weeks.
12 Following the hearing of this application, Judicial Registrar Burchell made various pre-trial procedural orders on 15 August 2019 and refixed the trial on 13 July 2020 with an estimate of six to eight sitting weeks.
Preliminary issue – is Pro-ride’s balance sheet admissible?
13 Ms Parks deposes she is informed by Pearse, the sole director of Pro-Ride Racing, that as at 30 June 2019, Pro-Ride Racing had a net asset position of $712,592.[2] Exhibited to Ms Parks’ first affidavit is a copy of the balance sheet of Pro-Ride Racing as at 30 June 2019.[3]
[2]Affidavit of Lisa-Marie Catherine Parks sworn 16 July 2019 at [4].
[3]Exhibit “LMP-1” of the affidavit of Lisa-Marie Catherine Parks sworn 16 July 2019.
14 Counsel for Proride Services objected to Pro-Ride Racing’s reliance upon the balance sheet. He submitted that I should exercise my discretion to exclude the balance sheet under s135 of the Evidence Act as its unfair prejudicial value substantially exceeded its probative value; the unfair prejudice being that Counsel was unable to cross examine on the document and test its veracity. He said that there was no evidence as to who prepared the balance sheet or how the line items were calculated.
15 In response, Counsel for Pro-Ride Racing pointed out that pursuant to s75 of the Evidence Act, the hearsay rule does not apply to evidence adduced in an interlocutory hearing where the party relying upon it also adduces evidence of its source. He noted that unaudited accounts prepared by accountants have often been accepted by the courts in these types of applications.[4]
[4]For example, Warren Mitchell Pty Ltd v Australian Maritime Officers’ Union (1993) 17 ASCR 1, p15 – line 45.
16 Rule 43.03(2) permits hearsay evidence in affidavits in interlocutory applications, providing the statement of fact is based on information and belief and the grounds are set out. Similarly, s75 of the Evidence Act allows the use of hearsay evidence in such applications. Ms Parks has identified the source of the information. She deposes she is informed by Pearse about the net asset position. He is a person who is reasonably likely to have knowledge of facts about the company’s financial affairs being the sole director and shareholder of Pro-Ride Racing. Additionally, in paragraph 17(b) of Ms Parks’ affidavit sworn 16 July 2019, she deposes the balance sheet was recently confirmed by Pro-Ride’s accountant as being true and correct. Accordingly, I am satisfied that the requirements under r45.03(2) and s75 of the Evidence Act have been met and the balance sheet is admissible.
17 That then leaves the application of s135. In a civil case, the court may exercise its discretion to exclude evidence if its probative value is substantially outweighed by damage which might be unfairly prejudicial. The prejudice pointed to here is the inability to test the veracity of the figures by cross-examination of the author of the balance sheet. An inability to cross examine is not decisive of the issue of unfair prejudice. I am not persuaded that any prejudice caused to Proride Services by not being able to test the contents of the balance sheet by cross examination is so unfairly prejudicial so as to justify its exclusion. I consider the inability to cross-examine the author of the balance sheet goes more to the weight I should accord the balance sheet rather than its admissibility. Further, as can be seen from the following analysis, Proride Services seeks to rely upon the figures in the balance sheet in support of its argument that Pro-Ride Racing would be unable to meet an order for costs, which runs counter to its position that the document is unfairly prejudicial. Accordingly, I will not exclude the balance sheet under s135.
Security for costs – applicable principles
(i) Threshold jurisdictional question
18 Under r62.02(1) of the Rules, where inter alia the plaintiff is a corporation and there is reason to believe the plaintiff has insufficient assets in Victoria to pay the costs of the defendant if ordered to do so, the court may order the plaintiff give security for the defendant’s costs and that the proceeding be stayed until such security is given.
19 Similarly, s1335(1) of the Corporations Act provides – so far as is relevant – where the plaintiff is a corporation, the court may require sufficient security for costs be paid if it has reason to believe that a corporation will be unable to pay the defendant’s costs if successful in its defence.
20 This requirement is commonly called the ‘threshold jurisdictional issue’. It looks at whether there is reason to believe that the corporation will be unable to pay the costs of the successful defendant. It is a low threshold which requires making a risk assessment – requiring a practical, common sense approach to the corporation’s financial affairs.[5] No more than a rational basis for the belief is required.[6] This requirement reflects the policy of protecting a defendant against the risk of a plaintiff’s impecuniosity.
[5]Livingspring Pty Ltd v Kliger Partners (2008) 20 VR 377 per Maxwell P and Buchanan JA at [15]-[16] (“Livingspring”).
[6]Saint-Gobain RF Pty Ltd v MAAX SPA Corp Pty Ltd [2004] VSC 335 at [38].
21 Proride Services contends the threshold requirement is enlivened by reason of the following:
(a) Pro-Ride Racing has paid up share capital of $6.00;[7]
[7]Exhibit “JGJ-1” of the affidavit of Jonathan Guy Joseph sworn 14 June 2019.
(b) Pro-Ride Racing is not the registered proprietor of any real estate in Victoria;[8]
[8]Ibid.
(c) on the balance sheet for Pro-Ride Racing as at 30 June 2019:[9]
[9]Exhibit “LMP-1” of the affidavit of Lisa-Marie Catherine Parks sworn 16 July 2019.
(i) there are bank assets of $4,678 (compared with $95,533 at 30 June 2018);
(ii) there are current assets of $45,076;
(iii) the single largest asset seems to be a loan from the ‘Pearse Family Trust’ in the sum of $447,602 – this appeared to be an inter related party loan which should not be taken into account as the Court could not be satisfied this asset would be available to meet a costs order;[10]
[10]per Einstein J in Eko Investments Pty Limited v Austruc [2007[ NSWSC 539 at [15]
(iv) there are no details of the plant and equipment listed at $350,084 and whether they could be readily realised; and
(v) the legal fees listed of $86,900 were not capable of being treated as an asset and should not be taken into account;[11]
[11]Applying Livingstone at p385
(d) Proride Services’ costs on a standard basis of and incidental to the counterclaim up to and including the trial are likely to exceed $650,000.[12] This was only slightly lower than the figure provided for net assets of $712,592 in the balance sheet; and
(f) the sum of $1.59M was paid to Pro-Ride Racing following the purchase of the business and there appeared to be nothing left. The funds of the company were continuing to diminish as the net assets in 2018 were $930,071 compared with $712,592 in 2019.
[12]Exhibit “RJD2” to the affidavit of Raymond John De La Rue sworn 5 July 2019.
22 On the other hand, Pro-Ride Racing submits this is a misrepresentation of its financial situation. Pro-Ride Racing relies upon the following matters:
(a) Proride Services’ costs estimate of $650,000 is self-incurred;
(b) the costs estimate is in respect of the counterclaim only and thus of little utility;
(c) Pro-Ride Racing has net assets of approximately $712,592;
(d) Proride Services’ criticism of the balance sheet disregards Pro-Ride Racing’s property and equipment listed at $350,084, which exists and is valuable; and
(e) there is no reason to doubt the bona fides of the loan asset of $447,602 from the Pearse Family Trust.
23 Pro-Ride Racing’s counsel argued there is no rational basis to believe Pro-Ride Racing does not have enough assets to satisfy Proride Services’ costs. Accordingly, no order for security should be made.
24 There is no information about the loan that appears in the assets of Pro-Ride Racing other than it appears to be from an interrelated entity, namely, the Pearse Family Trust. The conditions relating to this loan are unknown. For example, it is not known when the loan is due to be repaid or the extent of the repayments, if any. There is no information about the nature of the plant and equipment, being the other asset disclosed in the balance sheet and whether these assets could be readily realised or not.
25 It is also relevant to take into account the fact that Pro-Ride Racing will have to meet its own legal costs of what is shaping up to be a lengthy trial which could further drain its financial resources.[13] The matter has been re-fixed for hearing on 13 July 2020 on an estimate of six to eight weeks. Whilst Pro-Ride Racing challenges the quantum claimed by Proride Services for its estimated costs of the proceeding, on any view, the costs which Pro-Ride Racing may have to pay in pursuing its counterclaim will be substantial.
[13]This is a relevant consideration per McDougall J In Zamtech Truck Services Pty Limited v Sydney Water Corporation [2017] NSWSC 768 at [18] to [19]
26 As Livingspring makes clear, the approach requires a practical risk assessment. Would there be a real risk that Proride Services could not recoup its costs if successful? In my opinion, there is such a risk. Pro-Ride Racing has limited share capital; and is not the registered proprietor of any real estate in Victoria. Whilst the net asset position is said to be $712,593, there is some doubt about the accuracy of that figure given the criticism made about the items claimed for legal fees, the lack of information about the plant and equipment and the ability to realise those assets together with the inter related party loan. Whilst it is true the liabilities are low, there is some doubt about whether the assets relied upon could be made available to satisfy any order for costs.
27 Given all these various matters, I am satisfied the threshold jurisdictional question is enlivened as there is a risk that Pro-Ride Racing may not be able to pay Proride Services’ costs, if ordered to do so.
28 I turn now to the well-known discretionary factors which fall to be considered once the threshold requirement is met.
(ii) Discretionary factors
29 It is a well-established principle that the court has unfettered discretion whether to order security.[14] In the recent decision of Butler Market Gardens Pty Ltd v GG & PM Burrell Pty Ltd,[15] Richards J listed the various discretionary considerations that may bear upon the court’s decision, namely[16]:
[14]See for example: US Realty Investments LLC #1 v Need [2013] VSC 590 per Derham AsJ at [21].
[15][2018] VSC 461.
[16]Ibid at [10].
(a) whether the application for security for costs has been brought promptly;
(b) the strength and bona fides of the plaintiff’s case;
(c) whether the plaintiff’s impecuniosity was caused by the defendants’ conduct the subject of the claim;
(d) whether the defendants’ application for security is oppressive, in the sense that it is being used merely to deny an impecunious plaintiff a right to litigate;
(e) whether there are any persons standing behind the plaintiff company who are likely to benefit from the litigation and who are willing to provide the necessary security;
(f) whether persons standing behind the plaintiff company have offered any personal undertaking to be liable for the costs and, if so, the form of any such undertaking; and
(g) whether the plaintiff is, in substance, a plaintiff, or the proceedings are defensive in the sense of directly resisting proceedings already brought or seeking to halt the defendant’s self-help procedures.
30 It is not necessary that each of these factors be examined – much depends on the individual facts of each case.[17]
[17]Madgwick v Kelly (2013) 212 FCR 1 at [8].
31 The discretionary factors that fell to be considered in this application are as follows:
(a) The counterclaim is made by Pro-Ride and a natural person
32 The first matter raised was whether the order for security should be refused because Pearse was a counter claimant, along with Pro-Ride Racing. It was put that the counterclaimants’ claims overlapped and therefore, ordinarily security for costs should not be ordered against even an impecunious corporate counterclaimant. Counsel for Pro-Ride referred to the following statement of this principle in Civil Procedure Victoria, namely:
“… a natural person ordinarily resident within the jurisdiction is also a plaintiff, the court will not as a rule require the plaintiff corporation to give security for the defendant’s costs.”[18]
[18]Civil Procedure Victoria at [I.6202.95].
33 If the claims fail, Pro-Ride Racing would not have to satisfy an order to pay Proride Services’ costs alone. Pearse was likely to be jointly and severally liable to satisfy the adverse costs order made in respect to the counterclaim.
34 The claim made by Pearse is that he was misled and deceived by Proride Services and that, but for that, he would not have entered into the ASA and the Cooperation Deed.[19] He seeks damages pursuant to s236 of the ACL to compensate him for his loss.
[19]Paragraph 63 of the counterclaim
35 He also seeks relief pursuant to ss237 and 243 of the ACL that:
(a) the Cooperation Deed and ASA be declared void ab initio, alternatively void from the date of the order. Alternatively, the restraints under clause 10 of the Cooperation Deed be declared void. These orders are in respect of releasing Pearse from restraints which he was subject to; and
(b) the transfer of ownership and terms in respect of intellectual property be reversed, such that it be returned to Pearse and Pro-Ride Racing.
36 The alternative claim by Pearse is for breach of contract. He claims for loss and damage, being loss of opportunity and loss suffered in respect of denigration in value to the intellectual property. It was said that he had personal standing to bring these claims as he was a party to the Cooperation Deed.
37 Proride Services contends the fact that Pearse is named as a counterclaimant should be ignored, because the only proper counterclaimant is Pro-Ride Racing. The relief sought in respect of profits and loss of opportunities is made by Pro-Ride Racing not Pearse, and the intellectual property is owned by Pro-Ride Racing not Pearse. The relief sought under ss236, 237, and 243 of the ACL requires an examination of whether a person has suffered, or was likely to suffer, loss or damage by or because of contravening conduct. The point made is that, although Pearse is named, he is not a proper counterclaimant, as the loss and damage claimed can only have been suffered by Pro-Ride Racing.
38 In response, Pro-Ride Racing noted that Pearse was a party to the ASA and the Cooperation Deed. He was entitled to seek relief in the proceeding and therefore was a proper party.
39 It is clear from the counterclaim that the claim for damages is made for losses allegedly sustained by Pro-Ride Racing. These losses are substantial and exceed $12.5M. It is not readily apparent what losses Pearse may have suffered as a result of the alleged denigration to intellectual property rights and the effect of the contractual restraints which bind him. The relief sought by him would appear to be primarily in the nature of declaratory relief. It was conceded during the oral hearing by Counsel for Pro-Ride Racing that Pearse is not the owner of any intellectual property. The fact remains that the counterclaim is brought mainly for the benefit of Pro-Ride Racing and it stands to gain the most if it were to succeed in its damages claim.
40 Security may be ordered where there are differences between the claim of an individual, such that if both fail a court will not order the individual to pay all the costs. The court is required to consider the degree of overlap and the greater the degree of overlap, then there is less likelihood of security being ordered.[20] The point made here is that there is little overlap and the substantial case is brought by Pro-Ride Racing as opposed to Pearse.
[20]See Civil Procedure Victoria at [I.62.02.95] and the cases referred to therein.
41 The fact that there is an individual sued as well does not create an inviolable rule that always prevents an order for security. It is but one of the discretionary factors a court can take into account when exercising its unfettered discretion in determining whether to award security.
42 There is a distinct possibility in my view that Proride Services would not be entitled to an order that all its costs be paid by Pearse because the counterclaims made by him are more restricted compared with the counterclaim brought by Pro-ride Racing. Given the disparity in the claims made on behalf of Pro-ride and Pearse and the limited overlap between the two, I am not persuaded this discretionary factor should prevent an order for security being made in this case.
(b) Whether the counterclaim is defensive in nature
43 The court will generally not order an impecunious corporate counterclaimant to provide security where the counterclaim is a “defensive manoeuvre”, as opposed to one that is “offensive in substance”.[21]
[21]Saint-Gobain RF Pty Ltd v Maax Spa Corporation Pty Ltd (2004) VSC 335, per Habersberger J at [39]-[40].
44 The issue then in this case is whether the counterclaim is such that it is responding or defensive to the plaintiff’s claim, or is introducing matters which fall outside the plaintiff’s claim, with the result that an order for costs could be made against a defendant who would be treated as being a plaintiff so far as the counterclaim is concerned.
45 As recently stated by Matthews JR in Grace Christian Chapel v Canaan Holdings Pty Ltd [2019] VSC 5:
“30. … security will not be ordered against the counterclaimant where the counterclaimant’s claims are simply defensive. However, where the counterclaimant has in substance taken up the position of a plaintiff, security may be required, although it may be appropriate to discount the amount to reflect the costs of any issues in common with the plaintiff’s claim…
31. Where the counterclaim raises matters outside the plaintiff’s claim, the defendant will be treated as a plaintiff so far as the counterclaim is concerned, and security for costs may be ordered.”[22]
[22]At [30] and [31].
46 For its part, Proride Services contends the counterclaim is offensive in nature because:
(a) The counterclaim covers a different factual area. The area of the plaintiff’s claim is limited to alleged misrepresentations from 15 January to 12 May 2016 prior to the entry in the ASA dated 12 May 2016. By contrast, the counterclaim is directed towards a Cooperation Deed made on or about 12 May 2016 (being a different document to that relied upon by the plaintiff). It refers to the conduct of Proride Services in respect of the track maintenance business in a period after 12 May 2016. It also involves a comparison of Proride Services’ conduct of the business prior to the sale. An examination of that conduct is alleged to have resulted in the defendants’ loss of tenders and offers in the period after 12 May 2016. The counterclaim will require an examination of Pro-Ride Racing’s general conduct of the track maintenance business and evidence such as the tenders which are alleged to have been lost after 12 May, and whether Proride Services’ conduct has, as alleged, caused the defendants to suffer losses. It was said that the counterclaim covers a vastly different and larger factual area than the claim made by the Proride Services;
(b) The other matter relied upon is that Proride Services’ claim should take no more than seven days. This is to be contrasted with the estimate now given for the hearing to take six to eight weeks. It was said the hearing of Pro-Ride Racing’s counterclaim will take five to seven weeks;
(c) The evidence at trial will be substantially different. It was noted that the discovery documents for the period after 12 May will be considerably larger than the relatively confined period leading up to the entry into the ASA. There will be considerably far more lay witnesses to be called by the defendants in their counterclaim, and that there was unlikely to be much overlapping of the lay witnesses. Further, in respect of expert evidence, Proride Services’ claim would only require expert evidence from a forensic accountant with respect to its loss and damage. By contrast, it was put that the defendants’ counterclaim will require expert evidence on, at the very least, the industry’s best practice for the conduct of a track maintenance business, the tendering process applicable to the track construction industry, and the quantification of any loss and damage. The only potentially overlapping expert witness would be the accountant in respect of loss and damage claimed; and
(d) As to loss and damage, the purchase price under the ASA, which is the subject of Proride Services’ claim, was $1,590,027. The defendants seek loss and damage of $12,548,867 in their counterclaim which sum far exceeds Proride Services’ claim.
47 It was said that there will be witnesses who are common to both claims. The fact that the counterclaim may seek a greater amount of loss and damage is not determinative. Further, Proride Services has yet to quantify its loss. The defendants only anticipate their evidence-in-chief will take an extra two to three weeks.
48 In support of its argument, Proride Services relied on the following passage of Habersberger J in Saint-Gobain, namely:
“… this is one of those possibly rare cases where a counterclaimant should be required to give security for costs, if the other conditions are satisfied. I do not consider that [the counterclaim] is simply defensive. It is a claim for significant damages which will occupy virtually all of the time spent at the trial because of the nature of the evidence necessary to prove its entitlement. [The primary] claim has been overshadowed by the counterclaim and will take up very little time at the hearing. This means that [the counterclaimant] has chosen to assume the risk of this more costly litigation. It is no longer simply a compulsory party. In those circumstances, I think that it is correct to describe [the counterclaimant] as having ‘taken up the position’ of a plaintiff.”[23]
[23]At paragraph 43.
49 In response, Pro-Ride Racing argues the counterclaim made is defensive in nature. Pro-Ride Racing and Pearse plead in their defence that the ASA was entered into in respect of a sale of business transaction which included the ASA and the Cooperation Deed. It was not correct to say that the documents, the subject of the counterclaim, are different to the subject of Proride Services’ claim. The same documents are in issue in each proceeding.
50 Pro-Ride Racing disputes the suggestion that the evidence will be in respect of a different subject matter. It was said that while the counterclaim traverses business practices prior to the sale of the business, and the claim traverses representations not relevant to the counterclaim, both the defence and the counterclaim traverse Proride Services’ performance and the reasons for a customer ceasing to use it, or choosing not to use it at all.
51 The defendants dispute the estimate made about the length that Proride Services’ case will take at trial. It considers the estimate given of seven days was mere assertion and unexplained. The first defendant and Pearse will call a significant number of witnesses and evidence to establish their defence. This will include witnesses giving evidence regarding the performance of Proride Services in providing maintenance service to tracks and organisations, or evidence as to why they did not engage Proride Services to provide maintenance services due to dissatisfaction with it.
52 The number of witnesses likely to be called to defend the claims made against Pro-Ride Racing and Pearse against the plaintiff’s claim would be 30. In regard to the number of witnesses to be called and the extensive nature of documentary evidence, Pro-Ride Racing estimates the plaintiff’s claim is likely to take four weeks.
53 I am not persuaded that the counterclaim is merely defensive in nature. In my view, it is opening a counter offensive on a different front. Proride Services is seeking damages for breaches and misrepresentations made concerning the ASA. Pro-Ride Racing’s counter claim is that its construction part of the business has been undermined by the actions or failures on the part of Proride Services causing it to lose custom. The added element in the counterclaim will be the need to adduce evidence to prove Pro-Ride Racing’s alleged loss of profits and opportunities. No doubt, there will be some common witnesses and a degree of overlap, but nevertheless, the counterclaim does open up a wider front and may well take up more court time than the claim in my view. That being so, I am not satisfied in the exercise of my discretion that this ground should militate against an order for security.
(c) Strength and bona fides of the counterclaim
54 Proride Services referred to correspondence where it had been said by Pro-Ride Racing that there was little doubt Proride Services had caused its loss and damage in the manner alleged in the counterclaim.
55 The defendants referred to Pun v Poon,[24] where Henry J said:
“It is an unusual case where a court is able to form any view as to the strength of a party’s case on an application for security for costs, which would influence its discretion in ordering security for costs.”[25]
[24][2019] NSWSC 918.
[25]At paragraph [26].
56 The pleadings are detailed, and it cannot be said on perusal of the pleaded case, that neither party does not have an arguable case. Nor could it be said that the counterclaim provides overwhelming evidence. Until such time that the matter proceeds to trial, the court is presently unable to form a view as to which or either of the claims are to be preferred. To that extent, the position on this aspect is neutral.
(d)Whether Pro-Ride Racing’s impecuniosity was caused by Proride Services
57 The defendants had claimed in correspondence the alleged failure by Proride Services to perform its contractual obligations was sufficient to refuse the application for security.
58 In order to succeed on this aspect, the court would have to be persuaded, based on admissible evidence, that Proride Services’ conduct was a cause of or contributed to the defendants’ impecuniosity.[26]
[26]Coonawarra Pty Ltd v Cornonero Pty Ltd & Ors [2018] VSC 333, Derham AsJ at [6].
59 It was noted by Proride Services that no evidence had been filed to this effect by the defendants. The impecuniosity point was not taken up by Counsel for Pro-Ride Racing during the course of his oral submissions nor in his written submissions. Presumably, because it ran counter to Pro-Ride Racing’s case that it was not impecunious and could meet an order for costs.
(e) The claim for security is made for an improper purpose
60 Pro-Ride Racing argued other factors should be taken into account when considering the application, namely:
(a) Proride Services had issued another related proceeding in the Supreme Court seeking relief under s172 of the Property Law Act which it had unreasonably refused to transfer to the County Court and was thereby causing unnecessary costs to be incurred;
(b) the discovery provided by Proride Services was oppressive because it was claimed the discovered documents provided had not been properly reviewed and amounted to a “data dump”; and
(c) consequently, it could be inferred the application for security was one of the many tactical measures adopted by Pro-Ride Services rather than an application made on its merits alone.
61 The nature of the complaints made in (a) and (b) above are matters which could amount to possible breaches of the overarching obligations contained in the Civil Procedure Act, if investigated and substantiated. But I am not prepared to draw the inference sought by Pro-Ride Racing that this application was made other than on its merits because of its as yet unproven complaints about Proride Services conduct generally. It is evident from the materials filed there is a risk that Pro-Ride Racing may not be able to satisfy an order for costs, being the gateway threshold requirement in these types of applications. Given this, it cannot be said that the application was not brought on its merits and motivated by some improper purpose. Consequently, I have disregarded this submission when making my determination.
Quantum
62 Proride Services relies upon the estimate of costs made by Mr De La Rue, (“De La Rue”) a legal costs consultant, in support of its application for security. De La Rue swore an affidavit on 5 July 2019. Exhibited to that affidavit was the letter of instructions he received from Strongman & Crouch, solicitors, dated 1 July 2019, together with a schedule of costs estimate he prepared. De La Rue is an experienced costs consultant who has been engaged in legal costs consulting for approximately 45 years and has worked in that capacity since September 1975.
63 In the letter of instructions provided, which is exhibit “RJD1”, De La Rue was asked to assume various matters outlined in the solicitor’s letter. He was instructed that discovery relating only to the counterclaim would be expansive and could compromise around 60,000-70,000 thousand documents, if not more. De La Rue was asked to assume that the counterclaim would involve around 20 lay witnesses and that Proride Services may call ten to twelve of the lay witnesses. The costs consultant was also asked to assume that the trial of the counterclaim would involve 30-40 sitting days and that this was in addition to the five sitting days estimated to be required for the trial of Proride Services’ primary claim.
64 In paragraph 9 of his affidavit, De La Rue deposes that costing principles dictate that costs of the counterclaim means the amount by which the costs of the proceedings are increased by the counterclaim. As instructed, he has limited his estimation to the costs associated with the counterclaim.
65 De La Rue deposes in paragraph 10 of his affidavit, that he was asked to assess costs up to and including the first day of trial of the counterclaim. He estimates those costs to be $198,427.26 which he says he is apparent from exhibit “RJD2” although that figure is not expressly mentioned in the exhibited costs estimate.
66 De La Rue also assessed the costs associated with the counterclaim up to and including a trial estimated at 40 days. The total amount which he has assessed, including disbursements, is $656,509.72. In paragraph 11 of his affidavit, De La Rue says this figure is arrived at by assessing the costs relative to a counterclaim for a forty-day hearing of the counterclaim, and, in his opinion, this reflects a reasonable estimate on a standard basis of the anticipated costs.
67 Pro-Ride Racing did not provide any opinion from a costs consultant to rebut the evidence put forward by De La Rue; however, its Counsel made a number of challenges to the matters contained in De La Rue’s affidavit. The first point he made was that it was artificial to isolate all of the costs to be incurred in relation to only the counterclaim and noted that there would be a considerable overlap between the claim and the counterclaim. In addition, it was disputed that the claim itself would only take five days. He said that the scope of the costs estimate being restricted only to the counterclaim was limited and therefore not of assistance to the Court. Counsel also challenged the number of documents which were said would need to be reviewed in the order of 60,000 to 70,000 documents. By contrast, Pro-Ride’s discovered documents were in the order of 13,000 documents.
68 In considering these matters, the Court will adopt a broad-brush approach. The Court need not determine the amount with mathematical precision nor is it bound to give security for the figure claimed. The Court takes into account the likelihood that reductions on taxation will be made to make allowance “for the unquenchable fire of human optimism and the likelihood that the figure of taxed costs will not emerge unscathed after taxation.”[27]
[27]Per Derham AsJ in Coonwarra Pty Ltd v Cornonero Pty Ltd & Ors [2018] VSC 333 at [76] – [77].
69 I am not persuaded that the claim will only take five days, whereas the remainder of the hearing, if it does run for six to eight weeks, will be occupied solely by the counterclaim. For that reason alone, I consider there should be a discount on the estimate provided by De La Rue. It is difficult to determine to what extent of the six to eight weeks of the hearing will be spent on the claim as opposed to the counterclaim. It is reasonable to assume that the counterclaim will take some longer time because of the number of witnesses who are likely to be called. Accordingly, of a forty-day trial, I am prepared to assume that roughly sixty per cent of that time will be occupied by the counterclaim. The total of the figures claimed for discovery, including an allowance for electronic discovery and then also an allowance for maintaining a database for six months at $200 per month, arrives at a total of $141,520. This is a very substantial figure, particularly when given that the total amount claimed up to and including the first day of trial is $198,000. Whilst accepting De La Rue’s expertise in these matters, I consider it is probable that these discovery costs may well be reduced upon a taxation.
70 As Mukhtar AsJ observed in Mark Sensing Shanghai Paper Products Co Ltd v Baldock,[28] courts undertake a “conventional” reduction. Doing the best that I can, and having regard to the fact that there will be some overlap between the claim and the counterclaim and inevitable reductions on a taxation, I consider it is appropriate and fair to order security in the sum of $100,000, being approximately half the amount sought by Proride Services.
[28][2010] VSC 124 at paragraph [22].
Conclusion
71 I will order Pro-Ride Racing provide security for Proride Services’ costs of the counterclaim, up to and including the first day of trial, in the sum of $100,000 by a date to be agreed upon by the parties. Such security is to be provided by payment into the Court or by way of bank guarantee in a form satisfactory to the Registrar.
72 Subject to hearing from the parties, I will also order the counterclaim be stayed pending the provision of security and Pro-Ride Racing pay Proride Services’ costs of and incidental to the application for security, such costs to be taxed on a standard basis in default of agreement.
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Certificate
I certify that these 20 pages are a true copy of the Reasons for Ruling of Her Honour Judge A Ryan delivered on 29 November 2019.
Dated: 29 November 2019
Associate to Her Honour Judge A Ryan
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