Public Transport Ticketing Corporation v Integrated Transit Solutions Ltd

Case •

[2009] NSWSC 54

•

18 February 2009

No judgment structure available for this case.
CITATION: Public Transport Ticketing Corporation v Integrated Transit Solutions Ltd & Anor [2009] NSWSC 54
HEARING DATE(S): 13/2/09
 
JUDGMENT DATE : 
18 February 2009
JURISDICTION: Equity Division
Commercial List
JUDGMENT OF: Einstein J
DECISION: Save in a limited respect, application by plaintiff for security for costs to be paid by defendants to be dismissed.
CATCHWORDS: Practice and procedure - Security for costs - Power to order security for costs - Principles - Following commencement of proceedings by Public Transport Ticketing Corporation seeking damages for breach of contract, Integrated Transit Solutions and ERG Ltd file cross claims - Plaintiff seeks security for costs - Examination of restructure of ERG - Whether restructure constituted a manipulative device designed to insulate ERG from litigation risk exposure - Whether defendants’ cross-claims appropriately characterised as essentially ‘defensive proceedings’ - Discovery - Defendants' application for additional discovery to be allowed
LEGISLATION CITED: Civil Procedure Act 2005 (NSW)
Corporations Act 2001(Cth)
Supreme Court Act 1970 (NSW)
Uniform Civil Procedure Rules 2005 (NSW)
CATEGORY: Procedural and other rulings
CASES CITED: Accidental & Marine Insurance Co v Mercati (1866) LR3Eq 200
Bell Wholesale Co Pty Ltd v Gates Export Corporation (No 2) (1984) 2 FCR 1
Bhagat v Murphy [2000] NSWSC 892
Bhattcharya v Freedman [2001] NSWSC 498
Bryan E Fencott & Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497
Buckley v Bennell Design and Construction Pty Limited (1974) 1 ACLR 301
Caruso Australia Pty Ltd v Portec (Aust) Pty Ltd (1984) 8 ACLR 818
Classic Ceramic Importers Pty Limited v Ceramica Antiga SA (1994) 13 ACSR 263
Gentry Bros Pty Ltd v Wilson Brown & Associates Pty Ltd (1992) 8 ACSR 405
Grant v The Banque Franco-Egyptienne (1876) 1 CPD 143
Green (as Liquidator of Arimco Mining Pty Ltd) v CGU Insurance Ltd (2008) 67 ACSR 105
Harpur v Ariadne Australia Ltd (No 2) [1984] 2 Qd R 523 at 532; (1984) 8 ACLR 835
Heller Factors Pty Ltd v John Arnold's Surf Shop Pty Ltd (in liq) (1979) ACLC 32-446
Hession v Century 21 South Pacific Ltd (in liq) (1992) 28 NSWLR 120
Hutchison Telephone (UK) Ltd v Ultimate Response Ltd [1993] BCLC 307
Interwest Ltd v Tricontinental Corporation Ltd (1991) 5 ACSR 621; (1991) 9 ACLC 1218
Jazabas Pty Limited v Haddad (2007) 65 ACSR 276
KP Cable Investments Pty Limited v Meltglow Pty Limited (1995) 56 FCR 189
MA Productions Pty Ltd v Austarama Television Pty Ltd & Anor (1982) 7 ACLR 97
Memutu v Lissenden (1983) 8 ACLR 364
Merribee Pastoral Industries Pty Limited v Australia & New Zealand Banking Group Limited (1998) 193 CLR 502
Morris v Hanley [2000] NSWSC 957
PS Chellaram & Co Ltd v China Ocean Shipping Co (1991) 65 ALJR 642
Rajski v Computer Manufacture and Design Pty Limited (1983) 2 NSWLR 122; (1982) 2 NSWLR 443
Sent & Petres & Collier v Jet Corporation of Australia Pty Ltd (1984) 2 FCR 201
Smail v Burton [1975] VR 776
Stanley-Hill v Kool [1982] 1 NSWLR 460
Sydmar Pty Ltd v Statewise Developments Pty Ltd (1987) 5 ACLC 480
Silver Fir, The [1980] 1 Lloyd's Rep 371
Thistle Hotels Ltd v Gamma Four Ltd [2004] EWHC 322
Travelodge Australia Limited, Re (1978) 21 ACTR 17
Weily's Quarries v Devine Shipping Pty Ltd (1994) 14 ACSR 186
Yandil Holdings Pty Ltd v Insurance Co of North America (1985) 3 ACLC 542
PARTIES: Public Transport Ticketing Corporation (Plaintiff)
Integrated Transit Solutions Limited (First Defendant)
ERG Limited (Second Defendant)
FILE NUMBER(S): SC 50018/08
COUNSEL: Mr JP Durack SC, Mr NJ Kidd (Plaintiff)
Mr PJ Brereton SC, Mr IC Colquhoun (Defendants)
SOLICITORS: Allens Arthur Robinson (Plaintiff)
Freehills (Defendants)


IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

Einstein J

Wednesday 18 February 2009

50018/08 Public Transport Ticketing Corporation v Integrated Transit Solutions Ltd & Anor

JUDGMENT


1 There are before the Court two notices of motion:


          i. the plaintiff’s notice of motion dated 8 December 2008 seeking security for costs;

          ii. the defendants’ notice of motion dated 19 December 2008 seeking additional discovery.

Overview of the proceedings

2 Pursuant to a Project Agreement made in February 2003, Integrated Transit Solutions Limited (ITSL) agreed to design, supply, install and operate an integrated ticketing system for public transport services in the greater Sydney area. By September 2007, ITSL had failed to achieve completion of 11 milestone events and stages by the dates for completion specified in the contract. In January 2008, after issuing default notices, Public Transport Ticketing Corporation (PTTC) terminated the contract.

3 In February 2008, PTTC commenced these proceedings against ITSL seeking damages for breach of contract. Subsequently, PTTC added ERG as a defendant, seeking damages under a Guarantee given by ERG in respect of the performance of the contract by ITSL.

4 In May 2008 and June 2008, ITSL and ERG filed cross-claims against PTTC. The cross-claims allege that PTTC’s termination amounted to repudiation by PTTC of the contract entitling ITSL to terminate. ITSL’s cross-claim seeks damages from PTTC, particularised at in excess of $215 million. ERG’s cross-claim seeks an order for refund of a $14 million deposit.

5 Subsequently, in November 2008, the shareholders of ERG approved a restructure of the ERG Group, which included the effective disposal of all of ERG’s businesses to a new entity controlled by ERG’s then majority shareholder, the Ingot Entities. A feature of the proposal for the restructure, advanced as a benefit to shareholders, was that a litigation funding agreement be put in place to enable the cross-claims to be pursued.

6 As will appear from what follows, the plaintiff contends that the effect of the restructure and litigation funding agreement is that ITSL and ERG are now assetless (and therefore “judgment proof”) litigation vehicles having as their principal object the pursuit of the cross-claims to recover very large sums of money from PTTC, under the direction and control of a litigation funder controlled by the Ingot Entities.

7 The contention is that if the cross-claims by ITSL and/or ERG are unsuccessful, PTTC will be unable to recover what will undoubtedly be very heavy costs of those cross-claims. The contention is that the persons who stand to benefit from successful cross-claims are the litigation funder (said to have taken a charge over the assets of ITSL and ERG to secure repayment of the litigation funding plus interest), together with the shareholders of ERG. The plaintiff's proposition is that none of those persons have their assets at risk of costs in the proceedings.

8 The defendants strongly deny the plaintiff's suggested attempt to paint the restructure of ERG as some form of manipulative device designed to insulate ERG from litigation risk exposure it otherwise would have faced, and to deprive the plaintiff of protection it would have enjoyed in the absence of the restructure. The defendants contend that this is neither a fair nor accurate representation of the ERG restructure as announced to the ASX and approved by Shareholders.

Claims made by PTTC

9 PTTC’s case as set out in its Amended Commercial List Statement is, in short, as follows:


          (a) in February 2003, Transport Administration Corporation (TAC) and ITSL entered into a written Project Agreement under which ITSL agreed to design and construct an integrated ticketing system for public transport services in the greater Sydney area. ERG guaranteed the performance of ITSL under the Project Agreement. TAC’s interest in the Project Agreement and Guarantee were later vested in PTTC;

          (b) the Project Agreement specified dates for completion of various milestone events and stages, with the final stage to be completed by 6 November 2006. The total contract period was approximately 2 years 9 months;

          (c) on 27 June 2006, the parties made a further written agreement containing a recovery schedule of new dates for completion of outstanding milestone events and stages, with the new date for completion of the final stage now 11 March 2008 (these recovery schedule dates were not extensions of time within the meaning of the Project Agreement);

          (d) by 24 September 2007, the new recovery schedule dates for completion of some 11 milestone events and stages had passed but none of the relevant milestone events or stages had achieved completion. Notices were served by PTTC pursuant to the default provisions in the Project Agreement, requiring that ITSL complete the relevant milestone events and stages within 20 business days;

          (e) on 22 October 2007, the Chairman of ERG wrote to PTTC acknowledging the seriousness of the delays in progress of the project and the dissatisfaction of PTTC, stating that it was committed to making changes that represented a “complete overhaul of our approach to the project”, confirming that ITSL had entered into the contract cognisant that it had accepted significant risk including complex fare products, a requirement to reverse engineer existing rail ticketing systems and a large number of stakeholders, and acknowledging that significant changes were required to dramatically improve ITSL’s adherence to committed schedules. A copy is behind tab 10 of Exhibit MGM1;

          (f) on 5 November 2007, PTTC served a notice of intention to terminate the contract within 20 business days, pursuant to the provisions in clause 38.2(a) of the Project Agreement;

          (g) on 30 November 2007, ITSL submitted a “Remedial Programme” containing a proposed revised project schedule that contemplated delays of approximately 2 years to the recovery schedule's new dates for completion of the various milestone events and stages, including achieving the final stage by 29 January 2010.

          (h) in January 2008, PTTC determined that the Remedial Programme was not satisfactory to PTTC and terminated the contract;

          (i) PTTC claims damages from ITSL for wasted expenditure caused by ITSL’s breaches and repudiation of the Project Agreement, and from ERG pursuant to the guarantee. The quantum of damages has been particularised at approximately $88 million.

10 The plaintiff contends that the extent of the delays to the Project were inordinate. They are said to be summarised in the table at tab 12 of Exhibit MGM1. The contention is that at the time of termination in January 2008, ITSL had completed only 3 of the 18 milestone events and stages, and was proposing a further lengthy delay, with milestone event 4 proposed to be completed by May 2009 (being a further delay of more than 2 years beyond the recovery schedule dates), and the final stage proposed to be completed by 29 January 2010.

Claims made by ITSL and ERG

11 In the Response (which is repeated in paragraph C1 of the Cross-Claims), ITSL and ERG:

          (a) admit that by 24 September 2007 completion of the relevant milestone events and stages had not been achieved by the extended dates for completion (paragraph C63(b));

          (b) allege that PTTC’s contractual right to terminate had to be exercised reasonably and in good faith (paragraph C62);

          (c) allege that PTTC did not act reasonably or in good faith in issuing the default notices and in determining that the Remedial Programme was not satisfactory to PTTC in that, among other things, PTTC failed to take into account sufficiently or at all the “ Relevant Circumstance s” set out in paragraphs C5 to C53 of the Response (and repeated in paragraph C1 of the Cross-Claims); and

          (d) allege that the “ Relevant Circumstances ” include a series of acts and omissions of PTTC, the NSW Government, RailCorp (the operator of public rail services) and STA (the operator of public bus services) alleged to have “materially caused or contributed to delays and difficulties in the project”.

12 In ITSL's Cross-Claim, ITSL claims damages for PTTC’s alleged repudiation of the contract said to be constituted by PTTC’s unlawful termination of the contract. The damages are particularised in the cross-claim at in excess of $215 million. In ERG's Cross-Claim, ERG claims that ITSL lawfully terminated the contract and that ERG is accordingly entitled to a refund of $14 million deposit which had been paid by ERG to PTTC to secure the performance by ITSL of the contract.

13 The plaintiff contends that the Project Agreement contained a comprehensive regime which allocated the risk of delays between the parties. The regime included detailed provisions for extensions of time for specified causes of delay, including acts of prevention by PTTC, and provided that otherwise ITSL will bear the risk of all delays.

14 No claim is made in the proceedings that the “Relevant Circumstances” were the subject of claims for extensions of time for completion that were improperly refused.

15 The plaintiff further contends that the cross-claimants’ case that acts and omissions of others caused or contributed to delays in the project and should have been taken into account by PTTC in exercising its rights under the Project Agreement stands at odds with:


          (a) Mr Henson’s letter of 22 October 2007;

          (b) the fact that none of the alleged “ Relevant Circumstances ” are claimed to have been the subject of any claim for an extension of time under the Project Agreement;

          (c) the fact that ITSL did not ask PTTC to take the alleged “ Relevant Circumstances ” into account in considering the Remedial Programme;

          (d) the provisions in the Project Agreement allocating the risk of delay.

          (See paragraph C5 of PTTC’s cross-claim response dated 4 June 2008)

The power to order security for costs / the principles

16 Both parties drew attention to the sources of power for the Court to grant security for costs and to some of the authorities identifying the principles which obtain. I was unable to discern any serious disagreement between the respective contentions in this regard, it being clearly the case that each application for security for costs requires to be determined upon its own circumstances and that there are a number of discretionary considerations which require to be taken into account.

17 It seems to me that the plaintiff’s submissions represented a fair overview summary of the sources of power and of the general principles. Those submissions included the following:


          i. There are various sources of power for the Court to grant security for costs. The first is under Rule 42.21 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR). UCPR r 42.21 relevantly provides:

              “(1) If, in any proceedings, it appears to the court on the application of a defendant:…
                  (d) that there is reason to believe that the plaintiff, being a corporation, will be unable to pay the costs of the defendant if ordered to do so…
                  the court may order such security as the court thinks fit, in such manner as the court directs, for the defendant’s costs in the proceedings and that the proceedings be stayed until the security is given.”


          ii. For the purposes of the UCPR, the terms “defendant” and “plaintiff” have the same meaning as in s 3 of the Civil Procedure Act 2005 (NSW) (CP Act). Section 3 of the CP Act defines “defendant” to include “a person against whom a cross-claim is made”. Similarly, “plaintiff” is defined to include a “cross-claimant”.

          iii. Accordingly, ITSL and ERG are “plaintiffs” for the purpose of the rule, and PTTC is a “ defendant ”.

          iv. Another relevant source of power under the UCPR is r 2.1. Also relevant is s 23 of the Supreme Court Act 1970, and sections 61 and 62 of the CP Act: Green v CGU (2008) 67 ACSR 105 per Hodgson JA at [20]-[21].

          v. A further source of power to order security for costs is s.1335 of the Corporations Act 2001, which relevantly provides:
              “(1) Where a corporation is a plaintiff in any action or other legal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his, her or its defence, require sufficient security to be given for those costs and stay all proceedings until the security is given.”

          vi. The words “plaintiff” and “defendant” in s 1335 are not given a restrictive meaning and are capable of encompassing a cross-claimant and cross-defendant respectively: see for example Buckley v Bennell Design and Constructions Pty Limited (1974) 1 ACLR 301 at 306-307. Accordingly, the power to order security under s.1335 has also been enlivened.
          vii. A final source of power to order security for costs is the Court’s inherent power. It is now well established that there is an inherent power to order security for costs. The power is exercised to regulate the Court’s own practice and procedure in order to procure proper and effective administration of justice and to prevent abuse of process: Rajski v Computer Manufacture and Design Pty Limited (1983) 2 NSWLR 122 (CA) and at first instance (1982) 2 NSWLR 443 at 447-448 per Holland J; Merribee Pastoral Industries Pty Limited v Australia & New Zealand Banking Group Limited (1998) 193 CLR 502 at [26] per Kirby J ; Morris v Hanley [2000] NSWSC 957 per Young J; Bhattcharya v Freedman [2001] NSWSC 498; Green v CGU (2008) 67 ACSR 105 per Hodgson JA at [33]-[48].

18 In Merribee Pastoral Industries Pty Limited v Australia & New Zealand Banking Group Limited (1998) 193 CLR 502 at [26], Kirby J said (footnotes omitted):


          “There is no absolute rule to control the exercise of the discretion to order security for costs where that jurisdiction derives from the inherent power of the court. The jurisdiction, as one reposed in a court, is to be exercised judicially and for the purpose for which it exists. An analogous discretion has been described as “absolute”. It would be wrong to attempt to hedge the jurisdiction about by rules or practices, even where derived from a number of instances. This is because what should be done in each case depends entirely on the circumstances of the case. The governing consideration is what is required by the justice of the matter.”

19 The inherent jurisdiction of the Court is exercised to prevent abuse of process, but in the area of security for costs, it enables the Court, where it can see that there may be injustice to a party, to make an order for security for costs so that unsuccessful proceedings will not occasion injustice to the defendants: Bhagat v Murphy [2000] NSWSC 892.

20 The inherent power of the Court to order security for costs includes a power to order a defendant to provide security for costs, even in the absence of a cross-claim by the defendant: Classic Ceramic Importers Pty Limited v Ceramica Antiga SA (1994) 13 ACSR 263; Stanley-Hill v Kool [1982] 1 NSWLR 460.

21 A convenient summary of the relevant principles relating generally to the discretion to order security for costs was made by Beazley J in KP Cable Investments Pty Limited v Meltglow Pty Limited (1995) 56 FCR 189. Her Honour’s judgment has been applied in many subsequent cases, including recently by the New South Wales Court of Appeal in Jazabas Pty Limited v Haddad (2007) 65 ACSR 276 at [74]. Beazley J said at [196]-[198]:


          “Principles Governing Application for Security for Costs

          The law is now settled that the discretion to order security for costs is unfettered and should be exercised having regard to all the circumstances of the case without any predisposition in favour of the award of security: see the review of the authorities by French J in BryanE Fencott & Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 at 509. See also Interwest Ltd (Receivers and Managers Appointed) v Tricontinental Corp Ltd (1991) 9 ACLC 1218 at 1226 and Zeeman J's decision in Weily's Quarries v Devine Shipping Pty Ltd (1994) 14 ACSR 186 at 188. In Gentry Bros Pty Ltd v Wilson Brown & Associates Pty Ltd (1992) 8 ACSR 405 at 415, Cooper J stated that:

              “[i]t is not possible or appropriate to list all of the matters relevant to the exercise of the discretion. The factors will vary from case to case. The weight to be given to any circumstance depends upon its own intrinsic persuasiveness and its impact on other circumstances which have to be weighed: PS Chellaram & Co Ltd v China Ocean Shipping Co (1991) 65 ALJR 642 at 643.”


          Notwithstanding the broad unfettered discretion with which the Court approaches an application for security for costs, there are a number of well-established guidelines which the court typically takes into account in determining any such application. They are:

          1. That such applications should be brought promptly. This is a principle of longstanding: see Grant v The Banque Franco-Egyptienne (1876) 1 CPD 143; see also Smail v Burton [1975] VR 776 per Gillard J at 777; Caruso Australia Pty Ltd v Portec (Aust) Pty Ltd (1984) 8 ACLR 818 at 820; Bryan E Fencott Pty Ltd at 514. I should state immediately that there is no issue of delay in this case.

          2. That regard is to be had to the strength and bona fides of the applicant's case are relevant considerations: see M A Productions Pty Ltd v Austarama Television Pty Ltd & Anor (1982) 7 ACLR 97 at 100; Bryan E Fencott Pty Ltd at 514. As a general rule, where a claim is prima facie regular on its face and discloses a cause of action, in the absence of evidence to the contrary, the court should proceed on the basis that the claim is bona fide with a reasonable prospect of success. ( Bryan E Fencott at 514).

          3. Whether the applicant's impecuniosity was caused by the respondent's conduct subject of the claim: see M A Productions Pty Ltd v Austarama Television Pty Ltd at 100.

          4. Whether the respondent's application for security is oppressive, in the sense that it is being used merely to deny an impecunious applicant a right to litigate: see M A Productions v Austarama Television at 100; Yandil Holdings Pty Ltd v Insurance Co of North America (1985) 3 ACLC 542 per Clarke J at 545; Bryan E. Fencott at 513. In Yandil Holdings at 545 Clarke J stated the principle in these terms:
                  “[t]he fact that the ordering of security will frustrate the plaintiff's rights to litigate its claim because of its financial condition does not automatically lead to the refusal of an order. Nonetheless it will usually operate as a powerful factor in favour of exercising the court's discretion in the plaintiff's favour.”

          This factor is related to the next, namely:

          5. Whether there are any persons standing behind the company who are likely to benefit from the litigation and who are willing to provide the necessary security: see Memutu v Lissenden (1983) 8 ACLR 364; Sent & Ors v Jet Corporation of Australia Pty Ltd (1984) 2 FCR 201; Bell Wholesale Co Pty Ltd v Gates Export Corp (1984) 2 FCR 1; Hession v Century 21 South Pacific Ltd (in liq) (1992) 28 NSWLR 120 at 123; Bryan E. Fencott at 513; Yandil Holdings at 545. The combined effect of these two principles was summarised by Meagher JA in Hession at 123 as follows:
                  “...a company in liquidation against whom an order for security for costs is sought cannot successfully resist such an order merely by proving that it cannot fund the litigation from its own resources if an order for security is made; it must prove that it cannot do so even if it relies on the other resources available to it (the company's shareholders or creditors)...Finally, whilst it is both true and important that poverty must be no bar to litigation, what that means is that the courts must be astute to see that no person pursuing a claim which is not frivolous is precluded from doing so by the erection of obstacles which poverty is unable to surmount; it does not mean that proof of insolvency automatically confers an immunity from statutory provisions which deal with insolvent plaintiffs.”

          6. An issue related to the last guideline is whether persons standing behind the company have offered any personal undertaking to be liable for the costs and if so, the form of any such undertaking: see Cameron's Unit Services Pty Ltd v Kevin R Whelpton and Associates (Aust) Pty Ltd (1986) 13 FCR 46 at 53; Mantaray Pty Ltd v Brookfield Breeding Co Pty Ltd (1990) 8 ACLC 304; Clyde Industries Ltd v Ryad Engineering Pty Ltd (1993) 11 ACLC 325.

          7. Security will only ordinarily be ordered against a party who is in substance a plaintiff, and an order ought not to be made against parties who are defending themselves and thus forced to litigate: see Interwest Ltd v Tricontinental Corp Ltd (1991) 5 ACSR 621 at 626; Heller Factors Pty Ltd v John Arnold's Surf Shop Pty Ltd (in liq) (1979) ACLC 32,446; Sydmar Pty Ltd v Statewise Developments Pty Ltd (1987) 5 ACLC 480; Weily's Quarries v Devine Shipping Pty Ltd (1994) 14 ACSR 186 where Zeeman J stated at 189:
                  “[t]he general proposition that security ought not to be ordered where the proceedings are defensive in the sense of directly resisting proceedings already brought or seeking to halt self-help procedures is no more than that, a general proposition. It ought not to be elevated to being a rule of law. In many cases of that nature it could be considered oppressive to require security and that in itself may be sufficient to refuse to make an order...[see] Sydmar Pty Ltd v Statewise Developments [above] and Interwest Ltd v Tricontinental [above]. “”

22 In BryanE Fencott & Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497, French J (as he then was) referred with apparent approval (at page 510.5) to the following passage from the judgment of Smithers J in Sent v Jet Corporation of Australia Pty Ltd (1984) 2 FCR 201:


          “If it is going too far to say, as was said by Street CJ in Buckley v Bennell Design and Construction Pty Ltd (supra) at 303, and as I accepted in Tradestock Pty Ltd v TNT (Management) Pty Ltd & Ors (supra), that the discretion conferred by the section should be exercised merely with a predisposition in favour of the defendant party, nevertheless, the discretion is for the protection of the defendant from the unfair and possibly burdensome consequences of an unsuccessful claim against him by an impecunious company. In every case of such an action, where the result is in real doubt, risk of those consequences exists, and the need for protection exists. To my mind the statutory purpose is itself a factor deserving of weight in the exercise of the discretion. And the greater the quantum of loss if the risk materialises and the less apparent the chances of success, the greater the weight. As was said by Megarry V-C in the observations mentioned above, “the statute not only opens the jurisdiction but also provides a substantial factor in the decision to exercise it”.”

23 French J (as he then was) also said (at page 511):


          “For example where the litigation is instigated and supported financially by a secured creditor of the company, the risk of that creditor pursuing his own interests in the action with no risk as to cost, is a weighty consideration: Sent v Jet Corporation of Australia Pty Ltd (1984) 2 FCR 201 at 215.”

24 In relation to Corporations Act power to order security for costs, in Jazabas Pty Limited v Haddad (2007) 65 ACSR 276, Basten JA said (at [12]):


          “As explained by Connolly J (Campbell CJ and Demack J agreeing) in Harpur v Ariadne Australia Ltd (No 2) [1984] 2 Qd R 523 at 532; 8 ACLR 835 at 842:
              “The mischief at which the provision is aimed is obvious. An individual who conducts his business affairs by medium of a corporation without assets would otherwise be in a position to expose his opponent to a massive bill of costs without hazarding his own assets. The purpose of an order for security is to require him, if not to come out from behind the skirts of the company, at least to bring his own assets into play. If however he is already available for whatever he is worth, the object of the legislation is seen to be satisfied.””

25 In relation to the last mentioned general proposition in the passage from the judgment of Beazley J in KP Cable set out above, in Interwest Limited v Tricontinental Corporation (1991) 5 ACSR 621, Ormiston J said at 1228-1229:


          “The authorities on the effect of counterclaims and cross-claims are by no means satisfactory. In my experience counterclaimants are rarely required to provide security and the existence of a counterclaim frequently dissuades defendants from pursuing an application for security, but there is no doubt that the jurisdiction exists to grant security and is “unfettered” in the sense described.

          Perhaps it may be said that the authorities support the proposition that security will only ordinarily be ordered against a party who is in substance the plaintiff, and that an order ought not to be made against parties who are defending themselves and thus forced to litigate: cf Accidental & Marine Insurance Co v Mercati (1866) LR3Eq 200. That would appear to be an overstatement, but the fact that a plaintiff, or counterclaimant, has instituted essentially defensive proceedings, must be a significant factor in the exercise of the court's discretion ...

          Principally it would appear necessary to characterise the proceedings in respect of which security is sought. If they are “defensive” proceedings, either directly resisting proceedings already brought or seeking to “halt self-help procedures”, it would seem that to require security would be oppressive, or at least would provide serious grounds for refusing to make an order . At the least, it is a factor to be considered in the exercise of the discretion. In particular, it is a basis for reducing the amount of security ordered to a sum related to the costs of those claims which cannot be characterised as defensive ... If a party is genuinely seeking to resist another party's claim, whatever form it takes, then to order security would be manifestly unfair .”
          [emphasis added]

26 Ormiston J apparently was not referred to Buckley in the course of argument in Interwest.

The Respective Arguments

27 The argument on the application for security for costs descended into cross contentions as to whether or not the defendants are in substance, claimants.

28 The plaintiffs contention was that:


          i. Quite apart from the effect of the ERG restructure ITSL and ERG are in substance claimants.

          ii. The cross claims do not merely operate as a defence.

          iii. The amount claimed in the cross claims greatly exceeds the amount claimed by PTTC in its claim, which is a relevant factor in considering whether the cross-claim is a mere defence, or a cross-claim in its own right: Hutchison Telephone (UK) Ltd v Ultimate Response Ltd [1993] BCLC 307 at 314.

29 The plaintiff also relied upon the fact that prior to PTTC commencing these proceedings, ERG had already stated in an announcement to the ASX on 30 January 2008 that it was considering “legal action” against the NSW Government in relation to an approximately $250,000,000 loss (see tab 1 of Ex.MGM1). Both parties were claiming they had been badly treated by the other and had suffered substantial damage.

30 The plaintiff’s proposition was that both ITSL and ERG could just have easily been the plaintiffs. The plaintiff contends that this circumstance also supports the conclusion that ITSL and ERG are in substance claimants, not merely defendants: The “Silver Fir” [1980] 1 Lloyd’s Rep 371.

The plaintiff's contentions as to the scope of issues and the impact of those issues on costs

31 The stance taken by the plaintiff in relation to the scope of issues and the impact on costs was as follows:


          i. Leaving aside quantification of damages, PTTC’s case is of narrow factual compass. ITSL has admitted that the relevant milestone events and stages were not completed by the contract dates for completion. PTTC’s factual claims centre on the steps taken by PTTC (by its board of directors and senior management) between 24 September 2007 and 23 January 2008 – a period of approximately 4 months – relating to the issuing of default and termination notices.

          ii. On the other hand, the “Relevant Circumstances” allegations made by ITSL and ERG involve extensive and complicated factual allegations about events, conduct and states of affairs involving a large number of people spanning the entire project period – from February 2003 to January 2008. For example, according to Freehills’ letter at tab 14 of Ex.MGM1, the people from PTTC, RailCorp, STA or the NSW Government who ITSL and ERG allege knew or should have known about the Relevant Circumstances (in whole or in part) include at least 25 named people. Also, the allegations are imprecise as to the extent and significance of the delay said to result from each circumstance relied upon.

          iii. Mr McLennan, the partner of Allens Arthur Robinson with the primary conduct of the proceedings on behalf of PTTC, has estimated that approximately 45% to 50% of the Allens’ fees incurred in the period 9 May 2008 (when the ITSL cross-claim was filed) and December 2008 were incurred in relation to tasks occasioned by the cross-claims and the Relevant Circumstances allegations (see pars. 33 to 46 of McLennan affidavit of 19 December 2008).

          iv. Mr McLennan also gives evidence that he expects substantial costs will continue to be incurred in relation to tasks occasioned by the Relevant Circumstances allegations and cross-claims. The tasks include voluminous discovery (including reviewing at least 70,000 emails for relevance under PTTC discovery categories 11 and 12), inspecting voluminous documents to be discovered by ITSL and ERG (in circumstances where 15 of the 17 ITSL/ERG discovery categories are only relevant, or substantially only relevant, to the Relevant Circumstances allegations or the cross-claims) and conducting detailed and voluminous factual enquiries and preparing and responding to evidence concerning the Relevant Circumstances allegations.

Returning to the ERG restructure in more detail

32 As earlier indicated the parties were at issue as to the effect of the ERG restructure. To my mind the somewhat complex position disclosed in the evidence before the Court or reasonably to be inferred from that evidence, was fairly summarised in the defendants closing submissions as follows :


          i. Contrary to the plaintiff’s submissions, the restructure of ERG:


              a. was not undertaken for the purpose of rendering ERG and ITSL “judgment proof” ;

              b. rather, was undertaken for the purposes stated to shareholders by ERG’s independent directors and disclosed to the ASX, in particular to prevent the prospect of insolvency in the short term (a situation created by the plaintiff’s act of termination of the Contract, which it claims it was entitled to do, and which the defendants dispute in this litigation) and enable ERG’s existing businesses to continue to operate;

              c. did not have the result of placing out of reach any assets that would otherwise have been available to PTTC were it successful in this litigation (as all ERG’s valuable assets were already charged as security for existing debt to Ingot Entities well before the litigation was commenced);

              d. was undertaken for fair value, as stated in the Independent Expert Report provided to shareholders; and

              e. did not have the effect of placing the Ingot Entities in the position of a litigation funder of an opportunistic and entrepreneurial kind as portrayed by the plaintiff’s submissions.

          ii. The purposes behind the restructure were stated in ERG’s Explanatory Memorandum to shareholders (EM), which is Tab 3 of Exhibit ‘MGM1’ to the affidavit of Mr McLennan. In summary, the EM states that:

              a. ERG’s business model was based on winning contracts for the development and supply of automated fare collection systems and building recurrent revenue streams from subsequent maintenance and operating services. Financial strength, a strong capital base and a certain operating environment had been critical factors in being able to win such contracts and fund the delivery phase of systems developments in order to access the more profitable revenue streams from maintenance activities (EM section 2.1);

              b. the termination of the Tcard Contract and subsequent litigation had a number of negative impacts on ERG, in that it:

                  (i) led to ERG writing down assets of approximately $80 million and recording a net asset deficiency of more than $7 million in its balance sheet as at 31 December 2007;

                  (ii) removed a source of significant future operating income;

                  (iii) caused significant pressure on ERG’s liquidity with the uncertainty on ERG’s viability causing customers to withhold payments and suppliers to further tighten credit terms;

                  (iv) had a destabilising effect on ERG staff with several staff losses impacting other project deliveries, in turn delaying the realisation of work in progress into cash;

                  (v) significantly diminished ERG’s ability to win new business, with ERG excluded from several bids and other revenue generating opportunities deferred by customers until they obtain greater certainty on the ERG Group’s future,
                    (EM section 2.3);


              c. if not for temporary extensions of repayment dates, ERG would have been obliged to repay borrowings totalling approximately $17.6 million on 31 March 2008 and a further $38.5 million on 30 September 2008 which it could not have met (EM section 2.3);

              d. most of ERG’s assets were the subject of security charges under the ERG Security Trust to Ingot Entities (EM section 2.3 and 2.11);

              e. ERG directors assessed that with the prospect of increasing servicing costs on borrowings, ERG would not be able to meet all of its debts when due through the normal course of trading (EM section 2.3);

              f. without a significant recapitalisation, sale of its business or similar transaction that allowed ERG to repay the majority or all of its borrowings and rectify its net asset deficiency, the ERG directors believed that ERG would face insolvency and thereby most likely be prevented from defending and pursuing its counterclaim with respect to the Tcard litigation (EM section 2.4);

              g. the ERG non-associated directors explored options other than the restructure, including sale of various parts of the ERG business, but the offers received were not sufficiently attractive, and not more attractive than the restructure (EM section 2.4);

              h. the purpose of the restructure was to address the adverse impact to ERG’s business caused by the Tcard Contract termination and thereby seek to preserve an opportunity for ERG shareholders to achieve some return on their investment (EM section 2.5);

              i. had the restructure not proceeded, the prospect of ERG becoming insolvent would be high. This would constitute an event of default under the ERG Security Trust, allowing the creditors under that trust, the Ingot Entities, to enforce their security. The likelihood in that case would be that control of all of ERG’s assets would be assumed by a receiver. If the amount received on sale of those assets was less than the amount owed to secured creditors, the return to shareholders (and also to unsecured creditors – such as a judgment creditor) would be nil (EM section 2.5 and 2.11);

              j. ERG’s non-associated directors (Colin Henson and Michael Clarey) recommended that shareholders approve the restructure; directors Duncan Saville, James Carroll and Steve Gallagher did not consider themselves justified in making a recommendation (EM section 2.14).

          iii. Annexed to the EM was an Independent Expert’s Report from Ernst & Young Transaction Advisory Services Limited (also in Tab 3 of Exhibit ‘MGM1’) (the EY Report). The EY Report:

              a. assessed the fair market value of the business of ERG being disposed of under the restructure as a going concern at between approximately $93.182 million and $100.052 million (EY Report pages 5, 32);

              b. determined that if ERG was not able to continue as a going concern, then the fair market value of the ERG business would be significantly less than the fair market value assessed (EY Report page 32);

              c. was prepared having regard to ASIC Regulatory Guide 111, Content of expert reports (EY Report page 4);

              d. was prepared having regard to cash flow forecasts supplied by ERG management, with a limited review to determine their reasonableness. This included discussions with management about specific contract risks including likelihood and timing of project delivery cash flows as well as the likelihood, timing and term of operating and maintenance cash flows, on a contract by contract basis. Adjustments were made following these discussions (EY Report pages 32-33);

              e. concluded that each of the transactions under the restructure was fair and reasonable (EY Report page 4).

          iv. The EM also provided details of the funding agreement to be entered into between a Vix-ERG Group entity and ERG for the purpose of defending and pursuing the Tcard litigation. The EM noted that the funding agreement provided for ERG to pay the funder 10 per cent interest on monies advanced under the agreement, to be capitalised and payable when the loan is repayable. The EM noted this compared favourably to terms (including considerable premiums) usually charged by ‘litigation funders’ (EM section 2.8; see also Mr Henson’s address to shareholders, Tab 5 of Exhibit ‘MGM1’, pages 5-6).

33 Ultimately the defendants’ central submission was quite simply that the plaintiff’s position as a result of the restructure was either improved or one changed.

34 Whilst it is certainly far from simple for the Court at this stage, and on the present evidence, to be absolutely clear in relation to the matter, the materials before the court seem to me to justify rejecting the plaintiffs following submission:


          “the restructure has had the effect that ERG and ITSL are assetless and “judgment proof” in respect of any judgment made against either of them in favour of PTTC … . If the cross-claims are unsuccessful and the Court makes a costs order in favour of PTTC, neither ITSL nor ERG will have any cash reserves, assets capable of being converted to cash or funding from a third party able to meet those costs.”

35 The defendants’ responsive submission is accepted where suggesting that the restructure had had no such effect. That submission contends that had the restructure not occurred it is likely that ERG would have become insolvent, and the Ingot Entities would have appointed a receiver. The sale of ERG’s assets by the receiver would, in the opinion of the Independent Expert, have realised less than the secured debt owing to the Ingot Entities. There would have been no cash reserves or other assets of the defendants available to PTTC in the event that a costs order were made in its favour in any event.

36 It is also germane to note that the ERG Chairman stated at the Annual General Meeting of Shareholders on 17 November:


          “Through the restructure the Company is actually satisfying (secured) loans amounting to $115.4 million with assets independently valued at no more than $100 million.” (Tab 5 of Exhibit MGM1 at page 6)

37 I accept that had it genuinely been the case that the restructure removed ERG assets from the reach of PTTC as a contingent creditor, one would have expected PTTC to apply for a freezing order under UCPR 25.11. It applied for no such order.

38 Before leaving this topic it is germane to note the stance which Mr Durack SC adopted in his submissions in reply: [Transcript 39-40]


          HIS HONOUR: Now we have a very close joining of issue as to whether or not it is fair and reasonable for your side to have said, as it did many times, look, they denuded themselves of their relevant assets in a way which you have described. Mr Brereton has put an entirely different face on the whole exercise.

          MR DURACK: Well, your Honour, we don't on this occasion and it is simply not feasible to do it, because it would become a major claim within an even larger claim, we don't seek to attack on this application the motives behind that restructure. We are relying on the effect of it, your Honour.

          The effect has been to put beyond our reach, at least on the face of it, all of the business operations of ERG. Previously they were assets of ERG and certainly there were liabilities but they were assets of ERG and the principal assets of ERG, so far as we were concerned, before the restructure were the future cash flows of this business, of these various businesses.

          Those cash flows are substantial and they are uncertain, and what the independent expert reporter did here was to take some cash flows prepared by the management and to take what was called the contracted cash flows, not the as yet obtained cash flows from future contracts but the contracted cash flows, your Honour, that is apparent from paragraph 7.13 of the Ernst & Young report, page 33, and value those.

          Mr Brereton talks about an attack on the Ernst & Young report. Again, this is not an occasion on which we can fully mount an attack, nor can the Court resolve the question of the fairness of this sale price on this sort of hearing. What we have mentioned in our submissions is that the Court should be aware that there was a real issue and there remains a real issue as to whether or not this has been a fair transaction, but that is good enough for our purposes.

          What is good enough for our purposes is effect, not motive, and the fact that there can be no doubt that we once had a defendant that had a set of large global business operations and all the assets and the cash flows that one can imagine from that, including a continuing business and the ability to go out and earn new business, and that is no longer available on the face of it to us. It has been set off.

39 To my mind this final approach by the plaintiff represented a considerably watered down submission on one of the key planks initially relied upon by it in its quest for security.

40 Presumably it was a fair response to Mr Brereton SC 's submission that the Ingot Entities not shown to have been opportunistic investors in litigation in the usual manner of a 'litigation fund'. It does seem to me to have been shown that the reality of the situation was different, members of the In Ingot Group having been significant shareholders in ERG. As the defendants have contended:


          The value of their shareholding was, as outlined in the EM, significantly affected by the termination of the Tcard contract, which is alleged, in answer to the plaintiff’s claim of entitlement, to be wrongful in these proceedings which were instigated by the plaintiff claiming in excess of $88 million in damages. The funding agreement is plainly on its face an attempt by the Ingot Group to save some value from their investment in ERG in the only manner available in the circumstances, namely the defence of the plaintiff’s claim and the pursuit of the corollary cross claim.

Characterising the defendants cross claims - are they 'essentially defensive proceedings'

41 In Interwest Limited v Tricontinental Corporation (1991) 5 ACSR 621, Ormiston J stated that the authorities on the effect of cross-claims are by no means satisfactory. That notwithstanding I accept that it remains the case that there is no doubt that the jurisdiction exists to grant security in respect of a cross-claim and that it is “unfettered”.

42 To my mind the cross contentions advanced by each of the parties [the defendants contending that the plaintiff is the attacker; and the plaintiff contending that the cross claimant's are the attacker] both fail to recognize that the Court can look at the reality of the case: cf the observations made in (Travelodge Australia Limited, Re (1978) 21 ACTR 17 at 19 per Blackburn CJ).

43 In Hutchison Telephone (UK) Ltd v Ultimate Response Ltd [1993] BCLC 307, Dillon LJ noted that there is an overriding discretion to award security for costs even if the claim and the counterclaim turn on the same issue of fact, and said (at 313):


          “The question is whether in the particular case the counterclaim is a cross-action or operates as a defence, that is to say merely operates as a defence.”

44 Dillon LJ further said (at 314):


          “If one is considering whether the counterclaim is indeed a mere defence or a cross claim in its own right which might well stand and be proceeded with even though the original claim was abandoned, the marked discrepancy in size between the amount claimed in the action and the very much greater amount claimed by the cross-claim must be, in my judgment, a relevant factor.”

45 If the circumstances are such that either party could just have easily been the plaintiff, that is also relevant when considering whether the cross-claim is merely defensive: The “Silver Fir” [1980] 1 Lloyd’s Rep 371; Hutchison Telephone (UK) Ltd v Ultimate Response Ltd [1993] BCLC 307 at 316; Thistle Hotels Ltd v Gamma Four Ltd [2004] EWHC 322 (Ch).

46 The plaintiff has made heavy emphasis upon the proposition that its case is of narrow factual compass, it's propositions being:


          i. That ITSL has admitted that the relevant milestone events and stages were not completed by the contract dates for completion.

          ii. PTTC’s factual claims centre on the steps taken by PTTC (by its board of directors and senior management) between 24 September 2007 and 23 January 2008 – a period of approximately 4 months – relating to the issuing of default and termination notices.

          iii. That on the other hand, the “Relevant Circumstances” allegations made by ITSL and ERG involve extensive and complicated factual allegations about events, conduct and states of affairs involving a large number of people spanning the entire project period – from February 2003 to January 2008.

              a. For example, according to Freehills’ letter at tab 14 of Ex.MGM1, the people from PTTC, RailCorp, STA or the NSW Government who ITSL and ERG allege knew or should have known about the Relevant Circumstances (in whole or in part) include at least 25 named people.

              b. Also, the allegations are imprecise as to the extent and significance of the delay said to result from each circumstance relied upon.

47 The defendants on the other hand have strongly submitted as follows:


          i. The allegations of the defendants, spanning years and involving many people, appear in the CLR and constitute the defendants’ defence to a suit of at least $88.6 million brought by PTTC, raising, as they do, acts of prevention by PTTC which the defendants contend render PTTC’s actions in terminating the Contract legally ineffective and in serious breach of the Contract.

          ii. These matters are required to be canvassed in defending PTTC’s claim as much as litigating the cross-claims. Were the Defendants to abandon the cross-claims, these matters would still arise in their defence to PTTC’s claim;

          iii. Further, the subject matter of the Relevant Circumstances is not only raised in the defendants’ defences, but in truth is put squarely in issue by PTTC’s claim itself: see paragraph 6, Warner affidavit. For example, PTTC’s further and better particulars dated 16 April 2008 confirms that it relies upon, inter alia, “the fact that the conduct occurred in the context of very substantial delay then existing ...” to establish that ITSL evinced an unwillingness or inability to perform the Contract in substance, or at all: Tab 3, Exhibit JRW1, Warner affidavit.

          iv. It is clear from this response that in its claim PTTC puts in issue responsibility for the delays in the Project.

          v. Thus the allegations of Relevant Circumstances, which largely concern the responsibility for delays in the Project and whether they were caused or contributed to by PTTC’s own acts or omissions, cannot be said to be offensive manoeuvring on the defendants’ part.

Decision

48 There is only one area in respect of which it would be appropriate to order security for costs against the defendants. This concerns additional issues raised by the cross claim [concerning quantification of ITSL’s loss and, in relation to ERG’s cross-claim, questions of construction of the Undertaking and Flawed Asset Deed between ERG and PTTC]. In that regard the evidence before the court is that in early December 2008 the defendants offered to provide security in respect of recoverable costs occasioned by PTTC by the cross claims which would not otherwise be incurred by reason of the matters raised in the Commercial List Response. That offer was rejected. Notwithstanding that rejection the principled exercise of the relevant discretion is to order security in respect of the above described issues but going no further. The parties will be given a proper opportunity to address the quantum of that form of security

49 Outside of the matter referred to in the previous paragraph, the principled exercise of the relevant discretion simply does not favour a general award of security for the costs in favour of the plaintiff. Whilst there certainly is a massive disproportion as between the scale of the litigation being pursued by ITSL and that being pursued by PTTC, at the end of the day I accept that a counter-claimant is rarely required to provide security, although of course the jurisdiction exists to grant security and is unfettered. Even if it be fair to conclude that ITSL is at least in part, correctly labelled as 'an attacker' [save as referred to in the previous paragraph] the circumstances before the Court simply did not enliven the Courts jurisdiction to order security for costs against either ITSL nor ERG.

Discovery

50 The background to the defendants’ application for additional discovery is as follows:


          i. orders were made for discovery on 29 August 2008;

          ii. on the same day, the NSW Government and PTTC announced “progress was being made on procuring new electronic ticketing system for Sydney with an Expression of Interest process (EoI) now open”;

          iii. documentation in relation to the expression of interest (EOI) process was made available on the website of the NSW Department of Commerce;

          iv. on 5 September 2008, Mr Nathan Rees became the Premier of NSW;

          v. on 8 September 2008, Mr David Campbell became the Transport Minister for NSW;

          vi. on 18 September 2008, Mr Rees was reported in the media as saying: “One of the reasons we have not been able to introduce the Tcard, as I understand it, is because we couldn’t get fare harmonisation across the different sectors. Well, we’re going to fix that ...”: see Annexure B to the affidavit of Graeme Edward James Johnson sworn 19 December 2008;

          vii. on 15 October 2008, Mr Campbell was reported in the media as stating that the new electronic ticketing system was expected to start operating by 2012: see Annexures E and F, Johnson affidavit;

          viii. further orders for discovery were made on 12 December 2008.

          ix. the defendants filed and served their notice of motion seeking additional discovery on 19 December 2008. That motion originally sought the discovery of two additional categories of documents by the plaintiff (being proposed classes 18 and 19 of Schedule 1, Part A to the notice of motion). By the time the motion was argued the parties had reached an accommodation in that the plaintiff not longer enclosed production of the documents sought in category 19.

51 In the result the plaintiff is to be ordered to provide on discovery briefing documents provided to Mr Rees and Mr Campbell (Briefing Documents), namely:


          “Any document relevant to a fact in issue of which a copy was, so far as the plaintiff is aware, provided to:


              Mr Nathan Rees between 5 September 2008 and 11 November 2008; and

              Mr David Campbell between 8 September 2008 and 11 November 2008.”

52 Further, during the hearing of the motion the defendants altered the terms of their remaining request to production of documents in proposed category 18 in the result that request was for the following documents:


          a. Documents in respect of the EOI process announced on 29 August 2008 (EOI Documents), namely:

              “Documents that comprise:

              a. the soft copy files and emails (including but not limited to the documents from the i ndividual’s respective H drive on server S-ITS-4 and all relevant archives of such materials); and

              b. the documents (including but not limited to notes) located in hard copy files, that were created, modified, received or kept by the individuals listed below in the period 1 January 2007 to 29 August 2008 by:

              that:

              record, evidence, refer or relate to any differences, and the reason for any such differences, between the electronic ticketing system to be delivered under the Contract and the electronic ticketing system contemplated by the "Request for Expressions of Interest-Electronic Ticketing System for the Greater Sydney Region" and attachments (Reference : PTTC0801)( EoI Documentation) in respect of the following matters :

· fare structure


· engagement of the Operators


· delivery date; and/or


· implementation along side the existing RailCorp Legacy System.

53 In my view the defendants’ following submissions are of substance. In short:


          EOI Documents

          i. The new electronic ticketing system proposed by the EOI process is intended to replace the Project which is the subject of these proceedings. It would be surprising if the plaintiff failed to consider and address the reasons for the failure of the Project in connection with planning for the new electronic ticketing system. Further, as set out below, the new electronic ticketing system appears to include features which were either contained in the Remedial Programme proposed by ITSL, or are designed to overcome issues which the defendants contend resulted in delays and difficulties to the Project. In these circumstances, the EOI Documents are clearly relevant to facts in issue in the proceedings and should be discovered by the plaintiff.

          ii. Further the EOI Documents pertain to at least the following pleaded issues.

              (a) First, PTTC’s consideration of the Remedial Programme submitted by ITSL.

              (b) For example, the EOI documentation available on the NSW Department of Commerce website suggests that the contract for the new electronic ticketing system will be executed in the first quarter of 2010. Further, as noted above, Mr Campbell stated on 15 October 2008 that the new electronic ticketing system was expected to start operating by 2012.


          iii. In contrast, the Remedial Programme included a proposal to complete the Project by January 2010 at the latest: see paragraph C68(g), CLR.

          iv. The EOI documentation also suggests that the new electronic ticketing system will involve the existing RailCorp ticketing system remaining in place and supporting some magnetic ticketing indefinitely.

          v. The Remedial Programme also included a proposal to install Tcard equipment alongside the existing RailCorp legacy devices and systems: see paragraph C69(c)(vi), CLR.

          vi. The EOI Documents are therefore relevant to whether the plaintiff failed to take into account, either sufficiently or at all, certain matters in considering the Remedial Programme: see e.g. paragraphs C69(c)(ii), C69(c)(iii), C69(c)(iv), C69(c)(vi), C69(c)(xiv), C69(c)(xv), CLR. The defendants allege that the plaintiff did not consider the Remedial Programme reasonably and in good faith, and that the Remedial Programme was objectively satisfactory to the plaintiff: paragraphs C69(b), C69(f), CLR.

          vii. Responsibility for the delays and difficulties in the Project.

              a. For example, the defendants allege that PTTC and the NSW Government knew that fare reform was required to minimise the risk, complexity and difficulty involved in carrying out the Project, but failed to initiate or procure the progress and implementation of fare reform, and that this caused or contributed to delays and difficulties on the Project: paragraphs C8-C9, CLR.

              b. It is apparent from the EOI documentation that it is proposed that the new electronic ticketing system will incorporate a new fare structure independent of the current fare structure and magnetic stripe tickets. Further Mr Rees stated on 18 September 2008 that one of the reasons the Tcard Project was not implemented was the failure to obtain “ fare harmonisation across different sectors ”, and that steps were being taken to address the issue.

              c. The EOI Documents are therefore also relevant to the responsibility of PTTC and the New South Wales Government for the delays and difficulties in the Project. The defendants allege that this is one of the Relevant Circumstances which the plaintiff should have taken into account in exercising any rights it may have had under the Contract: paragraphs C64(f), C67(e), C69(c), CLR.

54 Even if the EOI Documents were created after the commencement of the proceedings the Court has the power to order discovery of the EOI Documents. This arises from at least the following sources:


          a. UCPR 21.1, which gives the Court the power to declare documents not to be excluded documents for the purposes of the proceedings; and/or

          b. section 14 of the Civil Procedure Act 2005 , which gives the Court the power to dispense with any requirement imposed by the UCPR if satisfied that it is appropriate to do so in the circumstances of the case.

55 It follows that the plaintiff is to be ordered to provide the discovery sought by the defendants’ notice of motion.

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