Raison v Bio-Recycle Australia Pty Ltd
[2012] QSC 197
•27 July 2012
SUPREME COURT OF QUEENSLAND
CITATION:
Raison v Bio-Recycle Australia Pty Ltd [2012] QSC 197
PARTIES:
MICHAEL JOHN RAISON AS TRUSTEE FOR THE BELLRAY INVESTMENTS TRUST
(First Plaintiff)
and
ENVIRO WASTE MANAGEMENT (AUST) PTY LTD
ABN 78 102 724 283(Second Plaintiff)
v
BIO-RECYCLE AUSTRALIA PTY LTD
ACN 062 888 082(Defendant)
and
BIO-RECYCLE AUSTRALIA PTY LTD
ACN 062 888 082(Plaintiff by Counterclaim)
and
MICHAEL JOHN RAISON AS TRUSTEE FOR THE BELLRAY INVESTMENTS TRUST
(First Defendant by Counterclaim)
and
ENVIRO WASTE MANAGEMENT (AUST) PTY LTD
ABN 78 102 724 283(Second Defendant by Counterclaim)
and
MICHAEL JOHN RAISON
(Third Defendant by Counterclaim)
FILE NO/S:
BS 8382 of 2009
DIVISION:
Trial Division
PROCEEDING:
Hearing
ORIGINATING COURT:
Supreme Court
DELIVERED ON:
27 July 2012
DELIVERED AT:
Brisbane
HEARING DATE:
9 December 2011, 16 March 2012, further submissions 20 April 2012
JUDGE:
McMurdo J
ORDER:
1. Pursuant to UCPR r 483, the following questions will be determined separately from and before the trial of this proceeding:
(a) Was there implied in the Licence the Implied Term alleged in paragraph 7 of the Third Further Amended Statement of Claim?
(b) If the answer to (a) is “yes”, did the Defendant breach the Implied Term as alleged in paragraphs 22 and 37(a) of the Third Further Amended Statement of Claim?
(c) Was there implied in the Licence the Additional Implied Terms alleged in paragraph 35 of the Third Further Amended Statement of Claim?
(d) If the answer to (c) is “yes, did the Defendant breach the Additional Implied Terms as alleged in paragraph 37(b) of the Third Further Amended Statement of Claim?
(e) If the answer to any of (a) and (d) is “no”, should the Third Further Amended Statement of Claim be dismissed in whole or in part as against the Defendant?
(f) Is the Plaintiff by Counter-Claim entitled to any of the relief sought in the Amended Counter-Claim?
(g) If the answer to (f) is “yes”, what is the quantum of damages (if any) to which the Plaintiff by Counter-Claim is entitled?
(h) If the answer to (f) is “yes”, what orders should be made on the Amended Counter-Claim?
2. If the Plaintiffs do not provide security for costs of their claim against the Defendant, to the value of $180,000 and in a form satisfactory to the Registrar of this Court, by 24 August 2012, the Plaintiffs’ action against the Defendant thereafter will be stayed.
3. The application by the Defendant filed on 14 November 2011 is otherwise dismissed.
4. The application filed by the Second Plaintiff on 19 October 2011 is dismissed.
CATCHWORDS:
PROCEDURE – COSTS – SECURITY FOR COSTS – PRACTICE MATTERS - where the defendant applied for an order for security for costs against the plaintiffs – where the relationship between the plaintiffs is such that second plaintiff would be the beneficiary of the first plaintiff’s success in the proceedings – where the second plaintiff has gone into liquidation - whether the court should exercise its discretion to require the plaintiffs to pay security for costs and if so, the value of the security
CORPORATIONS – WINDING UP – WINDING UP IN INSOLVENCY – STATUTORY DEMAND - APPLICATION TO SET ASIDE STATUTORY DEMAND - where the second plaintiff applied to set aside the statutory demand for payment of assessed costs before it was wound up – where second plaintiff company subsequently went into liquidation – whether application to set aside statutory demand should be granted
PROCEDURE – COSTS – RECOVERY OF COSTS – where the defendant applied to stay the proceedings on the basis of the plaintiffs’ failure to pay previous assessed costs – whether, in view of the outcome of the security for costs application and in the interests of justice, the application should be granted
Corporations Act 2001 (Cth), s 1335
Property Law Act 1974 (Qld), s 55
Uniform Civil Procedure Rules 1999 (Qld) r 483, r 671, r 672
COUNSEL:
N H Ferrett for the plaintiffs/defendants by counterclaim
F Kunc SC for the defendant/plaintiff by counterclaim
SOLICITORS:
Jones & Company Solicitors for the plaintiffs/defendants by Counterclaim
Bennett & Philp lawyers for the defendant/plaintiff by Counterclaim
There were four applications which were heard together, three made by the defendant and one by the second plaintiff. The defendant sought security for costs, a stay of the plaintiffs’ proceeding pending the payment of costs owing under previous orders and an order for the determination of separate questions. In essence, that application sought orders for the determination of questions affecting liability on both the plaintiffs’ claim and the defendant’s counterclaim. The defendant’s intention in that respect was to avoid the substantial expense which would be involved in the litigation of the damages case pleaded by the plaintiffs.
The application by the second plaintiff was to set aside a statutory demand served by the defendant. The demand was for an amount of $32,921.52, which was the total of the assessed costs under three interlocutory orders made in favour of the defendant. The second plaintiff applied to set that demand aside upon the basis of its offsetting claim, as pleaded by the statement of claim in these proceedings.
After the judgment on those applications was reserved, the defendant applied to reopen its case to adduce further evidence. The application to reopen was opposed by the plaintiffs in a subsequent hearing. The application to reopen was based upon the new circumstance that the second plaintiff had gone into liquidation. The winding up order was made upon the application of the Deputy Commissioner of Taxation after the second plaintiff failed to comply with the Deputy Commissioner’s statutory demand for an amount of $180,598. On the eve of the defendant’s application to reopen, the defendant’s solicitor exchanged emails with the liquidator, in which the liquidator was advised of that hearing but said that he did not intend to appear. Counsel who had appeared on the original application appeared again on the further hearing and submitted that the defendant should not be permitted to rely upon the insolvency of the second plaintiff to obtain an order for security for costs, because this was said to be inconsistent with the defendant’s stance at the original hearing. He correctly said that originally, the plaintiffs had conceded that they were without means to satisfy an order for costs, but that this had not been accepted by the defendant. However in my view there was not such an inconsistency. The defendant had argued that there were other means by which it may have been possible for security to be provided by the plaintiffs’ side of the record, which is not the same thing as saying that the second plaintiff was solvent. In any case, the new circumstance of the liquidation of the plaintiff company was clearly material and the defendant was right to raise it. The various applications must be dealt with on the basis of that fresh evidence.
Obviously the application to set aside the statutory demand is no longer relevant. In the present circumstances, the application should be dismissed.
On 20 April 2012, the solicitor for the defendant swore and affidavit to the effect that the liquidator had advised that he would not participate in the proceedings and that he would leave it to the first plaintiff to do so on the proviso that the first plaintiff met all of the relevant costs.
It is convenient to mention first the application for the determination of separate questions. The plaintiffs did not oppose this application. It sought an order for the preliminary determination of questions going to whether there was a breach of contract by the defendant as pleaded by the plaintiffs and also whether the defendant, as the plaintiff by counterclaim, was entitled to any of the relief sought in that counterclaim, including the question of the quantum of damages (if any) to which it is entitled. In that last respect, the hearing of these preliminary questions would involve an issue of quantum. But it is at least likely that much if not all of that question would have to be determined upon the liability questions in the plaintiffs’ claim. That is because it is part of the defence to the principal claim that the plaintiffs failed to account to the defendant for royalties due and payable under the contract upon which the plaintiffs sue, and that this non-payment was an alternative ground entitling it to terminate that contract. I am satisfied that there should be an order for the preliminary determination of certain questions, according to paragraph 4 of the defendant’s application. There will be an order in those terms.
I go to the application for security for costs. Clearly, there is a power to order security for costs against the plaintiff company in the present circumstances, under either UCPR r 671 or s 1335 of the Corporations Act 2001 (Cth). The discretionary considerations which are set out in r 672 must then be discussed.
As to the means of those standing behind the proceedings, those circumstances have changed because of the liquidation of this company. When the matter was argued originally, the question was whether the first plaintiff and his wife were able to provide security for the company, because they appeared to be the parties most likely to benefit from success in the action. The defendant’s submissions were critical of the absence of detailed evidence as to their financial positions. But there was evidence from the first plaintiff which unambiguously stated that the security could not be provided. He was not cross-examined and I would accept that evidence. Now the circumstances are different, because those who stand to benefit from this case being prosecuted to a judgment in favour of the plaintiff company are its creditors. Other than the Deputy Commissioner of Taxation, I have no evidence of the identity of those creditors or the amounts of their debts. Were the case to be pursued, there would be the potential benefit for creditors, at least some of whom could afford to contribute to the security. The liquidator’s stated position indicates that the creditors would not contribute.
As to the merits of the plaintiffs’ claim, the case relies on two alleged implied terms. One of those terms was discussed by me when refusing an interlocutory injunction against the defendant. I held that there was not a serious question in that respect. As to the second, it is sufficient to say that there is no apparently compelling case for the plaintiffs in that respect. The defendant’s submissions were also critical of the evidence to be relied upon to prove the damages claimed by the plaintiffs. It was argued that this evidence, in the form of an accountant’s report, is inadmissible because certain key assumptions made by the author could not be established on the other evidence foreshadowed by the plaintiffs. That matter was not extensively argued and it is preferable not to express some view on the admissibility or likely weight of this evidence.
A particular weakness in the case for the second plaintiff is that it does not plead that it was a party to the contract upon which the plaintiffs sue. Rather, the statement of claim makes it clear that the second plaintiff’s entitlement to use the land was according to an alleged sub‑licence from the first plaintiff. Nor does the second plaintiff allege that the defendant made relevant promises which are enforceable by it, such as by s 55 of the Property Law Act 1974 (Qld). That makes the second plaintiff’s case one with apparently poor prospects. I will return to the first plaintiff’s case.
As to the consideration in r 672(c), I accept that there is a genuineness in these proceedings. The defendant correctly submits that the plaintiffs have failed to prosecute them in all respects diligently, having several times failed to comply with the timetables set by the Court. That can be seen to be the result of their financial position. It is another thing to say that there is no genuineness of the proceeding.
The plaintiffs submitted their impecuniosity is attributable to the matters complained of in these proceedings. I accept that upon the evidence which I have, the company’s demise can be fairly attributed to the cessation of its business when the defendant terminated the agreement under which the first plaintiff was permitted to use the relevant land.
The plaintiffs argued that the application for security should be refused because it was brought too late. I accept the submission in response from the defendant, which is that it is only relatively recently that the defendant became aware of the company’s circumstances. In an earlier interlocutory hearing, the first plaintiff said that as at August 2010 the company had an excess of assets over liabilities of $1.3 million. And some costs which had been ordered against the plaintiffs, assessed at $54,968, were paid by the plaintiff company to the defendant in September 2010. In the circumstances of late 2010, this application for security might have failed at the threshold.
I come then to the application for security for costs against the first plaintiff. As I see this application, it can be made in reliance upon r 671(b), in that the first plaintiff is suing not for his benefit but for that of the second plaintiff. The contract upon which the plaintiffs sue was one made between the first plaintiff and the defendant. The plaintiffs’ case is not that this contract was made by the first plaintiff as the agent of the second plaintiff. That might have been indicated by the allegation, within paragraph 1(a)(ii) of the statement of claim, that at all material times the first plaintiff “acted with the authority of [the second plaintiff]”. However, paragraph 8 pleads that some two weeks after execution of the deed of agreement between the first plaintiff and the defendant, the first plaintiff granted to the second plaintiff a sub‑licence to carry on the relevant operations in consideration of certain payments, which the evidence indicates were of the order of only $100 per year. The accountant’s report to which I have referred does not distinguish between the losses suffered by the respective plaintiffs. But as is clear from that report, the plaintiffs’ case is that substantial damages have been suffered from the loss of the business which had been conducted on the subject land until the licence agreement with the defendant was terminated.
The statement of claim alleges that the first plaintiff will suffer loss and damage in that he is “obliged to [the second plaintiff] under the terms of the Sub-Licence to ensure that [the second plaintiff] obtained the benefits accruing to [the first plaintiff] under the Licence”. Similarly, in his summary of evidence, he has indicated that his case is that he will suffer loss only by being liable to the second plaintiff.
According to the first plaintiff’s case then, he is suing the defendant to the end that the plaintiff company will be compensated for the loss of its business. In my view, those circumstances are sufficient to bring his case within r 671(b). But if that is not correct, the same circumstances would fairly bring the case within r 671(h). It should be noted that there is no claim by the second plaintiff against the first plaintiff and there is no evidence of one in the offing. The allegation that the first plaintiff has suffered a loss through being liable to his company appears to be a contrivance in order to recover the losses from the cessation of the company’s business where the company had no contract with the defendant. The beneficiary of the first plaintiff’s success, upon his pleaded case, would be the second plaintiff.
The point just discussed is relevant also to the first plaintiff’s prospects of success. It does not appear to be likely that he could prove that, in truth, he made a contract with his own company under which he could be exposed to such a substantial liability to it, especially from circumstances caused by a third party.
For those reasons, I conclude that both plaintiffs should be ordered to provide security. The remaining question is that of the amount of the security. According to the defendant’s evidence, the amount of costs and disbursements incurred to the date of the application was of the order of $352,849.33 and the estimated costs and disbursements to litigate the issues for separate determination from that stage is $81,630. (I add that the first of those figures excludes costs awarded in the defendant’s favour, some of which have been recovered.)
It was submitted for the plaintiffs that the defendant should not have security for costs incurred prior to making this application. There is no bar to an order for security for costs and disbursements which have been incurred already. However, often security is not ordered for past costs at least because of the general rule that applications for security should be made promptly. In this case, I have accepted that there was a reasonable explanation for not applying for security at least until 2011.
I am persuaded that the security should not extend to all of the past costs and disbursements. However, I infer that the second plaintiff’s insolvency did not occur overnight and that the plaintiffs must have known, at least some months prior to this application, that they were prosecuting a case for which there was a risk that their opponent would not be able to recover costs if successful. I will allow something for past costs and disbursements. Overall, I will order security in the sum of $180,000. Thus, it will be ordered that if the plaintiffs do not provide security for the costs of their claim against the defendant, to the value of $180,000 and in a form satisfactory to the Registrar of this Court, within four weeks of this judgment, the plaintiffs’ claim against the defendant will be stayed.
I was also asked to stay the proceedings simply on the basis of the unpaid assessed costs. In view of the outcome on the security for costs application, it is appropriate to dismiss that application. This is because I have decided that the interests of justice should allow the claim to proceed in the somewhat unlikely event that the security for costs is provided.
I will hear the parties as to any further orders.
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