Susu Pty Ltd v M Marinos Pty Ltd (No 7)

[2010] SASC 330

SUPREME COURT OF SOUTH AUSTRALIA

(Civil)

SUSU PTY LTD v M MARINOS PTY LTD & ANOR (No 7)

[2010] SASC 330

Reasons of Judge Lunn a Master of the Supreme Court

29 November 2010

PROCEDURE - COSTS - SECURITY FOR COSTS

Plaintiff as defendant to counterclaim gave undertaking not to dispose of chattels - defendant as plaintiff on counterclaim gave usual undertaking as to damages - plaintiff later applied to enforce undertaking as to damages - defendant applied for security for costs under s 1335(1) of the Corporations Act for the inquiry on damages - held no jurisdiction to order security for an interlocutory application by a defendant to a counterclaim - application for security dismissed.

SUSU PTY LTD v M MARINOS PTY LTD & ANOR (No 7)
[2010] SASC 330

JUDGE LUNN:

Reasons on defendants’ application for security for costs on the application for compensation arising out of an interlocutory undertaking on damages

1. The plaintiff, Susu Pty Ltd (“Susu”), was the franchisee of the Trinity Gardens Cheesecake Shop from the first defendant M Marinos Pty Ltd (“Marinos”).[1]  Susu instituted this action seeking declarations about the terms of the franchise agreement and damages for its breach from Marinos.  Its pleaded causes of action did not directly involve the plant and equipment of Susu used in the business.

   [1]    Michael Marinos is a second defendant to the action but this is irrelevant to the present application.

2. Marinos counterclaimed against Susu, inter alia, for an order that it sell to it the plant and equipment used by it in the business in accordance with an option in clause 19.9 of the franchise agreement.[2]  Susu disputed its obligation to sell this plant and equipment to Marinos.  Susu had removed the plant and equipment from the shop premises and had secreted it at a location not known to Marinos.

   [2]    The directors of Susu were also made additional defendants to the counterclaim but that has no relevance in the present application.

3. By an application of 19 July 2006, FDN22, Marinos applied, inter alia, for an injunction restraining Susu from disposing of the plant and equipment.  It asserted that its option to purchase it under clause 19.9 of the agreement would be defeated if Susu otherwise disposed of it.

4. On 12 September 2006, I noted an undertaking of Susu not to dispose of, or deal with, the plant and equipment until 26 September 2006.  I also noted the usual undertaking as to damages of Marinos, by its counsel, in respect of the subject matter of Susu’s undertaking.  Those undertakings were continued on 26 September, 11 October and 8 November 2006.  On 21 November 2006 the application of Marinos for the injunction was argued and was refused.

5. On 12 May 2010 Susu discontinued the action. On 23 September 2010 Marinos discontinued its counterclaim.

6. By an application taken out on 14 October 2010, FDN82, Susu applied to enforce the undertaking as to damages given by Marinos in relation to the undertakings of Susu not to sell the plant and equipment.[3]  Susu alleges that it suffered considerable loss through it being delayed in selling the plant and equipment by reason of its undertakings given to the Court not to do so.  Marinos disputes this.

   [3]    FDN82 is addressed to Marinos and also to Michael Marinos as the second defendant, but the undertaking was only recorded as being given by Marinos as the first defendant and not by the second defendant.

7. By an application taken out on 4 November 2010, FDN84, Marinos seeks an order that Susu provide security for the costs of FDN82 and that any inquiry as to damages be stayed pending such security being given.  The application was brought pursuant to 87R 100[4] and s 1335 of the Corporations Act 2001 (“s 1335”). I am now dealing with FDN84 before embarking on FDN82.

   [4]    The repealed 1987 Rules still apply to this aspect of this action.

8. Susu raised a preliminary objection to FDN84 that there was no jurisdiction to order security against it for FDN82.  For the reasons which follow, I consider that objection is well taken.

9. Any entitlement of Marinos to security must be pursuant to s 1335. This Court does not have any inherent jurisdiction to order security other than in the five categories of cases set out in 87R 100.01.[5] There was no suggestion that security would be allowable under the other categories in 87R 100.01, except under its (d) by virtue of s 1335.

   [5]    August Investments Pty Ltd v Poseidon (1971) 2 SASR 65 at 69; Dwyer& Maxted v Canning Vale 11 March 2005, Lunn M [2005] SASC 80.

10. Section 1335(1) provides:

    Where a corporation is 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.

11. “Plaintiff” in s 1335(1) is not to be construed in a narrow or technical manner and has been held to include a counterclaimant.[6]  It has also been construed to include an appellant.[7]

    [6]    Saint-Gobain RF Pty Ltd v MAAXSPA Corp Ltd [2004] VSC 335 [at 38]; Winnote Pty Ltd (in liq) v Page (2005) 64 NSWLR 244, 56 ACSR 35 [at 18]; Nine Films & Television Pty Ltd v Ninox Television Ltd (2005) 219 ALR 388.

    [7]    JM Properties Pty Ltd v Strata Corp No 13975 Inc Layton J, 2 August 2006, [2006] SASC 227; Winnote Pty Ltd v Page above.

12. In relation to counterclaimants “plaintiff” in s 1335 has been limited to where a defendant pursues a counterclaim in a defensive capacity in answer to the plaintiff’s claim, and not extended to where it seeks other relief from the plaintiff by using a counterclaim instead of pursuing a separate action.[8] While there is a counterclaim in this action, it is one brought by Marinos and not by Susu. If the other requirements of s 1335 could be satisfied, it was open to Susu to have sought security for costs for the counterclaim from Marinos. While part of the counterclaim may have been defensive, the counterclaim for specific performance of the option to purchase the plant and equipment is relief sought by Marinos which was over and above, and independent from, its defence to Susu’s action. The proper categorisation of FDN82, in the context of these proceedings, is that it is an interlocutory application by Susu as a defendant to the counterclaim of Marinos in relation to an issue raised by the counterclaim of Marinos other than as a defence to Susu’s claim against it. Even if Susu was a “plaintiff” for the purpose of s 1335 in pursuing FDN82, which I do not consider that it is, s 1335 by its terms is limited to giving security for the costs of the successful defence and does not extend to costs of pursuing other relief.

    [8]    John Arnold’s Surf Shop Pty Ltd (in liq) v Heller Factors Pty Ltd (1979) 22 SASR 20, particularly at 32-3; cases in footnote 6.

13. I do not accept the contention of Marinos that FDN82 is not defensive to the counterclaim and makes Susu “an attacker”.  Such inquiries for damages are treated as interlocutory proceedings in the main action.[9]  It does not require a counterclaim by Susu against Marinos.  It is part of the outworking of the consequences of the application of Marinos for the injunction.

    [9]    Kerr on Injunctions 6^th Edition 667; Bean Injunction 8^th Edition 6.06, 6.07; Ansett v Air Express (1979) 146 CLR 249.

14. Although it was not cited in argument, there is an English Court of Appeal of authority, based on a similar provision to s 1335, which held that “plaintiff” in that context did not extend to a defendant making an interlocutory application in the proceeding.[10] This is a highly persuasive authority which should be followed. Apart from it being as between plaintiff and defendant, instead of, as here, between a counterclaimant and a defendant to the counterclaim, it is directly on point as it concerned a claim for damages for a lapsed injunction. As FDN82 is an application by a defendant to the counterclaim, Susu is not a “plaintiff” in respect of the application for the purposes of s 1335. Thus the application must be dismissed.[11]

    [10]   CT Bowring & Co (Insurance) Ltd v Corsi Partners Ltd [1994] 2 Lloyd’s Law Report 567.

    [11]   CT Bowring v Corsi suggests that in relation to a interlocutory application by a defendant which is an abuse of process or the like, there may be remedies other than security for costs available to the plaintiff but they are outside the scope of FDN84. The defendant is a liberty to pursue them by a separate application if it so wishes.

15. I have today made the following orders:

    1Application FDN84 is dismissed.

    2Costs of FDN84 as agreed or adjudicated are to be paid by Marinos to Susu.

    3Fit for counsel.

    4Adjourned to Wednesday 15 December 2010 at 9.45am to consider further directions for the disposal of FDN82.