Third Durrace Pty Ltd v Focus Nominees Pty Ltd
[2001] WASC 253
THIRD DURRACE PTY LTD -v- FOCUS NOMINEES PTY LTD & ORS [2001] WASC 253
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2001] WASC 253 | |
| Case No: | CIV:1872/2001 | 5 SEPTEMBER 2001 | |
| Coram: | MASTER SANDERSON | 14/09/01 | |
| 8 | Judgment Part: | 1 of 1 | |
| Result: | Security ordered in relation to second and third defendants' application Application by first defendant dismissed | ||
| B | |||
| PDF Version |
| Parties: | THIRD DURRACE PTY LTD (ACN 008 891 245) FOCUS NOMINEES PTY LTD (ACN 008 871 994) IAN RUSSELL WARBURTON MARTIN OLAF REEVE |
Catchwords: | Practice and procedure Application for security for costs Turns on own facts |
Legislation: | Corporations Act, s 1335 Fair Trading Act, s 10 |
Case References: | Nil Beach Petroleum NL v Johnson (1992) 10 ACLC 525 Bell Wholesale Co Pty Ltd v Gates Export Corp (1984) 52 ALR 176 BPM Pty Ltd v HPM Pty Ltd (1996) 14 ACLC 857 Buckley v Bennell Design and Constructions Pty Ltd (1974) 1 ACLR 301 Goldace Holdings Pty Ltd v Vodaphone Network Pty Ltd [1997] WASC 184 Indaba Pty Ltd v McVeigh [2000] WASCA 332 Interwest Ltd v Tricontinental Corp Ltd (1991) 9 ACLC 1218 Newtrend Pty Ltd v Oceanic Life Ltd (1989) 7 ACLC 656 Remm Construction (SA) Pty Ltd v Allco Newsteel Pty Ltd (1992) 57 SASR 180 Rickard v Bonacci [2000] NSWSC 1124 Southern Cross Exploration NL v Fire & All Risks Insurance Co Ltd (1985) 1 NSWLR 114 Temwood Holdings Pty Ltd v Oliver [1999] WASC 251 Warren Mitchell Pty Ltd v Australian Maritime Officers Union (1993) 11 ACLC 1238 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Plaintiff
AND
FOCUS NOMINEES PTY LTD (ACN 008 871 994)
First Defendant
IAN RUSSELL WARBURTON
Second Defendant
MARTIN OLAF REEVE
Third Defendant
Catchwords:
Practice and procedure - Application for security for costs - Turns on own facts
Legislation:
Corporations Act, s 1335
Fair Trading Act, s 10
(Page 2)
Result:
Security ordered in relation to second and third defendants' application
Application by first defendant dismissed
Category: B
Representation:
Counsel:
Plaintiff : Mr G K Paull
First Defendant : Ms T N Steedman
Second Defendant : Mr I R Gillon
Third Defendant : Mr I R Gillon
Solicitors:
Plaintiff : Butcher Paull & Calder
First Defendant : Allens Arthur Robinson
Second Defendant : Lawton Gillon
Third Defendant : Lawton Gillon
Case(s) referred to in judgment(s):
Nil
Case(s) also cited:
Beach Petroleum NL v Johnson (1992) 10 ACLC 525
Bell Wholesale Co Pty Ltd v Gates Export Corp (1984) 52 ALR 176
BPM Pty Ltd v HPM Pty Ltd (1996) 14 ACLC 857
Buckley v Bennell Design and Constructions Pty Ltd (1974) 1 ACLR 301
Goldace Holdings Pty Ltd v Vodaphone Network Pty Ltd [1997] WASC 184
Indaba Pty Ltd v McVeigh [2000] WASCA 332
Interwest Ltd v Tricontinental Corp Ltd (1991) 9 ACLC 1218
Newtrend Pty Ltd v Oceanic Life Ltd (1989) 7 ACLC 656
Remm Construction (SA) Pty Ltd v Allco Newsteel Pty Ltd (1992) 57 SASR 180
Rickard v Bonacci [2000] NSWSC 1124
(Page 3)
Southern Cross Exploration NL v Fire & All Risks Insurance Co Ltd (1985) 1 NSWLR 114
Temwood Holdings Pty Ltd v Oliver [1999] WASC 251
Warren Mitchell Pty Ltd v Australian Maritime Officers Union (1993) 11 ACLC 1238
(Page 4)
1 MASTER SANDERSON: These are the defendants' applications for security for costs. The applications are brought under s 1335 of the Corporations Law. It was conceded by the plaintiff that if the action proceeded and it was called upon to meet a costs order at some later date, it would be unable to do so. The question then was whether, as an exercise of discretion, security for costs ought be ordered and if so, in what amount. To understand the argument put in relation to this question it is necessary to say something of the facts of the case. The claim relates to the sale of a printing business known as "Printability". The plaintiff purchased the business from a company known as Bonamie Pty Ltd for the sum of $600,000 by way of a contract dated 17 November 1998. The first defendant is a settlement agent which acted for both the plaintiff and the vendor in the transaction. The contract of sale contained a clause which required the vendor at settlement to deliver to the purchaser a deed which bound certain persons named in the schedule to the agreement to the same restraintive trade clauses as bound the vendor. The second and third defendants were at all material times directors of Bonamie Pty Ltd and they were named in the schedule as persons to be restrained by the deed.
2 Settlement duly took place but no deed was delivered by the vendor to the plaintiff. The plaintiff now says the first defendant was negligent in failing to ensure delivery of the deed prior to settlement. As against the second and third defendant, the plaintiff alleges that they engaged in misleading and deceptive conduct pursuant to s 10 of the Fair Trading Act. It is alleged that by accepting the plaintiff's offer to purchase the business they represented that they would enter into a restraint of trade clause. The plaintiff says it was induced to purchase the business by this representation. As the second and third defendants have not entered into a deed the representation was false and the second and third defendants are liable to the plaintiff accordingly. (There is an obvious difficulty with this plea and I will have more to say on that issue below). The plaintiff makes an alternative claim against the second defendant. Pursuant to the contract, subsequent to settlement the second defendant entered into employment with the plaintiff. It is said that there was an implied term of the employment agreement that subsequent to the termination of the second defendant's employment with the plaintiff he would not compete against the plaintiff's business. As I understand the pleading it is said that this restraint is in the same terms as the restraint clause found in the sale agreement.
3 From that brief outline of the facts it is somewhat difficult to see what defence the first defendant has to the plaintiff's claim. The
(Page 5)
- application for security for costs was supported by an affidavit of Trudy Nicole Steedman, sworn 20 August 2001. Ms Steedman deals only with the question of the plaintiff's capacity to meet any costs order which might be made against it. She says nothing of the merits of the first defendant's defence. An application for security for costs is not an occasion to consider in detail the circumstances when a settlement agent can be held liable to a client when settlement takes place other than in accord with the terms of a sale agreement. But in the circumstances of this case the first defendant might have been expected to at least have advised the plaintiff to seek advice in relation to the deed covering the second and third defendants before settlement took place. Whether or not the first defendant had a duty to advise in relation to the contract, as seems to be suggested by the statement of claim (par 6) is open to question.
4 During the course of her submissions counsel for the first defendant pointed out that the evidence filed by the plaintiff in opposition to the application did not establish that as a consequence of any negligence on the part of the first defendant, the plaintiff suffered loss and damage. It was said that the evidence did not show that the second and third defendants had competed against the plaintiff in a way they would not have been permitted to do had they entered into the deed, and therefore it could not be shown that the plaintiff had suffered any loss. If no loss and damage could be shown, then no action in tort could lie. That may be so. However, although the claim is at present pleaded only in tort, there would seem to be no reason why it could not be pleaded in contract. It is possible that a term would be implied into the contract between the plaintiff and the first defendant as settlement agent such as to require the first defendant to advise the plaintiff if the vendor had not complied with all the terms of the sale agreement. Any breach of contract would be actionable per se and would give rise to a cause of action without the need to prove damages. On the materials available it is very difficult to see how the first defendant could resist such a claim.
5 With respect to the second and third defendants, the position is somewhat less clear. There is an obvious difficulty with the way the plaintiff's claim against the second and third defendants is presently pleaded. As I have mentioned above, it is said that the second and third defendants, by accepting the plaintiff's offer on behalf of the first defendant represented that they would enter into a deed which would restrain their capacity to compete with the plaintiff. Even accepting for present purposes that by signing the sale agreement the second and third defendants were making the representations as pleaded, it could hardly be said that the plaintiff acted in reliance upon those representations. The
(Page 6)
- plaintiff had already determined to purchase the business because it had made the offer. During the course of his submissions counsel for the plaintiff was not able to indicate how the pleading against the second and third defendants could be recast so as to allow the plaintiff to rely upon the Fair Trading Act and claim relief against the second and third defendants. No purpose is served in speculating in the context of this application how a claim might be framed. Perhaps the best that can be said is that it is possible to conceive that the plaintiff may have a cause of action against the second and third defendants but the position is problematical.
6 During the course of their submissions counsel for the first defendant and counsel for the second and third defendants placed great emphasis on the fact that none of the individuals standing behind the plaintiff and who stood to benefit from the litigation were prepared to provide undertakings with respect to costs. The plaintiff relied on two affidavits of Steven Howard King, filed in opposition to the application. The first of these affidavits was sworn 6 August 2001 and the second 23 August 2001. Mr King is a director of the plaintiff. In his first affidavit he recites the relevant events and goes into some detail as to the financial woes which have beset the plaintiff since its acquisition of the business. It now appears that there is no goodwill attaching to the business. Its only asset is a printing machine which Mr King says is likely to sell for $140,000. That will leave a shortfall on a lease over the machine of between $30,000 and $40,000. There is a further loan to the Westpac Banking Corporation in the sum of $42,000. This amount is secured over Mr King's home. Mr King is liable for a personal loan in an amount of $16,000, also secured over his home. He puts the value of his home at $240,000 and it is otherwise unencumbered. He therefore has assets of around $180,000. There is the $40,000 shortfall on the sale of the machine but the lease agreement does not appear to be secured over Mr King's property. Mr King has not offered any undertaking with respect to the costs, although it might be said, on analysis, that he is in a position to do so.
7 Gordon Carpenter is also a director of the plaintiff. According to Mr King, Mr Carpenter invested approximately $350,000 in the business and has lost virtually the whole lot. Mr Carpenter is now resident in Canada and has apparently no intention of returning to Australia. There is no direct evidence as to Mr Carpenter's present financial position, nor is there any indication as to whether or not he has been asked if he would be prepared to offer an undertaking with respect to the defendants' costs.
(Page 7)
8 During the course of submissions all counsel spent some time analysing the financial records of the plaintiff which appear as annexure "SHK5" to the affidavit of Mr King, sworn 30 August 2001. It was the plaintiff's submission that these accounts showed that until 30 June 1999 the business had traded at a loss. This, it was said, established that the present impecuniosity of the plaintiff was due to the actions of the defendants. On behalf of the defendants it was submitted that the accounts simply showed that the plaintiff, saddled by borrowings and consequent interest charges, was not able to run the business at a profit. It was submitted that there was nothing in the accounts to suggest that this was in any way the responsibility of the defendants.
9 In my view, it is difficult to draw any firm conclusions from the financial information provided. It covers a relatively short period of time - 30 January 1999 to 30 June 1999. Based upon the first affidavit of Mr King, any damage suffered by the plaintiff as a consequence of competition from the second and third defendants must have occurred after 30 October 1999 (see par 11 and par 13 of that affidavit). On the information available I could not conclude that the plaintiff's impecuniosity results from conduct of the defendants.
10 Weighing up all relevant considerations I am not satisfied that I ought make an order for security for costs in relation to the first defendant. The strength of the plaintiff's case against the first defendant is, in my view, a decisive factor in declining to make any order. I have taken into account the fact that persons standing behind the plaintiff have declined to provide any security with respect to costs. In the exercise of my discretion I see that as a factor in favour of ordering security but I see the strength of the plaintiff's claim against the first defendant as decisive and sufficient to decline to make any order.
11 The position with respect to the second and third defendants is entirely different. The claim against them is not presently formulated with sufficient particularity to allow any conclusions to be drawn as to the likely success or otherwise of the action. The best that can be said is that the plaintiff may have a cause of action against both these defendants. In that situation the failure of any of the parties standing behind the plaintiff to offer any security for costs becomes, in my view, decisive. I would therefore be prepared to order security for costs accordingly in relation to the second and third defendants.
12 By their chamber summons the second and third defendants sought security for costs in an amount of $25,000. In support of their application
(Page 8)
- the second and third defendants filed an affidavit of the second defendant sworn 17 July 2001. A draft bill of costs appears as annexure "IRW3" to that affidavit. This bill shows costs in an amount of $29,170. The bill covers the second and third defendants' costs from commencement of the action right up to and including attendance on taxation of costs. By far the bulk of the costs are likely to be incurred in getting up the case for trial and in relation to the trial itself. (The figure in the bill is put at $18,500). In my view this is a case where security should be provided in tranches. The plaintiff should provide security for costs in an amount of $10,000 with liberty to the second and third defendants to apply for top-up security when the matter is entered for trial.
13 In reaching this conclusion I am conscious that the orders proposed might produce the anomalous result of the plaintiff being in a position to proceed against the first defendant but not against the second and third defendants. Whilst such an outcome is best avoided, in the circumstances of this case I am satisfied that no injustice will result from this dichotomy. The plaintiff's action against the first defendant is entirely separate and distinct from its action against the second and third defendants. It is true that if the plaintiff has suffered loss it has only suffered one loss and it is arguable that the loss is the responsibility of all defendants and all issues in relation to all defendants should be tried in the one proceedings. However, I am satisfied that the circumstances of this case are such that no injustice will be visited upon any party by a stay being affected in relation to the second and third defendants.
14 I will hear the parties as to the precise form of orders and as to costs.
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