Tonesports Pty Ltd v Compuline Solutions Pty Ltd
[2000] WASC 266
•31 OCTOBER 2000
TONESPORTS PTY LTD -v- COMPULINE SOLUTIONS PTY LTD & ANOR [2000] WASC 266
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2000] WASC 266 | |
| Case No: | CIV:1574/2000 | 20 OCTOBER 2000 | |
| Coram: | MASTER SANDERSON | 31/10/00 | |
| 9 | Judgment Part: | 1 of 1 | |
| Result: | Security ordered | ||
| PDF Version |
| Parties: | TONESPORTS PTY LTD (ACN 076 450 229) COMPULINE SOLUTIONS PTY LTD (ACN 060 573 042) PAUL SYDNEY BARKER |
Catchwords: | Practice and procedure Application for security for costs Principle to be applied Turns on own facts |
Legislation: | Corporations Law, s 1335 |
Case References: | Buckley v Bennell Design & Constructions Pty Ltd (1974) 1 ACLR 301 FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69 Jones v Dunkel (1959) 101 CLR 298 Tipperary Developments Pty Ltd v State of Western Australia (1996) 22 ACSR 241 Beach Petroleum NL v Johnson (1992) 10 ACLC 525 Hymix v Garritty (1997) 13 ALR 321 Newtrend Pty Ltd v Oceanic Life Ltd [1990] WAR 1 Warren Mitchell Pty Ltd v Australian Maritime Officers' Union (1993) 12 ACSR 1 Westralian Gold Mines Ltd v Westralian Minerals and Drilling Pty Ltd (In Liq) (1986) 4 ACLC 167 Zortex Australia Pty Ltd v Rural and Industries Bank of Western Australia, unreported; FCt SCt of Western Australia; Library No 920609; 24 November 1992 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Plaintiff (By Original Action)
AND
COMPULINE SOLUTIONS PTY LTD (ACN 060 573 042)
First Defendant (By Original Action)
PAUL SYDNEY BARKER
Second Defendant (By Original Action)
(BY ORIGINAL ACTION)
COMPULINE SOLUTIONS PTY LTD (ACN 060 573 042)
Plaintiff (By Counterclaim)
AND
JAMES JOHN COWLING
SHAUN MICHAEL McCABE
Defendants (By Counterclaim)
(BY COUNTERCLAIM)
(Page 2)
Catchwords:
Practice and procedure - Application for security for costs - Principle to be applied - Turns on own facts
Legislation:
Corporations Law, s 1335
Result:
Security ordered
Representation:
Original Action
Counsel:
Plaintiff (By Original Action) : Mr G H Murphy
First Defendant (By Original Action) : Mr J R Johnson
Second Defendant (By Original Action) : No appearance
Solicitors:
Plaintiff (By Original Action) : Minter Ellison
First Defendant (By Original Action) : Ilbery Barblett
Second Defendant (By Original Action) : No appearance
Counterclaim
Counsel:
Plaintiff (By Counterclaim) : Mr J R Johnson
Defendants (By Counterclaim) : No appearance
Solicitors:
Plaintiff (By Counterclaim) : Ilbery Barblett
Defendants (By Counterclaim) : No appearance
(Page 3)
Case(s) referred to in judgment(s):
Buckley v Bennell Design & Constructions Pty Ltd (1974) 1 ACLR 301
FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69
Jones v Dunkel (1959) 101 CLR 298
Tipperary Developments Pty Ltd v State of Western Australia (1996) 22 ACSR 241
Case(s) also cited:
Beach Petroleum NL v Johnson (1992) 10 ACLC 525
Hymix v Garritty (1997) 13 ALR 321
Newtrend Pty Ltd v Oceanic Life Ltd [1990] WAR 1
Warren Mitchell Pty Ltd v Australian Maritime Officers' Union (1993) 12 ACSR 1
Westralian Gold Mines Ltd v Westralian Minerals and Drilling Pty Ltd (In Liq) (1986) 4 ACLC 167
Zortex Australia Pty Ltd v Rural and Industries Bank of Western Australia, unreported; FCt SCt of Western Australia; Library No 920609; 24 November 1992
(Page 4)
1 MASTER SANDERSON: This is the first and second defendants' application for security for costs. The application is brought under s 1335 of the Corporations Law. That section is in the following terms:
"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."
2 The proper approach to be adopted in applications such as the present was recently considered by the Full Court of this Court in FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69. Pidgeon and Owen JJ reviewed in some detail the history of enactments equivalent to the present s 1335. Their Honours then analysed the recent relevant Australian cases, referring, in particular, to the decision of Street CJ in Buckley v Bennell Design & Constructions Pty Ltd (1974) 1 ACLR 301. Their Honours concluded (at par 21):
"We consider that the wording of the section and the weight of the authorities supports the proposition that there is initially the jurisdictional question as to whether it appears by credible testimony that there is reason to believe that the corporation had been able to pay the costs. Once the Court has jurisdiction there is an unlimited discretion."
- The Court then referred to the decision of Murray J in Tipperary Developments Pty Ltd v State of Western Australia (1996) 22 ACSR 241, and went on (at par 22 and par 24):
" … the learned Master was correct in saying that there was the threshold hurdle which was required to be cleared to give the Court jurisdiction. We consider however, with respect, that the learned Master placed the hurdle too high. He said that there must be credible testimony 'that the respondent would not be able to meet any costs order made against it'. The applicant is required to establish no more than that there is 'reason to believe'.
The Master's final question and answer is a further indication that he was requiring the applicant to prove the fact that the company now would not be able to meet a costs order. The
(Page 5)
- Master said 'Does the fact that in 1995 the first plaintiff would not have been able to meet any costs order made against it, mean that it would not be able to meet such a costs order in 1999? To conclude that it does would, in my view be nothing more than speculation.' In order to determine whether he had jurisdiction he was required to do no more than judge the quality of the evidence to see if it objectively gave rise to a 'reason to believe' …
It becomes necessary now to determine whether there was before the Master the necessary credible testimony to give him jurisdiction. In view of the history of the section we would, for our part, see no requirement to attempt to define further the expression. The words speak for themselves and in that sense the expression is similar to expressions such as 'beyond reasonable doubt'. For the reasons we have set out we are not in accord with the proposition referred to by Lee J in Warren Mitchell Pty Ltd v Australian Green Offices Union when his Honour said at 1241 'qualification of the word "testimony" by the word "credible" suggest that evidentiary burden is undertaken by the parties seeking the order'. We would not see any burden as nothing is sought to be proved. The legislature that first enacted the words, used them to replace words referring to proof and in our view, were dispensing with the requirement to prove a matter. What is required is an evaluation of the evidence led by the applicant to see whether that leads to a reason to believe that the corporation will be unable to pay the costs of the defendant."
3 The plaintiff in this action is a company which owns and operates a chain of gymnasiums/health clubs under the style of "BC The Body Club". The first defendant is a company which supplies computer software which allows companies such as the plaintiff to have their accounts paid by direct debit from a customer's bank account. The precise way in which this system works is not a matter which need be explored in this application. However, the importance of such a computer system is obvious. Members of the plaintiff's clubs pay their subscription either monthly, quarterly or half-yearly. It is in the plaintiff's interest to provide a direct debit facility to their members so that payments are automatically made and there is no need for the rendering and collection of accounts by the plaintiff. As a consequence, the plaintiff's cash flow is guaranteed.
(Page 6)
4 The plaintiff acquired the business on 31 December 1996. At the date of acquisition, the first defendant was providing the business the use of its computer software and the arrangement was to continue. A dispute arose between the parties. The plaintiff says the first defendant's software was inadequate and sufficient technical backup was not provided, contrary to the contractual arrangement between the parties. As a consequence, it is said that the first defendant was in breach of its contract and the plaintiff purported to terminate the contract. The first defendant denies that it was in breach of its contract, it says that the plaintiff has repudiated the contract and it sues for damages. Both parties agree that the contract is now at an end. The question between them is who was responsible for bringing the contract to an end and which party is liable to the other for damages. There is well over $1,000,000 at stake in the action.
5 The defendant seeks security for costs in the sum of just over $104,000. A draft bill of costs appears as annexure "PSB15" to an affidavit of the second defendant sworn 29 August 2000 and filed in support of the application. The bill anticipates a five-day trial with senior counsel being instructed. The plaintiff took no issue with the draft bill. Rather, the plaintiff submitted that there was insufficient evidence to satisfy the court that the plaintiff would be unable to pay a costs order against it in the event its action was unsuccessful.
6 The evidence relied upon by the defendant was in three parts. First, the defendant said the plaintiff was a company with a paid-up share capital of $100. The plaintiff admitted this was the case, but submitted it was irrelevant in the context of modern commercial operation and did not, of itself, justify any order for security for costs being made. Secondly, the defendants said that the plaintiff did not own any land. Again, the plaintiff admitted this was the case, but submitted this was of no consequence, given the nature of the plaintiff's business. The plaintiff submitted that this fact alone would not justify any order for security being made.
7 Thirdly, the defendants pointed to a chain of correspondence which, it was submitted, showed that the plaintiff had liquidity problems over an extended period of time. This correspondence appears as annexures "PSB2" to "PSB13" to the affidavit of the second defendant, sworn 29 August 2000. By way of background, at the time the correspondence was written, the contract between the plaintiff and the first defendant was still in place. Under the terms of the contract, the plaintiff was required to pay the first defendant $30,000 per calendar month. The first facsimile, dated 9 November 1998, is from Joseph Ohayon on behalf of the plaintiff
(Page 7)
- to the first defendant. It proposes payment of the November instalment of $30,200 in three tranches to be paid on 7 December, 14 December and 4 January. It clearly indicates a cash flow problem and an inability to make payment on the due date. The remaining correspondence follows a similar trend. It shows that throughout the first half of 1999, the plaintiff was having difficulty meeting its monthly commitment to the first defendant. Furthermore, the correspondence indicates that it was not just the first defendant who was affected by these cash flow difficulties. By facsimile dated 17 June 1999, Ohayon wrote to the second defendant, in his capacity as a director of the first defendant, with respect to payment of the then outstanding fees. Ohayon referred to a meeting which had been held earlier in the month. He went on to say:
"As explained we have entered into other payment schedules with various suppliers based on the existing arrangements in place with Compuline however I believe we can manage to make some inroads earlier that originally agreed provided our income budgets are not too optimistic."
9 The plaintiff seeks to explain these cash flow difficulties in a number of different ways. The plaintiff has filed two affidavits of James John Cowling ("Cowling"), the first sworn 20 September 2000, the second sworn 19 October 2000. In the first of these two affidavits, Cowling explains the cash flow difficulties encountered in 1999 as being a result in the change of terms of trading as between the plaintiff and its membership. Furthermore, the correspondence makes it clear that the plaintiff's cash flow is seasonal and counsel submitted it was clear from the correspondence that the plaintiff's difficulties in 1999 were affected by the seasonal nature of its business. Cowling's second affidavit deals with the cash flow difficulties in May and June of 2000. Essentially, what he says is that a refinancing was being undertaken and confusion arose between the plaintiff and its bankers. As a consequence, there was a hiatus in payments, which has subsequently been resolved. Both affidavits of Cowling maintain that the plaintiff is in a sound financial
(Page 8)
- position. Neither affidavit provides any evidence as to the current financial position of the plaintiff. The plaintiff has simply declined to provide any details of its present financial position. It has provided copies of the contract by which it acquired the health club business. This, it was said, showed that the amount paid for the business was substantial and that it included significant freehold assets. But there is no indication how the acquisition was financed. The National Australia Bank has a fixed and floating charge over the assets of the plaintiff, but there is no detail as to what amount is presently owing to the bank and the terms upon which the borrowing is made. Cowling asserts that the plaintiff is trading within its credit terms with the bank and there is no evidence to the contrary.
10 In the Tipperary Developments case (supra) Murray J considered whether, in circumstances where a respondent to an application for security for costs failed to produce any evidence of its financial position, adverse inferences could be drawn against that party. In other words, his Honour considered the application of the rule in Jones v Dunkel (1959) 101 CLR 298 to applications of this nature. His Honour determined that the rule did not apply. This aspect of his Honour's reasoning was confirmed by the Full Court in the FFE Minerals decision (supra) (see par 11). Thus, the fact that the plaintiff in this case has declined to provide any financial information is not a factor from which I can draw adverse conclusions against the plaintiff. It is not to be taken into account in determining whether or not the defendants have overcome the threshold hurdle so as to enliven jurisdiction to make an order.
11 Taking into account all matters put before the Court, I am satisfied that there is reason to believe that the plaintiff may not be able to meet an adverse costs order made against it. In reaching this conclusion, I have had particular regard to the correspondence passing between the parties which, in my view, clearly demonstrates that the plaintiff has had cash flow difficulties. These difficulties appear to have persisted throughout the first half of 1999 and to have arisen again in mid-2000. I accept that the difficulties occasioned in 2000 may have been due to a misunderstanding with the plaintiff's bankers. Nonetheless, the correspondence makes it clear that at the time the difficulties arose, the plaintiff was operating near to its credit limit. That does not suggest that the plaintiff has spare cash reserved with which to meet any costs order that may be made against it.
12 Having determined that jurisdiction is enlivened, the question then is whether, in the exercise of my discretion, I ought make the order as sought by the defendants. This case raises a difficulty. As I have
(Page 9)
- indicated above, the parties are diametrically opposed on the facts. The plaintiff says that the contract came to an end as a consequence of the actions of the first defendant and the first defendant is, therefore, liable to pay damages. The first defendant denies that it is liable to the plaintiff and says that the contract came to an end as a consequence of the plaintiff's actions. By way of counterclaim, it seeks damages from the plaintiff. This is one of those cases where, at the hearing, one party must win and one party must lose. There is no middle ground. There might, of course, be arguments about the quantum of any damages found to be payable to one party or the other, but, for present purposes, that issue can be put to one side. For each of the parties, it is a case of all or nothing. In such a case, an order for security for costs is, I think, problematical.
13 No point was made by counsel for the plaintiff on this issue during the course of his submissions. Nor was it suggested that any order for security for costs would stultify the proceedings. Indeed, given that the plaintiff produced no evidence as to its financial position, this was hardly an argument which could have credibly been maintained. That being the case, I am of the view that it would be appropriate to make some order for security for costs.
14 It is often appropriate to make an order which allows for the provision of security in stages. This is such a case. In my view, the appropriate order is to require the plaintiff to provide $20,000 by way of security forthwith. There will be liberty to the defendants to apply to top up this security when the matter is entered for trial. At that stage, both parties will have a better understanding of the other's financial position and both parties will also be far better informed as to the likely actual costs of the litigation. There will be liberty to the defendants to apply prior to trial should circumstances arise in which they see it appropriate to require the plaintiff to provide further security.
15 I will hear the parties as to the precise form of orders and as to costs.
0
8
1