Vicland Live Animals v Wexco Airfreight

[2001] NSWSC 282

CITATION:	Vicland Live Animals -v- Wexco Airfreight [2001] NSWSC 282
CURRENT JURISDICTION:	Equity Division Commercial List
FILE NUMBER(S):	SC 50088/99
HEARING DATE(S):	11.5.01
JUDGMENT DATE:	17 May 2001
PARTIES :	Vicland Live Animals Pty Ltd -v- Wexco Airfreight (Australia) Pty Limited & Ors
JUDGMENT OF:	Hunter J

COUNSEL :	Applicant/Second Defendant: G Nell Respondent/Plaintiff: M Hadley
SOLICITORS:	Applicant/ Second Defendant: Phillips Fox Respondent/Plaintiff: Andrew P Quigley & Co
CATCHWORDS:	Practice & procedure - security for costs - plaintiff unable to meet order for security - whether plaintiff's impecuniosity result of defendant's conduct - capacity to meet order by persons gaining from plaintiff's success - delay in application - whether order should be limited to future costs.
CASES CITED:	Bell Wholesale Co Ltd -v- Gates Export Corporation (1984) 2 FCR 1
DECISION:	Plaintiff to provide security in the sum of $40,000 in the form of a bank guarantee or payment into Court. Costs of the application be costs in the proceedings.

IN THE SUPREME COURT

OF NEW SOUTH WALES

EQUITY DIVISION

COMMERCIAL LIST

HUNTER J

THURSDAY 17 MAY 2001

50088/99 VICLAND LIVE ANIMALS PTY LTD -v- WEXCO AIRFREIGHT (AUSTRALIA) PTY LTD & ORS

REASONS FOR JUDGMENT

1    This is an application for security for costs by notice of motion filed 26 April 2001. This is the second such application in these proceedings, the history of which bears some comment upon as I think it has a bearing on the appropriate approach to this application.

2    The proceedings were first instituted in the Court in its Common Law Division in 1997 and was transferred to the Commercial List by order of Rolfe J of 9 July 1999. At that time, motions for security for costs by the first and second defendants were outstanding. Those motions were dismissed after a hearing on the merits on 23 July 1999.

3    The basis upon which those motions were dismissed was expressed in His Honour’s reasons for judgment as follows:

“There is, through the evidence, some indication that the plaintiff may be suffering some financial difficulties or may have suffered from some financial difficulties. On the other hand, there is, through the evidence, an indication that it has been able to overcome these financial difficulties and, particularly, there is evidence from Mr Luxford that on 7 April 1999 a notification was filed of the withdrawal of an application to wind up the plaintiff, which, at least prima facie, would seem to indicate that the plaintiff had overcome whatever that problem was.
The basic difficulty which, in my opinion, the present applications face is that there is no evidence before me on the basis of which I could be satisfied that the plaintiff is not likely to be able to pay the amount of costs, if ordered to do so. In this case no evidence has been placed before me about the financial position of the plaintiff, save that it is what is referred to as a two dollar company, meaning thereby that it is a company which has issued two shares of $1 each and that it has not filed annual returns since for the financial year ended 30 June 1996. However, that material is equivocal. The fact that it is a company with only two issued shares of $1 each in itself seems to me inconsequential, and the fact that it has not filed returns may mean it is in breach of some requirements of the Corporations Law, but does not indicate the matters necessary to satisfy me that an order for security for costs should be made. More importantly, there has been no attempt made to obtain financial information from the plaintiff, either by requesting it, in the first instance, which would be the normal course, or by subpoenaing it in the event of its not being supplied pursuant to a request.
Further, there is no inference open, from the failure to provide financial information pursuant to a request, that there is some financial problem. There is a suggestion in the correspondence that security for costs may be considered by the plaintiff, and in particular, in the letter of 24 June 1999, which is annexure M to Mr Luxford’s affidavit of 29 June 1999, the solicitors for the plaintiff set out the position of the second defendant and state that the plaintiff’s solicitors are seeking their client’s instructions in that regard. Earlier correspondence denied any entitlement to security either on the basis of lack or funds and, further, on discretionary grounds.
At the moment I am not satisfied that the defendants have established the matters necessary to found an order for security for costs. I propose, in those circumstances, that the Notice of Motion be dismissed.”

4    One may infer from those reasons for judgment that the first and second defendants had failed to require the production of financial records upon which to ground findings of impecuniosity of the plaintiff or of the capacity of those with vested interests in the plaintiff to comply with an appropriate order for security.

5    Several directions hearings in the proceedings took place thereafter. On 20 August 1999 directions were given providing for an amendment to the summons, the provision of particulars and the filing of defences and cross claims together with discovery and inspection of documents, all of which took preparatory steps to hearing up to December 1999.

6    On 10 December 1999 further directions were given requiring the provision of particulars by the plaintiff of its amended summons together with directions as to pleadings and discovery.

7    On 18 February 2000 directions were given requiring the plaintiff to provide particulars and on 25 February 2000, the plaintiff was granted leave to further amend its summons to join the third and fourth defendants. Directions were also given for the return of a notice of motion by the second defendant as cross claimant seeking summary judgment on its cross claim against the first defendant.

8    On 10 March 2000 a directions hearing dealt, primarily, with discovery. On 24 March 2000 the second defendant’s notice of motion was dismissed by consent and further directions were given relating to discovery.

9    On 19 May 2000 leave was granted to the first, third and fourth defendants to file cross claims. Directions were also given for the parties to file and serve statements of evidence.

10    On a further directions hearing on 1 September 2000, the time for the plaintiff to file statements of evidence was extended and the first, third and fourth defendants were ordered to provide verified discovery. The time for filing cross claims by the third and fourth defendants was extended.

11    On 27 October 2000 extensive directions were given as to outstanding discovery and inspection and as to the pleadings. The second defendant was granted leave to amend its defence to the plaintiff’s summons.

12    On 1 December 2000 directions were given in relation to the cross claims and supplementary discovery by the plaintiff. The time for the filing of an amended defence was extended.

13    On 9 February 2001 it was noted that the plaintiff’s evidence in chief was complete and a direction given for the filing of statements in reply by 6 April 2001. The completion of the filing of statements of evidence by the plaintiff was not without default on the part of the plaintiff in complying with directions of the Court.

14    Of particular note is that, on the directions hearing of 1 September 2000, I had occasion to make the following observation:

“In this matter there has been a frank admission on behalf of the plaintiff of its delinquency in complying with earlier directions of the Court as to filing statements of evidence. That has been explained from the Bar table on the basis of the limited resources available to the plaintiff, which it is said is not unrelated to the subject matter of the dispute.”

15    That was not the only occasion in which I felt the need to make some comments concerning the performance of the parties in complying with the directions of the Court. On 10 March 2000 I made the following observations:

“The history of this matter, as far as it involves the first defendant, is such that I think that a judgment in default of a defence would be warranted.
There has appeared today presumably in answer to an application for summary judgment, an officer of the first defendant whom I permitted to address the Court. I think all that can be gleaned from what was being stated by that officer is that it has not persisted with legal representation in the matter largely due to its strained financial position.
I have ascertained from him that if an adjournment is granted of some two weeks legal representation will be sought. Notwithstanding the history of the matter that opportunity should be given to the first defendant”.

16    On 20 April 2001, I directed that the matter be placed in the callover on 27 April 2001 with a view to fixing a date for hearing. On 26 April 2001 an application was made by the second defendant for the plaintiff to provide security for costs in the proceedings in the sum of $185,000. Notwithstanding, the matter has been fixed for hearing on 15 October 2001.

17    The proceedings concern a failed venture by the plaintiff to export by aircraft a consignment of deer from Melbourne to Seoul in the Republic of Korea. For this purpose the plaintiff alleges that it engaged the first defendant under a charter hire to provide a suitable aircraft for the carriage of the deer. It is further alleged that the plaintiff paid the first defendant the charter hire and that the first defendant had issued two air waybills in relation to the cargo.

18    The plaintiff alleges that the first defendant advised it on 3 November 1997 to have the deer ready for loading at Tullamarine Airport on 4 November 1997 by midday: that the plaintiff complied with that direction and, in breach of the charter, the first defendant failed to provide aircraft suitable for the carriage of the deer. The plaintiff alleges that the first defendant’s conduct was repudiatory of the charter agreement, that it accepted the repudiation, rescinded the agreement and returned the deer to the plaintiff’s farm.

19    As against the second defendant, the plaintiff alleges that in consideration of its payment of the charter hire the second defendant agreed to carry the deer to Seoul by aircraft departing from Melbourne on 4 November 1997. It is further alleged that in breach of that agreement, the second defendant failed to provide a suitable aircraft for the carriage of the deer and by such breach occasioned damages as particularised in the plaintiff’s claim against the first defendant.

20    The plaintiff puts it case against the first and second defendants in alternative ways, including alleged misrepresentations. Central to those allegations of misrepresentation is the allegation that the Republic of Korea would not “permit any Polar airfreight charter to import cargo into Korea from countries other than the United States.”

21    The defence of the first defendant is based upon the alleged failure of the plaintiff to obtain appropriate government approvals and clearances for the export of the deer to Korea and relies upon several express exemptions of liability under the subject charter hire.

22    It was also alleged that the “carrier which initially contracted with the plaintiff was Evergreen International Airlines” and that that contract was novated “so that it became a contract between the plaintiff and the second defendant”. It is further alleged by the first defendant that it acted as an agent for a disclosed principal, namely, the second defendant. The first defendant alleges that the failure of the venture was due to the fault of the plaintiff and the second defendant.

23    As a general defence, the first defendant alleges that the contract was frustrated, or that a “ condition precedent and/or a condition subsequent” was not satisfied. As part of its general defence the first defendant alleges that the “flight could not have proceeded, in any event, even if the Plaintiff did have the necessary import permits, as the flight was cancelled because the second defendant did not have the necessary air clearances and landing rights [and that it] had been previously informed by the Korean Ministry of Communications and Transport (“the KMOCT”) that it would be refused future landing rights”.

24    The first defendant relies on an admission by the second defendant, in refunding the plaintiff’s charter sum, that the “flight was cancelled because it did not have the necessary air clearances and landing rights.”

25    By its cross claim, the first defendant claims against the plaintiff for loss of profits resulting from the failed transaction together with costs of penning the deer.

26    By its defence, the second defendant admits an agreement for aircraft charter between it and the plaintiff and alleges that the agreement was executed by the first defendant as agent for the plaintiff. The second defendant alleges that, on 31 October 1997, it informed the plaintiff, through the first defendant as its agent, that permission to land the deer in Seoul had been refused by the KMOCT.

27    The second defendant admits that it was unable to procure the necessary government approvals to land the deer in Korea and relies upon a provision of the contract making it subject to “necessary government approvals”. It also relies upon frustration arising out of the refusal of the grant of landing rights by the KMOCT and, alternatively, relies upon several exceptions in the subject charter hire and under the air waybills issued.

28    By its cross claim against the first defendant it seeks contribution or indemnity in respect of any liability it may have to the plaintiff. In support of that cross claim the second defendant relies upon breaches of warranty of authority by the first defendant in making the alleged representations to the plaintiff.

29    The third and fourth defendants have been sued as officers of the first defendant and as having been complicit in the subject conduct of the first defendant. The third and fourth defendants have joined with the first defendant in a third cross claim against the second defendant, repeating, in substance, the allegations raised in their defences to the proceedings.

30    The linchpin of their claim is an agency agreement under which it is alleged that the first defendant as disclosed agent of the second defendant entered into an agreement with the plaintiff to provide suitable aircraft for the transportation of the deer to Korea. Breaches of the agency agreement include a failure by the second defendant to inform the first defendant of a decision by the KMOCT in August of 1997 that it would not permit a Polar Air freight charter to import cargo into Korea from a country outside the United States.

31    The amount claimed by the plaintiff in the proceedings is approximately $1,000,000. It is made up of the cost of the purchase of the deer, less proceeds of sale, in addition to travel and agistment type costs.

32    In support of the application, the second defendant relies upon the affidavits of Troy Duncan Anderson sworn 23 April 2001 and of Elizabeth Jacqueline Rusiti sworn respectively 24 April and 3 May 2001.

33    The evidence of Mr Anderson was that, on 8 February 2001, in the course of a telephone conversation with the solicitor having the conduct of the matter for the plaintiff, he was informed that a delay in responding to an earlier communication was partly because the plaintiff had “problems funding this case”.

34    In her first affidavit, Ms Rusiti deposed to the fact that she had the day to day conduct of the proceedings on behalf of the second defendant and that, following the communication from the plaintiff referred to in Mr Anderson’s affidavit, she forwarded a facsimile to the plaintiff’s solicitors in the following terms:

“We refer to previous correspondence.
As you know, over the past two or so years there has been considerable delay on the part of your client, the Plaintiff, in progressing these proceedings,. From time to time, both you and your Counsel have informed us that the reason for the delay is your client’s financial difficulties which mean that your client cannot afford to progress thus litigation in the manner in which it should be progressed to comply with the usual timetable set in the Supreme Court Commercial List. The most recent of these occasions was during a telephone conversation between your Ms Cook and our Mr Anderson on 8 February 2001, when Ms Cook informed us that your client has “problems funding the case”.
In these circumstances, we are concerned that your client will not be in a position to meet any costs orders made against it should this claim proceed to a hearing and our client be successful in defending your client’s claim. If that is correct, then we consider that our client would be entitled to some security for costs from your client.
In order to allay our concerns in this regard, please provide us with copies of sufficient documents to demonstrate that your client’s current financial position is such that it ought to be able to satisfy any final costs orders against it in these proceedings. We anticipate that such documents would include your client’s bank statements, financial reports, tax returns and like documents.
We look forward to receiving the requested copy documents from you within the next seven days. Should we not receive such documents from you within that time, we anticipate receiving instructions to file a Notice of Motion seeking security for costs. We reserve the right to tender a copy of this facsimile to the Court in support of any such application and in support of an application that your client pay the costs thereof.”

35    Her estimate of the second defendant’s costs of the proceedings is approximately $250,000. In her second affidavit Ms Rusiti supplemented the estimate of costs with some detailed estimates which, in particular, identified future costs and disbursements as being in the order of $85,000. That sum included $30,140 for business class airfares for two witnesses to travel from Los Angeles to Australia.

36    A company search of the plaintiff reveals that it has a paid up capital of two dollars held beneficially by Man Jae Lee. That person is also a director along with Yong Joo Jeong and Klonkai Rhee. The office of Company secretary is held by Jong Wan Rhee.

37    The return of the plaintiff to the Australian Taxation Office for the year ending 30 June 1999 showed a total income of $1,428,600 with total deductions of $1,424,212, leaving a total profit of $4,388. The cheque account with the Bank of Melbourne in the name of the plaintiff shows a closing balance as at 12 April 2001 of $645.17.

38    In answer to the application, the plaintiff read the affidavit of Jong Wan Rhee sworn 4 May 2001.

39    He testified that the plaintiff continues to trade in the export of livestock. He also deposed to the fact that he and his wife worked in a restaurant in Wodonga in which they had a financial interest and from which their earnings varied between $500 to $1000 per week . That was needed to meet family living expenses of $600 per week and the plaintiff’s operating expenses. He also acknowledged that the plaintiff had paid legal fees to date of $55,000, it would seem, funded partly from outside of the plaintiff’s resources.

40    He had expectations of a profitable contract being entered into for the exporting of cattle to Korea in coming months. Having regard to the generality of that evidence, I think little weight should be placed upon it.

41    Counsel for the plaintiff accepts that the plaintiff is not in a position to pay the second defendant’s costs of the proceedings if the plaintiff is unsuccessful. However, the plaintiff relies on the delay on the part of the second defendant in bringing this application and on the basis that the making of an order would have the effect of frustrating the ability of the plaintiff to proceed with the hearing of the matter fixed for 15 October 2001.

42    On the issue of frustration of the litigation, if security for costs is ordered, it has been stated from the bar table, even if the security was limited to future costs, the plaintiff would have to accept a vacation of the hearing fixed for this matter.

43    I think the correct approach to this issue is that expressed by the full court of the Federal Court in Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1 at 4 as follows:

“In our opinion a court is not justified in declining to order security on the ground that to do so will frustrate the litigation unless a company in the position of the appellant here establishes that those who stand behind it and who will benefit from the litigation if it is successful (whether they be shareholders or creditors or, as in this case, beneficiaries under a trust) are also without means. It is not for the party seeking security to raise the matter; it is an essential part of the case of a company seeking to resist an order for security on the ground that the granting of security will frustrate the litigation to raise the issue of impecuniosity of those whom the litigation will benefit and to prove the necessary facts”.

44    The evidence adduced on behalf of the plaintiff on this issue is unsatisfactory, in my view, in so far as there is no evidence of the financial position of Man Jae Lee, who is shown to be a director of the plaintiff and its only shareholder. I indicated my view of the evidence to counsel for the plaintiff and offered the opportunity to supplement the evidence on this issue. That invitation was not taken up.

45    It was also submitted that the plaintiff’s impecuniosity was the consequence, in substance, of the second defendant’s breaches. There is no dispute that the plaintiff has a bona fide claim. The allegations passing between the first and second defendants would do little to dispel that proposition. However, I am not satisfied on the evidence before me that this is a case which justifies the finding sought on behalf of the plaintiff. Indeed, there has been no evidence adduced in this application expressly directed to that issue.

46    At the same time I am loathe to order security for costs at a stage when the proceedings have been fixed for hearing and where the state of preparation has reached the stage it has in this case. It is now some twenty one months since the first unsuccessful application for security by the first and second defendants was made.

47    As earlier noted in these reasons, that application failed for want of evidence which, in my view, was a direct reflection of the failure of the first and second defendants to require production of financial records of the plaintiff or of those standing to benefit from its success in these proceedings. Furthermore, the failure to make an earlier second application for security is not satisfactorily explained in my view in the affidavit evidence earlier referred to in these reasons.

48    I think it was fairly obvious from the remarks of Rolfe J of July 1999 and from my observations on 1 September 2000 that the plaintiff had limited resources, in the latter case, even to fund its own litigation costs. I also note the observation in the facsimile of 22 March 2001 from the second defendant’s solicitors to the plaintiff’s solicitors that, in relation to delays in the proceedings, “over the past two or so years” from “ time to time … the reason for that delay [was the plaintiff’s] financial difficulties which [meant] that [the plaintiff could not] afford to progress this litigation …. to comply with the usual timetable”.

49    This is a case which I think either calls for a rejection of the application on the ground of delay, or an order for security limited to future costs, discounted to take account of exigencies, such as settlement, or resort to video links in lieu of travel by witnesses from the United States.

50    If I had evidence of the inability to provide security by any person who stood to gain from a successful outcome of this litigation by the plaintiff, I would have no hesitation in rejecting the application. As matters stand, I think an order for security should be made, limited to discounted future costs which I fix in the sum of $40,000.

51    Accordingly, I order the plaintiff to provide security for the second defendant’s costs of the proceedings in the sum of $40,000, such security to be provided in the form of a bank guarantee or payment into Court or such other form as approved by the Court by 4pm 20 September 2001, failing which the proceedings be stayed until further order.

52    The costs of the application will be costs in the proceedings.

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Last Modified: 05/28/2001