Walrus Pty Ltd v RACQ Operation Pty Ltd

[2015] FCCA 2077

FEDERAL CIRCUIT COURT OF AUSTRALIA

WALRUS PTY LTD & ANOR v RACQ OPERATION PTY LTD & ORS [2015] FCCA 2077

Catchwords:
PRACTICE & PROCEDURE – Security for costs.

Legislation: 

Federal Circuit Court of Australia Act 1999 (Cth), s.80

Sagacious Procurement Proprietary Limited v Symbion Health Limited (2007) NSWCA 205
Tim Barr Proprietary Limited v Narui Gold Coast Proprietary Limited (2009) NSWSC 563
Lynx Engineering Consultants v The ANI Corporation (2010) FCA 32

Vantage Holdings Proprietary Limited v Huang (2015) FCA 155
Stanley & Anor v Phillips (1966) 115 CLR 470

First Applicant: WALRUS PTY LTD

Second Applicant: INICA INVESTMENTS PTY LTD

First Respondent: RACQ OPERATION PTY LTD

Second Respondent: RACQ INSURANCE LTD

Third Respondent: GLEN TOMS

File Number: BRG 1058 of 2014

Judgment of: Judge Vasta

Hearing date: 29 June 2015

Date of Last Submission: 29 June 2015

Delivered at: Brisbane

Delivered on: 29 June 2015

REPRESENTATION

Counsel for the First Applicant: Mr Ferrett

Solicitors for the First Applicant: Turner Freeman Lawyers

Counsel for the Second Applicant: Mr Ferrett

Solicitors for the Second Applicant: Turner Freeman Lawyers

Counsel for the First Respondent: Mr Anderson

Solicitors for the First Respondent: McCullough Robertson Lawyers

Counsel for the Second Respondent: Mr Anderson

Solicitors for the Second Respondent: McCullough Robertson Lawyers

Counsel for the Third Respondent: Mr Anderson

Solicitors for the Third Respondent: McCullough Robertson Lawyers

ORDERS

1. That within forty-five (45) days from the date of these Orders, the Applicants provide security for the Respondent’s costs, up to and including the first day of trial, in the sum of $180,000 by way of payment into the Court or bank guarantee.

2. That if the Applicants fail to comply with Order 1 above, the proceedings be stayed pending provision of the security.

3. That the costs of and incidental to the Application be costs in the cause.

4. That both parties be granted liberty to apply on the giving of three (3) days’ written notice to the other party.

FEDERAL CIRCUIT COURT
OF AUSTRALIA

AT BRISBANE

BRG 1058 of 2014

WALRUS PTY LTD

First Applicant

INICA INVESTMENTS PTY LTD

Second Applicant

And

RACQ Operation Pty Ltd

First Respondent

RACQ INSURANCE Ltd

Second Respondent

GLEN TOMS

Third Respondent

REASONS FOR JUDGMENT

(Ex Tempore)

1. This is an application for security for costs.  Generally, the application is one where the Applicants are running branded agencies for the RACQ who, in effect, are the First and Second Respondents; the Third respondent being the CEO of the First and Second Respondents. 

2. The agencies have been in place for some time. In September 2013, with two years to go on the agency agreement, the Respondents told both Applicants that the agreements would be terminated in September 2015. 

3. This was, according to the evidence before me at this point, a business decision that came about because in the context of the RACQ’s overall business, they viewed the operations run by the Applicants at Australia Fair and Runaway Bay as marginal propositions.  It was decided that it is in the best interests of the First and Second Respondents that the agreements be terminated.  The Applicants obviously don’t agree with that assessment and have launched these proceedings. 

4. At this point in time it’s difficult for me to say exactly how complex this litigation is.  However, it does seem to involve an analysis of the operations of both Applicants as to whether one can end up calling them “marginal propositions”.  There will also need to be a comparison with other businesses not conducted by the Applicants, but with whom the Respondents have a similar agency agreement. A further factual question as to the nature of conversations had with the Third Respondent will also need to be litigated. 

5. As such, it would seem that there will be a great deal of evidence by forensic accountants, and from officers of the Respondents as to what constitutes a “marginal proposition”. 

6. In a proceeding such as this, there may be a need for security for costs.  I have been very helpfully referred to matters of Sagacious Procurement Proprietary Limited v Symbion Health Limited (2007) NSWCA 205, Tim Barr Proprietary Limited v Narui Gold Coast Proprietary Limited (2009) NSWSC 563, and Lynx Engineering Consultants v The ANI Corporation (2010) FCA 32. Those cases have been of assistance to me in looking at the nature of applications such as this.

7. What does seem to be found in such matters is that one has to look at the financial situation of the applicant in the matter proper. The question that must be asked is whether, if the respondent was successful, a costs order may turn out be illusory because it may not be able to be realised. 

8. In the material before me, it does seem that the First Applicant, Walrus, has current assets in a real sense of $10,000.00, current liabilities of about $52,000.00, a property at Tallebudgera that is mortgaged to the Commonwealth Bank; security registrations to 10 different creditors encumbering its commercial property, goods, and also a vehicle;  and an intangible asset of goodwill. 

9. Whilst this does give the First Applicant a net asset of $271,000.00, it does seem to me that that is very much in large part made up of the intangibles. Whilst that may be a proper accounting practice to value the goodwill and other intangibles, it is something that I should take into consideration.  The Second Applicant has, on the evidence before me, current assets of about $21,000.00 and current liabilities of about $184,000.00, and their assets, excluding intangibles, are about $53,000.00 with no real property in Queensland or New South Wales. 

10. It seems to me, then, that when one has a look at those matters, and taking into account that the goodwill is an intangible asset that may not be able to be realised, I am of the view that there is reason to believe that the Applicants will be unable to pay the costs of the Respondent if the application fails. Under s.80 of the Federal Circuit Court of Australia Act 1999 (Cth), I can order security for costs in such a case, but the discretion to do so should still be exercised carefully.

11. I must look at a number of factors.  Firstly, I have to look at whether this is a genuine claim and will the Applicants be successful, which at this point in time is impossible to say.  It is a matter that can be taken to trial.  It is not one where one could say it is hopeless. 

12. But it is an unusual action where, despite the supposed “contractual validity” of the actions of the Respondents, the Applicants contend that those actions were not proper and that they were promised something other than what is contained in the contract. 

13. It is a matter for trial, and for me to embark into a merits hearing at this stage is not advisable at all.  However, whilst I do think that it is certainly a genuine claim, I cannot say at this point that the Applicants will definitely be successful. 

14. I should look at whether this application is some form of device by the Respondents to try and stop the Applicants from pursuing what may, in truth, be a good claim.  The problem I have is that there is no evidence that such an order would do so.  There has been nothing from the Applicants to say that, if this order were made, it would curtail their ability to prosecute their application.  I must look at whether the “impecuniosity” has actually been caused by the actions of the Respondent. 

15. At this point I cannot say that that has happened, because the Respondents have done nothing other than to say and to give proper notice within the two year timeframe that their intention is to cease the agency agreement in September of 2015.  So at this point, nothing has been done and nothing will have been done by the Respondents until September of 2015, at this rate in any event, to have done anything that could have caused the Applicant to be in a less than stellar financial position. 

16. The next point I should look at is the matter of delay, and this is one that did take up some deal of the argument today. I’ve been very helpfully referred to Vantage Holdings Proprietary Limited v Huang (2015) FCA 155, a judgment of Collier J. In that case, Her Honour went through the matters that I must consider as to whether there has been a delay in bringing the application. The Applicant, or Respondent to this particular application, has categorised the application for security for costs as having come late.

17. The submission was that the Applicant may not have expended the moneys that it has up to this point if they had known of the application.  However, when I have a look at the chronology that has been evidenced here, it would seem that both sides certainly have done what it is that they had to do to get the matter to mediation.  The mediation did fail. 

18. I have been referred to the Affidavit of Mr Stephen Case filed on 3 June 2015.  In it, he annexes a deal of correspondence between the solicitors acting for the Applicants and the solicitors acting for the Respondents.  It would seem as at February, certainly, that the solicitors for the Applicants knew that this course of action was one that the Respondents were contemplating taking, and it seems that the Respondents had put out a set of “orders” that would talk about the conduct of any application for security for costs.  Notably, in an email sent by a Mr Morgan of the solicitors for the Applicants to the solicitor for the Respondents, it is said in the second paragraph:

    “It is a matter for your client to bring this (application for security for costs) or any other application it wishes to file.  However, we consider the application is premature.”

19. As I say, the mediation occurred, and the matter went back before Jarrett J, who made certain directions.  The directions were made.  It was then, I think, on 31 May that the Respondents filed the affidavit of Mr Robinson, and then on 3 June filed this present application.  In my view, it cannot be said that there has been a delay that would cause this court to not exercise the discretion.  There is no evidence from the Applicants as to what they would have done if they had known that the application was coming. 

20. So therefore I am of the view that I should make an order for security for costs. 

21. What is the quantum?  There are a number of issues that have been raised on this.  The first question is whether the quantum should be looked upon from a Federal Court or a Federal Circuit Court scale.  Whilst this is a matter of discretion, it’s my view that the matter is in this Court and so therefore it should be this Court’s scale.  The reason for litigating in this Court may be numerous, but it is known that this Court is to be, as it were, a cheaper Court that should dispose of matters more quickly than might otherwise be the case.  Having chosen to litigate in this Court, it’s my view that it’s the cost scale on this Court that should be the way in which I approach this matter. 

22. As I’ve indicated, there have been two affidavits: one of a Mr Robinson and one of a Mr Graham.  Mr Robinson has set out in a fairly detailed way how, in his view, a costs order would be looked at if one were to have been made.  Mr Graham does not do the same exercise in some respects, but looks upon the assumptions that Mr Robinson has made, comments upon them, and then substitutes his own view as to what should be done. 

23. Helpfully, now that I’ve looked at, and had the benefit of, the submissions from both counsel, schedules at the back of his affidavit do allow somewhat of a comparison. 

24. Should security for past costs be given?  I’m of the view that it should.  The awarding of costs is made for the whole of costs, and therefore such ought to be secured. 

25. Should there be allowance for two counsel?  I’ve been, again, very helpfully referred to the authority of Stanley & Anor v Phillips (1966) 115 CLR 470. That was a matter where, after a personal injuries matter had been settled after it had been removed from the County Court to the Supreme Court and senior counsel had been retained. After that move had occurred, and once costs were awarded in the settlement, the plaintiffs there sought to have the senior counsel’s appearance as part of the costs to be taxed.

26. Whilst it’s a judgment of the Court where there was one dissenting judgment, the Court held that this particular case was not heavy and involved no special difficulty.  Accordingly, it was not necessarily or proper for the attainment of justice or defending the rights of the plaintiff to incur the expenditure involved in briefing two counsel on the hearing of the action, and therefore those additional costs should not have been allowed upon taxation.

27. Having regard to what I have seen of this matter before me now, I cannot say that this is not a heavy matter, and I cannot say that it involves no special difficulty.  The fact is that even though it is more a trial on the facts than any particular difficult notion of law, the factual matrix is not an easy one. 

28. The whole concept of marginal propositions; the decision to look at a corporation’s thoughts in what should constitute a marginal proposition; and what is the difference between one particular agreement for an agency as opposed to someone else’s agreement is certainly going to involve some complex questions of fact and will be capable of reverberating around the corporate world.  For that reason it is, in my view, a matter where two counsel are justified. 

29. On the matter of expert witnesses, it seems to me that the expert witnesses are witnesses that need to have a proper appreciation of the case and to be sufficiently skilled as to be able to allow the court to hear their evidence with some faith.  As has been said, such evidence, whilst necessary, is not cheap.  So doing the best I can, I’ve had a look at what it is that both Mr Graham and Mr Robinson have said.  It’s not a case of, as it were, trying to come to some sort of position that is in any way down the middle. 

30. Having a look at the calculations that Mr Robinson has made for Senior Counsel, Junior Counsel and expert witness fees, I am of the view that his calculation is certainly in the “ball park”, as is his total for the expert witnesses.  That would give a total of something in the order of $196,000.00. 

31. In my view, that sum should be discounted somewhat, and that is simply because it may be that some of the estimates that Mr Robinson has given will not eventuate.  So therefore I set the quantum at $180,000.00. 

I certify that the preceding thirty-one (31) paragraphs are a true copy of the reasons for judgment of Judge Vasta

Date:  5 August 2015