Walshah Pty Limited v Nando's Australia Pty Limited
[2013] NSWSC 112
•22 February 2013
Supreme Court
New South Wales
Medium Neutral Citation: Walshah Pty Limited v Nando's Australia Pty Limited [2013] NSWSC 112 Hearing dates: 20 February 2013 Decision date: 22 February 2013 Jurisdiction: Common Law Before: Schmidt J Decision: 1. The plaintiff is to provide security for the defendants' costs up to and including the amount of $360,000, in a form acceptable to the Registrar.
2. In the event that the plaintiff does not provide such security within 14 days of this order, the proceedings on the statement of claim are to be stayed until such security is provided.
3. The defendants have liberty to apply for further security, in the event that the security ordered proves to be insufficient.
4. The plaintiff is to bear the defendants' costs of this motion, as agreed or assessed.
Catchwords: PROCEDURE - costs - security for costs - plaintiff - whether jurisdictional condition has been met - security to be ordered - order made Legislation Cited: Corporations Act 2001 (Cth)
Uniform Civil Procedure Rules 2005Cases Cited: Livingspring Pty Ltd v Kliger Partners [2008] VCA 93; (2008) VR 377 Category: Procedural and other rulings Parties: Walshah Pty Ltd
ACN 120 163 331 (Plaintiff)
Nando's Australia Pty Limited
ACN 079 066 407 (First Defendant)
Carlos Antonius (Second Defendant)Representation: Counsel:
Mr JC Giles (Defendant)
Solicitors:
Norton Rose (Defendant)
File Number(s): 2012/228173 Publication restriction: None
Judgment
By motion brought in October 2012 the plaintiff company Walshah Pty Limited ("Walshah") sought orders under Rule 14.28 of the Uniform Civil Procedure Rules 2005, striking out the cross-claim brought by the defendant company, Nando's Australia Pty Limited ("Nando's"), in August 2012. For their part, by motion also filed in October 2012 the defendants, Nando's and Mr Carlos Antonius, Nando's' business development manager, sought an order for security for costs in the sum of some $408,790.
Walshah did not appear at the hearing of the motions, having earlier withdrawn its solicitor's instructions. An order was made at the hearing in relation to its motion that:
"1. Unless the plaintiff applies within 7 days to have the motion relisted, the motion will stand dismissed with an order for costs as agreed or assessed in favour of he defendant.
2. Plaintiff to bear the defendant's costs of the motion as agreed or assessed."
Walshah brought the proceedings in July 2012, seeking damages in relation to a fast food franchise agreement and licence agreement it had entered in 2006, in respect of a Nando's outlet at Haymarket and another proposed outlet at Pitt Street, Sydney. It claims that the Haymarket outlet sustained substantial losses, contrary to various misleading and deceptive representations made by Nando's and Mr Antonius, as well as damages suffered when it was locked out of the outlet in February 2012, when Nando's refused to return its property located at the outlet. Walshah also claims damages in relation to the second outlet intended in 2009 to be opened in Pitt Street, Sydney, which resulted in it suffering further losses, when Nando's was unable to secure a lease for the site.
A detailed defence was filed in August 2012. Nando's also then filed a cross-claim, seeking damages of some $138,564 for Walshah's alleged breach of the franchise and license agreements. The Registrar relieved Walshah of the obligation of filing a defence to the cross-claim, upon filing the motion, which it did not appear to press at the hearing. Still no defence has been filed to the cross-claim.
The application for security was supported by affidavits sworn by Nando's solicitor Mr Jones and by Mr Nicholas, a legal costs consultant.
Annexed to Mr Jones' affidavit was correspondence enquiring as to Walshah's ability to meet any costs order made in the defendants' favour. There was no response to those enquiries; Walshah filed no affidavits responding to those filed by the defendants to support their security application; and it did not appear at the hearing to defend the application.
The order for security was sought under s 1335(1) of the Corporations Act 2001 (Cth) and Rule 42.21. Section 1335(1) grants the Court a discretion to make a security order, 'if there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful'. Rule 42 grants the Court a similar discretion. The policy underpinning these provisions is clear, to protect a defendant against the risk of a plaintiff corporation's impecuniosity.
In Livingspring Pty Ltd v Kliger Partners [2008] VCA 93; (2008) VR 377, this jurisdictional condition was described at [15] as requiring a rational basis for the belief to be established. It was also explained that s 1335(1) requires the making of a risk assessment, necessarily imprecise and based on a 'practical, commonsense approach to the examination of the corporation's financial affairs'.
The jurisdictional condition has been met
I am satisfied that the evidence established that the jurisdictional condition has been met.
The evidence showed that not only had Walshah refused to reveal anything as to its ability to meet an adverse costs order, despite repeated enquiries made of it for the defendants, prior to the filing of their motion; it did not appear to defend the order sought, even in the face of the documents annexed to Mr Jones' affidavit, which reveal amongst other things that Walshah:
has an issued share capital of $2
does not own any real property in the State
has granted 3 charges now registered on the Personal Properties Security Register: the first in December 2006 over all present and after acquired property, in favour of Bank of Western Australia Ltd; the second in January 2012 over goods in favour of Cookers Bulk Oil System Pty Limited and the third, again over all present and after acquired property, in favour of Westpac Banking Corporation.
In the result it may be inferred that evidence which it could have led, would not have displaced the obvious conclusions which flow from the evidence, that Walshah may have real difficulty in meeting any substantial costs order made against it. On the evidence, the defendants will incur very substantial costs in defending the claim it has brought, assessed by the defendants' solicitors to be in the order of some $511,000.
Also to be considered is that Walshah's claim is defended by a very detailed defence; that it has not taken steps to defend Nando's cross-claim, which alleges that it failed to pay franchise fees of some $138,000 owing under the franchise agreement; and that it did not pursue its strike out application at the hearing.
It may also not be overlooked that the personal defendant, Mr Antonius, has not brought any cross-claim.
In the result it seems to me that it can only be concluded in the circumstances here revealed by the evidence that there is good reason to believe that there is a real risk that the state of Walshah's financial affairs is such that it will be unable to pay the defendants' costs, if they are successful in defending its claim.
Should an order be made?
The authorities discuss the considerations relevant to the exercise of the discretion. Walshah, of course, did not appear to raise any of them, particularly not those which must depend on matters within its knowledge. Still, the exercise of the discretion may not fairly be undertaken, without giving what consideration is available to be given to them, on the evidence. They include matters such as whether the plaintiff's claim is made in good faith and appears arguable; whether its lack of funds has been caused or contributed to by the conduct of the defendants; whether the making of the orders sought would stultify the proceedings; the extent to which shareholders might make funds available to meet a costs order and the likelihood of any costs order being made.
It was not suggested by the defendants that Walshah's claim was not made in good faith, but they relied on their detailed defence, against the allegations made against them. The defence makes some admissions, but vigorously defends the case brought against them, by reference to things such as the terms of the written agreements which the parties entered; disclosure documents provided; information provided to Walshah; factual matters relevant to alleged representations, including relevant trading results; Walshah's conduct, including various alleged breaches of the agreements, which resulted in the termination of the Haymarket agreement; its failure to collect personal property made available to it for collection; and communications and conduct relevant to the claims advanced in relation to the proposed Pitt St outlet.
The defendants conceded that Nando's cross-claim was a relevant consideration on their security application, but relied on the fact that Walshah had neither pursued its motion, nor filed a defence to the cross-claim, to submit that it would not be a reason for refusing to make the security order sought. The fact that Mr Antonius, the personal defendant, was not a party to the cross-claim was also are submitted to be a relevant consideration. I accept that these are all relevant matters to be considered.
It seems to me that no firm conclusions can be drawn as to the likelihood of Walshah succeeding on its claims. Little more can be said than that it appears a possibility, although the defence filed places obvious hurdles in its path to a successful outcome in this litigation. If it fails to make out its claims, it clearly faces the likelihood of a very significant costs order being made against it.
There is no evidence from which it can be concluded that Walshah's financial circumstances have been caused by the conduct of the defendants. Given what is advanced against them in the statement of claim, it can be inferred that Walshah might have claimed that they have contributed to its position, had it appeared to defend the application. It did not appear however and so firm conclusions in its favour cannot readily be drawn. Nor is there any evidence from which it can firmly be concluded that the making of the order will stultify the proceedings. Nor has Walshah led any evidence from which it might be concluded that any shareholders might make funds available to meet a costs order, which would be a reason for declining to make an order.
In the result it seems to me that in all of the circumstances, justice demands that the discretion to make an order for security for costs must be exercised in favour of the defendants.
What security should be ordered?
The object of a security order is not to provide a party with full security for likely costs, but security sufficient in the circumstances, having regard not only to that party's position, but also to the other party's ability to continue the proceedings. Walshah has not appeared to advance a case that the order sought will stultify the proceedings. Nor has it led evidence to suggest that an order of the kind sought will present any difficulty in its pursuit of its claim. Still, the order must achieve a balance between protection of the defendants and avoiding injustice to Walshah.
Mr Nicholas, who has been in practice as a costs consultant for 24 years, specialising in cost assessments, has come to the view that the defendants are likely to recover some 70-80% of the amount which their solicitor assessed they will incur in defending Walshah's claim, if they succeed. That amount includes the cost of a mediation. Mr Nicholas' opinion rests on views which he has formed as to what might be allowed by way of charge out rates for various solicitors; time estimates provided; as well as counsel's and expert's fees. On his assessment the result would be an order in the defendants' favour of some $357,691 to $408,790.
Mr Nicholas' opinions have not been challenged. In my assessment they should be accepted as a reasonable basis upon which to assess what costs the defendants might expect to recover from Walshah, if they succeed in defending its claim.
Having in mind all of the matters I have earlier referred to, I have concluded that an order should be made at the bottom end of the range identified by Mr Nicholas. That will satisfy the purpose of protecting the defendants from Walshah's likely inability to satisfy any order for costs made against it, while not overlooking that it ought not to be unnecessarily shut out of its pursuit of the litigation it has commenced.
Order
For the reasons given, I make the following orders:
1. The plaintiff is to provide security for the defendants' costs up to and including the amount of $360,000, in a form acceptable to the Registrar.
2. In the event that the plaintiff does not provide such security within 14 days of this order, the proceedings on the statement of claim are to be stayed until such security is provided.
3. The defendants have liberty to apply for further security, in the event that the security ordered proves to be insufficient.
4. The plaintiff is to bear the defendants' costs of this motion, as agreed or assessed.
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Decision last updated: 22 February 2013
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