Wattyl Australia P/L v GBP Enterprises P/L

[2004] NSWSC 843

CITATION:	Wattyl Australia P/L v GBP Enterprises P/L [2004] NSWSC 843
HEARING DATE(S):	7 September 2004
JUDGMENT DATE:	15 September 2004
JURISDICTION:	Common Law
JUDGMENT OF:	Master Harrison
DECISION:	Iq) Wattyl's amended notice of motion filed 2 February 2004 is dismissed; (2) Wattyl is to pay GBP Enterpries Pty Limited's costs (except those of 21 May 2004 and Mc Chow's costs of attending Court); (3) The proceedings are stood over to a further status conference Court to notify parties of the time and date.
CATCHWORDS:	Judgment on admission - security for costs
LEGISLATION CITED:	Corporations Act 2001 (Cth) - s 1335(1) Supreme Court Rules 1970 (NW) - Part 18 r 3; Part 53 r 2(1)(e)
CASES CITED:	Buckley; Smail v Burton [1975] VR 776 Commonwealth v Cable Water Skiing (Australia) Ltd (1994) 14 ACSR 760 Kelly v Mawson (1981) 1 NSWLR 184 Leymar Constructions Pty Ltd & the Company Act (1980) Ritchie 13,032 Southern Cross Exploration NL v FAI (1985) 1 NSWLR 114 Sydmar Pty Limited v Statewide Developments Pty Limited (1987) 11 ACLR 616 Termijtelen v Arkel (1974) 1 NSWLR 525 Wagstaff v Fitzpatrick (1922) 39 WN (NSW) 137
PARTIES :	Wattyl Australia Pty Limited (Plaintiff/Cross-Defendant) GBP Enterprises Pty Ltd (Defendant/Cross-Claimant)
FILE NUMBER(S):	SC 11815/2003
COUNSEL:	Mr A Spencer (Plaintiff/Cross-Defendant) Mr S Burchett (Defendant/Cross-Claimant)
SOLICITORS:	Ms Andrews, Deacons (Plaintiff/Cross-Defendant) Mr Jason Li, Jason Li Lawyers Defendant/Cross-Claimant)

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

MASTER HARRISON

WEDNESDAY, 15 SEPTEMBER 2004

11815/2003 - WATTYL AUSTRALIA PTY LIMITED v GBP
ENTERPRISES PTY LTD
JUDGMENT (Judgment on admission; security for costs)

1 MASTER: By an amended notice of motion filed 2 February 2004 the plaintiff/cross-defendant seeks orders that: firstly, pursuant to Part 53 r 2(1)(e) of the Supreme Court Rules 1970 (NSW) (SCR) or alternatively s 1335(1) of the Corporations Act 2001 (Cth), the defendant/cross-claimant give security for costs of the plaintiff/cross-defendant of and incidental to the cross-claim and that the cross-claim be stayed until such security is given; secondly, pursuant to Part 18 r 3 of the SCR, judgment be entered for the plaintiff for the sum of $95,580.60 without prejudice to the plaintiff proceeding in respect of the balance of the claim and/or in respect of interest on that balance and interest on the judgment sum of $95,580.60 from the dates upon which the amounts comprising that judgment became due and payable; and thirdly, that the defendant/cross-claimant pay the plaintiff/cross-defendant’s costs of and incidental to this motion.

2 The plaintiff is Wattyl Australia Pty Limited (Wattyl). The defendant is GBP Enterprises Pty Limited (GBP). The plaintiff relied on the affidavit of John Frederick Warburton sworn 30 January 2004. The defendant relied on the affidavit of Roland Patrick Matters sworn 29 February 2004 and Teresa Suk May Chow affirmed 7 September 2004.

3 On 10 January 2003, Wattyl filed a statement of liquidated claim in the District Court of New South Wales for the sum of $371,613.85 plus interest and costs in relation to amounts outstanding on certain products and services provided by the plaintiff to the defendant. The products are mainly silicate paint. Subsequently these proceedings were transferred to this court. The defence pleads that all products sold to the defendant by the plaintiff were sold pursuant to an agreement by the parties in approximately October 1998, whereby a running account was established between the parties and alleges that there was a breach of the agreement in that goods were not fit for the purpose and that the defendant is entitled to a set off against moneys owed in respect of the claim for deficiencies in quality arising from any other orders.

4 GBP has filed a cross-claim against Wattyl seeking $913,318.16 for loss and damage occasioned by the supply of paint and products between October 1998 and mid 2000. It seeks damages for loss of payments for resale or application of paint and what loosely can be described as loss of profits. It is alleged that these products were not fit for the purpose and were not of merchantable quality and thus there was a breach of implied terms and conditions of the contractor alternatively Wattyl made negligent misrepresentations. Ms Teresa Chow gives a detailed account of difficulties experienced with the painting of two buildings namely Juno Towers and No 5 Apartment Building in Shenzhen, China and the considerable efforts they made with Wattyl to rectify the work.

Admissions

5 Part 18 r 3 of the SCR provides:

“3 Judgment on admissions

(1) Where admissions are made by a party, whether by his pleading or otherwise, the Court may, on the application of any other party, give any judgment or make any order to which the applicant is entitled on the admissions.
(2) The Court may exercise its powers under subrule (1) notwithstanding that other questions in the proceedings have not been determined.”

6 In the defendant’s solicitor’s letter dated 2 December 2003 to the plaintiff’s solicitor, the reply to particulars concluded that the “invoiced amount the defendant agreed to pay is $279,669.71 and then the outstanding balance should be $279,669.71 - 184,089.11 = $95,580.60”. The plaintiff submitted that this constitutes an admission that the defendant owes the plaintiff the sum of $95,580.60.

7 The defendant submitted that where the alleged admission is not explicitly on pleadings, the plaintiff must prove both the fact and the terms of the admission with certainty – see Kelly v Mawson (1981) 1 NSWLR 184 at 186F & 197F and Wagstaff v Fitzpatrick (1922) 39 WN (NSW) 137 at 138, Street CJ). The defendant also submitted that the exercise of jurisdiction might be refused as a matter of discretion. This is especially the case where not all the relevant circumstances, such as the whole of the arrangement between the parties or the entitlement to a judgment, are admitted or where it is apparent, that the true facts are otherwise or the facts admitted are related to facts in dispute on a claim yet to be determined – Termijtelen v Van Arkel (1974) 1 NSWLR 525 at 527A, 529D, 530F, 531A, 532C & 534F.

8 The defendant further submitted that the plaintiffs are pursuing amounts due under a number of different transactions and the defendants are admitting some and denying other, if the grant of judgment for the net sum of those accounts would be “in some way unjust to the claims of [the defendant] as against [the plaintiff], it would be a good ground … for declining to make the order’’ such as if there is any ‘suggestion … that it could possibly be found that the [defendant] would owe less than the amount they admit…’ – Leymar Constructions Pty Ltd & the Company Act (1980) Ritchie 13,032 at 8560, Needham J.

9 GBP calculated a portion of the amount referred to in the statement of claim, which it agreed, was owing but seeks a refund on the basis of the poor quality of the paint as well as the incorrect size of the drums. It is my view that it may be that when the defence and cross claim are heard the amount due to GBP exceeds the amount claimed by Wattyl. After reading Ms Chows affidavit she seems to indicate that some moneys that should have been refunded but were not may relate to the running account. In the exercise of my discretion, I would not enter judgment in the sum of $95,580.60.

Security for costs

10 Part 53 r 2 of the SCR provides:

“2 Cases for security

(1) Where, in any proceedings, it appears to the Court on the application of a defendant:

(a) that a plaintiff is ordinarily resident outside the State,

(b) that a plaintiff is suing, not for his own benefit, but for the benefit of some other person and there is reason to believe that that plaintiff will be unable to pay the costs of the defendant if ordered to do so,
(c) subject to subrule (2), that the address of a plaintiff is not stated or is mis-stated in his originating process,
(d) that a plaintiff has changed his address after the commencement of the proceedings with a view to avoiding the consequences of the proceedings, or
(e) that there is reason to believe that a plaintiff being a body corporate will be unable to pay the costs of the defendant if ordered to do so,
the Court may order that plaintiff to give such security as the Court thinks fit for the costs of the defendant of and incidental to the proceedings and that the proceedings be stayed until the security is given.
(2) The Court shall not order a plaintiff to give security by reason only of subrule (1) (c) if it appears to the Court that the failure to state his address or the mis-statement of his address was made without intention to deceive.”

11 Section 1335 of the Corporations Act is in similar terms. The power to order security for costs is discretionary. A number of the principles relevant to exercise of the discretion have been set forth by Smart J in Sydmar Pty Limited v Statewide Developments Pty Limited (1987) 11 ACLR 616. At pp 626-627 his Honour set forth matters which are relevant to exercise of the discretion:

“1. Whether the plaintiff’s claim is made bona fide and has reasonable prospects of success;
2. Whether the plaintiff’s lack of funds has been caused or contributed to by the conduct of the defendant;
3. Whether the plaintiff’s proceedings are merely a defence against “self help” measures taken by the defendant;
4. Whether the making of an order would unduly stultify the plaintiff’s ability to pursue the proceedings;
5. The extent to which it is reasonable to expect creditors or shareholders to make funds available to satisfy any order for security which is made;
6. Whether the defendant has delayed in making the application for security;
7. Whether the company is a ”true plaintiff”;
8. Whether substantially the same facts are likely to be canvassed in determining the action and the cross-action’.”

12 Another way of stating paragraph 6 above is that an application for security for costs should be brought promptly. This factor has been more fully considered in Buckley; Smail v Burton [1975] VR 776; Southern Cross Exploration NL v FAI (1985) 1 NSWLR 114 and Commonwealth v Cable Water Skiing (Australia) Ltd (1994) 14 ACSR 760.

13 Ms Chow, is a director of GBP, a company registered at ASIC. GBP’s registered office is located at 80 High Street, Northcote, Victoria. Ms Chow and her husband Paul (Wor) Lee are the directors and shareholders of GBP Enterprise Pty Limited. They reside in Hong Kong. According to Ms Chow, GBP continues to trade, exporting building goods to China. It has an overdraft account with HSBC Bank in Melbourne with a borrowing capacity of $300,000.00. The overdraft facility is security by a guarantee and mortgage over property in St Kilda owned by Ms Chow and Mr Lee. The bank overdraft currently stands at about $80,000.00. The defendant has no significant debts, other than the contingent debt claimed by Wattyl and the liability to rectify the No 5 Apartment Building and Juno Towers building due to the plaintiff’s defective paint. In relation to the No 5 Apartment, there remains approximately AUD$25,000.00 which the main contractor has refused to settle, as a result of the problems associated with the paint on the No 5 Apartment not yet rectified. GBP does not own any assets in Australia. However, GBP operates its bank account in Australia by transferring funds by electronic transfer from Hong Kong from which it pays debts. The company has an income of $1.5 million for the year ended 30 June 2003. The financial records of GBP have been supplied. The accounts for the 2000 financial year are not accurate but I accept the other figures as being accurate.

14 The defendant is a cross-claimant so it can be viewed as a plaintiff. There is no suggestion that GBP is not a true plaintiff. The amount claimed in the cross-claim is substantial and is more than is sought to be recovered in the statement of claim. Ms Chow, a director of GBP has given a very detailed version of events and supplied supporting documents in her affidavit affirmed on 7 September 2004. She was cross-examined. After reading that affidavit, it is my view that the cross-claim is bona fide and has reasonable prospects of success. As previously noted, there is evidence of an ongoing problem with the paint on the buildings and attempts made to rectify them. Despite Wattyl characterising the running account as a discrete issue, it is my view that this is not the case as some of the money sought back from Wattyl may relate to payments made by GBP to hasten the rectification of the painting work carried out on the two buildings.

15 While there will be some overlap of the same facts canvassed in determining the action and the cross-action, I accept that the more substantial court hearing time will be spent dealing with the cross-claim. The hearing of the cross-claim will involve the giving expert evidence as to the cause of the problems with the affixing of paint to the surface of the buildings and the actual cost of rectification work. Wattyl has not delayed the making of the application for security for costs. I am unable to say that whether an order for costs would stultify GBP in its ability to pursue the proceedings but so far it has been able to pursue these proceedings. The plaintiff’s financial position has been contributed to by the conduct of Wattyl. I do not think it is appropriate that the shareholders be obliged to make funds available for security. It is my view after taking the above factors into account, in the exercise of my discretion, it is not appropriate to order GBP to provide security for costs. Wattyl’s notice of motion filed 2 February 2004 is dismissed.

Costs

16 On 21 May 2004, Wattyl tendered documents at the hearing and the defendant successfully sought an adjournment. The affidavit of Ms Chow was essential to GBP’s case. Without that affidavit it was likely that GBP would have had an order for security made against it. However, Wattyl was late in providing documents (without affidavit) at the hearing on that day. It is my view that both parties should pay their own costs of 21 May 2004.

17 Otherwise the costs should follow the event. Wattyl was unsuccessful. Wattyl is to pay GBP’s costs of the motion (except those of 21 May 2004). However, as Ms Chow’s evidence could have been taken by video link it is unreasonable that Wattyl should be responsible for Ms Chow’s costs for travelling from Hong Kong to attend this court to give evidence.

18 Mediation may be an appropriate method of resolving the issue in dispute. The proceedings are stood over to a further status conference. The court is to notify the parties of the time and date.

Orders

19 The Court orders:

(1) Wattyl’s amended notice of motion filed 2 February 2004 is dismissed.

(2) Wattyl is to pay GBP Enterprises Pty Limited’s costs (except those of 21 May 2004 and Ms Chow’s costs of attending Court).

(3) The proceedings are stood over to a further status conference. Court to notify parties of the time and date.
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Last Modified: 09/20/2004