Zaramede Pty Ltd v Pengala Pty Ltd

[2009] VCC 64

IN THE COUNTY COURT OF VICTORIA Revised

(Not) Restricted

AT MELBOURNE

CIVIL DIVISION

Case No. CI-08-02495

Zaramede Pty Ltd	Plaintiff
v.
Pengala Pty Ltd	Defendant

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JUDGE:	His Honour Judge Anderson
WHERE HELD:	Melbourne
DATE OF HEARING:	19 February 2009
DATE OF JUDGMENT:	19 February 2009
CASE MAY BE CITED AS:	Zaramede Pty Ltd v. Pengala Pty Ltd
MEDIUM NEUTRAL CITATION:	[2009] VCC 0064

REASONS FOR JUDGMENT

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Catchwords:  Practice and procedure – Security for costs – Claim for balance of contract price for supply of machinery – Substantial counterclaim for economic loss on the basis that the machinery did not perform properly – Application for security refused.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr J. Sear	White Cleland
For the Defendant	Mr P. Barton	Prosperity Legal
HIS HONOUR:

1     The defendant seeks security for costs against the plaintiff in the sum of $118,825, which it says are the costs likely to be expended by it up to and including the first day of the trial. The defendant has been in correspondence with the plaintiff for some months about the issue of security. The matter was argued before me today, but only on a preliminary basis. This was because the parties were brought to Court for a directions hearing at the instance of the Court, without specific notice to the parties that the defendant’s application for security would be heard today. The only material in support of the application presently is filed by the defendant.

2     The plaintiff wishes to have the opportunity to file material in opposition to the application, relating to the plaintiff’s financial position, but Mr Sear of Counsel, who appeared for the plaintiff, suggested that it may be appropriate for the Court to determine a preliminary matter. I have adopted that course because the determination of that matter in the plaintiff’s favour would dispose of the application and avoid the necessity for the plaintiff to prepare extensive answering affidavits.

3     The plaintiff makes a claim of $349,330.89, being the balance of the cost of the supply and installation of machinery for bottling olive oil. There appears to be little dispute on the pleadings that in about February 2006, the plaintiff agreed to import from overseas and supply to the defendant, an appropriate machinery line for an agreed price in excess of $1,000,000. The agreement appears to be contained in correspondence between the parties in February 2006, in which the basic terms and conditions, including the price, a description of the machinery and other matters were set out. The defendant, however, alleges that apart from these documents, there were other communications between the parties which constituted part of the contractual arrangements, or alternatively, were part of the factual matrix which led to the arrangement between the parties.

4     The essential dispute between the parties relates to the allegation by the defendant that the machinery did not perform as the defendant understood it would, and as a consequence, the defendant has suffered substantial losses, including loss of contracts for which it has quantified in its counterclaim as totalling over $2m. The defendant says that it is entitled to set off in diminution of the balance of the price of the machinery, the damages to which it claims to be entitled for breach of contract or the other causes of action upon which the counterclaim is based.

5     There is a general principle of law that a defendant is ordinarily not required to provide security for costs. In certain circumstances, a defendant can be ordered to provide security. In my view what needs to be determined in the present case is what is the essential nature of the dispute between the parties and whether the plaintiff should essentially be looked at as ordinarily a defendant in proceedings would; as a person who would not ordinarily be required to provide security.

6     In my view, the essential dispute is not about the terms of the contract or the fact that the balance of the agreed contract price of $1,220,205 are in issue, but rather the fact that the defendant alleges the machinery that was supplied is not performing, as the defendant alleges it was required to. In support of its counterclaim, the defendant must necessarily seek to establish that the terms of the supply of the machinery were wider than the documents in February 2006. There will also be other facts in dispute which in order for the plaintiff to succeed on its claim, it would need to establish. I consider that it is the plaintiff in this proceeding which is essentially adopting a “defensive” position, although it is in the position of plaintiff because it initiated the proceeding.

7     These are not matters which can, in my view, be determined simply by looking at who is the plaintiff and who is the defendant, by comparing the amount claimed in the claim and the amount claimed in the counterclaim. They require an examination of the issues

between the parties and how those issues will need to be determined in the proceeding. One of the factors regarded as relevant to the exercise of the Court’s discretion whether or not to order security for costs, was stated by Smart J in Sydmar Pty Ltd v Statewide

Developments (1987) 73 ALR 289 as being, “whether substantially the same facts are likely to be canvassed in determining the action and the cross-action. The Court would be slow to allow a situation where the action was stayed because of the inability to

provide security, but the cross-action, covering substantially the same factual areas
proceeds.”

8     I have no evidence from the plaintiff concerning its financial position. There is no statement by it as to whether it would have the ability to provide security. However, even without such evidence, it seems to me that there is a more fundamental principle which should be applied, which involves a consideration of the matters in dispute between the parties, and therefore, the appropriateness of requiring a plaintiff who is seeking to claim the balance of an agreed contract price should provide security for the costs of a defendant who resists the claim for those monies on the basis of claims that what was delivered was not in accordance with the agreement between the parties.

9     It seems to me that in the circumstances of this case, where the defendant is asserting an entitlement to a substantial counterclaim against the plaintiff, that it would be inappropriate for the costs of establishing the counterclaim to be secured by the other party. For these reasons, the defendant’s application cannot in my view, succeed, and it would be inappropriate to further adjourn the matter or require the plaintiff to file material relating to its financial position.