FEDERAL COURT OF AUSTRALIA Capitalcorp Finance & Leasing Pty Ltd v Aussie Car Loans Pty Ltd [2014] FCA 203 Citation: Capitalcorp Finance & Leasing Pty Ltd v Aussie Car Loans Pty Ltd [2014] FCA 203 Parties: CAPITALCORP FINANCE & LEASING PTY LTD ACN 010 110 915 v AUSSIE CAR LOANS PTY LTD 077 683 820; AUSSIE CAR LOANS PTY LTD 077 683 820, CAPITALCORP FINANCE & LEASING PTY LTD ACN 010 110 915 and SHINING LIGHT PTY LTD ACN 124 689 621; CAPITALCORP FINANCE & LEASING PTY LTD ACN 010 110 915, SHINING LIGHT PTY LTD and AUSSIE CAR LOANS PTY LTD File number: WAD 218 of 2010 Judge: BARKER J Date of judgment: 12 March 2014 Catchwords: PRACTICE AND PROCEDURE – interlocutory application for security for costs – whether security for costs should be ordered in primary claim and second cross-claim – quantum of security order Legislation: Corporations Act 2001 (Cth) s 1335(1) Federal Court of Australia Act 1976 (Cth) s 56 Federal Court Rules 2011 (Cth) R 19.01, R 19.02, R 30.28 Date of hearing: 22 November 2013 Place: Perth Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 58 Counsel for the Applicant, Cross-Respondents in the first Cross-Claim and Cross-Claimants in the second Cross-Claim: Mr D Benson Solicitor for the Applicant, Cross-Respondents in the first Cross-Claim and Cross-Claimants in the second Cross-Claim: Clayton Utz Counsel for the Respondent, Cross-Claimant in the first Cross-Claim and Cross-Respondent in the second Cross-Claim: Ms JE Richards Solicitor for the Respondent, Cross-Claimant in the first Cross-Claim and Cross-Respondent in the second Cross-Claim: Axis Legal (Australia) IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 218 of 2010 BETWEEN: CAPITALCORP FINANCE & LEASING PTY LTD ACN 010 110 915 Applicant AND: AUSSIE CAR LOANS PTY LTD 077 683 820 Respondent AUSSIE CAR LOANS PTY LTD 077 683 820 Cross-Claimant in the First Cross-Claim CAPITALCORP FINANCE & LEASING PTY LTD ACN 010 110 915 First Cross-Respondent in the First Cross-Claim SHINING LIGHT PTY LTD ACN 124 689 621 Second Cross-Respondent in the First Cross-Claim CAPITALCORP FINANCE & LEASING PTY LTD ACN 010 110 915 First Cross-Claimant in the Second Cross-Claim SHINING LIGHT PTY LTD ACN 124 689 621 Second Cross-Claimant in the Second Cross-Claim AUSSIE CAR LOANS PTY LTD Cross-Respondent in the Second Cross-Claim JUDGE: BARKER J DATE OF ORDER: 12 MARCH 2014 WHERE MADE: PERTH THE COURT ORDERS THAT: 1. The applicant in the proceeding give security for the payment of the respondent's costs in defending this proceeding in the sum of $56,500 within 21 days. 2. The applicant in the proceeding pay the respondent's costs of and incidental to this application, to be taxed if not agreed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 218 of 2010 BETWEEN: CAPITALCORP FINANCE & LEASING PTY LTD ACN 010 110 915 Applicant AND: AUSSIE CAR LOANS PTY LTD 077 683 820 Respondent AUSSIE CAR LOANS PTY LTD 077 683 820 Cross-Claimant in the First Cross-Claim CAPITALCORP FINANCE & LEASING PTY LTD ACN 010 110 915 First Cross-Respondent in the First Cross-Claim SHINING LIGHT PTY LTD ACN 124 689 621 Second Cross-Respondent in the First Cross-Claim CAPITALCORP FINANCE & LEASING PTY LTD ACN 010 110 915 First Cross-Claimant in the Second Cross-Claim SHINING LIGHT PTY LTD ACN 124 689 621 Second Cross-Claimant in the Second Cross-Claim AUSSIE CAR LOANS PTY LTD Cross-Respondent in the Second Cross-Claim JUDGE: BARKER J DATE: 12 MARCH 2014 PLACE: PERTH REASONS FOR JUDGMENT 1 Aussie Car Loans, the respondent in the primary proceeding, the cross-claimant in the first cross-claim and the cross-respondent in the second cross-claim seeks an order for security for costs against Capitalcorp as applicant and second cross-claimant respectively. 2 The questions are (1) whether security for costs should be ordered at all or only in respect of the primary claim and not the second cross-claim and (2), if so, what the quantum of security should be. should security for costs be ordered? 3 The power of the Court to order security for costs is not in doubt. The application of Aussie Car Loans is made pursuant to s 56 of the Federal Court of Australia Act 1976 (Cth) and R 19.01 and R 19.02 of the Federal Court Rules 2011 (Cth). Section 1335(1) of the Corporations Act 2001 (Cth) also provides for a security for costs order. 4 It is generally accepted that the Court has a discretion in the matter which discretion must be exercised judicially. 5 Here, Aussie Car Loans requires security in respect of both the primary proceeding and the second cross-claim where it is a respondent in each. 6 Aussie Car Loans has put on two affidavits of Sara Laura Delpopolo of October 2013 and November 2013 in support of the order sought. 7 Capitalcorp has not filed any material. 8 As a result, Aussie Car Loans served a notice to produce documents under R 30.28 on 19 November 2013, calling for the production of bank statements, financial year statements, monthly financial statements and all documents effecting the transfer of any asset for the period August 2010, when the proceedings were commenced, to the present. 9 Earlier, such material had been sought by letter. 10 The solicitor for Aussie Car Loans has deposed to having a concern that Capitalcorp does not have the funds to meet any costs order. 11 The first question to be considered is whether there exist reasons to believe that Capitalcorp may not be able to meet a costs order in the proceedings. 12 Aussie Car Loans points to the existence of the real risks that its costs will not be paid in the event a costs order is made, including: It appears that Capitalcorp is not trading. No real property has been found to be owned by Capitalcorp. On 16 July 2013, Aussie Car Loans was contacted by one Jamie Johnson and informed, in effect, that Capitalcorp had been sold to National Warranty Group and that settlement had occurred on 10 July 2013. When asked about the sale to National Warranty Group, the solicitors for Capitalcorp twice refused to respond to a query whether it had been sold. A search of the website of Capitalcorp revealed that the website was suspended. Telephone calls to the offices of Capitalcorp in August 2013 in Victoria and Queensland disclosed that the numbers were disconnected and not ringing at all. Further telephone calls to other former offices of Capitalcorp in August 2013 disclosed that none was operating as an office of Capitalcorp. 13 On 30 August 2013, the solicitors for Aussie Car Loans wrote to the solicitors for Capitalcorp seeking information and documents bearing on the capacity of Capitalcorp to meet a costs order. 14 The solicitors for Aussie Car Loans wrote again to the solicitors for Capitalcorp on 30 September 2013 noting the information had not been provided and asking that security in the amount of $137,500 be provided. 15 The various matters put to the solicitors for Capitalcorp went unanswered. 16 The second affidavit of Ms Delpopolo deposes to the existence of eight registered security interests over assets of Capitalcorp, the various security interests having been granted to three different banks. 17 Aussie Car Loans also points to the progress of the proceedings from when the proceedings were commenced by Capitalcorp on 13 August 2010 to 28 October 2013 when Aussie Car Loans filed a defence to the cross-claim. 18 Aussie Car Loans says that Capitalcorp has been "far from vigorous" in its prosecution of the proceedings. 19 Aussie Car Loans also notes that Capitalcorp chose to file proceedings in the Western Australian registry of the Federal Court, significantly more convenient to them than to Aussie Car Loans, whose directors are based in Queensland, and Capitalcorp has rejected out of hand a suggestion that mediation take place in Adelaide. 20 Additionally, Aussie Car Loans says that by its pleading Capitalcorp asserts that the licence agreement in question was in fact a franchise agreement within the meaning of the Franchising Code of Conduct and yet no attempt is made to make out any relevant control by Aussie Car Loans over the business of Capitalcorp, nor is there any element of advice and assistance comprehended in the pleaded relationship. 21 It says the essential complaint of Capitalcorp is that at more or less the same time as the NSW/ACT licence agreement (which it claims is a franchise agreement) the parties entered another agreement which was not in writing but allowed either party to give three months' notice of implementation. Capitalcorp claims that the termination of the NSW/ACT licence agreement for failure to pay licence fees for eight months was unlawful because no reminder notice had been given, relying on the Franchising Code of Conduct. Capitalcorp says that by giving the notice of termination, Aussie Car Loans evinced an intention not to be bound by the NSW/ACT licence agreement and that this was a repudiation which it accepted and gave rise to a claim for damages. 22 Aussie Car Loans says that on its own case, Capitalcorp seeks unspecified damages in relation to a contract it never performed and never gave notice of any intention to perform. 23 In the second amended cross-claim there is a further claim by Capitalcorp in substance based on similar allegedly repudiatory conduct, except that in the case of the agreements there referred to, the licences had been performed at least in part. 24 Aussie Car Loans further observes that Capitalcorp had decided by 10 September 2010 when it made the announcement to like effect, that it no longer wished to use the Aussie Car Loans brand. It had already fallen behind in the payment of the licence fees due to Aussie Car Loans, which perhaps suggests that the decision to cease using the Aussie Car Loans brand had been made by no later than August 2010. 25 Aussie Car Loans says the burden is on Capitalcorp to demonstrate it is impecunious and does not have the means to meet a security order. 26 As to the timing of its application for security, Aussie Car Loans acknowledges the delay in making the application can be a factor in the exercise of the Court's discretion. 27 In essence, Aussie Car Loans says that it has attempted to deal with this issue but it has been frustrated by the conduct of Capitalcorp. 28 So far as quantum of security is concerned Aussie Car Loans' solicitor has deposed that the costs incurred by it to date are $228,397.44 and that further costs of approximately $165,000 are expected. 29 It claims security for the prospective costs and costs to be incurred. 30 Capitalcorp notes that while Aussie Car Loans seeks security against Capitalcorp the application also seeks security against Shining Light, the second cross-respondent and second cross-claimant in the first cross-claim and second cross-claim respectively. 31 It is said that no evidence has been led as to the financial position of Shining Light and no order should in those circumstances be considered. 32 Further, it is submitted that the claims advanced by Capitalcorp and Shining Light are, in effect, identical. The parties have the same representation and so if Shining Light succeeds, Capitalcorp will almost certainly succeed and so an order for security should not be made against Capitalcorp in respect of the second cross-claim. 33 It is also submitted by Capitalcorp that the second cross-claim is defensive in nature. 34 Capitalcorp points out that the primary claims relate to the licence agreement that was entered into by the parties for the territory of NSW. No reference is made in the primary claim to the licence agreements that existed between the parties in respect of other States. 35 However, Aussie Car Loans' cross-claim seeks damages from Capitalcorp in respect of alleged breaches of licence agreements for Victoria, Tasmania and South Australia and Shining Light in respect of alleged breaches of the licence agreement for Western Australia. 36 Capitalcorp and Shining Light say Aussie Car Loans was not ready, willing and able to perform the relevant licence agreements and had repudiated them and was in anticipatory breach of the agreements as well evincing an intention to abandon the agreements. It represented to Capitalcorp and Shining Light and had been conducting itself on the basis that each of the agreements had ended. 37 I generally accept the submissions made on behalf of Capitalcorp in respect of the application for security of costs in respect of the second cross-claim. 38 I would therefore not make any order for security for costs in respect of the second cross-claim. 39 In relation to the primary claim, Capitalcorp says that the only basis upon which security is sought is that it is impecunious. 40 As to the allegations that it has ceased trading and does not have any funds to meet any costs order, Capitalcorp submits that even if one takes the evidence put forward by Aussie Car Loans to support the inferences it says should be drawn, the allegations of themselves are insufficient to discharge the evidentiary onus that Aussie Car Loans bears. 41 Capitalcorp also make submissions as to the strength of the case that it advances. 42 It says the existence of the other agreements relating to the deferral of the commencement of the NSW licence agreement referred to by Aussie Car Loans is admitted by Aussie Car Loans and contrary to its assertions, Capitalcorp's amended statement of claim pleads a variety of contractual terms by which Aussie Car Loans had the ability to "control" the business of Capitalcorp with respect to the use of Aussie Car Loans' trademarks. 43 It is said a central plank to Capitalcorp's case is that Aussie Car Loans unlawfully repudiated the NSW licence agreement by failing to issue a reminder notice in respect of the allegedly unpaid licence fees under the terms of that agreement prior to terminating it. 44 It says this part of its case is not dependent on the NSW licence agreement being a franchise agreement. Nor does it depend upon a finding that the other agreement, which Aussie Car Loans has admitted existed, operated for the duration asserted by Capitalcorp. 45 Rather, this part of Capitalcorp's case depends upon the terms of the NSW licence agreement. 46 By reference to cl 18.1 of the NSW licence agreement, it says that Aussie Car Loans' assertions about it cannot be rationalised with its admission that the agreement contained the amended form of cl 18.1 that it pleads. 47 Capitalcorp also says that delay in the bringing of the application for security for costs should count against Aussie Car Loans. 48 In my view, the questions raised concerning the strength of Capitalcorp's primary claim are not determinative one way or the other. 49 Nor do I consider that the delay in bringing the application for security should count against Aussie Car Loans in all the circumstances. I accept that the proceedings themselves appear to have been rather dragged out by Capitalcorp. The failure of Capitalcorp to respond to correspondence raises some serious questions. Add all of that to the primary facts relied upon by Aussie Car Loans, then it is reasonable to infer that Capitalcorp is not trading and given the securities over properties it is not at all clear what its ability to pay a costs order is. 50 In those circumstances, particularly where Capitalcorp has simply not gone into evidence on the point of its trading and pecuniosity, I infer that there are serious questions in that regard. In my view, therefore, security for costs should be ordered in the primary proceeding against Capitalcorp in favour of Aussie Car Loans. what should the quantum of the security order be? 51 As to the quantum which should be ordered, I consider that the security should only relate to the costs going forward and should be not greater than the recoverable party/party costs. 52 Capitalcorp says that if security is ordered the evidence that 85% of the costs that will be incurred will relate to the primary claim and the second cross-claim is counter-intuitive in circumstances where the primary claim only relates to one licence agreement and involves a sole respondent and Aussie Car Loans' cross-claim relates to three licence agreements and involves multiple defendants. 53 Capitalcorp suggest it would be appropriate in those circumstances to apportion costs in the following way: (1) 30% in respect of the primary claim. (2) 50% in respect of the first cross-claim. (3) 20% in respect of the second cross-claim (bearing in mind the matters relied upon as forming the foundation of the second cross-claim are primarily matters which form the basis for the defence of the first cross-claim). 54 Using that apportionment and relying on Aussie Car Loans' midpoint estimate of costs going forward of $169,500, it says a sum by way of security of $30,510 would be appropriate. 55 I consider the points made on behalf of Capitalcorp as to apportionment are generally valid, although I am not satisfied that the 30/50/20% apportionment in respect of the primary claim, first cross-claim and second cross-claim is reliable. 56 In the event, I consider, taking a broad brush approach, that a third of the estimated $169,500 future costs should be paid by way of security. That is a total sum of $56,500. conclusion and order 57 The Court will therefore order that Capitalcorp secure the costs of Aussie Car Loans in the primary claim in the sum of $56,500. 58 The appropriate order would therefore appear to be as follows: 1. The applicant in the proceeding give security for the payment of the respondent's costs in defending this proceeding in the sum of $56,500 within 21 days. 2. The applicant in the proceeding pay the respondent's costs of and incidental to this application, to be taxed if not agreed. I certify that the preceding fifty-eight (58) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Barker. Associate: Dated: 12 March 2014