New South Wales Supreme Court CITATION : Bevwizz Group Pty Ltd v Transport Solutions Pty Ltd [2008] NSWSC 1399 HEARING DATE(S) : 18 December 2008 JURISDICTION : Equity Division JUDGMENT OF : Brereton J EX TEMPORE JUDGMENT DATE : 18 December 2008 DECISION : Notice of Motion dismissed. CATCHWORDS : PROCEDURE – costs – security for costs – application by plaintiff for security for costs of defendant's cross-claim – standing of plaintiff to claim security under (CTH) Corporations Act 2001, s 1335 and/or (NSW) Uniform Civil Procedure Rules, r 42.41 – whether cross-claimant is in substance a plaintiff in the proceedings – whether corporate impecuniosity established – discretionary considerations LEGISLATION CITED : (CTH) Corporations Act 2001, s 1335(1) (NSW) Uniform Civil Procedure Rules 2005 Pt 42, r 42.21(d) CATEGORY : Procedural and other rulings Beach Petroleum NL v Johnson (1992) 7 ACSR 203 Buckley v Bennell Design & Constructions Pty Ltd (1974) 1 ACLR 301 KDL Building Pty Ltd v Mount [2006] NSWSC 474 Macgregor v Shaw (1848) 2 De G & Sm 360 Mapleson v Masini (1879) 5 QBD 144 CASES CITED : Neck v Taylor [1893] 1 QB 560 New Fenix Compagnie Anonyme d'Assurances de Madrid v General Accident Fire & Life Assurance Corporation Ltd [1911] 2 KB 619 Specialised Building Materials Pty Limited v E U Occusted Pty Ltd (1981) 58 FLR 270 Sykes v Sacerdoti (1885) 15 QBD 423 Washoe Mining Company v Ferguson (1866) LR 2 Eq 371 Winnote Pty Ltd (in liq) v Page [2005] NSWCA 362; (2005) 56 ACSR 35 PARTIES : Bevwizz Group Pty Ltd (plaintiff/cross-defendant) Transport Solutions Pty Ltd (defendant/cross-claimant) FILE NUMBER(S) : SC 4515/08 COUNSEL : Mr B Kremer (plaintiff/cross-defendant) Ms M Castle (defendant/cross-claimant) SOLICITORS : Horton Rhodes (plaintiff/cross-defendant) Harris Sushames Lawyers (defendant/cross-claimant) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION BRERETON J Thursday 18 December 2008 4515/08 Bevwizz Group Pty Ltd v Transport Solutions Pty Ltd JUDGMENT (ex tempore) 1 HIS HONOUR: By Notice of Motion filed on 26 November 2008 the plaintiff, Bevwizz Group Pty Limited, claims an order that the defendant/cross-claimant, Transport Solutions Pty Ltd, give security for the costs of the plaintiff/cross-defendant on the cross-summons, in the sum of $50,078.52 or such lesser sum as the Court considers appropriate, and that the proceedings on the cross-claim be stayed pending the provision of such security. 2 The substantive proceeding was instituted by summons filed on 2 September 2008, in which Bevwizz claims the following: 1. A declaration that the notice dated 25 August 2008 from the Defendant to the Plaintiff is not a valid notice under section 6 of the Warehousemen's Liens Act 1935. 2. An order that the Defendant by itself, its servants and agents be restrained from selling the equipment set out in Schedule A ("the Equipment"). 3. An order that the Defendant release the Equipment to the Plaintiff. 4. In the alternative to 3, an order that the Defendant deliver up the Equipment to the Plaintiff. 5. A declaration that of the amount of $37,336.09 claimed by the Defendant against the Plaintiff under the agreement dated 1 April 2008 between the Plaintiff and the Defendant, the amount of $18,147.37 is not payable under that agreement. 6. A declaration that the Plaintiff is not liable to pay storage charges in respect of the storage of the Equipment by the Defendant after 14 August 2008. 7. Damages. 8. Interest. 9. Costs. 10. Such further or other orders as the Court sees fit. 3 The proceedings returned before the Court on 9 September 2008 when orders were made in accordance short minutes of that date, as follows: 1. The defendant release forthwith to the Plaintiff equipment identified by the Plaintiff as belonging to third parties including without limitation the equipment set out in the attached Schedule A. 2. Upon the Plaintiff giving the usual undertaking as to damages, the Defendant by itself, its servants and agents be restrained until further order of the Court from selling the equipment set out in the attached Schedule B. 3. The Defendant file and serve cross summons on or before 16 September 2008. 4. The Defendant file and serve evidence in relation to the summons/cross summons on or before 23 September 2008. 5. Matter relisted for directions on 25 September 2008 at 9.15 am before the Registrar. 6. Costs of the notice of motion reserved. 7. The Court notes the undertaking of the Plaintiff to pay the Defendant within 48 hours $19,218.72 and to provide to the Defendant the individual invoice numbers that correspond to the amount so paid. 4 Thus, it will be seen that while Transport Solutions was restrained from selling the equipment claimed by the plaintiff until further order, and Bevwizz's undertaking to pay $19,218.72 was noted, it was contemplated then that there would be a cross-claim. The cross-summons was, in due course, filed in accordance with those directions on 16 September 2008, claiming the following relief: 1. A declaration that by the terms and conditions of the written agreement entered into by the parties on or about 1 April 2008, the cross defendant continues to owe the cross claimant the sum of $26,332.86 ("the debt"). 2. A declaration that insofar as the debt remains unpaid the cross claimant is entitled to enforce a statutory lien, pursuant to the Warehousemen's Liens Act 1935 ("the Act"), over the property of the cross defendant which the cross claimant continues to hold in storage. 3. A declaration that in respect of the debt the cross claimant has a power of sale under the Act. 4. A declaration that for the purposes required by the Act the cross claimant has given valid notice on or about 25 August 2008 of its intention to exercise its statutory power of sale. 5. A declaration that in addition to the statutory lien (referred to in paragraph 2), the cross defendant has expressly conferred upon the cross claimant a general possessory lien over the cross defendant's property. 6. A declaration that, independent of the statutory lien in favour of the cross claimant, the general lien arising by express agreement confers upon the cross claimant a right to retain possession of the cross defendant's property until full repayment of the debt. 7. Costs. 8. Any further or other order as the Court thinks fit. 5 Thus whereas, in substance, the summons claims delivery up to Bevwizz of certain equipment retained by Transport Solutions and a declaration that part of an amount claimed by Transport Solutions under an agreement of 1 April 2008 is not payable under that agreement, the cross-summons claims a declaration that by the terms and conditions of the 1 April agreement Bevwizz continues to owe Transport Solutions a sum of approximately $26,000 and declarations to the effect that Transport Solutions has a lien and a right of sale over that property of Bevwizz which Transport Solutions continues to hold in storage. 6 The present application is brought under (NSW) Uniform Civil Procedure Rules 2005, Pt 42, r 42.21(d) and/or (CTH) Corporations Act 2001, s 1335(1). Rule 42.21(d) provides as follows: (1) If, in any proceedings, it appears to the court on the application of a defendant: … (d) that there is reason to believe that a plaintiff, being a corporation, will be unable to pay the costs of the defendant if ordered to do so, or (e) that a plaintiff is suing, not for his or her own benefit, but for the benefit of some other person and there is reason to believe that the plaintiff will be unable to pay the costs of the defendant if ordered to do so, … (2) Security for costs is to be given in such manner, at such time and on such terms (if any) as the court may by order direct. (3) If the plaintiff fails to comply with an order under this rule, the court may order that the proceeding on the plaintiff's claim for relief in the proceedings be dismissed. (4) This rule does not affect the provisions of any Act under which the court may require security for costs to be given. 7 Corporations Act, s 1335(1) provides as follows: (1) Where a corporation is plaintiff in any action or other legal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his, her or its defence, require sufficient security to be given for those costs and stay all proceedings until the security is given. 8 As is usually the case, nothing turns on such fine distinctions as there may be between the two provisions. In Beach Petroleum NL v Johnson (1992) 7 ACSR 203 von Doussa J said (at 205): In my opinion the power of the court under s 1335 arises if credible evidence establishes that there is reason to believe there is a real chance that in events which can fairly be described as reasonably possible the plaintiff corporation will be unable to pay the costs of the defendant on service of the allocatur, if judgment goes against it. This will be so even if in other events which can also be fairly described as reasonably possible the plaintiff corporation would be able to pay the costs. The degree of likelihood of the plaintiff corporation being unable to pay the costs along with all the circumstances, actual and possible, about its financial position, would be then taken into account in the exercise of discretion, and in framing the orders of the court if the decision is to order security. 9 The parties both approached the present application with reference to the three issues that generally arise on such applications, whether under s 1335 or under r 42.41 (1)(d), as outlined in KDL Building Pty Ltd v Mount [2006] NSWSC 474 [6], namely, first whether the ground referred to in the section or the rule is established, that being the ground of corporate impecuniosity; secondly, whether, if that ground has been established, as a matter of discretion an order should be made; and thirdly, the quantum of any order to be made and the terms on which it might be made. 10 However, in this case a preliminary question arises, namely whether the section or the rule is available at all in circumstances where Transport Solutions, against which the order was sought, is not the plaintiff in the proceedings, but the defendant and a cross-claimant. 11 It is true, as Mr Kremer for Bevwizz points out, that in Winnote Pty Ltd (in liq) v Page [2005] NSWCA 362, (2005) 56 ACSR 35, Mason P (at [18]) observed that the Court had given the word "plaintiff" in the relevant provisions an expansive meaning that extended to a defendant who had filed a cross-claim, for which proposition his Honour cited Buckley v Bennell Design & Constructions Pty Ltd (1974) 1 ACLR 301. However, Buckley v Bennell itself warrants closer attention. It is correct that the Court of Appeal held that the word "plaintiff" used in the predecessor of s 1335 should not be given a restrictive or technical meaning. However, Street CJ added that where the impecunious company is a defendant in an action and seeks to put forward a cross-claim which amounts in reality to a defence of the action, there is no occasion under the section to order security for costs against it, although the position might be different where the defendant advances a cross-claim which is in reality a separate and distinct claim – in which case it could be considered a plaintiff within the meaning of the section. Moffitt P doubted that latter qualification; on the other hand, Hutley JA took the view, contrary to the Chief Justice, that in the instant proceeding the defendant was a "plaintiff". 12 Street CJ referred to Washoe Mining Company v Ferguson (1866) LR 2 Eq 371, which considered an equivalent section and held that the principle of not requiring a plaintiff in a cross suit to give security was founded on the concept that the cross bill was a mere defence to the original bill, and did not apply when the cross bill was more than that. Street CJ also referred to Neck v Taylor [1893] 1 QB 560, in which case Lord Esher said (at 562): Where the counter-claim is put forward in respect of a matter wholly distinct from the claim, and the person putting it forward is a foreigner resident out of the jurisdiction, the case may be treated as if that person were a plaintiff, and only a plaintiff, and an order for security for costs may be made accordingly, in the absence of anything to the contrary. Where, however, the counter-claim is not in respect of a wholly distinct matter, but arises in respect of the same matter or transaction upon which the claim is founded, the Court will not, merely because the party counter-claiming is resident out of the jurisdiction, order security for costs; it will in that case consider whether the counter-claim is not in substance put forward as a defence to the claim, whatever form in point of strict law and of pleading it may take, and, if so, what under all the circumstances will be just and fair as between the parties; and will act accordingly. 13 Lopes LJ said (at 563): In cases of this kind we ought, I think, to have regard, not so much to the record, construed according to the strict rules of pleading, as to the substantial position of the parties to the record. Bearing that in mind, it seems to me that the facts set up in this counter-claim are in the nature of a defence, arising as they do out of the same set of circumstances as the claim; and therefore it would not be right to require the defendant to find security for costs, although she is resident abroad. 14 Lindley LJ said (at 563): The matters set out in the counter-claim appear to me to be of such a nature and so closely connected with the cause of action that, whatever according to legal technicalities they may be called, they are, in substance, in the nature of a defence to the action. The plaintiff sues for a debt for which he holds security. The defendant says, 'I owe you nothing; give me back my security.' Under these circumstances, it does not seem to me just or fair that the defendant should have to give security for costs as the price of being allowed to plead such defence. 15 In Cuckley v Bennell, Street CJ also referred to the judgment of Vaughan Williams LJ in New Fenix Compagnie Anonyme d'Assurances de Madrid v General Accident Fire & Life Assurance Corporation Ltd [1911] 2 KB 619 (at 625-626), where his Lordship rejected the suggestion that whenever the cross-claim made by a defendant goes to any extent whatever beyond a mere matter of defence, then whether he sets up the claim as plaintiff in the cross action or by way of counter-claim, he ought to be ordered to give security for costs. With reference to Macgregor v Shaw (1848) 2 De G & Sm 360 and Mapleson v Masini (1879) 5 QBD 144, his Lordship said there was no such rule that where in such cases the cross-claim to any extent whatever overlaps mere defence, security for costs must always be ordered: One must look in each case to see whether in substance the claim set up by a defendant is set up by him by way of defence to the claim against him. I do not say that the true test is that which was suggested in the case of Wild v Murray 18 Jur 892, which was cited to us, ie, that one must ask oneself the question whether the cross-claim would have been set up if the original claim had not been brought, though the learned judge who made that suggestion was a great judge, namely, Wood VC, afterwards Lord Hatherley LC. As I have said, I do not think that there is any hard and fast rule on the subject. We have to consider whether, in substance, upon the facts of the particular case, the defendants in the original action are to such an extent plaintiffs in the cross-action, that they ought according to the general practice in the matter to be ordered to give security for costs, because they have taken up the position of plaintiffs, irrespective of defence to the original action. I think that each case of this kind must be judged on its own merits. 16 Reference might also be made to the judgment of the Court of Appeal in Sykes v Sacerdoti (1885) 15 QBD 423, in which the Court held that where a claim and counter-claim arose out of different matters so that the counter-claim was really in the nature of a cross action, a defendant residing out of the jurisdiction may be required to give security for the costs of the counter-claim, and if the only dispute remaining arose on the counter-claim that he should be so required. 17 In Buckley v Bennell, Street CJ concluded at 307: I am of the view that where the impecunious company is a defendant in an action and seeks in that action to put forward a cross-claim, which amounts simply to a defence to the action, then there is no occasion under s 363 to order security for costs against it. The principles to be applied in determining whether an impecunious company defendant can properly be required to give the security for costs in respect of a cross-claim are, in my view, the same principles as those enunciated in the passages I have quoted from Neck v Taylor , supra . 18 The position therefore seems to me to be that, as a matter of jurisdiction, the reference in the section and the rule to "plaintiff" extends to encompass a cross-claimant. However, as a matter of discretion the Court will not make an order against a cross-claimant where the cross-claim arises out of the same matters as the claim and is purely by way of defence. If it extends beyond being purely by way of defence, then the Court will have regard to the overall nature of the proceeding and the cross-claim to see whether it can be said that in truth the cross-claimant has become, in substance, a plaintiff. 19 Thus, in Specialised Building Materials Pty Limited v E U Occusted Pty Ltd (1981) 58 FLR 270, the plaintiff claimed $16,000 and the defendant counter-claimed for $10,000. Both the claim and that counter-claim arose out of a contract to install plasterboard at the Mitchell archives in the Australian Capital Territory. In addition, the defendant counter-claimed for $4,650 relating to a different agreement at Belconnen, and for damages of $26,000 in respect of yet another agreement with one Jambrovic. On an application by the plaintiff for security for costs, the Supreme Court of the Australian Capital Territory held that the defendant was, in substance, a plaintiff, and the plaintiff was entitled to security, in respect of the Belconnen and Jambrovic cross-claims but not in respect of the Mitchell archives counter-claim. 20 In the present case, it seems to me that in substance the plaintiff's claim is one to recover property of the plaintiff which is retained by the defendant, and to restrain the defendant from exercising a power of sale over that property. The defendant's position is that it is entitled to retain and sell the plaintiff's property, over which it claims security as a result of various services said to have been rendered by it. The cross-claim plainly arises out of the same facts as the claim. It may be, as Mr Kremer has argued, that it introduces some new issues, but essentially it is maintained as a defence to the plaintiff's claim, propounding a basis on which the defendant is said to be entitled to retain the goods and exercise a power of sale over them. 21 That the cross-claim is, in substance, a defensive one is at least a very important consideration when it comes to whether, as a matter of discretion, an order should be made. But before I come to the other considerations that inform that discretion, I should deal with whether the ground of corporate impecuniosity has been established. 22 On 17 November 2008, Transport Solutions notified its customers by electronic circular that it had ceased trading and a new company, Havengear Pty Ltd – with the same contact details and personnel – had taken over the work of Transport Solutions. From the identity of the proprietors of Havengear, as disclosed by a search of the register, it is more probable than not that Havengear has a close relationship with those who own Transport Solutions. The plaintiff's solicitors undertook land titles and corporations searches. It appears that Transport Solutions owns no land in New South Wales or in Queensland, and that its assets, such as they are, are subject to a number of charges securing an amount in excess of $1.2 million. Transport Solution's solicitors did not respond to requests that it demonstrate it had sufficient assets to meet an adverse costs order. By November 2008, Transport Solutions had defaulted in respect of the lease under which it occupied a warehouse, and the lessor had taken possession. 23 The only admissible evidence of its financial position adduced by Transport Solutions is that, as at 12 December 2008, its bank account had a credit balance of almost $74,000 and an available balance of almost $180,000. 24 Despite Mr Kremer's submissions, I do not think that the facts that Transport Solutions has ceased to conduct business in its own name, and transferred its business to a related company, and owns no real property, provides reason to conclude that it will not be able to meet an adverse costs order. However, when there are superimposed on those considerations not only the circumstance that there is evidence of charges over its assets to the extent of $1.2 million, but more importantly, that it has defaulted in respect of a lease of premises which it occupied, then a sufficient case of impecuniosity is raised to require some answer. Although an attempt was made to do that by seeking to adduce from an accountant (inadmissible) secondary evidence of particulars in a balance sheet, it is notable that the balance sheet itself was not produced. In those circumstances, I think I am entitled to infer that production of the balance sheet, of the existence of which there was evidence would not have assisted the defendant's case in this respect. Together with the other matters mentioned by Mr Kremer, this provides is reason to believe that the corporation Transport Solutions will be unable to pay the costs of Bevwizz, if Bevwizz is successful in its defence to the cross-claim. 25 I come then to the discretionary considerations, additional to that to which I have already referred. 26 As to the respective strengths of the cases and prospects of success, on this type of application the Court does not usually undertake any detailed review or assessment of the prospects of the cross-claim, but only a prima facie evaluation of whether the claim is bona fide or a sham. 27 I am unpersuaded that the cross-claim is a sham. It was foreshadowed contemporaneously with the undertaking given by Bevwizz that it pay the undisputed amount. It is clear that there is an amount still admittedly owing to Transport Solutions. Although Mr Kremer endeavoured to formulate and answer what he understood to be Transport Solutions' claim, particularly in paragraph 16 of his helpful written submissions, it is not clear that he has encapsulated the whole of Transport Solutions' claim. There is no evidence of any particulars that would articulate or define and limit the cross-claim. In those circumstances, I do not think that it can be concluded that it has been shown that Transport Solutions' claim, which on the face of the cross-claim relates to the 1 April 2008 contract is entirely answered by what is set out in paragraph 16 of Mr Kremer's submissions. 28 So far as the extent of the risk that Transport Solutions will not be able to meet an adverse costs order is concerned, I need to bear in mind first, the evidence that there is apparently more than $70,000 to the credit of the Transport Solutions in a bank account at present; and secondly, that, taking Bevwizz' claim for costs at its highest, it appears to be in the order of $50,000 – and, for reasons to which I will come, I would think the appropriate amount us considerably less than that. This tends against there being a particularly high risk that Transport Solutions would not be able to meet an adverse costs order. 29 I agree that there is no suggestion that a costs order would stultify Transport Solutions ability to prosecute its cross-claim, and I agree there is no reason to suppose that Transport Solutions' impecuniosity, such as it is, is attributable to any conduct of Bevwizz. 30 So far as the quantum of security claimed is concerned, it has been estimated on behalf of Bevwizz by Mr Pedersen that costs amounting to a little more than $12,000 have been incurred between institution of the cross-claim on 17 September 2008 and 31 October 2008, and that a further $37,000 will be incurred by Bevwizz from 1 November 2008 to hearing. So far as the costs of $12,000 to date are concerned, no attempt has been made to apportion them between the summons and the cross-summons. As Bevwizz has declined to file its evidence on the cross-summons until the question of security is determined, it is difficult to understand how much of that $12,000 could be attributable to the cross-summons. At best, no more than half, as was suggested by Ms Castle as a rough rule of thumb, could be attributed to the cross-summons. 31 So far as concerns the future costs of $37,000 approximately, Mr Pedersen suggested in his affidavit material that perhaps about one quarter would be attributable to the summons. To my mind, and for the reasons I have already explained, there is a far more extensive overlap between the cross-claim (which set up the grounds for resisting the relief claimed in the summons) and the summons, than that. If it were necessary to do so, then I think again a 50/50 apportionment would be the best one could do in the circumstances. That means that of the total claim of $50,000, approximately half would be regarded as attributable to the cross-claim. 32 As Ms Castle has also pointed out, on this type of application the Court does not make provision for the whole of the applicant's costs on an indemnity basis, but seeks to set aside a reasonable sum to cover the likely party-party liability. In this case, something in the order of 70 per cent is, I accept, a reasonable rule of thumb. That would suggest that an appropriate order if otherwise called for would be about $17,500. That amount then has to be seen in the context that I know that there is more than $70,000 standing to the credit of a bank account and that the company is not trading but only incurring ongoing and administrative legal expenses. 33 While I give some weight to that consideration, I give decisive weight to the consideration that, as I have foreshadowed, this cross-claim is in substance a defensive cross-claim, which seeks to set up the defendant's basis for retaining possession and exercising a power of sale, which the plaintiff by these proceedings seeks to prevent. 34 For those reasons, I conclude that as a matter of discretion, it is inappropriate to make an order for security for costs. 35 I order that the Notice of Motion be dismissed with costs. 36 I adjourn the proceedings to 5 February 2008 at 9.15am before the Registrar for further directions. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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