New South Wales Supreme Court CITATION : Quill Viscom Pty Ltd & Ors v The Quality Group Australia Pty Ltd & Ors [2009] NSWSC 463 HEARING DATE(S) : 14/05/2009; 15/05/2009 JUDGMENT DATE : 29 May 2009 JURISDICTION : Common Law JUDGMENT OF : McCallum J DECISION : I order the plaintiffs to pay security for costs in the sum of $200,000 within seven days. LEGISLATION CITED : Civil Procedure Act 2005 Uniform Civil Procedure Rules 2005 CATEGORY : Procedural and other rulings Morris v Hanley [2000] NSWSC 957 Pearson v Naydler [1977] 1 WLR 899 CASES CITED : Port of Melbourne Authority v Anshun (1981) 147 CLR 589 Rajski v Computer Manufacturer and Design Pty Ltd [1982] NSWLR 451 R&J Lyons Family Settlement Pty Ltd v 155 Macquarie Street Pty Ltd [2008] NSWSC 232 Quill Viscom Pty Limited (1st Plaintiff) Michael Canty (2nd Plaintiff) Colleen Greig-Canty (3rd Plaintiff) PARTIES : The Quality Group Australia Pty Limited (1st Defendant) Paul Canty (2nd Defendant) Denise Canty (3rd Defendant) Quality Images (Australasia) Pty Limited (4th Defendant) FILE NUMBER(S) : SC 20048/08 COUNSEL : Mr L Jackson (Plaintiffs) Mr R E Dubler SC / Mr S E Gray (Defendants) SOLICITORS : Jacksons Lawyers (Plaintiffs) Evangelos Patakas & Associates (Defendants) - 10 - IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION McCALLUM J 29 MAY 2009 20048/04 QUILL VISCOM PTY LTD & ORS v THE QUALITY GROUP AUSTRALIA PTY LTD & ORS JUDGMENT 1 HER HONOUR: Two notices of motion were heard by the Court on 14 and 15 May 2009. I gave my decision in respect of the plaintiffs' motion on 15 May 2009. This is my decision in respect of the defendants' motion filed 23 April 2009 seeking orders for security for the defendants' costs and an order that part of the amended statement of claim be struck out. Strike out application 2 On 16 April 2009 the Court granted leave to the plaintiffs to file and serve an amended statement of claim without prejudice to the defendants' entitlement to move to have parts of the amendment struck out. By their motion filed 23 April 2009, the defendants move to have paragraphs 27(a) and 29-31 of the amended statement of claim struck out pursuant to rule 14.28 of the Uniform Civil Procedure Rules 2005. 3 The paragraphs complained of are in the following terms: "27 In reliance upon and/or in performance of the merger agreement the Second and Third Defendants and Middle Park did, caused to be done and/or cooperated in the doing of the following things: a. The Second plaintiff entered into a contract of employment commencing on 1 July 2002 of indefinite duration with the First Defendant at a remuneration of $240,000 per annum and on terms that the said contract would not be terminated except for just cause or by mutual agreement; … 29 On or about 9 September 2003 the Second and Third Defendants repudiated the merger agreement and the contract of employment made with the Second Defendant pursuant to the merger agreement pleaded at paragraph 27(a)("the employment agreement"), by wrongfully, without tendering any reason and without just cause in fact, locking the Second Defendant out of the Fourth Defendant's business premises at Rhodes and thereby signifying their intention and the intention of the Fourth Defendant to no longer be bound by the merger agreement and/or the employment agreement. 30 The Second Plaintiff accepted the repudiation and in any event the Second Plaintiff was forcibly prevented from performing his obligations pursuant to the merger agreement and/or the employment agreement. 31 By reason of the breaches of contract pleaded at paragraph 29 the second and Third Plaintiffs have suffered loss and damage. 4 It appears that the employment agreement pleaded in paragraph 27(a) is alleged to be an agreement between The Quality Group Australia Pty Limited (the first defendant) and the second plaintiff, Mr Michael Canty. Confusingly, it is alleged in paragraph 29 that acts of the second and third defendants signified their intention and the intention of the fourth defendant "to no longer be bound by the merger agreement and/or the employment agreement". Nonetheless, it is The Quality Group Australia Pty Limited that is identified as the employer. 5 The basis for the strike-out application is the principle stated in the decision of the High Court in Port of Melbourne Authority v Anshun (1981) 147 CLR 589. Mr Dubler, who appeared for the defendants, relied on the principle stated in that case at 598 that parties to litigation must bring forward all issues properly the subject of the litigation and will be estopped from raising any point which "properly belonged to the subject of the litigation" in later proceedings. 6 The defendants contend that the Anshun principle applies in this case because of a previous claim brought forward by Michael Canty in proceedings in the Local Court. In those proceedings, Michael Canty was the defendant. The plaintiff was Quality Images (Australasia) Pty Limited, which is the fourth defendant in these proceedings. On 23 February 2006, Michael Canty filed a cross summons in those proceedings for breach of an alleged employment agreement with Quality Images (Australasia) Pty Limited. The cross summons sought outstanding superannuation contributions and annual leave payments under the alleged agreement. Those proceedings were dismissed by consent on 8 April 2008. 7 The cross summons in the Local Court relied on a contract of employment pleaded in the following terms: "Between late June 2002 and 28 February 2003, the plaintiff employed the defendant pursuant to a contract of employment." 8 Whereas that agreement was alleged to be an employment agreement between Michael Canty and Quality Images (Australasia) Pty Limited (the fourth defendant in these proceedings), the agreement now sued on is alleged to be between Michael Canty and The Quality Group Australia Pty Limited (the first defendant in these proceedings). 9 The defendants allege, however, that the paragraphs complained of in the amended statement of claim in these proceedings can readily be seen to be in respect of the same employment agreement. That is possibly the case, but the position is not clear. I accept, as submitted by Mr Dubler on behalf of the defendants, that it would be curious for the same individual to have two separate employment agreements. However, apart from the different corporate entities, the agreement now pleaded is alleged to have been repudiated on about 9 September 2003 whereas the agreement sued on in the Local Court in 2006 was alleged to have been terminated on 23 February 2003. 10 In any event, I do not think that the principle in Anshun should be applied in the present case. There is no estoppel under that principle unless it is established that the matter relied upon in the second action was "so relevant to the subject matter of the first action that it would have been unreasonable not to rely on it": Anshun at 602.9. 11 The care with which the Court should approach that issue was emphasised by Bryson J in R&J Lyons Family Settlement Pty Ltd v 155 Macquarie Street Pty Ltd [2008] NSWSC 232 at [23]: "In my opinion a finding that it was unreasonable not to bring a claim in some earlier litigation is not a finding to be made lightly. In this context unreasonableness is a severe test, to be distinguished from a test of inconvenience, even severe inconvenience. Consideration starts at the point that there is free access to courts and that it is not compulsory to bring forward all claims on related subjects at the same time. This is well illustrated by the outcome in Cromwell v County of Sac (1876) 94 US 351 cited in Anshun at 599." 12 I am not satisfied that it was unreasonable for Michael Canty not to bring forward the present claim in respect of the employment agreement in his cross summons in the Local Court. The claim in the Local Court related to a discrete aspect of an employment agreement that may not be the same agreement as is now sued on. If it is the same agreement, it would have been necessary for Mr Canty to join an additional party to those proceedings in order to bring that claim. 13 Further, the earlier proceedings were dismissed by consent, as to both the summons and the cross summons. Mr Dubler noted that the Anshun principle can operate with respect to settlements (depending on their terms): R&J Lyons at [20]. In the present case, the proceedings in the Local Court were simply dismissed by consent with no order as to costs, and I am unable to draw any conclusion as to what the parties had in contemplation in respect of any later claims. 14 I am not satisfied that the Anshun principle should preclude the second plaintiff from bringing forward the present claim in these proceedings. Applications for security for costs 15 The defendants seek security for costs from all three plaintiffs. The first plaintiff is a company, while the second and third plaintiffs are natural persons. Against the first plaintiff, an order is sought under rule 42.21(d) of the Uniform Civil Procedure Rules, which provides that security may be ordered if it appears to the court that there is reason to believe that a corporate plaintiff will be unable to pay the costs of the defendant if ordered to do so. 16 There is plainly reason to believe that the first plaintiff will be unable to pay the defendants' costs if ordered to do so in the present case. The evidence establishes that it stopped trading several years ago and has no assets. The business formerly conducted by that company now appears to be conducted by Redhouse Media Group Holdings Limited. 17 The defendants acknowledge that the fact that there are co-plaintiffs who are natural persons is a factor against ordering the corporate plaintiff to give security for costs. Mr Dubler noted, however, that that is not a universal rule: see Rajski v Computer Manufacturer and Design Pty Ltd [1982] 2 NSWLR 443 at 449G to 451G. 18 In Rajski, Holland J held that there is jurisdiction to order a company to give security for costs even where no order was or could be made against a co-plaintiff who is a natural person. In reaching that conclusion, his Honour cited with approval the following passage from Pearson v Naydler [1977] 1 WLR 899 at 905: "A man may bring into being as many limited companies as he wishes, with the privilege of limited liability; and s 447 provides some protection for the community against litigious abuses by artificial persons manipulated by natural persons. One should be as slow to whittle away this protection as one should be to whittle away a natural person's right to litigate despite poverty." 19 In Rajski, the Court was satisfied that the natural plaintiff, Dr Rajski, had manipulated the financial affairs of the corporate plaintiff so as to put its assets out of the reach of a creditor. There is some evidence of a similar practice in the present case. As already noted, the evidence suggests that the business formerly conducted by the corporate plaintiff is now being conducted by Redhouse. That company appears to be the primary source of income for the natural plaintiffs. 20 Mr Dubler invited me to infer that Redhouse is in fact funding the litigation. I do not think there is a sufficient basis in the evidence for me to draw that conclusion with a sufficient degree of confidence. It may be that Michael Canty is meeting the costs of the litigation out of funds provided by Redhouse by way of repayment of a director's loan to the company. Nonetheless, I am satisfied that there is a risk that the financial affairs of the "artificial person" (the first plaintiff) have been manipulated by the second plaintiff such that the litigation can be funded for the benefit of the plaintiffs, while the defendants' exposure to substantial costs stands unprotected. 21 The plaintiffs submit that security should not be awarded because the application has been made late. The application is, however, confined to the additional costs likely to be incurred by the defendants by reason of the plaintiffs' amendment, which was itself late. Mr Dubler, who appeared for the defendants, acknowledged that any stay ordered in respect of security for costs ought be confined to a stay of the new claims brought by the amendment. 22 I am satisfied that it is appropriate to order the first plaintiff to pay some security for the defendants' costs. The amount of the security sought is $495,000, which is put forward as an estimate of the likely additional costs of meeting the new claims raised by the amendment on the basis that it will extend the trial by four days. In my view, that is a generous estimate, which may ignore the importance of containing legal costs within reasonable bounds. In my view, an appropriate amount is $200,000. It is, of course, open to the defendants to make a further application at a later stage if so advised. 23 In addition to the claim for security from the corporate plaintiff pursuant to rule 42.21(d), the defendants seek an order pursuant to rule 42.21(e), which provides that the Court may order security if it appears that a plaintiff is suing, not for his or her own benefit, but for the benefit of some other person and that there is reason to believe that the plaintiff will be unable to pay the costs of the defendant if ordered to do so. Alternatively, the defendants invoked the Court's inherent power to make an order for security and the express power under s 67 of the Civil Procedure Act 2005. 24 Mr Dubler acknowledged the common law principle that a natural person who sues will not be required to give security for costs merely on the ground of poverty, but noted that this is not a rule of law and can yield to the special circumstances of each case: Rajski at 451-5; Morris v Hanley [2000] NSWSC 957. 25 Mr Dubler submitted that, in this case, security should be ordered against the second and third plaintiffs due to a combination of their gross delay in prosecuting the recent amendment, their prior history of avoiding creditors, their asset position, an alleged lack of bona fides, the weakness of their claims and the contention that they are suing for the benefit of others. 26 There is no doubt that the amendments made by the pleading filed on 16 April 2009 come late and are substantial. Further, I accept, as submitted by Mr Dubler, that there does not appear to be any reasonable explanation for the delay. The amendment appears to have come as a result of there being a new solicitor on the record. Michael Canty stated in evidence that he had always intended to "have a look at the pleadings in this action and amend them" but that other litigation had with Mr Dubler's clients had delayed him. 27 As to the allegation of a prior history of avoiding creditors, Mr Dubler relied primarily on inferences to be drawn from financial statements and corporate records which he said establish a pattern of "phoenix companies". I accept that there are grounds for strong suspicion in that respect in the material relied on by Mr Dubler. However, I do not think that it is possible to make any finding to that effect within the constraints of an interlocutory application. 28 As to the asset position of the natural plaintiffs, the second plaintiff, Michael Canty, swore an affidavit in defence of the present application in which he allocates a market value to the second and third plaintiffs' shareholdings in Redhouse Media Group Holdings Limited of $3,194,556. As noted by Mr Dubler, that is to be contrasted with an affidavit he swore on 12 March 2009 in support of an application to pay a judgment against him in the Local Court of $55,000 by instalments. In that affidavit, he estimated that his "investments" were valued in total at $50,000. 29 The combination of that evidence not only establishes a basis for an inference that his assets may be insufficient to meet any costs order against him, but also raises a concern as to the reliability of information provided by him on that question. The defendants' concerns in that respect appear to be well founded. 30 As to the alleged absence of bona fides on the part of the plaintiffs in bringing the new claims, Mr Dubler identified a number of matters which he submitted would lead the Court to be sceptical. First, he relied on the significant and unexplained delay in making the amendments. I am satisfied, however, that the delay is to be understood in the context of the fact that Mr Jackson, the plaintiffs' solicitor, has only recently come onto the record. 31 Mr Dubler further submitted that the claim in restitution for the loss of the business allegedly transferred to a defendant entity appears to belong to the liquidator of Middlepark, and not the plaintiffs. There appears to be some force in that contention. Finally, Mr Dubler noted that the late amendment was propounded immediately before the hearing of a creditor's petition presented by the fourth defendant and after a failed mediation in these proceedings. Mr Dubler submitted that the amendments, in that context, have the flavour of being pursued in terrorem in the hope of extracting a commercial settlement from the defendants. 32 I do not think there is a sufficient basis for me to draw an inference as to the claim being pursued in terrorem. I accept, however, that the defendants have been exposed to the prospect of a substantial increase in the cost of the hearing due to the amendments and, further, that aspects of the amended claim appear problematic. 33 The last matter relied on by the defendants is the contention that the natural plaintiffs are suing for the benefit of others. Although Mr Dubler was successful in establishing a level of suspicion in that respect, there is insufficient evidence before me to enable me to draw an inference to that effect. 34 The plaintiffs submitted that an order for security may have "a stultifying effect". The only evidence as to that issue was in the affidavit of Michael Canty, where he said "a security for costs order could hinder our business development and impact on our own ability to prosecute the claim". That evidence does not establish that the making of an order will keep the plaintiffs out of prosecuting their claim. 35 I am satisfied that, in the unusual circumstances of this case, the defendants have established a basis for ordering the personal plaintiffs to pay security for costs. The appropriate course, in my view, is that the order should apply to all plaintiffs so as to operate jointly and severally: Rajski at 455B. The order should require payment of security in the total sum of $200,000. 36 I order the plaintiffs to pay security for costs in the sum of $200,000 within seven days. ********** 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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