Loading...
Queensland Judgments

beta

Authorised Reports & Unreported Judgments
Exit Distraction Free Reading Mode
  • Unreported Judgment

Go Gecko (Franchise) Pty Ltd v Plyable Pty Ltd

 

[2017] QSC 329

 

SUPREME COURT OF QUEENSLAND

 

CITATION:

Go Gecko (Franchise) Pty Ltd v Plyable Pty Ltd & Anor [2017] QSC 329

PARTIES:

GO GECKO (FRANCHISE) PTY LTD

ACN 118 573 836

(plaintiff)

v

PLYABLE PTY LTD

ACN 142 976 298

(first defendant)

WILLIAM DAVID FEA

(second defendant)

FILE NO/S:

SC No 12648 of 2016

DIVISION:

Trial Division

PROCEEDING:

Application

DELIVERED ON:

22 December 2017

DELIVERED AT:

Brisbane 

HEARING DATE:

31 July 2017

JUDGE:

Bond J

ORDER:

  1. The defendants should pay the plaintiff’s costs of the plaintiff’s application filed 29 June 2017, to be assessed on the standard basis.
  2. In relation to the defendants’ application filed 19 June 2017, I will hear the parties on appropriate directions to give effect to these reasons for judgment.

CATCHWORDS:

PROCEDURE – CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS – SECURITY FOR COSTS – where the defendants apply for security for costs – whether security for costs should be ordered

PROCEDURE – CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS – COSTS – INDEMNITY COSTS – where the plaintiff applied to strike out parts of the defence and counterclaim – where the defendants amended the defence and counterclaim at a late stage to remove the impugned parts – whether indemnity costs should be awarded

Australian Consumer Law

Trade Practices Act 1974 (Cth)

Uniform Civil Procedure Rules 1999 (Qld)

Bryan E Fencott Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497, cited

Covecorp Constructions Pty Ltd v Indigo Projects Pty Ltd [2007] QSC 262, cited

LPD Holdings (Aust) Pty Ltd v Phillips, Hickey and Toigo [2013] QCA 305, cited

Mio Art Pty Ltd v Macequest Pty Ltd (No 2) [2013] QSC 271, cited

Plyable Pty Ltd v Go Gecko (Franchise) Pty Ltd [2016] QSC 249, cited

The Owners – Strata Plan 64415 v Serman [2017] NSWSC 806, cited

Treloar Constructions Pty Ltd v McMillan [2016] NSWCA 302, cited

COUNSEL:

J Byrnes for the plaintiff

M Martin QC for the defendants

SOLICITORS:

Thomson Geer for the plaintiff

Jason Nott Solicitors for the defendants

Introduction

  1. Before me are two applications made in proceeding 12648/16.
  2. In that proceeding Go Gecko (Franchise) Pty Ltd (Go Gecko) claims relief from Plyable Pty Ltd (Plyable) and Mr Fea, who was a director and shareholder of Plyable.
  3. In the first application, Go Gecko applies to strike out certain paragraphs of the third amended defence and counterclaim, and the counterclaim as a whole.  Go Gecko no longer presses the application because Plyable and Mr Fea have amended their defence and counterclaim to delete the impugned paragraphs.  The only live question is the question of costs.  Plyable and Mr Fea do not resist an order that they pay Go Gecko’s costs of the application on the standard basis, but Go Gecko seeks an order that costs be assessed on the indemnity basis.
  4. In the second application, Plyable and Mr Fea apply for orders that Go Gecko provide security for their costs in an amount not less than $200,000.00.  Go Gecko contends that the application should be dismissed or, if an order is to be made, contends that it should be for an amount far less than that sought.
  5. Before dealing with the applications it is appropriate to explain the somewhat unusual procedural context in which they have arisen.

The broad chronology of events before the current applications were made

Go Gecko’s Supreme Court proceeding is commenced and then transferred to the District Court

  1. In 2010, Go Gecko as franchisor and Plyable as franchisee entered into two Go Gecko real estate agency franchise agreements for the Moorooka and Annerley territories in Brisbane. For each franchise Plyable paid Go Gecko $66,000. Mr Fea was a guarantor of Plyable’s liability to Go Gecko under the franchise agreement.
  2. On 18 April 2013, Go Gecko commenced Supreme Court proceeding 3549/13. In that proceeding Go Gecko sought, amongst other things:
    1. declarations that Plyable and Mr Fea had breached an agreement referred to as the “Moorooka franchise agreement”, and that Go Gecko had validly terminated the agreement;
    2. declarations establishing and orders giving relief in respect of alleged misuse by Plyable and Mr Fea of confidential information obtained in the course of conducting the Moorooka franchise business;
    3. pecuniary damages claims as follows:
      1. damages for breach of a promise set out in the Moorooka franchise agreement that Plyable would pay certain of Go Gecko’s costs and outlays in the amount of $24,802.52;
      2. liquidated damages under the Moorooka franchise agreement in the amount of $29,400; and
      3. an unspecified amount for economic loss in the form of lost franchising fees and lost income from the Moorooka franchise.
  3. On 7 October 2014, Byrne SJA heard an application by Plyable and Mr Fea for leave to file a counterclaim.  By the proposed counterclaim, Plyable and Mr Fea asserted several causes of action, and claimed damages for breach of contract, damages pursuant to s 236 of the Australian Consumer Law (ACL) for contravention of statutory duties, and equitable damages.
  4. His Honour dismissed the application, noting the applicants’ delay in making the application and the absence of an expert quantum report supporting the proposed damages claim. During argument Byrne SJA said:

Your side’s had a year when the pleadings have been closed to have gone and got a report if it was serious about it. It just looks like a pleading that’s designed to delay the prosecution of the plaintiff’s case. I wouldn’t be disposed to grant you leave to deliver a counter-claim which doesn’t even begin to identify what the loss may be. Why don’t you come back and start a proceeding when you’re ready.

… But you put forward a pleading that will just be – your claims for damages will just be struck out. That will be the next thing, because you’ve made no attempt at all to quantify them. It makes it look as though it’s not genuine when that happens…

  1. In his reasons refusing the application, his Honour stated:

The counter claim asserts several causes of action, namely damages for breach of contract, damages for contravention of the statutory duty and equitable damages. But there has been no attempt whatsoever to quantify any of the claimed losses. This, [Plyable and Mr Fea’s solicitor] accepts, is not consistent with the rules.

If leave were now granted, there is every prospect that the due progress of the litigation which the plaintiff has commenced against the defendants would be intercepted.

Ordinarily, in a case such as this, there would be little to be said for refusing leave in respect of a properly pleaded counter claim, and that for two reasons: one, because as [Plyable and Mr Fea’s solicitor] points out there is, as yet, no request for trial; and, secondly, the applicant can always institute fresh proceedings.

But the absence of any suggestion of particulars of the loss is an indication that the plaintiffs are very likely to be delayed in the due prosecution of their case if the counter claim is permitted to be delivered in this form, with [Plyable and Mr Fea’s solicitor] accepting that his side will not be in a position to quantify the damages unless and until an accountant’s report has been obtained.

  1. Neither Plyable nor Mr Fea appealed the decision of Byrne SJA.  The result was that absent any further successful attempt by Plyable and Mr Fea to resurrect their counterclaim within that proceeding, the resolution of Go Gecko’s claims against them was to proceed without consideration of their foreshadowed counterclaims.
  2. On 8 January 2015, Go Gecko’s claim in Supreme Court proceeding 3549/13 was transferred by consent to the District Court (where it became District Court proceeding 73/15).

Plyable and Mr Fea resurrect their claims in a new Supreme Court proceeding

  1. On 30 January 2015 Plyable and Mr Fea commenced proceeding 988/15 in the Supreme Court.
  2. By its fifth further amended statement of claim in that proceeding, Plyable and Mr Fea claimed that the two franchise agreements (referred to as the “Moorooka franchise agreement” and the “Annerley franchise agreement”) and Mr Fea’s guarantees were entered into in reliance upon misleading and deceptive representations made by Go Gecko concerning the anticipated financial performance of the two real estate agency franchises. They alleged the representations were misleading or deceptive within the meaning of s 52 of the Trade Practices Act 1974 (Cth) (TPA). They also alleged that the second defendant, Mr Scully, was knowingly concerned in any contravention of s 52 of the TPA by Go Gecko.
  3. Plyable contended that, by reason of Go Gecko’s conduct, Plyable suffered loss and damage (which Plyable claimed pursuant to s 82 of the TPA) as follows:
    1. the two amounts of $66,000 paid for the franchises;
    2. trading losses during the period they held the franchises, in the sum of $8,550;
    3. the value of the lost opportunity to pursue other real estate businesses in the same areas which would have proved to be more profitable; and
    4. any liability which they might incur to Go Gecko in the District Court proceeding.
  4. Plyable contended that the value of the lost opportunity to pursue other real estate businesses was a little over $29 million.
  5. In addition, it was alleged that Plyable persisted with the franchise agreements and incurred additional losses in reliance upon representations made by the second defendant, Mr Scully, and the third defendant, Mr McKinstry, which were misleading or deceptive within the meaning of s 18 of the ACL. Plyable said that if not for those representations, Plyable would have ceased operating the franchises from 19 July 2011.
  6. The representations made by Mr Scully and Mr McKinstry were said to be made by them on behalf of Go Gecko and further or alternatively, NEM Australasia Pty Ltd, the eighth defendant (which was a company of which they were both directors). The two natural persons and the two corporations were said to be responsible under the ACL for the loss which Plyable suffered, namely the $1,462,560 in income which could have been earned between 19 July 2011 and July 2012.
  7. Plyable also claimed that Go Gecko breached the terms of the franchise agreements in various ways, in consequence of which Plyable suffered loss in the sum of $15,110,152.
  8. Plyable claimed as follows:
    1. against Go Gecko and the second and third defendants, damages pursuant to s 82 of the TPA totalling in excess of $29 million;
    2. against Go Gecko:
      1. an order pursuant to s 87 of the TPA that the two franchise agreements are void;
      2. damages for breach of contract in the sum of $15,110,152; and
      3. an order that it should be indemnified in respect of any judgment awarded against it in the District Court proceeding;
    3. against Go Gecko and the second, third and eighth defendants damages under the ACL in the sum of $1,462,560; and
    4. costs and interest.
  9. Mr Fea did not advance a damages claim. He advanced claims only against Go Gecko for:
    1. an order under s 87 of the TPA, that the two franchise agreements were void;
    2. an order that he should be indemnified in respect of any judgment awarded against him in the District Court proceeding; and
    3. costs and interest.
  10. Go Gecko filed a defence to the claims advanced by Plyable and Mr Fea. Mr Scully, Mr McKinstry, NEM Australasia Pty Ltd also filed a defence. Go Gecko did not plead any defence by way of set off or counterclaim founded upon the claims which they had advanced in District Court proceeding 73/15. 

Go Gecko’s District Court Proceeding is transferred back to the Supreme Court

  1. On 13 October 2016, I ordered that the District Court proceeding 73/15 be transferred to the Supreme Court, where it became Supreme Court proceeding 12648/16. That is the proceeding in which the two applications before me are brought.
  2. It will be recalled that that proceeding is the proceeding which was originally commenced in the Supreme Court and in which Plyable and Mr Fea had tried but failed to advance as a counterclaim the claims which they ended up advancing in Supreme Court proceeding 988/15.
  3. Consequent upon that transfer the position which obtained was that there were two proceedings on foot in the Supreme Court.
  4. The first (Supreme Court proceeding 988/15) was a proceeding in which would be resolved the question of the validity or otherwise of the various claims which Plyable and Mr Fea advanced against Go Gecko and others (including the question whether an order should be made declaring the two franchise agreements void under s 87 of the TPA), but in which the question of the validity or otherwise of the various claims which Go Gecko made against Plyable and Mr Fea did not arise.
  5. The second (Supreme Court proceeding 12648/16) was a proceeding in which would be resolved the question of the validity or otherwise of the various claims which Go Gecko made against Plyable and Mr Fea, but in which the validity or otherwise of the various claims which Plyable and Mr Fea advanced against Go Gecko and others did not arise.
  6. In Supreme Court proceeding 12648/16, Plyable and Mr Fea had filed separate defences which were later consolidated into a single defence filed on 24 July 2013. On 16 May 2014, the second amended defence was filed, which:
    1. pleaded various breaches of the Moorooka franchise agreement by Go Gecko;
    2. pleaded that Plyable validly terminated the Moorooka franchise agreement; and
    3. denied allegations made in the statement of claim.

Security for costs applications in proceeding 988/15

  1. On 31 October 2016, I delivered judgment concerning two security for costs applications made in Supreme Court proceeding 988/15: see Plyable Pty Ltd v Go Gecko (Franchise) Pty Ltd [2016] QSC 249.
  2. Go Gecko had applied for orders that Plyable and Mr Fea provide security for Go Gecko’s costs. I granted the application and ordered Plyable and Mr Fea to provide security for Go Gecko’s costs in the amount of $205,621.01.  Mr Scully, Mr McKinstry and NEM Australasia Pty Ltd had also applied for orders that Plyable provide them with security for their costs.  I also granted that applications and ordered that Plyable provide for security for the costs of Mr Scully, Mr McKinstry and NEM Australasia Pty Ltd, in the same amount.
  3. Security for costs was not provided, and the proceeding was automatically stayed in November 2016 pursuant to r 674 of the Uniform Civil Procedure Rules 1999 (Qld) (UCPR). 
  4. At that time the position which obtained was that there were still two proceedings on foot in the Supreme Court.
  5. First, the now stayed Supreme Court proceeding 988/15 in which (if the claimants ever provided the security which I had ordered) would be resolved the question of the validity or otherwise of the various claims which Plyable and Mr Fea advanced against Go Gecko and others, but in which the question of the validity or otherwise of the various claims which Go Gecko made against Plyable and Mr Fea did not arise.
  6. Second, Supreme Court proceeding 12648/16 in which would be resolved the question of the validity or otherwise of the various claims which Go Gecko made against Plyable and Mr Fea, but in which the validity or otherwise of the various claims which Plyable and Mr Fea advanced against Go Gecko and others did not arise. At this time, the second amended defence of Plyable and Mr Fea was still current, which pleaded the matters to which I have earlier referred, but did not seek to agitate any of the claims Plyable and Mr Fea had made against Go Gecko in the stayed Supreme Court proceeding 988/15.

Further pleadings in Supreme Court proceeding 12648/16

  1. On 23 December 2016, Go Gecko filed a fourth further amended statement of claim in Supreme Court proceeding 12648/16. That pleading added further alleged breaches of the Moorooka franchise agreement and further particularized certain allegations.  Notably:
    1. Paragraph 7(j) introduced a new allegation that in breach of the Moorooka franchise agreement, the defendant “engaged in a campaign of communications to the franchisor, its in offices' [sic] employees representatives or agents, other franchisees, respective franchisees, service providers, and others which contain misrepresentations, incorrect or erroneous statements, defamation, degrading remarks, vilification, false statements and other unlawful statements about the franchisor, the franchisor's business, the franchise system, the franchise image, the franchise intellectual property”.
    2. Paragraph 7(k) introduced a new allegation that in breach of the Moorooka franchise agreement the defendant failed to act in good faith in his dealings with Go Gecko, relying on the particularized allegations in paragraph 7(j), and circumstances in which Mr Fea pleaded guilty to charges of stalking persons connected with Go Gecko.
    3. Paragraph 7(l) introduced a new allegation that in breach of the Moorooka franchise agreement Plyable made defamatory and degrading remarks and publications including but not limited to those relating to the Franchisor, the Franchised Business, Authorised Goods, the Franchise System, the Franchise Image and everything reasonably incidental thereto.
    4. Paragraph 7(m) introduced a new allegation that in breach of the Moorooka franchise agreement Plyable failed to indemnify and keep indemnified Go Gecko and its representatives against certain liabilities.
    5. Go Gecko claimed the same relief as it had originally claimed, but the pecuniary amounts claimed had altered.  The claim for damages for breach of a promise set out in the Moorooka franchise agreement that Plyable would pay certain of Go Gecko’s costs and outlays in the amount of had become a claim for $221,025.16 (although that alteration had been brought about before the December 2016 amendment).  The claim for liquidated damages under the Moorooka franchise agreement in the amount of $29,400 was unaltered.  However the claim for economic loss was very significantly altered to become a multi-million dollar claim identifying a significant adverse impact of the impugned conduct over the entirety of Go Gecko’s franchise businesses, not just the Moorooka franchise business.
  2. At a review hearing on 8 May 2015, I ordered Plyable and Mr Fea to file and serve a further amended defence by 15 May 2017 and to file and serve any application for security for costs by 19 June 2017.
  3. On 15 May 2017, the third further amended defence was filed on behalf of Plyable and Mr Fea.
  4. The pleading responded to the new damages case which had been pleaded by Go Gecko.  Notably:
    1. As to the allegation in paragraph 7(j), the defendants asserted that the relevant clause in the Moorooka franchise agreement was uncertain and therefore unenforceable, and that otherwise the allegations were embarrassing and liable to be struck out because the relevant clause did not refer to misrepresentations, incorrect or erroneous statements, defamation, degrading remarks, vilification, false statements and unlawful statements.
    2. As to the allegation in paragraph 7(k), the defendants asserted that the relevant clause in the Moorooka franchise agreement was uncertain and therefore unenforceable, or alternatively that the paragraph was liable to be struck out as embarrassing as the matters particularised therein could not constitute a failure to act in good faith within the meaning of clause 15.2(ii) of the agreement.
    3. As to the allegations in paragraphs 7(l) and 7(m), the defendants asserted that the relevant clauses in the Moorooka franchise agreement were uncertain and therefore unenforceable and that the paragraphs were liable to be struck out as embarrassing as the matters particularised therein could not constitute a breach of the relevant clauses of the agreement.
    4. As to the pleaded damages case, the defence retained the existing traverses and added contentions that:
      1. any breaches of the franchise agreement were not causative of any alleged loss suffered by the plaintiff; and
      2. any loss suffered by the plaintiff occurred because of other pleaded reasons.
  5. The pleading also introduced new paragraphs [38]-[65]. It appears that because of a drafting error there were two instances of paragraph [38]. Paragraphs [38]-[65] were the subject of Go Gecko’s strike out application before me. I observe:
    1. The first instance of paragraph [38] pleaded:
  1.  The defendants say further with respect to paragraph 12 of the statement of claim:-

37.1 the plaintiff is not a licensed real estate agent;

37.2 the listings which are said to constitute confidential information consists of the identity of a client or customer within the meaning of s.40 of the Property Agents and Motor Dealers (Real Estates Agency Practice Code of Conduct) Regulation 2001 ("the Code");

37.3 in the premises details of the "listing;" of the Moorooka Franchise as at 19 July 2012 was not information to which the plaintiff was entitled and therefore not confidential information; and

37.4 says that the "listings" of the Moorooka Franchise as at 19 July 2012 could not as a matter of law be disclosed by the first defendant to the plaintiff.

  1. By paragraph [38] (the second instance) to [64], Plyable and Mr Fea advanced a defence in which they alleged that the Moorooka franchise agreement, the Annerley franchise agreement and Mr Fea’s guarantees where entered into in reliance upon misleading and deceptive representations made by Go Gecko concerning the anticipated financial performance of the two real estate agency franchises.
  2. The case put by Plyable and Mr Fea was, apart from the removal of one representation and some minor additions to the plea that the representations were misleading and deceptive, identical in form and substance to the first part of the statement of claim advanced in the stayed Supreme Court proceeding 988/15.
  3. None of the other allegations raised in the statement of claim in the stayed proceeding, including those concerning Mr Scully, Mr McKinstry or NEM Australasia Pty Ltd, or any of the claims for monetary relief, were advanced by Plyable and Mr Fea in the third amended defence.
  4. Paragraph [65] of the third amended defence was in the following terms:

E. Counterclaim

The defendants repeat and reply upon paragraphs 1 – 64 herein.

  1. The defendants did not advance a damages claim, but claimed the following relief:
  1. An order pursuant to s.87 of the Trade Practices Act 1974 (Cth) that a franchise agreement dated 23 April 2010 between the plaintiff and the first defendant and a franchise agreement dated 2 November 2010 between the plaintiff and the first defendant and the guarantees thereof are void or unenforceable.
  1. Such further or other orders as the Court deems appropriate.
  1. Costs.
  1. On 13 June 2017, the solicitors for the plaintiff sent a letter to the solicitors for the defendants pursuant to r 444 of the UCPR, which, amongst other things, observed that the third amended defence filed by the defendants sought to include a counterclaim that:
    1. was contrary to the order of Byrne SJA dated 10 October 2014, which refused the defendants' application to file a counterclaim in the proceeding; and
    2. attempted to re-enliven the defendants’ claim in the stayed proceeding by reproducing 26 paragraphs of the defendants’ (the plaintiffs’, in that case) fifth further amended statement of claim in the stayed proceeding.
  2. The letter advised that the solicitors for the plaintiff proposed to apply to the Court for the following orders:
    1. paragraphs [38]-[65], including the purported counterclaim, be struck out pursuant to rr 171(1) and (e) or r 371 of the UCPR and no leave be granted to re-plead;
    2. the counterclaim be dismissed; and
    3. the defendants pay the plaintiff's costs of the counterclaim and the application on the standard basis.
  3. Mr Sherritt deposed that as at 23 June 2017 no response to the letter had been received: see the affidavit of C M Sherritt sworn 23 June 2017 at [5].

Security for costs application and strike out application in Supreme Court proceeding 12648/16

  1. Plyable and Mr Fea filed and served their application for security for costs by 4:00pm on 19 June 2017 as I had previously required.  They applied for the following orders:
  1. Pursuant to section 1335 of the Corporations Act 2001 (Cth) and/ or Uniform Civil Procedure Rule 1999 (Qld) ("UCPR") rule 670 within fourteen (14) days:
  1. The plaintiff provide security for the first and second defendants costs of and incidental to these proceedings up to and including the first day of trial, in an amount not less than $200,000.00; or
  1. In the alternative to order 1(a) above, the plaintiff provide security for the first and second defendants costs of and incidental to these proceedings up to and including the first day of trial in such amount as the Court considers appropriate.
  1. Pursuant to UCPR rule 673, the security to be provided pursuant to order one (1) above be given by way of:
  1. Irrevocable bank guarantee drawn in favour of the Registrar of this Court at Brisbane (Registrar) and which guarantee is otherwise on terms satisfactory to the Registrar;
  1. In the alternative to order 2(a) above, any other form of security satisfactory to the Registrar.
  1. Pursuant to UCPR rule 674, these proceedings are stayed in so far as it concerns steps to be taken by the plaintiff as against the defendants until such time as the plaintiff complies with orders one (1) and two (2) above;
  1. The plaintiff pay the defendants costs of and incidental to this application to be assessed on the standard basis; and
  1. Such further or other orders as this Honourable Court deems just and or necessary.
  1. On 23 June 2017:
    1. I set the application for security for costs down for hearing on 31 July 2017;
    2. I ordered that Go Gecko file and serve its strike out application in relation to the defence and counterclaim (and any supporting material) by 29 June 2017; and
    3. set the strike out application down for hearing on 31 July 2017.
  2. On 29 June 2017, Go Gecko filed an application seeking the following orders:
  1. That both paragraphs numbered 38 and paragraphs 39 to 65 (inclusive) of the Third Amended Defence and Counterclaim filed on 15 May 2017, and the Counterclaim as a whole, be struck out pursuant to rule 171 of the Uniform Civil Procedure Rules 1999 (Qld) or in the Court's inherent jurisdiction, without leave to replead.
  1. That the Defendants pay the Plaintiffs costs of the application on the indemnity basis.
  1. Such further or other orders as the Court considers appropriate.
  1. It is appropriate to deal first with Go Gecko’s application.

Go Gecko’s strike out application

  1. On 27 July 2017 Plyable and Mr Fea filed a fourth further amended defence. That defence:
    1. amended the defence to remove [38] (the second instance) to [65]; and
    2. retained the first instance of [38], extracted above.
  2. Given that paragraph [65] was removed, the fourth further amended defence no longer contained a counterclaim. However, the pleading still claimed the same relief as the previous version of the defence, namely:
  1. An order pursuant to s.87 of the Trade Practices Act 1974 (Cth) that a franchise agreement dated 23 April 2010 between the plaintiff and the first defendant and a franchise agreement dated 2 November 2010 between the plaintiff and the first defendant and the guarantees thereof are void or unenforceable.
  1. Such further or other orders as the Court deems appropriate.
  1. Costs.
  1. On 28 July 2017 Plyable and Mr Fea filed a fifth further amended defence. That defence removed that relief claimed.
  2. Accordingly, the only live question is the question of costs.  Plyable and Mr Fea do not resist an order that they pay Go Gecko’s costs of the application on the standard basis, but Go Gecko seeks an order that costs be assessed on the indemnity basis.

Legal principles

  1. The relevant legal principles are not in doubt. They were recently summarised by the Court of Appeal in LPD Holdings (Aust) Pty Ltd v Phillips, Hickey and Toigo [2013] QCA 305 at [21]-[22] (footnotes inserted):

[21] The applicable principles for the awarding of indemnity costs were usefully summarised by Sheppard J in Colgate-Palmolive Company v Cussons Pty Ltd.[[1993] FCA 536; (1993) 46 FCR 225 at 232-234.] However, those principles operate as a guide to the exercise of the relevant discretion. They do not define all of the circumstances in which the discretion is to be exercised and do not limit the width of that discretion.[Ingot Capital Investment & Ors v Macquarie Equity Capital Markets & Ors (No 7) [2008] NSWSC 199 at [26].] Further, the categories in which the discretion to award indemnity costs may be exercised are not closed.[Di Carlo v Dubois & Ors [2002] QCA 225 at [37].]

[22] Whilst the awarding of costs on an indemnity basis will always ultimately depend upon the exercise of a discretion in the particular circumstances of each individual case, the justification for an award of indemnity costs continues to require some special or unusual feature of the particular case. As was observed by Basten JA in Chaina v Alvaro Homes Pty Ltd,[[2008] NSWCA 353 at [113].] the general rule remains that costs should be assessed on a party and party basis, and the standard to be applied in awarding indemnity costs ought not “be allowed to diminish to the extent that an unsuccessful party will be at risk of an order for costs assessed on an indemnity basis, absent some blameworthy conduct on its part”.

Submissions

  1. Go Gecko submitted that by filing the fourth further amended defence, Plyable and Mr Fea had effectively conceded that Go Gecko’s complaints were justified. Go Gecko contended that the plain unreasonableness of the pleading in the third amended defence and counterclaim, Plyable and Mr Fea’s refusal to engage with Go Gecko’s complaints (see [42] above), and the late amendments mean that Plyable and Mr Fea ought to pay Go Gecko’s costs of the application on the indemnity basis.[1]
  2. It was submitted that paragraphs [38]-[65] were plainly unreasonable and susceptible to being struck out pursuant because:
    1. Plyable and Mr Fea did not have leave to bring the counterclaim (and did not seek leave to bring the counterclaim), and therefore the allegations were unnecessary (being irrelevant) or did not disclose a reasonable defence or cause of action.
    2. The allegations amounted to an abuse of process in that they sought to agitate those issues raised in the fifth further amended statement of claim in Supreme Court proceeding 988/15 (see the similarities noted at [39](c) above) and sought to circumvent the order for security for costs made in that proceeding.
    3. The cause of action based on alleged misleading or deceptive conduct introduced by the counterclaim was time-barred, given that the agreements the subject of the counterclaim were entered into in 2010.
  3. Senior Counsel for Plyable and Mr Fea submitted as follows:
    1. The third further amended defence and counterclaim was not an abuse of process on the ground that Plyable and Mr Fea were seeking to advance the same contentions in two proceedings, because proceeding 988/15 was stayed.
    2. Although it was effectively pleaded by way of defence, the counterclaim was a true counterclaim in that it pleaded a separate cause of action (contravention of s 52 of the TPA) and claimed relief under s 87 of that Act. Accordingly, it was not an abuse of process to plead the counterclaim even if it was out of time, because the expiry of a limitation period is a matter to be raised by way of defence.
    3. Although Plyable and Mr Fea had not obtained the leave of the court to file the counterclaim after the time period prescribed for doing so under the UCPR had expired (notwithstanding the fact that they had tried and failed to obtain such leave before Byrne SJA in 2014) they could subsequently have obtained leave nunc pro tunc.
    4. The conduct of Plyable and Mr Fea in pleading the counterclaim and then removing it was not so reprehensible as to take it out of the norm for granting costs on the standard basis. In effect, a position was taken, complaints were raised about that position, and the position was then resiled from.
  4. In reply, Counsel for Go Gecko submitted that:
    1. the stay of Supreme Court proceeding 988/15 was not ordered as a result of duplication of proceedings, but as a result of non-compliance with an order for security for costs; and
    2. the amendments to the defence and counterclaim to withdraw the counterclaim were done at a very late stage, and that conduct falls within the type of conduct that justifies a costs order on the indemnity basis. 

Conclusion

  1. In my view there are no special or unusual features in this aspect of the case which warrant the making of indemnity costs orders. 
  2. If Plyable and Mr Fea had done that which they ought to have done, they would have applied for leave to deliver a counterclaim.  On that application all the reasons which eventually were raised as strike out grounds would have been raised as reasons why leave should not be granted. Consistently with what they actually did, they would either have agreed not to pursue the application, or would have advanced it and failed.  But doing so would have not have resulted in an indemnity costs order against them.  It would simply reflect a party being persuaded (or having it demonstrated) that their opponents had the better side of the particular aspect of the case.  I do not think the position becomes worse for Plyable and Mr Fea because the application comes before the Court on a strike out application by Go Gecko rather than by an application for leave by Plyable and Mr Fea. 
  3. Although it is true that by their amendments, Plyable and Mr Fea have effectively conceded that they would have been on the losing side of the application, that is not sufficient to demonstrate that an indemnity costs order is warranted.
  4. Go Gecko should have its costs on the standard basis.

The security for costs application by Plyable and Mr Fea

  1. It was common ground before me that the principles governing the application were those I set out in Plyable Pty Ltd & Anor v Go Gecko (Franchise) Pty Ltd & Ors [2016] QSC 249 at [19]-[21]. I will not rehearse them here.
  2. The first question is whether there is reason to believe that Go Gecko will be unable to pay the costs of Plyable and Mr Fea if they are successful in their defences.  If that threshold is passed, the second question is whether an examination of the discretionary considerations support the making of an order and, if so, in what amount.

The threshold question:

  1. Plyable and Mr Fea prove that Go Gecko:
    1. has a paid up share capital of $99;
    2. does not own any real property in Australia; and
    3. has not granted any registered charges.
  2. They then exhibit certain dated profit and loss statements and balance statements, the most recent of which showed that for the period ended May 2011 Go Gecko operated at a loss of approximately $156,000 and it had a deficiency of assets over liabilities of approximately $490,000.
  3. On 22 June 2017, the solicitors for Plyable and Mr Fea wrote to the solicitors for Go Gecko asserting that, inter alia, Go Gecko did not appear to have any assets and requesting documents verifying its current financial position and demonstrating that Go Gecko could meet an adverse costs order. 
  4. Go Gecko’s solicitors responded by way of letter dated 29 June 2017 asserting that Plyable and Mr Fea had not adduced any cogent evidence which would provide the basis for a security for costs application or which would justify a belief that Go Gecko could not meet an adverse costs order.  The letter asserted positively that Go Gecko could meet an adverse costs order, but, despite the request, the letter did not provide any information which supported that assertion.  Nor was any evidence provided in response to the application which supported those assertions. 
  5. Having regard to the undemanding nature of the test (see Treloar Constructions Pty Ltd v McMillan [2016] NSWCA 302 per Beazley P at [11]-[13] and The Owners – Strata Plan 64415 v Serman [2017] NSWSC 806 per Walton J at [32]), in this case the application of the requisite practical and common sense approach leads me to conclude that the applicants have established that the threshold is met.

The discretion

  1. Go Gecko submitted that strong discretionary factors sounding against ordering security were delay and the various indications suggesting that Plyable and Mr Fea were not litigating in good faith. 
  2. As to delay:
    1. There had been a first failed attempt to obtain security by way of an application filed on 9 May 2013.  Since then the proceeding has been remitted to the District Court and returned to the Supreme Court.
    2. Notwithstanding passing references to an application for security on 14 May 2015 and 21 June 2016, the present application was only made on 19 June 2017 (following an order by me made on 8 May 2017 requiring such an application be made by 19 June 2017).
    3. The relevant principles associated with delay were summarised by Martin J in Covecorp Constructions Pty Ltd v Indigo Projects Pty Ltd [2007] QSC 262 at [27]-[28], including, in particular, the citation of the statement by French J (as his Honour then was) in Bryan E Fencott Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 at 514 that the further a plaintiff has proceeded in an action and the greater the costs it has been allowed to incur without steps having been taken to apply for an order for costs, the more difficult it will be to persuade the court that such an order is not unfair or oppressive.
    4. In Covecorp, Martin J identified three issues that affect the Court’s assessment: (1) is there an explanation for the delay and, if so, what is its weight? (2) the prejudice to the plaintiff if required to lodge at a late stage; and (3) the timing of the application for security.
    5. The only explanation for the delay advanced by the applicants was that Go Gecko’s amended statement of claim filed on 23 December 2016 substantially increased the quantum of Go Gecko’s claim against them.  Plyable and Mr Fea submitted:

Prior to the December amendment, the plaintiff’s case was worth relatively little.  The presence of the liquidated damages clause in the franchise agreement (clause 37.8) meant that the plaintiff’s loss as the result of termination of the franchise agreement was limited to $29,400.  There was an additional claim for misuse of confidential information valued at $110,289, which did not take into account the expenses incurred by the defendants in generating that alleged income.  There was also a claim for costs of $221,025.16, largely consisting of litigation costs, which the plaintiff was clearly not entitled to under the franchise agreement.  

It is now contended that by reason of a series of communications the “defendant” (presumably the second defendant) engaged in a campaign in breach of clause 15.2(ii) of the franchise agreements (to act in good faith in all dealings with the franchisor and other franchisees) and for alleged misuse of confidential information resulting in loss to the plaintiff in the vicinity of $8 million. A claim of this nature and certainly of such quantum had not been articulated prior to December 2016.

  1. This amounts to no explanation at all in relation to the delay up to December 2016.  And it is an incomplete explanation for the delay in the period between December 2016 and the bringing of this application, but to my mind that period of delay is not so meaningful.  Whilst I agree that the delay in bringing the application will have led to Go Gecko having incurred significant costs following the failed attempt to obtain security and that will cause it prejudice, it does seem to me that the change to Go Gecko’s case is a sufficient explanation of the late bringing of the application, at least so far as it relates to the costs of defending the new and massively increased damages claim. 
  1. As to lack of good faith:
    1. Go Gecko submits, correctly, that Plyable and Mr Fea have demonstrated a pattern of delay and failing to comply with Court orders and deadlines inconsistent with rule 5 of the UCPR: see the analysis set out in the affidavit of Mr Conaghan. 
    2. They ask me to infer from this mode of behavior from the conduct of Mr Fea impugned in the statement of claim, and from the material to which I adverted in Plyable Pty Ltd v Go Gecko (Franchise) Pty Ltd [2016] QSC 249 at [33]-[34], and from the criticisms which they advance of the way in which Plyable and Mr Fea have estimated the quantum of their application, that the progression of this proceeding lacks genuineness.
    3. I think that submission overreaches.  Plyable and Mr Fea are the defendants to this proceeding.  I do not think that the material to which Go Gecko points is sufficient to justify the conclusion that they have no genuine defence to the proceeding or no genuine interest in defending the quantum of the damages claimed from them.  I would not be prepared to draw that inference unless it was allied to a close examination of the merits of the claim and of the defence and that close examination supported the conclusion.  No such analysis was presented by Go Gecko.
  2. The proper exercise of the discretion in this case is to make an order for security for costs, but only in relation to the costs occasioned by the need to respond to the changes to Go Gecko’s damages case which were introduced by the fourth further amended statement of claim.

Quantum

  1. The approach which I will take to assessing the quantum of security is that which I set out in  Plyable Pty Ltd v Go Gecko (Franchise) Pty Ltd at [47]-[48].
  2. Plyable and Go Gecko quantified their costs to the first day of trial at $230,801.40, as set out in an estimate expressed by their solicitor.  The estimate is set out in the first 3 columns of the table in Annexure A to this judgment. 
  3. Go Gecko criticized the estimate for lacking any detailed justification of the various figures, for inevitably including past costs, and for various degrees of exaggeration. The criticisms were expressed in the affidavit of its solicitor and in written submissions before me.  I have set out in the fourth column of Annexure A a brief summary of the principal complaints of Go Gecko.  
  4. However, the estimate and the critique are all of limited utility given the view that I have expressed that the quantum of the order should be limited to occasioned by the need to respond to the changes to Go Gecko’s damages case which were introduced by the fourth further amended statement of claim.  Neither the estimate nor the critique of the estimate proceed by reference to that premise.  Save as to observe that it seems inevitable that the costs I would order on the premise I have identified will be much less than the present estimate, I do not think that I have sufficient evidence before me to identify an appropriate amount.
  5. I will give Plyable and Mr Fea leave to adduce limited further evidence explaining by reference to their existing estimate how much of those costs could be characterized as costs occasioned by the need to respond to the changes to Go Gecko’s damages case which were introduced by the fourth further amended statement of claim. 
  6. I will hear the parties on appropriate directions to give effect to these reasons for judgment.

Annexure A

No.

Costs claimed by the defendants

Amount

Plaintiff’s criticisms of the costs claimed

1

Perusing third further amended claim and statement of claim  and considering any application pursuant to Uniform Civil Procedure Rules 1999 (Qld) ("UCPR") rule 171 (18,000 words)

$891.00

The defendants are not entitled to seek security for these costs as they have already been incurred during preparation of the Third Amended Defence and Counterclaim. Given the delay in filing the Third Amended Defence and Counterclaim it is not appropriate for past costs to be claimed.

If the reference to r 171 is a reference to an application by the plaintiff, that application was entirely successful. If it refers to an application by the defendants, no explanation has been provided for the need for such an application.

2

Solicitor's attendance on defendants to obtain instructions on amended defence, including perusal of documents and obtaining instructions in respect of any application pursuant to UCPR rule 171 (say 5 days at 6 hours per day)

$8,940.00

As per item 1.

3

Solicitor's attendance in preparing further brief to senior and junior counsel to draw any amended defence and application pursuant to UCPR rule 171 (3 volumes - say 1 day 6 hours per day)

$1,788.00

As per item 1.

The costs are presumably based on the previous version of the defence, which has now been superseded.

4

Copying Brief (say 400 sheets per volume at 20c per page)

$240.00

As per items 1 and 3

 

5

Junior Counsel's fees to draw any further amended defence (2 days at $3,000.00 per day) including advising on any application pursuant to UCPR rule 171.

$6,000.00

As per items 1 and 3

 

6

Senior Counsel's fees to settle any further amended defence (1 day at $7,000.00 per day) and settle any application pursuant to UCPR rule 171.             

$7,000.00

As per items 1 and 3

 

7

Attendance - filing any further amended defence

$26.90

As per item 1.

8

Service of any further amended defence

$53.80

As per item 7.

9

Peruse plaintiff's reply (say 5,000 words)

$247.50

 

10

Drafting and producing further list of documents (say 3,000 words)

$769.50

The plaintiff has already given its disclosure, and the defendants have themselves failed to give full disclosure. The defendants do not explain what further documents they propose to disclose (if any). The defendants have not made further disclosure despite requests from the plaintiff.

The costs are presumably based on the previous version of the defence, which has now been superseded.

11

Perusing plaintiff's further list of documents (say 3,000 words)

$148.50

The plaintiff has already given its disclosure. The defendants do not explain what further documents are expected to be disclosed.

The costs are presumably based on the previous version of the defence, which has now been superseded.

12

Solicitor's attendance to examine disclosed documents from Plaintiff's (say 1 day at 6 hours per day) and consider whether any notice of non-party disclosure requests pursuant to UCPR Chapter 7 Part 2.

$1,788.00

As per item 11.

The defendants have not sought non-party disclosure, and no potential non-party is identified in the evidence.

13

Solicitor's attendance on defendant's to advise on action - advice on liability, quantum, future conduct, pleadings and further interlocutory steps (say 5 days at 6 hours per day) including conferences with senior and junior counsel

$8,940.00

In the ordinary course of litigation the defendants will already have received advice on liability and quantum. The defendants have already filed the Third Amended Defence and Counterclaim. The plaintiff has already given its disclosure, the defendants have not sought non-party disclosure, and have themselves failed to give full disclosure. The defendants are not entitled to security for costs already incurred. It is unreasonable for the defendants to seek security for costs for activities which they were required by court order to complete prior to the application.

14

Solicitor's attendance on defendants to obtain instructions on ongoing conduct of the matter (say 5 days at 6 hours per day) including but not limited to:-

  1. Any further amended defence;
  2. Any further list of documents;
  3. Any notice(s) of non-party disclosure.

$8,940.00

As per item 13.

There is no explanation of the 5-day figure.

15

Solicitor's attendance at case reviews (say 5 days at 6 hours per day)

$8,940.00

There is no explanation of why 5 reviews are required. It would be unusual for case reviews in a proceeding of this nature consume more than one hour. In light of the quantum of the claim in this proceeding, it would be unusual for both Senior and Junior Counsel to be retained to appear at every case review.

Solicitors’ attendance at case reviews is claimed twice (items 15 and 16).

16

Solicitor's attendance at case reviews (say 5 reviews at 1 hour each)

$1,490.00

As per item 15.

17

Senior and junior counsel's fees for preparation and attendance at case reviews (say 5 reviews at 2 hours each or 1 and 1/2 days each)

$15,000.00

It would be unusual for case reviews in a proceeding of this nature consume more than one hour. In light of the quantum of the claim in this proceeding, it would be unusual for both Senior and Junior Counsel to be retained to appear at every case review.

18

Expert reports (written reports prior to trial)

$20,000.00

The defendants have already had the benefit of expert evidence. Given the delay it is not appropriate for such costs to be claimed.

19

Solicitor's attendance to prepare brief to counsel to appear at trial and any interlocutory applications including various conferences with senior and junior counsel (6 volumes - say 2 days at 6 hours per day)

$3,576.00

 

20

Copying Brief (say 400 sheets per volume at 20c per page)

$480.00

 

21

Solicitor's attendance in preparation for trial including preparation of material for the court and advice to the defendants (10 days at 6 hours per day)

$17,880.00

There is no explanation or breakdown of the anticipated general advice by solicitors.

22

Junior and Senior Counsel's fees in trial preparation (3 days at $10,000 per day)

$30,000.00

In light of the quantum of the claim in this proceeding it would be unusual for both Senior and Junior Counsel to be retained for this matter or for the work of preparing for trial to be equal between them.

23

Solicitor's attendance upon Counsel in preparation for trial and to meet with witnesses immediately prior to trial (allow 4 days at 6 hours per day)

$7,152.00

 

24

Counsel's fees for general trial for first day (say 8 hours)

$10,000.00

 

25

Solicitor's attendance at first day (say 8 hours)

$2,500.00

 

26

General correspondence:

  1. Say 100 short letters
  1. Say 100 ordinary letters
  2. Say 50 special letters

 

$1,440.00

$3,620.00

$2,350.00

 

27

Miscellaneous contingencies

$25,000.00

There is no justification or explanation for “miscellaneous contingencies”. The types of work that one would expect to fall within this category are likely claimed elsewhere, such as the claims for general correspondence and various attendances upon witnesses and counsel.

In addition, the estimate is proportionally overinflated as a result of the flaws with the above items.

 

Subtotal

$195,201.2

 

28

Plus 10% GST on counsel's fees

$8,800.00

The estimate is proportionally overinflated as a result of the flaws with the above items.

29

Plus care and consideration (25% of subtotal less counsel's fees)

 

$26,800.30

There is no justification or explanation for “care and consideration”. The types of work that one would expect to fall within this category are likely claimed elsewhere, such as the claims for general correspondence and various attendances upon witnesses and counsel.

In addition, the estimate is proportionally overinflated as a result of the flaws with the above items.

 

Total

$230,801.4

 

Footnotes

[1] Some reliance was also placed on the reference to indemnity costs in UCPR r 171, but it has been held that that reference does not dictate that there should be a greater predisposition towards making an order for costs to be paid on the indemnity basis in the case of applications to strike out than in the case of other interlocutory applications: Mio Art Pty Ltd v Macequest Pty Ltd (No 2) [2013] QSC 271 per Jackson J at [37].

Editorial Notes

  • Published Case Name:

    Go Gecko (Franchise) Pty Ltd v Plyable Pty Ltd & Anor

  • Shortened Case Name:

    Go Gecko (Franchise) Pty Ltd v Plyable Pty Ltd

  • MNC:

    [2017] QSC 329

  • Court:

    QSC

  • Judge(s):

    Bond J

  • Date:

    22 Dec 2017

Litigation History

Event Citation or File Date Notes
Primary Judgment [2017] QSC 329 22 Dec 2017 -

Appeal Status

No Status