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Tomar Pty Ltd v Home Design (Australia) Pty Ltd[2010] QDC 58

Tomar Pty Ltd v Home Design (Australia) Pty Ltd[2010] QDC 58

DISTRICT COURT OF QUEENSLAND

CITATION:

Tomar Pty Ltd v Home Design (Australia) Pty Ltd [2010] QDC 58

PARTIES:

TOMAR PTY LTD (ABN 64457 468)

t/as RAY WHITE (CLAYFIELD)

(Plaintiff)

v

HOME DESIGN (AUSTRALIA) PTY LTD (ACN 113 866 621)

(Defendant)

FILE NO:

BD 618 of 2008

DIVISION:

Application

PROCEEDING:

Security for Costs Application

ORIGINATING COURT:

Brisbane 

DELIVERED ON:

5 March 2010

DELIVERED AT:

Brisbane 

HEARING DATE:

4 March 2010

JUDGE:

Dorney QC DCJ

ORDER:

  1. It is ordered that the defendant give security for the plaintiff’s costs of defending the counter-claim up to and including the first day of trial in the sum of $15,000.00.
  1. It is directed that this order for security for costs be given in a form satisfactory to the Registrar and that it be given within 14 days of today (namely, by 19 March 2010).
  1. Liberty is given to both sides to apply on 2 days’ notice in writing to the other.
  1. It is ordered that the defendant pay the plaintiff’s costs of and incidental to this application to be assessed on the standard basis.

CATCHWORDS:

APPLICATION – Security for Costs for counter-claim – whether essentially defensive – whether equitable set-off.

COUNSEL:

R. Perry SC for the Plaintiff

M. Brady for the Defendant

SOLICITORS:

Carter-Newell Solicitors for the Plaintiff

Warlow Scott Solicitors for the Defendant

Introduction

  1. [1]
    The present application of concern in this proceeding is one filed at 5 February 2010 whereby the Plaintiff, as applicant, seeks an order that the Defendant provide security for the Plaintiff’s costs of defending the Defendant’s Counter-claim.
  1. [2]
    The hearing was conducted before me on 4 March 2010. Counsel for each party presented written submissions and, additionally, made oral submissions to the Court.

Background

  1. [3]
    The essential trigger for the application was a concern on behalf of the Plaintiff’s legal advisers that the Defendant may be unable to pay the Plaintiff’s costs of defending the Defendant’s Counter-claim. This concern arose, although the pleading at the base of the argument was filed as long ago as 28 April 2008, from a series of recent events. In particular, it was discovered that the Defendant company had been deregistered on 7 September 2009, there was a significant delay in paying two sets of fixed costs in favour of the Plaintiff in this proceeding leading to the service of a creditor’s statutory demand seeking recovery, and there was a failure to provide, on request to the Plaintiff’s solicitors, evidence concerning the Defendant’s solvency.  Further concerns are also set out in paragraph 49 of the affidavit of Brett John Heath filed 5 February 2010.
  1. [4]
    While an explanation of incompetent governance was given for the deregistration, it was not in contest in the hearing that the Defendant, which responded to the allegations made for the purpose of this hearing by affidavit of its solicitor alone, has not provided any cogent evidence concerning matters going to gainsay impecuniosity.

Issues

  1. [5]
    Although the Plaintiff refers to s 1335 of the Corporations Act 2001 (Commonwealth), the primary basis for the application is r 670 (1) of the Uniform Civil Procedure Rules (“UCPR”). As is noted in Livingspring Pty Ltd v Kliger Partners [2008] VSCA 93, although the wording is not identical between the two provisions, the applicable principles have been developed – and applied – on the assumption that they apply equally to the Rules of Court and to the statutory provision, and considerations of certainty underline the wisdom of that approach: at [10].
  1. [6]
    It was authoritatively expounded by the Queensland Court of Appeal in Robson v Robson & Anor [2008] QCA 36 that the provisions in Part 1 of Chapter 17 of the UCPR - in particular, rr 671 and 672 -  require a court to treat the pre-conditions for making an order for security separately from the discretionary factors: at [19], per Keane JA.

Prerequisite for Security of Costs

  1. [7]
    Although the applicant cast its net more widely, it is sufficient in the present circumstances for it to rely upon r 671(a) of the UCPR. The role of r 671(h), if any, will be canvassed later. The former states that the court may order a “plaintiff” to give security for costs “only if the court is satisfied” that, relevantly here, because of r 677, the Defendant is a corporation and “there is reason to believe” the Defendant will not be able to pay the Plaintiff’s costs of the Counter-claim if ordered to pay them.
  1. [8]
    Given the circumstances outlined above about the concern of the Plaintiff’s legal advisers, and given that Counsel for the Defendant presented no real argument concerning this enlivening of the court’s power under r 671, this Court is relevantly satisfied that the prerequisite has been established.

Discretionary Factors

  1. [9]
    The major point of dispute between the parties is whether, given that the Plaintiff is the party seeking security as a result of the instigation of the Counter-claim, relevant circumstances exist which limit, or exclude, the exercise of the discretion which comes into play with this second issue. The nub of the argument here is whether the Counter-claim is essentially defensive and, even if it is, what kind of residual discretion, if any, still exists and how it should be exercised? At the outset, it must be remembered that this proposition is no more than a general proposition: it is not a rule of law: see KP Cable Investments P/L v Meltglow Pty Ltd & Ors (1995) 56 FCR 189 at 198.
  1. [10]
    Both parties relied upon the decision of Mullins J in Project Leaders Pty Ltd v Mt Isa Irish Association Friendly Society Limited [2003] QSC 064 where this defensive proposition was discussed.  Relying upon identified authorities, Mullins J held that security will “ordinarily” only be ordered against a counter-claiming party who is “in substance” a plaintiff, and will not be ordered against the party who brings a counter-claim as “a defensive proceeding” or who has been forced to litigate: at [11].  Further, and unsurprisingly, again quoting authority on the point, she held that while, in many cases, the fact that the counter-claim arises out of the same transaction as the claim will support a conclusion that the counter-claim is a defensive proceeding, “it does not necessarily follow”: at [12].  Lastly, referring to Anutech Pty Ltd v Latent Energy Systems Pty Ltd [1997] ACTSC 4, it was noted that even though the counter-claim was some 17 times higher than the plaintiff’s claim for debt, the counter-claim was substantially defensive in character and the bulk of the time and resources required to litigate the issues would be devoted to establishing that there was a defence: at [13].
  1. [11]
    It is unnecessary to refer to any further authority to accept the basic proposition that has been that contended for by Counsel for the Plaintiff. That is, whether, taking into account the quantum of the Counter-claim, a lack of commonality of facts as between the Claim and Counter-claim, and the nature of the Counter-claim itself, is the Counter-claim essentially defensive to the required extent? Necessarily, that still leaves for decision whether there is a residual discretion even so.
  1. [12]
    Approaching this issue from that perspective, it is clear that the Defence and Counter-claim, after admitting most of the substantial allegations advanced by the Plaintiff, raises the defence of failure to execute the relevant written appointment prior to the relevant introduction of the purchasers, with the claimed consequence that the Plaintiff is not entitled to sue for commission by virtue of s 140(1)(c) of the Property Agents and Motor Dealers Act (2000)In further paragraphs in that pleading, what is then raised is both an implied term and a fiduciary duty, which are both alleged to have been breached.  The character of such breach is correctly formulated, as submitted by Counsel for the Plaintiff, as being “tantamount to dishonesty and fraud”. The importance of that is simply in terms of attempting to assess the strength of the Defence’s Counter-claim for the purposes of exercising this discretion. It is noteworthy that the pleading was settled by the same Counsel who gave an advice (for which the privilege has been waived) which suggested that the chances of success in the Counter-claim might be, to put it at its best, doubtful: see r 672 (b) and (c) of the UCPR. This expressly recognises that there is some doubt about the Defendant genuinely attempting to resist the Claim on the basis of the Counter-claim. That resonates in doubts attending whether there is truly a fetter upon the Defendant’s capacity to prosecute the Counter-claim if ordered to pay security for costs.
  1. [13]
    What is of more importance here is that the “defensive” nature of the Defence is pleaded as a right to an equitable set-off, which then seeks, presumably as to the balance, recovery by way of the Counter-claim. But correctly analysed, the “defence” raises impeachment of the Claim which itself would deny any recovery, leaving the “equitable set-off” as the essential basis of the Counter-claim, subject only to adjustment in terms of the appropriateness of the extent of the equitable compensation or damages.
  1. [14]
    Although Counsel for the Defendant relied upon the decision of Keane JA, with whom McMurdo P and Fraser JA expressly agreed, in Forsyth v Gibbs [2009] 1 Qd R 403 in his survey of what constitutes an equitable set-off, it would appear that the Defendant is really advancing that which was discussed by Keane JA when referring to Piggott v Williams (1821) 6 Madd 95; 56 ER 1027.  As analysed by Keane JA, that case afforded an example of what is meant when it is said that the claim to set-off must “impeach” or go to “the root of” the plaintiff’s claim: at 406 [11].  The outcome in Piggott was that the claim of a solicitor who sued his former client to recover fees for services rendered was successfully defended by a plea of equitable set-off “on the basis that the fees were only incurred by reason of the solicitor’s lack of due skill and diligence”, with the solicitor’s breach of his obligations of skill and diligence being itself the source of the claim for his fees: also at 406 [11]. While that is slightly different from what is alleged here, the gist is still applicable because the alleged breaches go to the root of the right to recover. In so concluding, I am mindful of the potential for misconstruing the nature of impeachment, as was discussed by McMeekin J in IRM Pacific Pty Ltd v Nudgegrove Pty Ltd & Ors [2008] QSC 195: at [11]. But the attack here is on the fundamental underpinnings of the Plaintiff’s Claim. The compensation or damages are truly additional.
  1. [15]
    The analysis in Forsyth gives context to the conclusion that it is essential to the availability of an equitable set-off that there be such a connection between the claim and cross-claim that the cross-claim can be said to impeach the claim so as to make it unfair for the claim to be allowed without taking account of the cross-claim: at 406 [10]. It would not be “unfair” if the transaction which gives rise to the counter-claim is entirely distinct from the transaction in respect of which the claim is brought: at 407 [13].
  1. [16]
    Turning, then, back to the facts of the present case, what the Defendant in its Cross-Claim is really seeking is, in substance, a claim which is being prosecuted separately from the defence, because the breach of the implied term pleaded or breach of the fiduciary duty pleaded would, as in Piggott, sufficiently “impeach” the plaintiff’s claim by itself. The recovery of compensation or damages would involve an investigation of the contractual relationship between the defendant and a third party, even though it is alleged that such an investigation is required by reason of the alleged breaches. But it also cannot be ignored that the Counter-claim is alleged to arise out of those breaches. This approach is not based on the non-defensive part of the Counter-claim being simply the surplus of the Counter-claim over and above the set-off.
  1. [17]
    Overall, I am of the view that this is no simple defensive Counter-claim. But that, of course, raises the need to consider what kind, if any, of discretion exists if the conclusion were to be reached that it could be characterised as essentially a defensive proceeding. That generates the inquiry as to what occurs in the “non-ordinary” case, which this would then be. Given my general conclusions about the significant lack of commonality of facts between the Claim and Counter-claim, apart from the purely defensive aspect of the Defence, I would be of the view that this is a relatively rare instance of the need for the courts to consider the exercise of the discretion anyway given the other features of this case, including the merits of the proceeding, the genuineness of the proceeding and the clear reason to believe that the Defendant is impecunious. There is no suggestion that such impecuniosity was caused by the Plaintiff’s conduct which is the subject of the Counter-claim: see r 672(e) of the UCPR. Thus, I would be of the view that the precondition would have been satisfied and what would be considered would be whether the discretionary factors favoured an order. If necessary, I would rely upon r 671(h) as supplying the necessary prerequisite: see Robson at [22]-[24] Thus, by either path of reasoning, I hold that the discretion is both open to be exercised and should be.
  1. [18]
    That leaves as the final issue concerning discretion whether there has been disentitling delay. It was asserted by Counsel for the Defendant that there was a “late bringing” of the application. From the circumstances that I have outlined earlier, it is abundantly clear that the knowledge obtained which forms the basis of satisfying the prerequisite for security for costs under r 671(a) of the UCPR has only been obtained recently.  Following that, the inquiries and steps outlined were taken. Any path using r 671(h) would end up at the same place.
  1. [19]
    Thus, even if the fact that the proceeding is alleged to be, at least by the Defendant, “ready for trial”, that factor in the balancing is overwhelmed by the fact that there is no operable delay in the circumstances.

Extent of costs of security

  1. [20]
    Mr Heath in his affidavit has asserted that the costs sought by the Plaintiff are “at least” $25,000.00. To that end he prepared a schedule which is marked “BJH 12” to his affidavit. The Defendant’s Counsel has contended that there should be no costs of any kind ordered and that the proceeding should just proceed to trial. He did not undertake any detailed deconstruction of the costs sought by the Plaintiff.
  1. [21]
    Although it was contended that costs should be allowed on the basis of the trial proceeding for several days, and although it was further contended that the trial would be of relatively short duration, I am concerned that, in any event, the issues raised by the Defence in its primary sense would have taken at least one day, if not more. That is, it is not a simple exercise to ascertain a precise sum that gives effect to those costs that are not undeniable defensive ones.
  1. [22]
    Hence, although some allowance will be made for costs already incurred [on the basis that Rule 671(a) of the UCPR addresses specifically the costs “if ordered” – which must include, at least in the context such as this, past costs], I consider that the appropriate sum for security should be $15,000.00.

Orders

  1. [23]
    Subject to further submissions by the parties, I intend to make orders in the following form :

1.It is ordered that the defendant give security for the plaintiff’s costs of defending the counter-claim up to and including the first day of trial in the sum of $15,000.00

2.It is directed that this order for security for costs be given in a form satisfactory to the Registrar and that it be given within 14 days of today (namely, by 19 March 2010).

3.Liberty is given to both sides to apply on 2 days’ notice in writing to the other.

4.It is ordered that the defendant pay the plaintiff’s costs of and incidental to this application to be assessed on the standard basis.

Close

Editorial Notes

  • Published Case Name:

    Tomar Pty Ltd v Home Design (Australia) Pty Ltd

  • Shortened Case Name:

    Tomar Pty Ltd v Home Design (Australia) Pty Ltd

  • MNC:

    [2010] QDC 58

  • Court:

    QDC

  • Judge(s):

    Dorney DCJ

  • Date:

    05 Mar 2010

Appeal Status

Please note, appeal data is presently unavailable for this judgment. This judgment may have been the subject of an appeal.

Cases Cited

Case NameFull CitationFrequency
Anutech Pty Ltd v Latent Energy Systems Pty Ltd [1997] ACTSC 4
1 citation
Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189
1 citation
Forsyth v Gibbs[2009] 1 Qd R 403; [2008] QCA 103
2 citations
IRM Pacific Pty Ltd v Nudgegrove Pty Ltd [2008] QSC 195
1 citation
Livingspring Pty Ltd v Kliger Partners [2008] VSCA 93
1 citation
Piggott v Williams (1821) 56 ER 1027
1 citation
Piggott v Williams (1821) 6 Madd 95
1 citation
Project Leaders Pty Ltd v Mt Isa Irish Association Friendly Society Limited [2003] QSC 64
1 citation
Robson v Robson [2008] QCA 36
2 citations

Cases Citing

No judgments on Queensland Judgments cite this judgment.

1

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