Box Information Technology Pty Ltd v Crystalaid Manufacture Pty Ltd (No 3)
[2012] QDC 292
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- Box Information Technology Pty Ltd v Crystalaid Manufacture Pty Ltd (No 3)[2012] QDC 292
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Box Information Technology Pty Ltd v Crystalaid Manufacture Pty Ltd (No 3)[2012] QDC 292
Box Information Technology Pty Ltd v Crystalaid Manufacture Pty Ltd (No 3)[2012] QDC 292
[2012] QDC 292
DISTRICT COURT
CIVIL JURISDICTION
JUDGE ROBIN QC
No 3066 of 2011
BOX INFORMATION TECHNOLOGY PTY LTD | Plaintiff |
and | |
CRYSTALAID MANUFACTURE PTY LTD | Defendant |
BRISBANE
DATE 03/05/2012
ORDER
CATCHWORDS | Corporations Act 2001 s 1335 Uniform Civil Procedure Rules r 670, r 671 Defendant's application for security for costs - director's undertaking to pay costs plaintiff company may be ordered but fail to pay accepted - relevance of value of that undertaking and of defendant's responsibility for plaintiff's impecuniosity - claim would be defeated if security were ordered |
HIS HONOUR: This is a defendant's application for security for costs, under section 1335 of the Corporations Act, also rule 670 and following of the UCPR. The plaintiff's claim is for licence fees, which it says came due in 2004 or 2005 in respect of licensing of software, access to which the plaintiff had gained from the third party. The remuneration the plaintiff was entitled to depended on the number and perhaps categories of users of software in the defendant's business.
In 2004 separate payments under the software licence agreement were made of $60,000 and $80,000, the second payment being attributable to additional users having been brought in. The plaintiff asserts, and appears to be correct, that there were yet other users, entitling it to a sum in excess of $300,000 sued for in a District Court claim.
A Magistrates Court claim commenced in the following month, that is September 2011, for remuneration claimed to be due to the plaintiff from the defendant, under a separate maintenance agreement.
Things went wrong, from the plaintiff's point of view, when the former controlling director, Mr Duncan, early in 2005 had an administrator appointed, most likely to obtain some protection in circumstances of financial difficulty.
The administration was short lived, the creditors having been paid in full, thanks to the provision of funds for the purpose by Ms Reale, who is now the principal of the plaintiff. Her maximum commitment of funds for that purpose was $400,000. It's not clear that the whole sum was required. Although the company came out of administration it confronted very difficult circumstances.
The defendant, in reliance on the appointment of administrators, terminated its agreements. It now asserts, although it is not clear that it did so at the time, dissatisfaction with the plaintiff's level of performance under the maintenance agreement. December 2004 payments aggregating $101,000 had been made, and apparently without complaint.
There has been filed, yesterday, an affidavit providing some specificity about complaints, in particular, for example, that labelling, to satisfy requirements such as those of the American Food and Drug Administration, was not provided as required. I have expressed a tentative view that in a context like the present a certain amount of shortfall in performance is, perhaps, to be expected.
Ms Reale has put the plaintiff into action to seek to recover moneys the defendant owes it, in its view, with a view to recouping what she had advanced in 2005. The plaintiff itself is only a shell, not trading at all. Ms Reale emphasises, and it seems to be the case, that it has no debts, except perhaps those that the defendant may be able to establish in its counterclaim for damages, roughly equivalent to the plaintiff's claim.
It is very much a part of the defendant's case that the two agreements are so closely related as to be, effectively, just one. That's an issue very much in contention. The agreements have separate dates, but they're only a day apart. There is some allusion, at least in the licence agreement, to the other one.
The defendant may be seen as the meat in the sandwich. On present appearances it has paid at least the licence fees sued for, or their equivalent, to the third party, which it brings in for the purpose of recouping those payments, should there be liability to the plaintiff. In the present circumstances it is clear, for the purposes of rule 671, that the plaintiff is a corporation that will not be able to pay the defendant's costs if ordered to pay them.
It seems hardly necessary to look at the other lettered paragraphs, apart from (a), in the rule.
Under some pressure from the court, in her most recent affidavit Ms Reale offers a personal undertaking to "meet theplaintiff's costs awarded against it, on the plaintiff's claim." She, herself, is effectively without resources.
Under the earlier approach of the courts the impecuniosity of a principal of a company offering a personal undertaking to pay costs the company's liable for, which it is unable to pay, would have been accepted by the court as sufficient to justify not ordering security for costs against the company.
That approach is not the current one, as is made clear by Base 1 Projects Pty Ltd v. Islamic College of Brisbane Limited [2012] QCA 114, and earlier Court of Appeal authority. The court can now be expected to consider the worth of such an undertaking by a director. That is but one of the factors that I have had to take into account this morning.
One of the factors which influences me in making the order already indicated to the parties appears in paragraph 19 of the reasons in Base 1 Projects as “a quote within a quote”, which is set out as a quote. The fact that the order for security will frustrate the plaintiff's right to litigate its claim because of its financial condition does not automatically lead to the refusal of an order. Nonetheless, it will usually operate as a powerful factor in favour of exercising the court's discretion in the plaintiff's favour. It is clear from rule 67(1) that, notwithstanding the presence of one or more of the listed conditions for the jurisdiction to arise, the court still retains a discretion.
The arguments against the making of an order for security for costs on this occasion are very similar to those which failed to satisfy the primary Judge and the Court of Appeal in Base 1 Projects. Mr Bowden correctly apprehended that I would take that approach, namely, that the plethora of instances of security being ordered in circumstances like the present does not indicate the way in which the security for costs decision ought to be made now.
It rather seems that the plaintiff may face even more problems than the current pleadings would indicate; for example, Mr Bowden foreshadows amendments will be made to plead that every aspect of the plaintiff's claims is statute-barred. That is a new tack on the defendant's part of which the plaintiff is now on notice. Mr Bowden informs the court that there is High Court authority indicating that issues such as the new one intimated may be best dealt with at a trial.
The plaintiff contends that its impecuniosity and its inability to satisfy any costs order that might be made against it was caused by the defendant's conduct in failing to pay what are said to be its obligations. That is the kind of contention which the Court of Appeal in Base 1 Projects indicates should be assessed with some rigour. See paragraph 26 of the reasons where there is a quotation from McClellan CJ at Common Law. It appears to endorse the view that it is not enough that the defendant's conduct be merely a contributing factor to the impecuniosity, it must have been the sole cause or a material contributor.
For today's purposes, I think the likelihood is that the withholding by the defendant of a sum not far short of $400,000 from the plaintiff and the paying of that to the third party would have contributed materially to the impecuniosity of the plaintiff.
The plaintiff's claim is one which I think ought to go to trial. The rights and wrongs of what might have been an opportunistic termination by the defendant which may have been in league with the third party to exclude the plaintiff suggests that depending on how the facts at trial fall it would be highly regrettable if an order for security for costs were to prevent the claim being litigated as Ms Reale's recent affidavit establishes it would do.
It is not possible for the court today to separate out the two contracts. The possibility is clearly there that the issues in the claim commenced in the District Court on the one hand and those in the claim commenced in the Magistrates Court and the defendant's counterclaim are essentially separate. That is the reason why I have thought some flexibility ought to be preserved rather than the court today endorsing an outcome which commits Ms Reale to pay whatever costs the plaintiff might be ordered to pay the defendant in these consolidated proceedings.
I regret having to reserve costs but the recording of views I have expressed this morning may help me or another Judge to work out how they ought to be disposed of in due course.
I just confirm that the orders made on the defendant's application are as follows:
Upon the undertaking of Maria Reale to be set out in a document signed by her in a form satisfactory to the Registrar and filed to be personally responsible to the extent that the Court shall direct in the future for payment of any costs order that may be made in this proceeding against the plaintiff in favour of the defendant should the plaintiff fail to pay the costs ordered, these consolidated proceedings be stayed until such filing occurs, otherwise the application is refused.
Costs reserved.
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