CA Australia v WA Jacobs

Nature of the dispute 13The proceedings concern an agreement entered into between the parties under which the plaintiff was a purchaser and distributor of stock owned in Australia by the defendant company who was an overseas company. There was a contract between them and the relevant conditions were as follows: SCHEDULE 3 Special Conditions W. A. Jacobs Toymaker (Australia) Pty Lid warehouse and stock As the exclusive distributor for Australia of the above noted products C, A. Australia Pty Ltd Australia agrees to purchase all WAJ stock located at the warehouse in Hornsby MSW at wholesale pried less 50% as per the price list sent by WAJ last week of March 2011 Except for the following items which will be less an extra 20% discount after the 50% discount Battery operated hello hello toys including Sparkle unicorn, singing claudia cow, singing Kangaroo, singing cockatoo, singing poodle and #600787 Mystical Sparkle not including item #200013 hello hello giraffe. All Sparkle stationery lines (stationery sets books inc (diary, note book address book photo album aid mini note book) #Sparkle PVC toys # 600800, 6000801 and 600806 battery operated product will be at no charge Completion dale for the transfer of all stock 15th May 2011, with the premises being vacated by end May after this date C.A Australia will be responsible for the monthly rent payments of the Hornsby warehouse. (WAJ will be responsible for all rent up to end May 2011) Payment schedule for above stocks paid monthly over a six month period in equal instalments starting lst May 2011 Title for the goods will transfer on payment in full, the goods should be insured for fire and theft, VVA J noted as owner of the goods for the period until final payment is made Stock counts may vary from the stock list sent by WAJ, correct stock count will be finalised on Final count done during the take out process The total stock quantity or dollar value will be no greater than the amount provided in the stock take spreadsheets provided by Wayne Jacobs to Scott Bidder via email during the period of March-April 2011 14Over a period of about a month it seems that the stock was transferred from the defendant to the plaintiff and that the amount of stock transferred had a value of approximately $1 million. 15The plaintiff's claim set out in the summons is as follows: RELIEF CLAIMED

1. A declaration that in the events which have happened the Plaintiff is entitled to reject the goods purportedly provided to the Plaintiff under the Distribution Agreement dated 31 March 2011 under section 33(2) or section 33(3) of the Sale of Goods Act 1923 (NSW).
2. An order that the Defendant by itself, its employees, servants or agents take all necessary steps to collect the aforesaid goods from the Plaintiff's warehouse premises located at 5 Powells Road, Brookvale, NSW.
3. In the alternative, a declaration that the Plaintiff was entitled to rescind the Distribution Agreement dated 31 March 2011.
4. An order, that the parties be restored to their pre-contract positions.
5. An order that these proceedings be expedited.
6. Such other or further orders as the Court sees appropriate.
7. Costs 16As can be seen the plaintiff relies upon s 33 of the Sale of Goods Act 1923 (NSW) which is in the following terms: SALE OF GOODS ACT 1923 - SECT 33 Delivery of wrong quantity or mixed goods 33 Delivery, of wrong quantity or mixed goods (1)Where the seller delivers to the buyer a quantity of goods less than the seller contracted to sell, the buyer may reject them, but if the buyer accepts the goods so delivered the buyer must pay for them at the contract rate. (2)Where the seller delivers to the buyer a quantity of goods larger than the seller contracted to sell, the buyer may accept the goods included in the contract and reject the rest, or the buyer may reject the whole. If the buyer accepts the whole of the goods so delivered the buyer must pay for them at the contract rate. (3)Where the seller delivers to the buyer the goods the seller contracted to sell mixed with goods of a different description not included in the contract, the buyer may accept the goods which are in accordance with the contract and reject the rest, or the buyer may reject the whole. (4)The provisions of this section are subject to any usage of trade, special agreement, or course of dealing between the parties. 17The plaintiff's claim is that the defendant/cross-claimant delivered a quantity of goods larger than the seller contracted to sell and has given notice that it has rejected the whole of the consignment. 18As I have mentioned the defendant has proceeded by way of cross-summons against the plaintiff and the relief claimed is as follows: RELIEF CLAIMED
8. That pursuant to 6.2(2) UCPR, an order be made that these proceedings continue on pleadings.
9. A declaration, that in the events, a binding agreement came onto existence on 31 March 2011 ("the agreement") under which the cross-defendant was granted a licence to market and distribute the "Developer Products", and to use the "Developer Marks" in relation to those products and further agreed to purchase, under terms, all of the cross-claimants stock as described in Schedule 3 of the agreement ("the stock").
10. A declaration, that in the events, the cross-defendant has breached the agreement by failing to distribute the "Developer Products" as provided for in the agreement.
11. A declaration, that in the events, the cross-defendant has breached the agreement by failing to purchase and pay for the cross-claimants stock.
12. A declaration that the cross-claimant is entitled to have the agreement specifically performed and carried into execution.
13. An order that the cross-defendant specifically perform and carry into execution the agreement.
14. In the alternative: I. an order that the cross-defendant pay the cross-claimant $911,350.83 as moneys payable by the cross-defendant to the cross-claimant in breach of the agreement. II. an order that the cross-defendant pay the cross-claimant interest on the amount referred to in order 7(i) pursuant to section 100 Civil Procedure Act 2005.
15. An order that an inquiry be held as to the amount of damage and interest suffered by the cross-claimant by reason of the conduct of the cross-defendant in breaching the agreement and by failing to distribute the "Developer Products" as provided for in the agreement.
16. Such other or further orders as the court considers appropriate.
17. Costs. 19The evidence before the Registrar was read before me and in addition there is evidence which resulted from orders made during the preparation of this application for review. On 16 March 2012 the defendant's solicitors were directed to advise whether the prayer for relief in paragraph 8 of the cross-claim is one that the defendant will seek to agitate at the hearing or whether the defendant will request the trial judge hearing the matter to refer any accounting to an Associate Justice for later determination. The defendant's solicitors have so advised the plaintiff's solicitors that that is their approach. The plaintiff's solicitors do not agree and suggest that the matter ought to be dealt with at the same time. 20The evidence before me shows that the defendant company has a deficiency of assets and accumulated losses. The last set of accounts available are those for 2009. 21The leading case setting out the principles in respect of security for costs which contains a useful summary of the principles is KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 per Beazley J at 196 - 198: "Principles Governing Application for Security for Costs The law is now settled that the discretion to order security for costs is unfettered and should be exercised having regard to all the circumstances of the case without any predisposition in favour of the award of security: see the review of the authorities by French J in Bryan E Fencot & Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 at 509. See also Interwest Ltd (Receivers and Managers Appointed) v Tricontinental Corp Ltd (1991) 9 ACLC 1218 at 1226 and Zeeman J's decision in Weily's Quarries v Devine Shipping Pty Ltd (1994) 14 ACSR 186 at 188. In Gentry Bros Pty Ltd v Wilson Brown & Associates Pty Ltd (1992) 8 ACSR 405 at 415, Cooper J stated that: "[i]t is not possible or appropriate to list all of the matters relevant to the exercise of the discretion. The factors will vary from case to case. The weight to be given to any circumstance depends upon its own intrinsic persuasiveness and its impact on other circumstances which have to be weighed: PS Chellaram & Co v China Ocean Shipping Co (1991) 65 ALJR 642 at 643." Notwithstanding the broad unfettered discretion with which the Court approaches an application for security for costs, there are a number of well-established guidelines, which the court typically takes into account in determining any such application. They are:
18. That such applications should be brought promptly. This is a principle of longstanding: see Grant v The Banque Franco-Egyptienne Egyptienne (1876) 1 CPD 143; see also Smail v Burton [1975] VR 776 per Gillard J at 777; Caruso Australia Pty Ltd v Portec (Aust) Pty Ltd (1984) 8 ACLR 818 at 820; Bryan E Fencot Pty Ltd at 514. I should state immediately that there is no issue of delay in this case.
19. That regard is to be had to the strength and bona fides of the applicant's case are relevant considerations: see M A Productions Pty Ltd v Austarama Television Pty Ltd & Anor (1982) 7 ACLR 97 at 100; Bryan E Fencot Pty Ltd at 514. As a general rule, where a claim is prima facie regular on its face and discloses a cause of action, in the absence of evidence to the contrary, the court should proceed on the basis that the claim is bona fide with a reasonable prospect of success. (Bryan E Fencot at 514).
20. Whether the applicant's impecuniosity was caused by the respondent's conduct subject of the claim: see M A Productions Pty Ltd v Austarama Television Pty Ltd at 100.
21. Whether the respondent's application for security is oppressive, in the sense that it is being used merely to deny an impecunious applicant a right to litigate: see M A Productions v Austarama Television at 100; Yandil Holdings Pty Ltd v Insurance Co of North America (1985) 3 ACLC 542 per Clarke J at 545; Bryan E. Fencot at 513. In Yandil Holdings at 545 Clarke J stated the principle in these terms: [t]he fact that the ordering of security will frustrate the plaintiff's rights 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. This factor is related to the next, namely:
22. Whether there are any persons standing behind the company who are likely to benefit from the litigation and who are willing to provide the necessary security: see Memetu v Lissenden (1983) 8 ACLR 364; Sent v Jet Corp (1984) 2 FCR 201; Bell Wholesale Co Pty Ltd v Gates Export Corp (1984) 2 FCR 1; Hession v Century 21 South Pacific Ltd (1992) 28 NSWLR 120 at 123; Bryan E. Fencot at 513; Yandil Holdings at 545. The combined effect of these two principles was summarised by Meagher JA in Hession at 123 as follows: ...a company in liquidation against whom an order for security for costs is sought cannot successfully resist such an order merely by proving that it cannot fund the litigation from its own resources if an order for security is made; it must prove that it cannot do so even if it relies on the other resources available to it (the company's shareholders or creditors)...Finally, whilst it is both true and important that poverty must be no bar to litigation, what that means is that the courts must be astute to see that no person pursuing a claim which is not frivolous is precluded from doing so by the erection of obstacles which poverty is unable to surmount; it does not mean that proof of insolvency automatically confers an immunity from statutory provisions which deal with insolvent plaintiffs.
23. An issue related to the last guideline is whether persons standing behind the company have offered any personal undertaking to be liable for the costs and if so, the form of any such undertaking: see Cameron's Unit Services Pty Ltd v Kevin R Whelpton and Associates (Aust) Pty Ltd (1986) 13 FCR 46 at 53; Mantaray Pty Ltd v Brookfield Breeding Co Pty Ltd (1990) 8 ACLC 304; Clyde Industries Ltd v Ryad Engineering Pty Ltd (1993) 11 ACLC 325.
24. Security will only ordinarily be ordered against a party who is in substance a plaintiff, and an order ought not to be made against parties who are defending themselves and thus forced to litigate: see Interwest Ltd v Tricontinental Corp Ltd (1991) 5 ACSR 621 at 626; Heller Factors Pty Ltd v John Arnold's Surf Shop Pty Ltd (in liq) (1979) ACLC 32,446; Sydmar Pty Ltd v Statewise Developments Pty Ltd (1987) 5 ACLC 480; Weily's Quarries v Devine Shipping Pty Ltd (1994) 14 ACSR 186 where Zeeman J stated at 189: "[t]he general proposition that security ought not to be ordered where the proceedings are defensive in the sense of directly resisting proceedings already brought or seeking to halt self-help procedures is no more than that, a general proposition. It ought not to be elevated to being a rule of law. In many cases of that nature it could be considered oppressive to require security and that in itself may be sufficient to refuse to make an order...[see] Sydmar Pty Ltd v Statewise Developments [above] and Interwest Ltd v Tricontinental [above]. [emphasis added]" 22I note that in this case there was no evidence from those standing behind the company who stand to benefit from the proceedings that they are unable to fund the proceedings thus leading to a consideration of whether the claim will be frustrated. Therefore I will assume that the order for security will not frustrate the cross-claim. 23It was suggested that one of the reasons for not ordering security was that the plaintiff/cross-defendant has adequate security already as it holds $1 million worth of stock. This is not the case as title has not passed and the plaintiff can take no steps to sell or otherwise realise that stock. It simply holds the stock as an involuntary bailee until the defendant takes it away or the court determines the matter. 24An important issue is the question of whether or not the defendant/cross-claimant is truly a defendant to the plaintiff's proceedings or whether they should be regarded as a plaintiff. 25In this respect the defendant referred to the decision of National Biofuels Group Pty Ltd v Elbow River Marketing Ltd [2009] FCA 613 where Rares J said: "19. In my opinion, the authorities establish that where a foreign defendant counterclaims or cross-claims, it will be ordered to provide security for costs if, in substance, what it puts forward is not simply a defence to the claim, but a distinct claim in itself, provided that on an overall assessment by the Court it is just and fair that such an order be made. In Neck v Taylor[1893] 1 QB 560 at 562 Lord Esher MR identified the applicable principles (see also at 563 per Lindley LJ and per Lopes LJ). Those principles were applied by Street CJ in Buckley 1 ACLR at 307; see too Bev Wizz Group Pty Ltd v Transport Solutions Pty Ltd[2008] NSWSC 1399 at [12]-[18] where Brereton J summarised a number of the authorities. Lord Esher MR said (Neck [1893] 1 QB at 562): "Where the counterclaim is put forward in respect of a matter wholly distinct from the claim, and the person putting it forward is a foreigner resident out of the jurisdiction, the case may be treated as if that person were a plaintiff, and only a plaintiff, and an order for security for costs may be made accordingly in the absence of anything to the contrary. Where, however, the counterclaim is not in respect of a wholly distinct matter, but arises in respect of the same matter or transaction upon which the claim is founded, the Court will not, merely because the party counterclaiming is resident out of the jurisdiction, order security for costs; it will in that case consider whether the counterclaim is not in substance put forward as a defence to the claim, whatever form in point of strict law and pleading it may take, and, if so, what under all the circumstances will be just and fair as between the parties and will act accordingly."
25. In Willey v Synan (1935) 54 CLR 175 at 184, Dixon J, with whom Rich J expressly agreed, identified the principle as follows: "... a party to judicial proceedings, who resides beyond the jurisdiction, should not be required to give security for costs unless, however the parties were arranged upon the record, he is the person invoking or resorting to the jurisdiction for the purposes of establishing rights or obtaining relief. If he does avail himself of the remedies the jurisdiction provides in order to obtain affirmative relief or redress, he may be ordered to give security, although he becomes a defendant in the action."
26. There, Dixon J analysed the substantive positions of the parties. He held that the foreign plaintiff had assumed the position of a defending party principally because he was compelled to do so by the provisions of the legislation under which his goods would otherwise be condemned. He characterised that position as being one in which the foreign plaintiff had assumed the burden of commencing the proceedings in order to defeat the true moving party's claim, being that of the Collector of Customs to be entitled to condemn and forfeit the plaintiff's goods." 26The first thing to observe is that the cross-claim concerns the same subject matters as the plaintiff's claim, namely, the stock and the agreement between the parties. The claim for relief in paragraphs 2, 4, 5, 6 and 7 of the cross-claim are simply the obverse of the claims made by the plaintiff in its summons and thus are purely defensive. 27It is the claim in paragraphs 3 and 8 which raise separate issues still connected to the same substratum. It is a claim in respect of a separate breach of the agreement. Thus it is not in substance put forward as a defence to the plaintiff's claim which only concerns its alleged right to reject the goods. 28The fact that the defendant/cross-claimant is happy to have the accounting later does not change the matter. It still wishes to take the dispute further than just determining whether the goods were properly rejected. 29I also have to consider whether on an overall assessment it is fair to make an order for security. Given that the company appears to be impecunious, is a resident overseas and that those behind the company give no guarantees, it is appropriate to order security. 30I dismiss the notice of motion filed 17 January 2012 with costs.

---

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 22 March 2012