Dynamic Press Investments v Storage Plus Group Manly & Anor

CATCHWORDS : Strike out, security for costs, leave to file amended cross-claim, set aside notices to produce

LEGISLATION CITED : Corporations Act 2001 (Cth) - s 1135 Uniform Civil Procedure Rules 2005 - Parts 12, 13, 42

Fiduciary Ltd and Ors v Morningstar Research Pty Ltd & Ors [2004] NSWSC 664 General Steel Industries Inc v Commissioner for Railways (NSW) & Ors (1964) 112 CLR 125 Kostain Australia Limited v State Superannuation Board (unreported Brownie J, 22/02/91) CASES CITED : Maples v Hughes [2002] NSWSC 617 Roach v Page (No 1) [2003] NSWSC 722 Tomlinson & Anor v Cut Price Deli Pty Ltd & Anors (1992) 112 ALR 122 Winnote Pty Ltd & Anor v Page (2005) 56 ACSR 35, [2005] NSWCA 362

Dynamic Press Investments Pty Ltd - Plaintiff/Cross Defendant PARTIES : Storage Plus Group Manly Pty Ltd - First Defendant/First Cross Claimant Gregory Raymond Peters - Second Defendant/Second Cross Claimant

COUNSEL : Mr P Barham - Plaintiff/Cross Defendant Mr M Ashhurst - Defendants/Cross Claimants

SOLICITORS : Wood Marshall Williams, Lawyers - Plaintiff/Cross Defendant John Anthony Picone - Defendants/Cross Claimants

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

13108/2006 - DYNAMIC PRESS INVESTMENTS PTY LTD v STORAGE PLUS GROUP MANLY PTY LTD & ANOR

JUDGMENT (Strike out, security for costs, leave to file amended cross-claim, set aside notices to produce) 1 HER HONOUR: By notice of motion filed 11 October 2006 the plaintiff/cross defendant now seeks orders, firstly, that pursuant to Part 12 r 12.7 of the Uniform Civil Procedures Rules 2005 (UCPR), the defence and/or cross claim be struck out for want of prosecution and the cross claim be dismissed; secondly, an order that there be an order for judgment entered for the plaintiff in the sum claimed in the statement of claim together with interest up to judgment and costs; thirdly, in the alternative, that pursuant to s 1135 of the Corporations Act 2001 (Cth) and/or Part 42 r 21 of the UCPR, the cross claimants pay security for the cross defendant's costs of the proceedings in the sum of $35,000 or provide such other security as the Court may deem appropriate, and fourthly, in the alternative, that pursuant to Part 13.1 judgment be entered for the plaintiff in the sum, claimed in the statement of claim together with interest up to judgment and costs, alternatively for damages to be assessed, together with interest up to judgment and costs. 2 The defendant has filed two motions. The first motion seeks to file an amended cross-claim, the second motion (filed 24/11/2006) seeks to have the plaintiff's notices to produce on first and second defendants be struck out. Leave to file an amended cross-claim was granted at the commence of the hearing. In relation to the notices to produce, no documents were produced by the second defendant but an admission was made that for the purposes of this appeal the first defendant/first cross-claimant, Storage Plus Group Manly Pty Ltd, was impecunious. 3 The notice to produce against the second defendant/second cross claimant Mr Peters should be set aside. In relation to the plaintiff's application to strike out the defence and cross-claim for want of prosecution, in my view the delay by the defendant's does not as yet amount to a contumelious disregard for the Court's orders. Hence the plaintiff's application that the defence and cross-claim be struck out for want of prosecution is refused. 4 The plaintiff/cross defendant is Dynamic Press Investments Pty Ltd (Dynamic Press). The first defendant/first cross claimant is Storage Plus Group Manly Pty Ltd (Storage Plus). The second defendant/second cross claimant is Gregory Raymond Peters (Peters) who is a director of Storage Plus. Dynamic Press relied on three affidavits of Neale Stuart Marshall dated 1 May 2006, 4 October 2006 and 2 November 2006 and two affidavits of Johannes Van Weeren dated 2 November 2006 and 23 November 2006. Storage Plus relied on four affidavits of John Anthony Picone dated 27 and 28 April 2006, 16 October 2006 and 6 November 2006.

The Pleadings 5 Dynamic Press claims (S/C 27/07/2005) damages against Storage Plus for moneys due pursuant to the terms of a written lease (the lease) between Dynamic Press as lessor and Storage Plus as lessee. Dynamic Press claims damages against Gregory Raymond Peters for moneys due by him to Dynamic Press as guarantor pursuant to the provisions of Article 18 of the lease whereby Gregory Peters guaranteed the due payment of all obligations of Storage Plus under the provisions of the lease. The claim comprises of: Rental due for the months of February 2002 and January to July 2005 inclusive: $248,976.91; and rental due from 1 September 2001 to 14 December 2001: $108,208.06 plus further amounts for legal costs and interest.

The defence 6 The defendants plead (Def, 17/10/2005) that on 1 September 2001 Dynamic Press entered into a written lease of premises at 243-259 Pittwater Road, Manly (the premises) for a term of five years. It was an express, or alternatively an implied, term of the lease that Dynamic Press would ensure that Storage Plus had quiet enjoyment of the premises throughout the term of the lease (Clause 12.01 of the lease). Storage Plus and Peters allege that Dynamic Press failed to ensure that Storage Plus had quiet enjoyment of the premises and therefore are in breach of the term of the lease. 7 The defendants deny liability and allege firstly, that Dynamic Press failed to prevent water from penetrating the premises during the first rain which occurred after the commencement of the lease; secondly, that thereafter, water penetrated the premises on each occasion that it rained and prevented Storage Plus from having quiet enjoyment of the premises on each occasion; thirdly, that Dynamic Press's continuous failure to prevent rain from penetrating the premises was a persistent breach of a fundamental term of the lease such as to amount to a repudiation of the lease; and fourthly, that on 29 July 2005 Storage Plus accepted the repudiation and terminated the lease by vacating the premises.

The amended Cross-Claim 8 By a cross-claim filed 26/04/07, Storage Plus and Peters claim rectification of the lease. The lease between Dynamic Press (lessor) and Storage Plus (lessee) began on 1 September 2001 and was to terminate on 31 August 2006. The lease began at a monthly rate of $31,350 and was due to increase to $33,788.33 as of 1 January 2005. It is common ground amongst the parties that the lease was determined 29/07/05. The defendants/cross-claimants allege that the words which I have reproduced in bold later in this judgment were inserted into the lease without their knowledge and after they had consented to the lease.

The lease 9 Clause 9.01 and 9.02 of the Lease read: "9.01 LEASE DETERMINATION : In the case of: A. The building or the Demised Premises being resumed or being taken for public purposes by any competent authority, or

B. If the whole or any part of the Building shall be destroyed or damaged by fire, flood, lightning, storm, tempest or other disabling cause, but excluding water penetration , so as in any case to render the Demised Premises substantially unfit for the use and occupation of the Lessee or so as (in the case of the circumstances described in Paragraph (B only) to render the rebuilding or reconstruction of the Building in its previous form impracticable or undesirable in the reasonable opinion of the Lessor then:

(a) This lease may be terminated without compensation by either the Lessor or the Lessee by notice in writing to the other PROVIDED ALWAYS that in the latter case the Lessor shall have failed to rebuild or reinstate the Demised Premises within a reasonable time after notice in writing from the Lessee.

(b) Any such termination as aforesaid shall be without prejudice to the rights of either party in respect of any antecedent, breach, matter or thing.

(c) Nothing herein contained or implied shall be deemed to impose any obligations upon the Lessor to rebuild or reinstate or make fit for occupation the Demised Premises of the Building but any money expended by the Lessor in so doing shall not form any part of the operating expenses.

9.02 ABATEMENT OF RENT: Upon the happening of any such damage or destruction as aforesaid Clause 9.01 all moneys hereby reserved shall abate and all or any remedies for the recovery of such moneys or such proportionate part thereof shall be suspended PROVIDED THAT the Lessor shall give the Lessee reasonable time in which to rebuild or reinstate the Lessee's fixtures." (emphasis added) 10 There is evidence from Johannes Van Weeren of 2/11/2006 at [16] that on 2/2/2005, particularly the Manly area was devastated by a major storm (the first rain). He deposes that the following day he was contacted by a representative of the company defendant and advised that rain had penetrated the premises. He attended the premises that afternoon in company with his master builder and made arrangements for a plumber and builder to effect any necessary repairs. Mr Van Weeren also says that he did not receive any further complaint in writing. Clause 6.20 stipulates that the lessee shall advise the lessor promptly in writing of any damage sustained to the demised premises. However, it is pleaded that the plaintiff/cross-defendant failed to prevent the water from the first rain from penetrating the premises and that after the first rain, the water penetrated the premises on each occasion that it rained. 11 If the words "but excluding water penetration" are excised from clause 9.01 the defendants/cross-claimants seek to rely on clause 9.02. They claim that they are entitled to rent abatement. According to the cross-claimants extra words were also inserted into clause 12.07 of the lease. Those extra words are "or to make or keep the demised premises waterproof." The defendants/cross-claimants further rely upon clause 12.01 which reads: " QUIET ENJOYMENT : The Lessor covenants that the Lessee paying the rent hereby reserved and observing and performing the covenants, conditions and restrictions on its part herein contained shall and may peaceably hold and enjoy the Demised Premises during the said term without any interruption by the Lessor subject always to the rights powers, remedies and reservations of the Lessor herein contained." 12 The defendants/cross claimants allege that the water problem was such that it effected their right to quiet enjoyment of the demised premises. The defendants/cross claimants claim damages for breaches of the lease that include monies paid to their clients in compensation for water damage caused to their goods stored on the premises and rent not paid by those clients as a result of such damages in the amount of $29,540.70 and lost rent on storage areas which could not be let to clients because of water damage in the amount of $234,584.30.

Summary judgment 13 Part 13.1(1) of the UCPR provides: "If, on application by the plaintiff in relation to the plaintiff's claim for relief or any part of the plaintiff's claim for relief:

(a) there is evidence of the facts on which the claim or part of the claim is based, and (b) there is evidence, given by the plaintiff or by some responsible person, that, in the belief of the person giving the evidence, the defendant has no defence to the claim or part of the claim, or no defence except as to the amount of any damages claimed, the court may give such judgment for the plaintiff, or make such order on the claim or that part of the claim, as the case requires." 14 And 13.4 of the UCPR reads: "Frivolous and vexatious proceedings

(1) If in any proceedings it appears to the court that in relation to the proceedings generally or in relation to any claim for relief in the proceedings: (a) the proceedings are frivolous or vexatious, or

(c) the proceedings are an abuse of the process of the court,

the court may order that the proceedings be dismissed generally or in relation to that claim.

(2) The court may receive evidence on the hearing of an application for an order under subrule (1)." 15 The test for summary judgment has been best expressed by Barwick CJ in General Steel Industries Inc v Commissioner for Railways (NSW) & Ors (1964) 112 CLR 125 when he stated: "The test to be applied has been variously expressed: "so obviously untenable that it cannot possibly succeed"; "manifestly groundless"; "so manifestly faulty that it does not admit of argument"; "discloses a case which the Court is satisfied cannot succeed"; "under no possibility can there be a good cause of action"; "be manifest that to allow them" (the pleadings) "to stand would involve useless expense."" 16 And in Webster v Lampard (1993) 177 CLR 598 the High Court stressed that: "The power to order summary judgment must be exercised with "exceptional caution" and should never be exercised unless it is clear that there is no real question to be tried." 17 It is my view that the defendants/cross-claimants claims for restitution and damages, as I have outlined earlier in this judgment, are not hopeless. They are in my view arguable. The defendants/cross-claimants should not be struck out. They should be permitted go to trial. 18 The plaintiff's counsel submitted in the event that summary judgment is refused, because some of the money is due and owing under the lease, the court should enter judgment for a portion of the moneys claimed. This approach was adopted in Tomlinson and Anor v Cut Price Deli Pty Ltd and Anors (1992) 112 ALR 122 and in Kostain Australia Limited v State Superannuation Board (unreported Brownie J, 22/02/91). The defendants/cross-claimants have not yet filed their affidavit evidence as to the nature and extent of the water damage. Once this is done it will become apparent as to precise quantum of the defendants/cross claimants' claim. The amount claimed for damages in the cross-claim is somewhere in the vicinity of $100,000 less than the plaintiff's claim. In these circumstances, I am not persuaded that judgment should be entered for a partial sum.

Security for costs 19 The plaintiff submitted that the court has a discretion to impose security for costs even where one of the parties claiming is a natural person. It relied upon Fiduciary Ltd and Ors v Morningstar Research Pty Ltd and Ors [2004] NSWSC 664. The defendants/cross claimants submitted that where there is a natural person and impecunious company security for costs should not be awarded and relied upon Maples v Hughes [2002] NSWSC 617, Roach v Page (No 1) [2003] NSWSC 722 and Winnote Pty Ltd and Anor v Page (2005) 56 ACSR 35, [2005] NSWCA 362. 20 Section 42.21 of the UCPR.

(1) If, in any proceedings, it appears to the court on the application of a defendant :

(d) that there is reason to believe that a plaintiff, being a corporation, will be unable to pay the costs of the defendant if ordered to do so, or …

the court may order the plaintiff to give such security as the court thinks fit, in such manner as the court directs, for the defendant's costs of the proceedings and that the proceedings be stayed until the security is given." 21 In Morningstar, Austin J ordered the corporate plaintiffs to provide security despite the fact that he would not make a security for costs order against the natural person plaintiff. He held that the presence of an individual alongside the corporate plaintiff was to be taken into consideration but was not an absolute bar to the ordering of security. The court's discretion was to be triggered by evidence of the impecuniosity of the plaintiff. Further considerations then to be taken into account include whether a costs order would stultify or frustrate the plaintiff's claim and whether the impecuniosity of the plaintiff is due to the defendant's wrongful conduct. 22 Austin J said at [36]: "Not only does proof of the unsatisfactory financial position of the corporate plaintiff trigger the court's discretion, but that evidence is also a substantial factor in the exercise of the discretion: Idoport at [56]-[57]. And once the defendant has shown that the corporate plaintiff will be unable to meet its reasonable costs, the evidentiary burden shifts to the plaintiff to satisfy the court that, taking into account all relevant factors, the court should exercise its discretion by refusing to order security or by ordering security of a lesser amount than the defendant seeks: Idoport at [60]-[62]." 23 Austin J discussed the court's approach to assessing the strength of the plaintiff's case and stated that while the court's opinion as to the bona fide of the claim and its chances of success are relevant considerations they do not form a ground for refusing or allowing a costs order. His Honour held that the merits of the case against the defendant were a "neutral factor" in exercising the discretion as to a costs order. 24 As to whether a costs order would frustrate or stultify the plaintiff's claim, Austin J held that where the claims were not joint claims it was permissible to order a costs order for the corporate plaintiff leaving the natural person free to pursue their claim. If on the other hand the claims were joint, this would not be a feasible option. Austin J also found that the impecuniosity of the plaintiff was not caused by the defendant and on that basis awarded a costs order for the corporate plaintiffs and a stay of the claims brought by the corporate plaintiff until that order was carried out. While I agree that the court does have a discretion to order security for costs against a corporation where there are both a corporation and a natural person, the issue here is whether the court should exercise that discretion. 25 In Winnote, Mason P stated that where the plaintiff is sheltering behind an impecunious company, it is a matter which clearly engages the power to order security and firmly predisposes the court in favour of granting it. Then at [43] the President stated: "Nevertheless, an order for security should not be made unless it is called for. The continuing presence of Mr Roach (apparently a man of substantial means) shown that it is not called for, so long as it remains highly likely that costs would be awarded against both appellants if the appeal fails." 26 The plaintiff sought to distinguish Winnote in that, unlike Mr Roach in Winnote, there is no evidence to show that Mr Peters is a man of substantial means. A purchasers index search reveals that Mr Peters does not have any interest in real property. Mr Peters has elected not to put any evidence as to his financial means. Hence, I infer that he does not have significant assets. For the purposes of this application Storage Plus conceded that it was impecunious. That means both the defendants/cross claimants are impecunious. 27 Mason P in Winnote, continued at [45], that if for any reason doubt was cast on Mr Roach's capacity to meet an adverse order for costs the situation would merit review. 28 The defendants' defence in the case before me hinges on the excision of the added terms of the lease and that an order for rectification (as sought in the cross-claim). The defendants' defence is meaningless without the relief sought in the cross claim. If the defendants/cross claimants are successful with the cross claim they will then be entitled to have the damages set off against the rent payable. An order for security against the impecunious claimants would prevent their cross-claim being argued. It would also have the effect of shutting out their defence. In these circumstances, it is my view an order for security for costs should not be made. 29 Neither party had instructions as to whether they consented to mediation. It is my view that this matter may be resolved by mediation. To this end, I direct both parties to seek instructions as to whether they consent to attending mediation and to notify the other within seven days of these instructions. 30 The overall result is that the plaintiff's notice of motion is dismissed, the defendants/cross-claimants' motion to file an amended cross-claim is successful. Usually the defendants/cross claimants would pay the costs thrown away by the amendment. The defendants/cross-claimants' motion to have the notice to produce set aside had partial success but this was solely due to the admission made at the hearing, after a call was made on the notices to produce, that the company was impecunious. All of these matters were largely intertwined. Costs are reserved.

(1) The plaintiff's notice of motion filed 11 October 2006 is dismissed.

(2) The defendants/cross claimants are to file and serve an amended cross-claim by 5.00pm on 27 April 2007.

(3) The plaintiff is to request further and better particulars by 5.00pm on 3 May 2007.

(4) The defendants/cross claimants are to answer both the request for particulars dated 31 August 2006 and the additional request for particulars by 17 May 2007.

(5) The notices to produce addressed to the defendants/cross claimants are set aside.

(6) Solicitors are to seek instructions from their clients as to whether they consent to mediation and to notify the other party of their instructions within seven days.

(7) The matter is referred to a Status Conference on 21 May 2007 at 9.00am before the Registrar.

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