eInduct Systems Pty Ltd v 3D Safety Services Pty Ltd

Supreme Court of NSW|2013-04-11|Before: Stevenson J

Introduction 1This is an application for security for costs. 2The proceedings were commenced on 18 October 2012. On 30 November 2012 the defendants filed a Notice of Motion seeking an order that the plaintiffs pay $321,910 or such other amount as the Court determines, as security for costs. 3The defendants now: - (1)estimate that their solicitor client costs of the proceedings will be in the order of $600,000 to $700,000; (2)estimate that their party/party costs will be in the order of $450,000 to $500,000; and (3)apply for a "first tranche" of security in the sum of $250,000.

Decision 4The plaintiff should provide security as sought by the defendants.

Nature of the plaintiff's claim 5The plaintiff owns and licences software that facilitates an online induction system for construction companies whereby tradespeople working on a site can log in and, online, undertake a workplace safety induction program. The software has other features and uses. 6One or more of the corporate defendants owns and licences a different software that facilitates the operation of a safety management system that can be used by construction companies. 7In 2011 the plaintiff and one or more of the corporate defendants engaged in a joint venture the purpose of which was to offer construction companies both the plaintiff's and the defendants' systems as an integrated package. 8At the end of 2011, the plaintiff and one of the corporate defendants agreed to terminate that joint venture. The plaintiff alleges that it was a term of the termination agreement that the relevant defendant would not use specified information. 9Nonetheless, the plaintiff and one of the corporate defendants agreed to continue to work together to provide certain services to major players in the construction industry. 10The plaintiff contends that a number of the corporate defendants are now competing with it and are copying and using information about the plaintiff's system and accessing and interrogating the plaintiff's software installed data. 11The plaintiff claims that one or more of the corporate defendants have acted in breach of contractual and equitable duties of confidence owed by them to the plaintiff. 12The plaintiff seeks to restrain the corporate defendants from using what it claims to be confidential information. It seeks consequential orders including damages and an account of profits. 13The plaintiff claims the same relief against the individual defendants, Mr Anthony Conacher and Mr Simon Morrow, on the basis of their alleged knowing involvement in the conduct of the corporate defendants.

Merits of the plaintiff's claim 14The defendants accept that it is not generally appropriate, on a security for costs application, to canvass the merits of the plaintiff's claim beyond determining whether the claim is made bona fide and is arguable: see Jazabas Pty Ltd v Haddad [2007] NSWCA 291 at [18]. 15The defendants accept that the plaintiff's claim is not frivolous or vexatious but assert that the plaintiff's claim is weak. 16I am not in a position to make any assessment about the strength of the plaintiff's claim. 17It is common ground that I should proceed upon the basis that the plaintiff's claim is, at least, arguable.

The plaintiff cannot now meet a costs order 18There is no dispute that, at present, the plaintiff could not meet a costs order made against it. 19The plaintiff's accounts demonstrate a net deficit of $299,233 for the year ended 30 June 2011 and $613,645 for the year ended 30 June 2012. 20Interim balance sheets prepared by a director of the plaintiff, Mr Robert Culbert ("Mr Culbert Senior"), show a deteriorating asset position. An interim balance sheet as at 31 March 2013 shows equity of $331,872. However, that balance sheet shows an allegedly non-recourse "loan" of $1,049,697.39 from Mr Patrick Culbert ("Mr Culbert"), another director of the plaintiff, as "Other Equity" and not as a liability. Although the relevant "Loan Agreement" states that the plaintiff "cannot demand repayment of the outstanding Loan Amount", a profit and loss account for the plaintiff to 31 March 2013 shows that the plaintiff has paid $96,000 "interest" in the 9 months to 31 March 2013. Mr Culbert accepted, in cross-examination, that the plaintiff has paid some of that $96,000 to him as, in effect, interest. Mr Culbert has credit card debts in the order of $120,000. He said that he has used drawings on his credit cards to advance funds to the plaintiff and that he has used payments from the plaintiff to service his credit cards. 21The plaintiff is trading at a loss. Its present financial position seems parlous. 22The plaintiff's financial position is, however, likely to improve in around September 2013 when it will receive a research and development rebate from AusIndustry, a division of the Department of Industry, Innovation, Science, Research and Tertiary Education. Mr Culbert estimates that, by this means, the plaintiff will receive a cash payment of approximately $380,000. 23Further, as emerges below, Mr Culbert proposes to the sell the family home at Roseville, that he owns jointly with his wife, and use the net proceeds of sale (estimated to be in the order of $230,000) to fund the plaintiff's costs of these proceedings and as working capital.

Mr Culbert accepts personal liability for costs 24Mr Culbert is one of the three directors of the plaintiff. The other directors are Mr Culbert Senior and Mr Culbert's brother. The sole shareholder of the plaintiff is Pavax Pty Ltd. Mr Culbert is the sole shareholder of that company. Pavax Pty Ltd is the trustee of the Culbert Family Trust. The beneficiaries of that trust are Mr Culbert, and his wife and children. 25Since the proceedings commenced, Mr Culbert has made various statements as to his preparedness to be personally liable for any costs order the defendants might obtain. 26Currently, his position is that he "offer[s] to be personally liable in respect of any costs order made against the plaintiff in the event the proceeding continues to a final hearing and [the plaintiff] is unsuccessful such that a costs order is made against [the plaintiff]". 27The fact that Mr Culbert is prepared to put his assets into play is a factor I must take into account. However, the authorities make clear that this is not a decisive, or necessarily critical, factor. The weight to be attached to this factor depends, in large part, on what resources Mr Culbert has to make good the undertaking: see for example the observations of Winneke P and Phillips JA in Epping Plaza Fresh Fruit & Vegetables Pty Ltd v Bevendale Pty Ltd [1999] 2 VR 191 at [23] - [24]; cited with approval in Jazabas Pty Ltd v Haddad at [2] per Mason P and at [79] McClellan CJ at CL.

Mr Culbert's assets and liabilities 28Mr Culbert is the owner of a property at Roseville as joint tenant with his wife. The Roseville property is worth approximately $1.1 million. Mr and Mrs Culbert's equity in the property is in the order of $230,000. 29However, as I have mentioned, the Roseville property is now to be sold to fund the conduct of the plaintiff's business and the plaintiff's legal costs of these proceedings. 30Mr Culbert also has an interest in a commercial property at Artarmon as equal tenant in common with Mr Culbert Senior and with Ms Charmaine Perkins. Messrs Culbert and Ms Perkins are, or were, partners in a partnership called "BCP Marketing Services" ("the Partnership"). 31The Artarmon property is worth approximately $800,000. The property is mortgaged. The equity of the three tenants in common is in the order of $240,000. 32The plaintiff operates its business from the Artarmon property. 33Mr Culbert claims that in September 2011, Ms Perkins orally agreed to assign her interest in the Artarmon property to him and Mr Culbert Senior in exchange for a release by them of Ms Perkins' alleged indebtedness to the Partnership in the sum of approximately $375,000. Mr Culbert claims that in July 2012 he and Ms Perkins agreed not to incur the cost associated with a formal transfer at that time and that they would "just leave it as is until we are ready to change it over". 34Were Ms Perkins to assign her interest in the Artarmon property in accordance with the agreement for which Mr Culbert contends, each of Mr Culbert and Mr Culbert Senior would have equity in the property in the order of $120,000 (rather than $80,000). 35As emerges below, in proceedings Ms Perkins has now brought against Messrs Culbert, she states that although Mr Culbert offered to pay her $300,000 for her interest in the Partnership, she did not accept the offer. 36It appears there is to be a dispute between Mr Culbert and Ms Perkins about what happened. I cannot, and should not, seek to resolve those issues in the context of this security for costs application. 37What is clear is that, on Mr Culbert's account of it, his agreement with Ms Perkins was not evidenced in writing and thus, on the face of it, not enforceable: s 23C Conveyancing Act 1919. 38Thus, although Mr Culbert makes the offer to which I have referred, it is of little present value. The plaintiff could not meet a costs order at present. Nor could Mr Culbert.

The defendants' "recent conduct" 39The plaintiff alleges that the defendants, and in particular the second defendant, Mr Anthony Conacher, have engaged in discreditable and knowing conduct that has adversely affected the plaintiff's ability to resist the defendants' application for security for costs. The plaintiff submits this conduct constitutes a powerful reason why I should not exercise my discretion to order security. 40The plaintiff submits that: - "...the defendants have recently taken certain deliberate action, knowing that the action would be likely to substantially damage the financial position of the plaintiff and Mr Culbert, and prejudice their ability to deal with the application for security and prosecute the case generally. The defendants hoped this would happen. As a result of the defendants' actions: (a) the plaintiff has lost access to a substantial new revenue stream that would have covered all parties' costs of this litigation; (b) the security that was previously available to the defendants (in the form of a mortgage over, or an undertaking by Mr Culbert to preserve, certain of his assets) cannot be given without bringing the case to an end." 41The asset referred to in this submission is Ms Perkins' interest in the Artarmon property that, according to Mr Culbert, Ms Perkins had agreed to assign to him and Mr Culbert Senior. 42The plaintiff submits that: - "There are two related aspects of Mr Conacher's behaviour deserving of attention in this regard - (1) his promotion of a new piece of litigation [by Ms Perkins] against Mr Culbert; and (2) his recent communications with Lend Lease."

New litigation - Ms Perkins 43The plaintiff claims that Mr Conacher "tracked down Ms Perkins and promoted to her the idea of making" a claim as to her interest in the Artarmon property. 44When this allegation was first made, it was based, to a very large extent, on evidence that Mr Culbert and his sister Ms Sarah Ryan gave of a conversation they claimed to have had with their uncle, and Mr Conacher's brother in law, Dr John Elder on 20 March 2013. According to Mr Culbert and Ms Ryan, Dr Elder had told them that Mr Conacher had confessed to him that he had "sought out" Ms Perkins and "encouraged her to take legal action" against Messrs Culbert. 45The defendants called Dr Elder as a witness. Dr Elder accepted that he had spoken to Mr Culbert and Ms Ryan on 20 March 2013 but denied, emphatically, having said any such thing. Dr Elder, Mr Culbert and Ms Ryan were cross-examined about the conversation. In light of that cross-examination, Mr Elliott, who appeared for the plaintiff, withdrew reliance on the alleged conversation. That concession was properly made. Having seen each witness give evidence about the conversation (particularly Dr Elder who gave firm and dignified evidence in circumstances that must have been acutely distressing to him, bearing in mind the close family relationship between each participant in the 20 March 2013 conversations), I could not have been satisfied that the plaintiff had sustained the onus of showing that, on the probabilities, the conversation occurred as Mr Culbert and Ms Ryan deposed. 46Nonetheless, Mr Elliott maintained the submission at [42] but relied solely on the circumstantial material that I will now set out. 47It will be recalled that these proceedings commenced on 18 October 2012. 48On 2 November 2012, the defendants' solicitors wrote to the plaintiff's solicitors concerning the plaintiff's capacity to meet a costs order. 49On 9 November 2012, in a letter from the plaintiff's solicitors to the defendants' solicitors, Mr Culbert made a qualified offer to be personally liable for the defendants' costs and to expose his assets to a possible adverse costs order. He offered to meet any costs order up to $100,000 and stated that he "may" be prepared to secure that offer over the Roseville property. 50On 13 November 2012, the defendants' solicitors (on Mr Conacher's instructions) conducted a search of Mr Culbert's interest in real property and ascertained his interest in the Artarmon property. 51One week later, on 20 November 2012, Mr Conacher telephoned Ms Perkins and spoke to her for approximately 45 minutes. 52That timing, Mr Elliott submitted, when considered in light of events after 20 November 2012, pointed to the probability that Mr Conacher wished to speak to Ms Perkins about her interest in the Artarmon property and "to promote to her the notion of suing Mr Culbert". 53That submission left unexplained why Mr Conacher would think there was anything to be gained by him speaking to Ms Perkins about her interest in the Artarmon property (let alone why Ms Perkins would be amenable to any suggestion from him that she should commence proceedings against Messrs Culbert asserting an interest in the Artarmon property). She was, after all, on the title as to a one third interest as tenant in common with Messrs Culbert. The plaintiff's solicitors had not mentioned the Artarmon property in their letter of 9 November 2012. They did not mention Mr Culbert's interest in the Artarmon property until their letter of 26 November 2012, six days after Mr Conacher contacted Ms Perkins, and then only to say that Mr Culbert had "an interest" in the property. 54I see no basis in the evidence to conclude that, on 20 November 2012, Mr Conacher knew of the agreement Mr Culbert claims to exist between him and Mr Culbert Senior with Ms Perkins to assign to them her interest in the Artarmon property. Mr Culbert only revealed that contention in his affidavit of 25 January 2013, sworn in support of the plaintiff's case resisting the defendants' claim for security. 55The only evidence as to what was said in the 20 November 2012 conversation is from Mr Conacher. 56In his affidavit, Mr Conacher said: - "I initially made contact with Charmaine Perkins on 20 November 2012 (after trying to locate and get in contact with her for a few weeks) to see if she could assist the defendants (including me as the second defendant) in relation to defending these proceedings." 57In cross-examination, in answer to questions from me, Mr Conacher gave this evidence: - "Q: What did you ask her to do? A: To validate that I had a meeting with her and [Mr Culbert] in 2008 and that they demonstrated to me what was effectively the rapid online induction system and that they'd explained to me that they'd approached a worker [who Mr Conacher named] to develop competing product with that, based on the same look, feel and functionality of it. And that this was the subject of our dinner discussion in January 2008 and that he was seeking my help to support, promote it. Q: And did you see that as a matter being relevant to the allegations made by the plaintiff in these proceedings? A: Absolutely. Absolutely. That he [Mr Culbert], in his affidavit, he claims he is the sole inventor, designer of the business concept and rule of the whole thing. Q: So you wanted to hear from her what she said? A: To refute that. Q: About that meeting? A: That's right. Q: And that she might give evidence about it? A: I mean I couldn't talk to her about that in the first conversation because she was so frightened. She didn't - wasn't necessarily trusting of me either. Q: But she nonetheless answered your inquires about what happened in this... A: She remembered it very clearly yes." 58Mr Elliott submitted that I should reject this evidence because, when Mr Conacher spoke to Ms Perkins on 20 November 2012, he had not seen any affidavit from Mr Culbert of the kind Mr Conacher described. I do not accept that submission. As I understood Mr Conacher's evidence, he was not asserting that he rang Ms Perkins to see what she might say about something Mr Conacher had seen Mr Culbert depose. Rather, Mr Conacher was endeavouring to explain to me the relevance of the 2008 meeting to which he referred. 59In cross-examination, Mr Elliott put to Mr Conacher that the reason he called Ms Perkins on 20 November 2012 was: - (a)in the hope that she would provide the defendants with ammunition that would help them deal with a security for costs application; (b)to assist the defendants "convincing the Court that Mr Culbert's offer to put everything he owned on the line was not good enough"; (c)"in the hope she could be persuaded to take action against Mr Culbert in relation to the Artarmon property"; (d)because he thought that "if Mr Culbert had to wage a war on two fronts, not one, that would make life more difficult for the plaintiff in attempting to sue you in this case"; and (e)"if Lend Lease got wind of the fact that Mr Culbert was involved in two sets of proceedings that would harm the plaintiff's chances of securing the Barangaroo project". 60Mr Conacher denied each of these suggestions. 61Mr Elliott pointed to the following sequence of events after 20 November 2012 as showing the probability that Mr Conacher's motivation was as he put in cross-examination: - (a)10 days after the conversation on 20 November 2012, the defendants made this application for security for costs; (b)on 18 December 2012, Ms Perkins caused her solicitors to write to Mr Culbert, and Mr Culbert Senior, stating that Ms Perkins wished to divest herself of her interest in the Partnership and enquiring whether Messrs Culbert would be prepared to acquire Ms Perkins' interest in the Artarmon property; (c)in the meantime, Mr Conacher had had numerous conversations with Ms Perkins; (d)on 25 January 2013, Mr Culbert served an affidavit in which he deposed to the agreement he claims he has with Ms Perkins pursuant to which she had agreed to transfer to him and his father her interest in the Artarmon property; (e)on 15 February 2013, Ms Perkins commenced proceedings against Messrs Culbert seeking a declaration that the Partnership had been dissolved and that receivers be appointed to the assets and undertakings of the Partnership, including the Artarmon property; the Summons was supported by an affidavit in which Ms Perkins denied coming to any agreement with Mr Culbert concerning the Artarmon property; and (f)the pattern of telephone calls between Mr Conacher and Ms Perkins (as revealed by Ms Perkins' telephone records) which showed many more calls in the periods immediately before Ms Perkins' solicitor's letter of 18 December 2012 and before the commencement of Ms Perkins' litigation on 15 February 2013, than in the intervening period. 62Mr Elliott submitted that those events, when considered with: - (a) the events preceding 20 November 2012; (b)the fact that the defendants have not nominated Ms Perkins as a likely witness in the proceedings, and have, it is alleged, not expended costs, or estimated expending costs, in respect of preparation of any evidence from Ms Perkins; and (c)the fact that the defendants did not call Ms Perkins to corroborate Mr Conacher's account of their dealings, pointed to the conclusion that it was "inherently likely" that, despite his evidence to the contrary, Mr Conacher acted in the way the plaintiff contends. 63I do not accept that submission. 64As to the absence of Ms Perkins from the witness box, it is true that Mr Conacher accepted that he has had many conversations with Ms Perkins and that he had "ended up shouldering [Ms Perkins'] anxiety about what she explained to me has happened to her and what she was experiencing" and that this "has led to me calling her on many occasions to check in with her and on her wellbeing". It is also true that on 31 January 2013, the defendants' solicitors wrote to Ms Perkins enquiring as to whether she was able to give evidence in answer to Mr Culbert's affidavit of 25 January 2013 sworn in answer to the defendants' claim for security. 65However, I do not accept that Ms Perkins is thereby "in the camp" of the defendants such as to warrant the conclusion that it would be "natural" or "might reasonably be expected" that the defendants would call her to give evidence: see generally, Cross on Evidence, Looseleaf, Aust ed at [1215]. For example, I do not know what, if any, response Ms Perkins made to the defendants' solicitors' enquiry of 31 January 2013. Indeed I know nothing of Ms Perkins' current dealings with Mr Conacher or the defendants. Therefore, I do not conclude from the fact that the defendants did not call Ms Perkins that her evidence would not have assisted their case: cf Jones v Dunkel (1959) 101 CLR 298. 66I am not satisfied that I should disbelieve Mr Conacher's account of what he did, and why he did it. He rejected the very grave allegations put to him in cross-examination firmly and, in my opinion, convincingly. He appeared to me to be telling the truth. His was the only account before me of what did happen. The circumstantial evidence on which the plaintiff relies does not provide a foundation, in my opinion, for me to reject his evidence. 67I accept the following submission made by Mr Andronos, who appeared with Mr Keizer for the defendants: - "Mr Conacher's evidence that he initially made contact with Ms Perkins in order to see if she could assist in providing evidence to show that the [plaintiff's] software was itself largely based on [a competing product to that of the plaintiff], in particular that it was expressly designed to have the same look, feel and functionality of that system, is entirely conformable with the allegations which had been made by them, namely that the content, layout, structure, underlying logic and processes of the [plaintiff's] software were confidential to the plaintiff and that the first defendant had breached that confidentiality by copying the software. It is entirely consistent with the preparation of a response to them." 68Certainly, the agitation by Ms Perkins of her interest in the Artarmon property might be seen as coming at an unfortunate time from Mr Culbert's point of view. However, she is independently advised and one can only speculate as to what motivated her to move when she did. 69If it were permissible to speculate as to Ms Perkins' motivation in commencing proceedings against Messrs Culbert when she did, it may be that Mr Culbert was correct when he said on 15 March 2013 to Lend Lease, in the circumstances I discuss more fully below, that "we believe that as a result of her personal financial position [Ms Perkins] has 'reneged' on the deal [Mr Culbert claims he made with her]".

Causation 70In any event, as Mr Andronos submitted, any conduct of the defendants' could only be relevant to the question before me - whether to order security - if it could be shown to have contributed to the plaintiff's current inability to meet a costs order or resist this application. 71Even if I accepted the plaintiff's submissions about Mr Conacher's role vis-à-vis Ms Perkins, I am not able to conclude that it has made any material difference to that question. 72Mr Culbert still has his equity in the Artarmon property; worth approximately $80,000. If Ms Perkins assigned her one third interest in that property to her tenants in common, Messrs Culbert, their interests would only increase by $40,000 each. Mr Culbert's interest would then be valued at $120,000. In the context of the costs likely to be incurred in this litigation, that is a relatively small increase. 73Further, in his most recent affidavit, sworn 28 March 2012, Mr Culbert stated that the plaintiff's solicitors, Turtons Lawyers ("Turtons"): - " ..are no longer prepared to continue acting for the plaintiff without me providing security by way of mortgage over my personal interest in the properties at Artarmon and Roseville (pending its sale). The purpose of the mortgage is to secure the plaintiff's liability to Turtons for legal expenses". 74Thus, Mr Culbert's interest in the Artarmon property, whatever may be its true extent, is not available to support Mr Culbert's personal undertaking as to the plaintiff's liability for costs. On Mr Culbert's evidence, that is because of the costs the plaintiff is incurring in these proceedings, and Turtons lack of preparedness to continue to act for the plaintiff without security for their costs. It is not connected, on this evidence, with Ms Perkins' claim in respect of the Artarmon property, or the costs Messrs Culbert may incur defending Ms Perkins' proceedings.

Lend Lease 75The plaintiff claims that Mr Conacher learned, from Mr Culbert's 25 January 2013 affidavit, of the plaintiff's "impending success on the Barangaroo project with Lend Lease". 76The plaintiff claims that thereafter, and in March 2013: - "The defendants set about contacting Lend Lease and leading it to believe that: - (a) there was a dispute over the ownership of the system the plaintiff was offering to Lend Lease (even though there is none); (b) the plaintiff and Mr Culbert were besieged by litigation; (c) Mr Culbert was being sued by Ms Perkins in respect of a dispute that had been going on for 2 years (even though Mr Culbert and Ms Perkins had not been in dispute across 2 years); (d) the defendants were suing the plaintiff for costs over copyright issues concerning the plaintiff's system (even though there is no such claim). The defendants took this action deliberately, knowing it may cruel the plaintiff's relationship with Lend Lease, its prospects of being awarded the Barangaroo project and potentially other projects with Lend Lease in the future, harm the plaintiff financially and make it more difficult for the plaintiff to continue with this case. They hoped their conduct would have that result." 77This is a very serious allegation. It is an allegation of knowing, discreditable, and possibly actionable misconduct. Again, the allegation is directed to Mr Conacher in particular. 78For some time, the plaintiff has been negotiating with Lend Lease with a view to being retained by it in relation to the Barangaroo project in Sydney. The plaintiff contends that, if Lend Lease retained it on that project, significant revenue and profit would be generated. 79There was some dispute before me about the level of that likely profit. I do not find it necessary to resolve that dispute. The plaintiff's contention was that the project was expected to take eight years and generate revenue for the plaintiff in the order of $80,000 per month. It is the plaintiff's contention that a very large portion of that revenue would be received by it as profit as the plaintiff's software already exists and "simply had to be supplied". 80In September 2012, after a period of contract negotiation, Lend Lease sent to the plaintiff a form of "final contract" and scope of work. 81Sometime prior to 30 October 2012, Lend Lease informed the Australian Competition and Consumer Commission ("ACCC") that it proposed to engage the plaintiff to provide "site access control, online inductions" and "plan management" for the Barangaroo project. 82During 2012, the plaintiff and one or more of the corporate defendants had been doing work with Mirvac Group ("Mirvac") and Thiess Australia ("Thiess"). 83On 18 October 2012, the day these proceedings were commenced, Mr Culbert sent a copy of the Summons in the proceedings to Mr Ross Trethewy and Mr Alan Cook at Mirvac and to a representative of Thiess. 84On 18 December 2012 Mr Conacher met with Mr Cook. Mr Conacher gave the following evidence: - "During my meeting with [Mr Cook] on 18 December 2012, we discussed several business matters. As we were wrapping up the meeting, [Mr Cook] asked me how things were going with Patrick Culbert. I replied in words to the following effect: 'Me: It [that is these proceedings] is just such a waste of time. It is only early days. I don't know where this is going. It seems [Mr Culbert] thinks he has a good case and it will cost a lot of money. Hopefully common sense will prevail. I have also just become aware that he may now have another fight on his hands with a former partner. AC: Really, what's that about? Me: She was in partnership with him for a long time and he won't pay her out for her share'." (emphasis added) 85On 21 December 2012, Mr Cook said to Mr Trethewy: - "The change from [the plaintiff] over to [the first defendant] has not been as seamless as I was expecting. I'm having issues getting induction documentation from them. But also, besides the ongoing issues between [the plaintiff] and [the first defendant], I have heard there may be another court case pending by a former business partner." (emphasis added) 86On 15 February 2013, Ms Perkins commenced the proceedings to which I have referred against Messrs Culbert. 87In those proceedings, Ms Perkins sought a declaration that the Partnership had been dissolved in 2011, sought orders that receivers be appointed to the assets and undertaking of the Partnership (including the Artarmon property) and various consequential orders. 88In her affidavit in support of the Summons, Ms Perkins said, amongst other things: - "8 To the best of my knowledge, information and belief, the company may have utilised partnership property and drawn from partnership funds, and it continues to occupy the premises on the basis that it meets the mortgage payments and outgoings in lieu of rent. 9 In or around July 2011, [Mr Culbert] said to me words to the effect, 'I will offer you $300,000 from profit of the company'. I understood this to be in effect an offer to compensate me for my share of the partnership's interest in or exposure to the company. I accepted no offer. 10 I wish to determine the nature of any interest the partnership may have in the company, and whether (instead or in addition) the company owes money to the partnership. Any money which may be due from the partners themselves 11 In or around 2007, [Mr Culbert] and I became aware that the partnership's bank statements included debits or withdrawals at or in favour of 'Pymble Hotel' and 'Great Northern'. To the best of my recollection, I suspected that these transactions were for the purpose of [Mr Culbert Senior] gambling. Approximately six months after [Mr Culbert] and I became aware of the moneys withdrawn at the Pymble Hotel and the Great Northern I said to [Mr Culbert Senior] words to the following effect 'Do you realise what you've done and the effect that its had on the partnership? You've taken close to $1 million.' [Mr Culbert Senior] replied with words to the following effect 'Yes I do, and I'm sorry." 89In [9] of her affidavit, Ms Perkins gave the evidence referred to at [35] above. 90On 21 February 2013, Mr Conacher had a conversation with Mr Trethewy as follows: - "Mr Trethewy: So what is happening with those court cases? Mr Conacher: Ours is still going on but I am not sure where the other party is up to. Mr Trethewy: Is there any chance that it will be resolved? Mr Conacher: No, I don't think so. It's only early days and our team thinks it could take 12 months or more. Mr Trethewy: What a shame." (emphasis added) 91Mr Conacher said that it was Mr Trethewy that raised the issue of "those court cases". Mr Conacher said that "I answered their questions". 92Mr Conacher said that on 12 or 13 March 2013 he had a further discussion with Mr Trethewy in which Mr Trethewy asked what was happening in these proceedings, and that the conversation continued: - "Mr Trethewy: What about the other case? Is that still going? Mr Conacher: Yes, [Ms Perkins] has just recently appeared in court and I think they're due back in a few weeks around the 27th. Mr Trethewy: What are her chances? Mr Conacher: I have no idea. It is pretty damning stuff from what I have read. [Ms Perkins] is alleging all sorts of dodgy behaviour by [Mr Culbert] and [Mr Culbert senior] and wants the court to appoint an administrator to investigate. So if that happens, it will very serious for them. So if [Ms Perkins] is right, then they could be facing charges but it's on the Court lists. Your legal people should be able access the documents. It's on the Supreme Court website. Just type in my [sic] name or 'Culbert' and they will come up. Mr Trethewy: So which company is this? Mr Conacher: It's a partnership called BCP Marketing Services between Patrick and Robert Culbert and Charmaine Perkins. She left back in 2011 and has been trying to wind it up so she can get her money out and they are not cooperating. Mr Trethewy: I should get legal to have a look. Mr Conacher: Well wouldn't they have discovered this if they had done their due diligence? Mr Trethewy: Well you would hope so." (emphasis added) 93Mr Conacher said the basis upon which he had told Mr Trethewy that Ms Perkins was alleging that Mr Culbert had engaged in "dodgy behaviour" was to be found in [8] of Ms Perkins' affidavit where Ms Perkins alleged that "the company may have utilised partnership property and drawn from partnership funds". 94Mr Conacher said: - "I took them to be the same, the same people in the enterprise. I took that to refer to both of them." 95Mr Conacher also said he relied upon what Ms Perkins had alleged in par [11] of her affidavit. In that paragraph, Ms Perkins makes allegations of criminal conduct (misappropriation of "close to $1 million") against Mr Culbert Senior. 96Mr Elliott suggested to Mr Conacher, in cross-examination, that Ms Perkins made no allegation in her affidavit of any improper, let alone criminal behaviour, about Mr Culbert. 97Mr Conacher responded: - "I took that [par 11] to understand that in order for there to be dodgy behaviour by the father, the son would have known about it and be involved with it." 98I do not read Ms Perkins' affidavit as making any allegations against Mr Culbert. In particular, I do not read Ms Perkins' [11] to convey that Mr Culbert was "involved" in Mr Culbert Senior's alleged misappropriation of funds from the Partnership. I read what Ms Perkins stated in her [8] to be a reference to the detailed allegation that she makes at [11]; that allegation is directed solely to Mr Culbert Senior. 99I accept Mr Elliott's submission that, in giving his account to Mr Trethewy of what Ms Perkins was contending in her proceedings, Mr Conacher misrepresented the nature of Ms Perkins' allegations. 100Mr Elliott put to Mr Conacher, and submitted to me, that Mr Conacher had done so deliberately: - (a)in the hope and expectation that Mr Trethewy would pass the information on within Lend Lease to those in charge of the Barangaroo project; and (b)because he had read Mr Culbert's affidavit of 25 January 2013, seen the plaintiff's potential involvement in the Barangaroo project as a significant obstacle to the defendants' claim for security for costs and "wanted to see what could be done to remove this obstacle, because doing so would advance his own interests". 101I do not accept this submission. I see no basis in the evidence for concluding that Mr Conacher was so motivated. Mr Conacher denied it. The circumstantial evidence is, in my opinion, insufficient to compel a conclusion contrary to his denial. Further, the only account of the conversation between Mr Conacher and Mr Trethewy is from Mr Conacher. It is from Mr Conacher's own account of what was said that the misleading nature of it is revealed. It seems to me unlikely that Mr Conacher would give that account of the conversation, adverse in that sense to his own interests, if he had the sinister motivation attributed to him by Mr Elliott's submission. 102Mr Elliott submitted that, in any case, it was sufficient, for the purposes of his submissions, for me to conclude that Mr Conacher had made an innocent misrepresentation to Mr Trethewy of the case Ms Perkins was making against Mr Culbert. 103Things moved rapidly thereafter. On 13 March 2013, Mr Trethewy wrote an email to Mr Jol Keeble, another officer of Lend Lease, as follows: - "I'm not sure where you are at with the contract with [the plaintiff] for Barangaroo. I am informed that the proprietor of [the plaintiff] currently has two law suits against him. One is his former partner Charmaine Perkins of BCP Marketing Financial who has been in dispute with [the plaintiff] since 2011 and took legal action in December 2012. [The plaintiff] has been summoned to appear in the Supreme Court on 27th March and BCP has requested [the plaintiff] be wound up as a company to recover damages and potential criminal charges may be pending regarding financial impropriety. The other is [the first defendant] which is also in dispute with [the plaintiff] as [sic] is also due to appear in Court in March. I am informed that [the first defendant] is also seeking recovery of costs with respect to a dispute with [the plaintiff] over copyright and will seek to have [the plaintiff] wound up to recover these damages. Have we done any due diligence on [the plaintiff] in light of these pending disputes which in all likelihood will make the company insolvent?" (emphasis added) 104Mr Conacher accepted that some of the information (for example, that in the second and third sentences) reflected what he had said to Mr Trethewy. However, he denied that, as a whole, the email was an accurate account of what had been said. So much is obvious. For example, Mr Trethewy reported that Ms Perkins was suing and seeking to wind up the plaintiff, whereas the true position was that Ms Perkins was seeking relief in respect of the Partnership. It is unlikely that Mr Conacher was responsible for this misunderstanding. 105It appears that Mr Trethewy's email to Mr Keeble came to the attention of Mr John Salier, Head of Construction, Barangaroo South at Lend Lease. 106In circumstances that, on the evidence, are not entirely clear, Mr Culbert became aware of this. On 15 March 2013, he wrote to Mr Salier as follows:- "Firstly, I am very sorry to involve you with this - I'm sure you can understand that I wish I wasn't involved in these situations either. It is obvious that the information Lend Lease has received has come from my uncle, Anthony Conacher from [the first defendant]. In any case, our lawyers believe this information to be false and defamatory. As you know, we were involved in a joint venture which [the first defendant] ended at the end of 2011. We subsequently signed an agreement which ensured neither party would infringe on the other's intellectual property. In late September 2012, we became aware that [the first defendant] had developed a competing product to [the plaintiff]. We, of course, immediately initiated legal action against [the first defendant], it's directors and associated companies, to protect our interests and intellectual property. To be clear, eInduct is the plaintiff and 3DSS is the defendant. We are not liable for any amount of money to them, other than potentially, a costs order if we lose the case. Our lawyers are very confident. The other case mentioned is frivolous and has nothing to do with [the plaintiff]. My ex-business partner in my other business, BCP Marketing Services, is seeking to sell a commercial property we own jointly. When she left the partnership we agreed that we would forgive a debt she owed us of $476,000 in return for her share of that property which is only $80,000. We believe that as a result of her personal financial position she has "reneged" on the deal. We expect this case to be finalised before it proceeds to court on the 27th March as we are in discussions with her. I would sincerely appreciate the opportunity to meet with and explain these situations to whoever I need to at Lend Lease. Obviously, I do not want this to affect our relationship with Lend Lease and Barangaroo. Can you please call or reply to this email with contact details of anyone I need to speak to? Or, can you arrange a meeting with the relevant person? I am happy to provide complete details of both cases to whoever Lend Lease require and my lawyers will be happy to meet and confirm anything required. John, I believe our relationship has always been open and honest. I pride myself on my ethics and integrity and I hope you can afford me the same by communicating with me in this situation. As I'm sure you're aware, we've put significant resources into Barangaroo and don't want a miscommunication and misinformation to affect our current plans." 107Mr Salier replied: - "I am uncomfortable at what is going on regardless of who's' [sic] version of the truth I choose to believe. That is why I won't be entertaining any further discussions with either of you in the near term. I am exploring another option at present anyway given the current confusion. No need to talk". 108Mr Culbert replied on 19 March 2013 saying that he was "stunned and dumbfounded" by the response and continued: - "If it will affect our contract with Lend Lease on Barangaroo, I will drop the case today, even though, those who have supplied you with misinformation will have achieved their goal!" (emphasis in original). 109Mr Culbert received no reply and on 2 April 2013 made formal demand on Lend Lease for monies said to be due for work done by the plaintiff on the Barangaroo project to date.

Causation 110As I have said, the plaintiff's case is that Mr Conacher's conduct, and in particular his conversation with Mr Trethewy on 12 or 13 March 2013, had as its object and has had the effect of causing Lend Lease to terminate its commercial relationship with the plaintiff. 111I have rejected the submission that Mr Conacher was so motivated. 112I have found that Mr Conacher innocently misrepresented, and overstated, to Mr Trethewy the nature of the allegations made against Mr Culbert by Ms Perkins. It does seem clear that Mr Trethewy's email account of Mr Conacher's conversation further muddied the waters by misstating what Mr Conacher had said. It also appears that it was Mr Trethewy's email that led to Mr Salier becoming aware of the litigation in which Mr Culbert was involved. 113Mr Elliott submitted that it was the allegation of criminal misconduct on behalf of Mr Culbert that led Lend lease to terminate its dealings with the plaintiff on 13 March 2013. This submission is based on the fact that Lend Lease, as evidenced by Mr Conacher's 21 February 2013 conversation with Mr Trethewy, was aware of the two legal cases before 13 March 2013 yet continued its relationship with the plaintiff. Mr Elliott submitted that it was only when Mr Conacher overstated to Mr Trethewy the allegations made by Ms Perkins on 12 or 13 March 2013 by saying that Ms Perkins alleged criminality against Mr Conacher, and when Mr Trethewy passed this on within Lend Lease by his email of 13 March 2013, that the matter came to Mr Salier's attention, following which he caused Lend Lease to cease all work and discussions with the plaintiff. 114While that does seem to be the order of events, I am not able to conclude from this that Mr Conacher's conduct has thereby caused the plaintiff's current inability to meet a costs order or resist this application. 115This is for a number of reasons. First, I am not able to make any assessment as to how likely it was, but for Mr Conacher's statements of 12 or 13 March 2013, that Lend Lease would have engaged the plaintiff in relation to the Barangaroo project. 116It is true that, as I have stated, in September 2012, Lend Lease had sent the plaintiff a form of final contract and had stated to the ACCC that it proposed to engage the plaintiff in relation to the Barangaroo project. It is also true that Mr Culbert gave evidence that, until the middle of March 2013, the plaintiff was doing work for Lend Lease in relation to the Barangaroo project. 117There are, however, some indications in the evidence that the plaintiff's prospects of being engaged by Lend Lease on a permanent basis were not strong. 118First, although Lend Lease sent the plaintiff a form of contract in September 2012, in March 2013, some 6 months later, that contract had not been executed. 119Second, on 28 November 2012, Mr Conacher was told by Mr Steve Windon, the Occupational Health and Safety Manager at Lend Lease, that he was not aware of any contract with the plaintiff and that: - "It would have to come past me first and I can tell you that won't happen." and: - "They [that is, Lend Lease] are still using Blue Glue down there and there are no plans to change that. " 120A short time later, Mr Windon again told Mr Conacher that the plaintiff had not, and would not, be granted a contract by Lend Lease. Mr Conacher passed this on to Mr Trethewy in an email of 2 January 2013. Blue Glue's website shows Lend Lease as one of its clients. 121Third, the concluding remarks in Mr Trethewy's 13 March 2013 email (in which he speculated that the "pending disputes" in which the plaintiff and Mr Culbert were involved "in all likelihood will make [the plaintiff] insolvent") suggest that the message he was intending to pass on to others in Lend Lease was related to the plaintiff's likely financial position, rather than Mr Culbert's character and alleged criminality. 122Fourth, Mr Salier stated in his 18 March 2013 email to Mr Culbert that he was "exploring another option at present anyway given the current confusion". I am not able to make any assessment of whether Mr Salier would have explored that other "option" in any event. 123Fifth, I am not able to say what difference Mr Culbert's own intervention made. His email of 15 March 2013, referred to at [106], may well have been the last straw, so far as Mr Salier was concerned. I simply cannot say.

Conclusion as to the defendants' conduct 124I am not satisfied that Mr Conacher sought to persuade Ms Perkins to bring proceedings against Messrs Culbert. Even if he did, I am not satisfied that that has made any material difference to the plaintiff's ability to meet any costs order in these proceedings or resist this application. 125Although I am satisfied that Mr Conacher innocently misrepresented to Lend Lease the nature of the allegations made by Ms Perkins against Mr Culbert, I am not satisfied that this misrepresentation has made any difference to the plaintiff's position vis-à-vis Lend Lease or to the plaintiff's ability to meet a costs order in these proceedings or resist this application.

Abuse of process 126Arising out of the matters I have discussed, the plaintiff also alleges that the defendants have brought the application for security for the improper purpose of bringing these proceedings to an end. 127I see no basis whatsoever for the making of that allegation. I reject it.

Stultification 128That leaves as the only basis upon which the defendants' application for security should be denied the plaintiff's contention that to order security would stultify the proceedings. 129It is well established that if the effect of making a security for costs order would stultify the proceedings, that is a powerful factor weighing against the making of an order (see, for example, Yandil Holdings Pty Ltd v Insurance Co of North America (1985) 3 ACLC 542 at 545 per Clarke J). 130Were I to make the security for costs order sought by the defendants, that would have the practical effect that the proceedings would be stayed for the moment as there is no doubt that the plaintiff cannot provide security. 131However, I am not satisfied that the proceedings would be thereby stultified. 132In the near future, all or part of the proceeds of sale of the Culberts' Roseville property will be available for utilisation by the plaintiff. Mr Culbert has said he proposes to use half of the proceeds of Roseville to meet the plaintiff's legal costs in these proceedings, and half "towards the day to day running" of the plaintiff. 133More significantly, by around August or September 2013, the plaintiff will receive the research and development rebate referred to at [22]. 134I accept that some, perhaps all, of those funds will be needed by the plaintiff as working capital. However, that may not be the case. It will not be until the plaintiff's financial position, seen in light of the receipt by it of some or more of those monies, is known that any final conclusion will be able to be drawn as to whether the making of a security for costs order will stultify the proceedings. 135Mr Elliott submitted that "[t]he position with respect to security for costs should and can be reconsidered upon receipt of the R&D grant" and stated that: - "The plaintiff agrees to notify the defendants within 7 working days of its receipt, and will at that time indicate whether that provides a source for security, and to the extent the defendants are not satisfied, the plaintiffs will disclose such discoverable materials bearing on its and Mr Culbert's financial position as the defendants require without requiring the defendants to first file a motion for security." 136I agree that the question of security can be reconsidered when the grant is received but consider that to be a reason to make an order for security, not refuse it. 137In all these circumstances, I am satisfied that I should make the security for costs order sought by the defendants. 138The plaintiff can seek to have that order reconsidered in light of future events: cf Ballard v Brookfield Australia Investments Ltd [2013] NSWCA 18. 139I propose the following orders: - (1)The plaintiff provide security for the costs of the defendants in these proceedings in the sum of $250,000 within 14 days. (2)The proceedings be stayed if such security is not provided. (3)The plaintiff pay the costs of the defendants' Notice of Motion of 30 November 2012. 140However, I will hear the parties as to what orders should be made. I invite the parties to bring in short minutes to give effect to these reasons. If the parties cannot agree on the orders, I grant liberty to apply on short notice so that the matter can be determined.

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: 24 April 2013

At a glance

Court

Decision date

Before

Source

Judgment (16 paragraphs)

Parties

Cases Cited (3)