BETWEEN : FOCUS NOMINEES PTY LTD (ACN 008 871 994)

Applicant (First Defendant) : Allens Arthur Robinson

Alltrans Express Ltd v CVA Holdings Ltd [1984] 1 WLR 394

Anglo-Cyprian Trade Agencies Ltd v Paphos Wine Industries Ltd [1951] 1 All ER 873

BPM Pty Ltd v HPM Pty Ltd (1996) 131 FLR 339

Goldace Holdings Pty Ltd v Vodaphone Network Pty Ltd & Ors [1999] WASC 184

Indaba Pty Ltd v McVeigh [2000] WASCA 332

Intercraft Cabinets Pty Ltd v Sampas Pty Ltd (1997) 18 WAR 306

1 MURRAY J: I find myself in entire agreement with the reasons of his Honour Pullin J. I also am of the view that the application for leave should be refused in this case.

2 PULLIN J: This is an application for leave to appeal from the decision of Master Sanderson, whereby he dismissed the applicant's application for security for costs under s 1335 of the Corporations Law. If leave is to be granted, it will be necessary to show that the Master's decision was wrong or attended by sufficient doubt, to justify the grant of leave: see Western Australia v Bond Corporation Holdings Ltd (1991) 5 WAR 40.

3 The Master's decision involved the exercise of a discretion. The applicant must therefore show that the Master's decision is wrong or attended by doubt. It will be necessary to deal with the strictly limited grounds which are available for an appeal in those circumstances. In the well-known case of House v The King [1936] HCA 40; (1936) 55 CLR 499 at 504 to 505, it was said:

"It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in exercising the discretion. If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so";

4 and see also the recent High Court decision of CDJ v VAJ (1998) 197 CLR 172 at 182, which repeats that passage.

5 The material considerations on an application for security for costs were discussed in Parkinson & Co Ltd v Triplan Ltd [1973] 1 QB 609 at 626, which was referred to with approval in Zortec Australia Pty Ltd v Rural & Industries Bank of Western Australia, unreported; FCt SCt of WA; Library No 920609; 13 August 1992. One factor which may be taken into account is whether the company's claim is bona fide and not a sham, or whether the company has a reasonably good prospect of success. In this case, the Master found that the strength of the plaintiff's case was a decisive factor in declining to make the order. The applicant challenges the finding that the plaintiff has a strong case. If that argument succeeded, it would be shown that the Master had a mistaken view of the facts.

6 Before recording the applicant's arguments, I refer to the facts pleaded and supported by affidavit. The facts are summarised by the applicant in these terms. The claim relates to the sale of a printing business known as Printability. The respondent purchased the business from a company known as Bonamie Pty Ltd for the sum of $600,000 by way of a contract dated 17 November 1998. The applicant is a settlement agent, which acted for both the respondent and the vendor in the transaction. The contract of sale contained a clause which required the vendor at settlement to deliver to the purchaser, a deed which bound certain persons named in the schedule to the agreement to the same restraint of trade clauses as bound the vendor. Settlement took place, but no deed was delivered by the vendor to the respondent. The restraint clause - cl 4(a) of the conditions of the contract - provided:

"The Vendor will not directly or indirectly and whether solely or jointly with or as a director, manager, agent or servant of any person or corporation carry on or be engaged or interested in, any business of the nature of the Business hereby sold, or any significant component thereof, or permit the Vendor's name or the names of any of them to be used in connection with such business:

(i) within the area set out in E of the Particulars, and

(ii) for the period set out in E of the Particulars."

"The Vendor will upon completion deliver to the Purchaser a Deed whereby the person(s) named in E of the Particulars will covenant and if more than one, jointly and severally, with the Purchaser to accept the same restrictions on completion as are accepted by the Vendor in clause 4(a) hereof. Such Deed will be prepared and tendered by the Purchaser to the Vendor within a reasonable time before the date of settlement."

8 Clause (E) of the particulars nominated the area referred to in cl 4(a)(i) of the contract as a radius of 10 kilometres, the period referred to in cl 4(a)(ii) as a period of three years, and the restrained persons as the second and third defendants, Mr Warburton and Mr Reeve, who were at all material times directors of the vendor. The contract also contained a cl 2 which read:

"The balance of purchase price shall be paid on the date specified in paragraph (C) of the Particulars and payment thereof shall be effected by Bank Cheque(s) payable to the Vendor or his solicitor (or such other person or persons as the Vendor or his solicitor shall nominate in writing). The Vendor shall deliver to the Purchaser a proper registrable and executed transfer of the business name in favour of the Purchaser."

9 In my view, the obligation on the purchaser to pay the bank cheques and the obligation on the vendor to deliver up the transfer of the business, and the deeds of restraint to be executed by the directors of the vendor company, were concurrent obligations: see Foran v Wight [1989] HCA 51; (1989) 168 CLR 385 at 450.

10 The applicant submits that the Master reached the conclusion that the respondent had a strong case by speculating about whether other causes of action would allow the respondent to succeed, and in particular points to what the Master said in [3] of his reasons:

"... the first defendant might have been expected to at least have advised the plaintiff to seek advice in relation to the deed covering the second and third defendants before settlement took place."

"... although the claim is at present pleaded only in tort, there would seem to be no reason why it could not be pleaded in contract. It is possible that a term would be implied into the contract between the plaintiff and the first defendant as settlement agent such as to require the first defendant to advise the plaintiff if the vendor had not complied with all the terms of the sale agreement. Any breach of contract would be actionable per se and would give rise to a cause of action without the need to prove damages. On the materials available it is very difficult to see how the first defendant could resist such a claim."

12 The applicant also points out, and notes, that the respondent had pleaded that the applicant had failed to prepare a deed when there was no plea that the applicant was obliged to do so.

13 In my view, the references by the Master to the other causes of action are merely obiter observations. The fact that the respondent had pleaded a failure to prepare the deed in the absence of any pleaded obligation is also not critical to the Master's decision. The Master's reasons, noting the strength of the case, are in much simpler terms. In [1] and [2], he says these things:

"The contract of sale contained a clause which required the vendor at settlement to deliver to the purchaser a deed which bound certain persons named in the schedule to the agreement to the same restraintive trade clauses as bound the vendor. The second and third defendants were at all material times directors of Bonamie Pty Ltd and they were named in the schedule as persons to be restrained by the deed.

Settlement duly took place but no deed was delivered by the vendor to the plaintiff."

"From that brief outline of facts it is somewhat difficult to see what defence the first defendant has to the plaintiff's claim."

15 In my view, the case does seem straightforward. At settlement, as the respondent's agent, the applicant's task was to attend with the cheque for the balance of the purchase price and to receive in return the transfer of the business document and the deeds required by cl 4(d). If it did that, it earned its fee. If it failed to collect the deed, it left the former directors free to commence business in the manner which the parties intended should not occur.

16 In my view, the case was a strong one. The case for the existence of a duty and the breach of that duty, is very strong indeed. It is submitted by the applicant that the case is not pleaded out in this way, but, in my view, although the respondent has not spelled out the case in terms as clear as they might have been, there is sufficient, by way of material facts in the pleadings, to establish the simple case of duty to ensure that settlement was effected in accordance with the contract; that no deeds under cl 4(d) were secured; and that the respondent suffered loss. The loss element seems self-evident, in my opinion.

17 While it is true, as the applicant submits, that where the respondent concedes it would be unable to meet any costs awarded against it, this will be a consideration of great weight and will frequently be the determining factor, in this case, of course, there was another factor at work. In this case, the other factor present, namely the strength of the respondent's case against the applicant, was seen to be determinative by the Master. That was a factor the Master was entitled to take into account and, in my view, as a result, his discretion did not miscarry and, as a result, leave to appeal should be refused.

18 I should add by way of comment that this case is not a signal for parties to go into great detail on the merits of the case on an application for security for costs. Indeed, lengthy affidavits on the merits should be discouraged. In this case, however, it so happens that the strength of the respondent's case was obvious from the pleadings and the short affidavit material before the Court.