There are applications by both parties, brought by duelling notices of motion, for orders for security of costs. There were originally two sets of proceedings but these have been consolidated into one before this Court.
The first set of proceedings was commenced in the District Court by the Narromine Irrigation Board of Management, to whom I will refer as the plaintiff. Those proceedings were to recover the unpaid portion of a series of rates and charges invoiced to Pauci Pty Ltd between November 2012 and September 2015. The invoices were directed to Pauci Pty Ltd, the owner of certain lands subject to an irrigation scheme in relation to which the plaintiff has statutory duties and obligations. I will refer to Pauci as the first defendant. The second defendant is an associated company called Grech Cotton Co Pty Ltd, which is the lessee of the relevant land.
Narromine Irrigation Board of Management v Pauci Pty Ltd [2017] NSWSC 1103 | Case summary | Zoe
The second set of proceedings was commenced by the defendants in this Court. Those proceedings were for a series of declarations, for orders in the nature of prerogative relief and for damages. The substance of that claim is that the plaintiff acted ultra vires in its issue of the invoices subject to the District Court claim and in relation to a number of other invoices of the same nature levied during the period from 1 July 2011 and 30 November 2016. In its defence to the proceedings commenced in the District Court the defendants raised a similar, if not identical, argument in relation to the validity of the invoices and the manner in which the plaintiff assessed the relevant charges.
On around 8 February 2017 Walton J made an order consolidating the two sets of proceedings and ordering that the matter commenced in the District Court by the plaintiff be transferred to this Court. At that time, the statement of claim filed in this Court by the defendants became the cross claim to the original District Court proceedings.
In December 2016 the plaintiff filed a notice of motion, supported by affidavit evidence, seeking an order that the defendants provide security for costs pursuant to rule 42.21 (1) the Uniform Civil Procedure Rules 2005 (NSW) and/or s 1335 (1) of the Corporations Act 2001 (Cth). The orders sought in that notice of motion are opposed.
On 9 April 2017 the defendants filed a notice of motion seeking an order that the plaintiffs provide security of costs under the same provisions.
When the matter came on for hearing, the parties provided two court books which were marked as Exhibits A and B respectively. Court book 1 (Ex A) contained the following documents:
1. Notice of motion of NIBM;
2. Cross-Claim of Pauci;
3. Defence to Cross-Claim of the NIBM;
4. Submissions of NIBM;
5. Submissions in reply of Pauci;
6. Affidavit of Matthew Harding for NIBM dated 19 December 2016; and
7. Affidavit of Peter Charles Grech for Pauci dated 21 May 2017.
Court book 2 (Ex B) comprised:
1. Notion of Motion of defendants;
2. Statement of claim of NIBM;
3. Defence to the Third Amended Statement of Claim of Pauci;
4. Fourth Amended Statement of Claim of NIBM
5. Submissions of Pauci;
6. Submissions in reply of the NIBM;
7. Affidavit of Nicholas Wilson for Pauci dated 23 June 2016;
8. Affidavit of Nicholas Wilson for Pauci dated 7 April 2017; and
9. Affidavit of Jon Fletcher for NIBM dated 19 June 2017.
An affidavit of Nicholas Alexander Wilson, dated 19 June 2017 and filed in court on 20 June 2017 (the date of the hearing of both notices of motion), was read. Exhibit C was a letter from the plaintiff's solicitors responding to a notice to produce annexed to the affidavit of Mr Wilson to which I have just referred.
The two notices of motion were argued sequentially and the two court books appeared to separate material relevant to the respective notices of motion to which they related. However, counsel for both sides referred to the material in both court books in putting their arguments in relation to the respective notices of motion. Accordingly, I take it to be common ground that all of the material tendered or read in the course of the hearing is admissible in consideration of what orders should be made in respect of both notices of motion.
Counsel for both sides provided helpful written submissions and expanded on those submissions in the course of argument. I will first deal with the notice of motion for security for costs brought by the plaintiff.
[3]
The Plaintiff's application for security for costs
A large body of material within the affidavits was directed to the gateway or threshold question to be considered on an application for security costs. That is the question of whether it is established that the "plaintiff" (in this case, the cross-claimants or defendants) is impecunious. Counsel for the plaintiff took me to the material in a great deal of detail in order to establish the impecuniosity of the defendants. However, it is unnecessary to go to that material in any depth here, because it is conceded on behalf of the defendants that:
"Pauci accepts, for the purpose of this application, that there is a real chance, in events that are reasonably possible, that Pauci would not be able to pay a costs order against it at the time of judgement and immediately thereafter. In other words, Pauci concedes that there is a real chance that Pauci could only pay those costs if allowed an extended time to realise the net assets that comprise the trust fund." [1]
[Emphasis in the original]
On the basis of the material in the court books, and notwithstanding that the defendants appear to have significant land holdings, I accept the concession. The defendants' land holdings are secured in various ways and there are also trusts set up which may impact on its ability to meet a costs order. Accordingly, the criterion in UCPR r 42.21(1)(d) is established in that it appears to the court that:
"there is reason to believe that the [cross-claimant], being a corporation, will be unable to pay the costs of the [cross-defendant] if ordered to do so."
Having overcome the first hurdle, the onus effectively shifts to the defendants to establish that an order for security of costs ought not to be made. The defendants submit that the substance of the cross claim is essentially the same as the substance of its defence. The plaintiff maintains that this is not the case and made vigorous submissions that the cross-claim and defence raise different legal and factual issues. Counsel made the following submissions on this issue:
"This is, in my submission, a case where one can say that the issues do arise out of the same factual circumstances, my client, setting rates and assessing and seeking to levy rates and charges on the defendant. But there are a couple of differences just factually, 1) The time periods are different. The cross claiming relates to a time period that is not in dispute. The cross claim also relates to the invoices that my client isn't seeking to claim upon because they have been paid. There are two clear areas that the cross claim raises that are not the subject of my client's claim.
Next, the cross claim is in the context of this matter, a large amount of money, $400,000 odd, it's more than the main claim. It's not an offsetting claim. One shouldn't look at 300,000 something versus 400,000 and see it's offsetting. This is a defence to the $300,000, and a claim for the $400,000 plus interest, plus an unspecified unliquidated damages claim.
Next, it raises different issues of law. Firstly, there's an administrative law issue in relation to the validity or otherwise of my client's assessment practices. In effect, the cross claimant seeks to go behind the assessments and see what was done and say whether they were validly issued. Secondly, it raises for this Court's consideration, issues of, even if my client did not issue the assessment strictly in accordance with the statutory régime or keep the records that the cross claimant says it was required to do under the Act, did that in fact or in law invalidate the assessment process.
Next, the Court will need to determine on a discretionary basis as to whether to grant declaratory relief in the form sought in orders 1 and 2 of the cross claim. Next, the Court will need to determine whether, as a matter of discretion, it ought grant relief in the form of [a writ of] certiorari. Next, the Court will need to determine on what basis this unjust enrichment claim that has been advanced ought be dealt with. None of those matters are raised by my client's claim. Only in a certain respect are those matters relevant to the defence to that claim. There's a very narrow area that's common." [2]
I am unable to accept this submission. I accept the force of parts of counsel's argument - for example, part of the cross-claim relates to a different time period. Even so, there is a substantial overlap in the time period covered in the plaintiff's claim and that covered by the cross-claim. All of the invoices covered by the plaintiff's claim also arise in the defendants' claim. However, the cross-claim also deals with a number of invoices that the defendants have paid. The plaintiff stresses that the power to issue rates and charges arose on a yearly basis and that, accordingly, different issues arise in respect of the invoices raised for irrigation charges in each year.
However, in each case, the central issue is whether the plaintiff acted ultra vires in its issuing of the invoice under which it seeks to recover. The defence in respect of the plaintiff's claim is that it ought not to be entitled to recover because those invoices were issued outside of the power provided to the plaintiff by the Water Management Act 2000 (NSW). The defendants' case on the cross claim is almost identical. In other words, it asserts that the invoices issued by the plaintiff were invalid and that it is entitled to recover the money that it paid under the invoices.
According to amended statement of claim, the plaintiff issued invoices to the total value of $808,986.40 between November 2012 and 7 March 2017. [3] Between 3 January 2013 and 16 December 2015 the defendants made payments to the plaintiff to the defendants totalling $466,836. [4]
While the plaintiff is correct to argue that there are a number of additional matters relevant to the cross claim, such as the circumstances in which the court will exercise its discretion to make declaratory judgements or to issue prerogative relief, the issue at the heart of those proceedings is the same. It is also correct that the defendants' cross-claim will involve a consideration of different invoices but nothing was put to suggest that this changed the nature of the issue to be litigated.
The question whether a defendant has, by the nature of its cross-claim, effectively become a plaintiff for the purpose of an application for security for costs was considered by Brereton J in Bevwizz Group Pty Ltd v Transport Solutions Pty Ltd [2008] NSWSC 1399. His Honour set out the test at paragraph [18]:
"The position therefore seems to me to be that, as a matter of jurisdiction, the reference in the section and the rule to 'plaintiff' extends to encompass a cross-claimant. However, as a matter of discretion the Court will not make an order against a cross-claimant where the cross-claim arises out of the same matters as the claim and is purely by way of defence. If it extends beyond being purely by way of defence, then the Court will have regard to the overall nature of the proceeding and the cross-claim to see whether it can be said that in truth the cross-claimant has become, in substance, a plaintiff."
Similarly, in Greenacre Business Park Pty Ltd v Deliver Australia Pty Ltd [2014] NSWSC 1353, Robb J said:
"36 It is clear that security for costs may be ordered against a defendant who is a cross claimant in the proceedings, as 'plaintiff' is defined in s 3 of the Civil Procedure Act 2005 (NSW) as meaning 'a person by whom proceedings are commenced... and includes a person by whom a cross-claim is made...'
37 The question of when a cross claimant may be the subject of an order for security for costs has been considered in a number of cases that have usefully been collected and considered by Brereton J in Bevwizz Group Pty Ltd v Transport Solutions Pty Ltd [2008] NSWSC 1399 at [11] - [18]. At [18] his Honour concluded:
'[18] The position therefore seems to me to be that, as a matter of jurisdiction, the reference in the section and the rule to "plaintiff" extends to encompass a cross-claimant. However, as a matter of discretion the court will not make an order against a cross-claimant where the cross-claim arises out of the same matters as the claim and is purely by way of defence. If it extends beyond being purely by way of defence, then the court will have regard to the overall nature of the proceeding and the cross-claim to see whether it can be said that in truth the cross-claimant has become, in substance, a plaintiff.'
38 I respectfully agree with Brereton J's reasoning and his conclusion. It is notable that his Honour distinguishes between cross claims that arise out of the 'same matters' as the claim and are "purely by way of defence", and cross claims that extend 'beyond being purely by way of defence'. In the important case of Buckley v Bennell (1974) 1 ACLR 301 Street CJ at 307, in a passage extracted by Brereton J at [17] referred to a cross claim 'which amounts simply to a defence to the action' (my emphasis).
39 The question that arises is as to how the court should distinguish between cross claims that arise out of the same matters as the claim and are purely by way of defence, and those that extend beyond being purely by way of defence."
I accept that the defendants, by bringing its cross-claim, has become for the purpose of the operation of the relevant provisions a "plaintiff". In other words, I have no doubt that the "jurisdiction" (in the sense discussed by Brereton J) is properly invoked. However, I am satisfied that the defendants have made good its argument and that, as a matter of discretion, I should dismiss the application. As I have said, while the period of time is not identical, there is a substantial overlap in those periods. However, the legal issue upon which the defendants rely is precisely the same, albeit relevant to different time periods.
As a result, there will be a significant overlap in the preparation for the hearing of the plaintiff's action as there will be in the cross-claim. One important consideration, in any application of this kind, is that orders for security for costs ought not to stultify or stifle the proceedings. Similar considerations must apply where the order has the potential to fracture the proceedings. If the defendants' action were stayed in consequence of an order for security for costs, the plaintiff's proceedings would continue. The primary issue that the defendants seek to ventilate in its cross-claim would be subject of evidence and submissions in the plaintiff's suit. If the defendants were successful in its defence, but was shut out from pursuing its cross-claim, it is likely that it would then pursue the cross-claim. It could use the costs that would follow its success to provide security for the plaintiff's costs. [5] It is undesirable that the proceedings be fractured in that way. In other words, on a practical level, there is little to be gained by making orders that may have the effect of preventing the defendants from pursuing its cross-claim now if the same issues it seeks to ventilate are to be ventilated in relation to its defence to the plaintiff's claim.
While counsel for the plaintiff expressed a great deal of confidence in the correctness of his client's position on the matter when it finally comes to be heard, this is not an application for summary judgment or for a strike out of the defence and cross-claim. Accordingly, I must proceed on an assumption that the defendants' argument may ultimately be accepted.
For those various reasons, the plaintiff's application for security costs should be dismissed.
[4]
The Defendants' Application for Security for Costs
I turn to consider the defendants' application for an order for security costs against the plaintiff. I have come to the conclusion that that notice of motion should also be dismissed. There are two fundamental reasons for this conclusion.
The first reason is that I am not satisfied that the plaintiff is impecunious in the relevant sense. The defendants relied on the method by which the Water Management Act allows the plaintiff to recover money from those under its control. Section 167 of the Water Management Act is in the following terms:
"167 Fixing of rates and charges
(1) As soon as practicable after 1 July in each year, a private irrigation board:
(a) must fix a rate per hectare, for all holdings within its private irrigation district, so as to produce a total amount sufficient to meet the estimated liabilities of that board during that year and any outstanding liabilities of that board, and
(b) must fix a rate per hectare for water, or a charge for the quantity of water, to be supplied during that year for domestic and stock purposes to all holdings within the private irrigation district, and
(c) in the case of a board constituted for a private water supply and irrigation district:
(i) must determine the total quantity of water that it proposes to supply to all holdings for the purpose of irrigation during that year, and
(ii) must fix the charges in respect of the quantities of water allocated under Division 7 for that purpose in respect of all holdings within the district.
(2) The rates and charges referred to in subsection (1) (b) and (c) must be fixed so as to produce in the year for which they are fixed the amount estimated by the private irrigation board as being required in that year:
(a) to defray the cost of constructing, maintaining and operating its water supply works, and
(b) to pay the interest on and repay the capital of any loans raised by the board, and
(c) to meet any outstanding liabilities of the board and the costs and expenses of administering the private irrigation district and of doing all such things as the board may lawfully do."
The argument was that because s 167 provides for rates and charges to be levied at the beginning of each financial year, and based on the expected expenses for the following year, the plaintiff would, ipso facto, not be in a position to meet a debt which had not yet accrued (namely, theoretically, a future costs order made if the defendants are successful in its defence of the original claim).
While there is some superficial logic and attractiveness to this proposition, the balance of the material satisfies me that the plaintiff is, to adopt the colourful expression repeatedly employed by counsel for the plaintiff, "flush with funds." This can be seen from the voluminous material filed on the plaintiff's behalf and in particularly in the affidavit of John Fletcher sworn 19 June 2017 along with a number of annexures concerning the plaintiff's financial position and accounts.
I am satisfied from the statement of cash flows and other financial records annexed to that affidavit that the plaintiff cannot properly be described as impecunious. In addition to its ability to levy rates and charges under s 167 of the Water Management Act, the plaintiff is also backed by a Commonwealth agency under a funding arrangement between the plaintiff and the Private Irrigation Infrastructure Operators Program, which is a Commonwealth government program. [6] While the terms upon which such funding and subsidies are granted are strictly regulated (as would be expected), and while there is no specific reference to the potential of the funding covering legal fees, the evidence shows that the amount of cash on hand in the accounts reduced by the amount which is quarantined pursuant to the agreement between the Commonwealth and the plaintiff, leaves a significant sum of money in the plaintiff's accounts. A perusal of those accounts does show, as the defendants submitted, that the amount of cash on hand fluctuates. This is no doubt a result of the fact that the plaintiff is a "not for profit" organisation. However, I am not satisfied that it would be unable to meet a costs order in relation to the defendants' claim, if such an order was made.
Even if it were accepted that the plaintiff's position were otherwise, discretionary considerations would lead me to the conclusion that the orders sought by the defendants ought not to be made. In particular, there has been a lengthy and largely unexplained delay in the defendants seeking an order for security of its costs. The plaintiff commenced its action in the District Court on 20 March 2015. The defendants did not seek an order for security of costs until April 2017. There was an attempt to justify this substantial period of delay by reference to the plaintiff's conduct of the proceedings. In particular, submissions were made about the failure of the plaintiff to consent to a consolidation of the proceedings and transfer of the District Court matter to this Court. However, I am unable to see how that would have prevented the defendants, if it were truly concerned that this government backed statutory board was unable to meet a costs order, from making an application of the kind now pursued in a more timely manner. In the meantime, the parties have prepared the case and expended legal fees. It is that consideration that underpins the discretion in the Court to refuse an application such as this if it is not brought expeditiously.
For those reasons the notice of motion by the defendants will also be dismissed.
[5]
Costs
Each party has had some success in resisting the others' application but each has been unsuccessful in pursuit of their own application. In those circumstances the most appropriate course is to order that the costs of each application will be the costs in the cause.
[6]
Orders
In each case, costs will follow the outcome of the notice of motion. Accordingly, the orders I make are as follows:
1. The plaintiff's notice of motion for an order for security of costs is dismissed.
2. The defendants or cross-claimant's notice of motion for an order for security of costs is dismissed.
3. The costs will be the costs in the cause.
4. The matter is listed before the Registrar on 7 September 2017.
[7]
Endnotes
Cross-claimant's written submissions in reply at [24].
Transcript (T) pp 10-11.
Ex A, CB 2 p 34-35.
Ex A, CB 2 p 35.
Contrary to a submission by counsel for the plaintiff, if security for costs were ordered and not provided, the result would be a stay until they were. The proceedings would not ordinarily be dismissed.
See the affidavit of John Fletcher dated 19 June 2017 and the annexures thereto.
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Decision last updated: 24 August 2017