Print Management Australia v Pasupati

Civil Procedure Act 2005 LEGISLATION CITED : Corporations Act 2001 Fair Trading Act 1987

Fiduciary Ltd v Morningstar Research Pty Ltd (2004) 208 ALR 564 Green (as Liquidator of Arimco Mining Pty Ltd) v CGU Insurance Ltd (2008) 67 ACSR 105 CASES CITED : KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 Morris v Hanley [2000] NSWSC 957 Rajski v Computer Manufacture and Design Pty Ltd [1982] 2 NSWLR 443 Sharjade v Darwinia Estate Pty Ltd [2006] NSWSC 708

Print Management Australia Pty Ltd (Plaintiff/First Cross-Defendant) Kumareshawara Pasupati (First Defendant/First Cross-Plaintiff) Tacatan Pty Ltd (Second Defendant) S Satchithananda (Third Defendant) PARTIES : K Satchithananda (Fourth Defendant) Krishankumar Sellathurai (Fifth Defendant) Maithili Sellathurai (Sixth Defendant) Michael Hayter (Seventh Defendant) Phillip Okill (Second Cross-Defendant) Brett Stanley Raymont (Third Cross-Defendant)

COUNSEL : M K Condon (Plaintiff) A R Moses SC / Y Shariff (Defendants)

Fox & Staniland (Plaintiff) Lander & Rogers (First Defendant) SOLICITORS : Gillis Delaney (Second, Fifth, Sixth and Seventh Defendants) Dibbs Barker (Third and Fourth Defendants) Somerset Ryckmans (Second and Third Cross-Defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

31 August 2009 (ex tempore - revised 1 September 2009)

2059/08 PRINT MANAGEMENT AUSTRALIA v KUMARESHWARA PASUPATI JUDGMENT

1 HIS HONOUR: This is an application for security for costs of a cross-claim. The plaintiff in the proceedings (PMA) sues the first defendant, Mr Pasupati, in effect to recover moneys said to have been taken or paid away by Mr Pasupati in the course of his employment and the balance said to be due on Mr Pasupati's loan account. Mr Pasupati has brought a cross-claim against PMA and Messrs Phillip Okill and Brett Raymont who are, since the parting of the ways between Mr Pasupati's and PMA in December 2007, effectively in control of PMA. 2 One of the peculiarities of the application is that PMA, on the one hand, and Messrs Okill and Raymont on the other, are separately represented, and it is only Messrs Okill and Raymont who seek security for the costs of the cross-claim. Thus, if security were to be ordered on the usual terms - that the cross-claim be stayed as against Messrs Okill and Raymont until the amount ordered be provided - the cross-claim would proceed as against PMA. If, either as a result of triumph on that aspect of the cross-claim or otherwise, Mr Pasupati were able to provide the security in question, then the cross-claim would proceed separately (and before another unfortunate Judge of this Court) on issues, including as to credibility, which would overlap very substantially with those already determined in the course of the cross-claim against PMA. 3 The application is brought pursuant to the Court's inherent jurisdiction. It is not in dispute that the Court does have inherent jurisdiction to order a party to provide security for costs. The authorities were reviewed by Holland J in Rajski v Computer Manufacture and Design Pty Ltd [1982] 2 NSWLR 443. At 447, his Honour concluded "that it is settled by modern authority that power to require security for costs is inherent in the court whether they are functioning at Common Law or in Equity".

4 A little later on the same page, his Honour associated that inherent power with the courts' "inherent power to regulate their own practice and procedure to procure proper and effective administration of Justice and prevent abuse of process".

5 At 448-449, his Honour noted that whilst certain general kinds of situations in which the inherent power might be exercised could be distilled from decided cases, it was not correct to say that the power could be restricted to those cases, or examples to be found in them; the inherent power should not "wither away or become shrunken by limited past examples of its exercise". 6 The existence of the power was confirmed, and some of its incidence were discussed, in Green (as Liquidator of Arimco Mining Pty Ltd) v CGU Insurance Ltd (2008) 67 ACSR 105. At 115 [32], Hodgson JA (with whom Campbell JA agreed) noted that in cases other than appeals security would not ordinarily be awarded "without strong justification". His Honour suggested, without necessarily accepting, that one reason to do so might be "where not to do so would allow proceedings which would be vexatious or oppressive or an abuse of the Court's process" to continue. 7 At 115 [34], Hodgson JA referred to what Holland J had said in Rajski as to the Court's inherent power to regulate practice and procedure to prevent abuse of process. 8 Whilst accepting, as I do, that it is unwise to look to decided cases to attempt to define the limits of the inherent power, nonetheless there are some valuable statements of the general principles to be considered. One such case in which those matters were looked at is the decision of Young J in Morris v Hanley [2000] NSWSC 957. His Honour said at [23], that there were a number of cases which suggested at least six matters to be taken into account in considering the exercise of the inherent power. Those matters were:

(1) whether the claim was bona fide and not a sham; (2) whether the claim had reasonable prospects of success; (3) whether the making of the order for security would terminate the proceedings; (4) the plaintiff's assets (or lack of them) and the explanation for this situation; (5) whether there were persons standing behind the plaintiff who might benefit from the action, but who would not go on risk as to costs; and (6) delay. 9 His Honour said at [24], that "[t]his list is a non-exhaustive list of guidelines and one must not lose sight of the basic question as to whether the action is harassing and vexatious". 10 Mr Condon of counsel, who appeared for the applicants Messrs Okill and Raymont, analysed the case by reference to the six factors indicated by Young J as arising from his Honour's study of the leading cases. Mr Moses of Senior Counsel, who appeared with Mr Shariff of counsel for Mr Pasupati, analysed the matter by reference to the factors enunciated by Beazley J in KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 at 196-198. I summarised those factors, at least to my own satisfaction, in Sharjade v Darwinia [2006] NSWSC 708 at [10]-[12]: [10] Whilst the only formal constraint on the discretion is that it is to be exercised judicially (the nature of this particular constraint may be a matter of some conjecture), there are a number of factors that have been identified as relevant, although not as exhaustive. I take as relevant to my inquiry the seven factors, or "guidelines", identified in the judgment of Beazley J in KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 at 196-198. Her Honour commenced by stating that: "[t]he discretion to order security for costs is unfettered and should be exercised having regard to all the circumstances of the case without any predisposition in favour of the award of security."

[11] She then referred to a number of decisions, including that of Cooper J in Gentry Bros Pty Ltd v Wilson Brown & Associates Pty Ltd (1992) 8 ACSR 405. She cited, with approval, a statement by his Honour in that case at 415 that: "[i]t is not possible or appropriate to list all of the matters relevant to the exercise of discretion. The factors will vary from case to case. The weight to be given to any circumstance depends upon its own intrinsic persuasiveness and its impact on other circumstances that have to be weighed."

[12] Her Honour then turned to what she called "a number of well established guidelines which the court typically takes into account" in considering an application for security for costs. Those guidelines were, and I paraphrase her Honour's words:

(1) That the application be brought promptly. (2) That regard should be had to the strength and good faith of the applicant's case. (3) Whether the applicant's impecuniosity was caused by the respondent's conduct, the subject of the claim. (4) Whether the application for security is oppressive, being used merely to deny an impecunious applicant its right to litigate. (5) A related factor, namely, whether there were persons standing behind the impecunious litigant who would benefit from any success in the litigation and who were willing to provide the necessary security. (6) A related issue, namely, whether persons standing behind the impecunious litigant have offered any personal undertaking to be liable for the costs and, if so, the form of that undertaking. (7) Security should only be ordered against a party who is, in substance, a plaintiff, and an order should not be made against a party who is, in substance, defending itself. 11 Of course, in KP Cable her Honour was talking, as was I in Sharjade, of an application brought on the ground of inability to pay any amount of costs if ordered to do so. Neither of those cases specifically concerned applications made on the basis of the inherent power. 12 If one goes for the moment to the factors listed by Young J, it is convenient to start by noting that there is no relevant issue of delay in respect of the present application. However, there was dispute as to the other matters. The first two matters - the good faith of the claim and the prospect of the success - are to some extent related, and they were so related in the way that Mr Condon approached them. He pointed out that the particular claims brought against the applicants were, in his submission, weak. 13 So far as I can understand the cross-claim, there appear to be four separate claims that can be distilled out of the cross-claim as being brought against Messrs Okill and Raymont only, not against PMA. In the order in which the claims are referred to in the cross-claim, the first (which is brought against Mr Okill only) appears to be one based, in effect, on oppression (which of course is a claim relating to PMA, relying on s 232 of the Corporations Act 2001). 14 This aspect of the claim against Mr Okill is based on the proposition that PMA was a "quasi partnership" between him and Mr Pasupati. It is said that the relationship has broken down and it is just and equitable that the Court should order one to buy the other out or PMA to be wound up. 15 Although it is undesirable that I should conduct a mini-trial into the strength of this case (nor is it possible to do so in the absence of evidence) it has to be said that the claim is a somewhat unusual one. It appears to be based on the notion that the "quasi partnership" gives rise to some sort of fiduciary obligation which in turn can be enforced through an order that one fiduciary buy the other out. That may or may not be good in law. It is certainly novel. The appropriate remedy, as is accepted in the third alternative (and as is reflected in the claim for oppression) is, of course, that PMA be wound up. 16 The next separate claim pleaded is one alleging that Messrs Okill and Raymont have contravened ss 181(1), 182(1)(a) and 182(1)(b) of the Corporations Act. It is said that Mr Pasupati has suffered loss and damage as a result, and that Messrs Okill and Raymont have profited by those matters. 17 If the underlying claims are made out then it is clear that Messrs Okill and Raymont might be liable to make good to PMA the losses caused by their contravening conduct. However, and without any attempt to sue in a representative capacity on behalf of PMA, the claim for damages under s 1317 H of the Corporations Act appears to be one asserted by Mr Pasupati in his own right. 18 It has to be said that that claim appears to be weak, to put it mildly. Whether or not it is strong, as a claim that could be brought by PMA, is a matter on which I express no view, partly because there is no basis on which I could form a view and partly because any such view would be entirely irrelevant. 19 The third claim is one brought against Mr Okill. It asserts that, in making certain representations back in 2002 and 2003, Mr Okill engaged in misleading or deceptive conduct contrary to s 42 of the Fair Trading Act 1987. The conduct in question was the making of representations in 2002 whereby Mr Pasupati acquired shares in PMA at the issue price of $8.80, and the making of further representations in 2003 whereby Mr Pasupati acquired further shares at, apparently, $7.24. 20 The representations in question are said to be misleading or deceptive by reason of s 42, because they were made as to future matters. That statement is palpably incorrect as to four of the 2002 representations, and whether or not it is correct to all of the others depends on whether they are to be taken as representations as to future matters or representations as to present state of mind. Whether or not it is correct in respect of the 2003 representations depends only on the second question. 21 Of course, it is necessary for Mr Pasupati to show that he has suffered some loss. The case on this is not entirely clear, given that there is some evidence to suggest that in Mr Pasupati's view the shares are now worth three or four times what he paid for them. However, he also asserts that, by reason of the representations, he was induced to take up employment with PMA (or to continue in employment with PMA) and not to seek employment elsewhere. Although the case on damages is obscure, it certainly cannot be said to be non-existent, or susceptible of being struck out. 22 The fourth claim brought, and this is against each of Messrs Okill and Raymont, is that they and Mr Pasupati were parties to an agreement which contained an express non-competition clause. It is not alleged that the clause has been broken or that there are any grounds to apprehend that it will be broken. Nonetheless, in those hypothetical circumstances, Mr Pasupati seeks both an order for specific performance (or alternatively an order for compliance with the clause) and a declaration that it is enforceable. I have to confess very great difficulty on seeing how, on the facts pleaded, the Court would ever exercise its discretion to grant injunctive relief, or for that matter why it would grant a declaration of right in respect to a purely hypothetical issue. 23 It follows, in my view, that much of the case against Messrs Okill and Raymont is weak in the extreme. However, it does not follow that it is brought in bad faith, or that it is vexatious. Nonetheless, in looking at the second of the issues stated by Young J, I think it very difficult to conclude that Mr Pasupati has a reasonably good prospect of obtaining the orders that he seeks against Messrs Okill and Raymont. 24 The next three issues also involve some common elements. For Mr Pasupati, it is said that his financial situation is so parlous that if an order for security were made it would effectively bring the proceedings to an end. It is said that he has no assets, many liabilities and no prospect of obtaining funding to provide security. On the other side of the coin, Mr Condon says that Mr Pasupati has not made full and frank disclosure of his financial circumstances, and that there is evidence of others standing behind him who would benefit from any success in the action. 25 There is no doubt that, on the affidavit evidence, Mr Pasupati's financial position is poor. However, and despite Mr Moses' submission to the contrary, I do not accept that this is a result of the wrong-doing alleged against PMA and the other cross-defendants. It was in December 2007 that Mr Pasupati's employment came to an end. It is said that, since then, he has not only lost the benefit of his salary and other entitlements but that PMA, although profitable, has ceased to pay him dividends. As to the latter point: the evidence appears to be that PMA has declared dividends and has set off (or purported to set off) the dividends otherwise payable to Mr Pasupati against the balance owing on his loan account. Whether or not it was entitled to do this is a matter on which I express no view, having had neither evidence nor submissions directed to the point. 26 What is, however, clear is that Mr Pasupati's financial woes appear to date back much earlier than December 2007. Mr Pasupati has had the misfortune to be involved in divorce proceedings. His verified financial statement, filed in June 2006, shows that as at that time his average weekly income was a little under $7,000, and his average weekly expenditure was a little under $18,000. Further, it showed, the total value of his assets was a little under $2,000,000 and the total of his liabilities was a little over $3,000,000. Although there was (in this application) evidence on information and belief as to some of the matters relevant to Mr Pasupati's financial circumstances (the affidavit was sworn by his solicitor, Mr Pasupati choosing not to go near the witness box on this application) that evidence, perhaps not surprisingly, did not canvas what had been said in Mr Pasupati's verified financial statement in the Family Court. 27 If, as I propose to do so, I accept the financial statement as being correct, it follows that Mr Pasupati's financial position was hopeless some eighteen months before the breakdown in the relationship between him and PMA and the termination of his employment. On that basis, as I have said, I do not accede to the proposition that his parlous financial situation is a result of anything alleged against the cross-defendants. 28 The solicitor's affidavit, to which I have referred, indicates that Mr Pasupati has borrowed from family both to support some of his liabilities and living expenses and to fund these proceedings. However, there is no evidence that those who have to date lent to Mr Pasupati have refused to lend him more, that they are unable to lend him more, or that he has no other means of funding these proceedings (including any order for security). Of course, both from the evidence to which I have referred and from the evidence contained in the solicitor's affidavit, there is a reasonable basis for inferring that Mr Pasupati's prospects of obtaining a loan at arm's length from a commercial lender are less than good. 29 It is, however, open to infer that the family members who have lent to Mr Pasupati are looking to his success in these proceedings as the only possible way in which they are likely to be repaid. It is, I think, a reasonable inference that there are family members who would benefit in that way. Further, one of the heads of relief claimed by Mr Pasupati is, as I have said, an order that he buyout Mr Okill's shares. On Mr Pasupati's valuation of the worth of those shares, that would involve him in finding between 5 and 8 million dollars. Even if the shares were worth only $8 or $9, it would involve him in finding about $2,000,000. The solicitor, who certified that there were reasonable prospects of success on the cross-claim, said that he understood that Mr Pasupati had some sort of fall-back arrangement with his family or others to help him obtain the funds to effect this buy out if the opportunity arose. It is somewhat remarkable that someone could have a bona fide hope of bringing such a claim when he is in the position disclosed as to Mr Pasupati. In my view, the onus being on Mr Pasupati to show stultification (which is really one of the things involved in the group of issues I am presently considering), he has not discharged that onus. It is quite clear that the onus is on him to do so, as Austin J pointed out in Fiduciary Ltd v Morningstar Research Pty Ltd (2004) 208 ALR 564. 30 If matters went no further, I would conclude, on balance, that when one considers together all the things to which I have referred, there is a case for the provision of security. As I have said, Mr Moses submitted that I should take into account the considerations described by Beazley J in KP Cable. It will be seen from what I have said that a substantial number of those have been considered de facto in what I have said already, and to the extent that I have not covered them all, I do not think that it is necessary to go back and look at them individually. 31 There remains, however, the fact that even if I order security, and stay the cross-claim against Messrs Okill and Raymont until security is provided, the cross-claim will proceed. That therefore raises, at least, the spectre that there will be two hearings involving common issues of fact and of credibility. 32 It is therefore necessary to give careful consideration to s 56 of the Civil Procedure Act 2005. Although in terms the overriding purpose stated in s 56 is said to relate to the Act and rules made under it, nonetheless, I think, any power residing in the Court's inherent jurisdiction must necessarily be qualified by the dictate set out in s 56: namely, the facilitation of the just, quick and cheap resolution of the real issues in dispute. 33 The matter with which I am now concerned - the fact that the cross-claim will continue, although in an attenuated form, in any event - seems to me to operate in two ways. On the one hand, it suggests that there may be some duplication of proceedings. On the other, it suggests that the Court is going to have to hear the issues in any event. If it is then, perhaps even accepting that it may cause some measure of subjective injustice to some parties, perhaps it will be better not to make the order for security. 34 The balancing act is a difficult one. It needs to take into account not only the overlap of factual issues and questions of credibility, but also the fact that Messrs Okill and Raymont (in particular, I think, the former) will be witnesses engaged in the preparation and hearing of the cross-claim that would proceed even if the particular claims against them were stayed. Thus, to the extent that it is legitimate to take into account the impact on parties, they will not be spared whatever ordeal is involved in the preparation and hearing of the cross-claim simply because it is stayed in so far as it is in law a claim against them. 35 Taking all those matters into account, I do not think that the risk of duplication is of itself a sufficient reason not to order security. Putting the matter in that negative way is, I concede, rather delphic; but what I mean to say is that, having come to the conclusion that prima facie there have been grounds made out for security, I see no reason not to order security after taking into account the effect (following on from the stay and the possibility of duplication) that would result if security were ordered and not provided). 36 Accordingly, it is necessary to turn to the question of quantum. 37 The solicitor for Messrs Okill and Raymont quantified the amount of security sought at $294,000 or so. In my view, his estimate of the amount required failed to take account of the extent of the overlap between the case against PMA on the one hand and the case against Messrs Okill and Raymont on the other. To put the matter negatively, he did not make a proper allowance for the fact that the great bulk of the issues, as they seem to me to arise on the pleadings, are issues that will be defended, at its own cost, by PMA. To the extent that Messrs Okill and Raymont are entitled to costs, it is an entitlement to the separate costs that they will incur by reason of the need to defend the separate claims brought against them, in circumstances where they have some separate representation. I should point out that the separate representation is confined to their solicitors; it appears to be accepted that the same counsel will appear for them as will appear for PMA. 38 Mr Pasupati's solicitor also made an estimate of costs. To my mind, the estimate that he made probably underestimated the complexity of the proceedings and their likely duration. Nonetheless, if one allows for that, it seems to me to take a somewhat more reasoned approach to the derivation of the base figures, although it suffers from what appears to be a logical defect in that, having allowed for costs at the rates said to be allowed by assessors in matters of this nature, and having cut the work down to what was said to be the bare minimum necessary, it nonetheless made a further deduction for party and party costs (sic) at a range of 57 percent to 80 percent. Firstly, the range was totally unexplained. Secondly, when one looks at the way the derivation of the unreduced figure was obtained, it is plain that applying a further range on account of costs on the ordinary basis is double counting (or double deducting). 39 It seems to me to follow, however, that one can make some sort of estimate based on those figures and increasing them by what I think is a more appropriate allowance to reflect what I think is both the more likely duration of the hearing and the separate or discrete component of it, attributable entirely to the issues against Messrs Raymont and Okill. The estimate was based on a hearing of five days, of which it was said some two days would be relevant to those discrete issues. In my view, the hearing is more likely to fall in a range of five to eight days, and on a very rough basis it is probably appropriate to allow some three days for the separate issues. 40 On that basis, but taking as I have said the costs derived by the solicitor without the deduction of the further rebate, I think that the appropriate sum for which security should be provided is the sum of $150,000. 41 In those circumstances, there being, as I have said, no extant issue of delay, I order the cross-claimant to provide security for the costs of the second and third cross-defendants in the sum of $150,000. I order that the cross-claim be stayed against those cross-defendants until the said security is provided. 42 It is accepted that costs should follow the event. Mr Condon seeks an order that the costs be assessed forthwith. For the reasons put in argument, I think that is appropriate. I order the cross-claimant to pay the second and third cross-defendants' costs of the interlocutory application filed on 26 June 2009. I order that those costs be assessed and paid forthwith.

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