Public Transport Ticketing Corporation v Integrated Transit Solutions Ltd & Anor

Public Transport Ticketing Corporation v Integrated Transit Solutions Ltd & Anor - [2009] NSWSC 54 - NSWSC 2009 case summary — Zoe

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Accidental & Marine Insurance Co v Mercati (1866) LR3Eq 200 Bell Wholesale Co Pty Ltd v Gates Export Corporation (No 2) (1984) 2 FCR 1 Bhagat v Murphy [2000] NSWSC 892 Bhattcharya v Freedman [2001] NSWSC 498 Bryan E Fencott & Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 Buckley v Bennell Design and Construction Pty Limited (1974) 1 ACLR 301 Caruso Australia Pty Ltd v Portec (Aust) Pty Ltd (1984) 8 ACLR 818 Classic Ceramic Importers Pty Limited v Ceramica Antiga SA (1994) 13 ACSR 263 Gentry Bros Pty Ltd v Wilson Brown & Associates Pty Ltd (1992) 8 ACSR 405 Grant v The Banque Franco-Egyptienne (1876) 1 CPD 143 Green (as Liquidator of Arimco Mining Pty Ltd) v CGU Insurance Ltd (2008) 67 ACSR 105 Harpur v Ariadne Australia Ltd (No 2) [1984] 2 Qd R 523 at 532; (1984) 8 ACLR 835 Heller Factors Pty Ltd v John Arnold's Surf Shop Pty Ltd (in liq) (1979) ACLC 32-446 Hession v Century 21 South Pacific Ltd (in liq) (1992) 28 NSWLR 120 Hutchison Telephone (UK) Ltd v Ultimate Response Ltd [1993] BCLC 307 Interwest Ltd v Tricontinental Corporation Ltd (1991) 5 ACSR 621; (1991) 9 ACLC 1218 CASES CITED : Jazabas Pty Limited v Haddad (2007) 65 ACSR 276 KP Cable Investments Pty Limited v Meltglow Pty Limited (1995) 56 FCR 189 MA Productions Pty Ltd v Austarama Television Pty Ltd & Anor (1982) 7 ACLR 97 Memutu v Lissenden (1983) 8 ACLR 364 Merribee Pastoral Industries Pty Limited v Australia & New Zealand Banking Group Limited (1998) 193 CLR 502 Morris v Hanley [2000] NSWSC 957 PS Chellaram & Co Ltd v China Ocean Shipping Co (1991) 65 ALJR 642 Rajski v Computer Manufacture and Design Pty Limited (1983) 2 NSWLR 122; (1982) 2 NSWLR 443 Sent & Petres & Collier v Jet Corporation of Australia Pty Ltd (1984) 2 FCR 201 Smail v Burton [1975] VR 776 Stanley-Hill v Kool [1982] 1 NSWLR 460 Sydmar Pty Ltd v Statewise Developments Pty Ltd (1987) 5 ACLC 480 Silver Fir, The [1980] 1 Lloyd's Rep 371 Thistle Hotels Ltd v Gamma Four Ltd [2004] EWHC 322 Travelodge Australia Limited, Re (1978) 21 ACTR 17 Weily's Quarries v Devine Shipping Pty Ltd (1994) 14 ACSR 186 Yandil Holdings Pty Ltd v Insurance Co of North America (1985) 3 ACLC 542

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ii. the defendants' notice of motion dated 19 December 2008 seeking additional discovery. Overview of the proceedings 2 Pursuant to a Project Agreement made in February 2003, Integrated Transit Solutions Limited (ITSL) agreed to design, supply, install and operate an integrated ticketing system for public transport services in the greater Sydney area. By September 2007, ITSL had failed to achieve completion of 11 milestone events and stages by the dates for completion specified in the contract. In January 2008, after issuing default notices, Public Transport Ticketing Corporation (PTTC) terminated the contract. 3 In February 2008, PTTC commenced these proceedings against ITSL seeking damages for breach of contract. Subsequently, PTTC added ERG as a defendant, seeking damages under a Guarantee given by ERG in respect of the performance of the contract by ITSL. 4 In May 2008 and June 2008, ITSL and ERG filed cross-claims against PTTC. The cross-claims allege that PTTC's termination amounted to repudiation by PTTC of the contract entitling ITSL to terminate. ITSL's cross-claim seeks damages from PTTC, particularised at in excess of $215 million. ERG's cross-claim seeks an order for refund of a $14 million deposit. 5 Subsequently, in November 2008, the shareholders of ERG approved a restructure of the ERG Group, which included the effective disposal of all of ERG's businesses to a new entity controlled by ERG's then majority shareholder, the Ingot Entities. A feature of the proposal for the restructure, advanced as a benefit to shareholders, was that a litigation funding agreement be put in place to enable the cross-claims to be pursued. 6 As will appear from what follows, the plaintiff contends that the effect of the restructure and litigation funding agreement is that ITSL and ERG are now assetless (and therefore "judgment proof") litigation vehicles having as their principal object the pursuit of the cross-claims to recover very large sums of money from PTTC, under the direction and control of a litigation funder controlled by the Ingot Entities. 7 The contention is that if the cross-claims by ITSL and/or ERG are unsuccessful, PTTC will be unable to recover what will undoubtedly be very heavy costs of those cross-claims. The contention is that the persons who stand to benefit from successful cross-claims are the litigation funder (said to have taken a charge over the assets of ITSL and ERG to secure repayment of the litigation funding plus interest), together with the shareholders of ERG. The plaintiff's proposition is that none of those persons have their assets at risk of costs in the proceedings. 8 The defendants strongly deny the plaintiff's suggested attempt to paint the restructure of ERG as some form of manipulative device designed to insulate ERG from litigation risk exposure it otherwise would have faced, and to deprive the plaintiff of protection it would have enjoyed in the absence of the restructure. The defendants contend that this is neither a fair nor accurate representation of the ERG restructure as announced to the ASX and approved by Shareholders. Claims made by PTTC 9 PTTC's case as set out in its Amended Commercial List Statement is, in short, as follows:

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Whether the respondent's application for security is oppressive, in the sense that it is being used merely to deny an impecunious applicant a right to litigate: see M A Productions v Austarama Television at 100; Yandil Holdings Pty Ltd v Insurance Co of North America (1985) 3 ACLC 542 per Clarke J at 545; Bryan E. Fencott at 513. In Yandil Holdings at 545 Clarke J stated the principle in these terms: "[t]he fact that the ordering of security will frustrate the plaintiff's rights to litigate its claim because of its financial condition does not automatically lead to the refusal of an order. Nonetheless it will usually operate as a powerful factor in favour of exercising the court's discretion in the plaintiff's favour." This factor is related to the next, namely: 5. Whether there are any persons standing behind the company who are likely to benefit from the litigation and who are willing to provide the necessary security: see Memutu v Lissenden (1983) 8 ACLR 364; Sent & Ors v Jet Corporation of Australia Pty Ltd (1984) 2 FCR 201; Bell Wholesale Co Pty Ltd v Gates Export Corp (1984) 2 FCR 1; Hession v Century 21 South Pacific Ltd (in liq) (1992) 28 NSWLR 120 at 123; Bryan E. Fencott at 513; Yandil Holdings at 545. The combined effect of these two principles was summarised by Meagher JA in Hession at 123 as follows: "...a company in liquidation against whom an order for security for costs is sought cannot successfully resist such an order merely by proving that it cannot fund the litigation from its own resources if an order for security is made; it must prove that it cannot do so even if it relies on the other resources available to it (the company's shareholders or creditors)...Finally, whilst it is both true and important that poverty must be no bar to litigation, what that means is that the courts must be astute to see that no person pursuing a claim which is not frivolous is precluded from doing so by the erection of obstacles which poverty is unable to surmount; it does not mean that proof of insolvency automatically confers an immunity from statutory provisions which deal with insolvent plaintiffs." 6. An issue related to the last guideline is whether persons standing behind the company have offered any personal undertaking to be liable for the costs and if so, the form of any such undertaking: see Cameron's Unit Services Pty Ltd v Kevin R Whelpton and Associates (Aust) Pty Ltd (1986) 13 FCR 46 at 53; Mantaray Pty Ltd v Brookfield Breeding Co Pty Ltd (1990) 8 ACLC 304; Clyde Industries Ltd v Ryad Engineering Pty Ltd (1993) 11 ACLC 325.

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v. Thus the allegations of Relevant Circumstances, which largely concern the responsibility for delays in the Project and whether they were caused or contributed to by PTTC's own acts or omissions, cannot be said to be offensive manoeuvring on the defendants' part. Decision 48 There is only one area in respect of which it would be appropriate to order security for costs against the defendants. This concerns additional issues raised by the cross claim [concerning quantification of ITSL's loss and, in relation to ERG's cross-claim, questions of construction of the Undertaking and Flawed Asset Deed between ERG and PTTC]. In that regard the evidence before the court is that in early December 2008 the defendants offered to provide security in respect of recoverable costs occasioned by PTTC by the cross claims which would not otherwise be incurred by reason of the matters raised in the Commercial List Response. That offer was rejected. Notwithstanding that rejection the principled exercise of the relevant discretion is to order security in respect of the above described issues but going no further. The parties will be given a proper opportunity to address the quantum of that form of security 49 Outside of the matter referred to in the previous paragraph, the principled exercise of the relevant discretion simply does not favour a general award of security for the costs in favour of the plaintiff. Whilst there certainly is a massive disproportion as between the scale of the litigation being pursued by ITSL and that being pursued by PTTC, at the end of the day I accept that a counter-claimant is rarely required to provide security, although of course the jurisdiction exists to grant security and is unfettered. Even if it be fair to conclude that ITSL is at least in part, correctly labelled as 'an attacker' [save as referred to in the previous paragraph] the circumstances before the Court simply did not enliven the Courts jurisdiction to order security for costs against either ITSL nor ERG. Discovery 50 The background to the defendants' application for additional discovery is as follows:

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