Ranclose Investments Pty Ltd v Leda Management Services Pty Ltd

Ranclose Investments Pty Ltd v Leda Management Services Pty Ltd - [2021] NSWDC 210 - NSWDC 2021 case summary — Zoe

Existing pleadings

Two motions are before the Court, brought by each party. To understand them, it is necessary to consider the respective claims of the parties. In the case of the plaintiff, I will start with identifying its existing claim.
The plaintiff ('Ranclose Investments') and existing defendant ('Leda Management') are two companies incorporated in Queensland. Mr Wayne Williamson is the sole member and Managing Director of Ranclose Investments. In substance, it is the corporate vehicle through which he provides services. In circumstances that have emerged (but were not appreciated by Ranclose Investments at the material times) Leda Management is part of the LEDA Group of companies. That group is spearheaded by Mr Robert (Bob) Ell. For relevant purposes, it suffices to note that Leda Holdings Pty Ltd ('Leda Holdings') is a property developer. As described by its solicitor, Leda Management's role within the group is to manage the payroll. It is a trustee of an employment trust known as the LEDA QLD trust. Mr Ell represented himself to be a director of Leda Management. The plaintiff also says that he is the Executive Chairman (and founder of) Leda Holdings.
By its Statement of Claim, in its original iteration, filed on 7 May 2019, Ranclose Investments sues upon a written agreement entered into between Ranclose Investments and Leda Management on 28 April 2016 (the 'Agreement') whereby Ranclose Investments provided Mr Williamson's services to another company, Northern Water Solutions Pty Ltd ('Northern Water Solutions') as its Chief Executive Officer ('CEO'), in consideration for which Leda Management would pay a monthly fee to Ranclose Investments.
Mr Williamson's role, as defined in the written agreement, was to act as CEO of Northern Water Solutions to procure licenses through certain agencies (including the Independent Pricing and Regulatory Tribunal ('IPART')) to provide water and sewerage services in respect to certain development site. This was initially to be at the Cobaki Estate (which is near the Queensland/New South Wales border) but, as the plaintiff alleges, extended to another, or other sites, as well.
But in early 2018, Leda Management purported to terminate that agreement. Ranclose Investments contends that this act of purported termination was wrongful and constituted a repudiation of the agreement.
By its Statement of Claim, the plaintiff contended that in November 2017 the Agreement was rolled over for an additional term of 18 months. It claimed damages against Leda Management for invoices rendered from 30 November 2017 to 19 February 2018 in the aggregate sum of $124,894.66; which invoices were not paid. Viewed in this way, Ranclose Investments' existing claim was a claim in debt. But Ranclose Investments also claimed, as on-going loss from 19 February 2018, the aggregate sum of the monthly fee of $25,000 it would have received, but for the unlawful termination, for the duration of the term of the agreement
For its part, by its Defence (filed on 30 October 2019), Leda Management contended that it had lawfully terminated the Agreement on 18 October 2017. Accordingly, it denied any liability to pay the invoices. On 20 November 2019, Leda Management also brought a Cross-Claim against Ranclose Investments (as First Cross-Defendant) and also Mr Williamson (as Second Cross-Defendant), essentially in two parts. As to the first part, Leda Management contends that its entry into the Agreement and investment in certain water licences was procured by serial misrepresentations, all to do with Mr Williamson's general capacity and competence to perform the role of CEO of Northern Water Solutions, which were allegedly made to Mr Bob Ell (a director of Leda Management) and another person (Mr Van Riij), and which were alleged to have caused loss or damage.
In their Defence to the Cross-Claim, Ranclose Investments and Mr Williamson assert that the pleading of the case of misleading or deceptive conduct is defective for want of particulars and, alternatively, deny the alleged misrepresentations and that Leda Management suffered any loss or damage caused by them.
As to the second part of the Cross-Claim, Leda Management sues Mr Williamson, as agent for Ranclose Investments for what it alleges was Mr Williamson's failure to perform certain responsibilities in his capacity as CEO of Northern Water Solutions, as a result of which, it contends, it made out of pocket expenses valued at $530,994.
As to the second part of the Cross-Claim, in his Defence, Mr Williamson says that he executed the agreement only as agent of Ranclose Investments, so the claim in contract only lies against Ranclose Investments. He accepts that he was required to act properly and efficiently. He also admits that an agreed objective of Northern Water Solutions was to procure a water licence from IPART, but through its own conduct, Leda Management frustrated completion of the tasks and projects and otherwise denies any breach of the Agreement; including the posited breach of a duty of care and diligence. He and Ranclose Investments also deny that Leda Management suffered any loss as a result of any alleged breach.

[6]

RANCLOSE INVESTMENTS' APPLICATIONS TO AMEND & JOIN ADDITIONAL DEFENDANTS

These two applications are necessarily intertwined. The respondents to the application say that they should not be joined partly because of the inadequacy of the proposed pleading of the actions against them; which would render the amendments futile.
In relation to its form, the proposed amended pleading involves an almost entire re-writing of the document: every paragraph save for paragraph 1 is underlined; indicating something new. In many paragraphs, earlier content is struck through. Much of what is contained within it does not strictly accord with the rule that a pleading is to contain only a summary of the material facts on which a party relies, and not the evidence by which those facts are to be proved (r 14.7 of the Uniform Civil Procedure Rules 2005 (NSW) ('UCPR')). That said, even if the document is not a model pleading, I would not disallow the amendments on that account alone; even if the overall pleading is cumbersome, prolix and is not easily comprehended.
In his affidavits in support of this application, dated 19 November 2020, 30 March 2021 and 29 April 2021 respectively, Mr Clancy explains that the application to amend is brought for a variety of reasons: 1. In light of a request communicated by Leda Management on 8 March 2021 for Ranclose Investments to refine its Statement of Claim to address the circumstance that the defendant contracted with the plaintiff only in its capacity as trustee of the LEDA QLD Trust. 2. This disclosure then led Ranclose Investments to initiate inquiries into Leda Management's financial position; which it says have been frustrated by the defendant. On the basis of those inquiries, and also Leda Management's omission to provide security, it wants to join a related corporate entity and Mr Ell as defendants; 3. to address what he regards as Leda Management's belated complaint, from June 2020 (following service of the principal affidavit of Mr Williamson) about a lack of information about certain terms of the arrangement; principally, the notice period and rolling over of the agreement; 4. in the light of evidence exchanged between the parties, and Counsel's advice, from August 2020, to more fully plead terms of the contract, and plead the additional reliance upon estoppel and a quantum meruit. Mr Clancy says that the quantum meruit claim arises from evidence relied upon by Leda Management. In her submissions on the application, however, Counsel for Ranclose Investments says that both actions arise because of the indication that the defendant was a contracting party only as trustee.
It is most convenient to try, as best as one can, to group the proposed amendments within categories which reflect this multi-faceted explanation.
The amendments in proposed paragraphs 3-9 appear to be reactive to the disclosure of the financial and legal status of the existing defendant; and appear designed to re-formulate the contract in a way that includes additional parties, being Leda Holdings Pty Ltd and Mr Ell.
The amendments in proposed paragraphs 10-23, 25-32, 35-40 and 42 focus on the constituent parts and terms of the agreement. This involves a change from a purely written agreement, with express terms; to an agreement which was only partly written; but also partly oral and which contained implied terms. The content of those terms in relation to the services Mr Williamson was contracted to supply is spelt out with more detail. Further, there is greater specificity than in the earlier iteration of the pleading as to the provisions for extending the period of the contract, and termination of it. In particular, reference is made to an alleged implied term as to notice of termination. Paragraphs 25-31 then address the incorporation of what is described as a 'revised Cobaki WICA Licence Application' within the agreement. This, it is alleged, had the effect of extending the term of the agreement. The amendments in proposed paragraphs 35-40 and 42 are directed to establishing the basis upon which the agreement was extended for a further 18 months.
The amendments to paragraphs 43-45 articulate the basis for Ranclose Investments' claim of breach of the agreement arising from termination of the agreement.
The amendments in proposed paragraphs 33-34 and 46-52 are directed to the loss and damage allegedly caused by Leda Holdings' failure to pay the monthly invoices issued by Ranclose Investments. It is notable that the claim for the action on the debt of $124,894.66 remains from the original iteration of the pleading. It is also notable that the existing claim of on-going loss of a monthly sum of $25,000 is retained. However, new items of loss are alleged, being a loss of opportunity to profit and a loss of the expectation of profit from further extensions.
The amendments in proposed paragraphs 24, 41 and 53-57 appear directed to establishing the new action in promissory estoppel. This is founded on a series of written and oral representations, covering different subject matter, including the proper contracting party, Mr Williamson's responsibilities, and the term of the agreement. It is alleged that the representations were relied upon by Ranclose Investments to its detriment, by its foregoing other business opportunities in order to exclusively work for Leda Holdings. For Leda Holdings to 'renege' on its representations was unconscionable.
The amendments in paragraphs 40 and 58 - 61 appear directed to establishing the action on the quantum meruit.
The defendant, and the prospective defendants, opposes joinder of the prospective defendants. They all say that the only purpose of it is to have added to the proceeding a defendant, or defendants, with deeper pockets than the impecunious existing defendant. The defendant and the prospective defendants did not however, as respondents to the applications for joinder and amendment, suggest that a basis for rejection of those applications was that they constituted an abuse of process. That being so, speculation as to the applicant's motivation can be put aside.
Specifically, Leda Management and the other proposed defendants oppose joinder on the grounds that: 1. It is not necessary for them to be joined for the determination of all issues, so that r 6.24 of the UCPR is not satisfied; 2. because of s 95 of the Civil Procedure Act 2005 (NSW) ('CP Act'), the proposed defendants could be the subject of separate proceedings and it would not be preferable to them being added as defendants in this proceeding given the passage of time and expense; 3. the proposed actions against the proposed defendants centre upon alleged agency arrangements which are inadequately pleaded, or particularised, to such degree that the proposed defendants do not understand the nature of the case they have to meet and cannot plead to it. 4. It is futile to allow amendments which relate to the suggested agency arrangements since Ranclose Investments' case on agency, as indicated in the proposed amendments is incoherent or inconsistent with other parts of its existing case which substantially is based upon a single written document; 5. Many of the amendments raised allegations which would be met with irrefutable arguments, of fact and/or of law or are contrary to the evidence filed by the parties. 6. The Court does not have jurisdiction to entertain the action for promissory estoppel and it is doubtful whether it has jurisdiction to entertain the action on a quantum meruit.
The defendant opposed the amendments, for the following discretionary reasons (ie separate to those also relied upon in opposition to the joinder application): 1. substantial delay in raising amendments; notwithstanding that in June 2020, Leda Management raised issues about the adequacy of the pleading and that in August 2020, Ranclose Investments was directed to, but did not, file an amended document; 2. From November 2020, the plaintiff has filed and served multiple proposed versions of the amended pleadings which had not been adjudicated; 3. The delay has resulted in Leda Management preparing its affidavit evidence (which I was informed amounted to 7 lay witnesses, with voluminous exhibits) on the basis of the existing pleading; whose estimated cost was $67,200; 4. Leda Management and the other additional defendants will have to incur additional expense in getting its witnesses to revisit their affidavit evidence to deal with the new case raised by Ranclose Investments; 5. There is invincible prejudice to Leda Management and the other prospective defendants since any order it obtains for costs thrown away, made as a consequence of granting leave to amend, cannot be enforced because of the impecuniosity of Ranclose Investments and its controller, Mr Williamson.
Ranclose Investments argued in response to these matters that: 1. The test for joinder under r 6.24 was satisfied and it was desirable, in order to avoid a multiplicity of proceedings, to have the additional defendants joined in this proceeding rather than force the plaintiff to institute separate proceedings against them; 2. There was no incoherence or inconsistency in raising allegations of agency. According to Mr Clancy, after the disclosure in the letter of 8 March 2021, Mr Clancy discovered, from inquiries made of the defendant that Mr Ell conversed on behalf of Leda Holdings; Leda Holdings prepared the written part of the contract; all of Ranclose Investments' invoices were sent to and paid by Leda Holdings from its bank account; 3. Much of the evidence cited by Leda Management as having been prepared was in fact, in support of the Cross-Claim; not in response to the plaintiff's claim 4. There was no real prejudice, in the sense of costs being thrown away. Mr Ell had, for example, already indicated his denial of the representations underlying the promissory estoppel claim. The plaintiff was not proposing to adduce new evidence, so Leda Management and the prospective additional defendants had been on notice since June 2020 of the entirety of the plaintiff's affidavit evidence and responded, or had the opportunity to respond to, that evidence; 5. By its defence, Leda Management had indicated that it had paid certain invoices, which might be construed as an admission of liability to pay; but the effect of the disclosure in that defendant's solicitor's letter of 8 March 2021 was that it was not liable in its own right, but only as a trustee; contrary to a representation by Mr Ell.

[7]

Joinder

The application for joinder is made under r 6.24 of the UCPR.
I accept that there is no utility in ordering the joinder of the proposed additional defendants unless a reasonably arguable substantive claim can be brought against them.
On the evidence before the Court, there is evidence which prima facie, suggests that in conducting itself as it did, the Leda Management contracted with Ranclose Investments as an agent for an undisclosed principal, being Leda Holdings. Leda Management was, apparently a wholly owned subsidiary of Leda Holdings. Payments for the plaintiff's invoices were made by Leda Holdings account; even though they were addressed to Leda Management. I accept Mr Clancy's affidavit evidence (24/4/21, par 21), which amounted to admissions, that Leda Holdings drafted the written part of the agreement; that Mr Ell, who is allegedly a director of Leda Holdings, spoke to Mr Williamson 'on behalf of Leda Holdings'. Further, a reading of the proposed amendments features allegations that it was Leda Holdings which registered the entity (Northern Water Solutions) to whom Mr Williamson was to supply his services, which was to be the licensee for the purpose of constructing and managing water facilities; for the provision of water and sewerage services at development sites owned by Leda Holdings. In this way, it might be thought that the work which Mr Williamson was performing was to the ultimate benefit of Leda Holdings and that Leda Management was an intermediary imposed for formal purposes only. The plaintiff's services were supplied to an entity, Northern Water Solutions, which was itself a subsidiary of Leda Holdings.
In such circumstances, the principal may be liable to the third party, if the agent has the principal's actual authority. There are other conditions, as well, including that the written contract does not exclude the principal's liability to sue and that the circumstances does not indicate that the agent is the only party to it (Siu Yin Kwan v Eastern Insurance Co Ltd [1994] A.C. 199 per Lord Lloyd of Berwick at 207; Bowstead and Reynolds on Agency (2021), 22nd edition (electronic version), Sweet & Maxwell [8-068]-[8.82]). Under the doctrine of the undisclosed principal, once appraised of the existence and entity of the principal, a third party in the position of Ranclose Investments will eventually have to make an election. The election remains open until the time when it obtains a judgment against Leda Holdings and Leda Management, but it cannot obtain judgment against both: Billis v Bain Securities Ltd [1990] NSWCA 24 per Meagher JA (Kirby P and Handley JA agreeing) at 3-4.
No suggestion was made in argument by Leda Management that Leda Holdings' name, or identity, as principal, was disclosed; which would operate to absolve it (as agent) of liability to sue or be sued, on the agreement.
I am not satisfied, however, that any substantive claim is indicated against Mr Ell personally by the proposed amendments. At most, those paragraphs only identify Mr Ell as having ownership of Leda Holdings and making representations. It is not necessarily inconsistent, or gives rise to any incoherence, to treat representations made by Mr Ell to Mr Williamson as being made on behalf Leda Holdings. Contrary to a submission made by Leda Management, it is not inconsistent with the notion of Leda Holdings being an undisclosed principal for Leda Managements that Mr Ell signed the written part of the agreement for Leda Managements. Companies can only enter contracts by conduct of its agents, typically directors. Mr Ell was, it is alleged, a director of Leda Managements and signing that document on its behalf. But there is no inconsistency between his signing the written part of agreement on behalf of Leda Managements, with Leda Holdings being the undisclosed principal for Leda Management. None of this, however, proves that Mr Ell was the ultimate principal or personally liable for the conduct of Leda Management (or Leda Holdings). No facts are pleaded to suggest that any indication was given that any conduct of the other entities was made on his personal behalf. To the contrary, according to Mr Clancy, after he had received notice of Leda Holdings involvement in March 2021, he had been informed that Mr Ell made his representations on behalf of Leda Holdings.
Subject to other grounds of opposition to joinder which I will now turn to, as a minimum, the plaintiff will need to re-plead the version of the proposed amended pleading in a way consistent with these reasons.
In the way that I have conceived the relationship between Leda Management and Leda Holdings, I am satisfied that the test for joinder in r 6.24 of the UCPR is satisfied, either on the basis that the latter ought to be joined or that it is necessary to be joined to determine all matters in dispute.
Even if it may have been open to separately institute a proceeding against Leda Holdings, that is not an efficient way to conduct litigation and would lead to the situation of the parties putting on pleadings and exchanging materially similar evidence and for no obvious end. Plainly there would be a strong case for consolidation of that separate proceeding with this proceeding.
Most of the other arguments against joinder were the same as the arguments against the proposed amendments, to which I now turn.
There is a concern about the existing pleading of the agency relationships, as emphasised in Leda Management's written and oral submissions on the hearing of the application. Greater particularity is required than is currently available to establish that Leda Management had actual authority. There is, as I have indicated, a basis for this in Mr Clancy's references in his affidavit to facts he learnt of after he received the letter from Bartier Perry on 8 March 2021. In my view, it would be sufficient to rely upon those facts as constituting the 'best particulars' that can currently be given and, in due course, those particulars might be supplemented after court process has been invoked to ascertain with greater precision, the relevant facts which constitute Leda Management's authority granted by Leda Holdings.
I do not accept, on an interlocutory application for joinder (and amendment) that the circumstance that it may be difficult for Ranclose Investments to persuade a court that the 'Service Agreement' was partly constituted only by an express written agreement with Leda Management, but also partly by verbal conversations with Mr Ell, on behalf of Leda Holding is unarguable; which would render the joinder futile. No authority was cited to the Court to suggest that it was. The written agreement that was before the Court did not contain an 'Entire Agreement' clause, which could reasonably be regarded as precluding terms orally agreed. As Allsop J (as his Honour then was) said in Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424 at [293], the existence of an apparently complete contract is no more than an evidentiary foundation for concluding that an agreement is wholly written. The parole evidence rule only applies to documents constituting an entire agreement: Hilliam v Iacullo (2015) 90 NSWLR 422 at [86].
I do not accept that, as a matter of jurisdiction, as Leda Management and the prospective defendants argue, Ranclose Investments is precluded in this Court from raising its action of promissory estoppel. Section 134(1)(h) of the District Court Act 1973 (NSW) (the 'DC Act') admits of this Court's jurisdiction to entertain equitable claims, or demands for recovery of money or damages, in an amount not exceeding the Court's monetary jurisdiction. It is not clear to me why these words of broad import should be read narrowly to exclude an equitable estoppel, subject to the limit in the Court's monetary jurisdiction: Owners of "Shin Kobe Maru" v Empire Shipping Co Inc (1994) 181 CLR 404 at 421. There is no suggestion that the 'damages' claimed in proposed paragraph 57 of the proposed pleading will exceed the monetary limit on the Court's jurisdiction. In a very recent decision of the Court of Appeal, in Valmont Interiors Pty Ltd v Giorgio Armani Australia (No.2) [2021] NSWCA 93, a party's entitlement to raise a promissory estoppel in this Court was recognised in favour of a builder who was positively encouraged by the principal to perform certain works. In this case, Mr Williamson similarly asserts an equitable estoppel (to make good the alleged representations) by representation to induce him to work exclusively for the defendants (Leda Management or Leda Holdings). I see no reason why promissory estoppel would not lie where the compensation claimed fell within the Court's jurisdiction.
Leda Management drew the Court's attention to the decision of Adams J in Wilson v Interhealth Energies Pty Ltd [2008] NSWSC 1137 as authority for the contention that promissory estoppel does not fall within s 134 of the D C Act. That decision, however, was not dealing with promissory estoppel as an action under s 134 of the DC Act. Rather, it considered the doctrine as a defence and determined that it could not be entertained in this Court because of s 6 of the Law Reform (Land and Equity) Act 1972 (NSW). In this case, Leda Management is not relying on promissory estoppel as a defence. Ranclose Investments is relying upon it as an equitable action.
I do not understand the objection to the Court's jurisdiction to hear and determine a claim on a quantum meruit. The notion that this is a form of equitable relief is profoundly ahistorical: see Pavey v Matthews Pty Ltd (1987) 162 CLR 221 (see also r 14.12 of the UCPR for pleading of the common money count claims such as quantum meruit). Most actions by builders in this Court would raise such a claim as, in the circumstances here, it is raised as an alternative to an action in contract.
As a final - and formal - point, Leda Holdings Pty Ltd should only be joined as a Second Defendant. Leda Management, as the existing defendant, should properly be titled as the First Defendant.
Subject to certain qualifications I have referred to, I see no basis for objection to the joinder of Leda Holdings, but that is before consideration of whether, in the Court's discretion, the amendments should be permitted at all.

[8]

Amendments

Applications for amendment of a pleading under s 64 of the CP Act direct the Court's focus to the overriding purpose of the Court rules and, in particular, the 'dictates of justice', referred to in s 58(2).
Section 64(2) provides that subject to s 58, all necessary amendments are to be made for the purpose of determining the real questions raised by or otherwise depending on the proceedings, correcting any defect or error in the proceedings and avoiding multiplicity of proceedings.
Generally speaking, as Counsel for Leda Management's written submissions recognise, aside from the 'dictates of justice', for applications of this kind, an applicant should establish that the amendments: 1. are made for a proper purpose; 2. are proper, as a matter of substance and form; 3. should not cause undue prejudice to the other party.
I am satisfied that the Ranclose Investments, as applicant for amendment, has explained the circumstances leading to the application.
There has been delay in bringing this application. This proceeding commenced over two years ago. The Court usually expects civil litigation to be disposed of within a year. Nevertheless, I have regard to the circumstance that the volume of material before the Court on these multiple applications suggest hard-fought commercial litigation with no quarter asked for and none given. The proposed draft of the amended pleading was first served in October 2020 and the subject of a motion filed on 16 November 2020. That, however, has been superseded by the development alluded to earlier; the unexpected revelation that Leda Management was not capable of being sued in its personal capacity. I understand that the parties have exchanged many affidavits. Both have already spent vast sums of money.
I regard as glib the defendant's argument that Ranclose Investment should have determined for itself the capacity in which it could contract. First, as was pointed out, the letter from Leda Management's solicitor dated 8 March 2021 itself indicated that the solicitor was surprised by that fact. Mr Kalde was alerting that circumstance to the other party as being a concomitant of the solicitor's 'duty to the court to disclose the true nature of the defendant'. It is difficulty to reconcile Leda Management's acceptance of its 'duty to disclose' to the Court its limited capacity to contract with its contention that no such disclosure was owed to Ranclose Investments. Secondly, an ASIC company search did not disclose Leda Management acting in the capacity as trustee. Thirdly, in the written ('part') of the agreement with the plaintiff, dated 28 April 2016, the representation was made (in cl 7) that "Leda Management" would pay Ranclose for its services. Subsequent events, however, have apparently falsified that representation: unbeknownst to Ranclose Investments, it was Leda Holdings that was paying the invoices. But until that apparent misrepresentation was corrected, Ranclose Investments had no apparent reason to consider that Leda Holdings was the principal. Fourthly, it is implicit, I think, from the Statement of Claim, that Ranclose Investment was suing Leda Management in its personal capacity; and that Leda Management did not take issue with that in its Defence. Leda Management (and Leda Holdings) itself now accepts that it will have to amend both its Defence and Cross-Claim to address the capacity in which it is liable to be sued, and its capacity to sue. I am quite sure that had the matter of its limited capacity been something that the companies' solicitor had known of at the dates the Defence and Cross-Claim had been (respectively) filed, they would have been referred to in those pleadings. So much is implicit in the solicitor's recognition of the 'duty of disclosure' to the court to indicate the 'true nature' of the defendant. I am also sure that thereafter, Ranclose Investments' solicitors would have raised the same subsequent inquiries and proposed amendments, and joinder, which they now seek to make.
Counsel for Leda Management did not seriously dispute that part of the purpose of the amendments was to bring the factual allegations into conformity with the evidence of Mr Williamson served in June 2020. That is a common and legitimate purpose of amendment to a pleading (Leotta v Public Transport Commission of NSW (1976) 50 ALJR 666 at 668). There is a substantial cross-over between the reconstruction of the factual allegations in the version of the proposed pleading set out in the motion on 16 November 2020 and the allegations in the most recent version of the proposed pleading annexed to the motion, as amended on 20 May 2021.
Since then, of course, the plaintiff has tried to recast its pleading further with a view to new causes of action, in the alternative to the primary claim of breach of contract, with a view to joining other defendants. In retrospect, even if the plaintiff had actually moved earlier for the amendment, it would have separately required the Court's leave again for the further amendments to respond to the point about Leda Management's limited capacity. As events have turned out, as Counsel for the plaintiff reminded me, the plaintiff has only had to persuade the Court once, in the same application, for all the amendments it seeks, including those previously flagged; in a way that has practically spared the parties multiple hearings on interlocutory applications.
It is also the position that no trial date has been set for the hearing.
I am not convinced that any substantial costs incurred by Leda Management to date in defending the existing pleading will have been 'wasted'. Prima facie, there is little on the face of the proposed amended pleading to signify that any factual matters raised in the Statement of Claim are now abandoned; which truly would be indicative of wasted costs.
As was explored in argument, the Court was informed that to the extent that new factual allegations are raised (aside from those relating to the alleged agency) the facts to support them were set out in Mr Williamson's affidavit prepared in June 2020. The defendant's witnesses have had the chance and, I am informed in some cases, already availed themselves of the chance to respond to his evidence.
Further, to the extent that Leda Management says it is concerned about not being able to recover past costs against an impecunious plaintiff, that is partly a consequence of its failure to bring an application for security. Further, it should not be neglected that Leda Management's application for security deliberately eschewed an application that security extend to past costs. This was plainly reflective of the circumstance of the lateness with which it brought the application for security (and an astute tactic on that account to advance that particular application) but having done so, it weakens its argument about prejudice on the basis of being unable to recover past costs thrown away by the amendments.
The real prejudice, as I apprehend it, is not so much the prospect of wasted costs, but the possibility of the defendant (or defendants') incurring future costs for which they have no present entitlement for security. As to those future costs, Counsel for the plaintiff foreshadowed that so far as the plaintiff is concerned, it may wish to tender some documents indicating licence applications and may also seek to rely upon expert (valuation) opinion evidence to support the claim on a quantum meruit. Conceivably also, if the plaintiff wishes to pursue damages for loss of profit, or the loss of expectation of profit, it might need expert (presumably forensic accounting) evidence about that too. No indication was given that Mr Williamson, himself, wishes to supplement evidence 'in chief', including providing the lay assumptions for the expert evidence. Plainly, the defendant(s) would be entitled to respond to such evidence. But no other specific indication was supplied as to additional future costs occasioned by the amendments other than the vague notion that the existing deponents might want to re-read what Mr Williamson had to say in the light of the newly formulated pleading.
The main point raised in opposition to the amendments is the impecuniosity of the plaintiff may render any work henceforth done by the defendant(s)' solicitors irrecoverable. That consideration is certainly relevant, indeed legitimate, as a term for the grant of leave to amend. I consider this particular matter in the context of the defendant's application for security, further below. However, the preponderance of the 'future' costs to be incurred by the defendant(s) will arise independently of any need to incur costs occasioned as a consequence of the amendments.
Expressly or implicitly, I consider that I have addressed the pertinent matters, arising from the parties' contentions, which arise from consideration of s 58 of the CP Act. In summary, I accept that some of the amendments are designed only to bring the pleading into conformity with the evidence; some arise from a circumstance not known to the plaintiff at the time it commenced the proceeding which essentially was not in its control. Although much time has already passed in the proceeding, this is hard fought commercial litigation attended by a level of factual complexity which sets it apart from much of the civil litigation ordinarily before this Court. Views might reasonably differ as to whether the plaintiff might have moved the Court (or at least moved for adjudication) of applications to amend earlier, but that would not have made any real difference given that the joinder application, and much of the amendment application, arise from information only received in March 2021. Such prejudice, about which the defendant may reasonably complain - its future costs (as distinct from its past costs) - will, for reasons to be shortly considered, be addressed in its application for security. Although it complained about receiving different versions of the proposed amended pleading since November 2020, the defendant did not otherwise complain about any general inefficiency in the plaintiff's conduct of the proceedings. Further this is, as Ranclose Investments' Counsel emphasised, the first time it has sought leave to amend.
I have not addressed every one of the matters in the proposed amended pleading which, the respondent contends is likely to fail, needs further particulars, or renders the document liable to be struck out. I would not in my discretion, disallow amendments unless the claims, as proposed, are manifestly groundless. I have already indicated certain key areas where, I consider, the plaintiff and its legal advisors should appropriately re-consider. It is not appropriate for the Court to tell the amending party how to plead its claim. The plaintiff would, however, be well advised to consider the specific criticisms made by the defendant of the pleading as part of its review.
The grant of leave will not preclude the defendant(s) from making any proper application as advised (subject to the grant of security) once the amendments are permitted, consistent with its obligation under s 56(3) of the CP Act.
Subject to the modifications which I have suggested are necessary to the document, where indicated, the amendments are allowed.

[9]

The provisions and principles

Both parties bring an application for security against each other under r 42.21 of the UCPR and s 1335 of the Corporations Act 2001 (Cth). Both parties rely upon the ground in r 42.21(d) that: "there is reason to believe that a plaintiff, being a corporation, will be unable to pay the costs of the defendant if ordered to do so"
A 'plaintiff', for the purpose of this rule, includes a 'Cross-Claimant', so the rule will potentially apply to Leda Management's Cross-Claim. Similarly, a 'defendant' will include a 'cross-defendant' to a Cross-Claim (CP Act, s 3(1)).
In its application for security, relating to the Cross-Claim, Ranclose Investments, also invokes as an additional ground for security, r 42.21(e), that: "that a plaintiff is suing, not for his or her own benefit, but for the benefit of some other person and there is reason to believe that the plaintiff will be unable to pay the costs of the defendant if ordered to do so."
Section 1335(1) of the Corporations Act 2001 (Cth) provides that: "Where a corporation is plaintiff in any action or other legal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his, her or its defence, require sufficient security to be given for those costs and stay all proceedings until the security is given".
Although the language is different, as between the Court rule and the statutory provision, it has been accepted that the Court is engaged in the same or similar discretionary exercise (Lesvos Pty Ltd v Penrith Whitewater Stadium Ltd (2006) 58 ACSR 481).
A 'defendant' to a claim bears the onus of establishing that the identified grounds in the rules are made out. In relation to the ground in r 42.21(d) the requirement to establish reason to believe that a plaintiff corporation would be unable to pay costs has been described as 'undemanding', or amounts to a 'reasonably possible inability to pay costs' (Modakboard Pty Ltd v Brady [2018] NSWSC 399 at [244]). But an applicant must do more than point to the risk of such inability and requires satisfaction of an actual prospective inability to pay (Cornelius v Global Medical Solutions Australia Pty Ltd (2014) 98 ACSR 301 at [15]-[17]). The Court's focus in respect to the claimant's financial position is at the time of the judgment; which necessarily requires the Court to make a prediction (Narradine Pty Ltd v Mascot Bank Ltd [2012] NSWSC 385 at [5]).
Once the 'jurisdictional threshold' has been passed, there are a range of discretionary factors which the Court must take into account. The onus still remains upon the applicant to have the Court exercise its power (Cornelius at [18]-[20]). As to the power under court rules, as with all applications in the nature of practice and procedure, the power must be exercised generally with reference to the overriding purpose identified in s 56 and adumbrated in s 57. Further, the Court must be cognisant of the matters referred to in ss 59 and 60 - the last provision having particular relevance to the amount of any security to be provided.
Rule 42.21(1A) provides a non-exhaustive list of considerations. For the purpose of the power being exercised under s 1335, there are several cases, notably KP Cable Investments v Meltglow Pty Ltd (1995) 56 FCR 189, which outline considerations which do not substantially differ from those which appear in the Court rules.
The timeliness of an application is relevant, to minimise the risk of the plaintiff incurring costs in relation to proceeding it is not able to pursue, however, delay is no automatic bar to the making of such an order: Commonwealth v Cable Water Skiing (Aust) Ltd (1994) 116 FLR 153.
Two considerations put in issue by Ranclose Investments concern the possibility that provision of security will stifle the proceeding and that Leda Management contributed to its impecuniosity. It has been said that where the proceedings involve a commercial arrangement that a plaintiff has with a defendant that carries the risk of impecuniosity in the plaintiff, that is potentially relevant to the exercise of the discretion: Tenth Anemot Pty Ltd v Colonial Mutual General Insurance Co Ltd [1993] 2 VR 48.
However, it has been said that where security for costs is resisted on the ground that it is the conduct of the defendant that has caused the plaintiff's impecuniosity, the apparent strength of the plaintiff's case should be assessed. White J said as much in Statewide Developments Realty Pty Ltd v The Owners, SP 77457 [2013] NSWSC 1750 at [20]. However, his Honour followed this up by observing, at [23], that the real reason for investigating the strength of the plaintiff's case arises only where it was said that, on the particular facts of the case, the grant of security would stultify the proceedings. That was the approach taken by the Full Court of the Supreme Court of Western Australia in BPM Pty Ltd v HPM Pty Ltd (1996) 131 FLR 339 at 346 (Anderson J, with whom Kennedy and Ipp JJ agreed). In that case Anderson J observed that the question of the defendant's contribution to the plaintiff's impecuniosity had to be considered in conjunction with the proposition that the effect of an order for security would be to stultify the action. Black J applied that principle in Advance Innovative Solutions Pty Ltd (in liquidation) v X-Dem Group (Aust) Pty Ltd [2012] NSWSC 1112 at, in particular, [19].
As to the likelihood of an order for security stifling the proceeding, the plaintiff bears the onus of establishing that financial support is not available from those who would benefit from the litigation, because of their own impecuniosity: Bell Wholesale Co Pty Ltd v Gates Export Corp (No.2) [1984] 2 FCR 1 at 4.
As to the amount of security, it is not of such amount as to provide a complete indemnity: Royal Guardian Management Pty Ltd v Nguyen [2015] NSWCA 148 ('Royal Guardian') at [25]. It has been suggested that the Court adopt a realistic, but conservative approach to the assessment of the evidence before it: Royal Guardian at [25]. The principle of proportionality identified in s 60 of the CP Act is relevant to the amount of the security: April Fine Paper Macao Commercial Offshore Ltd v Moore Business Systems Australia Ltd (2009) 75 NSWLR 619. It is not unusual for payments to be staged in tranches: Idoport Pty Ltd v National Australia Bank [2001] NSWSC 744 at [156].
Although this Court is one of limited jurisdiction, it is empowered by s 67 of the CP Act, and also s 156 of the DC Act, to stay proceedings so as to ensure that security is provided (Philips Electronics Australia Pty Ltd v Matthews (2002) 54 NSWLR 598 at [45]-[47]).

[11]

The threshold jurisdictional question

Mr Kalde referred to attempts since March 2021 to obtain information about the plaintiff's financial capacity, including requests for recent current accounts, BAS statements, management accounts and a sworn affidavit of a director of the plaintiff regarding its assets and liabilities. This followed the service of notice to produce directed to the production of tax returns for Mr Williamson and the plaintiff in the period covering the financial years ended 30 June 2016 to 30 June 2020.
On 16 April 2021, Chris Clancy, principal of the firm Clancy Lawyers, the firm representing the plaintiff, responded that the plaintiff did not have some of the categories of documents requested and, more pertinently, asserted that the plaintiff's "only significant asset" was its chose in action against the defendant. BAS statements showed no sales for the plaintiff over the period of 18 months, from January 2019 to September 2020.
An ASIC company search performed on Ranclose Investments on 19 April 2021 indicated paid up capital of $100. A national property ownership search performed on the same date indicated that Ranclose Investments does not own any real property in Australia. Further still, on the same date, a search of the personal property securities register indicated a single result where it was grantor of one or more lease, rental or agreement for printer and/or copier equipment.
Ranclose Investments does not contend that this jurisdictional ground is not made out; although it says, correctly enough, that the ultimate test is whether impecuniosity exists at the time the adverse costs order is made.
But in the face of the evidence as to its existing impecuniosity, there is no tangible evidence from Mr Williamson, or Mr Clancy (on information and belief) that the situation will change when judgment is made in the matter; which date, for present purposes, I expect will occur some time at least within the next two years.
It is notable that Ranclose Investments actually embraces its impecuniosity, in the sense of explaining that it is the conduct of the defendant that has contributed to that result and that this justifies refusal of the order for discretionary reasons.
I find that Ranclose Investments would not likely be able to pay the defendant's costs if ordered to do so. If it was necessary to do so, I would also find that the ground in s 1335 of the Corporations Act was made out for the same reasons.

[12]

Discretionary matters

Mr Kalde, through his affidavit, argues in favour of the exercise of the Court's discretion in respect of the following matters (some of which appeared to be also relevant to its opposition to the amendments): 1. that it was not before the filing of the evidence for Ranclose Investments that it admitted its impecuniosity; 2. vagueness in the plaintiff's pleading gives rise to the prospect that some of the work referred to in the evidence in Leda Management's evidence will have been wasted, but if not, will need to be substantially supplemented; 3. before Ranclose Investments' foreshadowed amendments, Leda Management had a tightly focussed case. There is now a prospect that the costs of prosecuting its Cross-Claim will blow out.
In his submissions on the hearing, Counsel for Leda Management also argued that because an order for damages that Ranclose Investments might obtain is compensatory, it should only be for loss of profits; but, it was said, Ranclose Investments has not demonstrated that it was either making a profit either whilst the contract was on foot, or after termination. No attempt was made, for example, to compare its inability to make a profit from existing clients and what profit it was obtaining after termination. Further, Ranclose Investments has not produced documents in response to requested categories in a Notice to Produce; such as tax returns or client lists which may corroborate Mr Williamson's assertions about the contribution of Leda Management to any loss.
Counsel argued that, functionally, given the new amendments, Leda Management should be treated as having brought the application only recently. Relevantly, it is not seeking security in relation to its past costs incurred over the last two years, but only on-going costs.
Counsel argued, further, that in terms of prospects of success, since Ranclose Investments was, through its amended pleading, trying to argue for the existence of a contract of broader form and scope, in terms of the reliance upon oral conversations, contracting parties, and terms, to that which had been alleged when the proceeding commenced, it follows that the risk of failure has commensurately increased. A weaker claim is a reason for security to reflect amendments that have brought about the weaker claim.
Mr Clancy, through his affidavit, argues that Leda Management is not entitled to an order for security in circumstances where: 1. it admitted that it had no capacity to contract with Ranclose Investments. That being so, it cannot be entitled to security; 2. Ranclose Investments has very good prospects of success on its claim; 3. since June 2020, Leda Management first foreshadowed its application for security, but has waited nearly 2 years to bring its application; during which period Ranclose Investments has incurred costs of $72,000 on its claim and spent $126,751.20 in preparing evidence in defence of the Cross-Claim; 4. Ranclose Investments' present impecuniosity was caused by Leda Management given the exclusive nature of the agreement and that this was the sole source of income for Ranclose Investments; 5. An order for security would stultify the proceeding, even to the extent of the four months' work which was performed and for which payment was made.
In her submissions, Counsel for Ranclose Investments reiterated that the prospects of success on the claim for breach of contract were strong. She referred the Court to indications within the evidence that Leda Management had backdated the termination of contract to October 2017 when there were objective indications of Mr Williamson's continued employment through to February 2018; which diminished the credibility of Leda Management's Defence.
Counsel argued that far from leading to an inference that the non-production of documents such as BAS Statements or tax returns would not assist Ranclose Investments' position on the application, the circumstance was consistent with its position: the Court would naturally infer that no such documents came into existence because there was no tax to remit because of the lack of income which was received.

[13]

Consideration

As I indicated to the parties, the Court was not made privy, on the present application, to any of the evidence that has been extensively amassed by both parties in prosecution and defence of this claim. There is some logic to support the view that the joinder of Leda Holdings, an entity not identified as a contracting a party, as an undisclosed principal, might mean that the plaintiff's claim is more complicated than as originally formulated only against the party whose name appeared on the written part of the contract. But the Court is not, on the evidence before it, able to make a predictive assessment of how far, if at all, the prospects of success have altered. That being so, I proceed on the basis that the plaintiff's claim is bona fide and has reasonable prospects of success.
Security is not ordinarily ordered against a party defending itself and is forced to litigate; such as by pre-empting threatened claims made by a contracting party. That is not the position of this plaintiff. This consideration points to provision being made for security.
I have already indicated that the plaintiff is impecunious. A relevant issue dividing the parties is whether that is attributable to the defendant's conduct. No suggestion has been made in this case that the plaintiff has arranged its affairs so as to shelter its assets.
However, as earlier indicated in my discussion of the principles, the question whether a defendant's conduct has contributed to impecuniosity is inextricably tied to consideration of whether the grant of security would stultify the litigation. Demonstration that an order for security would stifle or end the plaintiff's claim would be a powerful, if not determinative, factor against security. For this consideration, a court typically looks behind the impecunious litigant to consider the means of others who stand to benefit from the litigation (Live Board Holdings Ltd v Cody Live Pty Ltd [2017] NSWCA 302 at [90]). That, for present purposes, requires consideration of the position of Mr Williamson and his personal capacity to fund the litigation, including his capacity to meet an adverse costs order against the plaintiff.
However, very little was said on the issue in the evidence for Ranclose Investments. In the second of three affidavits he relied upon in the applications (29 April 2021), after citing his client's argument that the defendant(s) had caused Ranclose Investments' impecuniosity, Mr Clancy (at paragraph 54) did no more than merely predict that a requirement to provide security would stifle proceedings. The basis for that prediction was not, however, disclosed.
In my view, the plaintiff has not demonstrated that capacity, either by direct evidence or, even (less satisfactorily) evidence on information and belief. Vague reference was made, from the Bar table, by the plaintiff's Counsel that Mr Williamson recently sold real property, but that tells the Court nothing about what amount of proceeds he obtained or even what, if any other properties, he may resort to, if need arise, to provide security. It is not without significance that despite its' impecuniosity', the plaintiff has already been able to fund, apparently without reference to any litigation funder, its prosecution of the claim and defence of the Cross-Claim in a vast sum. Mr Williamson has not divulged to the Court how he did so.
Further, Leda Management's argument on stultification is assisted by its offering an undertaking not to pursue its Cross-Claim in the event that the order for security is made (Concrete Constructions v Dalma Formwork Pty Ltd [1999] NSWCA 16 at [15], [24]).
I am not satisfied that the provision of security would stifle the proceeding and this is a factor weighing in favour of the grant of security. In my view, this makes it unnecessary to consider whether the defendant's conduct caused its impecuniosity.
Another consideration is the delayed timing of the application. As indicated, Leda Management addresses this in two ways. First, it is only seeking security for its further costs of the proceeding; and not its past costs. Secondly, in a real or effective sense, the parties have to start again in the event that the amendments are granted.
The significance of the timing of the application is that the corporate plaintiff is entitled to know where it stands at an early stage in the proceeding, before it embarks upon the litigation to any real extent. If the application for security is delayed, as has occurred here, the plaintiff will have spent money that will be wasted if security is awarded and will therefore be prejudiced to that extent (Southern Cross Exploration NL v Fire & All Risks Insurance Co Ltd (1985) 1 NSWLR 114 at 123). Also relevant, in this regard, is the indication, apparently from at least last year, from Leda Management that it might bring an application for security but, for reasons not explained, that application was not brought before April this year. This is a factor that weighs against the grant of security.
Nevertheless, delay in bringing an application for security is not usually regarded as fatal to an application for (Commonwealth v Cable Water Skiing (Aust) Ltd (1994) 116 FLR 153). Relevant circumstances affecting the weight to be given to this consideration are whether a hearing is imminent and whether there has been some forewarning: Crypta Fuels Pty Ltd v Svelte Corp Pty Ltd (1995) 19 ACSR 68 per Lehane J at 71. In this case, a hearing is not imminent and there was, according to Ranclose Investments, some forewarning or threat by Leda Management that security might be sought. As I have noted, Leda Management is not seeking security for its past costs; only its future costs. Some of those future costs would not have arisen but for the plaintiff's amendments in circumstances where the plaintiff is admittedly impecunious. I refer here, to the costs incurred in reviewing the amended pleading, taking instructions and filing defences to the amended pleading and putting on supplementary evidence in response to whatever new (lay or expert) evidence that the plaintiff wishes to adduce to complete its case in chief. As previously intimated, I consider that security for the costs of at least those added costs would be warranted as a term for the grant of the amendments.
In my view, these circumstances substantially dilute the force of the consideration that the application was not brought in a timely way.
As to Ranclose Investments' point about a lack of standing in Leda Management to bring an application for security because of its limited capacity, the two do not follow. Leda Management plainly does have standing because it is sued as a defendant. The circumstance that it has limited, or no, assets does not alter that position.
I will address the aspect of proportionality of the amount sought for the security in the next section concerning quantum.
It is recognised when determining applications of this kind that the relevant considerations will pull in each direction and there is no hierarchy as between them.
However, the preponderance of circumstances I have alluded to favour the grant of security.

[14]

Quantum

On the issue of quantum, as at 31 March 2021, Mr Kalde estimated that Leda Management had already spent $275,384.86 in legal fees. No security is sought for that amount.
As to the future, based upon hourly rates set out in detail, he anticipated that it would likely incur further solicitor and client costs in the sum of $267,257. That was on the basis that the employed solicitor (Mr Ghazizadeh, whose hourly charge out rate was $350) would perform 75% of the work. Mr Kalde then applied a 'blended' rate (reflecting his own charge out rate and that of Mr Ghazizadeh) to the work he expected would be required.
I note that Mr Clancy, the plaintiff's solicitor, estimated that his client's future costs was in the range of $197,958.00 to $232,958. Although Mr Kalde's estimate exceeds this, it does not do so extravagantly. This made provision, relevantly for solicitors' costs and Counsel's fees for an estimated 7 day hearing. It also included the costs of the motion. I consider some natural discounting would arise: there should not be security for the costs of applying for security. The security should apply to future costs.
On the aspect of proportionality, when the proceeding commenced, the plaintiff sought only the sum of $135,054.59; made up partly as a claim in debt and partly as a claim in damages. But the quantum of the plaintiff's claim in its amended pleading has expanded, potentially very significantly, to embrace, as additional heads of loss, claims - not presently quantified (at least on the basis of information presented to Court on the application) - of loss of opportunity to profit and also loss of the expectation of profit from further extensions. Its Counsel noted that there was likely to be expert evidence (presumably a valuation of sorts of work). I infer also that if these additional heads of loss are pursed, there will likely be a need for forensic accounting evidence. Such evidence will need to be responded to by the defendants. Ranclose Investments did not place before the Court any evidence quantifying these additional losses. The Court is not able to say, in those circumstances, that the amount sought is extravagant or disproportionate to the amount that will eventually be claimed by Ranclose Investments in the principal proceeding.
As has been noted, ideally, estimates of future costs on applications of this kind should be supported by evidence of an independent costs assessor (Re Colorado Products Pty Ltd (in prov liq) [2013] NSWSC 611 per Black J at [68]). However no objection was taken to it and it appears to be reasonably conservative and the Court can derive some comfort from the extent of Mr Kalde's experience. I further note that Mr Clancy did not challenge Mr Kalde's quantification of future costs; possibly, since I have noted, his estimates of his client's future costs is not so far apart. There may be scope to quibble with some of the individual items on Mr Kalde's cost estimate (22/3/21, para 44) but the defendant is only seeking $150,000.00.
As I elaborate shortly, in my view, the issues raised in the pleaded Cross-Claim are integral, also, to the defendants' Defence. It is artificial, in my view, to say, as Mr Clancy asserts, that they can be severed.
In my view, such security should be provided in two stages; the first to secure the costs of settling the pleadings and completion of evidentiary steps for the hearing; the second is 10 days prior to the hearing to secure the costs of preparation and attendance in the trial. In my view, security for the first tranche should be in the sum of $80,000; whilst security in the second tranche should be for the sum of $70,000.

[17]

What if Leda Holdings was added as a Cross-Claimant?

After the conclusion of the hearing of argument on this, and the other applications, I caused inquiry to be made of the parties whether their respective positions would be any different if Leda Holdings, which is to be added to the principal proceeding, consented to and was added as a Cross-Claimant. It appeared to me that if, as I have determined, it was appropriate to be joined as defendant as an undisclosed principal on the contract for services entered into by the plaintiff, it would be in no different position to Leda Management, in respect to having rights against the cross-defendant commensurate with its obligations to the plaintiff, depending upon which entity was the entity against which the plaintiff elected to obtain a judgment.
It appears on the face of the pleadings, that Leda Holdings owns very substantial property development sites. It was to those properties, to reiterate, Mr Williamson, through the plaintiff, was effectively providing his services.
In answer to the Court's inquiry, after the hearing, Ranclose Investments submitted that its position would not be any different if Leda Holdings consented to be, or was joined as an additional Cross-Claimant. It was seeking, as part of its application for security, past and future costs against Leda Management, but it could not obtain security for past costs against Leda Holdings if it was to be now joined as a Cross-Claimant. Further, it recently refused, despite a request by Ranclose Investments, to provide financial documentation to demonstrate capacity to pay Ranclose Investments' costs or undertaking to provide security on behalf of Leda Management.
In its answer to the Court's inquiry, Leda Management (whose Counsel also represented Leda Holdings on the joinder application) did not express anything to suggest that Leda Holdings consented to being joined as an additional Cross-Claimant. However, if that event came to pass, its position was that where a ground for ordering security was made out against one 'plaintiff', that did not mean that security should be ordered against another, or other, 'plaintiff(s)' (as Cross-Claimants). If Leda Holdings was joined then its interests would be common with the interests of Leda Management. There would be no suggestion that Leda Holdings was impecunious. Indeed, it is the financial position of Leda holdings which, as its Counsel had argued in the hearing, which explained why Ranclose Investments was applying to have it joined as a defendant in the principal claim.
The Court is not empowered to order a plaintiff (Cross-Claimant) to be joined without its consent: see r 6.25 of the UCPR. Nevertheless, where, as here, an undisclosed principal to a contract is joined to a proceeding, unless it becomes a party to a Cross-Claim that had been filed by its agent as a defensive measure, it may be liable under the plaintiff's claim in the proceeding but not have a right to avail itself of the same defences which are elaborated in the Cross-Claim. By r 6.26 of the UCPR, it would even be open for Ranclose Investments to apply for the joinder of Leda Holdings in any event for the purpose of applying for costs given that, as I have indicated earlier in these reasons, it would appear to me that Leda Holdings would otherwise be a proper party to the proceeding. It may be a question of the extent to which, if at all, Leda Holdings could be responsible for any adverse costs order, for past costs, against Leda Management, but at least from the point of joinder, it would be potentially liable for costs of the Cross-Claim from the date of the joinder (depending upon whom the plaintiff obtained judgment against on its claim). It is not now necessary to express any conclusive view about that in the absence of further argument, but the parties may be well advised to consider this point. The Court does not know of Leda Holdings' current position, or even prospective position, but it is not excessively speculative to consider that it might have a greater capacity to meet an adverse costs order on the Cross-Claim than the existing Cross-Claimant.
In view of the joinder of Leda Holdings as another defendant, it will be a matter for the parties whether it should be joined as a Cross-Claimant; which might obviate a need for security against the existing Cross-Claimant, at least for costs of defending the Cross-Claim in the future.
I will now turn to discretionary considerations relating to whether security might be ordered against the existing Cross-Claimant.

[19]

Prospects of success and genuineness of Cross-Claim

On the question of the Court's discretion, Mr Clancy argues that aside from impecuniosity in the Cross-Claimant, the Cross-Claim itself should be treated as being either not genuine or having no prospects of success. It points to inconsistencies in the content of the Defence and in the Cross-Claim; and suggested inadequacies in the claim as apparent in the Cross-Claim, on its face, or the evidence served to support it.
In her submissions, Counsel for the cross-defendant went so far as to argue that the Cross-Claim was a sham; notwithstanding that it was certified by an experienced solicitor who acts as an officer of the Court.
As I said in relation to Leda Management's application for security, so too in relation to the Cross-Claim: the parties have not supplied the Court with anything beyond the pleadings (or proposed pleadings) and contentious and partisan correspondence from their respective lawyers which could assist the Court to form any reliable view as to the prospects of the Cross-Claim succeeding. It is true that, standing alone, the Cross-Claim raises allegations against Mr Williamson at a high level, but the Court was informed that particulars of those allegations had been sought and provided (albeit that the adequacy was not accepted, even without any present application for further particulars by Ranclose Investments).
I therefore proceed on the assumption, therefore that the Cross-Claim is genuine and has reasonably arguable prospects of success.
To my mind, the critical, and dispositive question, is reflected in r 42.21(1A)(e) of the UCPR; being whether the plaintiff (ie the Cross-Claimant) is effectively in the position of a defendant.
In paragraph 12 of its Defence, Leda Management pleaded that: "Further, and in answer to the whole of the Statement of Claim, the defendant says that the plaintiff and Wayne Williamson made false and misleading representations to the defendant, to induce the defendant to enter into the Agreement. The defendant has suffered loss and damage as a result of the representations. The defendant will seek appropriate relief in a separate Cross-Claim in these proceedings, including by way of set-off of all amounts claimed by the plaintiff."
In paragraph 3 of its Cross-Claim, Leda Management pleads those representations. A cursory comparison between those pleaded representations against the services which the cross-defendant supplied, or was responsible for, under the agreement in the principal pleading indicates that the representations clearly relate to the subject matter of the principal claim. Especially is that so where, in the principal claim, Ranclose Investments alleges that the termination of the plaintiff's services was unlawful; thereby giving rise to its alleged right to damages. Although I emphasise, again, not having seen any evidence on the Cross-Claim, I infer that Leda Management's case is that the termination of the plaintiff's services was justified because of the alleged inadequacy of Mr Williamson's services, in breach of the agreement itself; and also contrary to the representations as to his capacity and skills to perform those services.
Contrary to the cross-defendant's submissions, I do not see the case of Copson v DCM Coffee & Donuts Pty Ltd & Norriss (1996) ATPR 41-505 as being comparable to the circumstances here. That was a case in which a franchisee brought an action for damages against a franchisor for misleading or deceptive profitability forecasts and the franchisor counter-claimed on the basis of lost franchise fees, loss of the use of money and damages for entry into a lease. Spender J characterised the cross- claim as being substantially offensive and separate and distinct from the claim brought against it.
But as Leda Management's pleadings indicate, the representations (and, separately, breaches of the services agreement) are relied upon to impugn the plaintiff's entitlement to receive fees which are derived from the same agreement (however that is constituted). In my view, it cannot be said that its Cross-Claim is "quite independent of the transaction out of which the claim against (it) arises": New Fenix Compagnie Anonyme D'Assurances de Madrid v General Accident, Fire, and Life Assurance Corp Ltd [1911] 2 KB 619 per Vaughan Williams LJ at 625-6; also Motakov Ltd v Commercial Hardware Suppliers Pty Ltd (1952) 70 WN (NSW) 64.
I would refuse the cross-defendant's application for security on that basis alone.

[20]

ORDERS

The Court orders: 1. Leda Holdings Pty Ltd is joined to the proceeding as a Second Defendant. 2. The plaintiff has leave to file and serve a modified version of the proposed Amended Statement of Claim (which version was annexed to the Notice of Motion, as amended, on 20 May 2021), in accordance with these reasons, within 14 days. 3. On the plaintiff's application to amend: 1. the parties each had a measure of success in their arguments, which should be reflected in the costs outcome. Accordingly, the costs of the plaintiff's application to amend are also costs in the cause; but 2. the plaintiff is to pay any costs thrown away by the amendments. 1. The costs of the plaintiff's application for joinder against Leda Holdings are to be costs in the cause. 2. To the extent that they are severable from the application for joinder of Leda Holdings Pty Ltd, the plaintiff is to pay Mr Ell's costs of the joinder application against him personally. 3. The Plaintiff give security for the Defendants' future costs of the proceedings in the amount of $150,000 in tranches, with such security to be provided by way of funds paid into Court or by bank guarantee in a form agreed between the parties or, absent any agreement, determined by the Judicial Registrar. 4. The security is to be provided in the following tranches: 1. $80,000 is to be provided within 28 days of the date of these orders; and 2. $70,000 is to be provided no less than 10 business days before the commencement of the hearing, when that date is fixed by the Court. 1. The proceeding on the Amended Statement of Claim is to be stayed if security is not provided in compliance with order 7(a) or (b) (whichever be applicable). 2. In the event that security is provided in accordance with order 7(a), the plaintiff is directed to notify the Associate to the List Judge for the purpose of a listing of the proceedings for further case-management. 3. The plaintiff is to pay the defendant's costs of its application for security for costs. 4. The cross-defendant's application for security for costs is dismissed with costs. 5. Liberty to apply is granted on 3 days' notice.

At a glance

Court

Decision date

Source

Judgment (21 paragraphs)

Parties

Legislation Cited (5)

Cases Cited (23)

Cited By (5)