Practice and procedure - Application to strike out claim - Incorporated association - Whether committee members liable for inducing association to breach contract with plaintiff - Security for costs - Quantum - Turns on own facts

Associations Incorporation Act 1987 (WA)

Biscayne Partners Pty Ltd v Valance Corp Pty Ltd & Ors [2003] NSWSC 874

Dalgety Australia Ltd v Rubin; unreported, SCt of WA, Library No 5485, 24 August 1984

Fightvision Pty Ltd v Onisforou (1999) 47 NSWLR 473

Hospital Contributions Fund of Australia v Hunt (1983) 44 ALR 365

O'Brien v Dawson [1942] HCA 8; (1942) 66 CLR 18

Root Quality Pty Ltd v Root Control Technologies Pty Ltd [2000] FCA 980; (2000) 177 ALR 231

Said v Butt [1920] 3 KB 497

Short v City Bank of Sydney [1912] HCA 54; (1912) 15 CLR 148

Tsaprazis v Goldcrest Properties Pty Ltd [2000] NSWSC 206; (2000) 18 ACLC 285

Ex-Christmas Islanders Association (2002) Inc and Department of Transport and Regional Development [2002] AATA 176; 70 ALD 151

Kimberley Downs Pty Ltd & Ors v The State of Western Australia & Anor, unreported; SCt of WA; Library No 6414; 25 August 1986

1 MASTER NEWNES: I have before me three applications in this matter. The first defendant has applied for security for costs. The second defendants (apart from Mr Cram, who has agreed with the plaintiff to abide the result) have applied to strike out the claim against them as disclosing no reasonable cause of action and, if that application is unsuccessful, for security for costs.

2 The first defendant is an incorporated association under the Associations Incorporation Act 1987 (WA). It is a non-profit organisation and, as its name suggests, is involved in motor sport in Bunbury.

3 In the action the plaintiff alleges that from some time prior to 1987 the City of Bunbury has leased to the first defendant certain land on which a speedway track is constructed. The land concerned is Crown land. The plaintiff says that from 1999 it occupied the speedway as a tenant at will.

4 In about June 2003 the plaintiff and the first defendant entered into a written agreement by which the first defendant agreed to sublease the speedway to the plaintiff for a term of 18 years, commencing on 1 August 2002 and expiring on 30 June 2020 with an option for a further term of 21 years. The plaintiff says it was an implied term of the sublease that the first defendant would use its best endeavours to procure the consent of the City of Bunbury, as head lessor, to the sublease.

5 The plaintiff pleads that on or about 16 July 2003, pursuant to the sublease, it delivered to the first defendant a cheque in the sum of $16,000 in payment of rent in advance. It says the first defendant accepted the cheque but did not present it for payment. The plaintiff also says that prior to the commencement of the sublease, to the knowledge of the first defendant, the plaintiff incurred expenditure to enable it to carry on its activities at the speedway and to attract patrons to the speedway.

6 It is alleged by the plaintiff that the first defendant subsequently repudiated the sublease by expressly refusing to be bound by its terms, by refusing to submit the sublease to the City of Bunbury for consent and by denying the plaintiff access to, and possession of, the speedway. The plaintiff says it accepted the repudiation and in the action it claims damages against the first defendant.

7 The plaintiff's claim against the second defendant is for interfering in the plaintiff's contractual rights under the sublease. The claim is put in the following way. On or about 14 August 2003, some two months or so after the sublease was executed, the second defendants became committee members of the first defendant. As such, they owed a duty to the plaintiff not to interfere in the contractual rights of the plaintiff pursuant to the sublease. It is pleaded that in breach of that duty the second defendants caused the first defendant not to submit the sublease to the City of Bunbury for consent, to refuse to be bound the terms of the sublease and to deny the plaintiff access to and possession of the speedway.

8 The plaintiff alleges that the second defendants did so in the knowledge that the first defendant's failure to perform its obligations under the sublease was unlawful and would cause harm to the plaintiff; alternatively, with reckless indifference as to whether the failure was unlawful and would cause harm to the plaintiff. The plaintiff says it has suffered damage by reason of the second defendants' breach of duty and it seeks damages against the second defendants.

9 I will turn first to the second defendants' application to strike out the claim against them as disclosing no reasonable cause of action.

10 The principles to be applied on such an application are well known and were not in dispute. Great care must be exercised to ensure that the plaintiff is not improperly deprived of the opportunity for a trial of their claim. A claim will only be struck out where it is clear that on the facts pleaded the claim cannot succeed: Dalgety Australia Ltd v Rubin; unreported, SCt of WA, Library No 5485, 24 August 1984. A court at first instance should be careful not to risk stifling the development of the law by summarily rejecting a claim where there is a reasonable possibility that, as the law develops, it will be found that a cause of action will lie: Hospital Contributions Fund of Australia v Hunt (1983) 44 ALR 365 at 373.

11 Although the present case is not pleaded as clearly as it might be, it was plain from the argument on the application that the plaintiff's claim against the second defendants is for the tort of inducing or procuring a breach of the plaintiff's agreement with the first defendant. The acts alleged to constitute that inducement or procurement occurred after the second defendants became committee members of the first defendant.

12 In Short v City Bank of Sydney [1912] HCA 54; (1912) 15 CLR 148 at 160 Isaacs J said that to constitute the cause of action for inducing a breach of contract:

" ... the defendant must have induced or procured the doing of what he knew would be a breach of contract. A bona fide belief reasonably entertained that it was not a breach of contract would be fatal to the claim. If the defendant did not know of the existence of the contract, he could not induce a breach; if he reasonably believed it did not require a certain act to be performed, his inducing a party to the contract to do something inconsistent with it could not be regarded as an inducement or procurement knowingly to break the contract; if he believed on reasonable grounds that the contract had been rescinded, or performance waived, when in fact it had not, he could not be said to knowingly procure its breach."

13 In short, the defendant must know of the contract and sufficient of its terms to know that what the defendant induced or procured a party to the contract to do would be in breach of the contract: Fightvision Pty Ltd v Onisforou (1999) 47 NSWLR 473 at 509 (CA).

14 The plaintiff contended that in this case the second defendants, as committee members of the first defendant, knew that by causing the first defendant to take the steps alleged they would cause the first defendant to be in breach of the sublease.

15 The second defendants submitted that even if those facts were proved the statement of claim disclosed no reasonable cause of action against them because, as committee members of the first defendant, they could not commit the tort of inducing or procuring the breach of contract by the first defendant.

16 The second defendants relied upon Said v Butt [1920] 3 KB 497. In that case, the plaintiff went to the theatre to see a play. The defendant, the managing director of the theatre company, gave orders to the attendants that the plaintiff was not to occupy his seat and his money was to be returned to him. The plaintiff was refused admission to the performance. He sued the defendant on the ground that the defendant had wrongfully and maliciously procured the theatre company to breach the contract made when the plaintiff had purchased a ticket entitling him to view the performance. Although McCardie J found against the plaintiff because he could not establish the existence of a contract, his Lordship went on to consider what would have been the position had there been a contract. His Lordship said (at 504 - 505):

"If the plaintiff is right in his contention, it seems to follow that whenever either a managing director or a board of directors, or a manager or other official of a company, causes or procures a breach by that company of its contract with a third person, each director or official will be liable to an action for damages, upon the principle of Lumley v Guy as for a tortious act. So, too, with the manager or other agent of a private firm who does the like thing. This far-reaching result of the principle here suggested by the plaintiff is emphasised, when it is remembered that in an ordinary action for breach of contract the plaintiff recovers his pecuniary loss only: whereas in an action for wrongfully procuring a breach of contract the damages against the wrongdoer are at large, and they may vastly exceed the sum recoverable in a mere claim for breach of contract ..."

17 In the result, his Lordship concluded that no such action lay. He went on (at 505 - 506):

" ... the servant who causes a breach of his master's contract with a third person seems to stand in a wholly different position. He is not a stranger. He is the alter ego of his master. His acts are in law the acts of his employer. In such a case it is the master himself, by his agent, breaking the contract he has made, and in my view an action against the agent under the Lumley v Guy principle must therefore fail, just as it would fail if brought against the master himself for wrongfully procuring a breach of his own contract ..."

18 A similar conclusion was reached in O'Brien v Dawson [1942] HCA 8; (1942) 66 CLR 18 where Starke J (at 32) put the position as follows:

"A company cannot act in its own person for it has no person (Ferguson v Wilson (1866) LR 2 Ch App at 89). So it must of necessity act by directors, managers or other agents. The company, if it were guilty of a breach of its contract in this case, acted through its director, the respondent Doyle, but it is neither 'law nor sense' (Lagunas Nitrate Co v Lagunas Syndicate [1899] 2 Ch 392 at 431) to say that Doyle in the exercise of his functions as a director of the company combined with it to do any unlawful act or became a joint tortfeasor. Again, it is equally fallacious to assert that Doyle knowingly procured the company to break its contract. The acts of Doyle were the acts of the company and not his personal acts which involved him in any liability to the plaintiff."

19 See also Biscayne Partners Pty Ltd v Valance Corp Pty Ltd & Ors [2003] NSWSC 874 per Einstein J at [101]; Root Quality Pty Ltd v Root Control Technologies Pty Ltd [2000] FCA 980; (2000) 177 ALR 231; Tsaprazis v Goldcrest Properties Pty Ltd [2000] NSWSC 206; (2000) 18 ACLC 285.

20 It is therefore clearly established that an agent acting within the scope of their authority cannot be liable for the tort of inducing the breach of a contract entered into by their principal. The agent's acts are the acts of the principal. If it were otherwise, the effect would be that the principal would be inducing a breach of its own contract.

21 It was submitted on behalf of the plaintiff that those principles do not, or arguably do not, apply to the committee members of an incorporated association. It was argued that the position of a director of a company incorporated under the Corporations Act 2001 (Cth) and a committee member of an incorporated association are not analogous. It was submitted that it was therefore arguable that a cause of action for inducing a breach of contract lay against the committee members of an incorporated association at the suit of a third party where the committee members caused the association to breach its contract with that third party.

23 Whatever distinction might be sought to be drawn between a committee member of an incorporated association and a director of a trading company, the principle to which I have referred does not depend upon the defendant being a director of a trading company. The principle depends upon the person acting as the agent of the contracting party, so that in law the person's acts are the acts of that contracting party. In acting in their capacity as committee members of the first defendant, the second defendants were plainly acting as agents of it. There is nothing in the statement of claim to suggest that in respect of the conduct alleged to constitute the inducement or procurement the second defendants were acting other than in their capacity as committee members.

24 In any event, I do not consider that, for present purposes, any relevant distinction can be drawn between a company incorporated under the Corporations Act and an incorporated association under the Associations Incorporation Act. In both cases the observations of Starke J in O'Brien v Dawson (supra) are applicable, namely that the entity cannot act in its own person, for it has no person, so it must act by agents and it would make neither "law nor sense" to say that its agent knowingly procured the entity to break its contract, as the acts of the agent are the acts of the entity.

25 It was also submitted on behalf of the plaintiff that there is sufficient pleaded in the statement of claim to establish that in acting as alleged the second defendants acted outside the scope of their authority as committee members of the first defendant. It was therefore open to the plaintiff to adduce evidence that they acted without authority and in bad faith.

26 I cannot, however, find anything in the statement of claim that would support a case that the second defendants acted outside the scope of their authority or in bad faith. If such a case were sought to be made against the second defendants, it would have to be clearly pleaded and properly particularised.

27 In my view, it follows that the claim against the second defendants should be struck out.

28 It is now necessary to turn to the first defendant's application for security for costs.

29 The plaintiff did not resist giving security for costs but put in issue the amount claimed by the first defendant by way of security. At the time of the hearing of the application the first defendant had not provided a draft bill of costs and I directed that a draft bill be filed and served. That draft bill was provided on 15 February 2005 and is in an amount of $81,422 exclusive of disbursements. No figure is provided for disbursements.

30 The plaintiff submitted that the costs claimed were excessive, the first defendant having claimed 10 hours of work by a senior practitioner for the defence and for discovery and inspection respectively. The first defendant had also claimed 100 hours for getting up case for trial and a lump sum of $5,000 for unspecified chambers appearances. The plaintiff submitted that in light of the issues and the limited documentation involved in the case, those claims were well above what would reasonably be required for the proper conduct of the litigation.

31 The first defendant also claimed for the costs of trial, being counsel fees totalling $23,144 and the costs of a solicitor attending the trial in the sum of $8,525.

32 The plaintiff submitted that, in any event, security for costs should be provided only up to entry for trial with liberty to the first defendant to apply for further security for the trial if and when that point is reached.

33 It is apparent from the affidavit material referred to on the hearing of the application that the first defendant will deny that it was in breach of the sublease and that officers of the City of Bunbury and at least some committee members of the first defendant are likely to be called to give evidence in relation to that issue. The plaintiff claims by way of damages the expenditure it has incurred during the period of the sublease and the profits it would have made by carrying on its activities during the period of the sublease. The damages question may necessitate, among other things, expert evidence. There was no dispute that the trial would take approximately five days.

34 In my view, an appropriate figure for security for costs up to entry for trial would be an amount of $40,000 and I would order security to be provided in that amount. There would be liberty to the first defendant to apply for further security for the trial or if otherwise justified as the matter develops.

35 I will hear the parties on the terms of the orders and on costs.