The plaintiffs conduct a thoroughbred training and agistment business at racecourses in NSW.
The sole director of the plaintiffs is Mr Timothy Martin. He is a racehorse trainer.
The defendant is a horse breeder and racer. Its sole director is Mr Reginald Kermister.
Mr Martin and Mr Kermister have had business dealings for many years in the horse trading and breeding industry.
The plaintiffs claim from the defendant some $1 million for training and agistment services allegedly supplied.
By its cross-claim, the defendant, as cross-claimant seeks from the plaintiffs and from Mr Martin, as cross-defendants:
1. an order that certain of its horses, currently on agistment with the plaintiffs, and in respect of which the plaintiffs claim a possessory lien, be returned to it;
2. a declaration that one of the contracts on which the plaintiffs sue has been validly terminated;
3. a declaration that it is entitled to set off against the amounts claimed by the plaintiffs:
1. amounts it claimed it loaned Mr Martin and which have not been repaid (the "Unpaid Loan Amounts");
2. amounts it claims are owing to it by Mr Martin in respect of the sale by it to Mr Martin of horses (the "Unpaid Purchase Prices"); and
3. amounts it claims Mr Martin did not account to it in respect of the sale by Mr Martin to third parties of horses owned by it (the "Unpaid Sale Proceeds");
1. restitution of certain amounts it claims were mistakenly paid by it to the plaintiffs (the "Overcharged Amounts"); and
2. damages for the loss of opportunity to breed one of the horses over the which the plaintiffs' claim a lien.
The basis of the set off claimed is a series of agreements allegedly made in conversations between Mr Martin and Mr Kemister, and by conduct, that the Unpaid Loan Amounts, the Unpaid Purchase Prices and the Unpaid Sale Proceeds, being amounts hitherto owing to the defendant by Mr Martin himself, would be set off against amounts otherwise payable by the defendant to Mr Martin or entities associated with him (now the plaintiffs).
Mr Martin is joined as the third cross-defendant. However, the cross-claim makes clear that a claim is only made against him personally if, contrary to the defendant/cross-claimant's primary contention, it is not entitled to set off the Unpaid Loan Amounts, the Unpaid Purchase Prices and the Unpaid Sale Proceeds from the amounts claimed by the plaintiffs. It is only in that event that the defendant seeks to recover those amounts from Mr Martin.
The defendant/cross-claimant claims that, taking into account its alleged right of set off, the defendant does not owe any money to the plaintiffs and that, on the contrary, the plaintiffs owe the defendant an amount presently calculated to be $161,153.85.
Mr Scruby SC, who with appeared with Ms Campbell for the defendant/cross-claimant summarised the position in the following table:
"A Debt Claimed [by the plaintiffs] $1,094,091.59 Statement of Claim [14]
B Payments made by [the defendant] $292,442.67 Defence [11]; cross-claim [10]
C Unpaid Loan Amounts [to be set off] $669,051.11 Defence [7(d), (g)], [14], cross-claim [7(i), (l)]; [15]-[24]
D Unpaid Purchase Prices [to be set off] $240,294.14 Defence [7(e), (g)], [14]; cross-claim [7(j), (l)]; [35]-[41]
E Unpaid Sale Proceeds [to be set off] Unknown, but at least $773 Defence [7(f), (g), [14]; cross-claim [7(k), (l)], [25]-[34]
F Overcharged Amounts $52,684.50 Defence [10]; cross-claim [11]
Balance (A-(B+C+D+E+F)) -$161,153.85"
[3]
The proceedings have reached the stage where the plaintiffs have served their evidence in chief on their claim and the defendant/cross-claimant has served its evidence in chief on the cross-claim.
By notices of motion filed on 16 and 20 August 2019, respectively:
1. the defendant seeks an order that the plaintiffs provide security for the defendant's costs of the plaintiffs' claims; and
2. the plaintiffs and Mr Martin (the cross-defendants) seek an order that the defendant/cross-claimant provide security for their costs of the cross-claim.
On 30 August 2019, Hammerschlag J ordered that the plaintiffs provide security in the sum of $100,000 "on an interim basis". In argument, his Honour said that this figure was "until all the evidence is on, then we will have another look at it". The context in which his Honour made those remarks shows that his Honour was referring to "all the evidence" on the cross-claim.
The plaintiffs have now provided security in that amount.
It is common ground that there is reason to believe that neither the plaintiffs, nor the defendant could meet a costs order were they to be unsuccessful on their claims. Thus the Court's jurisdiction to make an order for security for costs has been enlivened.
Two issues arise:
1. whether the cross-defendants (the plaintiffs and Mr Martin) should be denied security on the basis that the cross-claim is essentially defensive in nature; and
2. the quantum of any security to be ordered.
[4]
Is the cross-claim defensive?
The relevant principle was summarised by Brereton J in Bevwizz Group Pty Ltd v Transport Solutions Pty Ltd [2008] NSWSC 1399 at [18] as follows:
"The position therefore seems to me to be that, as a matter of jurisdiction, the reference in the section and the rule to 'plaintiff' extends to encompass a cross-claimant. However, as a matter of discretion the Court will not make an order against a cross-claimant where the cross-claim arises out of the same matters as the claim and is purely by way of defence. If it extends beyond being purely by way of defence, then the Court will have regard to the overall nature of the proceeding and the cross-claim to see whether it can be said that in truth the cross-claimant has become, in substance, a plaintiff."
In applying that principle to the case before him, his Honour made the following remarks at [20]:
"In the present case, it seems to me that in substance the plaintiff's claim is one to recover property of the plaintiff which is retained by the defendant, and to restrain the defendant from exercising a power of sale over that property. The defendant's position is that it is entitled to retain and sell the plaintiff's property, over which it claims security as a result of various services said to have been rendered by it. The cross-claim plainly arises out of the same facts as the claim. It may be, as Mr Kremer has argued, that it introduces some new issues, but essentially it is maintained as a defence to the plaintiff's claim, propounding a basis on which the defendant is said to be entitled to retain the goods and exercise a power of sale over them." (Emphasis added.)
His Honour cited the statement by Lord Esher in Neck v Taylor [1893] 1 QB 560 at 562:
"Where the counter-claim is put forward in respect of a matter wholly distinct from the claim, and the person putting it forward is a foreigner resident out of the jurisdiction, the case may be treated as if that person were a plaintiff, and only a plaintiff, and an order for security for costs may be made accordingly, in the absence of anything to the contrary. Where, however, the counter-claim is not in respect of a wholly distinct matter, but arises in respect of the same matter or transaction upon which the claim is founded, the Court will not, merely because the party counter-claiming is resident out of the jurisdiction, order security for costs; it will in that case consider whether the counter-claim is not in substance put forward as a defence to the claim, whatever form in point of strict law and of pleading it may take, and, if so, what under all the circumstances will be just and fair as between the parties; and will act accordingly."
My conclusion is that the cross-claim is, for the most part, defensive in nature.
At the heart of the cross-claim is the proposition that the defendant/cross-claimant is entitled to set off against the amounts now claimed by the plaintiffs the Unpaid Loan Amounts, the Unpaid Purchase Prices and the Unpaid Sale Proceeds.
As Mr Scruby's table shows, each of the matters pleaded in the cross-claim about the Unpaid Loan Amounts, the Unpaid Purchase Prices, the Unpaid Sale Proceeds and the Overcharged Amounts has an analogue in the defence. In particular, the alleged set off agreements are pleaded in each of the defence and cross-claim in the same terms and to the same effect; that is, that they provide an answer to the plaintiffs' claim.
The cross-claim also claims what Mr Scruby describes in his table as "payments made by [the defendant]". These are payments that the defendant alleges it has paid to the plaintiffs in respect of the amounts for which the plaintiffs now sue.
There are some other matters claimed in the cross-claim, in particular, the claim for damages for loss of opportunity to breed from one of the horses over which the plaintiffs have claimed a lien.
However, my conclusion is that the cross-claim is essentially a defence to the plaintiffs' claim.
For that reason, I decline to order that the cross-claimant provide security for the cross-claim.
[5]
Further security for the plaintiffs' claim
The defendant's solicitor, Mr Timothy Seton has sworn an affidavit dated 11 November 2019 in which he has stated that the defendant's actual costs of defending the plaintiffs' claim:
1. since 21 June 2019 were in the order of $100,000; and
2. from the date of his affidavit to the conclusion of a five day hearing are estimated to be in the order of $395,000.
It is common ground that the hearing in this matter is likely to take the five days that Mr Seton has assumed.
In relation to the costs incurred to date, Mr Seton has applied a 30% discount to the figure of $100,000 to achieve a figure in the order of $70,000 as the amount of costs that the defendant is likely to recover on a party-party basis.
The plaintiff has already provided security in the sum of $100,000 which more than caters for that matter.
In relation to future costs, Mr Seton has applied a "15% reduction" to the figure of $395,000 for "work performed with respect of the cross-claim only" (evidently a reference to the costs likely to be incurred for the loss of opportunity claim to which I referred) and then a further 30% reduction to the defendant's solicitor's costs to arrive at an estimated party-party costs figure in the order of $270,000 which includes 100% of counsels' fees.
Taking into account the security already provided by the plaintiffs, and accepting that a broad brush is necessarily applicable in circumstances such as those before me, my conclusion is that the fair order is that the plaintiffs provide further security for the defendant's costs in the sum of $250,000, and that that sum be paid at the time when evidence on the cross-claim is complete (as was evidently anticipated by Hammerschlag J on 30 August 2019).
The cross-defendants should pay the cross-claimant's costs of the cross-defendants' notice of motion of 20 August 2019.
The defendant's costs of its notice of motion of 16 August 2019 will be the defendant's costs in the cause.
The parties should bring in short minutes to give effect to these reasons.
[6]
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Decision last updated: 20 November 2019