Tripple Take Pty Limited v Clark Rubber Franchising Pty Limited; Robert Lloyd Brooks v Clark Rubber Franchising Pty Limited

Equity Division JURISDICTION : Commercial List

DECISION : Motion for security for costs dismissed.

CATCHWORDS : Security for costs - Delay in application

Civil Procedure Act 2005 (NSW) Industrial Relations Act 1996 (NSW) LEGISLATION CITED : Jurisdiction of Courts (Cross Vesting) Act 1987 (Cth) Trade Practices Act 1974 (Cth)

Avner Pty Limited v Dimopoulos (unreported, Supreme Court of New South Wales, 12 February 1987, Young J, BC8701592) Buckley v Bennell (1974) 1 ACLR 301 Circaz Pty Limited v Manolidis (2003) 45 ACSR 542 CASES CITED : Idoport Pty Limited v National Australia Bank Limited [2001] NSWSC 744 Heath Group Australasia Pty Limited v Hanning [1999] NSWSC 719 KP Cable Investments Pty Limited v Meltglow Pty Limited (1995) 56 FCR 189 Smail v Burton [1975] VR 776

Tripple Take Pty Limited (Plaintiff 50020/04) PARTIES : Robert Lloyd Brooks (Plaintiff 50108/05) Clark Rubber Franchising Pty Limited (Defendant 50020/04, 50108/05)

J Stevenson SC, R Bellamy (Plaintiff) COUNSEL : R Darke SC, B Shields (Defendant)

Slater & Gordon (Plaintiff) SOLICITORS : Deacons (Defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST

Friday 4 November 2005 ex tempore Revised 17 November 2005

50020/04 Tripple Take Pty Limited v Clark Rubber Franchising Pty Limited

50108/05 Robert Lloyd Brooks v Clark Rubber Franchising Pty Limited JUDGMENT The notice of motion 1 There is before the Court a notice of motion filed by the defendant on 5 September 2005 seeking security for costs in respect of the three sets of proceedings presently fixed for final hearing on 30 January 2005 on a time estimate of three weeks. Background to the litigation 2 The background to the litigation is carefully set out in the plaintiffs' written submissions in relation to the motion as follows: Issues in the Litigation i. The litigation concerns the Master Co-ordinator Agreement made on 14 March 1995 between the plaintiff, Tripple Take Pty Limited, and the defendant, Clark Rubber Franchising Pty Limited ("the MCA"). ii. Under the MCA, Tripple Take co-ordinates the operation of Clark Rubber's retail franchise system in New South Wales and in the ACT and seeks procure new franchisees to the system. iii. The original term of the MCA was nine years. Clause 2.2 of the MCA gave Tripple Take the option to extend the agreement for two further nine-year periods. iv. Tripple Take has exercised its option to extend the MCA for the first of those two nine-year periods. Clark Rubber contends that, by reason of a number of alleged breaches of the MCA, Tripple Take was not entitled to exercise its option to extend. v. There is an issue as to whether Tripple Take was in breach of its obligations under the MCA. There is also an issue as to the proper construction of Clause 2.2 of the MCA (in the light of other provisions in the MCA) and as to whether clause 2.2 of the MCA is an "unfair contract" liable to be varied pursuant to Section 106 of the Industrial Relations Act 1996 (proceedings seeking that relief in the Industrial Relations Commission have been cross vested to this Court and are listed for hearing together with the original Commercial List proceedings on 30 January 2006). Clark Rubber has made a cross claim against Tripple Take seeking damages in respect of the breaches of the MCA it asserts. Litigation History i. The proceedings have a substantial history. ii. Proceedings were first commenced on 17 March 2004 by Summons in the Commercial List. In those proceedings Tripple Take seeks a declaration that the MCA had been effectually renewed and seeks an injunction restraining Clark Rubber from granting to any third party those rights currently granted to Tripple Take under the MCA. iii. Clark Rubber's application for security for costs is made by Notice of Motion filed on 5 September 2005. iv. Prior to that date:- (a) On 15 April 2004 Clark Rubber made an application to cross vest the proceedings to the Supreme Court of Victoria. That application was dismissed with costs on 23 April 2004. (b) On 7 May 2004 Clark Rubber filed its Defence and Cross Claim. (c) Discovery and inspection of documents has taken place (the time for Clark Rubber to give discovery was extended from 6 August 2004 to 22 October 2004). (d) Tripple Take has filed and served its evidence in chief. (e) Clark Rubber has filed and served its evidence (comprising 17 affidavits including one 100 pages in length and with 200 exhibits). On three occasions Clark Rubber sought an extension of time for the filing of its affidavits. Orders for costs were made against the defendant. (f) Clark Rubber has resisted an application made by Tripple Take for interlocutory relief in the circumstances outlined in the next paragraph. v. On 21 April 2004 the parties entered into an interim agreement to maintain the status quo on the basis that such interim arrangements might be terminated by either party giving one month's written notice. Such notice was given by Clark Rubber on 8 June 2005. On 22 June 2005 Tripple Take, by Notice of Motion sought to restrain Clark Rubber from terminating the MCA pending the determination of these proceedings. That Notice of Motion was heard by Smart AJ on 26 July 2005. His Honour, after argument, concluded that there was a substantial case to be tried and that the balance of convenience favoured continuing the interim relationship until the final hearing of the action and delivery of judgment and made orders restraining Clark Rubber from acting on the 8 June 2005 notice.

vi On 24 August 2004, Tripple Take and Mr Brooks commenced proceedings in the Industrial Relations Commission seeking relief in relation to the MCA pursuant to Section 106 of the Industrial Relations Act 1996. Clark Rubber sought to have those proceedings struck out for want of jurisdiction. On 30 May 2005 Justice Kavanagh adjourned that application indefinitely on the basis that Clark Rubber had not filed evidence which would permit the application to be disposed of.

vii. On 11 May 2005 Tripple Take and Mr Brooks commenced proceedings in the Federal Court of Australia seeking relief pursuant to Sections 51AA and 51AC of the Trade Practices Act 1974.

viii. One reason for commencing the Federal Court proceedings was to generate a nexus between the Industrial Relation proceedings and the Commercial List proceedings, such that they could all be cross vested into the Supreme Court pursuant to the Jurisdiction of Courts (Cross Vesting) Act 1987 ( Commonwealth ) and heard together (see Heath Group Australasia Pty Limited v Hanning [1999] NSWSC 719). On 8 July 2005, by consent, the Federal Court proceedings were cross-vested to this Court.

ix. On 29 July 2005 all three matters were set down for hearing for three weeks commencing 30 January 2006 (with evidence in each proceedings to be evidence in the other).At the time the matters were fixed for hearing, Clark Rubber did not foreshadow any proposed application for security. No such application was foreshadowed until Deacons' letter of 22 August 2005 (a copy of which is Annexure "B" to the affidavit of Michael Tooma of 5 September 2005). Dealing with the matter 3 The Court is in a position to deal with the application shortly. 4 There is no issue but that Tripple Take Pty Ltd would be unable to meet a costs order of any amount in excess of $200,000 made against it. 5 Mr Brooks' affidavit of 1 November 2005 reveals that Tripple Take has expended in excess of $280,000.00 in costs in relation to these proceedings including $75,000.00 since the matter was set down for hearing. Mr Brooks has advanced $185,000.00 to Tripple Take to enable it to meet its commitments to pay legal fees. His financial position, and thus ability to meet any order for security, is dealt with in Mr Bryant's report. Based on that report, there is no reason to think that Mr Brooks would be able to himself meet an order for security, as well as keep Tripple Take in funds to meet its own costs. Notwithstanding that consideration, in my view the result of the application for security for costs would be the same in any event.

6 The present is a paradigm example of the principle that an application for security of costs should be made promptly. That principle finds expression in numerous authorities to the following effect: (i) Applications for security should be made promptly (eg. per Beazley J in KP Cable Investments Pty Limited v Meltglow Pty Limited (1995) 56 FCR 189 at 196 - 198 (cited with approval in, for example, Idoport Pty Limited v National Australia Bank Limited [2001] NSWSC 744 per Einstein J at [49] and Circaz Pty Limited v Manolidis (2003) 45 ACSR 542 per Davies AJ at [6])).

(ii) In Smail v Burton [1975] VR 776, Gillard J (with whom Newton and Norris JJ agreed) said:- "First, it is well established that an application for security of costs should be made promptly. If an Appellant has expended sums of money preparing the appeal for hearing and all the matters necessary to be performed have already been performed and the appeal is ready for hearing, it would be patently unjust to permit a Respondent who stood by and allowed that work to be done to come to Court and ask for security after such expenses have been incurred. Accordingly, it is well established by authority that applications for security of costs should be made promptly and before considerable expense is incurred by the Appellant". (iii) Similarly, in Avner Pty Limited v Dimopoulos (unreported 12 February 1987) Young J said:- "The reason why delay may lead the Court in the interests of justice, to refuse an application for security of costs, which is otherwise right and proper, is that it is unfair to lull a plaintiff into a situation where it invests a large sum of money in preparation for a hearing and then to frustrate that expenditure by a last minute application". (iv) In Buckley v Bennell (1974) 1 ACLR 301 Moffitt P said at 309:- "The primary reason why the application should be brought promptly and pressed to determination promptly is that the company, which by assumption has financial problems, is entitled to know its position in relation to security at the outset, and before it embarks to any real extent on its litigation, and certainly before it is allowed to or commence substantial sums of money towards litigating its claim". 7 The Overriding Purpose of the Civil Procedure Act 2005 and of the rules of court, now enshrined in s 56 of the Civil Procedure Act 2005, is to facilitate the just, quick and cheap resolution of the real issues in the proceedings. Each of the objects of case management now to be found in s 57 of the Act as well as the criteria concerning the determination of what are the dictates of justice in a particular case [to be found in s 58(2)] mandate the principled exercise of the material discretion being to dismiss the instant application for security for costs. S 58(2)(b) requires the Court to take into account, inter alia, the degree of expedition with which the respective parties have approached the proceedings, including the degree to which they have been timely in their interlocutory activities, as well as the use that any party could have made of any opportunity that has been available to the party in the course of the proceedings, and of course also the degree of injustice that would be suffered by the respective parties as a consequence of any order or direction. 8 None of these matters is particularly novel but one now has in statutory form, a signal emphasis on the significance of close attention being paid to the duty imposed upon parties to civil proceedings, to assist the court to further the overriding purpose and, to that effect, to participate in the processes of the court: here to ensure the efficient disposal of the business of the court and the timely disposal of the proceedings at a cost affordable by the respective parties. Decision 9 There is no satisfactory explanation advanced by Clark Rubber for the delay in making its application for security where the application is made after the above described anterior history and after the proceedings were set down for hearing. There is absolutely no substance in the submission by Clark Rubber that any delay should be measured from the time the three sets of proceedings were brought together in this court. As the plaintiffs have contended, the case management of the proceedings has in substance occurred in the context of the Commercial List proceedings. 10 Mr Darke strongly contended that it was only when, in July 2005, all issues came together that it became apparent to the parties following the various interlocutory steps that all issues would come together in one court. In that regard the submission flies in the face of that which was made clear in the letter from Deacons of 24 August 2005 to Slater and Gordon where in the fourth paragraph one finds:

"The above proceedings have only recently been cross-vested in the New South Wales Supreme Court in proceedings 50108 of 2005. Prior to the cross-vesting of the proceedings it was uncertain as to which jurisdiction your clients would pursue their claims against our client, particularly in circumstances where the relief sought in the IRC proceedings was similar to the relief sought in the Supreme Court proceedings." 11 The riposte to that letter from Slater and Gordon of 25 August 2005 is to be found in the penultimate sections of the Slater and Gordon letter reading:

"Finally, your client's recent assertion that it was unclear about which jurisdiction our clients would pursue their claims misstates the history of the matter and overlooks your client's previous clear understanding, via its former legal advisers, as to the litigation and the reason for the other proceedings and the intended venue and jurisdiction of trial (namely, the Supreme Court Commercial List).

It is clear that our clients commenced proceedings in the New South Wales Industrial Relations Commission to plead for relief available under s 106 of the Industrial Relations Act . Further, it is an unremarkable fact that absent the Federal Court of Australia pleadings, all issues between the parties could not have been addressed in the one forum - the Supreme Court of New South Wales.

Rather than giving rise to a position of confusion, these facts, and the desirability of the issues raised in the various proceedings being determined together were so clear that your clients' former legal advisers indicated shortly after the IRC proceedings were commenced, that your client would support an application of the proceedings to the New South Wales Supreme Court .

There has been no previous suggestion of confusion and we do not consider there to be any reason for confusion to arise at this late stage of the litigation." 12 It seems to me in any event plain enough that any seasoned legal adviser must have realised, or should have realised, without a shadow of a doubt, that the three suits which had been commenced, ultimately four suits, would have to be determined in the same environment.

13 It has been, I accept, in the Commercial List proceedings that there has been discovery and inspection and filing and service of evidence. As the plaintiffs have contended, the following portion of the letter from the plaintiffs' solicitors to the defendant's solicitors of 25 August 2005 was effectively unanswered:

"On the last occasion the matter was before the Court (at which time we note that Mr Tooma was present) the matter was set down for trial without any reference to any request for security. Indeed the trial date was set by Justice Bergin over your counsel's request for a hearing date to be set in respect of a pending motion made in the IRC proceedings. The Court was invited to set a hearing date in view of the desirability that the matter move forward without devoting more time to interlocutory matters. It is most telling that there was no mention of an application for security during that debate before the Court, and in any event a trial date was set without a prior hearing date for your client's motion being given. Apart from the delay occasioned by your client in these proceedings, and the absence of any explanation in relation to the timing of the call for security, the facts unmistakably suggest that a conscious forensic decision was made by your client or its former legal advisers not to call for security for costs and an applications is being made now to stifle proceedings about to go to trial". 14 The clear evidence is that Clark Rubber stood by and permitted what can only be described as enormous costs to be incurred by the plaintiffs without making any application for security. A material consideration concerns the fact, as it seems to me, that in reality an extremely large part of the plaintiffs' expenditure and costs involves its position as effectively in many ways adopting a mantle of a defendant. 15 I accept as of substance the following submission made by the plaintiffs:

"This is not a case where there has been a sudden deterioration in the plaintiff company's financial position. The financial statements annexed to Mr Brooks' affidavit and referred to in the report of Mr Bryant show that Tripple Take's financial position has been much the same for the duration of the proceedings."

These matters, and the matters referred to at paragraphs 14 and 15 of Ms Valkan's affidavit of 9 September 2005 (as to the result of an ASIC or a Purchasers Index search) could have been ascertained at any time during the course of the proceedings. Additionally to that evidence before the Court, there is now in evidence on the security for costs application before the Court [exhibit R2] produced by the defendant on notice to produce, an ASIC search dated 30 March 2004 of Tripple Take. 16 Mr Darke's submissions included that there was an evidentiary onus on plaintiffs in circumstances where the clear evidence was that the defendant was at risk in the event a defendant be successful in the proceedings, in terms of its costs. He further submitted that whilst accepting that there had been some delay, there was no evidence of oppression or prejudice by reason of any delay in the application.

17 These matters, it seems to me, are very clearly answered by the above set out principles. The Court here deals with the interests of justice. The Court here deals with unfairness where plaintiffs are lulled into a situation where, having invested large sums of money in preparation for a hearing, they are, in a last minute application, posed with an application for security for costs.

18 Whilst it is unnecessary to go any further, I accept each of the further submissions put by the plaintiffs as of substance in the following terms: Clark Rubber is, in substance, the plaintiff i. Although Tripple Take is the plaintiff in each of the proceedings, its case in chief is documentary and formal, there being no issue but that Tripple Take has taken the necessary procedural steps to effect the exercise of the option. ii. The case raised in answer by Clark Rubber is an affirmative case of breach. This is a case where there was a pre-existing right (an option to renew) which, by defence, is said to have been lost by disentitling conduct. Thus Clark Rubber brings a cross claim making the same allegations as appears in its defence, and seeking damages. iii. The 17 affidavits filed on behalf of Clark Rubber (including the 100 page of Christopher Malcolm of 24 May 2005) go to Clark Rubber's affirmative case that Tripple Take was in breach of its obligations under the MCA. Similarly the bulk of the material in Mr Brooks' 95 page affidavit in reply of 25 October 2005 is directed to these issues. It is likely that the bulk of the hearing time will deal with these questions. Mr Brooks as Co-plaintiff i. There is a substantial degree of overlap between the claims in the Commercial List proceedings and those in the IRC proceedings. ii. Mr Brooks is a plaintiff in the IRC proceedings. For that reason alone, the Court would not make an order for security in the IRC proceedings. The fact that, with the consent of Clark Rubber, those proceedings have been cross vested to this Court, and set down for hearing at the same time as the other two proceedings is also a reason why no order for security should be made in those proceedings either. iii. The fact that Mr Brooks is exposed to an order for costs in the event that the proceedings in which he is a party fail is a further reason to refuse to make any order for security. 19 Notwithstanding the common position where the persons who stand behind a company and who are likely to benefit from the litigation are required to step out from under the skirts of the company and to expose themselves to an order for costs should the company plaintiff be unsuccessful in the proceedings, this is presently a situation: · where the only application for security for costs is advanced against Tripple Take and Mr Brooks; · no application has been advanced against any other shareholder in the company and in particular no application has been advanced against Mr Prowse; · there is no reason to think that Mr Brooks would be able to himself meet an order for security as well as to keep Tripple Take in funds to meet its own costs in relation to the litigation; · where Mr Brooks importantly is himself already a plaintiff and exposed to costs orders in that capacity at least in the proceedings crossed vested into the Supreme Court. 20 Mr Darke did submit that, as I understood him, there is effectively no power in the Court to order a non-party shareholder in a party plaintiff to provide security for costs. That submission is misconceived. There is such power. It has been exercised from time to time. In the present circumstances it is unnecessary to go further into any of those parameters because the application is made by motion in the form of the motion. It may also be inferred, as Mr Stevenson has submitted, that bearing in mind the extended background relationship and connection between Clark Rubber and the plaintiffs, Clark Rubber would have, or would be expected to have, a reasonable understanding of the worth of Tripple Take and of those who stand behind Tripple Take.

21 For all those reasons, the application for security for costs is dismissed and the parties will be heard on the question of costs of the application. 22 I order that the defendant pay the plaintiff's costs of the application for security for costs.

I certify that paragraphs 1 - 22 are a true copy of the reasons for judgment herein of the Hon. Justice Einstein given on 4 November 2005 and revised 17 November 2005

      Susan Piggott
      Associate

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.