US Manufacturing Company v ABB Service

PARTIES : US Manufacturing Company Pty Ltd - Plaintiff ABB Service Pty Ltd - Defendant

COUNSEL : Mr R Hanrahan - Plaintiff Mr J Stevenson SC with Ms G Wright - Defendant

SOLICITORS : Thomas Booler & Co - Plaintiff Corrs Chambers Westgarth - Defendant

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

15221/05 - US MANUFACTURING COMPANY PTY LTD v ABB SERVICE PTY LTD

JUDGMENT (Security for Costs) 1 HER HONOUR: By notice of motion filed 20 December 2006, the defendant seeks, firstly, that the plaintiff provide security for the defendant's future costs of the proceedings in the sum of $50,000.00 in a form suitable to the Court within seven days; and secondly, that the proceedings be stayed until such time as security is given. 2 The plaintiff is US Manufacturing Company Pty Ltd (US Manufacturing). The defendant is ABB Service Pty Ltd (ABB Service). For convenience I shall refer to the parties by name. Aside from this motion, there are two outstanding matters to be determined in this Court, namely a notice of motion to adduce fresh evidence and the hearing of the appeal itself. The security for costs is sought for both of these matters. 3 On 10 June 2004, US Manufacturing filed a Statement of Liquidated Claim in the Local Court. The sole director of US Manufacturing is Ms Esme Celik who is the partner of Eddie Dogramaci. Those proceedings concerned a dispute relating to the number of gearboxes delivered by US Manufacturing to ABB Service. US Manufacturing contended that in December 2002 it delivered eight gearboxes. ABB Service alleged that only four were delivered. US Manufacturing further contended that in January 2003 it delivered another eight gearboxes (six being new and two being reconditioned). ABB Service alleged that once again only four were delivered at that time. The place of delivery was a Sydney Water sewerage plant at Winmalee. 4 The matter was initially heard before an Arbitrator in the Local Court on 28 October 2004, and US Manufacturing was unsuccessful. On 7 December 2004, US Manufacturing filed an application seeking a re-hearing. US Manufacturing was unsuccessful, and ordered to pay ABB Service's costs. ABB Service had its costs assessed. The certificates of assessment formed the basis of a judgment against US Manufacturing. On 26 July 2006, judgment was entered in favour of ABB Service in the sum of $36,908.69. That judgment debt has not yet been paid. 5 On 15 September 2006, ABB Service served a Statutory Demand upon US Manufacturing for the payment of the judgment debt. ABB Service submitted that US Manufacturing made no attempt to satisfy the statutory demand, and so ABB Service sought an order that US Manufacturing be wound up on the grounds of insolvency for failing to comply with a statutory demand. 6 On 3 November 2006, before the winding up proceedings were finalised, voluntary administrators were appointed to US Manufacturing. On 23 November 2006, ABB Service's solicitor received a copy of a Notice to Creditors of US Manufacturing, which stated that US Manufacturing had assets with an estimated realisable value of $10,032.00 and unsecured creditors to the value of $521,284.00. The unsecured creditors claims are as follows: (i) trade creditors, $185,550; (ii) Australian Taxation Office $43,308; (iii) related parties - loan Ms Esma Celik $164,426 and loan Mr Eddie Dogramaci $128,000; and (iv) lease shortfall $284. Of the trade creditors, ABB Service is owed around $36,908.69. 7 A Deed of Company arrangement has been entered into whereby the participating unsecured credits are to be paid at 5 cents in the dollar. US Manufacturing had complied with its obligations and has continued to pay $6,000 per month. Mr Dogramaci says that he was working a second job at on weekends and nights to meet this obligation. Mr Dogramaci is the principal witness for US Manufacturing, and he played an active role in these proceedings. 8 US Manufacturing does not own any real property. Ms Celik, the director of US Manufacturing, has not undertaken to pay ABB Service's legal costs. Mr Dogramaci says that, if necessary in the event that US Manufacturing loses this appeal and is ordered to pay further costs, it may be able to call upon other assets held by the company's director, but those assets are not used to finance the company's ordinary business or pay its lawyers. 9 US Manufacturing submitted that it has already suffered losses that make it financially difficult to proceed with this Appeal, whilst ABB Service on the other hand can easily afford to litigate, with this notice of motion designed to force US Manufacturing to expend its remaining resources, defeating its legitimate right to appeal. In other words, if security for costs is ordered, it may be shut out of the proceedings. 10 US Manufacturing submitted that the Local Court did not properly deal with the objective evidence and did not fairly weigh up the probabilities, and that it therefore has an arguable and prima facie case, with reasonable prospects of success. US Manufacturing submitted that an order seeking security for costs will require US Manufacturing to sell its only remaining assets, which will jeopardise future viability.

Security for Costs 11 Rule 50.8 of the Uniform Civil Procedure Rules 2005 (NSW) provides: "Security for costs (1) In special circumstances, the court may order that such security as the court thinks fit be given of the costs of an appeal to the court. (2) Subject to subrule (1), no security for costs of an appeal to the court is to be required. (3) Subrules (1) and (2) do not affect the powers of the court under rule 42.21 (which relates to security for costs)." 12 Counsel for ABB Service referred to Procorp Civil Pty Limited v Napoli Excavations and Contracting Pty Limited & Ors [2006] NSWSC 205 and Transglobal Capital Pty Limited & Anor v Yolarno Pty Limited [2004] 60 NSWLR 143. In Transglobal, the New South Wales Court of Appeal held that Part 51, r 16 of the Supreme Court Rules 1970 (NSW) (now Rule 50.8 of the UCPR) wholly governs the ordering of security for costs on an appeal and that generally impecuniosity alone will not be sufficient to amount to "special circumstances" under that rule. It is common ground that US Manufacturing is impecunious.

Are there special circumstances? 13 It is necessary to look at the history of these proceedings both in the Local Court and this Court. In the Local Court, there was a motion seeking security for costs, arbitration and rehearing. An order for security for costs in the sum of $20,000 was made. US Manufacturing complied with that order. In this Court there has already been a notice of motion seeking to admit fresh evidence which has been determined. There is a further notice of motion seeking to admit fresh evidence and the hearing of the outstanding appeal. In all the steps taken, aside for those seeking security for costs, US Manufacturing has been the instigator.

The Local Court proceedings 14 On 28 October 2004, the matter went to arbitration. The Arbitrator made an award in favour of ABB Service. On 7 December 2004, US Manufacturing filed an application seeking a rehearing of the matter in the Local Court at Parramatta. 15 The hearing was conducted by Magistrate Graham Johnson over four days namely, 22 April 2005, 30 June 2005, 1 July 2005 and 7 September 2005. In his written reasons for judgment dated 17 October 2005, His Honour commented that ordinarily in cases such as these for the sale of the goods, there was a fairly obvious paper trail commencing with a written order, an order number, a delivery receipt signed by the purchaser and an invoice. There was not an obvious paper trail here. There were two delivery notes, and payment in December 2002 for eight gearboxes. 16 At [30] the Magistrate summarised the evidence of Brett Heydon as: "Brett Heydon gave evidence for the defendant. He filled out the purchase order to Tetra Chemicals to supply 8 gearboxes in late 2002. He recalls that on 3rd December 2002 Mr. Dogramaci delivered 4 gearboxes. He said that Mr. Dogramaci promised to deliver the remaining 4 gearboxes later. He signed a delivery receipt for these and he does not believe that the words "8 gearboxes" was written on the form. He was only signing for those delivered, namely 4." 17 This evidence is in accordance with Mr Heydon's more fulsome statement dated 15 April 2005 (Ex 2). 18 The Magistrate concluded at [34]: "The plaintiff bears the onus of proving that the delivery in January 2003 was a second lot of 8 gearboxes and not 4 units outstanding from the first order. The plaintiff has failed to satisfy me that it is more probable than not. There will be a verdict for the defendant."

Proceedings in this Court 19 On 9 November 2005, US Manufacturing commenced these current proceedings to appeal the Magistrate's decision. On 22 March 2006, US Manufacturing brought a notice of motion in which it sought to rely on fresh evidence of Mr O'Brien an engineer and production officer at the site. His evidence was to the effect that eight new gearboxes were delivered and installed before the end of December 2002. Mr O'Brien was not subpoenaed to give evidence in the Local Court. However, Mr O'Brien deposed that leading up to the Local Court hearing, he was unwell and it was not until February 2006 that he was able to attend the offices of US Manufacturing's solicitor and prepare his affidavit. 20 On 26 April 2006, Mr Heydon provided an affidavit to be used in the hearing of the motion relating to Mr O'Brien's evidence. Mr Heydon deposed that he did not recall Mr O'Brien being present when the gearboxes were delivered in December 2002, that only four gearboxes were delivered and that only four gearboxes were installed by the end of that year. This was consistent with his earlier statement and evidence. On 3 July 2006, Associate Justice Malpass dismissed the motion seeking to have the evidence of Mr O'Brien admitted on the appeal. 21 On 4 August 2006, US Manufacturing brought a further application to adduce new evidence, namely that of Mr Heydon. This application is yet to be determined. On 26 July 2006, Mr Heydon solemnly and sincerely affirmed that: "During the hearing of ABB and US Manufacturing - Dogramaci at Parramatta court I did not tell the full truth as I was forced/pressured and intimidated with a sacking by Danny Lynch and ABB people. I am now telling the full truth that on December 2002, I did receive the 8 gearboxes in question and installed them as per the evidence provided by the Plaintiff." (Ex 6) 22 The difficulty with this explanation is that the hearings in the Local Court took place in 2005 yet Mr Heydon left ABB Service's employment on about 11 November 2003 (Ex 5). He had well and truly left the employ of ABB Service when he provided the statement dated 5 April 2005 and the affidavit dated 27 April 2006. 23 In the Local Court, Mr Heydon gave the following evidence:

"Q. I'm saying to you that you didn't make any notation on the delivery note because in fact eight gear boxes were delivered on 3 December? A. Are you guessing?

Q. No I'm putting it to you, that was the case. That in fact you did take delivery of eight gear boxes? A. No I didn't.

Q. When Dr Dogamachi (sic) delivered the gear boxes on 3 December, you didn't raise with him the fact that only four gear boxes had been delivered and not eight; did you? A. I'm sure I did. (t 27.01-14)

Q. So you told Mr Lynch? [I interpose, Mr Lynch was Mr Dogramaci's supervisor] A. Yeah.

Q. That only had been delivered? A. I did.

Q. When did you tell him that? A. The date that they were delivered." (t 27.33-40)

(Ex 1) 24 In an affidavit sworn 8 August 2006, Mr Heydon contradicts the evidence he gave before the Local Court and now says that eight gearboxes (not four, as he testified both in chief and under cross examination in the Local Court) were delivered before the end of 2002. Mr Heydon explains his volte-face by asserting that he had signed his earlier affidavit without appreciating what it was "I was told it was a subpoena" (Ex 7 at [16]). I cannot see what difference it makes as to whether the document was an affidavit or a subpoena of the events. It is either a truthful account of the events or it is not. In order for US Manufacturing to be successful on this motion it will have to demonstrate firstly, that the evidence could not have been obtained with reasonable diligence for use at the trial; secondly, the evidence must be such that there is a high degree of probability that there would be a different verdict; and thirdly, the evidence must be credible. It is my view that it is most unlikely that US Manufacturing's motion seeking to adduce the evidence of Mr Heydon will succeed. 25 US Manufacturing submitted that the Magistrate erred because he based his findings on witnesses' demeanour and did not make proper findings concerning the objective evidence such as (a) availability of "critical spares", (b) utility of the subject gearboxes at other locations, (c) the conditions of payment by Sydney Water, (d) the evidence called by ABB Service from Robert Mayerhaufer of Sydney Water was not treated adequately, (e) evidence of subsequent replacements of further gearboxes and a comparison of "the mathematics" on the US Manufacturing's version, and (f) on ABB Service's version of events. The case, to my mind, seems to turn on the findings of fact. This was also the view of Malpass AsJ. Some of the objective evidence referred to above was dealt with by the Magistrate. It is my view that it is unlikely that on appeal it will succeed. I accept that if US Manufacturing loses, it will be unlikely to pay ABB Service's costs. If I take into account that US Manufacturing is impecunious, that it is unlikely to succeed on the outstanding motion and appeal, and that there are already costs outstanding from the Local Court proceedings, do they amount to "special" circumstances? 26 To be "special" the circumstances must be out of the ordinary, or unusual, "although the specialness must be adjudged in the particular circumstances under consideration" - see Transglobal at [20]. While this is a borderline case, I do not, at this stage, think that these circumstances are "special". Hence, I decline to order that US Manufacturing provide security for costs. The defendant's notice of motion filed 20 December 2006 is dismissed. 27 Costs are discretionary. Costs usually follow the event. The defendant is to pay the plaintiff's costs as agreed or assessed.

(1) The defendant's notice of motion filed 20 December 2006 is dismissed.

(2) The defendant is to pay the plaintiff's costs as agreed or assessed. **********

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