Austech Concrete Constructions Pty Ltd v Crown Consultants Pty Ltd & Anor [2013] QDC 272

DISTRICT COURT OF QUEENSLAND CITATION: Austech Concrete Constructions Pty Ltd v Crown Consultants Pty Ltd & Anor [2013] QDC 272 PARTIES: AUSTECH CONCRETE CONSTRUCTIONS PTY LTD (plaintiff) v CROWN CONSULTANTS PTY LTD (first defendant) and JAMES ROBERT JOHNSTONE (second defendant) FILE NO/S: 4015/12 DIVISION: Civil PROCEEDING: Application DELIVERED ON: 30 October 2013 DELIVERED AT: Brisbane HEARING DATE: 28 August 2013 JUDGE: Farr SC DCJ ORDER: 1. The application for disclosure is allowed. I will hear the parties as to the orders that should be made regarding this issue. 2. The application for an order pursuant to r 233(2) is allowed. I will hear the parties as to the order that should be made regarding this issue. 3. The application to join Mr Zdrilich is adjourned to a date to be fixed. 4. The application for security for costs is dismissed. 5. The first and second defendants have leave to file and serve a Further Amended Defence and Counterclaim within 14 days of the date of this order. 6. I will hear submissions as to costs. CATCHWORDS: CIVIL – APPLICATION – DISCLOSURE - procedure - discovery and interrogatories - discovery and inspection of documents - discovery of documents – Uniform Civil Procedure Rules – r 211 - whether a document is directly -- 1 of 20 -- 2 relevant to an allegation in issue CIVIL – APPLICATION – –PROCEDURE – PARTIES – application to join party - Uniform Civil Procedure Rules – r 69(1)(b)(i) and (ii) – whether presence before the court is necessary or desirable - Civil Liability Act – section 30 – whether concurrent wrongdoer CIVIL – APPLICATION – SECURITY FOR COSTS - corporations - costs - security for costs – Corporations Act – section 1335 – Uniform Civil Procedure rules – r 617(a) - whether reason to believe corporation unable to pay defendant's costs COUNSEL: G Coveney for the plaintiff N H Ferret for the defendants SOLICITORS: HW Litigation for the plaintiff Turner Freeman Lawyers for the defendants [1] There are three applications for the court to consider. The first was filed by the plaintiff seeking orders relating to disclosure. The remaining two were filed by the defendants. The first seeks to join a party and the second is for security for costs. Each of the applications is opposed. Background [2] The plaintiff corporation operates a business servicing the construction industry. The first defendant is a company that provides accounting and taxation services to business. The second defendant is the director of the first defendant. [3] The plaintiff sues to recover payments that it alleges were made for the purpose of passing on to the Australian Taxation Office (―ATO‖). The defendants contend that the payments were made on invoices issued by the first defendant pursuant to an agreement to provide business consulting services. [4] In reply, the plaintiff affirms the statement of claim and says that: (a) the consultancy agreement was never signed, the signature of the plaintiff’s principal, Mr Zdrilich having been forged; and (b) the consultancy agreement cannot be binding on the plaintiff because it was executed before the plaintiff was incorporated. [5] The plaintiff also sues for economic loss in the sum of $35,120.25 which was the amount of an administrative penalty imposed upon it by the ATO. The plaintiff alleges that this penalty arose as a result of the first defendant’s breach of its retainer or of an implied term. -- 2 of 20 -- 3 [6] Proceedings were commenced on 15 October 2012. The table below shows the history of the proceedings to date: Date Relevant Event 15 October 2012 Claim and Statement of Claim filed. 26 November 2012 Amended Statement of Claim filed. 3 December 2012 Notice of intention to defend filed. 11 December 2012 Amended defence filed. 20 December 2012 Reply filed. 8 July 2013 Plaintiff’s application for disclosure filed. 24 July 2013 Defendant’s application for joinder; and defendant’s application for security for costs filed. 29 July 2013 All three applications adjourned by consent to 28 August 2013. The disclosure application [7] The following classes of documents are the subject of the plaintiff’s application: (a) the first defendant’s documents evidencing lodgement of its tax returns and/or assessment notices issued by the ATO; (b) documents showing the first defendant’s treatment of income on its GST related business activity statements; and (c) electronic records evidencing the creation of Excel spread sheets previously disclosed to the plaintiff. [8] The plaintiff has also raised a further, but related issue. In response to earlier requests for electronic records which evidence the creation of invoices and the alleged agreement, the first defendant has asserted that it no longer has possession of electronic versions of the invoices or the consultancy agreement due to a computer crash in about 2010 or 2011.1 [9] In response, the plaintiff has called upon the second defendant to swear an affidavit in accordance with r 223(2) of the Uniform Civil Procedure Rules 1999 (UCPR)2. 1 Exhibit MKW1 to affidavit of Mathew Kenneth Williams, filed 23 August 2013 2 Exhibit MKW5 to affidavit of Matthew Kenneth Williams, filed 23 August 2013. -- 3 of 20 -- 4 [10] The plaintiff therefore also seeks relief pursuant to r 223(2) in respect of any electronic records, regarding the subject invoices and the consultancy agreement, which may no longer exist. [11] As I understand the material, the fact of the receipt of the funds by the first defendant from the plaintiff is not disputed. Nor is the quantum. The basis of the first defendant’s defence is that payments it received from the plaintiff were not only to discharge taxation obligations (which it states it did), but were also payments for consultancy services rendered. [12] The plaintiff contends that the documents described in paragraph [7](a) and (b) above are relevant to the issue in dispute because, as the first defendant contends that the disputed amount was received as taxable income, it should be shown as taxable income in its tax returns and/or assessment notices. Furthermore, it is asserted that GST should have been payable on such payments and the first defendant’s Business Activity Statements are therefore directly relevant. [13] I note that the first defendant has disclosed handwritten, unfiled tax returns for the years ending 30 June 2008 and 30 June 2011. The plaintiff argues that in disclosing these documents, the first defendant must be understood to be conceding the relevance of them. The defendant’s dispute that assertion. [14] The first defendant has submitted that such records are not relevant as they are not put in issue by any paragraph in any of the pleadings. The first defendant asserts that the plaintiff’s purpose in seeking disclosure of these documents has nothing to do with the issues between the parties on the pleadings, but rather is an attempt by the plaintiff to gain a collateral advantage by suggesting that the defendant’s have not complied with relevant taxation obligations. The defendants submit that this part of the application must therefore be regarded as oppressive and an abuse of process. [15] In support of that contention, the defendants rely on a letter from the plaintiff’s solicitor to the defendants’ solicitor dated 26 June 2013. 3 [16] I draw no such conclusion from reading that letter. Even though it does offer some speculative (and unhelpful) comment as to whether the first defendant had complied with its taxation obligations, the purpose behind the request for the disclosure of the documents is clear. The documents which are sought relevantly relate to time periods during which the first defendant allegedly issued invoices to the plantiff i.e. the financial years ending 30 June 2007, 30 June 2009 and 30 June 2010. In my view, given that the defendants assert that the disputed funds were taxable income upon which GST was payable, it would be of direct relevance to the disputed issue to show that the defendants treated such income as taxable and being the subject of GST in their relevant tax returns or assessments and business activity statements. Equally, if those documents failed to disclose that the disputed amount was treated in those ways, then that fact would also be directly relevant to the issue in dispute. 3 Exhibit JR3 to affidavit of Joseph Ross, filed 8 July 2013. -- 4 of 20 -- 5 Accordingly, I accept that the documents are being sought for that reason and not in an attempt to gain an unfair collateral advantage. [17] Furthermore, the defendants’ submission that, as the pleadings do not put these documents in issue they are therefore not relevant, is without merit. It is not surprising that the pleadings do not put the documents in issue as pleadings are only required to identify the issues in dispute and the facts upon which a party relies – not the evidence which is said to support the facts. [18] In that regard, paragraphs 12, 17, 21, 25, 30, 34, 38, 42(b), 50, 54, 58, 62, 68, 69(b), 71(a) and 72(a) of the Amended Defence of the First and Second Defendants and paragraph 7 of the plaintiff’s Reply put in issue the purpose of the payments the subject of this claim. [19] The defendants’ further allege that the documents sought by the plaintiff, even if they are of some relevance, are not discoverable as they are not directly relevant to an issue in dispute and therefore should be the subject of a subpoena and not an order for discovery. [20] Rule 211 of UCPR states: ―(1) A party to a proceeding has a duty to disclose to each other party each document; (a) in the possession or under the control of the first party; and (b) directly relevant to an allegation in issue in the pleadings; and (c) if there are no pleadings—directly relevant to a matter in issue in the proceeding Note – Under the Acts Intrepretation Act 1954, section 36 (Meaning of commonly used words and expressions) document includes – (a) any paper or other material on which there is writing; and (b) any paper or other material on which there are marks, figures, symbols or perforations having a meaning for a person qualified to interpret them; and (c) any disc, tape or other article or any material from which sounds, images, writings or messages are capable of being produced or reproduced (With or without the aid of another article or device) -- 5 of 20 -- 6 (2) The duty of disclosure continues until the proceeding is decided (3) An allegation remains in issue until it is admitted, withdrawn, struck out or otherwise disposed of.‖ [21] I accept that r 211 empowers the court to make an order for discovery if the documents are directly relevant to an issue on the pleadings. The question here is whether the requested documents could be considered to be directly relevant. Directly relevant means ―something which tends to prove or disprove the allegation in issue‖4. In my opinion the documents the subject of this application are directly relevant. The first defendant had a statutory duty to declare the income the subject of this dispute if it was taxable income. Similarly, in that situation, GST associated with such payments should be disclosed in business activity statements. If the first defendant did those things, then that would tend to prove the defendant’s position in this dispute. Equally, a failure to do so would also be directly relevant for obvious reasons. It is important to note that the requested documentation only needs to ―tend to prove or disprove the allegation in dispute‖ – it does not need to constitute absolute proof. [22] For these reasons I am of the view that the application for disclosure of tax returns and/or notices of assessment as filed and/or issued by the ATO and business activity statements lodged with the ATO should be allowed. [23] The third category of document sought by the plaintiff involves any electronic records which evidence the creation of hard copy Excel spreadsheets which the first defendant disclosed to the plaintiff on or around 29 July 2013. The relevance of such records arises from the plaintiff’s claim that the defendants’ have retrospectively created documents after the filing of this claim to support their argument. Given that the plaintiff’s case in response to the defence is the possibility of recent invention by the first defendant, disclosing the electronic creation date of that spreadsheet will, in all likelihood, resolve this aspect of the proceedings. It is therefore directly relevant to an issue on the pleadings and the application in that regard should be allowed. [24] Finally, I then turn to the r 223(2) application. The defendants resist such application on the basis that the court could not order the requested affidavit unless there was an objective likelihood that the obligation of disclosure had not been complied with.5 [25] The plaintiff however submits that such a test has no application when an order is sought pursuant to r 223(2). In fact, the plaintiff has conceded that it does not question the defendants’ integrity and accepts the truthfulness of the defendants’ assertion that the electronic records relevant to the invoices and the consultancy 4 Robson v REB Engineering Pty Ltd [1997] 2 Queensland Reports 102 at 105, approved in Mercantile Mutual Custodians Pty Ltd v Village/Nine Network Restaurants and Bars Pty Ltd [2001] 1 Queensland Reports 276 at 282-3. 5 Transcript page 11, line 11. -- 6 of 20 -- 7 agreement have been lost by virtue of computer failure in 2010 or 2011. The plaintiff submits that an affidavit to that effect, given that presently the information is only contained in a letter by the defendants’ solicitor, is appropriate. I agree that an order pursuant to r 223(2) does not require a prerequisite finding that the obligation of disclosure has not been complied with. Rule 223(4)(b)(ii) provides that an order pursuant to r 223(2)(b) may be made only if ―a specified document or class of documents exist or existed and has passed out of the possession or control of a party.‖ [26] In this matter I accept that the specified class of documents existed and has passed out of the possession of the first defendant. Accordingly, given that there is no prejudice to the defendants if the order is made, it is appropriate to exercise the discretion provided by r 223(4) and make the order sought. Joinder application [27] The defendants seek to join Mr Mark Zdrilich, the sole shareholder and director of the plaintiff, as a party to the proceedings. A dispute exists in this matter as to whether Mr Zdrilich signed the Consultancy Agreement or whether his apparent signature is a forgery. [28] The defendants seek to join Mr Zdrilich: (a) for the purpose of obtaining a declaration to the effect that he was the signatory to that agreement; and/or (b) as the defendants allege that Mr Zdrilich is a concurrent wrongdoer with respect to the claim pleaded at paragraphs 81-84 and that, pursuant to the Civil Liability Act 2003, the defendants should be able to reduce their liability accordingly. [29] In relation to (a) above, the plaintiff submits that joining Mr Zdrilich for the purpose of obtaining a declaration that he signed the Consultancy Agreement is unnecessary as a finding to that effect would be sufficient to make out that defence. [30] The defendants submit that as this issue essentially involves an allegation of fraud (that is taking money on trust and using it for ones own purpose) a declaration would have the utility of vindicating the reputation of the defendants if their case is accepted by the court [31] The defendants rely on the provisions of r 69(1)(b)(i) or (ii) of the UCPR which states: ― (1) The court may at any stage of a proceeding order that – (b) any of the following persons be included as a party – -- 7 of 20 -- 8 (i) a person whose presence before the court is necessary to enable the court to adjudicate effectually and completely on all matters in dispute in the proceeding; (ii) a person whose presence before the court would be desirable, just and convenient to enable the court to adjudicate effectually and completely on all matters in dispute connected with the proceeding‖ [32] There is no doubt that significant dispute exists as to whether Mr Zdrilich signed the agreement and if so, whether the subject payments were made pursuant to it. Whilst I agree with the defendants’ submission that it would be desirable to have a ruling at the end of this matter as to whether Mr Zdrilich signed the agreement, it seems to me that a ruling on that issue is inevitable whether or not he is joined as a party. The resolution of this dispute will necessarily require the trial Judge to make a finding on that point. [33] The defendants’ principle argument pursuant to r 69(1)(b) for joinder of Mr Zdrilich is based upon sub-rule(1)(b)(ii). The defendant argues that Mr Zdrilich is a person whose presence before the court would be desirable, just and convenient to enable the court to adjudicate effectually and completely on all matters in dispute connected with the proceeding. As I have said, there is no doubt that the issue of whether Mr Zdrilich signed the agreement is a matter in dispute connected with the proceeding. The question is whether Mr Zdrilich is a person whose presence before the court would be desirable, just and convenient to enable appropriate adjudication to occur. [34] Given the fact that Mr Zdrilich is said to be the signatory to that agreement and is the sole shareholder and director of the plaintiff, his presence before the court as a witness is inevitable. Accordingly, the plaintiff submits that joinder of him as a party would not further assist the court to adjudicate the relevant issues effectually and completely. It is submitted that adding Mr Zdrilich as a party has no utility and does not assist the court in its adjudication. [35] I agree with that submission. I note that in oral submissions counsel for the defendants said that in M & H Noble Pty Ltd ACN 060377344 v Paulmarg Pty Ltd ACN 106115557 at [28] Martin J was of the opinion that there was a ―comparatively low bar‖ for joining someone under r 69. That is not how I interpret his Honours comment which said: ―[28] On behalf of Paulmarg, it is argued that the history of this matter requires that the real question is whether Red Rooster is an “indispensible” party requiring joinder. I do not accept that that is, even with the delays which have occurred, a prerequisite to allowing Red Rooster to be joined as a second defendant. The test in r 69(1)(b)(t) (sic) is whether or not it is desirable, just and convenient to join another party in order to enable the court to adjudicate effectually and completely on all matters in dispute „connected with a proceeding‟. -- 8 of 20 -- 9 [36] All that his Honour did in that paragraph was to correctly state the test as prescribed by r 69(1)(b)(ii). He offered no comment as to the comparative ease with which a party may successfully bring such an application. In any event, each case must necessarily depend upon its own particular facts and circumstances. [37] The defendants have also argued that Mr Zdrilich could be joined pursuant to the provisions of r 69(1)(b)(i). Given however, that r 69(1)(b)(i) is of a much narrower ambit than (1)(b)(ii), the defendants’ task in successfully arguing that 1(b)(i) has application is even more difficult. In the circumstances of this matter, the reasons relevant to the issue as to why Mr Zdrilich should not be joined pursuant to r 69(1)(b)(ii) apply equally to r 69(1)(b)(i). [38] The second basis upon which the defendants have submitted that Mr Zdrilich should be joined is that he is a concurrent wrongdoer with respect to the claim pleaded at paras 81-84 and that the defendants should accordingly be able to reduce their liability pursuant to the Civil Liability Act 2003 (CLA). [39] Paragraphs 81-84 of the Amended Statement of Claim state: ―Administrative penalty 81. In or about December 2009, the plaintiff made a sale in the conduct of its business, in the amount of $515,103 (including GST) (―the Sale‖). 82. In breach of the terms of the Retainer (as varied) and/or the further retainer, the first defendant failed to report the Sale to the ATO, for GST purposes or at all. 82A. In failing to report the Sale to the ATO, the first defendant breached the Implied Term. 83. On or about 14 December 2010, the ATO completed an audit of the plaintiff and: 83.1 Concluded that there was a GST shortfall owing to the ATO as a result of the failure to report the Sale; and 83.2 Charged the plaintiff an administrative penalty, in the amount of $35,120.25 (―the Administrative Penalty‖), for the plaintiff’s alleged ―intentional disregard of a taxation law‖ for failure to report the Sale to the ATO. 83A. But for the first defendant’s breach of the Implied Term, the plaintiff would not have been charged with the Administrative Penalty by the ATO. 83B. The plaintiff is required to pay the Administrative Penalty to the ATO. 84. In the premises of paras 81-83 herein, the plaintiff has suffered loss and damage in the amount of the Administrative Penalty (being the amount of $35,120.25), as a result of the first defendant’s breach of the Retainer (as varied) and/or the further Retainer, and/or the Implied Term.‖ [40] In response the plaintiff has submitted that as paras 81-84 are pleaded in contract, the CLA has no application due to the provisions of s 28(1) of that Act. -- 9 of 20 -- 10 [41] Section 28(1) is contained within Part 2 which is headed ―Proportionate Liability‖. It relevantly states: ―28. Application of pt 2 (1) This part applies to either or both of the following claims (apportionable claim)— (a) a claim for economic loss or damage to property in an action for damages arising from a breach of a duty of care; (b) …‖ [42] Duty is defined in Schedule 2 of the CLA as follows: ―duty means— (a) a duty of care in tort; or (b) a duty of care under contract that is concurrent and coextensive with a duty of care in tort; or (c) another duty under statute or otherwise that is concurrent with a duty of care mentioned in paragraph (a) or (b).‖ [43] Duty of care is defined to mean a duty to take reasonable care or to exercise reasonable skill (or both duties).6 [44] Section 30 of the CLA provides that a concurrent wrongdoer, in relation to a claim, is a person who is 1 of 2 or more persons whose acts or omissions caused, independently of each other, the loss or damage that is the subject of the claim. [45] Counsel for the defendants has also submitted, that irrespective of the outcome of this part of the application, the defendants could still amend their defence to include the apportionment aspect into the defence. Nevertheless, the defendants’ primary submission is that para 82 of the Amended Statement of Claim can only be interpreted to mean that the second defendant, as a professional advisor, had a duty to advise and he failed in that regard. Hence, so the argument goes, it is a breach of duty case, which has been pleaded in contract because it is easier to plead in contract, and therefore the CLA has application. [46] In response, the plaintiff has submitted that the defendants’ application should fail for two reasons: ―a. the CLA does not have application as paras 81-84 of the Amended Statement of Claim are pleaded in contract and there was no co-extensive duty of care in tort; and/or b. the defendants have not pleaded the existence of a duty of care, nor its scope nor how it is co-extensive with the duty in contract.‖ [47] The plaintiff submits that the second of those considerations is a threshold question and that an appropriate outcome may be to adjourn the application to allow the defendants to file an Amended Defence that addresses all relevant issues. Counsel for the defendants quite properly drew to my attention the fact that a document 6 Schedule 2 Civil Liability Act 2003 -- 10 of 20 -- 11 entitled ―Amended Defence of the First and Second Defendants and Counterclaim‖ is only in draft form and has not been filed7 [48] As the second issue raises a threshold question, I will deal with it first. [49] The defendants’ draft counterclaim states: ―Counterclaim This counterclaim is made by the first and second defendants against: The plaintiff. The defendant added by counterclaim. This counterclaim is made in reliance upon the following facts: 1. The defendant by counterclaim and the first defendant entered into a written contract for the delivery of business consultancy services dated 1 June 2006 (―Consultancy Contract‖). 2. The registered business name Austech Concrete Constructions bearing business number BN 21833473 was held by Mark Zdrilich from 8 June 2006 until it was cancelled in 26 October 2010. 3. The Zdrilich Family Trust was settled on 15 June 2006 and the Trust Deed states that the trustee is Austech Concrete Constructions Pty Ltd. 4. The registered business name Austech Concrete Constructions bearing business number BN 19897509 was held by Mark Zdrilich from 8 June 2006 until 26 October 2010. 5. The registered business name Austech Concrete Constructions being business number BN 21833473 was held by the plaintiff from 8 June 2006 until 26 October 2010. Particulars 6. Pursuant to the terms of the Consultancy Contract the plaintiff provided business consultancy services to the defendant by counterclaim from July 2006, and the plaintiff from July 2006, or alternatively from 22 January 2007, in respect of the business trading under the business name Austech Concrete Constructions. The particulars of the business consultancy services are set out in para 3 of the Further and Better Particulars of the Amended Defence. 7. The plaintiff rendered invoices for the business consultancy services provided pursuant to the Consultancy Contract in relation to the business Austech Concrete Constructions on a quarterly basis from September 2006 being the invoices referred to in para 72(c) of the Further Amended Defence. The first and second defendants claim the following relief: 1. A declaration that the first defendant and the defendant by counterclaim entered into a written contract dated 1 June 2006 for the delivery of business consultancy services and provided business consultancy services to the plaintiff and/or defendant by counterclaim from July 2006. 2. Costs.‖ 7 Transcript p 1-15, l10 -- 11 of 20 -- 12 [50] In Ucak v Avant Developments [2007] NSWSC 376, Hammerschlag J was presented with similar pleadings on a similar issue. At paras 33-37 His Honour said: ” 33. If a right or defence depends, as is the case here, upon the provisions of a statute, the claim must state material facts demonstrating that entitlement: Air Link Pty Limited v Patterson [2002] NSWCA 85 at [20] per Sheller JA; Hunt Contracting Co. Pty Limited v Roebuck Resources NL (1992) 110 ALR 183 at 190; Bond Corporation Pty Limited v Thiess Contractors Pty Limited (1987) 14 FCR 215. 34. In order for a person to be a concurrent wrongdoer he must be one whose acts or omissions caused the damage or loss that is the subject of the claim. 35. It follows in my view, that for a defendant to assert that there is a person who is a current [sic] wrongdoer the defendant must plead the necessary elements which result in the asserted conclusion. Those elements are: a. the existence of a particular person; b. the occurrence of an act or omission by that particular person; and c. a causal connection between that occurrence and the loss that is the subject of the claim. 36. What the defendant in this case has done is to assert a conclusion without the material facts upon which that conclusion depends. This is a course which is not permissible. 37. Here the material facts would have to be the identification of the particular person, the identification of the act or omission of that particular person and the facts which if proven at trial would establish that that act or omission caused the loss or damage that is the subject of the claim.” [51] Hammerschlag J’s decision has been applied in Queensland in GEJ v MA Geldard Pty Ltd [2011] QSC 33 where A Lyons J said at [60]: “ [60] I therefore consider it is for the sixth and eighth defendants to prove that the damages should be reduced because there are concurrent wrongdoers who are liable to the plaintiff because their act or omission has caused the loss or damage. In this regard, I would endorse the approach of Hammerschlag J in Ucak v Avante Developments Pty Ltd set out above in paragraph [56]. Such an approach was also supported by the observations of McGill DCJ in Evans v Brannelly8 where his Honour stated: „[205] The pleading of the first and second defendants did not outline any basis upon which the other asserted concurrent wrongdoers were liable to the plaintiff. 8 [2008] QDC 269 -- 12 of 20 -- 13 Given that this was an issue raised by the defendants, it seems to me that it follows logically that the defendants have the onus of showing the existence and liability of the concurrent wrongdoers. The current pleading does not even satisfy the requirements laid down in Ucak v Avante Developments Pty Ltd, where Hammerschlag J held, among other things, that in order to assert that the person was a concurrent wrongdoer the defendant must plead the occurrence of an act or omission by that person: [35]. He went on to hold that it was insufficient to assert a conclusion without pleading the material facts on which that conclusion depended: [36]. The same deficiency occurred in the present case.‟” [52] At [65] her Honour said: “…. However, as Hammerschlag J noted, the question which arises is whether the pleadings simply assert that the parties are concurrent wrongdoers or whether the material facts which establish the occurrence of an act or omission and the causal connection between that occurrence and the loss that is the subject of the claim have in fact been pleaded.” [53] Hammerschlag J’s decision was also applied in Meandarra Aerial Spraying Pty Ltd v Lachlin Hill [2012] QCA 315 at [60] and [61]. At [62], Fraser JA, (with whom White JA and Mullins J agreed) said: “It follows that proof that an act or omission of a person other than a defendant was an independent cause of the claimed loss or damage is necessary before any occasion arises to consider whether or how a defendant‟s liability should be limited under s.31. A plaintiff‟s cause of action is complete without any evidence that there is a concurrent wrongdoer; the plaintiff is entitled to recover its proved loss in full from a defendant who is proved to be legally liable for that loss. If a defendant wishes to achieve a different result, the onus must be on the defendant to prove the necessary facts.” [54] In this matter the plaintiff has submitted that the authorities make it clear that if a defendant wishes to invoke the concurrent wrongdoer provisions of the CLA, the defendant’s pleadings must do more than merely plead a conclusion. I agree with that submission. The plaintiff has also submitted that the defendants have done no more than plead a conclusion (and even then only in a draft amended defence and counterclaim) and that accordingly the application must fail or be adjourned to enable the defendants to file the pleading upon which they intend to rely. [55] In response the defendants have submitted that the draft document makes the material facts reasonably clear and it is difficult to envisage what else might be said. I disagree. In my view, consistent with the authorities, the defendants would need to plead the existence of the duty of care alleged, its scope, how it is coextensive with the duty in contract and how Mr Zdrilich is said to have breached it. [56] Unless and until such matters are pleaded, the court is unable to determine the outcome of the application to join Mr Zdrilich as a party on this basis. -- 13 of 20 -- 14 [57] Accordingly, this part of the application should be adjourned to enable the Further Amended Defence and Counterclaim to be filed. No decision regarding the application to join Mr Zdrilich as a party can be made until that occurs. Security for costs application [58] The defendants are seeking an order for security for costs pursuant to Chapter 17 of the UCPR or alternatively pursuant to s.1335 of the Corporations Act 2001 (Cth). [59] In support of the application, the defendants argue that such an order should be made because: (a) the plaintiff has a paid up capital of $12.00;9 (b) the company is the vehicle of its shareholder and director, Mr Zdrilich; (c) the company is subject to a registered charge securing debts paid to the Commonwealth Bank10; (d) the company is subject to a charge securing a business vehicle owned to Toyota Financial Services11; (e) that until just before the date of the hearing of this application, despite having been given a number of opportunities, the plaintiff has refused to provide any assurance past bold assertions in correspondence that it has the means to meet a costs order. [60] Pursuant to r 617(a) UCPR and/or s 1335(1) of the Corporations Act 2001 (Cth), a court can order a plaintiff to give security for costs if the court is satisfied that the plaintiff is a corporation and there is reason to believe that it will be unable to pay the defendant’s costs if ordered to do so. [61] In order to enliven the jurisdiction, the applicant for security for costs must adduce credible evidence of there being a reason to believe that the company will be unable to satisfy a costs order. This is not an exacting standard.12 [62] The defendants have submitted that as the plaintiff has a paid up share capital of $12.00, two charges in favour of the Commonwealth Bank and Toyota Financial Services and is not the owner of any real property in Queensland, the jurisdictional threshold has been met. [63] The plaintiff however relies on two affidavits which are said to demonstrate that it has significant assets which exceed the likely amount of any costs which would be awarded to the defendants. [64] The first is from Ross Vile (filed 23 August 2013), a chartered accountant with Vincents Chartered Accountants (―Vincents‖). Vincents act as the accountants for the plaintiff. Mr Vile has stated that the business recorded a net operating profit of 9 Affidavit of William Arthur Morgan, Exhibit WAM-1 10 Affidavit of William Arthur Morgan, Exhibit WAM-2 11 Affidavit of William Arthur Morgan, Exhibit WAM-3 12 Hurworth Nominees Pty Ltd v ANZ Banking Group Limited [2005] NSWSC 1360 at [25]; Beach Petroleum NL v Johnson (1992) 1 ACSR 203 at 205 -- 14 of 20 -- 15 $647,100 for the year ended 30 June 2013. He attached to his affidavit a draft profit and loss statement for that period.13 Furthermore, financial reports for the years ended 30 June 2010, 30 June 2011 and 30 June 2012 show the company generated a net profit of $319,708, $367,565 and $221,732 for those years respectively.14 In fact, it has always been a profitable company. [65] Mr Vile attested that due to his intimate knowledge of the financial position of the plaintiff, he was confident that the plaintiff would readily be able to meet any costs order sought by the defendants which could be up to $80,000. [66] The second affidavit is from Scott Webber, an accredited valuer for Lloyds Asset Services. Mr Webber has performed a valuation of the plaintiff’s assets and has attested that the fair market value of those assets is $753,450. I note that the company has liabilities in the amount of $423,272.16.15 [67] The plaintiff therefore argues that it has consistently traded profitably and has in excess of $300,000 in assets available to it. [68] The defendants have nevertheless submitted that the affidavits of Mr Vile and Mr Webber have the following problems or deficiencies: (a) no witness has sworn to the implicit factual assumption in Mr Webber’s report that each of the items valued belonged to the plaintiff; (b) the depreciation schedule mentioned in Webber’s report is not appended to his report, thus making it impossible to test whether the items he valued are the items on the schedule; (c) Mr Webber failed to annexe registration details and invoices which he had been briefed with; (d) Mr Webber valued a large number of items on a worksite which was not the exclusive domain of the plaintiff, so a question arises as to whether he could have been mistaken as to the title of some of the assets he valued; (e) whilst Mr Vile swore to the fact that the plaintiff only operates in its capacity as trustee of the Zdrilich Family Trust, he did not swear to being involved in the daily management of the company; (f) that no witness has sworn to the implicit factual assumption underpinning Mr Vile’s affidavit, that being that the plaintiff is entitled to an indemnity out of the Zdrilich Family Trust, and; (g) the Zdrilich Family Trust deed has not been produced. [69] For these reasons the defendants submit that the court could not be satisfied as to the plaintiff’s capacity to meet an order for costs. 13 Affidavit of Ross Vile, Exhibit RV3. 14 Affidavit of Ross Vile, Exhibit RV2. 15 Affidavit of Matthew Kenneth Williams, paragraphs 9 and 10. -- 15 of 20 -- 16 [70] The defendants further submit that the plausibility of the plaintiff’s case is another factor to be considered.16 They submit that the plaintiff will face significant hurdles in discharging its onus of proof at trial given that this is a matter where the plaintiff alleges fraud on the part of the defendants notwithstanding that documents exist which are inconsistent with such an allegation. The defendants submit that it is a relevant consideration that the plaintiff has led no evidence as to prospects, or that it made the payments for the claimed purpose or that Mr Zdrilich’s signature on the Consultancy Agreement was a forgery. [71] In relation to the issues raised in paragraph [67] (a), (c) and (d) above, I note that Mr Webber’s report (SW2) attaches Appendix Three which is a list of the asset details and photographs. Evidence has since been placed before the court by way of affidavit of Martin Nelson Daniel to the effect that all of the assets described in Appendix Three to Mr Webber’s report, with the exception of a Toyota Hino Ranger and a Fast Lane Trailer, were duly owned by the plaintiff. [72] As to the criticism raised in paragraph [67] (b) above, I note that on page 6 of his report under the heading ―Identification and Description of Property Appraised‖, Mr Webber states: ―Whilst a depreciation schedule was provided by the instructing party the validity of purchase prices was noted the valuer has attributed values on his own research.‖ [73] Despite the poor grammar and lack of punctuation in that sentence, I accept that the valuer, whose credibility is not in issue, has attributed values based on his own research. The absence of the depreciation schedule is therefore of little if any relevance. Furthermore, Appendix Three to Mr Webber’s report removes any doubt as to the identification of the items he valued. [74] In relation to the issues raised in paragraph [67] (f) and (g) above, I note that a copy of the Zdrilich Family Trust deed has now been produced to the court17 and clause 21 states: ―Indemnity of Trustees 21. The Trustee shall be indemnified and held harmless out of the Trust Fund against all claims, costs, damages, losses, fees, expenses, duties and impositions which arise in connection with or in consequence of this Deed or the Trusts hereby created except to the extent that same arise from the Trustee’s own dishonesty provided that the Trustee shall have no right of indemnity against any one or more of the Beneficiaries.‖ [75] Schedule 1 of that deed identifies the plaintiff as the trustee. 16 Merribee Pastoral Industries v Australia and New Zealand Banking Group Limited (1998) 193 CLR 502 at 514. 17 Affidavit of Martin Nelson Daniel dated 28.8.13 – Exhibit MND1. -- 16 of 20 -- 17 [76] Finally, in relation to the issue raised in paragraph [67] (e) above, in my view little if anything turns on the fact that Mr Vile did not swear to being involved in the daily management of the company. Its daily management is not relevant to the issue. What is relevant is its financial viability now and into the future. Given the operating profits that this company has enjoyed since its commencement of trading, and its strong position in relation to its equity in assets, I have no difficulty in concluding that it is likely to continue to be a profitable company and be able to meet any likely costs order. [77] I accept that a company cannot be used as a ―stalking horse to enable someone to evade personal responsibility‖18 and that a company seeking to resist an application for security should place before the court a full and frank statement of its assets and liabilities, including those of its shareholders.19 The plaintiff has submitted that it has demonstrated that it has significant means and there is therefore no need for Mr Zdrilich ―to step out from behind the company‖. I agree with that submission. [78] Insofar as the plaintiff’s prospects of success on the claim are concerned, I accept that, upon the material presently before the court, the plaintiff’s claim is prima facie regular and discloses a cause of action. Whilst I accept the defendants’ submission that the plaintiff’s case looks to have some difficulties in its proof, I am not able to conclude that the plaintiff has anything less than reasonable prospects of success.20 Accordingly, that argument does not advance the defendants’ application. [79] The plaintiff has also raised the issue of delay as being a relevant consideration to the determination of this application. An application for security for costs should be brought promptly.21 Delay can be unfair where the defendant stands by and allows the plaintiff to work on its case and incur significant expense.22 Having said that, there is no rule requiring refusal of an application solely on the basis of delay. It is merely one factor which may be taken into account in the exercise of the discretion.23 [80] The plaintiff notes that the defendants first raised the possibility of an application for security for costs in early December 2012. Correspondence passed between the solicitors regarding this topic around that time, but no application was brought until after the defendants were presented with the plaintiff’s application for disclosure. In that circumstance the plaintiff submits that the fact that this application was brought more than 10 months after the claim was filed and only in response to steps taken by the plaintiff to advance the proceedings is unfair and prejudicial to the plaintiff at 18 Cameron‟s Unit Services Pty Ltd v Kevin R Whelpton and Associates (Australia) Pty Ltd (1986) 13 FCR 46 at 53. 19 Reches Pty Ltd v Tadiran Pty Ltd (1998) 85 FCR 514 at 523. 20 Bryan E Fencott Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 at 514. 21 Foss Export Agency Pty Ltd v Trotman (1949) 67 WN (NSW) 1; Buckley v Bennell (1974) 1 ACLR 301 at 308; Southern Cross Exploration NL v Fire and All Risks Insurance Co Ltd (1985) 1 NSWLR 114 at 123. 22 Smail v Burton; Re Insurance Associates Pty Ltd (in liq) (1975) 1 ACLR 74 at 75; King v Commercial Bank of Australia Ltd [1921] VLR 48 at 54; Stack v Brisbane City Council (1996) 71 FCR 523 at 531. 23 Commonwealth of Australia v Cable Waterskiing (Aust) Ltd (1994) 14 ACSR 760 at 762; Rhema Ventures Pty Ltd v Stonders [1993] 2 Qd R 326 at 332-3 per Lee J. -- 17 of 20 -- 18 least so far as the incurring of costs is concerned. The plaintiff submits that this is a factor which should be given considerable weight. [81] The defendants submit however that delay is not an issue of relevance or is of only minor relevance unless some reliance has been placed on that delay; that is that reliance has been placed on the assumption that no application for security for costs is going to be brought. The defendants then rely upon the correspondence between the solicitors to demonstrate that the plaintiff has not placed any reliance on such an assumption. The defendants further submit that very little was done by the plaintiff during the period when the issue of security for costs was first raised until the time the application was filed. [82] Solicitors for the defendants first raised the question of whether the plaintiff had the means to meet any costs order in the defendants’ favour on 11 December 2012.24 The plaintiff’s solicitors responded in correspondence on 12 December 2012 in which it was asserted that the defendants would need to satisfy a court that there was a reason to believe that the plaintiff would not be able to meet a costs order. Additionally, it was said in that letter: ―… we are instructed that our client has sufficient assets within the court’s jurisdiction, as well as substantial income from which it can meet any costs order …‖25 [83] Solicitors for the defendants responded on 13 December 2012 advising that the basis of their concern was: ―(a) the plaintiff had a paid up share capital of $12; (b) the plaintiff owned no real property; (c) the plaintiff had charges registered over its assets on 12 August 2012 and 19 October 2011.‖26 [84] Following that, solicitors for the plaintiff sent correspondence on 19 December 2012, 7 January 2013, and 17 January 2013 in response to the defendants’ solicitors’ letters of 13 December 2012 and 16 January 2013. The plaintiff continued to assert that it had sufficient means to meet any potential costs order, without providing any particulars as to its financial position. The defendants continued to assert that they were not prepared to accept the ―bare assertion that the written down value of its assets exceeds $300,000‖ and required particulars of the assets and details as to any security held over such assets. A further letter to similar effect by the defendants’ solicitors was sent on 6 May 2013 and it received a similar response from the plaintiff’s solicitors on 10 May 2013.27 The application was then filed on 24 July 2013. I note that the solicitors for the first and second defendants changed on 5 March 2013 to the present firm. Perusal of the court file shows that the only action taken during the period from December 2012 to July 2013 was the filing of the applications together with supporting material although, as the plaintiff has correctly pointed out, disclosure issues were ventilated and, by and large, resolved during that intervening period. 24 Affidavit of William Arthur Morgan filed 24 July 2013 – Exhibit WAM4. 25 Affidavit of William Arthur Morgan filed 24 July 2013 – Exhibit WAM4. 26 Affidavit of William Arthur Morgan filed 24 July 2013 – Exhibit WAM4. 27 Affidavit of William Arthur Morgan filed 24 July 2013 – Exhibit WAM4. -- 18 of 20 -- 19 [85] Taking all this into account, it is my view that whilst the defendants could have brought the application at an earlier time, the delay was not overly significant. Furthermore, whilst the plaintiff undertook tasks to further the litigation process during the process from January 2012 to July 2013, there was not a large amount of work done on the matter during that time. Also, given the rather sniping tone of the letters from each of the parties’ solicitors, and the continued persistence of the defendants’ solicitors seeking details to support the plaintiff’s assertion of having a financial ability to meet any costs order, I do not accept that the plaintiff would have assumed that the defendants had decided to not pursue the issue further. Accordingly, the issue of delay has little significance to this matter. [86] The defendants have also submitted that as there is an anomaly in relation to the date the Zdrilich Family Trust came into existence (the details of which I do not need to canvass here), so too is there a question as to whether the indemnity in clause 21 has any legal effect. This issue only becomes relevant however if I was concerned that the plaintiff had not demonstrated that it has sufficient means to meet any costs order that might be awarded against it. The same applies to the issue raised by the defendants regarding the listed income beneficiaries in schedule 2 of that deed. Notwithstanding that, Mr Zdrilich has informed the court through his solicitor that he will take steps to ensure that the plaintiff relies upon the indemnity provided in clause 21 of the trust deed if any costs order is made against the plaintiff. [87] Given all the information which has now been provided to the court, I am satisfied that the plaintiff has, and will continue to have, sufficient means to meet any costs order. The continual profitable trading over a period of many years together with the amount of each year’s profit and the fact that the greatest profit was achieved in the most recent financial year are all powerful indicators of future profitability. It is also of relevance to note that the charge in favour of the Commonwealth Bank of Australia in the amount of $122,980 (see paragraph 5 of affidavit of Morgan filed 24/7/13) has been paid out in full by the plaintiff’s insurer as a result of the asset being damaged in a motor vehicle accident.28 Furthermore, the significant equity which the plaintiff has in its assets is another further indicator of the plaintiff’s ability to meet any future costs order. [88] It is unfortunate that the evidence that has been presented to the court was not, at least in a summary way, prepared earlier and provided to the defendants. I suspect that a letter from Mr Vine may have been sufficient to allay the defendants’ concerns. In my view, the defendants had a legitimate basis to be concerned as to the plaintiff’s ability to meet a costs order and were justified in not accepting a mere assertion that sufficient means existed. Counsel for the plaintiff has submitted that as the assertion of sufficient means came on solicitors’ letterhead, it somehow carried greater weight. I reject that submission absolutely as any assertion contained in the solicitors’ letter had to have been based on the client’s instructions. At no time did the solicitors state that the information, upon which the assertion of financial stability was based, came from any source other than the plaintiff. This is an issue which is, of course, relevant to any order for costs. 28 See affidavit of Matthew Kenneth Williams filed 28 August 2013 paragraph 11. -- 19 of 20 -- 20 [89] Finally, I note that Mr Zdrilich has informed his solicitor that the plaintiff continues to trade and that there are no plans to cease trading.29 [90] For these reasons I am not satisfied that the plaintiff will be unable to pay the defendants’ costs if ordered to do so. [91] A dispute also exists as to the quantum of those potential costs but given my findings above, resolution of that dispute is unnecessary. Orders 1. The application for disclosure is allowed. I will hear the parties as to the orders that should be made regarding this issue. 2. The application for an order pursuant to r 233(2) is allowed. I will hear the parties as to the order that should be made regarding this issue. 3. The application to join Mr Zdrilich is adjourned to a date to be fixed. 4. The application for security for costs is dismissed 5. The first and second defendants have leave to file and serve a Further Amended Defence and Counterclaim within 14 days of the date of this order. 6. I will hear submissions as to costs. 29 Affidavit of Martin Nelson Daniel filed 28 August 2013 paragraph 2. -- 20 of 20 --