Wilful breach of lease: Supreme Court of NSW refuses to allow extension of retail lease

23 November, 2015

Part 3: Security for costs applications in the context of cross-claims

In this Part 3 of our series of articles on the topic of security for costs, we consider how security for costs applications are dealt with in the context of cross-claims.

We saw in Part 1 of this series that to succeed in such an application, it is necessary to satisfy both the jurisdictional and discretionary tests, and in Part 2 we saw that the court will give considerable weight to the substance of a party’s involvement in the proceedings and will be reluctant to order security for costs in favour of a party that is in truly the legal “aggressor”.

Security for costs applications in the context of cross-claims produce interesting results given that, theoretically, each party can be a party attacking and a party defending. So which party (if any) is entitled to security for costs in these circumstances?

Security for costs and cross-claims

Security for costs applications can arise in proceedings involving cross-claims in a number of scenarios. For instance, a plaintiff might seek to oppose an application brought by a defendant seeking security for its own costs on the basis that the defendant is also a cross-claimant; similarly, a plaintiff/cross-defendant’s threat to make an application might be met with an equal threat from the defendant/cross-claimant.

Generally, as noted above, the answer to this question involves an assessment of the nature of the respective roles of the parties to the proceedings. A useful way to consider how this works in practice is to draw on a couple of examples, which we do below.

A question of quantum?

Where a cross-claim has been brought ‘defensively’ in response to the plaintiff’s claim, the court will not ordinarily order security for costs against that cross-claimant.

One indicator as to whether proceedings have been brought defensively is whether the cross-claimant’s claim ‘cancels out’ the plaintiff’s claim, or whether the cross-claim goes well beyond what the plaintiff’s claim has raised, such that the cross-claimant is in truth in the position of aggressor.

In the latter scenario, the court may grant an order against the cross-claimant to give security for costs, notwithstanding that the plaintiff was responsible for initially compelling the defendant/cross-claimant to the proceedings.

For example, in the matter of Saint-Gobain RF Pty Ltd v Maax Spa Corporation Pty Ltd [2004] VSC 335, Saint-Gobain (the plaintiff) brought an action against Maax Spa (the defendant) for the sum of $221,886.68 which it said was owing under a credit supply agreement. Maax Spa then brought a cross-claim against Saint-Gobain for the amount of $917,737 on the basis of alleged misrepresentations, claiming breaches of fair trading and trade practices legislation and negligence.

Saint-Gobain subsequently brought an application seeking security for its costs against Maax Spa, who attempted to resist it on the basis that Saint-Gobain had instigated the litigation, and that Maax Spa had simply counter-claimed on the same front in defence of its position.

Habersberger J found that “this is one of those possibly rare cases where a counterclaimant should be required to give security for costs”. The Court, in ordering Saint-Gobain to provide security, found the following::

The Court was not satisfied that Maxx-Spa (the cross-claimant’s) claim was simply defensive;
Maxx Spa’s claim was ‘a claim for significant damages which will occupy virtually all of the time spent at trial’; and
This meant that Maxx Spa was no longer a ‘compulsory party’ and had assumed the position of plaintiff.

This decision is an example of those which demonstrate that where a cross-claimant’s claim ‘overshadows’ the plaintiff’s claim to a substantial degree in terms of quantum and/or the court’s time to deal with the issues raised, this will be relevant to the exercise of the court’s characterisation of the cross-claimant as the aggressor, and will weigh in favour of the court granting an application by the plaintiff against a cross-claimant.

A matter of similarity?

Another relevant factor that will weigh in the court’s discretion is whether the cross-claim traverses the same or substantially the same matters as the claim.

In circumstances where a claim and cross-claim raise substantially the same matters, this will be a strong factor to show that an order for security for costs should not be made.

One rationale behind this is that, where a claim and cross-claim raise substantially the same matters, it would be unjust to require the plaintiff (or the cross-claimant) to provide security for costs, because this would allow the defendant to pursue its cross-claim whilst possibly stifling the plaintiff’s ability to pursue not only its claim, but also to defend the cross-claim.

The case of Sydmar Pty Ltd v Statewise Developments Pty Ltd (1987) 11 ACLR helps to elucidate this point. In Sydmar, the plaintiff’s claim and the defendant’s cross-claim arose out of alleged breaches of contract.

The Court refused the defendant/cross-claimant’s application for security for costs on a number of bases. One of these bases was that it would be inappropriate to require the plaintiff to provide security, because it would “effectively reduce the moneys available to it to resist the defendant’s cross-claim”.

In a similar vein, the Court made the following comments:

“The court would be slow to allow a situation where the action is stayed because of the inability to provide security but the cross-action covering substantially the same factual areas proceeds.”

Whilst this is clearly a powerful factor, the fundamental question comes back to whether the defendant has brought their cross-claim defensively. That is, if the cross-claim is purely characterised as being defensive (for instance if it is a cross-claim by way of set-off of the plaintiff’s claim in respect of the same matters), then the fact of the cross-claim being brought is unlikely to assist the plaintiff in resisting a security for costs application against it. It will depend on the circumstances of the case.

‘Dalma Formwork’ undertaking – the cross-claimant’s trump card

If you are the defendant/cross-claimant in a matter and wish to make a security for costs application against the plaintiff, but your ability to do so is stifled by the fact that the claim and cross-claim deal with substantially the same matters, the courts have a solution for you – a ‘Dalma Formwork’ undertaking.

The name derives from the Court’s decision in the matter of Dalma Formwork Pty Ltd (Administrator Appointed) v Concrete Constructions Group Limited [1998] NSWSC 472. In that case, Rolfe J acknowledged that where a claim and cross-claim arise out of the same, or essentially the same, factual matrix, this will be “a very important consideration”, and that “an order for security will not generally be made in those circumstances”.

However, is Honour also stated (importantly) that:

“[t]his situation can be overcome by a defendant if it unequivocally states that it will not pursue any claims against the plaintiff in the event of an order for security being made and not met.”

In other words, if the defendant undertakes not to press its cross-claim in the event that the proceedings are stayed or dismissed due to the plaintiff’s failure to comply with an order to provide security, this will provide strong grounds to the defendant to seek that the plaintiff provide security for costs (notwithstanding that the claim and cross-claim traverse the same matters).

This is useful to note for parties who have been forced to agitate a claim defensively – a defendant who has filed a cross-claim as a defensive strategy to a plaintiff’s claim may be prepared to abandon its claim if it will not be required to respond to the plaintiff’s claim in the event the plaintiff fails to provide security.

Concluding thoughts

The situations summarised above raise interesting questions concerning the court’s application of the discretionary test in the context of cross-claims.

If you are considering making an application for security for costs, or are on the receiving end of a foreshadowed application where cross-claims are involved, it is important to keep in mind that in determining whether to grant such an application, the court will take into account all relevant matters in the proceedings to ascertain the substance of the respective parties’ roles.

This will involve considerations of the nature and/or quantum of the parties’ respective claims and whether the claim and cross-claim traverse the same or substantially the same subject matter, amongst any other relevant factors.

The fact of a cross-claim being brought will not necessarily preclude a court from granting security for costs in favour of either the plaintiff or cross-claimant; it is simply a matter to be weighed in the court’s discretion. That being said, the examples and indicators explored above will assist in making an informed assessment of the prospects of any such application in proceedings involving cross-claims which have been made, or are anticipated to be made.

If you would like any further information regarding the above or any of the other articles in this series or if you have any feedback generally we welcome you to contact us.

published by

Andrew Lacey

Managing Principal

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Litigation and Dispute Resolution

Canadian Court elevates thumbs-up emoji to signature status

In June 2023, a Canadian Court in South-West Terminal Ltd v Achter Land and Cattle Ltd, 2023 SKKB 116, held that the "thumbs-up" emoji carried enough weight to constitute acceptance of contractual terms, analogous to that of a "signature", to establish a legally binding contract. Facts This case involved a contractual dispute between two parties namely South-West Terminal ("SWT"), a grain and crop inputs company; and Achter Land & Cattle Ltd ("ALC"), a farming corporation. SWT sought to purchase several tonnes of flax at a price of $17 per bushel, and in March 2021, Mr Mickleborough, SWT's Farm Marketing Representative, sent a "blast" text message to several sellers indicating this intention. Following this text message, Mr Mickleborough spoke with Mr Achter, owner of ALC, whereby both parties verbally agreed by phone that ALC would supply 86 metric tonnes of flax to SWT at a price of $17 per bushel, in November 2021. After the phone call, Mr Mickleborough applied his ink signature to the contract, took a photo of it on his mobile phone and texted it to Mr Archter with the text message, "please confirm flax contract". Mr Archter responded by texting back a "thumbs-up" emoji, but ultimately did not deliver the 87 metric tonnes of flax as agreed. Issues The parties did not dispute the facts, but rather, "disagreed as to whether there was a formal meeting of the minds" and intention to enter into a legally binding agreement. The primary issue that the Court was tasked with deciding was whether Mr Achter's use of the thumbs-up emoji carried the same weight as a signature to signify acceptance of the terms of the alleged contract. Mr Mickleborough put forward the argument that the emoji sent by Mr Achter conveyed acceptance of the terms of the agreement, however Mr Achter disagreed arguing that his use of the emoji was his way of confirming receipt of the text message. By way of affidavit, Mr Achter stated "I deny that he accepted the thumbs-up emoji as a digital signature of the incomplete contract"; and "I did not have time to review the Flax agreement and merely wanted to indicate that I did receive his text message." Consensus Ad Idem In deciding this issue, the Court needed to determine whether there had been a "formal meeting of the minds". At paragraph [18], Justice Keene considered the reasonable bystander test: " The court is to look at “how each party’s conduct would appear to a reasonable person in the position of the other party” (Aga at para 35). The test for agreement to a contract for legal purposes is whether the parties have indicated to the outside world, in the form of the objective reasonable bystander, their intention to contract and the terms of such contract (Aga at para 36). The question is not what the parties subjectively had in mind, but rather whether their conduct was such that a reasonable person would conclude that they had intended to be bound (Aga at para 37)." Justice Keene considered several factors including: The nature of the business relationship, notably that Mr Achter had a long-standing business relationship with SWT going back to at least 2015 when Mr Mickleborough started with SWT; and The consistency in the manner by which the parties conducted their business by way of verbal conversation either in person or over the phone to come to an agreement on price and volume of grain, which would be followed by Mr Mickleborough drafting a contract and sending it to Mr Achter. Mr Mickleborough stated, "I have done approximately fifteen to twenty contracts with Achter"; and The fact that the parties had both clearly understood responses by Mr Achter such as "looks good", "ok" or "yup" to mean confirmation of the contract and "not a mere acknowledgment of the receipt of the contract" by Mr Achter. Judgment At paragraph [36], Keene J said: "I am satisfied on the balance of probabilities that Chris okayed or approved the contract just like he had done before except this time he used a thumbs-up emoji. In my opinion, when considering all of the circumstances that meant approval of the flax contract and not simply that he had received the contract and was going to think about it. In my view a reasonable bystander knowing all of the background would come to the objective understanding that the parties had reached consensus ad item – a meeting of the minds – just like they had done on numerous other occasions." The court satisfied that the use of the thumbs-up emoji paralleled the prior abbreviated texts that the parties had used to confirm agreement ("looks good", "yup" and "ok"). This approach had become the established way the parties conducted their business relationship. Significance of the Thumbs-Up Emoji Justice Keene acknowledged the significance of a thumbs-up emoji as something analogous to a signature at paragraph [63]: "This court readily acknowledges that a thumbs-up emoji is a non-traditional means to "sign" a document but nevertheless under these circumstances this was a valid way to convey the two purposes of a "signature" – to identify the signator… and… to convey Achter's acceptance of the flax contract." In support of this, Justice Keene cited the dictionary.com definition of the thumbs-up emoji: "used to express assent, approval or encouragement in digital communications, especially in western cultures", confirming that the thumbs-up emoji is an "action in an electronic form" that can be used to allow express acceptance as contemplated under the Canadian Electronic Information and Documents Act 2000. Justice Keene dismissed the concerns raised by the defence that accepting the thumbs up emoji as a sign of agreement would "open the flood gates" to new interpretations of other emojis, such as the 'fist bump' and 'handshake'. Significantly, the Court held, "I agree this case is novel (at least in Skatchewan), but nevertheless this Court cannot (nor should it) attempt to stem the tide of technology and common usage." Ultimately the Court found in favour of SWT, holding that there was a valid contract between the parties and that the defendant breached by failing to deliver the flax. Keene J made a judgment against ALC for damages in the amount of $82,200.21 payable to SWT plus interest. What does this mean for Australia? This is a Canadian decision meaning that it is not precedent in Australia. However, an Australian court is well within its rights to consider this judgment when dealing with matters that come before it with similar circumstances. This judgment is a reminder that the common law of contract has and will continue to evolve to meet the everchanging realities and challenges of our day-to-day lives. As time has progressed, we have seen the courts transition from sole acceptance of the traditional "wet ink" signature, to electronic signatures. Electronic signatures are legally recognised in Australia and are provided for by the Electronic Transactions Act 1999 and the Electronic Transactions Regulations 2020. Companies are also now able to execute certain documents via electronic means under s 127 of the Corporations Act. We have also seen the rise of electronic platforms such as "DocuSign" used in commercial relationships to facilitate the efficient signing of contracts. Furthermore, this case highlights how courts will interpret the element of "intention" when determining whether a valid contract has been formed, confirming the long-standing principle that it is to be assessed objectively from the perspective of a reasonable and objective bystander who is aware of all the relevant facts. Overall, this is an interesting development for parties engaging in commerce via electronic means and an important reminder to all to be conscious of the fact that contracts have the potential to be agreed to by use of an emoji in today's digital age.

Published by Foez Dewan

29 August, 2023

Government

Venues NSW ats Kerri Kane: Venues NSW successful in overturning a District Court decision

The McCabes Government team are pleased to have assisted Venues NSW in successfully overturning a District Court decision holding it liable in negligence for injuries sustained by a patron who slipped and fell down a set of steps at a sports stadium; Venues NSW v Kane [2023] NSWCA 192 Principles The NSW Court of Appeal has reaffirmed the principles regarding the interpretation of the matters to be considered under sections5B of the Civil Liability Act 2002 (NSW). There is no obligation in negligence for an occupier to ensure that handrails are applied to all sets of steps in its premises. An occupier will not automatically be liable in negligence if its premises are not compliant with the Building Code of Australia (BCA). Background The plaintiff commenced proceedings in the District Court of NSW against Venues NSW (VNSW) alleging she suffered injuries when she fell down a set of steps at McDonald Jones Stadium in Newcastle on 6 July 2019. The plaintiff attended the Stadium with her husband and friend to watch an NRL rugby league match. It was raining heavily on the day. The plaintiff alleged she slipped and fell while descending a stepped aisle which comprised of concrete steps between rows of seating. The plaintiff sued VNSW in negligence alleging the stepped aisle constituted a "stairwell" under the BCA and therefore ought to have had a handrail. The plaintiff also alleged that the chamfered edge of the steps exceeded the allowed tolerance of 5mm. The Decision at Trial In finding in favour of the plaintiff, Norton DCJ found that: the steps constituted a "stairwell" and therefore were in breach of the BCA due to the absence of a handrail and the presence of a chamfered edge exceeding 5mm in length. even if handrails were not required, the use of them would have been good and reasonable practice given the stadium was open during periods of darkness, inclement weather, and used by a persons of varying levels of physical agility. VNSW ought to have arranged a risk assessment of the entire stadium, particularly the areas which provided access along stepped surfaces. installation of a handrail (or building stairs with the required chamfered edge) would not impose a serious burden on VNSW, even if required on other similar steps. Issues on Appeal VNSW appealed the decision of Norton DCJ. The primary challenge was to the trial judge's finding that VNSW was in breach of its duty of care in failing to install a handrail. In addition, VNSW challenged the findings that the steps met the definition of a 'stairwell' under the BCA as well as the trial judge's assessment of damages. Decision on Appeal The Court of Appeal found that primary judge's finding of breach of duty on the part of VNSW could not stand for multiple reasons, including that it proceeded on an erroneous construction of s5B of the Civil Liability Act 2002 and the obvious nature of the danger presented by the steps. As to the determination of breach of duty, the Court stressed that the trial judge was wrong to proceed on the basis that the Court simply has regard to each of the seven matters raised in ss 5B and 5C of the CLA and then express a conclusion as to breach. Instead, the Court emphasised that s 5B(1)(c) is a gateway, such that a plaintiff who fails to satisfy that provision cannot succeed, with the matters raised in s 5B(2) being mandatory considerations to be borne in mind when determining s 5B(1)(c). Ultimately, regarding the primary question of breach of duty, the Court found that: The stadium contained hazards which were utterly familiar and obvious to any spectator, namely, steps which needed to be navigated to get to and to leave from the tiered seating. While the trial judge considered the mandatory requirements required by s5B(2) of the CLA, those matters are not exhaustive and the trial judge failed to pay proper to attention to the fact that: the stadium had been certified as BCA compliant eight years before the incident; there was no evidence of previous falls resulting in injury despite the stairs being used by millions of spectators over the previous eight years; and the horizontal surfaces of the steps were highly slip resistant when wet. In light of the above, the Court of Appeal did not accept a reasonable person in the position of VNSW would not have installed a handrail along the stepped aisle. The burden of taking the complained of precautions includes to address similar risks of harm throughout the stadium, i.e. installing handrails on the other stepped aisles. This was a mandatory consideration under s5C(a) which was not properly taken into account. As to the question of BCA compliance, the Court of Appeal did not consider it necessary to make a firm conclusion of this issue given it did not find a breach of duty. The Court did however indicated it did not consider the stepped aisle would constitute a "stairway" under the BCA. The Court of Appeal also found that there was nothing in the trial judge's reasons explicitly connecting the risk assessment she considered VNSW ought to have carried out, with the installation of handrails on any of the aisles in the stadium and therefore could not lead to any findings regarding breach or causation. As to quantum, the Court of Appeal accepted that the trial judge erred in awarding the plaintiff a "buffer" of $10,000 for past economic loss in circumstances where there was no evidence of any loss of income. The Court of Appeal set aside the orders of the District Court and entered judgment for VNSW with costs. Why this case is important? The case confirms there is no obligation in negligence for owners and operators of public or private venues in NSW to have a handrail on every set of steps. It is also a welcome affirmation of the principles surrounding the assessment of breach of duty under s 5B and s 5C of the CLA, particularly in assessing whether precautions are required to be taken in response to hazards which are familiar and obvious to a reasonable person.

Published by Leighton Hawkes

18 August, 2023