PPK Willoughby Pty Ltd v Baird

1. [1]

   HIS HONOUR: All the defendants apart from the first defendant seek security for costs from the plaintiff. The 2nd to 106th defendants do so by notice of motion filed on 31 August 2018. The 107th and 108th defendants do so by notice of motion filed on 5 September 2018. The applications are opposed. In my view, the plaintiff should provide security for costs for these defendants and the proceedings should be stayed until that occurs. This is for the following reasons.

Background

1. [2]

   The plaintiff commenced these proceedings by statement of claim filed as long ago as 25 May 2012. The current claim is articulated in the plaintiff’s further amended statement of claim filed on 20 February 2015.

2. [3]

   The 2nd to 106th defendants are solicitors practising together in partnership. In late 2009, the plaintiff retained them to act on its behalf on its tender for purchase of a site at Willoughby known as the Willoughby Market Gardens. The plaintiff alleges in several different respects that the solicitors were negligent and breached their retainer in the course of acting for it with the result that it suffered loss and damage.

3. [4]

   The 107th and 108th defendants are respectively a statutory body and a Minister of the Crown. The plaintiff alleges against these defendants that they were negligent, engaged in misleading and deceptive conduct and committed a breach of contract in respect of an alleged failure to disclose a flood affectation with respect to the sale of the Willoughby Market Gardens to the plaintiff.

4. [5]

   The plaintiff was incorporated on 9 October 2009. Its current directors are Graeme Webb, Glenn Molloy and Robin Levison. The plaintiff has a paid up capital of $2.

5. [6]

   The solicitors for the parties have corresponded extensively with respect to the plaintiff’s financial position in the context of whether or not it has the resources to satisfy an adverse costs order and whether in such circumstances it ought to be required to provide security for such costs. On 31 August 2016, the plaintiff’s solicitor wrote indicating that the plaintiff held “significant assets”. He further advised that the plaintiff held title to six properties with a “combined value … in excess of $14 million.”

6. [7]

   That position changed rather significantly thereafter. By 28 June 2018, it became apparent that the plaintiff no longer owned any property in New South Wales. Property searches reveal that the plaintiff disposed of the last of its properties on 20 October 2017. Currently available public financial records of the plaintiff do not support the proposition that its assets exceed its liabilities.

7. [8]

   The plaintiff’s opposition to these applications is based upon the single overarching proposition that the defendants have improperly and unreasonably delayed in seeking security for costs and that, in accordance with considerable authority, and having regard to the particular circumstances of this case, the relief should be denied on discretionary grounds.

Evidence

1. [9]

   The 2nd to 106th defendants rely upon the affidavits of Lisa Anne Schumacher sworn on 31 August 2018 and 4 December 2018. The 107th and 108th defendants rely upon the affidavit of Holly Morgan affirmed on the same date. Each of these affidavits sets out the basis for their respective calculations of past and anticipated costs in defending these proceedings. The solicitors calculate that they will incur total costs in the sum of $469,200 made up of past recoverable costs of $200,000 and future recoverable professional fees of $269,200. The 107th and 108th defendants calculate that their total costs will be in the order of $1,055,688.60.

2. [10]

   The plaintiff relied upon the affidavits of Nicholas Kallipolitis sworn 26 November 2018 and Suzanne Maree Ward sworn 29 November 2018 in response to this material. This is referred to below in more detail. However, on at least three often critical issues the plaintiff concedes that there is no contest. The first is that the plaintiff does not dispute the defendants’ evidence suggesting that the plaintiff is, or would be, unable to satisfy an adverse costs order in favour of the defendants having regard to its current financial position. The second is that the plaintiff does not contend that any delay associated with the defendants’ respective applications, about the nature, extent and significance of which delay there is a contest, was such as to cause any identified prejudice to the plaintiff or to be such as to frustrate or stultify the plaintiff’s ability to continue to prosecute these proceedings. The third is that the plaintiff does not contend that its current impecuniosity has been caused by the defendants.

Background

1. [11]

   The plaintiff is a limited liability company that was incorporated in 2009 for the sole purpose of developing the land that it purchased. Between 2012 and 2017, the plaintiff built dwellings on the land in various stages and sold these off progressively. The defendants were aware that the plaintiff had assets, in the form of the land and the dwellings on it that were in various stages of completion, and that it was selling the completed dwellings in this way. Following the commencement of these proceedings, the lawyers for the parties began to engage in correspondence about the plaintiff’s financial position, and the prospect of requiring the plaintiff to provide security for costs arose.

2. [12]

   At a stage following service by the plaintiff of some of its evidence in the proceedings, the defendants started to become concerned about the plaintiff’s ability to meet an adverse costs order. On 17 August 2016, the solicitor defendants wrote to the plaintiff in relation to its financial position. Part of that letter is as follows:

3. [13]

   The Crown Solicitor’s Office, acting for the 107th and 108th defendants, also wrote to the plaintiff’s solicitor, by letter dated 31 August 2016 in these terms:

4. [14]

   By letter dated the same day, the solicitor for the plaintiff responded as follows:

5. [15]

   Thereafter, all defendants would appear to have taken steps to consider and monitor the plaintiff’s financial standing. Property searches revealed that the plaintiff owned nine properties at around the date of the last correspondence. Only three properties were still retained by the plaintiff between December 2016 and about 20 October 2017.

6. [16]

   On 29 June 2018, the plaintiff served its reply evidence in these proceedings. That evidence included the affidavit of Simon Napoli. Mr Napoli said that approximately $1million had been set aside for ongoing costs, including litigation costs, that those funds had been exhausted and that there was no other income available to the plaintiff. Further, Mr Napoli said that the plaintiff was unable to repay loans made to it by the PPK Willoughby Funding Trust.

7. [17]

   At all times prior to receiving the plaintiff’s evidence in June 2018, the defendants’ solicitors had apparently been satisfied, as a result of their investigations and inquiries, that the plaintiff had sufficient property to secure any costs that the plaintiff may in due course be required to pay. At no time prior to June 2018 did the plaintiff inform any of the defendants that its financial position, as outlined in its August 2016 letter, had materially changed. At no time prior to June 2018 did the plaintiff inform the defendants that the last property owned by it had been sold, that the plaintiff was no longer able to repay its debts, or that its litigation fund was depleted.

8. [18]

   On 1 August 2018, the Crown Solicitor’s Office wrote to Mr Kallipolitis as appears below:

9. [19]

   That letter prompted the following response on 13 August 2018:

10. [20]

    The hearing of the proceedings is now scheduled to commence on 3 June 2019 with an estimate of three weeks.

Consideration

1. [21]

   The only substantial issue in these applications is the question of the significance or otherwise of defendants’ delay in bringing them. The authorities on delay in general in this area of discourse all speak with one voice.

2. [22]

   In Covecorp Constructions Pty Ltd v Indigo Products Pty Ltd [2007] QSC 262, Martin J summarised some of the relevant considerations concerning the issue of delay in applications for security for costs as follows:

3. [23]

   More recently in Australian Worldwide Pty Ltd v AW Exports Pty Ltd [2018] NSWSC 1632 at [58], Parker J said this:

4. [24]

   Finally, it is sufficient to note what was said by Newnes JA in Christou v Stanton Partners Australasia Pty Ltd [2011] WASCA 176 at [20]:

5. [25]

   It is presently unnecessary to consider other cases to which the parties referred in their written submissions and oral argument.

6. [26]

   The present applications are slightly unusual in my experience. First, as already indicated, there is no issue that the plaintiff has no income or assets of its own or within its control or that it is currently only supported by sympathetically interested third parties on an ad hoc basis as the circumstances require. It is not in issue that the plaintiff would be presently unable to satisfy an adverse costs order from its own resources or without external assistance. This was also the agreed position. Moreover, it was plainly established on the defendants’ evidence. The plaintiff did not proffer any evidence to the contrary.

7. [27]

   Secondly, the plaintiff does not assert that its nominal impecuniosity was caused by the defendants or that it is in any way related to the acts or omissions or other breaches upon which the plaintiff sues. It is accepted that the plaintiff’s claims for damages assert that the plaintiff’s returns from developing the land were reduced by these matters. There is, however, no contention that the plaintiff’s solvency or financial viability were fundamentally destroyed or eradicated or even diminished as a consequence.

8. [28]

   Thirdly, and in a related sense, the plaintiff does not contend that it is prejudiced in any way by the failure of the defendants to prosecute the present applications sooner. The plaintiff does not say that, but for these applications, it would have taken a different course, or would have considered some alternative forensic strategy. It does not say that it altered its position in some fashion in reliance upon the understanding or expectation, fostered or encouraged by the defendants’ inaction or some form of actionable representations, that security would not be pursued, or that it has suffered loss or some other identifiable detriment as a result.

9. [29]

   As I understand the authorities, the fact that a defendant may have delayed the bringing of an application for security for costs will be less relevant, and possibly even irrelevant, unless it can be seen to have generated or produced some consequence of significance. That has not occurred in this case. These applications were flagged in 2016 at a time when the plaintiff was actively trading and presumably possessed of assets and an income stream that it could have pointed to in response to any suggestions that it was worthless. Its current financial position is the result of no more or less than consistent adherence to its favoured business model. The foreshadowed applications neither caused the plaintiff to stop what it was doing nor to alter its course in any way. At best, the plaintiff is only able to say that the defendants’ applications would have been less likely to succeed if brought earlier. That is not the same as saying now that they should be defeated by inconsequential delay since then.

10. [30]

    The parties dealt at some length with the question of whether or not, and if so when, the defendants were, or should have been, aware of the fact that the plaintiff was divesting itself of assets or more significantly of the time that it had done so completely. In my opinion, this is a false issue. That is for the reason that it is tied to the question of delay and the assessment of whether the defendants should have sought security sooner. However, in accordance with my assessment, this issue only assumes importance if the delay caused prejudice or disruption to the plaintiff in the ways I have earlier discussed. As it is my opinion that it did not do so, it is unnecessary to determine the time by which the defendants knew or ought to have discovered what the plaintiff was doing with its properties or the proceeds of their sale.

11. [31]

    The 2nd to 106th defendants invited the plaintiff, by letter dated 16 November 2018, to propose a person of satisfactory financial standing to provide the necessary assurances by way of bank guarantee or payment into court. This suggestion was not taken up by the plaintiff.

12. [32]

    A significant factor informing the exercise of my discretion is the existence of persons who are behind the plaintiff and who stand to benefit from the result in these proceedings, in the sense of sharing in the proceeds of the plaintiff’s victory, without being prepared to expose themselves to the risk of a corresponding burden in the form of an adverse costs order. This conduct is also relevant to the assessment of whether it is fair that the defendants should bear all of the risks as to costs of the proceedings. A proper characterisation and understanding of that imbalance is important to the exercise of my discretion in this case. It cannot be a matter of no consequence that the plaintiff in effect wishes to consume what is sweet but discard what is sour.

13. [33]

    The plaintiff’s submissions emphasised that the principle that underpinned the rule that security for costs applications should be brought promptly and without delay was one of fairness. In my view, it would not be unfair to the plaintiff if it were ordered to provide security, even at what the plaintiff would wish to characterise as this late stage. By way of contrast, it would be decidedly unfair to the defendants to be required to continue to expend resources on the defence of the proceedings without any enforceable prospect, far less anything even approaching a reasonable expectation, that their costs would be paid if they were ultimately to succeed. The current balance of risk is all one way.

14. [34]

    The plaintiff is a corporation. The jurisdiction to exercise the relevant discretion to award security for costs in the present case is to be found in s 1335(1) of the Corporations Act 2001, UCPR 42.21(1)(d) and in the Court’s inherent jurisdiction.

15. [35]

    Under these provisions, the relevant pre-condition or threshold to the exercise of the discretion is the establishment of a reason to believe that a plaintiff will be unable to pay the costs of the defendant if the defendant is successful in its defence. The jurisdictional fact on which an application for security depends is a reasonable belief in the inability of the plaintiff to meet an order for costs (if made) in favour of the defendant. If a defendant is able to establish the necessary jurisdictional fact and thereby satisfy the pre-condition, then the Court must turn to the exercise of the discretion.

16. [36]

    The test is not whether the plaintiff is solvent or insolvent. Rather, the question is whether there is reason to believe the plaintiff will be unable to pay the costs of the defendants. That belief must be rational, but it need only be a belief. The test has been described as undemanding. In the present case, it is clear that there is a reason to believe the plaintiff will be unable to pay the defendants’ costs if so ordered.

17. [37]

    In my opinion, the plaintiff should be required to provide security for the defendants’ costs. The only remaining issue is what the form and quantum of that security should be.

Quantum and form of security

1. [38]

   All parties tendered evidence on the question of the amount of security that the plaintiff should provide if ordered to do so. The plaintiff read the affidavit of Ms Ward referred to earlier. She was not cross-examined. Her extensive credentials were not challenged.

2. [39]

   Ms Ward came to the following conclusions at [41] of her affidavit:

3. [40]

   Ms Morgan assessed the costs of the Crown defendants at [20] of her affidavit as follows:

4. [41]

   Ms Morgan calculated the same defendants’ future costs in the sum of $300,161. The total of the costs for these defendants was therefore anticipated to be an amount of $1,055,688.60.

5. [42]

   The total of the 2nd to 106th defendants’ costs was estimated by Ms Schumacher. At [35] of her first affidavit, she calculated the past recoverable costs of these defendants to be an amount of $200,000 and future recoverable professional fees of $35,200 and counsels’ fees of $234,000. Ms Schumacher therefore expressed the opinion that an appropriate sum by way of security for costs of these defendants would be a total of $469,200.

6. [43]

   It goes without saying that these calculations and assessments are no more than individual attempts to predict what would be reasonable amounts likely to be recovered on a party and party basis following an assessment by a qualified costs assessor. The defendants’ past cost are not subject to uncertainty although the extent of the recoverability of those costs may be. Future costs are subject to a series of vicissitudes that clearly cannot be predicted with confidence. For example, and most obviously, the hearing of the proceedings may run for longer or shorter than predicted.

7. [44]

   Nor should the assessments of recoverable costs be permitted to rise to the level of empirical or scientific analysis. Without in any way wishing to derogate from the skill and expertise of those who have offered their opinions, there is necessarily great variability in the predictions that cannot be avoided by the application of some uniformly accurate formula. Differences will always exist.

8. [45]

   Although the plaintiff contended that security, if ordered, should not include past incurred costs, I see no convincing rationale or principled reason for any such limitation. The defendants are at risk for the whole of their costs whenever they were incurred. I have already indicated that the plaintiff has not suffered any adverse consequences as the result of the timing of these applications.

9. [46]

   Doing the best I can, I consider that the plaintiff should provide security for the costs of the 2nd to 106th defendants in an amount of $400,000 and for the costs of the 107th and 108th defendants in an amount of $850,000.

10. [47]

    I have not heard the parties concerning the form which the security in these sums should take.

11. [48]

    Accordingly, I make the following orders:

    1. (1)

       Order the plaintiff within 28 days to provide security for the costs of the defendants in a form suitable to the defendants and to the Court as follows:

    2. (2)

       Stay the proceedings pending compliance by the plaintiff with order (1).

    3. (3)

       Direct the parties within 7 days to bring in short minutes of order giving effect to my conclusions.

    4. (4)

       Grant liberty to all parties to apply on 24 hours’ notice.