Big Pineapple Corp Pty Ltd v Rankin Investments (Qld) Pty Ltd & Ors (No 2) [2023] QSC 68

SUPREME COURT OF QUEENSLAND CITATION: Big Pineapple Corp Pty Ltd v Rankin Investments (Qld) Pty Ltd and others (No 2) [2023] QSC 68 PARTIES: BIG PINEAPPLE CORP PTY LTD ACN 150 898 909 (Applicant) v RANKIN INVESTMENTS (QLD) PTY LTD ACN 150 860 647 (First respondent) RANKIN SUPER PTY LTD ACN 130 130 791 (Second respondent) CMC PROPERTY PTY LTD ACN 128 857 429 (Third respondent) FILE NO/S: 8180 of 2022 DIVISION: Trial PROCEEDING: Civil – Costs decision ORIGINATING COURT: Supreme Court of Brisbane DELIVERED ON: 5 April 2023 DELIVERED AT: Brisbane HEARING DATES: 27 February 2023 3 March 2023 10 March 2023 17 March 2023 JUDGE: Ryan J ORDER: 1. The second respondent, Rankin Super Pty Ltd, is to pay the applicant’s and the third respondent’s costs of the application to set aside the statutory demand, filed on 12 July 2019, on the indemnity basis. 2. The second respondent, Rankin Super Pty Ltd, is to pay the third respondent’s costs of the interlocutory application, filed on 12 July 2022, on the standard basis. CATCHWORDS: PROCEDURE – CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS – COSTS – INDEMNITY COSTS – RELEVANT CONSIDERATIONS GENERALLY – where -- 1 of 8 -- 2 the applicant was successful in bringing its application to set aside a statutory demand – where costs sought on the indemnity basis – whether an indemnity costs order ought to be made COUNSEL: G Handran KC and O Cook for the Applicant R A Kipps for the Respondent SOLICITORS: Carter Newell Lawyers for the Applicant Enyo Lawyers for the Respondent [1] On 20 February 2023, I delivered judgment in Big Pineapple Corp Pty Ltd v Rankin Investments (Qld) Pty Ltd and others.1 I granted “Big Pineapple Corp’s” application to set aside the statutory demand served on it by the second respondent, “Rankin Super”. [2] In the Overview of my reasons (paragraphs [1] – [10] of the judgment), I summarised some of my factual findings as follows (my emphasis, for the purposes of this costs decision): [7] I find that there is a genuine dispute about whether the debt the subject of the statutory demand was due and payable on 30 June 2022. In other words, I find that there exists a plausible contention, which requires investigation, that the debt was not due and payable on 30 June 2022. Indeed, Mr Rankin himself agreed in cross-examination that, from 29 November 2012, he understood that the Rankin Super loan was not going to be repaid unless the joint venture ended, or he left the joint venture. The existence of the genuine dispute provides a reason for denying effect to the statutory demand as creating a ground for the winding up of BPC. … [9] My finding of a genuine dispute about the debt is enough to warrant an order setting the statutory demand aside and that is the finding upon which my order is based. However, the evidence also supports an inference that the statutory demand process has been used for a purpose beyond its intended purpose: namely, as part of an attempt by the Rankin JV parties to avoid their forced withdrawal from the joint venture by putting pressure on BPC to sell the venture before the Kendall parties exercise their right to compulsorily buy them out. Further, BPC relied upon the 1 [2023] QSC 26. -- 2 of 8 -- 3 contributions of the joint venturers to meet its financial obligations, which would include an obligation to repay a loan. Mr Rankin’s position, that the Rankin JV parties would not contribute funds to BPC to enable it to meet the statutory demand was, in my view, unfair and demonstrative of the complications of the conflict position he was in as a director of both Rankin Super and BPC. [3] I told the parties that I would hear them as to costs, by way of written submissions. [4] Bearing in mind my factual findings, particularly those in bold above, the successful applicant, Big Pineapple Corp, seeks its costs on the indemnity basis. In bringing its application to set aside the demand, it was indemnified by the third respondent, CMC Property Pty Ltd. CMC seeks the costs of the application on the indemnity basis also. [5] Big Pineapple Corp commenced proceedings after being granted leave to do so by Bradley J, on CMC’s application under section 237 of the Corporations Act 2001 (Cth). CMC sought from Rankin Super its costs of the interlocutory application on the indemnity basis. [6] In seeking costs on the indemnity basis, Big Pineapple Corp/CMC relied on my findings that Mr Rankin – the “directing mind” of Rankin Super – in fact understood that the debt the subject of the demand was not due and payable, contrary to statements made in his affidavit in support of the demand. The evidence of Mr Rankin’s understanding was discussed by me at [123] and [124]: [123] Mr Rankin was asked whether he understood, from 29 November 2012 (that is, the date of the email), that “in respect of the recording of loans on the accounts of BPC, there was never actually going to be any money that was paid out in respect of those loans unless the venture ended or the participant left”. He asked for that question to be repeated and it was, as follows – You understood from that time [29 November 2012] forth … there was never to be any payment of money out in respect of those loans. It was going to wash back through ---?-- [124] He said in reply (my emphasis), “Possibly. I guess I don’t – yeah. I mean, it it’s in the email, then, yes, I – you know”. He agreed he did not put forward an alternative proposition; and that was still the position in early 2019. I took his answer to be a “yes” to the question, albeit perhaps a reluctant one. -- 3 of 8 -- 4 [7] Related to that was my finding that the “loan” from Rankin Super to Big Pineapple Corp was not a genuine loan – but rather a mechanism by which Mr Rankin was able to use his superannuation moneys to fund his contribution to the joint venture. [8] In arguing for indemnity costs, Big Pineapple Corp/CMC also relied upon: (a) my conclusion that the evidence supported an inference that the statutory demand process had been used for an improper purpose – namely to exert commercial pressure on Big Pineapple Corp in an effort to avoid the forced removal of the Rankin joint venture parties from the joint venture; and (b) my conclusion that Mr Rankin was in a conflict position, in that he sought the repayment of the Rankin Super “loan” by Big Pineapple Corp but was unwilling to make a funding contribution to Big Pineapple Corp to do so – which was the only way in which Big Pineapple Corp could make such a repayment. [9] As the bases for an order for indemnity costs, Big Pineapple Corp/CMC invited me to find that – (a) Rankin Super’s ongoing maintenance of the statutory demand was unreasonable because it maintained the statutory demand after CMC pointed out why it was defective; and (b) The interlocutory application pursuant to section 237 of the Corporations Act was a necessary step in the disposition of the demand. [10] As to (a), Big Pineapple Corp/CMC relied upon a letter sent by its lawyers dated 8 July 2022. It submitted that “in substance, this letter articulated the bases on which the Court ultimately set aside the demand”. Further Big Pineapple Corp filed the bulk of its evidence by 14 July 2022 (Mr Kendall’s first affidavit.). Thus, by 14 July 2022, Rankin Super “was directed as to why the statutory demand would be set aside”. [11] The letter of 8 July 2022 informed Mr Rankin (and Mr Kendall) that CMC intended to apply for leave to bring an application, on Big Pineapple Corp’s behalf, to set aside statutory demands made by Rankin Super and Rankin Investments (the first respondent). (Rankin Investments did not pursue its demand.) [12] The letter discussed the 2015 loan agreements and the Property Agreement which governed the relationship between the joint venturers. -- 4 of 8 -- 5 [13] The letter inter alia – (a) contended that it was never intended that the 2015 loans would be repaid prior to the termination of the joint venture (or upon the withdrawal of the relevant contributor from the joint venture); (b) disputed that Rankin Super (and Rankin Investments) lent money to Big Pineapple Corp – noting, for example, that the financial records for 2011 did not disclose the loans; and (c) alleged that Mr Rankin had an ulterior purpose in issuing the statutory demands (in combination with other conduct) – including to avoid the forced withdrawal of the Rankin JV parties from the joint venture. I note that the contentions et cetera in (a), (b) and (c) above were consistent with my factual findings. [14] Big Pineapple Corp/CMC submitted that indemnity costs were called for, essentially because it was unreasonable for Rankin Super to make or maintain the validity of the demand in the face of known facts or clearly established law. They contended that the present case was a germane example of a case in which indemnity costs ought to be awarded. They submitted that, in the circumstances of the present case, they, as innocent parties, ought not to be saddled with the costs of eradicating the abuse inherent in the bringing and maintaining of the demand. Although the interlocutory application was dealt with by way of consent orders, the application was necessary to enable Big Pineapple Corp to bring its application, and it was made after Rankin Super was invited to withdraw the demand. [15] In reply, Rankin Super submitted that key aspects of Big Pineapple Corp’s case did not become clear until the hearing – including the abuse of process arguments. (The correspondence of 8 July 2022 shows that that was not so.). Rankin Super relied upon the fact that – as discussed in my judgment – Mr Kendall’s misunderstanding (which seemed to persist even at the hearing) was that the loan the subject of the 2015 loan agreement had been repaid and that was the basis upon which Rankin Super was invited to withdraw the demand (before the hearing). Rankin Super’s point was that the case upon which Big Pineapple Corp succeeded was not one made until after the -- 5 of 8 -- 6 demand was issued. (Again, the correspondence of 8 July 2022 shows that that was not so.). Rankin Super also submitted that I had not conclusively determined that the demand was made for an improper purpose. Rather I observed that the evidence supported the drawing of that inference. [16] In reply to Rankin Super’s contentions, to make the point that the case upon which it succeeded had been made prior to the litigation, Big Pineapple Corp/CMC referred to my findings which were the subject of pre-litigation correspondence, including my finding that the statutory demand process was used to exert commercial pressure on Big Pineapple Corp in an attempt to avoid the forced withdrawal of the Rankin joint venture parties from the Big Pineapple joint venture. They also submitted that there was nothing less conclusive about inferences drawn from facts that direct findings. Further, Mr Rankin did not believe that the loan was payable, yet served the demand anyway; and the application succeeded on facts known before the demand was served. [17] Insofar as the application to set aside the statutory demand is concerned, I order Rankin Super to pay the applicant’s and third respondent’s costs on the indemnity basis. To a significant degree, the pre-litigation correspondence reflected my factual findings. As I explained in my reasons, the “loan” upon which the demand was based was not truly a loan from a party unrelated to the joint venture. Mr Rankin was aware of its origins. At the commencement of the joint venture (before Mr Kendall or CMC were involved in it), without telling the applicant, Mr Rankin used Rankin Super’s funds – that is, his own superannuation monies – to make his capital contribution to the joint venture/Big Pineapple Corp because, I infer, it suited him to do so. Thereafter, his accountant, Mr Catalano, became concerned about Rankin Super’s legislative compliance and successfully insisted that Big Pineapple Corp pay interest on Rankin Super’s contribution (of which Big Pineapple Corp had not been aware, until the accountant raised the issue). Other parties to the joint venture were concerned to ensure that all capital contributions were treated equally. Against that background, loan agreements were signed in 2015 – converting all capital contributions to loans. Mr Rankin relied on one of these “loan” agreements in support of Rankin Super’s statutory demand. But on his own evidence, he did not expect “the loan” to be repaid until the conclusion of the joint venture. Nor did his accountant. In other words, Mr Rankin understood that Rankin Super’s “loan” would be treated as a capital contribution that was not due and payable until he left the joint venture, -- 6 of 8 -- 7 or the joint venture concluded – but he made the statutory demand for its repayment anyway. [18] I acknowledge that Mr Kendall’s misunderstanding about the 2015 loans created some confusion in the early stages of this proceeding. But the evidence revealed that Mr Rankin and his accountant knew exactly why the 2015 loan agreements had been drawn up – even if Mr Kendall didn’t. The discussion at the board meeting on 1 June 2022 between Mr Rankin, Mr Kendall and Mr Rankin’s accountant (see [81] of the reasons) revealed that Mr Rankin knew at least by then that the 2015 loan agreements represented the cash “tipped into” the venture at the beginning by joint venturers – in other words, capital – which was not to be repaid until the contributing party exited the joint venture or the joint venture concluded. At that meeting, as I discussed in my reasons, in front of Mr Rankin, Mr Catalano made it clear to Mr Kendall that the money the subject of the 2015 loan agreements could not be repaid until a relevant contributor left, or “exited” from, the joint venture (my emphasis, for the purposes of this costs judgment). He said: “You gotta remember too, Brad’s [Rankin’s] got his super fund in there, so his contribution was by way of his super fund and his trust, so we have to have loan agreements in place for all that stuff. Alright, so anyway, it was all there … I’m just playing a straight bat here. The loans are in place. Now for the loans to have been extinguished there would have to have been an issue 20 of units, but that never happened. Right. So right now, your tip in, and Brad’s has always been, even Lago’s at the beginning, and Franco before your time, all the equity that went in, right, by everyone, was funded by way of loan. So when Lago exited, he got his loan repaid as part of that process. So mate, there’s precedent prior to this as to how this, the funding at the Big Pineapple works”. [19] Further, my conclusion that the statutory demand process was being used for an improper purpose was not less compelling because it was based on inferences. [20] In all of those circumstances, in the exercise of my discretion, I consider it appropriate for the costs of the application to set the demand aside to be paid on the indemnity basis. [21] With respect to the interlocutory application under section 237 of the Corporations Act, I consider it appropriate to order Rankin Super to pay the costs of that application -- 7 of 8 -- 8 on the standard basis. Rankin Super’s response to that application was reasonable, but the application was necessary. -- 8 of 8 --