Bellaluz Pty Ltd & Ors v Westpac Banking Corp & Ors [2014] QSC 273

SUPREME COURT OF QUEENSLAND CITATION: Bellaluz Pty Ltd & Ors v Westpac Banking Corp & Ors [2014] QSC 273 PARTIES: BELLALUZ PTY LTD (ACN 116 387 403) (first plaintiff) and AIRSTAR HOLIDNGS PTY LTD (ACN 090 114 275) AS TRUSTEE FOR THE BROWN ROBERTSON FAMILY TRUST (second plaintiff) and BRENDA ALYSON BROWN (third plaintiff) and FLINT SAFETY FOOTWEAR PTY LTD (ACN 127 653 365) (fourth plaintiff) v WESTPAC BANKING CORPORATION (ABN 33 007 457 141) (first defendant) and ROBERT WILLIAM HUTSON (second defendant) and JOHN RICHARD PARK (third defendant) FILE NO/S: BS510/11 DIVISION: Trial PROCEEDING: Application DELIVERED ON: 4 November 2014 DELIVERED AT: Brisbane HEARING DATE: 23 October 2014 JUDGE: Alan Wilson J ORDER: 1. That the first plaintiff provide security for costs in the sum of $170,732, on condition that: a) pending the provision of security, both the first plaintiff’s action against the defendants and the first defendant’s counter-claim against the first plaintiff are stayed; and b) if security is not provided within 90 days, the -- 1 of 8 -- 2 first plaintiff’s action against the defendants is dismissed. 2. That the defendants’ costs of this application be paid by the first plaintiff. PROCEDURE – COSTS – SECURITY FOR COSTS – OTHER MATTERS – where the first defendant bank entered into business finance agreements with the first plaintiff company and the third plaintiff, its sole director – where the first and third plaintiffs provided security for the financial accommodation under the agreements in the form of a mortgage over property and a guarantee and indemnity – where the first plaintiff defaulted in repayments – where the second and third defendants were appointed receivers and managers of the property mortgaged to the defendant – where the plaintiffs initially commenced proceedings against the first defendant – where progress of the proceedings has been sporadic and the plaintiffs have added numerous claims and defendants – where the applicant/defendants seek an order that the first plaintiff provide security for the defendants’ costs – where the applicant/defendants also seek an order that the proceedings be stayed until the security is provided, and in the event it is not provided that the first plaintiff’s claim be dismissed – whether a security for costs order of that nature should be made Australian Securities and Investments Commission Act 2011 (Cth) Corporations Act 2001 (Cth), s 180, s 181 Property Law Act 1974 (Qld), s 85 Uniform Civil Procedure Rules 1999 (Qld), r 670, r 671, r 672 Base 1 Projects Pty Ltd v Islamic College of Brisbane Ltd [2012] QCA 114, cited Bryan E Fencott & Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497, cited Contamination Control Laboratories Pty Ltd & Anor v Reyer & Ors [2010] QSC 1, cited Harpur v Ariadne Australia Limited [1984] 2 Qd R 523, cited Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 744, cited Mt Nathan Land Owners Pty Ltd (In Liq) v Morris & Ors [2006] QSC 225, cited Pearson v Naydler (1977) 3 All ER 531, cited Ransard Pty Ltd v MM Holdings (No 2) Pty Ltd [2009] QSC 438, cited Robson v Robson [2008] QCA 36, cited Sydmar Pty Ltd v Statewise Developments Pty Ltd (1987) 73 ALR 289, cited Voxson Ltd v McLaughlins Financial Services Ltd & Anor [2007] QSC 83, cited -- 2 of 8 -- 3 Yandil Holdings Pty Ltd v Insurance Co of North America (1986) 7 NSWLR 571, cited COUNSEL: M Luchich for applicant/defendants DJ Alroe, Solicitor, for respondent/plaintiffs SOLICITORS: Allens Lawyers for applicant/defendants Alroe & O’Sullivans Solicitors for respondent/plaintiffs [1] Alan Wilson J: The trustee of the Brown Robertson Family Trust was the owner of a property at Palmwoods which had been used, since 1981, as a golf course called ‘Oasis Golf & Tennis Palmwoods’. The first plaintiff Bellaluz Pty Ltd is the trustee of that Trust and the third plaintiff, Ms Brown, is the sole director of (and shareholder in) Bellaluz.1 [2] In 2007 Bellaluz, as trustee of the Trust, borrowed $1,000,000 from the first defendant Westpac to construct a dwelling on the property. That was to be a part of a broader plan to use the residence either as a dwelling house or as a club house with a view, then, to selling the property on completion of construction as a commercial business in the nature of the golf course and club house with a potential for further commercial development; or, as a residence with a private golf course (or, as a residence with a golf course business). [3] Westpac approved the loan and Bellaluz executed a Business Finance Agreement on 30 November 2007 which attached a fixed and floating charge over the Trust assets and, also, a mortgage over the property. Ms Brown also provided a guarantee. [4] The amount of the loan was later increased by a further $300,000 in May 2008 and, in October 2008, by the addition of an overdraft facility of $100,000. [5] Westpac alleges that Bellaluz defaulted under the terms of the BFA in around 2010. In March 2011 the second and third defendants, Mr Hudson and Mr Park, were appointed receivers and managers of the property. They subsequently marketed it and it was sold after a public auction for $1,750,000 in April 2012. [6] Before the sale occurred there were, the plaintiffs allege, dealings between Ms Brown’s husband, Mr Gary Robertson and Westpac staff in which the latter made representations which were misleading and deceptive. [7] Westpac alleges there is still money owing by Bellaluz, and Ms Brown under her guarantee, in the sum of almost $400,000. [8] These claims have slowly taken shape in the current proceedings, which were commenced by the plaintiffs in January 2011. Initially they only brought action against Westpac in relation to its provision of financial accommodation to Bellaluz, and Westpac’s entitlement to issue breach notices and to exercise power of sale. The plaintiffs’ case has, however, steadily expanded through three subsequent amended statements of claim which added the receivers and managers as defendants, and, in its most recent form (filed 3 October 2014) involves a claim by 1 At various times the second plaintiff Airstar Holdings Pty Ltd has been the trustee but it has now been deregistered. The fourth plaintiff Flint Safety Footwear Pty Ltd has also been deregistered. Neither the second nor fourth plaintiffs are now taking any part in the proceedings. -- 3 of 8 -- 4 Bellaluz for damages for misleading and deceptive conduct under the Australian Securities and Investments Commission Act 2011 (Cth) in amounts of over $2,000,000; damages for breach of s 85 of the Property Law Act 1974 (Qld) of almost $1,000,000; damages for ‘breach of the duty of good faith’ in exercising power of sale in a similar amount; and, declarations that Westpac’s conduct was in certain respects unconscionable, in breach of the ASIC Act; and, in connection with the alleged default, the validity of notices and the appointment of the second and third defendants. There are also claims under s 180 and s 181 of the Corporations Act 2001 (Cth). [9] The pleading is very long and, with respect, a little confusing, but it appears the third plaintiff, Ms Brown, is claiming similar relief but, against Westpac, she only pursues damages under the ASIC Act and a declaration that her guarantees have been discharged. [10] The defendants seek security for costs, in the specific sum of $170,732. It is not in issue that Bellaluz has a paid up capital of only $100 and owns no real property in Queensland or New South Wales and is, as it conceded at the hearing, impecunious. The proceedings [11] As this summary shows, the action has proceeded at a stately pace and has now been on foot for almost four years. In that time two additional defendants have been added, four statements of claim have been delivered which steadily expand the nature of the relief sought, and the action has, at various times, been dormant: in particular, no steps were taken between July 2011 and April 2012 when a case flow intervention notice issued. Disclosure by the plaintiffs took almost four months, earlier this year. In August 2012 the plaintiffs were ordered to pay costs consequent upon an adjournment of their application to join the second and third defendants. Those costs were not paid until 22 October 2014. Security for costs [12] The Court has a discretion to order that a plaintiff give security for a defendant’s costs.2 The broad discretion to do so can, however, only be exercised in certain circumstances including, relevantly for the purposes of this application, that a plaintiff is a corporation and there is reason to believe that it will be not able to pay the defendant’s costs if ordered to do so;3 and, if the justice of the case requires the making of an order.4 The Court also has an inherent jurisdiction to order security.5 [13] Under UCPR r 671 the defendants carry the evidentiary burden of establishing a prima facie entitlement to an order for security but, once established, the evidentiary onus shifts to the first plaintiff, Bellaluz, to satisfy the Court that, taking all the relevant factors into account, the Court’s discretion ought be exercised by either refusing to order security, or by ordering security in some lesser amount than is sought by the defendants.6 2 UCPR, r 670. 3 UCPR, r 671(a). 4 UCPR, r 671(h). 5 Harpur v Ariadne Australia Limited [1984] 2 Qd R 523, at 526. 6 Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 744 at [60]-[62]. -- 4 of 8 -- 5 [14] Rule 672 contains a list of non-exhaustive discretionary matters to which the Court may have regard if it is satisfied that one of the pre-requisites contained in r 671 exists.7 Here, the discretion is enlivened by the first plaintiff’s frank admission that it would be unable to pay the defendant’s costs.8 [15] Bellaluz resists the application, relying upon three of the discretionary grounds in r 672: that there is a genuine dispute between the parties (r 672(c)); that the first and third plaintiffs have arguable prospects of success (r 672(b)); and, that the first plaintiff’s impecuniosity is attributable to the defendants’ conduct (r 672(e)). The genuineness of the proceedings [16] For the purposes of the application the defendants concede that there is a genuine dispute between the parties. That said, neither the issue nor the outcome are straightforward: the case will involve expert evidence about the value of the property, which was sold for $1,750,000 in circumstances where, the plaintiffs allege, its true value was much higher – around $2,500,000; and, credit findings around conversations between Ms Brown, her husband, Mr Robertson and bank officers and, also, between them and the second and third defendants and their representatives. In short, the action has live issues and involves a genuine contest. Is the first plaintiff’s impecuniosity attributable to the defendants’ conduct? [17] In the absence of assets or resources available to Bellaluz and in circumstances where Ms Brown is its sole director and shareholder, her financial position is also material. Ms Brown was overseas at the time of the hearing and Mr Robertson filed a document signed by her called a ‘Personal Money Plan’ showing her total assets at a value of $13,000, and her income at $750 per week. [18] Ms Brown has not offered any personal undertaking to pay any costs awarded against Bellaluz. [19] At the nub of the plaintiffs’ case is the allegation that the Palmwoods property was sold at a significant undervalue. Mr Robertson has sworn an affidavit supporting that claim by reference to comparative sales, and the fourth statement of claim alleges the defendant’s failed to market the property appropriately. A Mr Foxe has sworn an affidavit on the plaintiffs’ behalf saying he offered $2,200,000 for the property in 2008, and that he would have been prepared to bid up to $2,500,000 at the auction. [20] That said, there is no compelling evidence put forward by Bellaluz as to the adequacy of its financial position before the alleged misconduct of each defendant, or that the alleged representations have materially contributed to the losses the plaintiffs claim for damages for misleading or deceptive, or unconscionable, conduct. [21] As Daubney J observed in Contamination Control Laboratories Pty Ltd & Anor v Reyer & Ors [2010] QSC 1 at [8], it is not enough to show that the wrongful conduct of the defendants, if established at trial, is a contributing factor to a diminution of the value of the company’s assets. Rather, it has to be shown that 7 Robson v Robson [2008] QCA 36 per Muir JA at [32]-[38] and McMeekin J at [61]-[66]. 8 T1-9.3-4. -- 5 of 8 -- 6 there is a real causal connection between the impugned conduct and the first plaintiff’s impecuniosity which, in the exercise of the Court’s discretion, would make it unjust to require security; and, it must be established that the applicant/defendants, seeking security, have been guilty of some form of misconduct or unacceptable business dealings vis-à-vis the plaintiffs. [22] Wilson AJA (as her Honour then was) said something similar in Base 1 Projects Pty Ltd v Islamic College of Brisbane Ltd [2012] QCA 114 at [26]. Her Honour quoted, with approval, the observations of a legal academic that the plaintiff must be able to support the allegation with relatively straightforward and unambiguous evidence of a fairly compelling nature because, otherwise, the hearing of the issue of security would become a trial within a trial. It is a not enough that the defendants’ conduct is merely a contributing factor – it must be the material contributor to, or the cause of, the first plaintiff’s impecuniosity.9 [23] In one of the two affidavits which Mr Robertson filed by leave at the hearing he says that the conduct of the defendants, in selling the property at an undervalue, has placed the first plaintiff in a position where it has no remaining assets and is unable to provide security for the costs of the defendants.10 In his second affidavit he says that he and his wife are the current funders of the proceedings through their salary and wage earnings, and that they will be unable to continue with the proceedings if an order for security is made.11 [24] The risk of an order having an oppressive effect in the sense that it stifles a plaintiff’s ability to take an action to trial is a material one, but it is not to be considered in a vacuum. A large number of potentially relevant factors are listed out in r 672 but they are not exhaustive, and should be read conjunctively. As Mullins J observed in Mt Nathan Land Owners Pty Ltd (In Liq) v Morris & Ors [2006] QSC 225 at [48], ‘what is oppressive must be judged in the broader context of the relationships between the parties to the proceeding’. [25] Here it is material, first, that Ms Brown has not offered any undertakings in respect of costs the first plaintiff might have to pay the defendants. That is explained, of course, if her financial circumstances are in the condition sworn to by her husband. [26] Secondly, there can be no suggestion that the defendants have brought this application for an improper purpose, or that it was not appropriate in light of the current financial state of the first plaintiff. Third, this is not a case in which the plaintiffs are, effectively and in truth, in the position of a defendant (r 672(f)): in commencing these proceedings the plaintiffs did not seek to protect any right Bellaluz had, but to assert rights it claims. The amounts claimed by the first plaintiff also greatly exceed the amount counter-claimed by the first defendant. [27] The risk of hardship for the plaintiffs must be balanced against the defendants’ right to some protection for costs in an action which the plaintiffs have elected to bring – and, one featuring large financial claims and wide-ranging allegations. In all of those circumstances the risk of hardship to the plaintiffs is a relevant factor, but not an overwhelming one. 9 Dal Pont, Law of Costs, (2 ed, 2009, LexisNexis), at [29.96]. 10 Affidavit Gary James Robertson filed 23 October 2014, para [89]. 11 Affidavit Gary James Robertson filed 23 October 2014, para [11]. -- 6 of 8 -- 7 Other factors [28] It is also argued for the plaintiffs that the application has not been brought in a timely way – it should have been brought more promptly. The evidence shows that Westpac first raised the issue of security for costs in 2012 but, subsequently, the second and third defendants were joined and the pleadings were extensively amended. There have also, of course, been substantial changes to the pleadings, requiring responses from the defendants. Disclosure by the plaintiffs did not finish until May this year. In light of those events and the associated delay, the timing of the application is not, in the history of these proceedings, one attracting disapproval for lateness so as to militate against the exercise of the discretion. The first plaintiff does not allege any prejudice, as a consequence of any delay, in its material. [29] Secondly, a counter-claim has been brought but only by the first defendant. That counter-claim is, in comparison with the claims set out in the plaintiffs’ fourth amended statement of claim, relatively straightforward and confined to an amount said to be owing under the BFAs and Ms Brown’s guarantee, in the sum of $394,879.34. Although they arise out of much the same facts and evidence, the legal issues and the evidence in respect of the first plaintiff’s case are much larger, and the evidence will be much greater, than anything required by Westpac to prove its claim in, and the quantum of, the counter-claim. In those circumstances the existence of the counter-claim is not, again, anything acting against the exercise of a discretion in favour of the applicant.12 A factual overlap between Bellaluz’s claim, and Westpac’s counter-claim? [30] While the relief sought by Bellaluz is multi-faceted but Westpac’s counter-claim is (in legal terms) relatively straightforward, there is an obvious overlap, a coincidence, in the facts and events around them and, therefore, the evidence to be canvassed in them. In oral submissions counsel for Westpac signified that, in the event of a finding of that kind, if security is ordered but not provided then there should be a stay of both the first plaintiff’s claim against the first defendant and the first defendant’s counter-claim against the first plaintiff. [31] It has been recognised that one of the factors relevant to the exercise of the discretion is the risk that one party’s action might be effectively stayed but another party’s cross-action, covering substantively the same factual areas, might be able to proceed.13 An order of that kind can go someway towards allaying the concern which naturally arises when small corporations and, in fact, individual citizens of limited means are engaged in litigation with very large, wealthy corporations. Should an order for security for costs be made? [32] In an application of this kind in the circumstances arising here, the Court must attempt to strike a balance between preventing security for costs being used as a means (even, an inadvertent means) of stifling a proceeding and shutting out a plaintiff while not, at the same time, being overly reluctant to make an order for security against an impecunious plaintiff which can (again, even inadvertently) use 12 See Voxson Ltd v McLaughlins Financial Services Ltd & Anor [2007] QSC 83 per Mullins J, at p. 7. 13 Sydmar Pty Ltd v Statewise Developments Pty Ltd (1987) 73 ALR 289, at 300 per Smart J; Ransard Pty Ltd v MM Holdings (No 2) Pty Ltd [2009] QSC 438 per Fryberg J at 1-5. -- 7 of 8 -- 8 its inability to pay costs as a means of putting unfair pressure on a more prosperous defendant.14 [33] This is not a case, like Mt Nathan Land Owners in which findings can be made that the first plaintiff appears to have a relatively strong case and its impecuniosity can be readily seen to be capable of being traced to the defendants’ conduct; or, a matter involving a question of public importance. [34] As French J (as his Honour then was) observed in Bryan E Fencott & Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 at 512-13, the fact that an order for security for costs might stifle proceedings is not, by itself, a ground for refusing an order – although, as observed elsewhere, it does militate against the making of an order.15 [35] This is a case in which the plaintiffs have elected to dispute, primarily, valuation evidence underpinning the sale of property by a mortgagor. The dispute is essentially a commercial one. It has been conducted in a way which has added greatly to the defendants’ costs – e.g., requiring a number of amendments to pleadings, and considerable delay. Concern to avoid the risk that the plaintiffs are driven off, as it were, by an order for security for costs has to be balanced against doing justice, in those circumstances, to the defendants notwithstanding the first defendant’s status as a very large, wealthy financial institution. [36] The balance of the discretionary factors here falls in the applicant/defendants’ favour. They have shown that the discretion under the Rules is attracted, and the plaintiffs have not persuaded me that the Court’s discretion ought be exercised by either refusing to order security, or by ordering security in some lesser amount than is sought by the defendants. [37] Security for costs should provided by the first plaintiff in the amount sought by the defendants, on condition that if it is not provided within 90 days both the first plaintiff’s action against the defendants and the first defendant’s counter-claim against the first plaintiff are stayed. 14 Pearson v Naydler (1977) 3 All ER 531, at 538 per Megarry VC. 15 Yandil Holdings Pty Ltd v Insurance Co of North America (1986) 7 NSWLR 571, at per Rogers J. -- 8 of 8 --