Biloela Lakelands Developments Group Pty Ltd & Anor v Danbulla Developments Pty Ltd & Ors [2007] QSC 62

1 [2007] QSC 062 SUPREME COURT OF QUEENSLAND CIVIL JURISDICTION BYRNE J No 9697 of 2006 BILOELA LAKELANDS DEVELOPMENT GROUP PTY LTD (ABN 85 111 672 827) First Plaintiff and RHT DEVELOPMENTS PTY LTD (ACN 108 580 801) Second Plaintiff and DANBULLA DEVELOPMENTS PTY LTD (ACN 092 014 358) First Defendant and REDDY DEVELOPMENTS PTY LTD (ACN 091 192 979) Second Defendant and TTF DEVELOPMENTS PTY LTD (ACN 117 666 949) Third Defendant BRISBANE ..DATE 17/01/2007 JUDGMENT -- 1 of 8 -- 2 JUDGMENT 1 10 20 30 40 50 60 HIS HONOUR: This is an application for security for costs. The plaintiffs are corporations. One of them, it is effectively conceded, will be unable to pay any substantial proportion of the defendants' costs if the plaintiffs' case is lost. The second plaintiff, whose interests appear to be identical with those of the first plaintiff, however, resists the application on the footing that the prescribed tests in the Uniform Civil Procedure Rules and in the Corporations Law have not been satisfied. The plaintiff whose capacity to meet the defendants' costs, should the defendants succeed is in issue is RHT Developments Proprietary Limited. This corporation has, as its substantial assets, land near Biloela which is being developed by subdivision and construction of houses. The expectation is that, over time, there will be ten houses and one lot of common property on the subdivisional development. The quantum of the security for costs sought to the first day of trial is $100,000. The application has been argued on a common assumption, which seems reasonable in the circumstances, that the costs the plaintiffs are likely to incur in prosecuting their claim to trial will be about $150,000. Additionally, if the plaintiffs' case is lost, it appears to be common ground that the plaintiffs will be liable to pay the defendants another approximately $130,000. On this basis, if the case is taken -- 2 of 8 -- 3 JUDGMENT 1 10 20 30 40 50 60 to trial and lost, the plaintiffs can expect to be out of pocket to the extent of about $400,000. This is a material consideration in deciding whether, at about the time of the first day of trial or judgment, and for present purposes, it does not matter which, the plaintiffs are likely to have the wherewithal to enable them to meet a liability to pay the defendants' costs, if that is the outcome of the litigation. Several considerations are relied upon to support the contention that there is reason to believe that RHT Developments Pty Ltd will be unable to pay the defendants' costs in the event of their success. RHT has a nominal paid up capital of $100. It is said, also, that it did not purchase land about a year or so ago because of an inability to do so. Its only substantial asset, the land at Gregory Court, Biloela, was purchased for 144,000, of which almost $130,000 remains unpaid. This is the $130 to which I have previously referred, and which, in the event that the plaintiffs are not successful, RHT will be liable to pay. Next, it is pointed out that RHT has charged its assets in favour of the Bank of Western Australia, and is already liable for substantial borrowings. It is also suggested that the development at Gregory Court has stalled for financial reasons, and that work on the site has been, at best, sporadic. This particular aspect of the case -- 3 of 8 -- 4 JUDGMENT 1 10 20 30 40 50 60 cannot be regarded as having been established, the allegations relied on to support it in an affidavit of Mr Handley being denied in an affidavit of Mr Thompson, one of the directors of RHT. Also, reliance has been placed upon the state of the accounts and an earlier communication by a director of RHT concerning its intentions. The balance sheet as at 30th June 2006 was brought into existence recently, seemingly in response to the application for security of costs. It discloses total current assets of about $176,000. Total current liabilities are $638,000, or thereabouts. There is, therefore, a very substantial excess of current liabilities over current assets. But in the nature of the asset being developed, this is not a surprising thing. The balance sheet brings the houses to value as non-current assets at the construction costs so far been incurred. It is not shown that this is an inappropriate basis for a balance sheet entry. But caution must necessarily be entertained concerning the entry as a reliable guide to the amounts the assets might fetch. Two of the houses are completed. Five are only partially complete. And it would not necessarily follow that the partially completed houses, if they remained in that state, will fetch the amount of the construction costs incurred in building them. -- 4 of 8 -- 5 JUDGMENT 1 10 20 30 40 50 60 The balance sheet shows a total shareholders equity of $546,000, which exceeds the approximately $400,000 arrived at by aggregating the $100,000 sought by the defendants, the 150,000 estimate for the plaintiffs' costs, and the $130,000 which will be payable by the plaintiffs in the event that their case is lost. The balance sheet, as such, does not establish an adequate basis for supposing that the jurisdictional foundation for an order for security for costs has been established. A director of RHT, Mr Thompson, expresses the view that the company will be in a position to meet any liability and costs in the event that the case is lost. Other affidavits of his have been read. A decision has been made not to cross-examine him with respect to the contents of his affidavits, or more generally in relation to the financial circumstances of the company. I mention this consideration particularly because reliance was placed by Mr Clothier, in support of the application, upon an e-mail sent by one of Mr Thompson's co-directors in July 2005 concerning the proposed method of financing the Gregory Court development. This e-mail, which was sent to Mr Handley, about 18 months ago spoke of an anticipated expenditure on the development of about $2.5 million, only $1.84 million of which was to be acquired from the bank. -- 5 of 8 -- 6 JUDGMENT 1 10 20 30 40 50 60 The e-mail identified as other sources of the funding necessary to make up the difference by reference to sales or transactions at other places. These included Lakelands - the site of a proposed joint venture between the parties, which has not advanced to fruition. I do not attribute significance to this e-mail, given that so much time has passed since it was sent, in view of the fact that Mr Thompson has not been cross-examined with the suggestion that it contains material with any significance for the company's fortunes. The material does not suggest any reason to suppose that the properties on sale will fetch less than 3.6 million. That sum is arrived at by using the price which has been obtained on one contract for sale of one of the ten houses. Assuming that that sales price proves to be a fair average of the amounts which might be received on the others, the development should fetch gross receipts of $3.6 million. The material concerning the borrowings and other expenses associated with the development suggests that the total expenditure to achieve that 3.6 million will be much less. In other words, the development, if it proceeds in accordance with current plans, and, apparently reasonable expectations, ought to yield a significant sum of money - more than enough to justify the view that the company will be in a position to discharge, in addition to its other commitments, any liability -- 6 of 8 -- 7 JUDGMENT 1 10 20 30 40 50 60 to the defendants in the event that the plaintiff's case is lost. In these circumstances there is no adequate foundation for any order for security for costs at the moment; and so it is unnecessary to consider what might have been ordered had there been a satisfactory foundation for a conclusion that the case was a proper one for any security. The application is dismissed. ... HIS HONOUR: I am satisfied, having read Ms Heyworth-Smith's outline concerning the way in which the litigation has so far proceeded, that there is no proper basis for discharging the applicant from the undertakings which were given at a time when orders were made with respect to a caveat removal. It is true that there have been disputes over particulars and that the position adopted by the plaintiffs has not been fully sustained. But, apart from that, there is no reason to suppose that the plaintiffs have not been proceeding with reasonable expedition to prosecute the case. So, that application is also refused. ... -- 7 of 8 -- 17012007 T26/DEP(BNE) M/T 3/2007 (Byrne J) 8 1 10 20 30 40 50 60 HIS HONOUR: There has been a substantial measure of success but you have not succeeded in every respect, so you can have two thirds of your costs of the application for particulars. ... HIS HONOUR: I will vary that. You can have half your costs of that, Mr Clothier. ... HIS HONOUR: You may have your costs of the security for costs application, Ms Heyworth-Smith. Draft order, please, disposing of that application including the order for costs. ... ----- -- 8 of 8 --