Bateman Long and Maloney Pty Ltd v Long Beach Land Company Pty Ltd

Judgment 1The third defendant Mr May, the applicant, moves by notice of motion filed on 4 October 2011 for an order that the respondent Bill Gertos pay the balance owing of the costs and interest payable to the applicant by the second respondent to the notice of motion, the plaintiff in the proceedings. This application is grounded on s 98 of the Civil Procedure Act 2005 which in its terms is not limited to orders for costs against parties to the litigation. Mr Gertos was not a party to the principal litigation. 2The further amended statement of claim shows what was involved in the principal litigation. The plaintiff, a company formed on 7 December 2007, sued for remedies relating to a Put and Call Option Deed dated 12 December 2007 which related to proposed acquisition of a large tract of land on the basis that it was suitable for subdivision. The plaintiff's position was that it had effectively rescinded the Put and Call Option Deed, while the first defendant's position was that it had effectively exercised the option and become the vendor in the contract of sale for which the Deed provided. The plaintiff's claims were put on a number of grounds, and the principal ground related to misleading conduct in trade or commerce in breach of the Trade Practices Act 1974 (Cth) and the Fair Trading Act 1987 (NSW) . 3The many remedies claimed included an order for repayment of a cash deposit of $120,000 and delivery back of a bank guarantee for $120,000 which had been given to the first defendant when the Put and Call Option Deed was entered into. There was also a further $100 fee. The allegations in the statement of claim (and I abbreviate them severely) are to this effect: That the first defendant (LBL) owned the land. The second defendant Mr Bassett was a director and principal of LBL and the third defendant Mr May, now the applicant, was a planning consultant, and the agent of LBL in dealings with the plaintiff; that the property was offered for sale before October 2007 and the real estate agent Colliers was retained. Then it is alleged that LBL caused various information to be collected relevant to the property and to its proposed sale. There were many categories of information and these included a Biodiversity Assessment according to which subdivision of the land had the potential to have a significant adverse impact on the life cycle of an animal in a rare species; the Brush-tailed Phascogales, and that further field investigation should be undertaken to determine the impact of subdivision on a number of species of fauna. 4Continuing my severe summary, the plaintiffs' claim turns on an allegation that the Biodiversity Assessment and information in it which had some tendencies adverse to a re-subdivision proposal were not disclosed to the plaintiff. The statement of claim alleges various actions by Mr Gertos which preceded the formation of the plaintiff company from October 2007 onwards. It alleges a First Representation made by LBL to Mr Gertos about late October, a Second Representation made by the first and second defendants to Mr Gertos also late in October, the Third Representation made about 28 October 2007 by LBL and Mr May to Mr Gertos, the Fourth Representation made by the same persons (and said to be made to the plaintiff, which is impossible because it did not exist in October or November 2007), in the course of which a document referred to as the Preliminary Assessment was delivered by Mr May to Mr Stavis on behalf of the plaintiff. Then the Sixth Representation is alleged to have been made between 28 October 2007 and 12 December 2007 in that the first three defendants impliedly by silence represented to the plaintiff that none of them was in possession of information which would adversely affect the lot yield. 5It is alleged that the first three defendants owed the plaintiff a duty of care in making the representations and that the plaintiff entered into the Put and Call Option Deed on 12 December 2007 as a result of alleged representations that were false, misleading, negligent and made without a reasonable basis. Then it is alleged that rather more than a year later, on 22 December 2008, the plaintiff rescinded the Put and Call Option Deed, that the first defendant purportedly exercised the option on 20 January 2009, without effect as the plaintiff alleges, and went on to purportedly forfeit the deposit. It will be seen that on exchange the plaintiff had available resources totalling $240,100; huge in the context of its affairs. 6The plaintiff company was formed on 7 December 2007 after the main events, almost all the events of misrepresentation and negotiations alleged in the statement of claim except for the last misrepresentation consisting (as alleged) of silence. Mr Gertos was principally, almost exclusively involved on the purchaser side of the negotiations, but at the point of contract he introduced a newly formed company formed five days earlier, and did not himself engage contractually with anybody. On the very day it was formed, 7 December 2007, the plaintiff company made a minuted decision to become trustee of the Bateman Long and Maloney Unit Trust, and accepted appointment as such, and the deed constituting the trust was executed that day by a settlor and by the plaintiff company as trustee. In the schedule to the deed it was stated that the unit holder is G Group Pty Ltd as trustee for the Bateman Long and Maloney Family Trust. The name of the unit trust is similar: The Bateman Long and Maloney Unit Trust. 7Mr Gertos' solicitor has given evidence that Mr Bill Gertos does not have a personal interest in the Bateman Long and Maloney Unit Trust. As counsel for Mr Gertos explained, this does not carry the implication that Mr Gertos may not have some potential interest in the Family Trust. Under the Deed the plaintiff company was entitled to remuneration but otherwise its involvement was limited to incurring the many responsibilities of a trustee. There was no evidence that the trust has any assets or has ever had any business. There is no evidence that the Put and Call Option was a trust asset or that entering into it was in any way part of trust business. Nor is there evidence that the litigation was conducted in the interests of the trust in any sense. 8It should not be found and I do not find or assume that the litigation was conducted in the interests of a trust or that any trust asset was involved. There is simply no evidence which suggests that that may be so, but if it was so that fact would have little significance for the present application. The only known business of the plaintiff company has been its acceptance of the role of trustee under this deed, and it is not shown to have ever done anything as trustee, its entering into the Put and Call Option and rescinding it, and the present litigation. When the company was formed on 7 December 2007 its only officer, both director and secretary, and its only shareholder was Mr Mario Pamboris who appears to have taken those positions on formation. Control of the company so far as holding office and share-holdings are concerned passed to Mr Bill Gertos on 26 February 2008 when he became sole director, sole secretary and sole share-holder, capital being 100 ordinary shares of one dollar each; a fully paid capital of 100 dollars. 9There was no trace of the company having any other resources in public registers which have been searched and there is no reason to think that it has any other resources. 10On 22 July 2010, as far as registered particulars show, Mr Gertos ceased to be director, secretary and shareholder and these positions passed to Mr Peter Savell of whom the evidence does not otherwise speak. There is no information about the circumstance of this transaction. It was not publicly notified for well over a year until 4 August 2011 when a Form 484 with notice of various changes was lodged with ASIC. That is to say, for over 12 months the change was not known to the public, including that it was not available on search to Mr May or those advising him. 11The present litigation was commenced in March 2009. The third defendant, Mr May, filed a defence in April 2009 in which he asserted that the proceedings involved an apportionable claim and that Mr Stavis was a concurrent wrongdoer. 12According to the statement of claim as later amended, Mr Stavis' position was that he was a Consultant Planner trading as SDP Planners and was engaged by Mr Gertos about 26 October 2007 and, according to the allegations, he was so engaged on behalf of the plaintiff, a company yet to be formed, to provide town planning advice relating to development of the property. 13Preparation for hearing proceeded and on 1 October 2009 an appointment was made for hearing the proceedings commencing on 10 February 2010. At a directions hearing on 10 December 2009 the plaintiff made known to the Court that it intended to seek leave to amend its claim to join Mr Stavis as an additional defendant, as a result, it was said, of the service of Mr May's expert evidence. I interpose that the plaintiff had known something of the third defendant's position since the defence was filed in April. The Court ordered that a notice of motion seeking leave to amend be filed by 11 December 2009. 14On 21 December 2009, after argument about what was said to be the plaintiff's failure to progress the litigation because Mr Stavis had not been duly served, the Court vacated the hearing appointed for 10 February and made further orders requiring service of documents on Mr Stavis; and appointing a further directions hearing for 10 February 2010. 15On 10 February Mr Stavis did not appear. He had not been given appropriate information and another appointment for hearing was made for 17 May 2010. On 10 February the plaintiff and its solicitor were ordered to pay the third defendant's costs of that day on the indemnity basis and to pay them forthwith. 16Mr Stavis applied on 7 May 2010 to have the appointment for hearing vacated, claiming that the plaintiff had failed to provide documents and he was unable to prepare for the hearing. He succeeded and the appointment was vacated. On 4 June 2010 another appointment for hearing was made for 19 July 2010. 17In the course of these interlocutory hearings several costs orders were made in favour of the third defendant against the plaintiff in addition to the costs order of 10 February 2010 which imposed a personal liability on the plaintiff's solicitor. At some stages during the interlocutory process there were successful applications by each defendant for the plaintiff to furnish security for costs. 18The case came on for hearing on 19 July 2010 and the hearing continued on the following day, when in the course of the hearing it was settled and disposed of by an elaborate order which incorporates several sets of terms of settlement between the plaintiff and defendants. So far as concerns the third defendant, Mr May, the plaintiff was given leave to discontinue on terms that he pay the costs of the third defendant as agreed or assessed and other terms limiting further claims. The security for costs deposit which the plaintiff had provided was made payable out to the third defendant forthwith, a prediction that failed, as it took more than a year to obtain it. 19The terms of the order are extremely elaborate. They include that other defendants agreed to accept the amounts paid in as security for costs as their entitlements to costs: $75,000 in the case of the first and second defendants, and $45,000 in the case of the introduced fourth defendant Mr Stavis. Within two days of the terms of settlement the change of control of the plaintiff company to Mr Savell took place. No evidence explains this transaction. 20Mr May and his solicitor proceeded to assessment of costs under the various costs orders which he had obtained. In a lengthy process the total amounts of those assessments were established, the money in Court as security for costs was paid out and judgment was signed on 1 August 2011 for the balance unpaid of $53,572.23. Demands have been made for the plaintiff to pay this amount. It has not responded in any real sense. It has not met this clear and unarguable obligation and I infer that it is quite unable to do so. 21In the course of the security for costs proceedings Mr Gertos made affidavits which show the nature of the relationship between him and the plaintiff. Of course the relationship is brightly illuminated by the knowledge that he was the sole member and sole officer. In his affidavit of 17 December 2009 he explained the time being taken to furnish security for costs by saying, "I am awaiting a drawdown on finance application that I had made to obtain the funds for the security of costs payment ...Once I have been able to obtain these funds I will be advancing funds to the Plaintiff company. Included in that advance will be funds to ensure payment or securing of the security for costs as ordered herein" and he went on to say that he expected compliance by 23 January 2010. 22In a later affidavit of 21 December 2009 he explained his dealings with National Australia Bank to obtain the necessary funds and said, "The NAB has agreed to advance [funds] to me either directly in my name or through associated companies in which I am shareholder and/or director. After the orders were made ordering me to pay security for costs, I indicated this to [a bank officer] that I required the bank guarantees as a matter of urgency". 23Mr Gertos then went on to discuss the bank officer's response to the effect that he required to know that the plaintiff company would have sufficient credit funds to secure the guarantees, and Mr Gertos went on to say, "I instructed [the bank officer] to draw down funds from my other companies of my personal account to ensure that the plaintiff company had credit funds to secure the said bank guarantees." 24He went on to deal further with these arrangements saying, "Once the funds are drawn down I will be able to transfer those funds into the account of the Plaintiff company and then the bank guarantees for the security of costs of figures will have to be drawn" and made a forecast about when that would happen. 25In a later affidavit, on 3 May 2010 Mr Gertos gave an account of his dealings with companies, particularly a company called Skin Projects Pty Limited, from which it is fair to say that he depicts himself as being entirely the controlling mind of companies conducting a number of businesses referred to by him as, in his words, "... a number of other corporate entities which I had caused to be incorporated as specific purpose vehicles for specific development sites". 26He also said, "The plaintiff did not operate a bank account (and therefore did not have a cheque book nor any income or assets). In order to facilitate payment of the ongoing costs of the plaintiff (including experts fees and management fees) I caused to be advanced from time to time to the Plaintiff monies from another company of mine G Management Pty Limited. I am the sole shareholder and director of G Management Pty Limited". 27With the minor anomaly of the earlier prediction that the funds would be transferred into the plaintiff's bank account and the later statement that it did not have a bank account, this paints a fairly clear picture of the plaintiff as an emanation of Mr Gertos' business personality. He was the leading figure and, for practical purposes, the only figure in the plaintiff's affairs. He did not produce any records of dealings and credits between himself and that company, such as accounts or contracts of loan or any similar documents, although called on by a subpoena to do so, and he gives no evidence in the present application. 28I find that the company has had no resources for the conduct of this litigation or for anything else it might ever have done except what Mr Gertos has decided to provide for it on his own credit. It has whatever resources he regards it as appropriate for him to furnish to it. It has no other resources and has no prospects of having any other resources. 29In answer to the applicant's claim counsel for Mr Gertos raised a number of matters. He referred to section 98 of the Civil Procedure Act upon which the application is based and also to the repealed Uniform Civil Procedure Rule 42.3(2) and contended that these, acting with section 30(1) (c) of the Interpretation Act , conferred on Mr Gertos a privilege which is preserved notwithstanding the repeal of UCPR 42.3, which ceased to have effect on 7 May 2010. I do not uphold this contention. 30UCPR 42.3 when it was in effect qualified a power conferred on the Court by section 98. Section 98 does not impose any obligation or liability out of which or from which UCPR 42.3(2) can be seen as a privilege. All the relevant legislation, both in the Act and in the rules, is procedural in character. It relates to the powers of the Court. The rule qualifies the statutory power, or did so while it was in effect. The amendment did no more than end the qualification while it was in effect. The rule did not confer any privilege and the amendment took none away. The privilege could not be defined, and a time for its accrual and the manner of its accrual could not be stated. In this instance, as is usual, litigants are exposed to the current law of procedure, and it must be clearly known that it may be altered from time to time. The time when the power comes for exercise is now and not on 20 July 2010. 31It was suggested that the opportunity to get security for costs had been sufficient protection for the applicant in respect of the matter for which it now seeks protection. Experience has shown plainly that it has not been. It is not the objective of the Court in ordering security for costs to provide complete protection. 32It was contended that no notice was given before the hearing that there might be an application to impose a costs liability on Mr Gertos. I cannot see any sound reason why there should have been, but it was made clear enough when the Court was considering what orders were to be made by consent on 20 July 2010 that there was to be such an application. This bore adversely on the wisdom of Mr Gertos giving up control of the plaintiff company two days later. The applicant had no opportunity to deal with the question of seeking an order of costs against Mr Gertos before that warning was given on 20 July 2010. 33It was contended, as I understood counsel, to the effect that UCPR 42.3 in some way authorised a sense of immunity from a possible application of this kind. I see no substance in this. 34It was said that the claims in this litigation have not been shown to be unmeritorious. There has been no positive showing that they were not meritorious. All that I know is that on the second day of the hearing all claims by the plaintiff were settled on terms which amount to abandonment and capitulation. In the circumstances of the present application the fact that the claim has not been shown to be unmeritorious has little importance. 35It was contended that proceedings against the company for enforcement have not been exhausted. In view of what is known and what I have found about the company's resources and the source of them, I regard enforcement measures as having been exhausted for any practical purpose. 36It was also said that the costs assessments took place in the absence of Mr Gertos who did not take part in them and was not given notice that they might potentially affect him. The force of this observation, such force as it has, is entirely blunted by a number of circumstances. One is that he gave up control two days after hearing in Court that there was to be an application against him personally. Another is that he gave no notice of this change for over 12 months during which the cost assessments proceeded. If he had been vigilant and had taken notice of what he had been warned of on 20 July he could well have found out what was happening about costs assessments and intervened if he thought necessary. The third defendant and his solicitor were not to know of this change. No ground has been put forward for supposing or investigating whether the assessments might have been wrong or excessive, or for thinking that any substantial opportunities have been lost by his not taking part in them. In response to an enquiry by me, no offer was made as to terms such as payment of what is prima facie due with a right to refund after reassessment. 37In view of these matters I do not regard Mr Gertos' absence from the process of costs assessment as significant. There is no reason to think that the costs assessments did not take place in a regular manner. 38The considerations to which I have regard in deciding the present application are, in my understanding, established by the judgment of Basten JA speaking in this respect for the Court of Appeal in FPM Constructions v Council of the City of Blue Mountains [2005] NSWCA 340 at paragraph [210] and following. Justice Basten's observations were greatly and appropriately influenced by observations in judgments in the High Court in Knight v FP Special Assets Limited (1992) 174 CLR 178. That case related to rules of Court of the Supreme Court of Queensland, whereas the legislation, District Court Act 1973 , addressed in FPM Constructions was very closely similar to section 98 of the Civil Procedure Act; so that I regard FPM as an authority on the legislation under which I am acting. 39Basten JA made a review of observations in the High Court and went on to state the law in a passage commencing at paragraph [210]. This opinion had the support of all three members of the Court of Appeal and I look to it to find the law rather than to the somewhat diverse expressions of view in the High Court. 40I do mention in passing, however, in view of some reliance which was placed on it, that the view of McHugh J in dissent at page 207 of Knight's case relating to a matter of policy relates to policy for making orders against receivers and has no bearing on the making of an order against a director of a company, which McHugh J had mentioned in the previous sentence without making the same qualification. 41I particularly note in FPM paragraph [210] and the following observations and paragraph [214] which points out that the criteria in paragraph [210] are not separate and independent factors. Each requires an evaluative assessment and these will tend to interact. Underlying all considerations, the power is to be exercised only in an exceptional cases. 42In the present case, the plaintiff was the unsuccessful party and was of course the moving party. The source of funds for the litigation was Mr Gertos and nobody else. The conduct of the litigation in my view was unseemly or improper in respect of the many shortcomings in interlocutory preparation, extensive delays in getting the claim into order, the failures of the first two appointments for hearing which should be laid clearly at the feet of the plaintiff and of Mr Gertos who was in charge of the plaintiff's affairs, and the continuing repeated and callous imposition on the applicant of wasted costs flowing from extending the process. It is plain enough looking at Basten JA's paragraph [210] (d) that Mr Gertos has an interest, necessarily a financial interest as a sole proprietor of shares in the plaintiff company, and that otherwise the plaintiffs' interests were all to be identified with him. 43The plaintiff company, while it has not been proved to be insolvent and has been capable of pulling surprising amounts of money out of the air when it wished to, must be regarded as a person of straw. It has no resources. It did not meet a judgment for $53,572.23 when it should. It cannot even reply to demands and give a clear answer. With respect to the interests of Mr Gertos it is I think significant that he conducted all the negotiations himself as if he were the principal, introduced the company into the business soon after it was formed and at the end of the negotiations, and then stood aside from enumeration as a plaintiff himself although he was complaining through his company that many and important misrepresentations had been made to himself. He chose not to frame the claim as a claim that he had suffered through misleading or deceptive conduct. He is the only one involved. The company has no other resources. It has lost $240,100 and a further $120,000 costs paid to other defendants. 44It was suggested that the other defendants' agreement to take the security deposits as the whole of their costs in some way assists Mr Gertos' case. There is no substance in this. 45I regard this as an altogether exceptional case. There were irresponsible elements in the interlocutory process which increased the applicant's burden. It was grossly irresponsible to impose a risk of harm and costs on other litigants while avoiding any risk to himself as Mr Gertos did. He carried on large litigation with risk to others without making any resources available, without any resources at all apart from what he put in at his own options, and he capitulated on the second day. 46This was a grossly irresponsible use of limited liability legislation, in circumstances where the public policy advantages of allowing capital to be marshalled for commercial purposes into a joint stock company were not served in the slightest way. Mr Gertos has been able to bring to bear plenty of resources to pursue his own ends but none to meet the plaintiff's responsibilities. The company is no more than a persona or mask for Mr Gertos to enable him to embark on and carry out litigation without responsibility. Indeed, on this stage he has worn two masks: a trader's mask with capital, to be removed and replaced with a pauper mask as he chooses. 47Overall his conduct has been grossly irresponsible; an abuse of limited liability. It would be a marked injustice if he did not pay the costs. He has created and thrown around risks that he did not bear himself. He could have borne them but he chose not to. He can raise money for his own purposes. Without the order sought by the applicant the outcome would be grossly unequal.