Baycorp Capital Ltd v Dex Consulting Pty Ltd

CATCHWORDS : PROCEDURE - costs - security for costs - company with no assets or liabilities - company formed for the purpose of the venture in respect of which Defendants are sued - company not alleged to be worse off as a result of acts of Defendants - allegation that Defendants deprived the Plaintiff of making profits - undertaking by person standing behind the Plaintiff - no stultification if security for costs ordered - security ordered in stages.

Corporations Act 2001 (Cth) LEGISLATION CITED : Trade Practices Act 1974 (Cth) Uniform Civil Procedure Rules

AP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 Brundza v Robbie & Co (No. 2) (1952) 88 CLR 171 Fat-sel Pty Ltd v Brambles Holdings Ltd (1985) ATPR 40-544 Fiduciary Ltd v Morningstar Research Pty Ltd (2004) 208 ALR 564; [2004] NSWSC 664 CASES CITED : Jazabas v Haddad [2007] NSWCA 291; [2008] 65 ACSR 276 M A Productions Pty Ltd v Austarama Television Pty Ltd (1982) 7 ACLR 97 Pinewood Park Pty Ltd (In Liq) v Australia and New Zealand Banking Group Ltd [2007] NSWCA 344; [2008] 65 ACSR 383 Reches Pty Ltd v Tadarin Ltd (1998) 155 ALR 478 Transocean Capital Pty Ltd v AFSIG Pty Ltd (2006) NSWSC 806 Yandil Holdings Pty Ltd v Insurance Co. of North America (1985) 3 ACLC 542

Baycorp Capital Ltd (Plaintiff) PARTIES : Dex Consulting Pty Ltd (First Defendant) Michael James Dutton (Second Defendant)

COUNSEL : T J Morahan (Plaintiff) S B Docker (Defendants)

SOLICITORS : Brydens Law Office (Plaintiff) McCabe Terrill Lawyers (Defendants)

• 1 - IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

2009/297619 BAYCORP CAPITAL LTD V DEX CONSULTING PTY LTD & MICHAEL JAMES DUTTON

JUDGMENT 1 Baycorp Capital Ltd brings proceedings against Dex Consulting Pty Ltd and its Managing Director Michael James Dutton for damages arising out of an agreement made in September 2006. Pursuant to the Agreement Dex Consulting was to provide services to Baycorp in relation to the development of a site to be known as Macquarie Gardens situated at Riverside Port Macquarie. The development was to be a caravan park with associated facilities. 2 The principal allegation is that Dex Consulting warranted that it possessed the necessary expertise and consisted of personnel with the necessary qualifications to provide the services associated with the application to the Local Council for approval of the development. It is alleged that Dex Consulting and its personnel did not have the necessary expertise, and that they breached the Agreement and were negligent in the way they performed the services to obtain approval from the Council. The representation about expertise and skill is alleged to have been false and in breach of s 52 Trade Practices Act 1974. 3 The development application was not approved by the Council and the damages are said to be the costs incurred by Baycorp in the payment of various fees and expenses as well as the loss of the opportunity to make a profit from the development. 4 The Defendants filed a Defence on 22 December 2009 and on the same day they filed a Notice of Motion seeking security for costs. The Notice of Motion asks for the sum of $136,400 to be paid within 14 days. 5 The evidence discloses that prior to the filing of the Notice of Motion the solicitors for the Defendants wrote to Baycorp's solicitors setting out an assessment of the likely costs the Defendants would incur and asking for the provision of company accounts of Baycorp to show that Baycorp would be able to meet any costs orders that might be made in favour of the Defendants. 6 The response to that was a letter from Baycorp's solicitors of 25 November 2009 simply saying: There can be no indication that the Plaintiff is impecunious and therefore we see no requirement to provide the Company details requested in your letter. 7 The evidence adduced by the Defendants on the Notice of Motion showed that Baycorp was an unlisted public company that was registered on 24 April 2006. It had a paid up share capital of $10,947. Various property searches showed that the Company owned no real property anywhere in Australia. 8 Baycorp relied on evidence from one of its Directors, Kenneth Stevenson, who deposed to the fact that Baycorp was specifically incorporated for the purpose of undertaking the development of Port Macquarie and that Baycorp had no assets given that the development application was not approved by Port Macquarie Hastings Council. He also said that Baycorp had no debts and was solvent. 9 Baycorp also relied on an affidavit of Maxwell Carter who appears to be a shareholder in Baycorp and is a Project Manager. He gave some evidence of the retainer of Dex Consulting and the representation alleged to have been made about the expertise of Dex and its personnel. 10 He also said this: I personally funded the said development application plus other ancillary costs in the amount of $197,118 and am prepared to provide an undertaking in these proceedings to pay any costs awarded against the Plaintiffs.

That affidavit was only sworn on 2 March 2010 and filed on 3 March 2010. The Motion was heard by me on 5 March 2010. 11 The Defendants issued a Notice to Produce on Baycorp for the production of financial records. In response to that the solicitors for Baycorp wrote to the Registrar of the Court saying that Baycorp had never traded apart from retaining the services of the Defendants and other persons for the purpose of the proposed development. It did not have any financial statements and it had never opened or operated a bank account. 12 The Defendants seek security for costs under s 1335 Corporations Act 2001 as well as under Rule 42.21 UCPR and the inherent jurisdiction of the Court. 13 The Defendants have discharged the evidentiary onus of satisfying the Court that Baycorp will be unable to meet the Defendants' reasonable costs if the Defendants succeed in the litigation. The evidentiary burden then shifts to Baycorp to satisfy the Court that security should be refused for some reason: see Yandil Holdings Pty Ltd v Insurance Co. of North America (1985) 3 ACLC 542 and Fiduciary Ltd v Morningstar Research Pty Ltd (2004) 208 ALR 564; [2004] NSWSC 664 at [35]-[36]. 14 Baycorp makes the following submissions to resist an order for security: (a) It has a strong case; (b) its impecuniosity is alleged to have been brought about by the Defendants; (c) Mr Carter has given an undertaking to pay any costs ordered against Baycorp; (d) in any event, the amount sought for security is too high. 15 As to (a), Baycorp does not allege that the proceedings will be stultified if security is ordered. Indeed, the offer of the undertaking by Mr Carver puts that matter to rest. Where it is not alleged that the proceedings will be stultified by an order for security for costs the strength of the Plaintiff's case is not a relevant issue: Pinewood Park Pty Ltd (In Liq) v Australia and New Zealand Banking Group Ltd [2007] NSWCA 344; [2008] 65 ACSR 383 at [61]. The only question which must be asked is whether Baycorp's case is bona fide and raises real issues to be tried. Unless obviously hopeless, the prospect of success or failure is of little relevance: Jazabas v Haddad [2007] NSWCA 291; [2008] 65 ACSR 276 at [83]. It is not suggested that the case is not bona fide nor unarguable. 16 As to (b), in relation to the assertion that Baycorp's impecuniosity has been brought about by the Defendants, the position on the evidence appears to be, rather, not that Baycorp's position has been made worse by any alleged acts of the Defendants but has not been improved. The monies paid out in relation to the development application were not paid by Baycorp but by Mr Carter. Baycorp's real claim appears to be for the loss of profits that would have been generated by the development proceeding. The Defendants have not caused the Plaintiff's impecuniosity - see Fat-sel Pty Ltd v Brambles Holdings Ltd (1985) ATPR 40-544 at 46, 428. 17 As to (c), the offer of the undertaking from Mr Carter, so far from leading to the view that security should not be ordered, produces the opposite result, namely that an order for security is more likely to be made: Reches Pty Ltd v Tadarin Ltd (1998) 155 ALR 478 at 486-7; AP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 at 204. 18 In my opinion, given the position of Baycorp is that it has no assets, albeit it has no liabilities, and is not trading, that is sufficient reason to order security in the present matter. A further additional reason to do so is because of the offer of the undertaking by one but not all of those who stand behind the Company to pay the costs. 19 Mr Morahan of counsel who appeared for Baycorp did not strongly oppose the order for security but recognised in the circumstances that it may well be an appropriate case that security ought to be ordered. In my view, on the evidence, this was an entirely appropriate position to adopt. 20 The remaining question for consideration is the amount of the security and whether it should be ordered in stages. 21 As the authorities frequently say an application for security for costs should be made promptly by a defendant. The one negative aspect of that is that the estimate of the future costs of defending the claim will necessarily be somewhat speculative. 22 In his affidavit Mr Samios, the solicitor for the Defendants, has set out the main tasks that he believes will be necessary to prepare the matter for hearing. He has costed each of these tasks at rates which he has set out. Mr Samios gives some brief evidence about his experience since his admission to practise as a solicitor in February 1995. On the basis of that evidence I have no doubt that he is in a position to be able to provide the evidence that he does about the costs of preparation of the case. Nevertheless, it would have been useful to me to have had an estimate from Baycorp's side. 23 Mr Samios estimates the Defendants' future party/party costs to be $136,400 inclusive of GST. Mr Docker of counsel for the Defendants accepts that a party is not entitled to indemnity in a security order: Brundza v Robbie & Co (No. 2) (1952) 88 CLR 171 at 175. He submits that $100,000 would be a reasonable estimate and accepts, in response to a suggestion of mine during the hearing, that the security should be staged. 24 I am not bound to accept the Defendants' estimate notwithstanding it is the only evidence: M A Productions Pty Ltd v Austarama Television Pty Ltd (1982) 7 ACLR 97 at 100. Because, as I have said, the future costs estimate involves a great deal of speculation at this early stage, I consider that the amount of security that should be ordered should be $75,000 to be provided in 3 stages as follows: (a) $25,000 to be provided by 25 March 2010; (b) a further $25,000 to be provided by 23 September 2010;

(c) a further $25,000 to be provided by 25 February 2011. 25 The basis for that staging is that the tasks identified in paragraph 20(a)(i)-(v) of Mr Samios's affidavit will likely take place over the next 4-5 months, the matters in sub-paras (vi)-(viii) will likely take place subsequently but before the end of the year, and the parties will perhaps be in a position to take a hearing date in the first half of 2011. 26 The Defendants submitted that the dates proposed for the staging should be telescoped so that the 2nd amount should be paid by July 2010 and the 3rd amount by no later than November 2010. It was submitted that the matter is likely to progress with some expedition so that a hearing date might be obtained before the end of the year. In the light of the steps set out in Mr Samios's affidavit and based on what I understand the normal course is for preparation and the obtaining of a hearing date in a matter such as the present, I consider that the staging that I have proposed is the appropriate one. If it becomes apparent that matters are moving faster than expected it will be open to the Defendants to make further application to me to vary the staging. In that regard I intend to grant liberty to apply. 27 In terms of the amount of the security ordered, it is always open to the Defendants to make further application if the present amount of security ordered proves for some reason to be inadequate: Transocean Capital Pty Ltd v AFSIG Pty Ltd (2006) NSWSC 806 at [42]. 28 The Plaintiff asks that no order for costs be made in respect of the Notice of Motion. In support Mr Morahan reads an affidavit of Rita Furfaro, a solicitor in the employ of the Plaintiff's solicitor. She refers to a discussion between counsel for the 2 parties after the mention of the Notice of Motion before the Registrar on 15 February 2010. Mr Morahan on behalf of the Plaintiff made an offer to pay $50,000 for security for costs with an offer for the Defendants to come back in 6 months if that was not enough. The Plaintiff rejected that offer saying that they wanted the full amount of security that they had sought. 29 The discussions concerning the offer of $50,000 are not disputed by the Defendants except it is suggested that no offer was made to return in 6 months if the amount of $50,000 proved inadequate. 30 I do think I need to resolve the factual dispute about the offer to return in 6 months. By the time the offer was made by the Plaintiff the Notice of Motion had been filed and mentioned before the Registrar. The amount offered was less than the amount that I have determined should be paid. In those circumstances costs should follow the event in the ordinary course and the Plaintiff should be ordered to pay the costs of the Notice of Motion. 31 I make the following orders:

(1) The Plaintiff is to provide security for costs in the sum of $75,000 by payment into Court on the following basis: (a) $25,000 by 25 March 2010; (b) $25,000 by 23 September 2010;

(2) In respect of each date mentioned in Order (1), if the full amount is not paid by that date the proceedings are stayed until payment is made.

(3) The Plaintiff is to pay the Defendants' costs of the Notice of Motion.

(4) Liberty to apply to my Associate to vary the dates for payment on 3 days' notice.

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