Bufalo Corporation Pty Ltd (Rec & man app'td) (in liq) v Lendlease Primelife Limited & Ors

2 The plea was advanced in response to loss and damage allegations made by the plaintiff in paragraph 22 and following of its amended statement of claim. The plaintiff's claim for loss and damage followed allegations in relation to the appointment by Primelife of Gideon Rathner as receiver and manager of the plaintiff's assets pursuant to a debenture dated 21 December 1998. The debenture is one of the documents challenged by the plaintiff as invalid and unenforceable.

3 The plaintiff's claim for loss and damage, in that part of the case, was predicated on Rathner's conduct as the cause of its financial demise. In paragraph 22.1, the plaintiff alleged that immediately prior to the appointment of Rathner it had net assets of $4,230,565 and was a going concern. It alleged that Rathner destroyed its business and that it has wholly lost its status as a going concern, including the opportunity to earn profits in the future.

4 Apart from a denial, Primelife and Sent make the following allegation:

22.3A Further they say that if (which is denied) BC suffered any loss and damage as alleged:

(a) any such alleged loss and damage suffered by BC is (as the product of a chose in action) an asset within the meaning of Charged Property in and subject to the Debenture and thereby accrues to Primelife's benefit:

(b) alternatively, such loss and damage was caused by:

(i) the bankruptcy of its officers, Tony Bufalo, John Bufalo and Joe Bufalo;

(ii) further or alternatively, the campaign conducted by BC and/or its former officers including Tony Bufalo, John Bufalo and Joe Bufalo in conjunction with Xlatco Andrejic and/or Lilliana Curcovic prior to and during the period of the receivership and management of BC by Rathner to diminish the value of Primelife's shares,

And such conduct constituted a novus actus interveniens with the consequence that neither Primelife or Sent is liable for such alleged loss and damage caused thereby;

(c) alternatively, the conduct referred to in paragraph (b) contributed to such alleged loss and damage;

The general thrust of the allegation made by Primelife and Sent is to the effect that the plaintiff was the cause of its own loss by having conducted a campaign in cooperation with numerous individuals to depress the value of Primelife's shares.

5 The significance of the shares in Primelife to the issues in the case is that the plaintiff maintained that it held a parcel of the shares which, in February 2000, had a value of approximately $2.3 million. At that time its indebtedness to Primelife was a little over $1.4 million. The plaintiff alleged that Rathner should have sold enough shares to discharge the plaintiff's indebtedness to Primelife. The plaintiff further alleged that in September 2000, Primelife instructed Rathner not to sell the shares. Rathner did not sell the shares at that time.

6 The defence of Primelife and Sent to the plaintiff's allegations concerning Rathner's refusal or failure to dispose of the shares is uninformative. Primelife and Sent contend that the amount secured under the debenture was not limited to the monies owing under the loan agreement dated 21 December 1998, and included the amount of Primelife's claim against the plaintiff, arising out of their business dealings, which at one point was estimated to be in the order of $20 million.

7 In paragraphs 20.12 and 20.13 of its statement of claim, the plaintiff particularised the allegation, that Primelife instructed Rathner not to realise the shares, by reference to correspondence. In their defence to the allegations, Primelife and Sent refer to a letter from their solicitors, Russell Kennedy, "concerning Rathner's sale of BC's shares in Primelife" but otherwise deny the allegations. It is against that background that the allegation of the "campaign" assumes its colour.

8 There can be no doubt that the defendants can raise and prove facts which they contend demonstrate that the claimed loss and damage was not caused by them. In my opinion, however, paragraph 22.3A, when read together with Annexure A, is embarrassing and vexatious. The allegations are not supported by the particulars in Annexure A. Furthermore, if the allegation was allowed to go forward it is very likely to take over as a substantive issue in the trial, leading to a very significant enlargement of the factual disputes and a longer trial. Comparisons would be drawn between the effect of individual conduct and market forces. The court would be called upon to determine such imponderables as the extent to which a decline in the share price, if there was a decline, could be attributed to the particular conduct specified in Annexure A. In my opinion, paragraph 22.3A(b)(ii) and (c) should be struck out.

9 Primelife and Sent have applied to amend their defence and counterclaim by introducing a new paragraph 22.3AB in the following terms:

22.3AB Further or alternatively, Primelife and Sent refer to the conduct referred to in paragraph 22.3A(b)(ii) hereof and, insofar as the conduct involved BC and/or Tony Bufalo, John Bufalo and Joe Bufalo, the campaign referred to therein was conducted with a view to blackmailing Primelife and Sent into settling the claims of BC and Tony Bufalo, John Bufalo and Joe Bufalo in this proceeding (as the claim then stood) on terms financially advantageous to BC and Tony Bufalo, John Bufalo and Joe Bufalo and such conduct constituted litigation misconduct and Primelife and Sent rely upon the same.

10 The proposed new plea relies upon the conduct referred to in paragraph 22.3A(b)(ii), but goes further, alleging that the conduct amounted to the crime of blackmail and constituted litigation misconduct. The allegation of blackmail is an allegation of criminal conduct.

11 Primelife and Sent argued that litigation misconduct must be pleaded and relied upon the decision of Gillard J in Li v The Herald & Weekly Times Pty Ltd.[1] In my opinion, that case provides no support for the proposed pleading. It is no doubt true that a party's conduct in the carriage of litigation may be relevant to their belief in the merits of their case. Primelife and Sent wish to characterise the conduct alleged in paragraph 23.3A as a crime for the purpose of demonstrating litigation misconduct. The particulars in Annexure A do not support the allegation. The allegation is vexatious and ought not be permitted.

12 Primelife and Sent have applied for costs of their application for costs in respect of the plaintiff's application to amend its statement of claim. On 28 April 2010, I ordered:

1. The plaintiff pay the costs of the first and fourth defendants of and incidental to the plaintiff's application for leave to amend its statement of claim, which costs are, for the purpose this order:

(a) their costs incurred in the preparation of their written submissions described in sub-paragraph s 16(1) and 16(2) above; together with,

(b) their costs of each of the following days - 29 July 2009; 18 August 2009; and 24 August 2009,

All such costs to be taxed on a party/party basis in default of agreement.

1. The applications by the first, fourth and fifth defendants for their costs are otherwise dismissed without prejudice to any right they might have to costs pursuant to r 63.17(2) of the Supreme Court (General Civil Procedure) Rules 2005.

13 Following a short debate on 28 April 2010, Primelife and Sent filed and served a written submission, dated 24 May 2010, in support of their application for costs of their application for costs. Counsel for the plaintiff briefly responded to the application orally at the conclusion of the hearing of the recent applications for security for costs.

14 On 24 August 2009, I had ordered that the parties file and exchange outlines of argument on costs of the amendment by 28 October 2009. Primelife and Sent relied on written submissions dated 28 October 2009 and 24 November 2009. The plaintiff relied on written submissions filed 20 November 2009. It was my intention, and the parties were content, to have the issue determined on the papers. Primelife and Sent now seek their costs of preparing the written submissions and the costs of the day for 27 November 2009 and for taking judgment on 28 April 2010. The fifth defendant (Darrer) had reached agreement with the plaintiff that each party's costs in relation to the application for costs of the amendment be costs in the cause.

15 An order that the plaintiff pay Primelife and Sent their costs of the day on 27 November 2009 is not justified. Friday 27 November 2009 was a directions day in the Commercial Court. On that day two issues came before the court in this proceeding. One issue was an application by the defendants for their costs in respect of the plaintiff's application to amend its statement of claim; the other was a challenge by the plaintiff to part of the defence of Primelife and Sent. On that occasion the parties reached agreement on a suite of interlocutory orders and directions required to make this proceeding ready for trial in early October, including directions for any application for security for costs and other interlocutory steps in advance of trial.

16 I do not propose making any order that the plaintiff pay Primelife and Sent their costs of attending on 28 April 2010, to receive judgment. On that day further directions were made in preparation for applications for security for costs. There was some debate about the scope of the applications. Other outstanding issues addressed on that occasion included the application for the costs now under consideration, an application by Primelife and Sent to amend their defence and an application by the plaintiff to strike out part of their defence. Resolution of the application for was deferred to be dealt with at the same time as the plaintiff's application to strike out paragraph 22.3A of the defence of Primelife and Sent, the application by Primelife and Sent to amend by including the "litigation misconduct" allegation, and a complaint by Primelife and Sent about the plaintiff's particulars of claim for exemplary damages. There is no justification to award Primelife and Sent their costs of attending court on 28 April 2010 as costs incurred in relation to this application.

17 As far as their written submissions are concerned, Primelife and Sent are entitled to their costs of preparing written submissions in support of their application for costs. They were substantially successful in their application which was resisted by the plaintiff. Having regard to the insignificant amount of time taken by this application on 26 May 2010 I do not propose making any further order for costs of this application by Primelife and Sent for an order for costs of their application for an order for costs of the plaintiff's application to amend its statement of claim.

18 I will order that Primelife and Sent pay the plaintiff's costs of and incidental to its application to strike out paragraph 22.3A(b)(ii) of their defence and of their application to amend, such costs to include one third of the plaintiff's costs of the day on 26 May 2010.

I certify that this and the 5 preceding pages are a true copy of the reasons for Judgment of Judd J of the Supreme Court of Victoria delivered on 21 June 2010.

[1] [2007] VSC 109.