Headway Group Pty Ltd v Spyre Projects Pty Ltd [2017] FCA 288 | Case summary

GREENWOOD J: 1 These proceedings are concerned with an interlocutory application filed on 2 March 2017 by which the applicant in the proceeding seeks an order that the orders made by the Court on 28 February 2017 dismissing the proceedings for non-compliance with an order of Moshinsky J made on 29 July 2016, be set aside. The order on 28 February 2017 arose out of non-compliance with an order which required the applicant to provide security for the respondents' costs of and incidental to defending the proceeding in the sum of $140,000, by payment into Court, or by an irrevocable bank guarantee issued by an Australian bank for that amount. 2 The order required that the sum to be paid by way of security be paid by 18 December 2016. Not long after the making of the order, the solicitors for the respondents began a course of writing a number of letters in which the respondents brought to the attention of the applicant, the circumstance that should the order not be met and satisfied, then an application would be made to dismiss the proceeding for failure to comply with that order. Although the order, of course, was made on 29 July 2016, it contemplated that the sum would be provided by 18 December 2016. As events transpired, the order was not satisfied and no security was provided by 18 December 2016. 3 On 16 December 2016, the solicitors acting for the applicant wrote to the solicitors for the respondents, first of all, enclosing a notice that they were now acting, as the applicant's former solicitors had ceased to act. In that letter of 16 December 2016, the applicant proposed that the order of Moshinsky J of 29 July 2016 ought to be varied largely, if not entirely, on the footing that what was contemplated by the applicant was that the originating application would be amended to abandon paras 1 to 4, 6 and 7 of the application, and that the statement of claim would also be amended, thus reducing the scope of the controversy very significantly. 4 In the statement of claim, as originally framed, the plaintiff asserted causes of action which were based upon events in relation to the development of a project called the Duncan Street Project in West End at 17-21 Duncan Street, and another project called the Oxlade Drive Project in New Farm at 55 Oxlade Drive. It also involved claims based on allegations of unconscionable conduct in contravention of the Australian Consumer Law ("ACL"). It asserted claims in relation to accessorial liability in relation to those contended contraventions. It contained a claim for misleading and deceptive conduct in contravention of the ACL. And also an accessorial liability claim in respect of those contraventions. It also asserted a restitutionary claim as well. 5 In the proposed re-formulation, all of those matters I just mentioned, but for the contract claim in relation to Duncan Street, are abandoned, and some aspects of that contract case are abandoned as well. The essential matter raised by the amended pleading is that there was a contract entered into between the applicant and the first respondent on or about 5 September 2014 and that cl 4 of the contract provides for certain payments, but most relevantly, provides for the payment of a commission, based upon this language: The Contractor will receive a bonus delivery of 10% of net bottom line profits after all project expenses for the delivery of 17-21 Duncan Street West End. 6 In that claim, there is a formulation at para 7A of the proposed amended statement of claim that the applicant was entitled, upon entry into the contract, to receive a bonus delivery of 10% in the way in which I have just described it, or alternatively, that the applicant was entitled to receive a bonus delivery adjusted pro rata commensurate with the amount of work performed in accordance with the applicant's obligations under the contract. That claim looks like something in the nature of a quantum meruit claim, but it probably is intended to be a construction question, subject to the alternative adjustment, having regard to the proportionate contributions made by the applicant. 7 The pleading goes on to assert various other factual matters, although the pleading does not, essentially at least, or perhaps properly claim the formulation of a breach which would give rise to a claim for damages based upon a formulation adopted in para 7A of the pleading. In any event, all of this is to the point that the proposed proceedings, which are the subject of the stay, and the subject of the security for costs order, would be significantly amended to reduce the scope of the proceeding. There was, ultimately, a response to the correspondence from the solicitor for the applicant, on the footing that the respondents were not prepared to accommodate those considerations. 8 And not surprisingly, in some respects, the respondents asserted their right to secure compliance with the order of Moshinsky J and in the absence of compliance with the security for costs order an application would be made to dismiss the proceeding. In due course, that application was ultimately made and an order was made on 28 February 2017 dismissing the proceeding. 9 There was one aspect of that matter which was unfortunate and that concerned the circumstance that on the day, the solicitor for the applicant, Mr Andrew Evans, did not appear before the Court. The Court adjourned on that occasion for 15 minutes or so to check to see whether Mr Evans might have been delayed by reason of the security scanning devices in the foyer. 10 Having checked that matter, it became apparent that there was no issue of Mr Evans being held up and thus, the Court proceeded to deal with the matter after about 15 minutes or so. In the end result, the proceeding was dismissed, having regard to the chronology of events and non-compliance with the order, taking into account five factors identified by Einstein J in a case called Idoport Pty Ltd v National Australia Ltd [2002] NSWSC 18 at [24]. In particular, each of those five factors was present and, of course, the position was that not one dollar of the security for costs had been paid. 11 The application to dismiss the proceeding was the subject of a response by the solicitor for the applicant, Mr Evans, on the footing that what was really required here was an order that the pleadings be amended to reflect the matters identified in the 16 December 2016 letter. 12 The solicitor for the applicant has put on affidavit material in support of the application to set aside the order dismissing the proceeding by way of explanation of his failure to appear on the day, and I accept the matters to which Mr Evans has deposed as a satisfactory explanation for his failure to appear on the day. 13 There is no need to recite the content of those circumstances. It is simply enough to say that I accept that an unfortunate set of events emerged, which caused Mr Evans not to be present on the day. That, however, is not the end of the matter. It provides an explanation as to why the Court might exercise a discretion to set aside the dismissal of the proceedings. 14 It seems to me that the appropriate course, in the face of the making of the order by Moshinsky J and non-compliance with it, against the background of the contended proposal to abandon much of the statement of claim, was a course in which the applicant ought to have made an application to vary the amount of the security on the footing that the appropriate amount of security to be provided in the relevant circumstances would be a certain amount. 15 I have no idea what that amount might be. It could be $30,000 or it could be something less or something more. What is clear is that there is a controversy between the parties in relation to a contract claim in relation to Duncan Street. I say that it is clear, recognising, of course, that no defence has been put on, but I proceed on the footing that all of the matters which the applicant would wish to agitate in a trial of the action are matters which would be in issue. It is not clear to me whether that would be a one day proceeding or a two day proceeding, but nevertheless, there would necessarily be a trial of the contention that there is a contract which adopts a formulation which would give rise to an award of damages, having regard to the way in which that clause ought to be construed contextually in all the circumstances. 16 As to that matter, or in the light of that consideration, it is relevant to note that the High Court, of course, has made perfectly plain yet again, the approach to the construction question of terms and contracts, and the High Court did so in a case called Electricity Generation Corporation v Woodside Energy Ltd, which, for present purposes, is to be found at 306 ALR 25, and at [35], French CJ, Hayne, Crennan and Kiefel JJ identified what the Court means by an objective construction approach: Both Verve and the Sellers recognised that this court has reaffirmed the objective to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding "of the genesis of the transaction, the background, the context [and] the market in which the parties are operating". As Arden LJ observed in Re Golden Key Ltd (in rec), unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption "that the parties … intended to produce a commercial result". A commercial contract is to be construed so as to avoid it "making commercial nonsense or working commercial inconvenience". 17 The reason I mention that matter, of course, is that it frames the way in which the Court would go about construing cl 4 of the contract which contains the commission structure clause and it would no doubt engage each of those features identified by the High Court, leading to the evidential framework within which the construction question would be determined. 18 That matter goes to the question of what would be the likely costs to which the respondents ought to be secured by the applicant and, as I mentioned, I have no clear understanding of what that would be. An application to vary the security for costs would take into account the question of whether leave would be given to amend the originating application and amend the statement of claim to reflect that structure to the case, and no doubt any question of leave to amend would be conditioned upon the provision of the security. One aspect of the costs matter is, of course, that there is an application today to set aside the order made on 28 February 2017, and there was of course an application to dismiss the proceeding which led to that order. 19 The respondents have incurred costs in relation to today and in relation to the earlier application. I have before me an affidavit from Mr Daniel Davey, who is a principal of the firm Tucker & Cowen Solicitors, in which Mr Davey makes an attempt to provide an estimate of the likely costs of today, and they are assessed at approximately $12,400. Applying a discount factor to reflect what might be recoverable as party and party costs, the costs are said to be approximately $8,000. I am told that having regard to the steps taken in relation to the earlier application, the costs of the earlier application would be no less than the costs of today. Those costs are not insignificant in any event. 20 I presently see no reason why the respondents should be out of pocket at all in relation to today's application or the previous application in the face of the non-compliance with the security for costs order. 21 Another feature of the matter is that if the order of 28 February 2017 was to be set aside on the footing that an application to vary the security would come forward, there would necessarily be costs incurred by the respondents in dealing with that matter and I presently see no basis upon which the respondents should be out of pocket in relation to those costs. Thus, they would need to be secured in respect of those costs. 22 The respondents would, therefore, need protection in relation to the costs of today, the last occasion and the future costs. That brings me to the affidavit of Mr Evans which has been handed to the Court today. It bears the date 27 February 2017, which I mention for record purposes only, but in fact it ought to bear the date 14 March 2017. 23 In relation to that affidavit, there are some matters deposed to by Mr Evans as a result of his conversation with a man called Mr John Paras, who is the director of the applicant. Mr Evans says that he is informed, and no doubt he believes, that certain things would occur as informed by Mr Paras. Now, para 17 of the affidavit sets out circumstances in relation to the sale of a property at 295 K Road, Werribee South, which is a property owned by HGZ Saretap Pty Ltd as trustee for the Pateras Family Trust of which Ms Zoi Paras is a beneficiary. 24 What is said is that Mr Paras has told Mr Evans that he, Mr Paras, and his wife, Ms Zoi Paras, will be in a position to lend the applicant funds that will be made available to provide security for the respondents' costs should security be reduced in accordance with the lesser scope of the litigation. That paragraph then goes on to set out various aspects of the sale, the value or the price, and Ms Paras's interest and the likelihood that she will receive certain funds, although it is not entirely clear when those funds would be likely to be available. The ultimate point is that Ms Paras says that she is prepared to provide the applicant a loan of up to $30,000, to be applied as security for costs, and those funds would be available in the context of the events deposed to in relation to the realisation and settlement of the property and the distribution of monies through the trustee after no doubt the trustee has realised its own indemnity for costs in performing the trust so as to realise the property. 25 The second aspect of the cost matter involves the notion that Mr Evans has spoken to a man called Mr Doug Hayter of Ironbark Funding, and there is a suggestion that Ironbark Funding might provide litigation funding in relation to these proceedings. That seems to me to be a little bit remote because although an application has been put before Ironbark Funding, the funder needs to see the scope of the defence, no doubt, with a view to identifying the issues that are alive, and then, no doubt, taking legal advice and forming a view about the prospects of success and then determining whether or not funding would be made available. 26 Having regard to all of these matters, I am satisfied that, on the facts deposed to by Mr Evans, there is a satisfactory explanation for the failure to appear leading to the dismissal of the proceedings. However, I am not satisfied that, on the face of the present material, there is any real basis for believing that even on the constrained basis for the proceedings an amount of money will be available which will be sufficient to provide security to the respondents for the costs incurred on the dismissal application, the costs incurred today, the future costs of any proposed application to vary the security or, ultimately, the costs of the proceeding. 27 Knowing how way leads on to way, as Mr Robert Frost once said, I can well imagine that this will be a two day proceeding and, even if it is a one day proceeding, having regard to the preparation of evidence which would be likely having regard to the Woodside formulation of the objective approach to contract construction, I would be very sceptical that the costs that the respondents would be likely to incur would be limited to $30,000 and, of course, Ms Paras says that that is the limit of her willingness to contribute to the protection of the respondents in respect of the proceeding. It, thus, leads me to the conclusion that whilst I am satisfied that the events relating to Mr Evans's failure to appear are explained, I am not satisfied that the order ought to be disturbed and, thus, the proceeding ought to remain dismissed. The interlocutory application is dismissed with costs. I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Greenwood.

Headway Group Pty Ltd v Spyre Projects Pty Ltd

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Judgment (2 paragraphs)

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Cases Cited (2)