Hera Project Pty Ltd v Woolworths Ltd

Time for compliance with the security orders 62 Mr Warren submits that I should not shut the applicant out of its ability to continue with this proceeding in circumstances where it plainly cannot presently comply with the security orders and further time should be granted to enable it to pursue the option of making a request for litigation funding or of obtaining funding pursuant to the agreement relating to the sale of the Sandhurst property. Mr Warren accepts that the history of this proceeding demonstrates that the applicant has been dilatory in complying with case management orders and there was a long lead up time between May and September 2024 for the applicant to take steps to provide the security. He submits that it did so by entering into the Sandhurst property contract in the expectation that sufficient funds would be received by Nickolaos. Regrettably, that expectation has not been fulfilled. Mr Warren accepts that the inevitable consequence of extending the time for the provision of the security is that the trial date will be lost. 63 Still, Mr Warren placed considerable emphasis on the late delivery of witness statements, some from experts, by the respondent. The order of 27 May 2024 required the respondent to file and serve witness statements and expert reports from any person intended to be called as a witness by 4 pm on 15 August 2024. Some witness statements were provided on 20 August and others as late as 7 November 2024. The consequential effect is that the applicant could not comply with a further order to file and serve any witness statements and expert reports in reply by 16 September 2024. This impacted on the applicant's ability to provide all relevant material to Maxima for submission to an independent solicitor to prepare an opinion on the prospects of success that would in turn be provided to a litigation funder. The respondent must accept some responsibility for the applicant's inability to comply with the security orders. 64 Mr Warren also submits that there has been a material change of circumstance. The death of Nickolaos has impacted the Sandhurst property contract and the intention to concurrently pursue the option of litigation funding. 65 The death of Nickolaos has also hampered the ability of Angellique to "get to the bottom" of why the anticipated funding has not been received from the Sandhurst property contract. There may be some variation that was agreed to by Nickolaos which must be investigated. It is not unreasonable in the circumstances to grant further time to Angellique to interrogate the Sandhurst property issue and, if it is resolved favourably, to provide the security. It should not be concluded that the applicant has been "sitting there contumaciously on its hands". The applicant has made a very substantial investment in the conduct of the proceeding thus far and the likelihood is that its efforts will be wasted if the security orders are not varied. The fact that the applicant is impecunious relevantly counts against it, but conversely if the proceeding ends now the respondent is unlikely to recover its costs whereas if further time is granted, and funding is secured from a litigation funder or funds are recovered from the Sandhurst property contract, the respondent will be in a better position. 66 Mr Robins opposes any variation to the security orders. It is accepted that there was some delay in the provision of some of the respondent's evidence, but there was no suggestion at the time that this caused the applicant difficulty in its approaches to a litigation funder. Indeed, the correspondence from Mr Blythman of 1 October 2024 when referring to "alternative arrangements" made no mention of an approach to a litigation funder and did not contend that any such approach had been hampered by reason of the late delivery of material from the respondent. The proposal at that stage was to secure funding from the Sandhurst property contract. 67 His submission continues to the effect that no adequate evidence has been adduced by Angellique as to the arrangements with Childcare, on the face of it there is no certainty as to if and when any money will be received pursuant to it. Further, the applicant has received an extraordinary range of indulgences in the course of the litigation, no satisfactory explanation has been provided as to why urgent steps could not have been taken during the 40-day mourning following the death of Nickolaos, the respondent continued to incur costs in good faith and based on the written assurances from Mr Blythman of 6 August, 1, 25 and 31 October 2024. There is no prospect of recovering those costs from the admittedly insolvent applicant. Mr Blythman is criticised for not having provided any affidavit by way of explanation, the applicant has failed to obtain leave to deliver an expert report from its forensic accountant out of time (despite having been on notice of that for many months) and put at its highest the applicant's current proposals to fund the litigation are a series of "if", "maybe", "possibly" and "somewhere over the rainbow" events about which there can be no confidence as to the likely outcome. 68 Mr Robins also makes the submission, consistent with the overarching purpose, that the requested variations of the security orders are inconsistent with the resolution of this proceeding quickly, inexpensively and efficiently. The inevitable consequence of any variation to the timetable for the provision of the security will result in the loss of the trial with the consequent impact on the efficient use of the judicial and administrative resources available to the Court, the efficient disposal of the Court's overall caseload and the distinct prejudice that will be suffered by the respondent if the matter is adjourned where there is no prospect of recovering the costs that will be wasted. 69 In my view, there is no satisfactory basis to vary the security orders. 70 When pressed by me as to the additional period requested by the applicant to provide the security, Mr Warren submitted that three months to 15 February 2025 is required so that all matters may be investigated. That is an extraordinary request having regard to the history that I have set out. The applicant was afforded a very generous period between 27 May and 30 September 2024 to provide security for costs in the amount of $550,000. The final date for the provision of the security was not "plucked out of the air". On 27 May 2024, the date for the provision of the security was proposed by Mr Clarke who informed me that he was instructed that it would be provided by Nickolaos from an alternative development project "which is expected to come to fruition and provide the release of funds" within that timeframe. Of course, Mr Clarke was speaking to the provision of security in a lesser sum and in two tranches, but the applicant lost the argument on that day and no application was made to further adjust the timeframe for provision of the security at that time. A subsequent attempt was abandoned. 71 The applicant was aware from the outset of this proceeding that the respondent would seek security for costs. On 28 October 2021, Rofe J made an initial order for security in the sum of $50,000 to the date of the mediation. When I increased the security by adding $150,000 pursuant to my orders dated 19 December 2022, I allowed a generous period to 30 April 2023 for the applicant to comply. It did not. That led to an application by the respondent to dismiss the proceeding. A self-executing order was made on 25 May 2023 requiring compliance by 23 June 2023. The applicant complied. 72 Despite the death of Nickolaos on 27 August 2024, which I accept did have some impact on the applicant's ability to put in place and complete effective steps to ensure that the security orders were complied with by 30 September 2024, this does not explain why steps were not taken with great urgency by Nickolaos after 27 May 2024. At best, he caused an arrangement to be entered into as late as 20 August 2024 which contemplated a payment of $115,000 within 10 business days of the settlement of the Sandhurst property and $550,000 by way of a bank guarantee or other acceptable form of security by no later than 30 September 2024. In other words, he acted at a very late stage and on the assumption that all would go according to plan for the settlement of a property purchase. It did not for reasons unrelated to his death, which have now been sketched in outline in the affidavit evidence of Angellique. 73 Despite the written terms of the contract, there now appear to be other conditional arrangements which remain unsatisfied and operate as conditions precedent to the obligations of Childcare. The evidence about these arrangements is vague and unsatisfactory. What cannot be gainsaid is that despite completion of the sale in late October 2024, Childcare has not paid an amount of $150,000 within 10 business days thereafter nor provided the required bank guarantee for $550,000, albeit later than anticipated in the agreement. And there is no evidence that the "balance of the funds" (whatever they may amount to) have been agreed pursuant to a payment schedule. 74 Mr Blythman must have been acutely aware that, as the 30 September 2024 deadline approached, the applicant was at risk of being, yet again, in default of orders made by this Court and in the express knowledge that the respondent then had liberty to apply for the proceeding to be dismissed. Despite this, when he corresponded on 1 October 2024, knowing that the proceeding was then stayed, he provided an assurance that notwithstanding the complication caused by the death of Nickolaos on finalisation of the Sandhurst property contract, "alternative arrangements" were then being pursued which he anticipated would be resolved within a week and in consequence sought an indulgence "in respect of the short delay that is envisaged". It is inconceivable that Mr Blythman sent this correspondence without instructions. I infer those instructions must have come from Angellique, which is consistent with his wrong statement in that letter that she "has been" appointed as the director of the applicant. 75 Moreover, in response to the respondent's solicitors' letter of 19 October 2024, Mr Blythman, on 25 October 2024, on instructions (again which I infer that must have been provided by Angellique) stated that Childcare "is arranging" the provision of the security by way of a bank guarantee which was expected to occur "early next week". He has not adduced evidence of the basis for this statement and what emerges from the evidence of Angellique is that she has no direct knowledge of it. No satisfactory explanation has been provided as to why Childcare has not complied with the written terms of the agreement of 20 August 2024. 76 In these circumstances, I cannot be satisfied that there is any real prospect that security will be provided via this mechanism if the timeframe for doing so is adjusted. 77 No application was made in a timely way to appraise the Court of the difficulties faced by the applicant. Acting consistently with the overarching purpose, the applicant should at least have sought an urgent further case management hearing once it became apparent that the deadline for the provision of the security would not be met. The failure to do so until the difficulties were first agitated at the case management hearing on 8 November 2024, initiated by the respondent, is evidence of disregard for the importance of complying with the overarching purpose. And more so in this case where there has been such an extensive history of non-compliance by the applicant with numerous case management orders. 78 Section 56(3) of the FCA Act permits the Court to, inter alia, vary the time at which security is to be given. In Truth About Motorways Pty Ltd v Macquarie Infrastructure Investment Management Ltd [2001] FCA 1603, Hely J at [11] in part observed: [T] he ordinary practice is that an application to set aside, vary or discharge an order of a substantive nature made after a contested hearing in contemplation that it would operate until a final disposition of the proceedings, must be founded on a material change of circumstances since the original application was heard, or the discovery of new material which could not reasonably have been put before the Court on the hearing of the original application. 79 Whilst I have accepted that the death of Nickolaos is a material change in circumstances, that does not answer why he did not apply himself diligently to the task of putting in place appropriate arrangements to meet the security orders until the agreement of 20 August 2024. It does not explain why an application was not made, whilst he was alive, to vary the timetable for the provision of the security in the expectation that the Sandhurst property contract would, eventually, produce the necessary funds. It does not explain why he did not instruct his solicitors to bring to the attention of the Court at an early stage that the applicant might not be able to comply with the deadline of 30 September 2024. It does not explain why the option of pursuing litigation funding, as an alternative or concurrently with the Sandhurst property contract was not put in place at a much earlier point in time. There is no satisfactory explanation of why the applicant, having made "serious attempts" to obtain litigation funding at some time prior 27 May 2024, but by that date having abandoned that as an option in favour of the Sandhurst property contract, then determined after the deadline had passed to pursue the option again. 80 There are very unsatisfactory aspects of the litigation funding option. The Maxima correspondence is premised on further delay, an extension of the deadline for the provision of security and an adjournment of the trial. It fails to take account of the desultory conduct of the applicant and, frankly, is so qualified as to what might occur that one can have no confidence that there is any real prospect that litigation funding might be secured. This option is permeated with multiple cascading uncertainty. If all requested material is provided to Maxima, an independent solicitor will be briefed for an opinion. The solicitor may require more information. The opinion may be favourable or unfavourable. It may be qualified. It may cast the prospects of success at a level that does not attract the interest of a litigation funder. The prospects may affect the premium that a funder requires. The applicant has not attempted to explain how it could possibly fund a premium. It cannot pay the costs as ordered of $99,500. There is no attempt to explain how the funder may have priority ahead of the mortgagee controller over any proceeds of success. 81 What in this case is clear is that the applicant has had the benefit of a very generous period within which to put its house in order and to provide the security. I do not accept that the late provision of witness statements and expert reports by the respondent materially contributed to the predicament in which the applicant now finds itself. Plainly, there was no impact on the Sandhurst property contract option. There is no explanation as to why at least preliminary steps could not have been taken to provide all information that was to hand about the applicant's prospects of success to a litigation funder or an intermediary on the basis that as further information was gathered, updates would be provided. It is to be noted that no contemporaneous complaint was made by Mr Blythman to the effect now contended when the respondent first delivered witness statements and reports beyond the timetabling orders. I do not accept the submissions of Mr Warren to the contrary. What is missing from the applicant's evidence is a detailed explanation of how it has been proceeding with alacrity to put in place the necessary arrangements to provide security and how in fact any non-compliance with the timetabling orders by the respondent, derailed it from its ability to pursue the alternative option of litigation funding. 82 I am satisfied that the respondent has suffered prejudice by reason of the failure to provide the security as ordered. True it is, that the proceeding was stayed from 1 October 2024, but in fact due to the assurances given by Mr Blythman in his correspondence of 1, 25 and 31 October 2024, the respondent continued in the preparation of its case and in the expectation that the security would ultimately be provided. It is also objectively the case that when the time for the provision of security was determined on 27 May 2024, the respondent must have reasonably believed that it could incur significant costs of preparing for the trial up to and including the first day based on the assurance then given by Mr Clarke (in accordance with his instructions) that security would be provided by 30 September 2024. Although the applicant subsequently applied to vary the order, it abandoned the attempt when it was called on for hearing. 83 Next there is the submission that if the order is not varied, it will stultify the litigation. It is a serious matter to make an interlocutory order which has the ultimate effect of preventing an applicant which has a genuinely arguable claim (the respondent has never contended that the proceeding should be dismissed as having no reasonable prospect of success) from pursuing its claims in court, perhaps more so where the quantum claimed is large. Acceptance of that proposition does not excuse the applicant from the need to place before this Court all evidence that is relevant to its stultification submission. Although the issue in Bell Wholesale related to the discretion to order security, what the Full Court said at 4 is equally applicable to an application to vary a security order: In our opinion a court is not justified in declining to order security on the ground that to do so will frustrate the litigation unless a company in the position of the appellant here establishes that those who stand behind it and who will benefit from the litigation if it is successful (whether they be shareholders or creditors or, as in this case, beneficiaries under a trust) are also without means. It is not for the party seeking security to raise the matter; it is an essential part of the case of a company seeking to resist an order for security on the ground that the granting of security will frustrate the litigation to raise the issue of the impecuniosity of those whom the litigation will benefit and to prove the necessary facts. 84 Put at its highest, there is a generalised conclusion in the evidence that, because the applicant is impecunious, if a further indulgence is withheld that will be the end of the proceeding because Angellique and her husband, who may stand to benefit from success, are not able to provide personal funding. That bald contention is unsupported by any specific evidence. There is no mention of the position of the mortgagee, whether it continues to hold security over the applicant's assets or whether any approach for funding has been made to it. 85 In any event, what is clear is that the applicant is insolvent, remains subject to external administration with a substantial accruing debt to its mortgagee, has failed to pay interlocutory costs orders and may now be the subject of a winding up application at the suit of the respondent. 86 Overall, whilst the applicant before the death of Nickolaos took some steps to put in place an arrangement (the Sandhurst property contract) that might have resulted in sufficient funds to comply with the security orders before 30 September 2024, the fact is that too little was done too late in the day. And the arrangement itself was never certain in the intended outcome either as documented (it required approval of the plan of subdivision and settlement of the contract of sale) or, in accordance with the evidence of Angellique, because there are other vague conditions that apparently must be satisfied before Childcare is obliged to make the payment of $115,000 and provide the bank guarantee in satisfaction of the security orders. 87 Balanced against the limited steps taken by the applicant to put in place mechanisms to satisfy the security orders and the inevitable serious prejudice that is likely to flow if an extension of time is not granted, is the identified prejudice to the respondent, prejudice to the administration of justice generally, consistent non-compliance by the applicant with the orders of this Court, the numerous indulgences which have thus far been granted favourably to the applicant, the very significant period of time that was allowed for the provision of security and the belated steps taken by the applicant in a last ditch and somewhat desperate attempt to secure a further extension of time on evidence that was neither fulsome nor satisfactory. 88 Consideration of all these relevant factors weigh heavily against the requested variation to the security orders. The application is refused. Should the proceeding be dismissed? 89 Each of Mr Warren and Mr Robins proceeded on the basis that the facts relevant to the application to vary the security orders are equally relevant to the respondent's dismissal application. 90 Counsel accepted that the discretion to dismiss a proceeding summarily at s 56(4) is one only to be exercised in the clearest of cases. The summary determination of an applicant's claim is a serious matter. Speaking generally of the power to summarily terminate a proceeding, in Spencer v The Commonwealth (2010) 241 CLR 118 at [24]; 210 HCA 28, French CJ and Gummow J emphasised the need to proceed "with great caution". 91 There is a minor matter in the submission of Mr Warren that should be answered. The respondent's application specifies that the proceeding be dismissed pursuant to s 56(4) of the FCA Act and r 19.01(c) of the Rules. Mr Warren submits the rule only permits application for a self-executing order. That is not correct. The rule provides that if an applicant fails to comply with an order to provide security within a specified time (which is this case), the respondent may apply for an order that the proceeding be stayed or dismissed. 92 Justice SC Derrington identified certain principles that guide the exercise of the discretion in Sunshine Energy Australia Pty Ltd v Youssef [2023] FCA 189 at [8] - [9], which I gratefully adopt: There is no doubt the Court has power under s 56(4) of the FCA Act to dismiss these proceedings for failure to provide the security for costs as ordered by the Court: Microbio Resources Inc v Betatene Ltd [1993] FCA 848. It is a broad, discretionary power: Mecrus Pty Ltd v Industrial Energy Pty Ltd [2015] FCA 103; 327 ALR 523 at [18]- [20] per Murphy J. The only limitation is that power must be exercised judicially: Bell Wholesale Co Ltd v Gates Export Corporation [1984] FCA 29; 2 FCR 1 at 3 per Sheppard, Morling and Neaves JJ. In Microbio, their Honours said at 9 - 10: The Court is careful to see that orders for security for costs do not work injustice to parties against whom such orders are made, but if those parties do not comply with the orders and give no evidence or explanation as to why they have not complied with them, they cannot be heard to complain of injustice if, after a considerable length of time, and extensions of time, the ultimate sanction of dismissal is applied. It is incumbent on parties in such circumstances to provide evidence of their position. In Idoport Pty Limited v National Australia Bank Limited [2002] NSWSC 18 (upheld on appeal [2002] NSWCA 271), Einstein J identified five factors relevant to the exercise of the discretion: (1) the period that has elapsed since security was ordered; (2) the fact that the plaintiff has been on notice of the application for dismissal; (3) the seeming inability of the plaintiff to further fund the Main Proceedings; (4) the prejudice to the defendants; (5) the position of the Court. 93 Of course, this list should not be applied as if it operates as a statutory command. Everything depends on the circumstances. Mr Warren also relies on the statement by Lander J in Smart Company Pty Ltd (in liq) v Clipsal Australia Pty Ltd (No 6) [2011] FCA 419 at [563]: Usually, a respondent would have to not only establish the failure to comply with an order or orders but some sort of prejudice occasioned to the respondent by reason of the failure. If for example, a respondent was able to show that the failure meant that any trial could not be fair then ordinarily the respondent would have discharged the onus which the respondent undoubtedly bears on an application of this kind. The respondent might also be able to satisfy the Court that an order should be made if by reason of the applicant's failure to comply with an order or orders of the Court the respondent has been put to very great expense which is irrecoverable. 94 His Honour was then concerned with the power to dismiss a proceeding for non-compliance with orders pursuant to the former O 35A r 2(1) of the Federal Court Rules 1979 (Cth). In the immediately preceding paragraph, his Honour noted that there are no universal rules that determine the exercise of the discretion. Of course, what his Honour said at [563] is covered by the fourth proposition from Idoport, which I turn to. 95 The first matter is against the applicant. It had from 27 May until 30 September 2024 to comply. As soon as it appreciated that it may not have been able to comply then, acting in obedience with the overarching purpose, an immediate application should have been made to my chambers for a case management hearing supported with a detailed affidavit by way of explanation. It had a further period until 15 November 2024 to move with urgency to determine why security had not been provided in accordance with the Sandhurst land contract and then to provide a definitive explanation why this option had not developed in accordance with the expectation of Nickolaos. It failed in each respect. 96 As to the second consideration, whilst technically the applicant was not put on notice of the interlocutory application brought by the respondent to dismiss the preceding until 11 November 2024, it has known since 27 May 2024 that non-compliance would inevitably result in the making of the application absent a satisfactory explanation or a negotiated variation. Assurances were provided by Mr Blythman commencing on 1 October 2024, that arrangements were in place to provide the security which inevitably postponed the respondent's decision to file the application. 97 The third matter counts heavily against the applicant. It is insolvent, is indebted to the respondent for unpaid interlocutory costs, has failed to comply with a statutory demand and has offered no concrete proposal and timeframe to discharge its obligations and to proceed with the litigation by funding it. There are no more than options that may at some time bear some fruit, contingent upon the decisions of third parties and postponement of the trial. Mr Robins is correct to submit that these are speculative "if, but, maybe and perhaps" concepts. The multiplicity of uncertainties in the applicant's proposals provide no adequate basis to grant further indulgence. 98 The fourth matter also falls against the applicant. I have found specific prejudice to the respondent in the costs incurred thus far in the expectation that security would be provided by 30 September 2024 and that further costs have been incurred in reliance on the applicant's assurances thereafter. Based on the evidence of the costs assessor that I accepted when making the security orders, those costs to date must have either exhausted the security amount or be very close to doing so. There is no prospect of recovery, save for an order which permits the respondent to have access to the security of $200,000 that has been provided. The shortfall is very significant. 99 I am also of the view that there is no realistic prospect made out on the evidence that the applicant will be able to prosecute the proceeding to conclusion, which flows from the cumulative consideration of the facts and my analysis. 100 Combined with the applicant's long history of non-compliance with Court orders and the unsatisfactory state of its evidence upon this application, the last-minute desperate attempt to assure the Court that if more time is granted there is a prospect that the security may be provided is unconvincing. The obvious prejudice that will be suffered by the applicant if the proceeding is dismissed is outweighed by each other factor and the recited history. 101 Regrettably, the applicant is responsible for the dire predicament in which it finds itself. This is a clear case which justifies dismissal of the proceeding. Orders 102 For these reasons I order as follows: (1) The applicant's interlocutory application filed 13 November 2024 is dismissed. (2) The proceeding is dismissed pursuant to s 56(4) of the Federal Court of Australia Act 1976 (Cth) and r 19.01(c) of the Federal Court Rules 2011 (Cth). (3) I will hear the parties as to costs and application of the security amounts previously paid by the applicant. I certify that the preceding one hundred and two (102) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice McElwaine.

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