Liberty Grove (Concord) Pty Ltd v Mirvac Projects Pty Ltd

50173/05 Liberty Grove (Concord) Pty Ltd v Mirvac Projects Pty Ltd JUDGMENT The notice of motion 1 There is before the court a notice of motion filed by the defendant on 31 January 2008, being one working day prior to the fixture for the commencement of the hearing, seeking security for costs [the issue of security not having been raised with the plaintiff until six working days prior to the scheduled commencement of the hearing]. 2 It is plain that the principled exercise of the Court's discretion is to dismiss the notice of motion with costs. The reasons follow. The proceedings 3 The proceedings before the Court concern the proper construction of a profit-sharing agreement between two property development entities who joined forces for the purpose of the development of a 7.04 hectare waterfront site known as 'the Dulux site, Cabarita'. 4 The subject letter agreement was signed on 14 April 2000. 5 There is no doubt but that the proceedings are substantial. They involve many complex issues of construction. There are a number of parameters relevant to that construction, many of those concerning close questions of accounting concepts and practices. One only of those issues concerns whether or not the concept of an 'internal rate of return' and the application of the formula to derive this rate, are properly described as 'accounting practices', a phrase included in the agreement having read: in this letter the internal rate of return is calculated by Mirvac in accordance with Mirvac's normal accounting practices. Another of the issues concerns an alleged variation of the agreement. 6 A number of witnesses are to be called including experts on matters of accounting and similar. Delay in the making of the application 7 The comprehensive treatment of the appropriate principles which fall to be considered in relation to applications for security for costs to be found in Idoport v National Australia Bank [2001] NSWSC 744 ('Idoport') (at [69] and following) is accepted as correct for present purposes. One of the first and most important such principles concerns the need for an application for security for costs to be made promptly: Foss Export Agency Pty Ltd v Trotman (1949) 67 WN (NSW) 1; Buckley v Bennell Design & Construction Pty Ltd (1974) 1 ACLR 301 at 308; Southern Cross Exploration NL v Fire and All Risks Insurance Co Ltd (1985) 1 NSWLR 114 at 123. The authorities have recognised that it would often be patently unjust to permit a defendant who stood by and allow a plaintiff to work on their case to ask for security after expenses had been incurred: Smail v Burton; Re Insurance Associates Pty Ltd (in liq) (1975) 1 ACLR 74 at 75. Indeed the longer the delay, the proximity of the hearing and the more acts done during the interval, the greater the significance of the delay and the more difficult it will be to persuade the Court that an order for security will not, in the circumstances, be unfair or oppressive: see French J in Bryan E Fencott & Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 at 514. 8 As also observed in Idoport, there is another side to this equation. The fact that there has been delay does not render the application fatal on its own. The passage of time is merely one factor to be taken into account during the balancing exercise undertaken by the Court: Commonwealth of Australia and Another v Cable Water Skiing (Australia) Ltd (1994) 14 ACSR 760 at 762. The relevant context 9 On 16 November 2005 the solicitors on the record for the plaintiff issued a creditor's statutory demand for payment of debt upon the defendant in the sum of $2,168,837. 10 On 9 December 2005 the defendant's solicitors wrote to the plaintiff's solicitors foreshadowing that the defendant would pay to the plaintiff the above described sum after Christmas but adding that the defendant would vigorously defend its position and observing that the plaintiff should ensure that those funds were retained as it was possible that some or all of those moneys would have to be refunded to the defendant if the plaintiff prosecuted and the Court found that the appropriate methodology resulted in a profit share due to the plaintiff that was less than this amount. 11 On 15 December 2005 the plaintiff's solicitors wrote to the defendant's solicitors in response to the letter of 9 December 2005, observing that the plaintiff was surprised that the defendant required until 13 January 2006 to pay the sum and added:

"[Y]our client should ensure that these funds are retained, as it is possible that some or all of these monies will have to be refunded to [the defendant] if [the plaintiff] proceeds with the Supreme Court proceedings and the Court finds that the appropriate methodology results in a profit share due to [the plaintiff] less than this amount." 13 There was evidence adduced on the application that Mr Dalzell, a solicitor with the defendant's firm of solicitors, having reviewed the defendant's files of correspondence and file notes of other communications between the parties, could confirm that the plaintiff had never responded to the 12 January 2006 letter. Mr Dalzell deposed that as a consequence of the above-described matters, he formed the belief that the plaintiff had retained the money paid to it on 12 January 2006 and that such funds would be available to satisfy any order for costs made in the defendant's favour in these proceedings. Two years pass 14 It was almost exactly 2 years later when the defendant's solicitors wrote to the plaintiff's solicitors seeking written confirmation that the plaintiff had retained the moneys which had been paid to it in January 2006 or that the plaintiff otherwise had sufficient funds to meet the defendant's legal costs. 15 The plaintiff's solicitors response was that the funds paid to the plaintiff had been disbursed by it 'in the ordinary course of its business'. The plaintiff's solicitors also contended that the background to the defendant's request that the plaintiff retain the sum of money had been set out in the defendant's cross-claim in the proceedings which had since been abandoned. 16 The application for security was pursued in what I understood to be an agreed forensic position, namely that as at 31 January 2008, the plaintiff had not confirmed that it had sufficient funds to meet the defendant's costs of the proceedings in a situation in which just such a confirmation had been sought by the defendant's solicitors on 30 January 2008. The costs estimate 17 The defendant's evidence before the Court was that the amount of the defendant's past professional costs and disbursements invoiced to it up to 31 January 2008 was $687,200. In addition, Mr Dalzell estimated the defendant's professional costs and disbursements from 30 January 2008 until the conclusion of the hearing would be an additional $185,000. 18 In the result his evidence was that on a party/party assessment at, say 65%, the plaintiff, if unsuccessful at trial, would be liable to pay to the defendant approximately $446,680 for the defendant's past costs and approximately $120,400 for the costs of the preparation for and the hearing of the trial. Dealing with the application 19 Major litigation brings with it an assumption that matters as significant as questions of security for costs and/or requirements by one party or another that particular approaches be taken with funds paid across, be dealt with carefully and precisely and that there be no doubt but that where undertakings are required, that they are either given or that the party seeking the undertakings pursue them through the curial process. The present circumstances throw up a uniquely important matter which was not dealt with by the defendant's solicitors in accordance with these dictates. 20 For one thing it seems clear that the moneys which were paid across were paid across for the purpose of avoiding the otherwise need to deal with the statutory demand. It seems quite astounding that the defendant's solicitors would not have proceeded to pursue their apparent requests by further correspondence or by a court application in the absence of their having had very real doubts as to their entitlement to compel any such thing. 21 As noted above, Mr Dalzell had deposed that as a consequence of the above described matters he formed the belief that the plaintiff had retained the moneys paid to it on 12 January 2006 and that those funds would be available to satisfy any order for costs made in the defendant's favour in the proceedings. Any such belief cannot in the above circumstances enure to assist the defendant's current application for the simple reason that the matter was left sufficiently inchoate as not in any way to bind the plaintiff's side of the record. The words 'your client should ensure' are not to be fairly construed as equivalent to requiring an undertaking. Conclusion 22 The notice of motion was misconceived in the circumstances. The orders of the Court are:

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Judgment (14 paragraphs)

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